-----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, MhcLltx2PjeG0P+SwBXwQwnBf/FLPfhLDS22Ra4FQUtkg7gQC06dGtjxzI/MpziY dZglOyjRbK4piwfSrPWoAw== 0000912057-99-011010.txt : 19991231 0000912057-99-011010.hdr.sgml : 19991231 ACCESSION NUMBER: 0000912057-99-011010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991003 FILED AS OF DATE: 19991230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TETRA TECH INC CENTRAL INDEX KEY: 0000831641 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 954148514 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19655 FILM NUMBER: 99783841 BUSINESS ADDRESS: STREET 1: 670 N ROSEMEAD BOULEVARD CITY: PASEDENA STATE: CA ZIP: 91107-2190 BUSINESS PHONE: 6263514664 MAIL ADDRESS: STREET 1: 670 N ROSEMEAD BLVD CITY: PASADENA STATE: CA ZIP: 91107 10-K 1 FORM 10K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 3, 1999. / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________. COMMISSION FILE NUMBER 0-19655 TETRA TECH, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-4148514 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 670 N. ROSEMEAD BLVD. PASADENA, CALIFORNIA 91107 (Address of registrant's principal executive offices) (Zip Code) (Registrant's telephone number, including area code:) (626) 351-4664 Securities registered pursuant to Section 12(b) of the Act: (Title of each class) (Name of each exchange on which registered) NONE NONE
Securities registered pursuant to Section 12(g) of the Act: (Title of Class) COMMON STOCK, $.01 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The aggregate market value of the voting stock held by non-affiliates of the registrant on December 10, 1999 was $480,698,570. The number of shares of Common Stock, $.01 par value, outstanding (the only class of common stock of the registrant outstanding) was 38,461,322 on December 10, 1999. Portions of registrant's Annual Report to Stockholders for the fiscal year ended October 3, 1999 are incorporated by reference in Part II of this report. Portions of registrant's Proxy Statement for its 2000 Annual Meeting of Stockholders are incorporated by reference in Part III of this report. 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. / / PART I ITEM 1. BUSINESS. Tetra Tech, Inc. is a leading provider of specialized management consulting and technical services in three principal business areas: resource management, infrastructure and communications. As a specialized management consultant, we assist our clients in defining problems and developing innovative and cost-effective solutions. Our management consulting services are complemented by our technical services. These technical services, which implement solutions, include research and development, applied science, engineering and architectural design, construction management, and operations and maintenance. Our clients include a diverse base of public and private organizations located in the United States and internationally. Since our initial public offering in December 1991, we have increased the size and scope of our business and have expanded our service offerings through a series of strategic acquisitions and internal growth. As of the end of our last fiscal year, we had more than 5,000 employees worldwide, primarily located in North America in more than 150 locations. In addition, we have established a presence in Asia, South America and Europe. From fiscal 1991 through fiscal 1999, we generated a net revenue compounded annual growth rate of approximately 34.9%, and achieved a net income compounded annual growth rate of approximately 37.0%. INDUSTRY OVERVIEW Due to increased competition, changing regulatory environments and rapid technological advancement, many organizations face new and complex challenges. Increasingly, these organizations are turning to professional services firms to assist them with addressing these challenges. Since each industry presents its own unique set of challenges, organizations often seek professional service firms with industry-specific expertise to analyze their problems and develop appropriate solutions. These solutions are then implemented by firms possessing the required engineering and technical service capabilities. Each of the following three business areas faces its own unique set of problems: RESOURCE MANAGEMENT. The world's natural resources, including water, air and soil, are interdependent, creating a delicate balance. Factors such as agricultural and residential development, commercial construction and industrialization often upset this balance. Public concern over environmental issues, especially water quality and availability, has been a driving force behind numerous laws and regulations that are designed to prevent environmental degradation and mandate restorative measures. To comply with environmental laws and regulations, respond to public pressure and attain operating efficiencies, public and private organizations are increasing their focus on resource management. Two areas particularly affected by these trends are water management and waste management. - WATER MANAGEMENT. Insufficient water supplies, concern over the cost, quality and availability of water and the need in many parts of the world to replace aging infrastructure used to capture, safeguard and distribute water are critical social and economic concerns. According to the U.S. Environmental Protection Agency (EPA), contamination of groundwater and surface water resulting from agricultural, residential, commercial and industrial development is one of the most serious environmental problems facing the United States. To alleviate these social and economic concerns, public and private organizations seek water management advice. According to the ENVIRONMENTAL BUSINESS JOURNAL, the size of the consulting, engineering services and wastewater treatment segments of the water management industry totaled more than $31 billion in 1998. - WASTE MANAGEMENT. In the past, many waste disposal practices caused significant environmental damage. Since the 1970s, more stringent controls on municipal and industrial waste have been established by governments around the world to protect the environment. Recently, the Federal government has committed approximately $15 billion to various environmental initiatives in an attempt to curb pollution, accelerate toxic waste cleanups and combat other forms of pollution. Organizations seek waste management advice to comply with complex and evolving environmental regulations, to minimize the economic impact of waste generation and disposal, and to realize significant cost savings through increased operating efficiencies. 2 INFRASTRUCTURE. Continued population and economic growth place significant strain on an overburdened infrastructure, thereby requiring additional development. This development includes water and wastewater treatment plants, roads, pipelines, communication and power networks, and educational, recreational and correctional facilities. Additionally, as existing facilities age, they require upgrading or replacement. Further, the trend toward privatization of infrastructure is causing public and private organizations that develop and maintain these facilities to evaluate their cost structures and establish more efficient systems. These factors drive the need for development and planning services that are often provided by consulting firms. According to the ENGINEERING NEWS-RECORD, the market opportunity in the United States for technical services in infrastructure development including water and wastewater, transportation, hazardous waste, and educational, recreational and correctional facilities, ranges from $15 to $20 billion. COMMUNICATIONS. Technological change and government deregulation have spurred sweeping changes in the communications industry. Local and long-distance telephone companies, cable operators and wireless service providers are penetrating each other's markets and trying to establish a foothold in new markets created by new technologies. For example, traditional cable operators are installing advanced capabilities such as digital cable, cable modem, cable telephony and other high-speed data transmission services at the same time as wireless communications providers are seeking access to the Internet. At the same time, various service providers are consolidating in order to offer their subscribers a comprehensive set of services and to maintain dominance in their markets. As these trends continue, network service providers will increasingly turn to professional service firms for advice and assistance in planning, deploying and maintaining their communications networks. Organizations within each of the above business areas face unique problems but often lack the internal resources and experience necessary to identify issues and evaluate possible solutions. As a result, many of these organizations rely on advice from outside management consultants. Most consulting companies provide limited front-end problem assessment and solution design and require clients to engage other engineering and technical services companies to implement recommended solutions. A significant opportunity exists for consulting companies that not only develop, but also implement, solutions. These professional service firms are often in the best position to help clients respond to the challenges they face. THE TETRA TECH SOLUTION Tetra Tech provides the specialized management consulting services that assist clients in identifying industry-specific problems and defining appropriate solutions. We also provide the technical services required to implement these solutions. We believe that we are a leader in this market and that the following factors distinguish us from our competitors: UNDERSTANDING CLIENT NEEDS. The ability to identify client needs is essential to strategic planning and execution. Even before the proposal process begins, we assist our clients by helping them define their business objectives and strategies and identify issues that are critical to their success. We strive to develop numerous contacts at various levels within our clients' organizations to help us identify the key issues from a variety of perspectives. We believe that our long history and exposure to a broad client base increase our awareness of the issues being confronted by organizations and thereby help us identify and solve our clients' problems. CAPITALIZING ON OUR EXTENSIVE TECHNICAL EXPERIENCE. Since our inception in 1966, we have provided innovative consulting and engineering services, historically focusing on cost-effective solutions to water resource management and environmental problems. We have been successful in leveraging this foundation of scientific and engineering capabilities into other areas, including infrastructure and communications. Our services are provided by a wide range of professionals including: archaeologists, biologists, chemical engineers, chemists, civil engineers, computer scientists, economists, electrical engineers, environmental engineers, environmental scientists, geologists, hydrogeologists, mechanical engineers, oceanographers and toxicologists. Because of the experience that we have gained from thousands of completed projects, we often are able to apply proven solutions to client problems without the time-consuming process of developing new approaches. OFFERING A FULL RANGE OF SERVICES. Our depth of consulting and technical skills allows us to respond to client needs at every phase of a project, including initial planning, research and development, applied science, engineering and architectural design, and construction management. Once a particular project is completed, we are able to offer our clients additional value-added services such as operations and maintenance. Our expertise across 3 industries and our broad service offerings enable us to be a single source provider to our clients. PROVIDING BROAD GEOGRAPHIC COVERAGE AND LOCAL EXPERTISE. We believe that proximity to our clients is instrumental to understanding their needs and delivering comprehensive services. We have significantly broadened our geographic presence in recent years through strategic acquisitions and internal growth. Our historical geographic base was primarily in the western portion of the United States. However, we currently have operations in more than 40 states. We have also increased our international presence, and we now have operations in Canada, Taiwan, the Philippines, Argentina, Chile, Brazil and the Czech Republic. COMPANY STRATEGY Our objective is to become the leading provider of specialized management consulting and technical services in our chosen business areas. To achieve this objective, we plan to continue the following primary strategies that we believe have been integral to our success: IDENTIFY AND EXPAND INTO NEW BUSINESS AREAS. We use our management consulting services and certain of our technical services as an entry point to evaluate and to enter new business areas. After our consulting practice is established in a new business area, we can expand our operations by offering additional technical services. For example, based on our provision of site acquisition services to communications industry participants, we identified infrastructure services within the communications industry as an appropriate area into which we could expand our operations. EXPAND SERVICE OFFERINGS AND GEOGRAPHIC PRESENCE THROUGH ACQUISITIONS. We believe that acquisition opportunities exist that will allow us to continue our growth in selected business areas, broaden our service offerings and extend our geographic presence. We intend to make acquisitions that will enable us to consolidate our position in certain key business areas, such as communications, or further strengthen our position in our more established service offerings. We believe that our reputation and public company status make us an attractive partner and provide us with an advantage in pursuing acquisitions. FOCUS ON GOVERNMENT PROJECTS. We intend to continue marketing to government organizations and bidding for government projects to stay on the leading edge of policy development. This experience helps us identify market opportunities and enhances our ability to serve other public and private clients. Additionally, government contracts provide more predictable revenues than private sector contracts. MANAGE INTERNAL FINANCIAL CONTROLS. We take a disciplined approach to monitoring, managing and improving our return on investment in each of our business areas through the prompt billing and collection of accounts receivables, the negotiation of favorable contract terms and the management of our contract performance to prevent cost overruns. We believe that this approach to managing our financial affairs enables us to improve our cash position and thereby fund acquisitions and internal growth. LEVERAGE EXISTING CLIENT BASE. Some of our clients engage us to provide limited services. We believe that we can increase our revenue by selling additional services to our existing client base. For example, we may be able to secure an operations and maintenance contract after working with a client on the design and construction phases of a facility. In addition, we believe that our ability to offer a full spectrum of services will allow us to grow our business and compete more effectively for larger projects. SERVICES We provide our clients with comprehensive management consulting and technical services that focus on our clients' industry-specific needs. We offer these services individually or as part of our full service approach to problem solving. We are currently performing services under contracts ranging from small site investigations to large, complex infrastructure projects. Our service offerings include: - MANAGEMENT CONSULTING to assist clients in identifying and addressing operational and competitive problems they face within their industries; 4 - RESEARCH AND DEVELOPMENT to formulate solutions to complex problems and develop advanced computer simulation techniques for modeling problems, ranging from microscopic to global; - APPLIED SCIENCE to assess all aspects of problems and develop practical and cost-effective solutions through the application of new technology and data interpretation; - ENGINEERING AND ARCHITECTURAL DESIGN to provide services from concept development and initial planning and design through project completion; - CONTRACT MANAGEMENT to provide experienced and specialized construction managers to assist clients in minimizing the risk of cost overruns, delays and contractual conflicts; and - OPERATIONS AND MAINTENANCE to allow clients to outsource routine functions, permitting them to streamline contractor relationships and reduce operating costs. BUSINESS AREAS We provide our services in the following three principal business areas: resource management, infrastructure and communications. RESOURCE MANAGEMENT One of our major concentrations is water resource management, where we have a leadership position in understanding the interrelationships of water quality and human activities. We support high priority government programs for water quality improvement, environmental restoration, productive reuse of defense facilities and strategic environmental resource planning. We provide comprehensive services, including management consulting, research and development, applied science, engineering and architectural design, construction management, and operations and maintenance. Our service offerings in the resource management business area are focused on the following project areas: SURFACE WATER PROJECTS: Public concern with the quality of rivers, lakes and streams as well as coastal and marine waters and the ensuing legislative and regulatory response is driving demand for our services. Over the past 33 years, we have developed a specialized set of technical skills that positions us to compete effectively for surface water and watershed management projects. We provide water resource services to government clients such as the EPA, the Department of Defense (DOD) and the Department of Energy (DOE), and to a broad base of private sector clients including those in the chemical, pharmaceutical, utility, aerospace and petroleum industries. We also provide surface water services to state and local agencies, particularly in the area of watershed management. GROUNDWATER PROJECTS: Groundwater is the source of drinking water for approximately 50% of the U.S. population and accounts for approximately 25% of all water consumed for residential, industrial and agricultural purposes. Our activities in the groundwater field are diverse and typically include projects such as investigating and identifying sources of chemical contamination, examining the extent of contamination, analyzing the speed and direction of contamination migration, and designing and evaluating remedial alternatives. In addition, we conduct monitoring studies to assess the effectiveness of groundwater treatment and extraction wells. WASTE MANAGEMENT PROJECTS: We currently provide a wide range of engineering and consulting services for hazardous waste contamination and remediation projects, from initial site assessment through design and implementation phases of remedial solutions. In addition, we perform risk assessments to determine the probability of adverse health effects that may result from exposure to toxic substances. We also provide waste minimization and pollution prevention services, and evaluate the effectiveness of innovative technologies and novel solutions to environmental problems. NUCLEAR ENVIRONMENTAL PROJECTS: The DOE's nuclear weapons plants and research laboratories face a wide variety of environmental challenges including groundwater and surface water contamination, hazardous waste 5 management and environmental compliance. Our services include environmental impact analyses and documentation, environmental audits and risk assessments, regulatory compliance support, groundwater characterization, remedial investigation/feasibility studies, and project management and oversight. Our environmental analyses provide the DOE with information it requires in order to make decisions regarding the storage or disposition of surplus materials from dismantled nuclear weapon components. REGULATORY COMPLIANCE PROJECTS: Our regulatory compliance services include advising our clients on the full spectrum of regulatory requirements under the Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act, the National Environmental Policy Act and other environmental laws. Although we provide services to both public and private clients, our current emphasis is on providing regulatory compliance services to the Army, Navy and Air Force. INFRASTRUCTURE In the infrastructure area, we focus on the development of water resource projects, institutional facilities, commercial, recreational and leisure facilities and transportation projects. These facilities are an essential part of everyday life and also sustain economic activity and the quality of life. Our engineers, architects and planners work in partnership with our clients to provide adequate infrastructure development within their financial constraints. We assist clients with infrastructure projects by providing management consulting, engineering and architectural design, construction management, and operations and maintenance. Our service offerings in the infrastructure business area are focused on the following project areas: WATER RESOURCE PROJECTS: Our technical services are applied to all aspects of water quantity and quality management ranging from stormwater management through drainage and flood control projects to major water and wastewater treatment plants. Our experience includes planning, design and construction services for drinking water projects, the design of water treatment facilities and reservoirs, and the design of distribution systems including pipelines and pump stations. Our capabilities are also applied to specialized technical challenges associated with the design and construction of fisheries and hatcheries worldwide. INSTITUTIONAL FACILITIES PROJECTS: We provide architectural engineering and construction services for projects including site planning for land development, complete architectural design, interior design, civil/structural engineering and mechanical/electrical engineering of educational, healthcare and research facilities. We have completed engineering and construction projects for a wide range of clients with specialized needs such as security systems, training and audiovisual facilities, clean rooms, laboratories and emergency preparedness facilities. COMMERCIAL, RECREATIONAL AND LEISURE FACILITIES PROJECTS: We specialize in the planning and design of water-related entertainment and leisure facilities from theme park attractions to large marine aquariums. Our projects also include high-rise office buildings, museums, hotels, parks, visitor centers and marinas. We have designed complex aquatic life support systems and provided structural, civil and mechanical engineering and design of interpretive exhibits for a series of large aquarium projects worldwide. TRANSPORTATION PROJECTS: We provide architectural, engineering and construction services for transportation projects to improve public safety and mobility. Our projects include roadway improvements, commuter railway stations and expansion of airports. We have also completed numerous transportation projects including bridges, major highways, and repair, replacement and upgrading of older transportation facilities. COMMUNICATIONS In the communications area, we focus on the delivery of technical solutions necessary to build and manage communications infrastructure projects. Our capabilities support a wide range of technologies for rapid information transport including broadband and wireless communications. Our communications clients seek management consulting, applied science, engineering and architectural design, and construction management services. Our service offerings in the communications business area are focused on the following project areas: NETWORK FEASIBILITY PROJECTS: We apply our technical services to all aspects of assessing the feasibility of network systems development, expansion and upgrades for our clients. Our experience includes feasibility 6 and remote site selection studies, cost-benefit modeling and market assessments. We also assist network service providers with technical requirements definition, sensitivity/risk analysis and key economic projections. NETWORK PLANNING PROJECT: We specialize in network planning, including short- and long-term network configuration and development planning. We develop outside plant designs, civil engineering and regulatory compliance assessment and support efforts. In addition, our projects have included employment analysis, staffing, logistics, planning, and materials provisioning and management. NETWORK ENGINEERING PROJECTS: We provide a full range of onsite and offsite premises engineering and support services for projects ranging from developing computer aided design workprints to field surveys. Our experience includes digital evaluation and terrain modeling, right-of-way permitting and site acquisition for wireless and broadband networks. In addition, we have performed outside and inside plant design projects for twisted pair, coaxial fiber optic and copper cable networks, and wireless networks. NETWORK DEVELOPMENT PROJECTS: We have performed both inside and outside plant projects for major network service providers in both the broadband and wireless sectors. Our construction projects include urban and long-haul underground cable installation. We have also applied our capabilities to wireless cell site construction and aerial cable placement. The following table presents brief examples of specific projects in our three primary business areas:
BUSINESS AREA REPRESENTATIVE PROJECTS ------------- ---------------------------------------------------------------- Resource Management - Currently conducting a remedial design/remedial action for a Superfund site in Port Comfort, Texas for a private corporation. - Currently providing program management and technical support for the Comprehensive Long-term Environmental Action Navy (CLEAN) program under several ten-year contracts. Activities include installation, restoration, base realignment and closure, and underground storage tank programs. - Currently serving as prime contractor for environmental operations and maintenance services at Vandenberg Air Force Base in California. Also providing operations and maintenance services for a wastewater treatment plant and a hazardous waste collection plant, and air monitoring and other services. - Currently providing environmental remediation and operations and maintenance (O&M) services at Tinker Air Force Base in Oklahoma, and at Wright-Patterson Air Force Base in Ohio. O&M services include groundwater treatment systems, product recovery systems and landfill caps. Remediation projects have included installation of groundwater monitoring wells, excavation and disposal of contaminated soils, and installation of soil and groundwater treatment systems. - Currently serving as prime contractor for environmental and natural resource planning at U.S. Navy facilities in four western states. Conducted air emissions modeling, noise impact studies and biological resource surveys. Infrastructure - Completed the development and analysis of alternative flood control measures for the Los Angeles River. - Provided design and program management for Taiwan's National Museum of Marine Biology/Aquarium. Responsible for civil, structural and mechanical 7 engineering and for aquatic life support systems. Designed water, wastewater and parking facilities. - Currently providing mechanical, electrical, plumbing and fire protection engineering for Columbus Centre, a mixed-use project in New York City. - Currently providing project management for upgrading residuals management facilities at four drinking water treatment plants in the Detroit, Michigan area that are among the largest such plants in the U.S. - Provided design for sections of a major six-lane toll road in Southern California that includes new bridges, a tunnel and numerous large regional drainage facilities. Communications - Provided site acquisition, obtained entitlements, supervised construction and installation of equipment, and provided program management services for a Canadian corporation. - Supported the initiative to enhance Emergency 911 services and to improve the dispatch of emergency services to Henrico County near Richmond, Virginia. Assisted in the buildout of the Emergency 911 communications network through installation of antennas, coaxial cables, microwave dishes and elliptical waveguides. - Providing services to install over 730 miles of cable to provide telephony and expanded channel capacity to approximately 135,000 homes in the Seattle, Washington area. - Providing turnkey services including site selection and optimization, architectural and engineering design, site construction, and electronics installation and optimization for cell site development in the Los Angeles area for a major cellular communications carrier. - Providing site acquisition through construction permitting services for approximately 400 sites for a wireless communications firm in several Tennessee and Kentucky markets.
CLIENTS We have developed a diverse client base of hundreds of clients both in the public and private sectors. During fiscal 1999, the DOD, EPA and DOE accounted for approximately 21.9%, 11.6% and 3.3%, respectively, of our net revenue. Although agencies of the Federal government are among our most significant clients, we often support multiple programs within a single Federal agency. Our private sector clients include companies in the chemical, mining, pharmaceutical, aerospace, automotive, petroleum, communications and utility industries. No private sector client accounted for more than 10% of our net revenue in fiscal 1999. 8 The following table presents a list of representative clients in our three primary business areas:
REPRESENTATIVE CLIENTS - ------------------------------ --------------------------- --------------------------- ---------------------------- BUSINESS AREA FEDERAL GOVERNMENT STATE, COUNTY AND LOCAL PRIVATE - ------------------------------ --------------------------- --------------------------- ---------------------------- RESOURCE MANAGEMENT U.S. Environmental California Department of Lockheed Martin Protection Agency; U.S. Health Services; Corporation; Merck & Co.; Air Force; U.S. Navy; U.S. Washington Department of General Electric Company; Army; U.S. Coast Guard; Ecology; Prince Georges Westwood Squibb U.S. Forest Service County, Maryland; Clarmont Pharmaceuticals, Inc.; County, Ohio; City of San Hewlett-Packard Corporation Jose, California INFRASTRUCTURE U.S. Army Corps of City of Tucson, Arizona; Universal Studios, Inc.; Engineers; U.S. Bureau of City of Breckenridge, Boeing Corporation; E.I. Reclamation; U.S. Air Colorado; Washington DuPont de Nemours and Force; Federal Emergency Department of Company; Ford Motor Management Agency Transportation; City of Company; Chrysler Detroit, Michigan; City of Corporation; Disney Portland, Oregon; Texas Imagineering Parks and Wildlife Department; King County, Washington; Delaware Department of Transportation; Delaware Department of Corrections COMMUNICATIONS Henrico County, Virginia AT&T Wireless Services; AT&T Broadband and Internet Services; Nextel Communications, Inc.; Airtouch Communications, Inc.; Motorola, Inc.; Sprint Communications Company; GTE Corporation; Lucent Technologies, Inc.; Ericsson
CONTRACTS We enter into various types of contracts with our clients, including fixed-price, fixed-rate time and materials, cost-reimbursement plus fixed fee and cost-reimbursement plus fixed and award fee contracts. In fiscal 1999, 34.6%, 31.3% and 34.1% of our net revenue was derived from fixed-price, fixed-rate time and materials, and cost-reimbursement plus fixed fee and award fee contracts, respectively. Under a fixed-price contract, the client agrees to pay a specified price for our performance of the entire contract. Fixed-price contracts carry certain inherent risks, including risks of losses from underestimating costs, delays in project completion, problems with new technologies and economic and other changes that may occur over the contract period. Consequently, the profitability of fixed-price contracts may vary substantially. The amount of the fee received for a cost-reimbursement and award fee contract partially depends upon the government's discretionary periodic assessment of our performance on that contract. Our various clients determine which type of contract we enter into for a particular engagement. Some contracts made with the Federal government are subject to annual approval of funding. Federal government agencies may impose spending restrictions that limit the continued funding of our existing contracts with the Federal government and may limit our ability to obtain additional contracts. These limitations, if significant, could have a material adverse effect on us. To date, spending limitations have not had a significant effect on us. All contracts made with the Federal government may be terminated by the government at any time, with or without cause. Federal government agencies have formal policies against continuing or awarding contracts that would create actual or potential conflicts of interest with other activities of a contractor. These policies may prevent us in certain cases from bidding for or performing contracts resulting from or relating to certain work we have performed for the government. In addition, services performed for a private client may create conflicts of interest that preclude or limit our ability to obtain work for another private organization. We attempt to identify actual or potential conflicts of interest and to minimize the possibility that such conflicts would affect our work under current contracts or our ability to compete for future contracts. We have, on occasion, declined to bid on a project because of an existing potential conflict of interest. However, we have not experienced disqualification during a bidding or award negotiation process by any government or private client as a result of a conflict of interest. 9 Our contracts with the Federal government are subject to audit by the government, primarily by the Defense Contract Audit Agency (DCAA). The DCAA generally seeks to (1) identify and evaluate all activities which either contribute to, or have an impact on, proposed or incurred costs of government contracts; (2) evaluate the contractor's policies, procedures, controls and performance; and (3) prevent or avoid wasteful, careless and inefficient production or service. To accomplish this, the DCAA examines our internal control systems, management policies and financial capability, evaluates the accuracy, reliability and reasonableness of our cost representations and records, and assesses compliance by us with Cost Accounting Standards and Defective-pricing clauses found within the Federal Acquisition Regulations. The DCAA also performs the annual review of our overhead rates and assists in the establishment of our final rates. This review focuses on the allowability of cost items and the allowability and applicability of Cost Accounting Standards. The DCAA also audits cost-based contracts, including the close-out of those contracts. The DCAA also reviews all types of proposals, including those of award, administration, modification and repricing. Factors considered are our cost accounting system, estimating methods and procedures, and specific proposal requirements. Operational audits are also performed by the DCAA. A review of our operations at every major organizational level that has a significant effect on the performance of future government contracts is also conducted during the proposal review period. During the course of its audit, the DCAA may disallow costs if it determines that we improperly accounted for such costs in a manner inconsistent with Cost Accounting Standards. Under a government contract, only those costs that are reasonable, allocable and allowable are recoverable. A disallowance of costs by the DCAA could have a material adverse effect on us. In September 1995, we acquired PRC Environmental Management, Inc. (EMI). The DCAA recently completed audits of EMI for the fiscal years 1987 through 1995. As a result of these audits and our negotiations with the DCAA, the DCAA disallowed approximately $4.4 million in costs. Because we were aware of these issues prior to completing the acquisition, we established a sufficient reserve and, consequently, the disallowance did not have a material adverse effect on our business. Due to the severity of the legal remedies available to the government, including the required payment of damages and/or penalties, criminal and civil sanctions, and debarment, we maintain controls to avoid the occurrence of fraud and other unlawful activity. In addition, we maintain preventative audit programs to ensure appropriate control systems and mitigate control weaknesses. We provide our services under contracts, purchase orders or retainer letters. Our policy provides that, where possible, all contracts will be in writing. We bill all of our clients periodically based on costs incurred, on either an hourly-fee basis or on a percentage of completion basis, as the project progresses. Generally, our contracts do not require that we provide performance bonds. A performance bond, issued by a surety company, guarantees the contractor's performance under the contract. If the contractor defaults under the contract, the surety will, in its discretion, step in to finish the job or pay the client the amount of the bond. If the contractor does not have a performance bond and defaults in the performance of a contract, the contractor is responsible for all damages resulting from the breach of contract. These damages include the cost of completion, together with possible consequential damages such as lost profits. To date, we have not incurred material damages beyond the coverage of any performance bond. Most of our agreements permit termination without cause by the clients upon payment of fees and expenses through the date of the termination. MARKETING We utilize both a centralized corporate marketing department and local marketing groups within each of our operating units. Our corporate marketing department assists management in establishing our business plan, our target markets and an overall marketing strategy. The corporate marketing department also identifies and tracks the development of large Federal programs, positions us for new business areas, selects appropriate partners, if any, for new projects and assists in the bid process for new projects. We market throughout the organizations we target, focusing primarily on senior representatives in government organizations and senior management in private companies. In addition, the corporate marketing department supports marketing activities firm-wide by coordinating corporate 10 promotional and professional activities, including appearances at trade shows, direct mailings, telemarketing and public and media relations. We also perform marketing activities through our local offices. We believe that these offices have a greater understanding of local environmental issues, laws and regulations and, therefore, can better target their marketing activities. These marketing activities are coordinated by full time marketing staff located in certain of our offices. These activities include meetings with potential clients and state, county and municipal regulators, presentations to civic and professional organizations and seminars on current regulatory topics. COMPETITION The market for our services is highly competitive. We compete with many other firms, ranging from small local firms to large national firms that may have greater financial and marketing resources. We perform a broad spectrum of engineering and consulting services across the resource management, infrastructure and communications business areas. Services within these business areas are provided to a client base which includes Federal agencies, such as the DOD, the DOE, the Department of the Interior, the EPA and the U.S. Postal Service, state and local agencies, and the private sector. Our competition varies and is a function of the business areas in which, and client sectors for which, we perform our services. The range of competitors for any one procurement can vary from 10 to 100 firms, depending upon the relative value of the project, the financial terms and risks associated with the work, and any restrictions placed upon competition by the client. Historically, clients have chosen among competing firms based primarily on the quality and timeliness of the firm's service. However, we believe that price has become an increasingly important competitive factor. We believe that if this trend continues it could have a material adverse effect on our operating margins and profitability. We believe that our principal competitors include, in alphabetical order, Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser & McKee; CH2M Hill Companies Ltd., EA Engineering, Science & Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc.; IT Group, Inc.; Mastec, Inc.; Montgomery Watson; Quanta Service, Inc.; Roy F. Weston, Inc.; Wireless Facilities, Inc.; and URS Corporation. BACKLOG At October 3, 1999, our gross revenue backlog was approximately $602.4 million, compared to $405.0 million at October 4, 1998. We include in gross revenue backlog only those contracts for which funding has been provided and work authorizations have been received. We estimate that approximately $467.1 million of the gross revenue backlog at October 3, 1999 will be recognized during fiscal 2000. No assurance can be given that all amounts included in backlog will ultimately be realized, even if evidenced by written contracts. For example, certain of our contracts with the Federal government and other clients are terminable at will. If any of these clients terminate their contracts prior to completion, we may not be able to recognize that revenue. ENVIRONMENTAL LEGISLATION Our clients have become subject to an increasing number of frequently overlapping Federal, state and local laws concerned with the protection of the environment, as well as regulations promulgated by administrative agencies pursuant to these laws. We provide services with respect to Federal environmental laws, and regulations including: the Clean Water Act; the Resource Conservation and Recovery Act; the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA); the National Environmental Policy Act; the Safe Drinking Water Act; and other laws. POTENTIAL LIABILITY AND INSURANCE Our business activities could expose us to potential liability under various environmental laws such as CERCLA. In addition, we occasionally contractually assume liability under indemnification agreements. We cannot predict the magnitude of such potential liabilities. We currently maintain comprehensive general liability, umbrella and professional liability insurance policies. The professional liability policies are "claims made" policies. This means that only claims made during the term of the policy are covered. If we terminate our professional liability policies and do not obtain retroactive coverage, we 11 would be uninsured for claims made after termination even if based on events or acts that occurred during the term of the policy. We obtain insurance coverage through a broker who is experienced in the engineering field. The broker, together with our Risk Manager, periodically review the adequacy of our insurance programs. However, because there are various exclusions and retentions under our insurance policies, there can be no assurance that all potential liabilities will be covered by our insurance. Further, in the event we expand our services into new markets, we may not be able to obtain insurance coverage for such activities or, if insurance is obtained, the dollar amount of any liabilities incurred could exceed our insurance coverage. We evaluate the risk associated with uninsured claims. If we determine that an uninsured claim has potential liability, we establish an appropriate reserve. A reserve is not established if we determine that the claim has no merit. Our historic levels of insurance coverage and reserves have been adequate. However, a partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect on our business. EMPLOYEES At October 3, 1999, we had approximately 5,443 total employees or approximately 4,953 full-time equivalent employees. Our professional staff includes archaeologists, biologists, chemical engineers, chemists, civil engineers, computer scientists, economists, electrical engineers, environmental engineers, environmental scientists, geologists, hydrogeologists, mechanical engineers, oceanographers, toxicologists and project managers. Our ability to retain and expand our staff of qualified professionals will be an important factor in determining our future growth and success. We currently have 206 employees represented by four labor organizations. Management considers its relations with our employees to be good. In addition, we supplement our consultants on certain engagements with independent contractors. We believe that the practice of retaining independent contractors on a per engagement basis provides us with significant flexibility in adjusting professional personnel levels in response to changes in demand for our services. 12 RISK FACTORS SOME OF THE INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. YOU CAN IDENTIFY THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE" AND "CONTINUE" OR SIMILAR WORDS. YOU SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY BECAUSE THEY: (1) DISCUSS OUR FUTURE EXPECTATIONS; (2) CONTAIN PROJECTIONS OF OUR FUTURE OPERATING RESULTS OR OF OUR FUTURE FINANCIAL CONDITION; OR (3) STATE OTHER "FORWARD-LOOKING" INFORMATION. WE BELIEVE IT IS IMPORTANT TO COMMUNICATE OUR EXPECTATIONS TO OUR INVESTORS. THERE MAY BE EVENTS IN THE FUTURE, HOWEVER, THAT WE ARE NOT ACCURATELY ABLE TO PREDICT OR OVER WHICH WE HAVE NO CONTROL. THE RISK FACTORS LISTED IN THIS SECTION, AS WELL AS ANY CAUTIONARY LANGUAGE IN THIS ANNUAL REPORT ON FORM 10-K, PROVIDE EXAMPLES OF RISKS, UNCERTAINTIES AND EVENTS THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS WE DESCRIBE IN OUR FORWARD-LOOKING STATEMENTS. YOU SHOULD BE AWARE THAT THE OCCURRENCE OF ANY OF THE EVENTS DESCRIBED IN THESE RISK FACTORS AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND THAT UPON THE OCCURRENCE OF ANY OF THESE EVENTS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE. THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY THAT COULD ADVERSELY IMPACT OUR BUSINESS AND OPERATING RESULTS A significant part of our growth strategy is to acquire other companies that complement our lines of business or that broaden our geographic presence. During fiscal 1999, we purchased 11 companies in nine separate transactions. We expect to continue to acquire companies as an element of our growth strategy. Acquisitions involve certain risks that could cause our actual growth or operating results to differ from our expectations or the expectations of security analysts. For example: - We may not be able to identify suitable acquisition candidates or to acquire additional companies on favorable terms; - We compete with others to acquire companies. We believe that this competition will increase and may result in decreased availability or increased price for suitable acquisition candidates; - We may not be able to obtain the necessary financing, on favorable terms or at all, to finance any of our potential acquisitions; - We may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a company; - We may fail to successfully integrate or manage these acquired companies due to differences in business backgrounds or corporate cultures; - These acquired companies may not perform as we expect; - We may find it difficult to provide a consistent quality of service across our geographically diverse operations; and - If we fail to successfully integrate any acquired company, our reputation could be damaged. This could make it more difficult to market our services or to acquire additional companies in the future. In addition, our acquisition strategy may divert management's attention away from our primary service offerings, result in the loss of key clients or personnel and expose us to unanticipated liabilities. Finally, acquired companies that derive a significant portion of their revenues from the Federal government and that do not follow the same cost accounting policies and billing procedures as we do may be subject to larger cost disallowances for greater periods than we are. If we fail to determine the existence of unallowable costs and establish appropriate reserves in advance of an acquisition, we may be exposed to material unanticipated liabilities, which could have a material adverse effect on our business. 13 OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD HAVE A NEGATIVE EFFECT ON THE PRICE OF OUR COMMON STOCK Our quarterly revenues, expenses and operating results may fluctuate significantly because of a number of factors, including: - The seasonality of the spending cycle of our public sector clients, notably the Federal government; - Employee hiring and utilization rates; - The number and significance of client engagements commenced and completed during a quarter; - Delays incurred in connection with an engagement; - The ability of our clients to terminate engagements without penalties; - The size and scope of engagements; - The timing of expenses incurred for corporate initiatives; - The timing and size of the return on investment capital; and - General economic and political conditions. Variations in any of these factors could cause significant fluctuations in our operating results from quarter to quarter and could result in net losses. THE VALUE OF OUR COMMON STOCK COULD CONTINUE TO BE VOLATILE The trading price of our common stock has fluctuated widely. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. The overall market and the price of our common stock may continue to fluctuate greatly. The trading price of our common stock may be significantly affected by various factors, including: - Quarter to quarter variations in our operating results; - Changes in environmental legislation; - Changes in investors' and analysts' perception of the business risks and conditions of our business; - Broader market fluctuations; and - General economic or political conditions. IF WE ARE NOT ABLE TO SUCCESSFULLY MANAGE OUR GROWTH STRATEGY, OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED We are growing rapidly. Our growth presents numerous managerial, administrative, operational and other challenges. Our ability to manage the growth of our operations will require us to continue to improve our operational, financial and human resource management information systems and our other internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate and retain both our management and professional employees. The inability of our management to manage our growth effectively or the inability of our employees to achieve anticipated performance or utilization levels, could have a material adverse effect on our business. 14 THE LOSS OF KEY PERSONNEL OR OUR INABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD SIGNIFICANTLY DISRUPT OUR BUSINESS We depend upon the efforts and skills of our executive officers, senior managers and consultants. With limited exceptions, we do not have employment agreements with any of these individuals. The loss of the services of any of these key personnel could adversely affect our business. Although we have obtained non-compete agreements from the principal stockholders of each of the companies we have acquired, we generally do not have non-compete or employment agreements with key employees who were not equity holders of these companies. We do not maintain key-man life insurance policies on any of our executive officers or senior managers. Our future growth and success depends on our ability to attract and retain qualified scientists and engineers. The market for these professionals is competitive and we may not be able to attract and retain such professionals. CHANGES IN EXISTING LAWS AND REGULATIONS COULD REDUCE THE DEMAND FOR OUR SERVICES A significant amount of our resource management business is generated either directly or indirectly as a result of existing Federal and state governmental laws, regulations and programs. Any changes in these laws or regulations that reduce funding or affect the sponsorship of these programs could reduce the demand for our services and could have a material adverse effect on our business. OUR REVENUES FROM AGENCIES OF THE FEDERAL GOVERNMENT ARE CONCENTRATED, AND A REDUCTION IN SPENDING BY THESE AGENCIES COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS Agencies of the Federal government are among our most significant clients. During fiscal 1999, approximately 36.8% of our net revenue was derived from three federal agencies as follows: 21.9% of our net revenue was derived from the Department of Defense (DOD), 11.6% from the Environmental Protection Agency (EPA), and 3.3% from the Department of Energy (DOE). Some of our contracts with Federal government agencies require annual funding approval and may be terminated at their discretion. A reduction in spending by Federal government agencies could limit the continued funding of our existing contracts with them and could limit our ability to obtain additional contracts. These limitations, if significant, could have a material adverse effect on our business. Additionally the failure of clients to pay significant amounts due us for our services could adversely affect our business. For example, we recently received notification from a federal government agency that we are entitled to payments in excess of our billings. However, the agency involved must obtain specific funding approval for amounts owed to us and there can be no assurance this funding approval will be obtained. OUR CONTRACTS WITH GOVERNMENTAL AGENCIES ARE SUBJECT TO AUDIT, WHICH COULD RESULT IN THE DISALLOWANCE OF CERTAIN COSTS Our contracts with the Federal government and other governmental agencies are subject to audit. Most of these audits are conducted by the Defense Contract Audit Agency (DCAA), which reviews our overhead rates, operating systems and cost proposals. The DCAA may disallow costs if it determines that we accounted for these costs incorrectly or in a manner inconsistent with Cost Accounting Standards. A disallowance of costs by the DCAA, or other governmental auditors, could have a material adverse effect on our business. In September 1995, we acquired PRC Environmental Management, Inc. (EMI). EMI also contracts with Federal government agencies and such contracts are also subject to the same governmental audits. The DCAA has completed audits of EMI's contracts for the fiscal years 1987 through 1995. As a result of these audits and our negotiations with the DCAA, the DCAA disallowed approximately $4.4 million in costs. OUR BUSINESS AND OPERATING RESULTS COULD BE ADVERSELY AFFECTED BY LOSSES UNDER FIXED-PRICE CONTRACTS OR TERMINATION OF CONTRACTS AT THE CLIENT'S DISCRETION We contract with Federal and state governments as well as with the commercial sector. These contracts are often subject to termination at the discretion of the client with or without cause. Additionally, we enter into various contracts with our clients, including fixed-price contracts. In fiscal 1999, approximately 34.6% of our net revenue was derived from fixed-price contracts. Fixed-price contracts protect clients and expose us to a number of risks. These risks include underestimation of costs, problems with new technologies, 15 unforeseen costs or difficulties, delays beyond our control and economic and other changes that may occur during the contract period. Losses under fixed-price contracts or termination of contracts at the discretion of the client could have a material adverse effect on our business. In fiscal 1999, we had a contract change with Tele-Communications, Inc. involving three turnkey contracts. This change was due in part to Tele-Communications, Inc.'s change in strategy from the use of turnkey contracts to the use of direct service contracts in the upgrading of its network systems. OUR INABILITY TO FIND QUALIFIED SUBCONTRACTORS COULD ADVERSELY AFFECT THE QUALITY OF OUR SERVICE AND OUR ABILITY TO PERFORM UNDER CERTAIN CONTRACTS Under some of our contracts, we depend on the efforts and skills of subcontractors for the performance of certain tasks. Our reliance on subcontractors varies from project to project. In fiscal 1999, subcontractor costs comprised 23.7% of our gross revenue. The absence of qualified subcontractors with whom we have a satisfactory relationship could adversely affect the quality of our service and our ability to perform under some of our contracts. OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO COMPETE EFFECTIVELY We provide specialized management consulting and technical services to a broad range of public and private sector clients. The market for our services is highly competitive and we compete with many other firms. These firms range from small regional firms to large national firms which have greater financial and marketing resources than we do. We focus primarily on the resource management, infrastructure and communications business areas. We provide services to our clients which include Federal, state and local agencies, and organizations in the private sector. We compete for projects and engagements with a number of competitors which can vary from 10 to 100 firms. Historically, clients have chosen among competing firms based on the quality and timeliness of the firm's service. We believe, however, that price has become an increasingly important factor. We believe that our principal competitors include, in alphabetical order, Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser & McKee; CH2M Hill Companies Ltd.; EA Engineering, Science & Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc.; IT Group, Inc.; Mastec, Inc.; Montgomery Watson; Quanta Services; Roy F. Weston, Inc.; Wireless Facilities, Inc.; and URS Corporation. OUR SERVICES EXPOSE US TO SIGNIFICANT RISKS OF LIABILITY AND OUR INSURANCE POLICIES MAY NOT PROVIDE ADEQUATE COVERAGE Our services involve significant risks of professional and other liabilities which may substantially exceed the fees we derive from our services. Our business activities could expose us to potential liability under various environmental laws such as the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). In addition, we sometimes contractually assume liability under indemnification agreements. We cannot predict the magnitude of such potential liabilities. We currently maintain comprehensive general liability, umbrella and professional liability insurance policies. We believe that our insurance policies are adequate for our business operations. The professional liability policies are "claims made" policies. Thus, only claims made during the term of the policy are covered. If we terminate our professional liability policies and do not obtain retroactive coverage, we would be uninsured for claims made after termination even if these claims are based on events or acts that occurred during the term of the policy. Our insurance may not protect us against liability because our policies typically have various exclusions and retentions. In addition, if we expand into new markets, we may not be able to obtain insurance coverage for such activities or, if insurance is obtained, the dollar amount of any liabilities incurred could exceed our insurance coverage. A partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse affect on our business. WE MAY BE PRECLUDED FROM PROVIDING CERTAIN SERVICES DUE TO CONFLICT OF INTEREST ISSUES Many of our clients are concerned about potential or actual conflicts of interest in retaining management consultants. Federal government agencies have formal policies against continuing or awarding contracts that would create actual or potential conflicts of interest with other activities of a contractor. These policies, among other things, may prevent us from bidding for or performing contracts resulting from or relating to certain work we have performed for the government. In addition, services performed for a private client may create a conflict of interest that precludes 16 or limits our ability to obtain work from other public or private organizations. We have, on occasion, declined to bid on projects because of these conflicts of interest issues. OUR INTERNATIONAL OPERATIONS EXPOSE US TO RISKS SUCH AS FOREIGN CURRENCY FLUCTUATIONS In fiscal 1999, approximately 3.3% of our net revenue was derived from the international marketplace. Some contracts with our international clients are denominated in foreign currencies. As such, these contracts contain inherent risks including foreign currency exchange risk and the risk associated with expatriating funds from foreign countries. If our international revenue increases, our exposure to foreign currency fluctuations will also increase. We have entered into forward exchange contracts to address foreign currency fluctuations. WE COULD EXPERIENCE BUSINESS INTERRUPTIONS RELATING TO THE YEAR 2000 We have worked to resolve the potential impact of the year 2000 (Y2K) on our business operations and the ability of our computerized information systems to accurately process information that may be date-sensitive. Any of our programs that recognize a date using "00" as the year 1900 rather than the year 2000 could result in errors or system failures. We utilize a number of computer programs across our entire operation. The primary information technology systems we utilize are the accounting and financial and human resource information management systems. We began our risk assessment in 1995. Since that time we have procured and implemented certain accounting and financial reporting systems as well as contract administration and billing systems that have been certified as Y2K compliant by our vendors. We believe that our financial and accounting and human resource management information systems are now Y2K compliant and will not be materially impacted by the year 2000. We have extensive business with the Federal government. Should the Federal government, especially the DOD, experience significant business interruptions relating to non-Y2K compliance, our business could be materially impacted. To the extent that other third parties which we rely upon, such as banking institutions, clients and vendors, are unable to address their Y2K issues in a timely manner, our business could be materially impacted. We believe that the worst case scenario relating to the Y2K would be an extensive period of time in which the Federal government and other third parties could not process payments promptly, in addition to our financial institutions not being able to supply us with our working capital needs. Additional risks associated with non-Y2K compliance include: - Our inability to invoice and process payments; - Our inability to produce accurate and timely financials; - The impact on our cash flow and working capital needs; - The impact on our profitability; and - Our potential liability to third parties for not meeting contracted deliverables. PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY AND COULD DEPRESS THE PRICE OF OUR COMMON STOCK Our certificate of incorporation and by-laws and the Delaware General Corporation Law include provisions that may be deemed to have anti-takeover effects. These anti-takeover effects could delay or prevent a takeover attempt that you or our other stockholders might consider in your or their best interests. In addition, our board of directors is authorized to issue, without obtaining stockholder approval, up to 2,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges of such shares without any further stockholder action. The existence of this "blank-check" preferred stock could make more difficult or discourage an attempt to obtain control of us by means of a tender offer, merger, proxy contest or otherwise. 17 In the future, we may adopt other measures that may have the effect of delaying, deferring or preventing an unsolicited takeover, even if such a change in control were at a premium price or favored by a majority of unaffiliated stockholders. Certain of these measures may be adopted without any further vote or action by the stockholders. ITEM 2. PROPERTIES. Our corporate headquarters facilities are located in Pasadena, California. These facilities contain approximately 1.2 million square feet of office space, and are subject to leases which expire beyond the year 2001. We lease office space in approximately 189 locations in the United States. We also rent some additional office space on a month-to-month basis. We believe that our existing facilities are adequate to meet current requirements and that suitable additional or substitute space will be available as needed to accommodate any expansion of operations and for additional offices. ITEM 3. LEGAL PROCEEDINGS. We are subject to certain claims and lawsuits typically filed against the engineering and consulting professions, primarily alleging professional errors or omissions. We carry professional liability insurance, subject to certain deductibles and policy limits against such claims. Management is of the opinion that the resolution of these claims will not have a material effect on our financial position or results of operations. See "Item 1. Business - Potential Liability and Insurance." ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 18 PART II The information required by Items 5 through 8 of this report is set forth on pages 17 through 41 of our Annual Report to Stockholders for the fiscal year ended October 3, 1999. Such information is incorporated in this report and made a part hereof by reference. Item 9 is not applicable. PART III The information required by Items 10 through 13 of this report is set forth in the sections entitled "Security Ownership of Principal Stockholders, Directors and Executive Officers," "Election of Directors," and "Executive Officers, Compensation and Other Information" in our Proxy Statement for our 2000 Annual Meeting of Stockholders. Such information is incorporated in this report and made a part hereof by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. The Financial Statements filed as part of this report are listed in the accompanying index at page 19. 3. EXHIBITS. 3.1 Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 3.2 Bylaws of the Company as amended to date (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, No. 33-43723). 3.3 Certificate of Amendment of Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K for the fiscal year ended October 4, 1998). 10.1 Credit Agreement dated as of September 15, 1995 between the Company and Bank of America Illinois, as amended by the First Amendment to Credit Agreement dated as of November 27, 1995 (incorporated herein by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 10.2 Second Amendment dated as of June 20, 1997 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America Illinois (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 1997). 10.3 Third Amendment dated as of December 15, 1997 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and Savings Association (incorporated herein by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1997). 10.4 Fourth Amendment dated as of January 30, 1997 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and Savings Association (incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 28, 1997). 10.5 Fifth Amendment dated as of July 6, 1998 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and 19 Savings Association (incorporated herein by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1998). 10.6 Sixth Amendment dated as of July 21, 1999 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and Savings Association (incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). 10.7 Seventh Amendment dated as of December 24, 1999 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and Savings Association. 10.8 Security Agreement dated as of September 15, 1995 among the Company, GeoTrans, Inc., Simons Li & Associates, Inc., Hydro-Search, Inc., PRC Environmental Management, Inc. and Bank of America Illinois (incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 10.9 Pledge Agreement dated as of September 15, 1995 between the Company and Bank of America Illinois (incorporated herein by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 10.10 Guaranty dated as of September 15, 1995, executed by the Company in favor of Bank of America Illinois (incorporated herein by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 10.11 1989 Stock Option Plan dated as of February 1, 1989 (incorporated herein by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, No. 33-43723). 10.12 Form of Incentive Stock Option Agreement executed by the Company and certain individuals in connection with the Company's 1989 Stock Option Plan (incorporated herein by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1, No. 33-43723). 10.13 Executive Medical Reimbursement Plan (incorporated herein by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1, No. 33-43723). 10.14 1992 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1993). 10.15 Form of Incentive Stock Option Agreement used by the Company in connection with the Company's 1992 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1993). 10.16 1992 Stock Option Plan for Nonemployee Directors (incorporated herein by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1993). 10.17 Form of Nonqualified Stock Option Agreement used by the Company in connection with the Company's 1992 Stock Option Plan for Nonemployee Directors (incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1993). 10.18 1994 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended October 2, 1994). 10.19 Form of Stock Purchase Agreement used by the Company in connection with the Company's 1994 Employee Stock Purchase Plan (incorporated herein by reference to 20 Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended October 2, 1994). 10.20 Employment Agreement dated as of June 11, 1997 between the Company and Daniel A. Whalen (incorporated herein by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 1997). 10.21 Registration Rights Agreement dated as of June 11, 1997 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 1997). 10.22 Registration Rights Agreement dated as of July 11, 1997 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1997). 10.23 Registration Rights Agreement dated as of March 26, 1998 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 1998). 10.24 Registration Rights Agreement dated as of July 9, 1998 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.22 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1998). 10.25 Registration Rights Agreement dated as of September 22, 1998 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended October 4, 1998). 10.26 Registration Rights Agreement dated as of February 26, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 1999). 10.27 Registration Rights Agreement dated as of May 7, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). 10.28 Registration Rights Agreement dated as of May 21, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). 10.29 Registration Rights Agreement dated as of June 18, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). 10.30 Registration Rights Agreement dated as of September 3, 1999 among the Company and the parties listed on Schedule A attached thereto. 21 13 Annual Report to Stockholders for the fiscal year ended October 3, 1999, portions of which are incorporated by reference in this report as set forth in Part II hereof. With the exception of these portions, such Annual Report is not deemed filed as part of this report. 21 Subsidiaries of the Company. 23 Independent Auditors' Consent. 27 Financial Data Schedule. (b) Reports on Form 8-K None.
22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TETRA TECH, INC. Date: December 30, 1999 By: /s/ Li-San Hwang ---------------------------------------- Li-San Hwang, Chairman of the Board of Directors, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ------ ---- Chairman of the Board of Directors, /s/ Li-San Hwang President and Chief Executive officer - ----------------------------------------------- (Principal Executive Officer) December 30, 1999 Li-San Hwang Vice President, Chief Financial Officer /s/ James M. Jaska and Treasurer (Principal Financial and - ----------------------------------------------- Accounting Officer) December 30, 1999 James M. Jaska /s/ Daniel A. Whalen - ----------------------------------------------- Director December 30, 1999 Daniel A. Whalen /s/ J. Christopher Lewis - ----------------------------------------------- Director December 30, 1999 J. Christopher Lewis /s/ Patrick C. Haden - ----------------------------------------------- Director December 30, 1999 Patrick C. Haden /s/ James J. Shelton - ----------------------------------------------- Director December 30, 1999 James J. Shelton
23 INDEX TO FINANCIAL STATEMENTS The consolidated financial statements, together with the Notes thereto and report thereon of Deloitte & Touche LLP dated November 16, 1999 (except for Note 5, as to which the date is December 24, 1999), appearing on pages 25 through 41 of the accompanying 1999 Annual Report to Stockholders, are incorporated by reference in this Annual Report on Form 10-K. With the exception of the aforementioned information and Part II information set forth on pages 17 through 24, the 1999 Annual Report to Stockholders is not to be deemed filed as part of this report. FINANCIAL STATEMENTS SCHEDULES
Page No. -------- Report of Independent Accountants on Financial Statement Schedules...................................................... 25 Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts and Reserves....................................................... 26
24 INDEPENDENT AUDITORS' REPORT Tetra Tech, Inc.: We have audited the consolidated financial statements of Tetra Tech, Inc. and its subsidiaries as of October 3, 1999 and October 4, 1998, and for each of the three years in the period ended October 3, 1999, and have issued our report thereon dated November 16, 1999 (except for Note 5, as to which the date is December 24, 1999); such financial statements and report are included in your 1999 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Tetra Tech, Inc. and its subsidiaries, listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Los Angeles, California November 16, 1999 (except for Note 5, as to which the date is December 24, 1999) 25 TETRA TECH, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE FISCAL YEARS ENDED SEPTEMBER 28, 1997, OCTOBER 4, 1998 AND OCTOBER 3, 1999
BALANCE AT ADDITIONS CHARGES TO DEDUCTIONS BEGINNING OF THROUGH COSTS AND NET OF BALANCE AT PERIOD ACQUISITIONS EARNINGS RECOVERIES END OF PERIOD ------------ ------------ ---------- ---------- ------------- Fiscal year ended September 28, 1997 Allowance for loss on accounts receivable........................... $ 11,101,000 $ 228,000 $ (56,000) $ (120,000) $ 11,153,000 Fiscal year ended October 4, 1998 Allowance for loss on accounts receivable........................... $ 11,153,000 $ 3,187,000 $ (334,000) $ (1,321,000) $ 12,685,000 Fiscal year ended October 3, 1999 Allowance for loss on accounts receivable........................... $ 12,685,000 $ 747,000 $ (667,000) $ (4,236,000) $ 8,529,000
26 EX-10.7 2 EXHIBIT 10.7 SEVENTH AMENDMENT THIS SEVENTH AMENDMENT (this "Seventh Amendment") dated as of December 24, 1999 is to the Credit Agreement (the "Credit Agreement") dated as of September 15, 1995 between TETRA TECH, INC. (the "Company") and BANK OF AMERICA, N.A. (formerly known as Bank of America National Trust and Savings Association) (the "Bank"). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as defined therein. WHEREAS, the parties hereto have entered into the Credit Agreement which provides for the Bank to make Loans to, and to issue Letters of Credit for the account of, the Company from time to time; and WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth below; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows: SECTION 1 AMENDMENTS. Effective on (and subject to the occurrence of) the Seventh Amendment Effective Date (as defined below), the Credit Agreement shall be amended as follows: Section 1.1 SECTION 2.1. Section 2.1(x) of the Credit Agreement is amended in its entirety to read as follows: "(x) the sum of (i) the aggregate outstanding principal amount of all Loans plus (ii) the aggregate Stated Amount of all Letters of Credit (the "Total Outstandings") shall not at any time exceed $93,000,000 (less any reductions to the Commitment made pursuant to SECTION 6.1), PROVIDED that the Total Outstandings shall not exceed $88,000,000 prior to the date on which the Company delivers to the Bank an audit report without any qualification unacceptable to the Bank (an "Acceptable Audit Report") for the Fiscal Year ending October 3, 1999, and PROVIDED, FURTHER, that the amount of the Commitment shall be reduced to the amount of the Total Outstandings on the earlier of the date on which the Company receives an audit report for the Fiscal Year ending October 3, 1999 which is not an Acceptable Audit Report and December 31, 1999 (unless the Bank has received an Acceptable Audit Report on or before such date), and". Section 1.2 SECTION 5.3. Section 5 of the Credit Agreement is amended by adding the following in appropriate numerical sequence: "5.3 ADDITIONAL FEES. The Company further agrees to pay the Bank the following fees if applicable: (x) a usage fee of $25,000 on the first date on which the sum of (i) the aggregate outstanding principal amount of all Loans PLUS (ii) the aggregate Stated Amount of all Letters of Credit exceeds $85,000,000; (y) a fee of $250,000 on December 31, 1999 if the Company fails to deliver to the Bank an Acceptable Audit Report (as defined in SECTION 2.1) on or before December 31, 1999." Section 1.3 SECTION 6.1.1. Section 6.1.1 of the Credit Agreement is amended in its entirety to read as follows: "6.1.1 SCHEDULED REDUCTIONS OF COMMITMENT. The amount of the Commitment shall be permanently reduced to $60,000,000 on February 1, 2000.". Section 1.4 EXHIBIT A. EXHIBIT A to the Credit Agreement is hereby amended in its entirety to read in the form of Exhibit A hereto. SECTION 2 REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Bank that (a) each warranty set forth in Section 9 of the Credit Agreement is true and correct as if made on the date hereof, (b) the execution and delivery by the Company of this Seventh Amendment and the New Note (as defined below), and the performance by the Company of its obligations under the Credit Agreement as amended hereby (as so amended, the "Amended Credit Agreement") and the New Note (i) are within the corporate powers of the Company and each Subsidiary, (ii) have been duly authorized by all necessary corporate action, (iii) have received all necessary governmental approval and (iv) do not and will not contravene or conflict with any provision of law or of the charter or by-laws of the Company or any Subsidiary or of any indenture, loan agreement or other material contract, order or decree which is binding upon the Company or any Subsidiary, and (c) this Seventh Amendment, the Amended Credit Agreement, and the New Note are the legal, valid and binding obligations of the Company and each Subsidiary which is party hereto, enforceable against the Company and each Subsidiary in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditor's rights or by general principles of equity limiting the availability of equitable remedies. SECTION 3 EFFECTIVENESS. The amendments set forth in Section 1 shall become effective, as of the day and year first above written, on such date (the "Seventh Amendment Effective Date") that the Bank shall have received (i) an amendment fee of $25,000, (ii) counterparts of this Seventh Amendment executed by the parties hereto, and (iii) each of the following documents in form and substance satisfactory to the Bank: (a) RESOLUTIONS OF COMPANY. Certified copies of resolutions of the Board of Directors of the Company authorizing the execution and delivery of this Seventh Amendment and the performance of its obligations under the Amended Credit Agreement. (b) INCUMBENCY AND SIGNATURE CERTIFICATE OF COMPANY. A certificate of the Secretary or the Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute, deliver and perform, as applicable, this Seventh Amendment and all other documents to be executed in connection therewith. (c) NEW NOTE. A promissory note of the Company (the "New Note") in the form of EXHIBIT A hereto. (d) OPINION. The opinion of Riordan & McKinzie, counsel to the Company and its Subsidiaries, in form and substance satisfactory to the Bank. (e) SYNDICATION LETTER. An executed syndication mandate letter in the form previously delivered to the Company by the Bank. SECTION 4 MISCELLANEOUS. Section 4.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. Section 4.2 COUNTERPARTS. This Seventh Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Seventh Amendment. Section 4.3 GOVERNING LAW. This Seventh Amendment shall be a contract made under and governed by the laws of the State of Illinois applicable to contracts made and to be performed entirely within such State. Section 4.4 SUCCESSORS AND ASSIGNS. This Seventh Amendment shall be binding upon the Company and the Bank and their respective successors and assigns, and shall inure to the benefit of the Company and the Bank and the successors and assigns of the Bank. Section 4.5 EXPENSES. The Company agrees to pay the reasonable costs and expenses of the agent (including attorney costs) in connection with the preparation, execution and delivery of this Seventh Amendment. delivered at Chicago, Illinois, as of the day and year first above written. TETRA TECH, INC. By /s/ James M. Jaska ----------------------------- Title Chief Financial Officer ----------------------------- BANK OF AMERICA, N.A. (formerly Bank of America National Trust and Savings Association) By /s/ Jennifer L. Gerdes -------------------------------- Title Vice President -------------------------------- Each of the undersigned hereby acknowledges and agrees to the foregoing Seventh Amendment and the amended credit agreement and hereby confirms the continuing effectiveness of the guaranty and the security agreement with respect to the Amended Credit Agreement. HSI GEOTRANS, INC. BY: /s/ James M. Jaska Title: Assistant Treasurer SIMONS, LI & ASSOCIATES, INC. By: /s/ James M. Jaska Title: Treasurer TETRA TECH EM, INC. By: /s/ James M. Jaska Title: Treasurer WHALEN & COMPANY, INC. By: /s/ James M. Jaska Title: Treasurer TETRA TECH NUS, INC. By: /s/ James M. Jaska Title: Treasurer MFG, INC. By: /s/ James M. Jaska Title: Treasurer COLLINS-PINA CONSULTING ENGINEERS, INC. By: /s/ James M. Jaska Title: Treasurer DEA CONSTRUCTION COMPANY, INC. By: /s/ James M. Jaska Title: Treasurer BAHA COMMUNICATIONS, INC. By: /s/ James M. Jaska Title: Treasurer UTILITIES & C.C., INC. By: /s/ James M. Jaska Title: Treasurer ASL CONSULTING ENGINEERS, INC. By: /s/ James M. Jaska Title: Treasurer COSENTINI ASSOCIATES, INC. By: /s/ James M. Jaska Title: Treasurer EXHIBIT A FORM OF NOTE $93,000,000 December 24, 1999 Chicago, Illinois The undersigned, for value received, promises to pay to the order of BANK OF AMERICA, N.A. (formerly Bank of America National Trust and Savings Association), a national banking association having an office at 231 South LaSalle Street, Chicago, Illinois (the "Bank") at the principal office of the Bank in Chicago, Illinois, NINETY-THREE MILLION DOLLARS or, if less, the aggregate unpaid amount of all Loans made by the undersigned pursuant to the Credit Agreement referred to below (as shown on the schedule attached hereto (and any continuation thereof) or in the records of the Bank), such principal amount to be payable in installments as set forth in the Credit Agreement. The undersigned further promises to pay interest on the unpaid principal amount of each Loan from the date of such Loan until such Loan is paid in full, payable at the rate(s) and at the time(s) set forth in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America. This Note evidences indebtedness incurred under, and is subject to the terms and provisions of, the Credit Agreement, dated as of September 15, 1995 (as amended or otherwise modified from time to time, the "Credit Agreement"; terms not otherwise defined herein are used herein as defined in the Credit Agreement), between the undersigned and the Bank, to which Credit Agreement reference is hereby made for a statement of the terms and provisions under which this Note may or must be paid prior to its due date or its due date accelerated. In addition to and not in limitation of the foregoing and the provisions of the Credit Agreement, the undersigned further agrees, subject only to any limitation imposed by applicable law, to pay all expenses, including reasonable attorneys' fees and legal expenses, incurred by the holder of this Note in endeavoring to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise. This Note is made under and governed by the laws of the State of Illinois applicable to contracts made and to be performed entirely within such State. TETRA TECH, INC. By: /s/ James M. Jaska --------------------------- Title: Chief Financial Officer --------------------------- Schedule Attached to Note dated December 24, 1999 of TETRA TECH, INC. payable to the order of BANK OF AMERICA, N.A. Date and Date and Amount of Amount of Loan or of Repayment or of Interest Conversion from Conversion into Period/ Unpaid another type of another type of Maturity Principal Notation Loan Loan Date Balance Made by 1. FLOATING RATE LOANS ______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ 2. EURODOLLAR LOANS _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ EX-10.30 3 EXHIBIT 10.30 EXHIBIT 10.30 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is entered into as of September 3, 1999 by and among Tetra Tech, Inc., a Delaware corporation ("Tetra Tech"), and the parties listed on SCHEDULE A attached hereto (each, a "Holder" and collectively, the "Holders"). R E C I T A L S A. Tetra Tech and the Holders are parties to the Agreement and Plan of Reorganization of even date (the "Reorganization Agreement"), pursuant to which PDR Engineers, Inc., a Kentucky corporation ("PDR"), will merge with and into PDR Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Tetra Tech. B. Pursuant to the Reorganization Agreement, the shareholders of PDR will receive shares of the common stock, $.01 par value, of Tetra Tech ("Tetra Tech Common Stock"); and C. This Agreement is the Registration Rights Agreement referred to in SECTION 6.2 of the Reorganization Agreement and, pursuant thereto, must be entered into by the parties in connection with the consummation of the transactions contemplated by the Reorganization Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended from time to time. 1 "FORM S-3" shall mean such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by Tetra Tech with the SEC. "PROSPECTUS" shall mean the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such Prospectus. "REGISTER", "REGISTERED" and "REGISTRATION" shall mean and refer to a registration effected by preparing and filing a Registration Statement and taking all other actions that are necessary or appropriate in connection therewith, and the declaration or ordering of effectiveness of such Registration Statement by the SEC. "REGISTRATION EXPENSES" shall have the meaning set forth in SECTION 4. "REGISTRABLE SECURITIES" shall mean the shares of Tetra Tech Common Stock (i) issued pursuant to the Reorganization Agreement, and (ii) issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in (i) above; PROVIDED, HOWEVER, that Registrable Securities shall not include any shares of Tetra Tech Common Stock that have previously been registered or sold to the public or have been sold pursuant to Rule 144 ( or similar successor Rule). "REGISTRATION STATEMENT" shall mean any registration statement of Tetra Tech in compliance with the Securities Act that covers Registrable Securities pursuant to the provisions of this Agreement, including, without limitation, the Prospectus, all amendments and supplements to such Registration Statement, including all post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement. "RULE 144" shall mean Rule 144 promulgated under the Securities Act or any similar successor rule, as the same shall be in effect from time to time. "RULE 144A" shall mean Rule 144A promulgated under the Securities Act or any similar successor rule, as the same shall be in effect from time to time. "RULE 415" shall mean Rule 415 promulgated under the Securities Act, or any similar successor rule, as the same shall be in effect from time to time. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended from time to time. 2 "SEC" shall mean the Securities and Exchange Commission. "UNDERWRITTEN OFFERING" shall mean a registration in which securities of Tetra Tech are sold to an underwriter or through an underwriter as agent for reoffering to the public. 2. REGISTRATION FOR HOLDERS. (a) Tetra Tech shall file a Registration Statement on Form S-3, providing for the sale by the Holders, pursuant to Rule 415, and/or any similar rule that may be adopted by the SEC, of the Registrable Securities. Tetra Tech shall use commercially reasonable efforts to cause such Registration Statement to become effective on or before January 3, 2000, and to keep such Registration Statement continuously effective for a period ending on the date on which all such Holders are eligible to sell Registrable Securities under Rule 144 (or similar successor rule) without any volume limitation. If, at the time Tetra Tech is required to file a Registration Statement pursuant to this SECTION 3(a), Tetra Tech is not eligible to file a Registration Statement on Form S-3 to register resales by stockholders, Tetra Tech shall initially file a Registration Statement on Form S-1 and shall comply with the provisions of the immediately preceding sentence. Upon becoming eligible to use the Registration Statement on Form S-3 to register resales by stockholders (whether pursuant to a ruling or waiver from the SEC or otherwise), Tetra Tech shall promptly file a Registration Statement on Form S-3 or convert the existing Registration Statement to Form S-3 relating to the offer and sale of Registrable Securities by the Holders from time to time. Thereafter, Tetra Tech shall use commercially reasonable efforts to cause such new or amended Registration Statement to be declared effective by the SEC as promptly as practicable. (b) No Holder shall have the right to register securities under this Agreement unless such Holder provides and/or confirms in writing prior to or after the filing of the Registration Statement such information (including, without limitation, information as to the number of Registrable Securities that such Holder has sold pursuant to any such Registration Statement from time to time) as Tetra Tech reasonably requests in connection with such Registration Statement. (c) Notwithstanding the foregoing, for a period not to exceed 90 days, Tetra Tech shall not be obligated to prepare and file the Registration Statement required hereunder if Tetra Tech, in its good faith judgment, reasonably believes that the filing of such Registration Statement would require the disclosure of material non-public information regarding Tetra Tech and, accordingly, that the filing thereof, at the time requested, or the offering of Tetra Tech Common Stock pursuant thereto, would materially and adversely affect (i) a pending or scheduled public offering or private placement of securities of Tetra Tech, (ii) an acquisition, merger, consolidation or similar transaction by or of Tetra Tech, (iii) preexisting and 3 continuing negotiations, discussions or pending proposals with respect to any of the foregoing transactions, or (iv) the financial condition of Tetra Tech in view of the disclosure of any pending or threatened litigation, claim, assessment or governmental investigation which might be required thereby. In the event that Tetra Tech, in good faith, reasonably believes that such conditions are continuing after such 90-day period, it may, with the consent of the Holders of a majority of the Registrable Securities subject (or to be subject) to the Registration Statement, which consent shall not be unreasonably withheld, extend such 90-day period for an additional 30 days. Any further delay shall require the consent of the Holders of all such shares. 3. REGISTRATION PROCEDURES. In connection with Tetra Tech's registration obligations pursuant to SECTION 2 hereof, Tetra Tech will use commercially reasonable efforts to effect such registration to permit the sale of the Registrable Securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto Tetra Tech will: (a) prepare and file with the SEC a Registration Statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such Registration Statement to become effective; PROVIDED that, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, Tetra Tech will furnish to the Holders of the Registrable Securities covered by such Registration Statement and their counsel, copies of all such documents proposed to be filed at least ten days prior thereto, and Tetra Tech will not file any such Registration Statement or amendment thereto or any Prospectus or any supplement thereto to which any such Holder shall reasonably object within such ten day period; PROVIDED, FURTHER, that Tetra Tech will not name or otherwise provide any information with respect to any Holder in any Registration Statement or Prospectus without the express written consent of such Holder, unless required to do so by the Securities Act and the rules and regulations thereunder; (b) prepare and file with the SEC such amendments, post-effective amendments and supplements to the Registration Statement and the Prospectus as may be necessary to comply with the provisions of the Securities Act and the rules and regulations thereunder with respect to the disposition of all securities covered by such Registration Statement; (c) notify the selling Holders (i) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by Tetra Tech of any notification with respect to the 4 suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (v) of the happening of any event which makes any statement made in the Registration Statement, the Prospectus or any document incorporated therein by reference untrue or which requires the making of any changes in the Registration Statement, the Prospectus or any document incorporated therein by reference in order to make the statements therein not misleading in light of the circumstances then existing; (d) make every commercially reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; (e) deliver to each selling Holder, without charge, such reasonable number of conformed copies of the Registration Statement (and any post-effective amendment thereto) and such number of copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto (and any documents incorporated by reference therein) as such Holder may reasonably request. Tetra Tech consents to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders in connection with the offer and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (f) prior to any offering of Registrable Securities covered by a Registration Statement, register or qualify or cooperate with the selling Holders in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such selling Holder reasonably requests, and use commercially reasonable efforts to keep each such registration or qualification effective, including through new filings, or amendments or renewals, during the period such Registration Statement is required to be kept effective pursuant to the terms of this Agreement; and do any and all other acts or things necessary or advisable to enable the disposition in all such jurisdictions reasonably requested by the Holders of the Registrable Securities covered by such Registration Statement, PROVIDED that under no circumstances shall Tetra Tech be required in connection therewith or as a condition thereof to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (g) cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, free of any and all restrictive legends, such certificates to be in such denominations and registered in such names as the Holders may request; (h) upon the occurrence of any event contemplated by SECTION 3(c)(v) above, prepare a supplement or post-effective amendment to the Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required 5 document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (i) make generally available to the holders of Tetra Tech's outstanding securities earnings statements satisfying the provisions of Section 11(a) of the Securities Act, no later than 60 days after the end of any 12 month period (or 90 days, if such period is a fiscal year) beginning with the first month of Tetra Tech's first fiscal quarter commencing after the effective date of the Registration Statement, which statements shall cover said 12 month period; (j) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by each Registration Statement from and after a date not later than the effective date of such Registration Statement; (k) use its best efforts to cause all Registrable Securities covered by each Registration Statement to be listed, subject to notice of issuance, prior to the date of the first sale of such Registrable Securities pursuant to such Registration Statement, on each securities exchange on which the Tetra Tech Common Stock is then listed, and admitted to trading on the Nasdaq Stock Market, if the Tetra Tech Common Stock is then admitted to trading on the Nasdaq Stock Market; and (l) enter into such agreements (including underwriting agreements in customary form containing, among other things, reasonable and customary indemnities) and take such other actions as a majority of the Holders shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; and (m) cooperate with the selling Holders and the managing underwriter or underwriters in their marketing efforts with respect to the sale of the Registrable Securities, including participation by Tetra Tech management in "road show" presentations. Each Holder agrees that, upon receipt of any notice from Tetra Tech of the happening of any event of the kind described in SECTION 3(c)(v) hereof, such Holder will forthwith discontinue disposition of Registrable Securities under the Prospectus related to the applicable Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by SECTION 3(h) hereof, or until it is advised in writing by Tetra Tech that the use of the Prospectus may be resumed. It shall be a condition precedent to the obligations of Tetra Tech to take any action pursuant to this SECTION 3 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to Tetra Tech such information regarding itself and the Registrable 6 Securities held by it as shall be required by the Securities Act to effect the registration of such Holder's Registrable Securities. 4. REGISTRATION EXPENSES. All expenses incident to any registration to be effected hereunder and incident to Tetra Tech's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, National Association of Securities Dealers, Inc., stock exchange and qualification fees, fees and disbursements of Tetra Tech's counsel and of independent certified public accountants of Tetra Tech (including the expenses of any special audit required by or incident to such performance), the fees and disbursements of one counsel and one accountant representing the Holders in such offering, expenses of the underwriters that are customarily requested in similar circumstances by such underwriters (excluding discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Registrable Securities, which will be borne by the Holders), all such expenses being herein called "Registration Expenses," will be borne by Tetra Tech. Tetra Tech will also pay its internal expenses, the expense of any annual audit and the fees and expenses of any person retained by Tetra Tech. 5. INDEMNIFICATION. (a) INDEMNIFICATION BY TETRA TECH. Tetra Tech agrees to indemnify and hold harmless each Holder of Registrable Securities, its officers, directors, partners and employees and each person who controls such Holder (within the meaning of Section 15 of the Securities Act) from and against any and all losses, claims, damages and liabilities (including any investigation, legal or other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) (collectively, "Damages") to which such Holder may become subject under the Securities Act, the Exchange Act or other federal or state securities law or regulation, at common law or otherwise, insofar as such Damages arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or any amendment or supplement thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (iii) any violation or alleged violation by Tetra Tech of the Securities Act, the Exchange Act or any state securities or blue sky laws in connection with the Registration Statement, Prospectus or preliminary prospectus or any amendment or supplement thereto, PROVIDED that Tetra Tech will not be liable to any Holder to the extent that such Damages arise from or are based upon any untrue statement or omission (x) based upon written information furnished to Tetra Tech by such Holder expressly for the inclusion in such Registration Statement, (y) made in any preliminary prospectus if such Holder failed to deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Holder 7 to the party asserting the claim underlying such Damages and such Prospectus would have corrected such untrue statement or omission and (z) made in any Prospectus if such untrue statement or omission was corrected in an amendment or supplement to such Prospectus and such Holder failed to deliver such amendment or supplement prior to or concurrently with the sale of Registrable Securities to the party asserting the claim underlying such Damages. (b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. Each Holder of Registrable Securities whose Registrable Securities are sold under a Prospectus which is a part of a Registration Statement agrees to indemnify and hold harmless Tetra Tech, its directors and each officer who signed such Registration Statement and each person who controls Tetra Tech (within the meaning of Section 15 of the Securities Act), and each other Holder of Registrable Securities whose Registrable Securities are sold under the Prospectus which is a part of such Registration Statement (and such Holder's officers, directors and employees and each person who controls such Holder within the meaning of Section 15 of the Securities Act), under the same circumstances as the foregoing indemnity from Tetra Tech to each Holder of Registrable Securities to the extent that such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement of a material fact or omission of a material fact that was made in the Prospectus, the Registration Statement, or any amendment or supplement thereto, in reliance upon and in conformity with information relating to such Holder furnished in writing to Tetra Tech by such Holder expressly for use therein, PROVIDED that in no event shall the aggregate liability of any selling Holder of Registrable Securities exceed the amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. Tetra Tech and the selling Holders shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as customarily furnished by such persons in similar circumstances. (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER, that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person and not of the indemnifying party unless (A) the indemnifying party has agreed to pay such fees or expenses, (B) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (C) in the reasonable judgment of such person and the indemnifying party, based upon advice of their respective counsel, a conflict of interest may exist between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person). If such 8 defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnified party will be required to consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by all claimants or plaintiffs to such indemnified party of a release from all liability in respect to such claim or litigation. Any indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim. As used in this SECTION 7(C), the terms "indemnifying party", "indemnified party" and other terms of similar import are intended to include only Tetra Tech (and its officers, directors and control persons as set forth above) on the one hand, and the Holders (and their officers, directors, partners, employees, attorneys and control persons as set forth above) on the other hand, as applicable. (d) CONTRIBUTION. If for any reason the foregoing indemnity is unavailable, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties acknowledge and agree that it would not be just and equitable if contribution pursuant to this SECTION 5(d) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in this SECTION 5(d). Notwithstanding the foregoing, no Holder shall be required to contribute any amount in excess of the amount such Holder would have been required to pay to an indemnified party if the indemnity under SECTION 5(b) hereof was available. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligation of any person to contribute pursuant to this SECTION 5(d) shall be several and not joint. (e) TIMING OF PAYMENTS. An indemnifying party shall make payments of all amounts required to be made pursuant to the foregoing provisions of this SECTION 5 to or for the account of the indemnified party from time to time promptly upon receipt of bills or invoices relating thereto or when otherwise due or payable. 9 (f) SURVIVAL. The indemnity and contribution agreements contained in this SECTION 5 shall remain in full force and effect, regardless of any investigation made by or on behalf of Tetra Tech, a participating Holder, its officers, directors, partners, attorneys, agents or any person, if any, who controls Tetra Tech or such Holder as aforesaid, and shall survive the transfer of such Registrable Securities by such Holder. 6. PREPARATION; REASONABLE INVESTIGATION. In connection with the preparation and filing of a Registration Statement pursuant to the terms of this Agreement: (a) Tetra Tech shall, with respect to a Registration Statement filed pursuant to SECTION 2, give the Holders of such Registrable Securities so registered, their underwriters, if any, and their respective counsel and accountants the opportunity to participate in the preparation of such Registration Statement (other than reports and proxy statements incorporated therein by reference and properly filed with the SEC) and each Prospectus included therein or filed with the SEC, and each amendment thereof or supplement thereto; and (b) Tetra Tech shall give the Holders of such Registrable Securities so registered, their underwriters, if any, and their respective counsel and accountants such reasonable access to its books and records and such opportunities to discuss the business of Tetra Tech with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such Holders or such underwriters, to conduct a reasonable investigation within the meaning of Section 11(b)(3) of the Securities Act. 7. RULE 144. Tetra Tech covenants that it will use commercially reasonable efforts to file, on a timely basis, the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder, and it will take such further action as any Holder may reasonably request (including, without limitation, compliance with the current public information requirements of Rule 144(c) and Rule 144A), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the conditions provided by Rule 144, Rule 144A or any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder, Tetra Tech will promptly deliver to such Holder a written statement verifying that it has complied with such information and requirements. 8. SPECIFIC PERFORMANCE. Each Holder, in addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Tetra Tech agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 10 9. NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by United States first-class mail, postage prepaid, sent by facsimile or delivered personally by hand or nationally recognized courier addressed (a) if to a Holder, as indicated on the list of Holders attached hereto as SCHEDULE A, or at such other address as such Holder or permitted assignee shall have furnished to Tetra Tech in writing, or (b) if to Tetra Tech, at such address or facsimile number as Tetra Tech shall have furnished to each Holder in writing. All such notices and other written communications shall be effective on the date of mailing, facsimile transfer or delivery. 10. SUCCESSORS AND ASSIGNS: ASSIGNMENT OF RIGHTS. The rights and benefits of a Holder hereunder may not be assigned to a transferee or assignee without the consent of Tetra Tech; PROVIDED, HOWEVER, that, no later than the 10th day prior to the filing of the Registration Statement under SECTION 2 hereof, the rights and benefits of a Holder hereunder may be transferred in connection with a transfer or assignment of any Registrable Securities held by such Holder (i) by gift to immediate family members of such Holder, or trusts or other entities for the sole benefit thereof, or (ii) by gift to any entity in which such Holder, his or her immediate family members, or trusts or other entities for the sole benefit thereof beneficially own all of the voting securities; PROVIDED, HOWEVER, that in each case, the transferee executes an instrument pursuant to which the transferee agrees to be bound by the terms and conditions hereof as a Holder, and such other documents as Tetra Tech or its counsel may reasonably require, after which, such transferee shall be deemed a "Holder" hereunder. Any transfer of Registrable Securities, and rights hereunder, shall be subject to compliance with applicable securities laws and the restrictions contained in the Investment Letter executed by each Holder pursuant to the Reorganization Agreement. 11. SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 12. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement, the Reorganization Agreement and the other agreements contemplated thereby constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof. Without limiting the foregoing, the rights of the Holders to registration pursuant to the terms of this Agreement shall be subject to the limitations on resale contained in the Investment Letter (as defined in the Reorganization Agreement). Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by Tetra Tech and the holders of at least 51% of the Registrable Securities and any such amendment, waiver, discharge or termination shall be binding upon all the parties hereto, but in no event shall the obligation of any party hereto be materially increased, except upon the written consent of such party. 11 13. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be original, and all of which together shall constitute one instrument. 14. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California without giving effect to principles of conflicts of laws thereof. 15. NO THIRD PARTY BENEFICIARIES. The covenants and agreements set forth herein are for the sole and exclusive benefit of the parties hereto and their respective successors and assigns and such covenants and agreements shall not be construed as conferring, and are not intended to confer, any rights or benefits upon any other persons. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. TETRA TECH, INC. By: /s/ Li-San Hwang ------------------------------------- Li-San Hwang Chairman, Chief Executive Officer and President /s/ Elbert C. Ray ------------------------------------- Elbert C. Ray /s/ Steven D. Singleton ------------------------------------- Steven D. Singleton /s/ Davis B. Servis ------------------------------------- Davis B. Servis /s/ Michael A. Cooper ------------------------------------- Michael A. Cooper 12
SCHEDULE A SCHEDULE OF HOLDERS Number of Shares of Tetra Tech Common Stock Issued Pursuant Holder's Name/Address/Facsimile No. to the Reorganization Agreement - --------------------------------------- ----------------------------------- Elbert C. Ray 134,082 800 Corporate Drive, Suite 100 Lexington, Kentucky 40503 Facsimile: (606) 224-1025 Steven D. Singleton 24,412 800 Corporate Drive, Suite 100 Lexington, Kentucky 40503 Facsimile: (606) 224-1025 David B. Servis 30,849 800 Corporate Drive, Suite 100 Lexington, Kentucky 40503 Facsimile: (606) 224-1025 Michael A. Cooper 47,182 800 Corporate Drive, Suite 100 Lexington, Kentucky 40503 Facsimile: (606) 224-1025
13 EX-13 4 EXHIBIT 13 FINANCIAL HIGHLIGHTS
Fiscal Year Ended --------------------------------------------------------------------- Oct. 3, Oct. 4, Sept. 28, Sept. 29, Oct. 1, 1999 1998 1997 1996 1995 ------- ------- --------- -------- ------- (in thousands, except per share data) Gross revenue.......................... $ 566,490 $ 382,934 $ 246,767 $ 220,099 $ 120,034 Net revenue............................ 432,080 297,597 190,791 161,037 87,874 Income from operations................. 55,424 39,813 24,599 17,735 11,756 Net income............................. 29,115 20,586 14,256 10,105 7,553 Basic earnings per share (1)........... 0.78 0.59 0.49 0.37 0.29 Diluted earnings per share (1) ........ 0.74 0.56 0.46 0.36 0.29 Weighted average common shares outstanding: (1) Basic............................. 37,159 34,962 29,214 27,314 25,731 Diluted........................... 39,550 36,488 30,820 28,226 26,432 Net cash flow from operating activities (2)...................... 30,258 (6,620) 1,144 21,124 13,578 Working capital........................ 86,313 77,049 42,539 32,739 39,872 Total assets........................... 380,478 266,610 159,513 88,463 92,930 Long-term obligations, excluding current portion..................... 37,289 33,546 -- -- 19,045 Stockholders' equity................... 234,432 167,781 107,641 63,269 41,496
(1) REFLECTS THE EFFECT, ON A RETROACTIVE BASIS, OF A 5-FOR-4 STOCK SPLIT, EFFECTED IN THE FORM OF A 25% STOCK DIVIDEND, IN JUNE 1999. (2) NET CASH FROM OPERATING ACTIVITIES WAS REDUCED BY $9.3 MILLION, $10.3 MILLION AND $15.6 MILLION FOR THE YEARS ENDED OCTOBER 3, 1999, OCTOBER 4, 1998 AND SEPTEMBER 28, 1997, RESPECTIVELY, AS A RESULT OF OUR ASSIGNMENT OF ACCOUNTS RECEIVABLE TO THE FORMER OWNERS OF CERTAIN ACQUIRED COMPANIES. 1 SELECTED CONSOLIDATED FINANCIAL DATA
Fiscal Year Ended -------------------------------------------------------------------- Oct. 3,(2) Oct. 4,(3) Sept. 28,(4) Sept. 29,(5) Oct. 1,(6) 1999 1998 1997 1996 1995 ---------- ------- --------- --------- ------- (in thousands, except per share data) STATEMENTS OF INCOME DATA Gross revenue.......................... $ 566,490 $ 382,934 $ 246,767 $ 220,099 $ 120,034 Subcontractor costs.................... 134,410 85,337 55,976 59,062 32,160 ---------- ---------- ---------- ---------- --------- Net revenue............................ 432,080 297,597 190,791 161,037 87,874 Cost of net revenue.................... 327,336 223,871 141,019 122,084 65,484 ---------- ---------- ---------- ---------- --------- Gross profit........................... 104,744 73,726 49,772 38,953 22,390 Selling, general and administrative expenses............................ 49,320 33,913 25,173 21,218 10,634 ---------- ---------- ---------- ---------- --------- Income from operations................. 55,424 39,813 24,599 17,735 11,756 Net interest (expense) income.......... (3,135) (1,910) (20) (776) 833 ----------- ---------- ---------- --------- --------- Income before minority interest and income tax expense.................. 52,289 37,903 24,579 16,959 12,589 Minority interest...................... -- 1,397 -- -- -- ---------- ---------- ---------- ---------- --------- Income before income tax expense....... 52,289 36,506 24,579 16,959 12,589 Income tax expense..................... 23,174 15,920 10,323 6,854 5,036 ---------- ---------- ---------- ---------- --------- Net income............................. $ 29,115 $ 20,586 $ 14,256 $ 10,105 $ 7,553 ========== ========== ========== ========== ========= Basic earnings per share (1)........... $ 0.78 $ 0.59 $ 0.49 $ 0.37 $ 0.29 ========== ========== ========== ========== ========= Diluted earnings per share (1)......... $ 0.74 $ 0.56 $ 0.46 $ 0.36 $ 0.29 ========== ========== ========== ========== ========= Weighted average common shares outstanding: (1) Basic............................. 37,159 34,962 29,214 27,314 25,731 ========== ========== ========== ========== ========= Diluted........................... 39,550 36,488 30,820 28,226 26,432 ========== ========== ========== ========== ========= Oct. 3, Oct. 4, Sept. 28, Sept. 29, Oct. 1, 1999 1998 1997 1996 1995 ------- ------- --------- --------- ------- (in thousands) BALANCE SHEET DATA Working capital........................ $ 86,313 $ 77,049 $ 42,539 $ 32,739 $ 39,872 Total assets........................... 380,478 266,610 159,513 88,463 92,930 Long-term obligations, excluding current portion..................... 37,289 33,546 -- -- 19,045 Stockholders' equity................... 234,432 167,781 107,641 63,269 41,496
(Continued) 2 (1) REFLECTS THE EFFECT, ON A RETROACTIVE BASIS, OF A 5-FOR-4 STOCK SPLIT, EFFECTED IN THE FORM OF A 25% STOCK DIVIDEND, IN JUNE 1999. (2) WE HAVE INCLUDED THE RESULTS OF OPERATIONS AND FINANCIAL POSITIONS OF MFG, INC. (FORMERLY MCCULLEY, FRICK & GILMAN, INC., ACQUIRED FEBRUARY 26, 1999), COLLINS/PINA CONSULTING ENGINEERS, INC. (ACQUIRED MAY 7, 1999), D.E.A. CONSTRUCTION COMPANY (ACQUIRED MAY 19, 1999), BAHA COMMUNICATIONS, INC. (ACQUIRED MAY 21, 1999), UTILITIES & C.C., INC. (ACQUIRED JUNE 18, 1999), ASL CONSULTANTS, INC. (ACQUIRED JUNE 25, 1999), COSENTINI ASSOCIATES, INC. (FORMERLY PARTNERSHIP INTERESTS AND CERTAIN COMPANIES AFFILIATED WITH COSENTINI ASSOCIATES LLP, ACQUIRED JUNE 30, 1999), PDR ENGINEERS, INC. (ACQUIRED SEPTEMBER 3, 1999), AND EVERGREEN UTILITY CONTRACTORS, INC., CONTINENTAL UTILITY CONTRACTORS, INC. AND GIG HARBOR CONSTRUCTION, INC. (COLLECTIVELY ACQUIRED OCTOBER 2, 1999) FROM THE EFFECTIVE ACQUISITION DATES. (3) WE HAVE INCLUDED THE RESULTS OF OPERATIONS AND FINANCIAL POSITIONS OF TETRA TECH NUS, INC. (ACQUIRED DECEMBER 31, 1997), WHALEN/SENTREX LLC (FORMED MARCH 2, 1998), C.D.C. ENGINEERING, INC. (ACQUIRED MARCH 26, 1998 AND SUBSEQUENTLY MERGED INTO TETRA TECH, INC. ON JULY 29, 1999), MCNAMEE, PORTER & SEELEY, INC. (ACQUIRED JULY 8, 1998) AND THE SENTREX GROUP OF COMPANIES (ACQUIRED SEPTEMBER 22, 1998) FROM THE EFFECTIVE ACQUISITION DATES. (4) WE HAVE INCLUDED THE RESULTS OF OPERATIONS AND FINANCIAL POSITIONS OF IWA ENGINEERS (ACQUIRED DECEMBER 11, 1996 AND SUBSEQUENTLY MERGED INTO TETRA TECH, INC. ON JULY 29, 1999), FLO ENGINEERING, INC. (ACQUIRED DECEMBER 20, 1996 AND SUBSEQUENTLY MERGED INTO TETRA TECH, INC. ON JULY 29, 1999), SCM CONSULTANTS, INC. (ACQUIRED MARCH 19, 1997), WHALEN & COMPANY, INC. (ACQUIRED JUNE 11, 1997) AND COMMSITE DEVELOPMENT CORPORATION (ACQUIRED JULY 11, 1997 AND SUBSEQUENTLY MERGED INTO WHALEN & COMPANY, INC. ON JANUARY 4, 1999) FROM THE EFFECTIVE ACQUISITION DATES. (5) WE HAVE INCLUDED THE RESULTS OF OPERATIONS AND FINANCIAL POSITION OF KCM, INC. (ACQUIRED NOVEMBER 7, 1995) FROM THE EFFECTIVE ACQUISITION DATE. (6) WE HAVE INCLUDED THE RESULTS OF OPERATIONS AND FINANCIAL POSITION OF TETRA TECH EM INC. (FORMERLY KNOWN AS PRC ENVIRONMENTAL MANAGEMENT, INC. AND ACQUIRED SEPTEMBER 15, 1995) FROM THE EFFECTIVE ACQUISITION DATE. (Concluded) 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED BELOW, THE MATTERS DISCUSSED IN THIS SECTION ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. OUR ACTUAL LIQUIDITY NEEDS, CAPITAL RESOURCES AND OPERATING RESULTS MAY DIFFER MATERIALLY FROM THE DISCUSSION SET FORTH BELOW IN THESE FORWARD-LOOKING STATEMENTS. FOR ADDITIONAL INFORMATION, REFER TO THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. OVERVIEW Tetra Tech, Inc. is a leading provider of specialized management consulting and technical services in three principal business areas: resource management, infrastructure and communications. As a specialized management consultant, we assist our clients in defining problems and developing innovative and cost-effective solutions. Our management consulting services are complemented by our technical services. These technical services, which implement solutions, include research and development, applied science, engineering and architectural design, construction management, and operations and maintenance. Our clients include a diverse base of public and private organizations located in the United States and internationally. Since our initial public offering in December 1991, we increased the size and scope of our business and have expanded our service offerings through a series of strategic acquisitions and internal growth. From fiscal 1991 through fiscal 1999, we generated a net revenue compounded annual growth rate of approximately 34.9% and achieved a net income compounded annual growth rate of approximately 37.0%. We derive our revenue from fees from professional services. Our services are billed under various types of contracts with our clients, including: - Fixed-price; - Fixed-rate time and materials; - Cost-reimbursement plus fixed fee; and - Cost-reimbursement plus fixed and award fee. In the course of providing our services, we routinely subcontract services. These subcontractor costs are passed through to our clients and, in accordance with industry practice, are included in our gross revenue. Because subcontractor services can change significantly from project to project, we believe net revenue, which is gross revenue less the cost of subcontractor services, is a more appropriate measure of our performance. Our cost of net revenue includes professional compensation and certain direct and indirect overhead costs such as rents, utilities and travel. Professional compensation represents the majority of these costs. Our selling, general and administrative (SG&A) expenses are comprised primarily of our corporate headquarters' costs related to the executive offices, corporate accounting, information technology, marketing, and bid and proposal costs. These costs are generally unrelated to specific client projects. In addition, we include amortization of certain intangible assets resulting from acquisitions in SG&A expenses. 4 We provide services to a diverse base of Federal, state and local government agencies, and private and international clients. The following table presents, for the periods indicated, the approximate percentage of our net revenue attributable to these client sectors:
Percentage of Net Revenue ---------------------------------------- Client Fiscal 1999 Fiscal 1998 Fiscal 1997 ------ ----------- ----------- ----------- Federal government............................... 39.1% 48.7% 52.3% State and local government....................... 16.3 12.7 14.8 Private.......................................... 41.3 35.4 29.2 International.................................... 3.3 3.2 3.7 ----------- ----------- ----------- Total............................................ 100.0% 100.0% 100.0% =========== =========== ===========
Our revenue and operating results fluctuate from quarter to quarter as a result of a number of factors, such as: - the seasonality of the spending cycle of our public sector clients, notably the Federal government; - employee hiring and utilization rates; - the number and significance of client engagements commenced and completed during a quarter; - delays incurred in connection with an engagement; - the ability of clients to terminate engagements without penalties; - the size and scope of engagements; - the timing and size of the return on investment capital; and - general economic and political conditions. Variations in any of these factors can cause significant variations in operating results from quarter to quarter and could result in losses. RECENT ACQUISITIONS As a part of our growth strategy, we expect to pursue complementary acquisitions to expand our geographical reach and the breadth and depth of our service offerings. During fiscal 1999, we purchased 11 companies in the following nine transactions: - MCCULLEY, FRICK & GILMAN, INC.- In February 1999, we acquired McCulley, Frick & Gilman, Inc. (MFG). The purchase was valued at approximately $8.1 million. MFG, a Colorado-based firm, provides professional environmental science and consulting services to private-sector clients throughout the United States. - COLLINS/PINA CONSULTING ENGINEERS, INC.- In May 1999, we acquired Collins/Pina Consulting Engineers, Inc. (CPC). The purchase was valued at approximately $2.7 million. CPC, an Arizona-based firm, provides consulting engineering and related services primarily in the state of Arizona. - D.E.A. CONSTRUCTION COMPANY - In May 1999, we acquired D.E.A. Construction Company (DCC). The purchase was valued at approximately $15.5 million. DCC, a Colorado-based construction and field services firm, provides design, construction and maintenance of communications and 5 information transport systems to the communications industry primarily in Colorado and surrounding states. - BAHA COMMUNICATIONS, INC.- In May 1999, we acquired BAHA Communications, Inc. (BCI). The purchase was valued at approximately $2.6 million, excluding the value of the accounts receivable which were assigned to the former owners at the time of acquisition. BCI, a Nevada-based construction and field services firm, provides infrastructure installation and maintenance services to the wireless personal communications industry primarily in Nevada and the Southwestern United States. - UTILITIES & C.C., INC. - In June 1999, we acquired Utilities & C.C., Inc. (UCC). The purchase was valued at approximately $2.2 million. UCC, a Northern California-based construction and field services firm, provides infrastructure installation and maintenance services to the wireless personal communications industry primarily in California. - ASL CONSULTANTS, INC. - In June 1999, we acquired ASL Consultants, Inc. (ASL). The purchase was valued at approximately $10.1 million. ASL, a Southern California-based consulting engineering firm, provides water and wastewater treatment, transportation, and other engineering services primarily in California and Arizona. - COSENTINI ASSOCIATES - In June 1999, we acquired the outstanding shares and partnership interests of certain companies affiliated with Cosentini Associates LLP (collectively, CAA). The purchase was valued at approximately $5.3 million, excluding the value of the accounts receivable which were assigned to the former owners at the time of acquisition. CAA, a New York-based engineering firm, provides engineering services for major buildings primarily in the Northeastern United States. - PDR ENGINEERS, INC. - In September 1999, we acquired PDR Engineers, Inc. (PDR). The purchase was valued at approximately $6.6 million. PDR, a Kentucky-based consulting engineering firm, provides water and wastewater treatment, transportation, and other engineering services primarily in the Southeastern United States. - EVERGREEN UTILITY CONTRACTORS, INC. - In October 1999, we acquired Evergreen Utility Contractors, Inc., Continental Utility Contractors, Inc. and Gig Harbor Construction, Inc. (collectively, EUC). The purchase was valued at approximately $11.8 million. EUC, a Washington-based engineering firm, provides engineering and network services for cable TV and fiber optic telephone networks in the Pacific Northwestern United States. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain operating information as a percentage of net revenue:
Percentage of Net Revenue ---------------------------------------- Fiscal Year Ended ---------------------------------------- Oct. 3, Oct. 4, Sept. 28, 1999 1998 1997 --------- -------- --------- Net revenue............................. 100.0% 100.0% 100.0% Cost of net revenue..................... 75.8 75.2 73.9 --------- --------- -------- Gross profit............................ 24.2 24.8 26.1 Selling, general and administrative expenses............................. 11.4 11.4 13.2 --------- --------- -------- Income from operations.................. 12.8 13.4 12.9 Net interest (expense) income .......... (0.7) (0.7) -- --------- --------- -------- Income before minority interest and income tax expense................... 12.1 12.7 12.9 6 Minority interest....................... -- (0.5) -- --------- --------- -------- Income before income tax expense........ 12.1 12.2 12.9 Income tax expense...................... 5.4 5.3 5.4 --------- --------- -------- Net income.............................. 6.7% 6.9% 7.5% ========= ========= =======
FISCAL 1999 COMPARED TO FISCAL 1998 NET REVENUE. Net revenue increased $134.5 million, or 45.2%, to $432.1 million in fiscal 1999 from $297.6 million in fiscal 1998. All four client sectors continued to show net revenue increases in actual dollars. These increases were primarily attributable to the expansion of our infrastructure services throughout the United States, the continued expansion of new lines of service in our communications business and companies acquired in fiscal 1999. As a percentage of net revenue, increases were realized in the state and local sector, the private sector and the international sector. Net revenue from the companies acquired in fiscal 1999 totaled $61.5 million. Excluding the net revenue from these companies, we realized 24.5% growth in our net revenue. Gross revenue increased $183.6 million, or 47.9%, to $566.5 million in fiscal 1999 from $382.9 million in fiscal 1998. In fiscal 1999, subcontractor costs comprised 23.7% of gross revenue compared to 22.3% for fiscal 1998. COST OF NET REVENUE. Cost of net revenue increased $103.5 million, or 46.2%, to $327.3 million in fiscal 1999 from $223.9 million in fiscal 1998. As a percentage of net revenue, cost of net revenue increased from 75.2% in fiscal 1998 to 75.8% in fiscal 1999. This increase was primarily attributable to higher costs incurred from the acquired companies. Professional compensation, the largest component of our cost of net revenue, rose as the number of our employees increased by 1,781, or 48.6%, to 5,443 in fiscal 1999 from 3,662 in fiscal 1998. Excluding the employees provided from acquired companies, our number of employees increased by 74, or 2.0%. Gross profit increased $31.0 million, or 42.1%, to $104.7 million in fiscal 1999 from $73.7 million in fiscal 1998. In addition, included in our net revenue and gross profit was $1.75 million relating to the reversal of an over accrual of an allowance for disallowed costs (See Note 3. in Notes to Consolidated Financial Statements). However, as a percentage of net revenue, gross profit decreased from 24.8% in fiscal 1998 to 24.2% in fiscal 1999, primarily due to lower margins of acquired companies. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $15.4 million, or 45.4%, to $49.3 million in fiscal 1999 from $33.9 million in fiscal 1998. This increase was primarily attributable to additional headquarters' costs associated with centralizing corporate functions, other corporate initiatives, costs associated with year 2000 compliance, as well as additional amortization expense relating to acquired companies. As a percentage of net revenue, SG&A expenses remained at 11.4%. The amortization expense related to acquisitions increased $1.8 million, or 63.1%, to $4.8 million in fiscal 1999 from $3.0 million in fiscal 1998. NET INTEREST EXPENSE. Net interest expense increased $1.2 million, or 64.1%, from $1.9 million to $3.1 million from fiscal 1998 to fiscal 1999. This increase was primarily attributable to the financing and working capital needs of certain acquisitions. INCOME TAX EXPENSE. Income tax expense increased $7.3 million, or 45.6%, to $23.2 million in fiscal 1999 from $15.9 million in fiscal 1998. This increase was due to higher income before income taxes and an increase in our effective tax rate from 43.6% in fiscal 1998 to 44.3% in fiscal 1999. This increase was primarily attributable to increased amounts of non-deductible goodwill resulting from our business acquisitions. 7 FISCAL 1998 COMPARED TO FISCAL 1997 NET REVENUE. Net revenue increased $106.8 million, or 56.0%, to $297.6 million in fiscal 1998 from $190.8 million in fiscal 1997. All four client sectors continued to show net revenue increases in actual dollars. These increases were attributable to increases in our existing Federal government contracts, the introduction of new lines of service in our communications business and to companies acquired in fiscal 1998. As a percentage of net revenue, increases were realized in the private sector. Net revenue from the companies acquired in fiscal 1998 totaled $72.0 million. Excluding the net revenue from these companies, we realized 18.2% growth in our net revenue. Gross revenue increased $136.2 million, or 55.2%, to $382.9 million in fiscal 1998 from $246.8 million in fiscal 1997. In fiscal 1998, subcontractor costs comprised 22.3% of gross revenue compared to 22.7% for fiscal 1997. COST OF NET REVENUE. Cost of net revenue increased $82.9 million, or 58.8%, to $223.9 million in fiscal 1998 from $141.0 million in fiscal 1997. As a percentage of net revenue, cost of net revenue increased from 73.9% in fiscal 1997 to 75.2% in fiscal 1998. This increase was primarily attributable to higher costs of Federal government contracts, as well as costs incurred in connection with the additional net revenue from the acquired companies. Professional compensation, the largest component of our cost of net revenue, rose as the number of our employees increased by 1,400, or 61.9%, to 3,662 in fiscal 1998 from 2,262 in fiscal 1997. Excluding the employees provided from acquired companies, our number of employees increased by 265, or 11.7%. Gross profit increased $24.0 million, or 48.1%, to $73.7 million in fiscal 1998 from $49.8 million in fiscal 1997. However, as a percentage of net revenue, gross profit decreased from 26.1% in fiscal 1997 to 24.8% in fiscal 1998, primarily due to a change in the relative mix of our Federal government contracts. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $8.7 million, or 34.7%, to $33.9 million in fiscal 1998 from $25.2 million in fiscal 1997. This increase was primarily attributable to additional headquarters' costs associated with centralizing corporate functions as well as additional amortization expense relating to acquired companies. As a percentage of net revenue, SG&A expenses decreased from 13.2% in fiscal 1997 to 11.4% in fiscal 1998 due to operating efficiencies. The amortization expense related to acquisitions increased $1.4 million, or 89.1%, to $3.0 million in fiscal 1998 from $1.6 million in fiscal 1997. NET INTEREST EXPENSE. Net interest expense increased from less than $0.1 million to $1.9 million from fiscal 1997 to fiscal 1998. This increase was primarily attributable to the financing and working capital needs of certain acquisitions. INCOME TAX EXPENSE. Income tax expense increased $5.6 million, or 54.2%, to $15.9 million in fiscal 1998 from $10.3 million in fiscal 1997. This increase was due to higher income before income taxes and an increase in our effective tax rate from 42.0% in fiscal 1997 to 43.6% in fiscal 1998. This increase was primarily attributable to amortization amounts which were not tax deductible. UNAUDITED QUARTERLY OPERATING RESULTS The following tables set forth certain unaudited quarterly operating results for each of our last three fiscal years ended October 3, 1999, October 4, 1998 and September 28, 1997. This data is also expressed as a percentage of net revenue for the respective quarters. The information has been derived from unaudited consolidated financial statements that, in our opinion, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such quarterly information. The operating results for any quarter are not necessarily indicative of the results to be expected for any future period. 8
Fiscal 1999 Quarter Ended Fiscal 1998 Quarter Ended ---------------------------------- ------------------------------------ Jan. 3, Apr. 4, Jul. 4, Oct. 3, Dec. 28, Mar. 29, Jun. 28, Oct. 4, 1999 1999 1999 1999 1997 1998 1998 1998 ------- ------- ------- ------- ------- ------- ------- ------- (in thousands) Net revenue $89,245 $96,955 $120,739 $125,141 $53,664 $71,806 $75,149 $96,978 Cost of net revenue 70,187 74,402 88,189 94,558 40,339 54,786 54,405 74,341 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit 19,058 22,553 32,550 30,583 13,325 17,020 20,744 22,637 Selling, general and administrative expenses 8,871 10,684 16,951 12,814 6,146 8,148 9,333 10,286 ------- ------- ------- ------- ------- ------- ------- ------- Income from operations 10,187 11,869 15,599 17,769 7,179 8,872 11,411 12,351 Net interest (expense) income (699) (532) (550) (1,354) (73) (596) (510) (731) -------- ------- -------- ------- ------- ------ ------- ------ Income before minority interest and income tax expense 9,488 11,337 15,049 16,415 7,106 8,276 10,901 11,620 Minority interest - - - - - 203 1,194 - ------- ------- ------- ------- -------- ------- ------- ------- Income before income tax expense 9,488 11,337 15,049 16,415 7,106 8,073 9,707 11,620 Income tax expense 4,061 4,875 6,546 7,692 3,055 3,552 4,214 5,099 ------- ------- ------- ------- ------- ------- ------- ------- Net income $ 5,427 $ 6,462 $ 8,503 $ 8,723 $ 4,051 $ 4,521 $ 5,493 $ 6,521 ======= ======= ======= ======= ======= ======= ======= ======= Fiscal 1997 Quarter Ended ------------------------------------ Dec. 29, Mar. 30, Jun. 29, Sep. 28, 1996 1997 1997 1997 ------- ------- ------- ------ (in thousands) Net revenue $40,423 $43,914 $48,621 $57,833 Cost of net revenue 31,051 33,367 35,660 40,941 ------- ------- ------- ------- Gross profit 9,372 10,547 12,961 16,892 Selling, general and administrative expenses 4,979 5,655 6,754 7,785 ------- ------- ------- ------- Income from operations 4,393 4,892 6,207 9,107 Net interest (expense) income 49 31 4 (104) ------- ------- ------- ------ Income before minority interest and income tax expense 4,442 4,923 6,211 9,003 Minority interest - - - - ------- ------- ------- ------- Income before income tax expense 4,442 4,923 6,211 9,003 Income tax expense 1,846 2,051 2,567 3,859 ------- ------- ------- ------- Net income $ 2,596 $ 2,872 $ 3,644 $ 5,144 ======= ======= ======= =======
Fiscal 1999 Quarter Ended Fiscal 1998 Quarter Ended ----------------------------------- ----------------------------------- Jan. 3, Apr. 4, Jul. 4, Oct. 3, Dec. 28, Mar. 29, Jun. 28, Oct. 4, 1999 1999 1999 1999 1997 1998 1998 1998 ------- ------- ------- ------- ------- ------- ------- ------- Net revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of net revenue 78.6 76.7 73.0 75.6 75.2 76.3 72.4 76.7 ------- -------- ------- ------- -------- ------- ------- -------- Gross profit 21.4 23.3 27.0 24.4 24.8 23.7 27.6 23.3 Selling, general and administrative expenses 10.0 11.1 14.1 10.2 11.5 11.3 12.4 10.6 ------- -------- ------- ------- -------- ------- ------- -------- Income from operations 11.4 12.2 12.9 14.2 13.3 12.4 15.2 12.7 Net interest (expense) income (0.8) (0.5) (0.4) (1.1) (0.1) (0.9) (0.7) (0.7) ------- -------- ------- ------- -------- ------- ------- -------- Income before minority interest and income tax 10.6 11.7 12.5 13.1 13.2 11.5 14.5 12.0 expense Minority interest - - - - - 0.3 1.6 - ------- -------- ------- ------- -------- ------- ------- -------- Income before income tax expense 10.6 11.7 12.5 13.1 13.2 11.2 12.9 12.0 Income tax expense 4.5 5.0 5.5 6.1 5.7 4.9 5.6 5.3 ------- -------- ------- ------- -------- ------- ------- -------- Net income 6.1% 6.7% 7.0% 7.0% 7.5% 6.3% 7.3% 6.7% ======= ======== ======= ======= ======== ======= ======= ======== Fiscal 1997 Quarter Ended ------------------------------------ Dec. 29, Mar. 30, Jun. 29, Sep. 28, 1996 1997 1997 1997 ------- ------- ------- ------ Net revenue 100.0% 100.0% 100.0% 100.0% Cost of net revenue 76.8 76.0 73.3 70.8 ------- ------- -------- ------- Gross profit 23.2 24.0 26.7 29.2 Selling, general and administrative expenses 12.3 12.9 13.9 13.5 ------- ------- -------- ------- Income from operations 10.9 11.1 12.8 15.7 Net interest (expense) income 0.1 0.1 - (0.1) - ------- ------- ------- -------- Income before minority interest and income tax expense 11.0 11.2 12.8 15.6 Minority interest - - - - ------- ------- -------- ------ Income before income tax expense 11.0 11.2 12.8 15.6 Income tax expense 4.6 4.7 5.3 6.7 ------- ------- -------- ------- Net income 6.4% 6.5% 7.5% 8.9% ======= ======= ======== =======
LIQUIDITY AND CAPITAL RESOURCES We are currently in the process of refinancing our existing revolving credit facility, which must be reduced to $60.0 million on February 1, 2000, with a new senior secured credit facility in the amount of $150.0 million. In connection with this refinancing, we have signed a syndication mandate letter under which Banc of America LLC has agreed to form a syndicate of financial institutions, led by Bank of America, N.A., to provide the new facility. We expect that internally generated funds, our existing cash balances and availability under the new facility will be sufficient to meet our capital requirements through the end of fiscal 2000. However, no assurance can be given that we will successfully complete the refinancing. If we are unable to refinance our indebtedness, we will need to obtain alternate financing to reduce our existing facility and meet our fiscal 2000 capital needs. As of October 3, 1999, our working capital was $86.3 million, an increase of $9.3 million from $77.0 million on October 4, 1998, of which cash and cash equivalents totaled $8.2 million. In fiscal 1999, we augmented cash provided by operations with borrowings under our credit facility and proceeds from our secondary offering. In fiscal 1999, $30.3 million was provided by operating activities and $57.7 million was used in investing activities, of which $50.7 million was related to business acquisitions. In fiscal 1998, we used $6.6 million in operating activities and $41.3 million in investing activities, of which $37.8 million was related to business acquisitions. In both fiscal years 1999 and 1998, cash provided by/used in operating activities was effected by the structure of certain transactions. One of our acquisition structures is to assign accounts receivable to the former owners at the time of the transaction in lieu of cash consideration. This structure allows us to reduce our cash used in investing activities. However, cash must be invested in future periods to finance the working capital needs of the acquired 9 company. In fiscal 1999, in the BCI and CAA acquisitions, accounts receivable in the aggregate amount of $19.4 million were assigned to the former owners. Collections on these receivables during fiscal 1999 totaled $9.3 million. If we had not assigned these receivables at the time of acquisition, cash provided by operating activities in fiscal 1999 could have been $39.6 million. In fiscal years 1997 and 1998, we acquired WAC and MPS utilizing this same structure. In fiscal 1997, we assigned $18.5 million in receivables to the former owners of WAC and in fiscal 1998, we assigned $8.0 million in receivables to the former owners of MPS. In fiscal 1998, cash collected on these assigned receivables totaled $10.3 million. If we had not assigned these receivables at the time of acquisition, cash provided by operating activities in fiscal 1998 could have been $3.7 million. Our capital expenditures during fiscal years 1999 and 1998 were approximately $7.0 million and $3.5 million, respectively. The expenditures were primarily for computer equipment and office expansion. We have a credit agreement with a bank (the "Credit Agreement") which, as of October 3, 1999, provided us with a revolving credit facility (the "Facility") of $85.0 million. On December 24, 1999, we amended the Credit Agreement to provide for a facility of $93.0 million. The Facility must be reduced to $60.0 million on February 1, 2000 and it matures on December 15, 2000 or earlier at our discretion upon payment in full of loans and other obligations. Throughout fiscal 1999, maximum borrowings under the Facility were $65.0 million. At October 3, 1999, borrowings and standby letters of credit totaled $57.5 million and $1.5 million, respectively. We continuously evaluate the marketplace for strategic acquisition opportunities. Once an opportunity is identified, we examine the effect an acquisition may have on the business environment, as well as on our results of operations. We proceed with an acquisition if we determine that the acquisition is anticipated to have an accretive effect on future operations or could expand our service offerings. As successful integration and implementation are essential to achieve favorable results, no assurances can be given that all acquisitions will provide accretive results. Our strategy is to position ourselves to address existing and emerging markets. We view acquisitions as a key component of our growth strategy, and we intend to use both cash and our securities, as we deem appropriate, to fund such acquisitions. We believe our operations have not been and, in the foreseeable future, we do not expect to be materially adversely affected by inflation or changing prices. RECENTLY ISSUED FINANCIAL STANDARDS In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME, which we adopted in fiscal 1999. The Statement establishes standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. The Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement and is displayed with the same prominence as other financial statements. In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which we adopted in fiscal year 1999. The Statement establishes standards for the way that public business enterprises report information about operating segments as well as related disclosures about products and services, geographic areas, and major clients. The Statement also requires that a public business report descriptive information about the way that the operating segments were determined, the products and services provided by the operating segments, differences between the 10 measurements used in reporting segment information and those used in the enterprise's general-purpose financial statements, and changes in the measurement of segment amounts from period to period. In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES. The Statement, as amended, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Statement requires companies to recognize all derivative instruments on their balance sheet as either assets or liabilities measured at fair value. The Statement also specifies a new method of accounting for hedging transactions, prescribes the types of items and transactions that may be hedged, and specifies detailed criteria to be met to qualify for hedge accounting. We will adopt this Statement in fiscal year 2001. MARKET RISKS We currently utilize no material derivative financial instruments which expose us to significant market risk. We are exposed to cash flow risk due to interest rate fluctuations with respect to our long-term debt. At our option, we borrow on our Facility (a) at a base rate (the greater of the federal funds rate plus 0.50% or the bank's reference rate) or (b) at a eurodollar rate plus a margin which ranges from 0.75% to 1.25%. Borrowings at the base rate have no designated term and may be repaid without penalty anytime prior to the Facility's maturity date. Borrowings at a eurodollar rate have a term no less than 30 days and no greater than 90 days. Typically, at the end of such term, such borrowings may be rolled over at our discretion into either a borrowing at the base rate or a borrowing at a eurodollar rate with similar terms, not to exceed the maturity date of the Facility. The Facility matures on December 15, 2000 or earlier at our discretion upon payment in full of loans and other obligations. Accordingly, we classify total outstanding debt between current liabilities and long-term debt based on anticipated payments within and beyond one year's period of time. We presently anticipate repaying $24.0 million of our long-term debt in fiscal 2000. As our facility matures in December 2000, we anticipate repaying the outstanding debt of $37.3 million by seeking an alternate financing arrangement. Assuming we pay our long-term debt in the amounts of $24.0 million, $24.0 million and $13.3 million for the next three years ratably throughout each year, we obtain financing arrangements with similar interest provisions, and our average interest rate on our long-term debt increases or decreases by one percentage point, our interest expense could increase or decrease by $0.5 million, $0.3 million and $0.1 million in fiscal 2000, 2001 and 2002, respectively. However there can be no assurance that we will, or will be able to, repay our debt in the prescribed manner or obtain alternate financing. We could incur additional debt under this credit facility or our operating results could be worse than we expect. YEAR 2000 Since fiscal 1995, we have worked to resolve the potential impact of the year 2000 (Y2K) on our business operations and the ability of our computerized information systems to accurately process information that may be date-sensitive. Any of our programs that recognize a date using "00" as the year 1900 rather than the year 2000 could result in errors or system failures. We utilize a number of computer programs across our entire operation. The primary information technology (IT) systems we utilize are (1) the accounting and financial systems which include general ledger, accounts payable, accounts receivable, billing and collection, fixed assets, job cost accounting and payroll, and (2) human resource information management systems. We do not believe we have a material amount of non-IT systems on which we rely. We established both a Y2K review committee and a Y2K action team. The purpose of the review committee was to develop and communicate our Y2K plan to achieve our Y2K compliance mission. The 11 purpose of the action team was to identify, remediate and implement plans to resolve our Y2K related issues. Through the review committee and the action team, we assessed all issues we believe to have that relate to Y2K. We developed questionnaires regarding Y2K readiness used both internally and externally. We completed both our internal assessment and assessed the Y2K issues of our clients and vendors. Based on the information collected to date, we do not believe that our Y2K issues will have a material adverse impact on our financial position. We plan to continue to devote all resources required to resolve any significant Y2K issues that may arise in a timely manner. STATE OF READINESS We began our risk assessment in 1995. Since that time we have procured and implemented certain accounting and financial reporting systems as well as contract administration and billing systems that have been certified as Y2K compliant by our vendors. At the end of fiscal 1998, approximately 72% of our gross revenue was recognized on these Y2K compliant systems. During fiscal 1999 we converted the remaining operating units to Y2K compliant systems. For the companies we acquired in fiscal 1999, we obtained warranties from the former owners regarding the companies' Y2K compliance. In all cases, we believe that our financial and accounting systems are Y2K compliant and we will not be materially impacted by the year 2000. We installed a Y2K compliant human resource information management system. We believe that our human resource management information systems are Y2K compliant and we will not be materially impacted by the year 2000. We have expended approximately $2.6 million on the procurement of these systems, the conversion of data from legacy systems to these systems, and on the implementation and testing of these systems. RISKS We have extensive business with the Federal government. Should the Federal government, specifically the Department of Defense, experience significant business interruptions relating to Y2K compliance, we could be materially impacted. To the extent that other third parties upon which we rely, such as banking institutions, clients and vendors, are unable to address their Y2K issues in a timely manner, we could be materially impacted. We believe that the worst case scenario relating to Y2K would be an extensive period of time in which the Federal government and other third parties could not process payments promptly. We believe the risks associated with non-Y2K compliance include: (1) our inability to invoice and process payments, (2) our inability to produce accurate and timely financials, (3) the impact on our cash flow and working capital needs, (4) the impact on our profitability, and (5) our liability to third parties for not meeting contracted deliverables. CONTINGENCY PLANS We currently do not have formal contingency plans for the failure of our financial and accounting systems or our human resource information management system. We maintain, as a matter of policy and practice, mitigation plans in the event of systems failure which includes regular backup of certain historical information on both electronic and paper mediums. 12 INDEPENDENT AUDITORS' REPORT Tetra Tech, Inc.: We have audited the accompanying consolidated balance sheets of Tetra Tech, Inc. and its subsidiaries as of October 3, 1999 and October 4, 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended October 3, 1999. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Tetra Tech, Inc. and its subsidiaries as of October 3, 1999 and October 4, 1998, and the results of their operations and their cash flows for each of the three years in the period ended October 3, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Los Angeles, California November 16, 1999 (except for Note 5, as to which the date is December 24, 1999) 13 TETRA TECH, INC. CONSOLIDATED BALANCE SHEETS
Oct. 3, Oct. 4, 1999 1998 -------------- -------------- ASSETS Current Assets: Cash and cash equivalents.................................. $ 8,189,000 $ 4,889,000 Accounts receivable - net.................................. 91,376,000 68,834,000 Unbilled receivables - net................................. 85,072,000 59,888,000 Prepaid expenses and other current assets.................. 7,174,000 4,955,000 Deferred income taxes...................................... 3,259,000 3,766,000 -------------- -------------- Total Current Assets.................................... 195,070,000 142,332,000 -------------- -------------- Property and Equipment: Equipment, furniture and fixtures.......................... 39,488,000 25,616,000 Leasehold improvements..................................... 3,343,000 1,348,000 -------------- -------------- Total................................................... 42,831,000 26,964,000 Accumulated depreciation and amortization.................. (21,085,000) (13,219,000) -------------- -------------- Property and Equipment - Net................................... 21,746,000 13,745,000 -------------- -------------- Intangible Assets - Net........................................ 160,686,000 108,638,000 Other Assets................................................... 2,976,000 1,895,000 -------------- -------------- Total Assets................................................... $ 380,478,000 $ 266,610,000 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable........................................... $ 32,570,000 $ 24,027,000 Accrued compensation....................................... 21,900,000 15,614,000 Billings in excess of costs on uncompleted contracts....... 5,872,000 694,000 Other current liabilities.................................. 14,606,000 7,589,000 Income taxes payable....................................... 9,809,000 3,294,000 Current portion of long-term obligations................... 24,000,000 14,065,000 -------------- -------------- Total Current Liabilities............................... 108,757,000 65,283,000 -------------- -------------- Long-term Obligations.......................................... 37,289,000 33,546,000 -------------- -------------- Commitments and Contingencies (Notes 8 and 10) Stockholders' Equity: Preferred stock - authorized, 2,000,000 shares of $.01 par value; issued and outstanding 0 at October 3, 1999 and October 4, 1998.......................................... -- -- Exchangeable stock of a subsidiary......................... 13,239,000 15,411,000 Common stock - authorized, 50,000,000 shares of $.01 par value; issued and outstanding 38,433,621 shares at October 3, 1999 and 35,788,250 shares at October 4, 1998. 384,000 357,000 Additional paid-in capital................................. 127,978,000 87,495,000 Accumulated other comprehensive income..................... (802,000) -- Retained earnings.......................................... 93,633,000 64,518,000 -------------- -------------- Total Stockholders' Equity..................................... 234,432,000 167,781,000 -------------- -------------- Total Liabilities and Stockholders' Equity..................... $ 380,478,000 $ 266,610,000 ============== ==============
See accompanying Notes to Consolidated Financial Statements. 14 TETRA TECH, INC. CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended -------------------------------------------------- Oct. 3, Oct. 4, Sept. 28, 1999 1998 1997 --------------- -------------- -------------- Revenue: Gross revenue.............................. $ 566,490,000 $ 382,934,000 $ 246,767,000 Subcontractor costs........................ 134,410,000 85,337,000 55,976,000 -------------- -------------- -------------- Net Revenue..................................... 432,080,000 297,597,000 190,791,000 Cost of Net Revenue............................. 327,336,000 223,871,000 141,019,000 -------------- -------------- -------------- Gross Profit.................................... 104,744,000 73,726,000 49,772,000 Selling, General and Administrative Expenses.... 49,320,000 33,913,000 25,173,000 -------------- -------------- -------------- Income From Operations.......................... 55,424,000 39,813,000 24,599,000 Interest Expense................................ 3,561,000 2,329,000 320,000 Interest Income................................. 426,000 419,000 300,000 -------------- -------------- -------------- Income Before Minority Interest and Income Tax Expense.................................. 52,289,000 37,903,000 24,579,000 Minority Interest............................... -- 1,397,000 -- -------------- -------------- -------------- Income Before Income Tax Expense................ 52,289,000 36,506,000 24,579,000 Income Tax Expense.............................. 23,174,000 15,920,000 10,323,000 -------------- -------------- -------------- Net Income...................................... $ 29,115,000 $ 20,586,000 $ 14,256,000 ============== ============== ============== Basic Earnings Per Share........................ $ 0.78 $ 0.59 $ 0.49 ============== ============== ============== Diluted Earnings Per Share...................... $ 0.74 $ 0.56 $ 0.46 ============== ============== ============== Weighted Average Common Shares Outstanding: Basic..................................... 37,159,000 34,962,000 29,214,000 ============== ============== ============== Diluted................................... 39,550,000 36,488,000 30,820,000 ============== ============== ==============
See accompanying Notes to Consolidated Financial Statements. 15 TETRA TECH, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FISCAL YEARS ENDED OCTOBER 3, 1999, OCTOBER 4, 1998 AND SEPTEMBER 28, 1997
ACCUMULATED EXCHANGEABLE STOCK COMMON STOCK ADDITIONAL OTHER ---------------------- -------------------- PAID-IN RETAINED COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS INCOME/(LOSS) TOTAL ---------- ---------- ---------- -------- ------------ ----------- ------------ ----------- BALANCE, SEPTEMBER 29, 1996 as previously reported....... -- $ -- 22,073,440 $221,000 $ 33,372,000 $29,676,000 $ -- $63,269,000 Five-for-four common stock split (see Note 6)....... 5,518,360 55,000 (55,000) -- --------- ---------- ---------- ------- ------------ ----------- ---------- ------------ BALANCE, SEPTEMBER 29, 1996.... -- -- 27,591,800 276,000 33,317,000 29,676,000 -- 63,269,000 Net income and comprehensive income..... 14,256,000 14,256,000 Shares issued in acquisitions............. 4,299,163 43,000 27,007,000 27,050,000 Stock options exercised.... 282,436 3,000 1,307,000 1,310,000 Shares issued in Employee Stock Purchase Plan...... 192,624 2,000 1,280,000 1,282,000 Tax benefit for disqualifying dispositions of stock options.................. 474,000 474,000 --------- ----------- ---------- ------- ------------ ----------- --------- ------------ BALANCE, SEPTEMBER 28, 1997.... -- -- 32,366,023 324,000 63,385,000 43,932,000 -- 107,641,000 Net income and comprehensive income.... 20,586,000 20,586,000 Shares issued in acquisitions............ 920,354 15,411,000 432,435 4,000 5,520,000 20,935,000 Stock options exercised... 440,331 4,000 2,613,000 2,617,000 Shares issued in Employee Stock Purchase Plan .... 144,431 1,000 1,505,000 1,506,000 Preferred shares converted to common............... 2,405,938 24,000 13,502,000 13,526,000 Tax benefit for disqualifying dispositions of stock options ................ 977,000 977,000 Payment for fractional shares.................. (908) (7,000) (7,000) --------- ----------- ---------- -------- ------------ ----------- --------- ------------- BALANCE, OCTOBER 4, 1998 ...... 920,354 15,411,000 35,788,250 357,000 87,495,000 64,518,000 -- 167,781,000 Comprehensive income: Net income ............. 29,115,000 29,115,000 Foreign currency translation adjustment. (802,000) (802,000) ------------- Comprehensive income... 28,313,000 ------------- Shares issued in secondary offering............... 1,250,000 12,000 22,159,000 22,171,000 Shares issued in acquisitions............ 787,051 8,000 11,563,000 11,571,000 Stock options exercised... 289,972 3,000 1,920,000 1,923,000 Shares issued in Employee Stock Purchase Plan..... 156,361 2,000 2,220,000 2,222,000 Exchangeable shares of a subsidiary exchanged for common shares....... (129,712) (2,172,000) 162,140 2,000 2,170,000 -- Tax benefit for disqualifying dispositions of stock options................. 473,000 473,000 Payment for fractional shares.................. (153) (22,000) (22,000) --------- ----------- ---------- -------- ------------ ----------- --------- ------------- BALANCE, OCTOBER 3, 1999....... 790,642 $13,239,000 38,433,621 $384,000 $127,978,000 $93,633,000 $(802,000) $234,432,000 ========= =========== ========== ======== ============ =========== ========= ============
See accompanying Notes to Consolidated Financial Statements. 16 TETRA TECH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended --------------------------------------------- Oct. 3, Oct. 4, Sept. 28, 1999 1998 1997 ------------ ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ................................................... $ 29,115,000 $20,586,000 $14,256,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization............................ 12,708,000 6,595,000 4,411,000 Deferred income taxes.................................... (211,000) (2,899,000) 1,490,000 Provision for losses on receivables...................... (667,000) (334,000) (56,000) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable...................................... 4,713,000 (23,262,000) (3,617,000) Unbilled receivables..................................... (13,727,000) (11,502,000) (8,037,000) Prepaid expenses and other current assets................ 998,000 (1,375,000) 1,823,000 Accounts payable......................................... (8,306,000) 10,203,000 (3,551,000) Accrued compensation..................................... (935,000) (32,000) (3,909,000) Other current liabilities................................ 3,973,000 (6,548,000) (1,412,000) Income taxes payable..................................... 2,597,000 1,948,000 (254,000) ------------ ----------- ------------ Net Cash Provided By (Used In) Operating Activities.. 30,258,000 (6,620,000) 1,144,000 ------------ ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.......................................... (7,040,000) (3,511,000) (2,640,000) Proceeds from sale of property and equipment.................. -- -- 44,000 Payments for business acquisitions, net of cash acquired...... (50,655,000) (37,778,000) (1,237,000) ------------- ------------ ------------ Net Cash Used In Investing Activities................ (57,695,000) (41,289,000) (3,833,000) ------------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term obligations............................. (67,605,000) (39,580,000) (6,797,000) Proceeds from issuance of long-term obligations............... 72,841,000 76,000,000 13,000,000 Proceeds from issuance of common stock........................ 26,576,000 4,116,000 2,619,000 ------------ ----------- ----------- Net Cash Provided By Financing Activities............ 31,812,000 40,536,000 8,822,000 ------------ ----------- ----------- Effect of Rate Changes on Cash................................... (1,075,000) -- -- ------------ ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents............. 3,300,000 (7,373,000) 6,133,000 Cash and Cash Equivalents at Beginning of Year................... 4,889,000 12,262,000 6,129,000 ------------ ----------- ----------- Cash and Cash Equivalents at End of Year......................... $ 8,189,000 $ 4,889,000 $12,262,000 ============ =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest................................................... $ 3,524,000 $ 2,129,000 $ 309,000 ============ =========== =========== Income taxes............................................... $ 20,067,000 $17,195,000 $ 9,407,000 ============ =========== =========== (Continued) 17 Fiscal Year Ended --------------------------------------------- Oct. 3, Oct. 4, Sept. 28, 1999 1998 1997 ------------ ----------- ----------- SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: In fiscal 1999, the Company purchased all of the capital stock of McCulley, Frick & Gilman, Inc., Collins/Pina Consulting Engineers, Inc., D.E.A. Construction Company, BAHA Communications, Inc., Utilities & C.C., Inc., ASL Consultants, Inc., Cosentini Associates, Evergreen Utility Contractors, Inc., Continental Utility Contractors, Inc., Gig Harbor Construction, Inc. and PDR Engineers, Inc. In conjunction with these acquisitions, liabilities were assumed as follows: Fair value of assets acquired.......................... $110,616,000 Cash paid.............................................. (52,275,000) Issuance of common stock............................... (11,571,000) Purchase price payable (282,000) Other acquisition costs................................ (965,000) ------------- Liabilities assumed................................ $ 45,523,000 ============ In fiscal 1998, the Company purchased all of the capital stock of C.D.C. Engineering, Inc., McNamee, Porter & Seeley, Inc. and the Sentrex Group of Companies. The Company also purchased certain assets of Brown & Root, Inc. and Halliburton Corporation. In conjunction with these acquisitions, liabilities were assumed as follows: Fair value of assets acquired.......................... $ 80,209,000 Cash paid.............................................. (38,348,000) Issuance of common and exchangeable stock.............. (20,935,000) Other acquisition costs................................ (985,000) ------------- Liabilities assumed................................ $ 19,941,000 ============ In fiscal 1997, the Company purchased all of the capital stock of IWA Engineers, FLO Engineering, Inc., SCM Consultants, Inc., Whalen & Company, Inc., Whalen Service Corps Inc. and CommSite Development Corporation. In conjunction with these acquisitions, liabilities were assumed as follows: Fair value of assets acquired.......................... $ 66,386,000 Cash paid.............................................. (8,811,000) Purchase price payable................................. (729,000) Issuance of common and preferred stock................. (40,577,000) Other acquisition costs................................ (2,111,000) ------------- Liabilities assumed................................ $ 14,158,000 ============
(Concluded) See accompanying Notes to Consolidated Financial Statements. 18 TETRA TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED OCTOBER 3, 1999, OCTOBER 4, 1998 AND SEPTEMBER 28, 1997 1. SIGNIFICANT ACCOUNTING POLICIES BUSINESS - Tetra Tech, Inc. (the "Company") provides specialized management consulting and technical services in three principal business areas: resource management, infrastructure and communications. The Company's management consulting services are complemented by its technical services. These technical services, which implement solutions, include research and development, applied science, engineering and architectural design, construction management, and operations and maintenance. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned subsidiary Tetra Tech Canada Ltd. All significant intercompany balances and transactions have been eliminated in consolidation. FISCAL YEAR - The Company reports results of operations based on 52- or 53-week periods ending near September 30. Fiscal years 1999 and 1997 contained 52 weeks. Fiscal year 1998 contained 53 weeks. CONTRACT REVENUE AND COSTS - In the course of providing its services, the Company routinely subcontracts for services. These costs are passed through to clients and, in accordance with industry practice, are included in the Company's gross revenue. Because subcontractor services can change significantly from project to project, changes in gross revenue may not be indicative of business trends. Accordingly, the Company also reports net revenue, which is gross revenue less the cost of subcontractor services. Contract revenue and contract costs on both cost-type and fixed-price-type contracts are recorded using the percentage-of-completion (cost-to-cost) method. Under this method, contract revenue on long-term contracts is recognized in the ratio that contract costs incurred bear to total estimated costs. Costs and income on long-term contracts are subject to revision throughout the lives of the contracts and any required adjustments are made in the period in which the revisions become known. Losses on contracts are recorded in full as they are identified. Selling, general and administrative costs are expensed in the period incurred. Net revenue under Federal government contracts and subcontracts accounted for approximately 39.1%, 48.7% and 52.3%, of net revenue for the years ended October 3, 1999, October 4, 1998 and September 28, 1997, respectively. CASH AND CASH EQUIVALENTS - Cash equivalents include all investments with initial maturities of 90 days or less. PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost and are depreciated over their estimated useful lives using the straight-line method. Expenditures for maintenance and repairs are expensed as incurred. Generally, estimated useful lives range from three to ten years for equipment, furniture and fixtures. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining terms of the leases. 19 LONG-LIVED ASSETS - The Company reviews the recoverability of long-lived assets to determine if there has been any impairment. This assessment is performed based on the estimated undiscounted cash flows compared with the carrying value of the assets. If the future cash flows (undiscounted and without interest charges) are less than the carrying value, a writedown would be recorded to reduce the related asset to its estimated fair value. Intangible assets as of October 3, 1999 and October 4, 1998 consist principally of goodwill resulting from business acquisitions which is being amortized over periods ranging from 15 to 30 years. The accumulated amortization of intangible assets as of October 3, 1999 and October 4, 1998 was $11.0 million and $6.5 million, respectively. INCOME TAXES - The Company files a consolidated federal income tax return and combined California franchise tax reports, as well as other returns which are required in the states in which the Company does business, which include the Company and its subsidiaries. Income taxes are recognized for (a) the amount of taxes payable or refundable for the current period, and (b) deferred income tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or income tax returns. The effects of income taxes are measured based on enacted tax laws and rates. EARNINGS PER SHARE - Due to the Company's complex capital structure, the Company presents both basic and diluted Earnings Per Share (EPS). Basic EPS excludes dilution and is computed by dividing the income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding and dilutive potential common shares. The Company includes as potential common shares the weighted average number of shares of exchangeable stock of a subsidiary, the weighted average number of shares of redeemable preferred stock and the weighted average dilutive effects of outstanding stock options. The exchangeable stock of a subsidiary is non-voting and is exchangeable share for share for the Company's common stock on a 1.25 to one basis. The redeemable preferred stock had voting and dividend rights substantially similar to those of common. The redeemable preferred stock outstanding at September 28, 1997 was converted to common stock during the fiscal year ended October 4, 1998. Basic and diluted EPS reflect, on a retroactive basis, a 5-for-4 stock split effected in the form of a 25% stock dividend, wherein one additional share of stock was issued on June 15, 1999 for each four shares outstanding as of the record date of May 14, 1999. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash and cash equivalents, accounts receivable, unbilled receivables and accounts payable approximate fair value because of the short maturities of these instruments. The carrying amount of the revolving credit facility and other long-term debt approximates fair value because the interest rates are based upon variable reference rates. CONCENTRATION OF CREDIT RISK - Financial instruments which subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable and unbilled receivables. The Company places its temporary cash investments with high credit quality financial institutions and, by policy, limits the amount of investment exposure to any one financial institution. As of October 3, 1999, approximately 25.5% of accounts receivable was due from various agencies of the Federal government. The remaining accounts receivable are generally diversified due to the large number of organizations comprising the Company's client base and their geographic dispersion. The Company performs ongoing credit evaluations of its clients and maintains an allowance for potential credit losses. 20 USE OF ESTIMATES - 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME which the Company adopted in fiscal year 1999. The Statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION which the Company adopted in fiscal year 1999. The Statement establishes standards for the way that public business enterprises report information about operating segments as well as related disclosures about products and services, geographic areas, and major clients. The Statement also requires that a public business report descriptive information about the way that the operating segments were determined, differences between the measurements used in reporting segment information and those used in the enterprise's general-purpose financial statements, and changes in the measurement of segment amounts from period to period. In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES. The Statement, as amended, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Statement requires companies to recognize all derivative instruments on their balance sheet as either assets or liabilities measured at fair value. The Statement also specifies a new method of accounting for hedging transactions, prescribes the types of items and transactions that may be hedged, and specifies detailed criteria to be met to qualify for hedge accounting. The Company has not yet completed its analysis of the effect of SFAS No. 133 on its financial statements. The Company will adopt this Statement in fiscal year 2001. 2. MERGERS AND ACQUISITIONS On December 11, 1996, the Company acquired 100% of the capital stock of IWA Engineers (IWA), an architecture and engineering firm providing a wide range of planning, engineering, and design capabilities in water, wastewater, and facility design, and serving state and local government and private clients. The purchase was valued at approximately $1,632,000, consisting of cash and 149,491 shares of Company common stock, as adjusted based upon IWA's net asset value on December 29, 1996 as described in the related purchase agreement. On December 18, 1996, the Company acquired 100% of the capital stock of FLO Engineering, Inc. (FLO), a consulting and engineering firm specializing in water resource engineering involving hydraulic engineering and hydrographic data collection. The purchase was valued at approximately $724,000, consisting of cash and 62,715 shares of Company common stock, as adjusted based upon FLO's net asset value on December 29, 1996 as described in the related purchase agreement. On March 20, 1997, the Company acquired 100% of the capital stock of SCM Consultants, Inc. (SCM), a consulting and engineering firm providing design of irrigation, water and wastewater systems, as well as facility and infrastructure engineering services, to state and local government, private and industrial 21 clients. The purchase was valued at approximately $2,431,000, consisting of cash and 308,706 shares of Company common stock, as adjusted based upon SCM's net asset value on March 30, 1997 as described in the related purchase agreement. On June 11, 1997, the Company acquired 100% of the capital stock of Whalen & Company, Inc. and Whalen Service Corps Inc. (collectively, WAC). WAC, a wireless telecommunications firm, provides a full range of wireless telecommunications site development services for PCS, cellular, ESMR, air-to-ground, microwave, paging, fiber optic and switching centers technology. The purchase has been valued at approximately $41,738,000 consisting of cash and 5,687,187 shares of Company common stock. Initially, the Company issued 1,231,840 shares of redeemable preferred stock. The shares of redeemable preferred stock were subsequently converted into common stock. The common and preferred stock were issued in a private placement and had a combined value of $31,972,000. On the business day prior to the merger, WAC distributed to its stockholders (i) cash in the amount of $4,138,000 and (ii) accounts receivable having a net value of $18,456,000. On July 11, 1997, the Company acquired 100% of the capital stock of CommSite Development Corporation (CDC), a wireless telecommunications site development service firm. The purchase has been valued at approximately $5,702,000 consisting of cash and 496,997 shares of Company common stock, as adjusted based on CDC's net asset value on July 11, 1997 as described in the related purchase agreement. On December 31, 1997, the Company acquired, through its wholly-owned subsidiary Tetra Tech NUS, Inc., the assets of certain environmental services businesses of Brown & Root, Inc. and Halliburton Corporation, both of which are subsidiaries of Halliburton Company (collectively, NUS). NUS provides consulting, engineering and design services for the environmental remediation of contaminated air, water and soil conditions. The purchase price was valued at approximately $25.2 million, as adjusted, and consisted of cash. On March 2, 1998, Whalen Service Corps Inc. (WSC) agreed to participate in a partnership with Sentrex Cen-Comm and ANTEC Corporation to provide design, engineering, information management and construction services to support advanced communication system upgrades to the broadband information transport industries. The agreement required the purchase of certain assets of TANCO LLC from ANTEC Corporation for a price in cash of approximately $0.3 million. WSC initially held a 51% majority interest in Whalen/Sentrex LLC, a California limited liability company while LAL Corp. held the remaining 49% minority interest. On March 26, 1998, the Company acquired 100% of the capital stock of C.D.C. Engineering, Inc. (CDE), a consulting and engineering firm specializing in civil engineering, transportation engineering, structural engineering and land surveying. The purchase was valued at approximately $1.5 million, consisting of cash and 88,825 shares of Company common stock. On July 8, 1998, the Company acquired 100% of the capital stock of McNamee, Porter & Seeley, Inc. (MPS), a provider of engineering services with expertise in the areas of water, industrial wastewater and process controls. The purchase was valued at approximately $14.9 million, consisting of cash and 343,610 shares of Company common stock. Simultaneously with the acquisition, MPS assigned to its former owners accounts receivable having a net value of $8.0 million. On September 22, 1998, the Company acquired, through its majority-owned subsidiary Tetra Tech Canada Ltd. (TtC), 100% of the capital stock of 1056584 Ontario Limited, 1056585 Ontario Limited, Ventrure Cable Limited, Cen-Comm Communication, Inc., Sentrex Electronics, Inc. and LAL Corp., (collectively, the Sentrex Group of Companies (SGOC)), providers of engineering and technical 22 services to the cable television, telephony and data networking industries. The purchase was valued at approximately $19.2 million, consisting of cash and 920,354 shares of TtC exchangeable stock. The TtC exchangeable stock is exchangeable, share for share, subject to adjustment, for Company common stock as described in the related purchase agreement. Upon completion of the SGOC acquisition, the Company beneficially owns 100% of Whalen/Sentrex LLC. On January 4, 1999, the Company merged CDC into WAC. The Company believes this combination strengthens its geographic presence in Northern California. On February 26, 1999, the Company acquired 100% of the capital stock of McCulley, Frick & Gilman, Inc. (MFG), a provider of professional environmental science and consulting services to private-sector clients. The purchase was valued at approximately $8.1 million, as adjusted, consisting of cash and 237,413 shares of Company common stock of which, 5,923 shares were issued in October 1999 pursuant to the purchase price adjustment clause in the related purchase agreement. On May 7, 1999, the Company acquired 100% of the capital stock of Collins/Pina Consulting Engineers, Inc. (CPC), a provider of consulting engineering and related services primarily in the state of Arizona. The purchase was valued at approximately $2.7 million, as adjusted, consisting of cash and 4,938 shares of Company common stock. On May 19, 1999, the Company acquired 100% of the capital stock of D.E.A. Construction Company (DCC), a provider of engineering and network infrastructure services for cable television and fiber optic telephone networks including design and construction and maintenance capabilities of communications and information transport systems. The purchase was valued at approximately $15.5 million, as adjusted, consisting of cash. On May 21, 1999, the Company acquired 100% of the capital stock of BAHA Communications, Inc. (BCI), a supplier of infrastructure installation and maintenance services to the wireless personal communications industry. The purchase was valued at approximately $2.6 million, consisted of 176,168 shares of Company common stock, and is subject to a purchase price and purchase allocation adjustment based on the final determination of BCI's net asset value as of June 30, 1999. Of the 176,168 shares of Company common stock, 29,272 shares are being held in escrow as contingent consideration until July 31, 2000 and will be released dependent upon BCI's operational performance, as specified in the related escrow agreement, during the previous 12-month period. Simultaneously with the acquisition, BCI assigned to its former owners accounts receivable having a net value of $1.0 million. On June 18, 1999, the Company acquired 100% of the capital stock of Utilities & C.C., Inc. (UCC), a supplier of infrastructure installation and maintenance services to the wireless personal communications industry. The purchase was valued at approximately $2.2 million, as adjusted, consisting of 144,482 shares of Company common stock of which, 6,552 shares were issued in October 1999 pursuant to the purchase price adjustment clause in the related purchase agreement. On June 25, 1999, the Company acquired 100% of the capital stock of ASL Consultants, Inc. (ASL), a provider of water and wastewater treatment, transportation, and other engineering services. The purchase was valued at approximately $10.1 million, consisting of cash, and is subject to a purchase price and purchase allocation adjustment based upon the final determination of ASL's net asset value as of July 2, 1999. On June 30, 1999, the Company acquired 100% of the capital stock of L.M.W. Associates, Inc., Cosentini Associates, Inc. and Cobin, Inc., and 100% of the limited liability partnership interests of 23 Cosentini Associates IL LLP, Cosentini Associates MA LLP, Cosentini Associates DC LLP and Cosentini Associates FL LLP (collectively, CAA). The purchase was valued at approximately $5.3 million, consisting of cash, and is subject to a purchase price and purchase allocation adjustment based upon the final determination of CAA's net asset value as of June 30, 1999. Simultaneously with the acquisition, CAA assigned to its former owners accounts receivable having a gross value of $18.4 million. On August 3, 1999, the Company merged its wholly-owned subsidiaries, Simons Li & Associates, Inc. (SLA), IWA, FLO, and CDE into a single operating division of the Company. The Company believes this combination provides synergy and cohesiveness for the combined group. On August 4, 1999, the Company merged its wholly owned-subsidiary Integration Technologies, Inc. (IT) into its newly acquired wholly-owned subsidiary, DCC. IT and DCC provide substantially similar services to the same client in similar markets. The Company believes this combination provides a stonger market position. On September 3, 1999, the Company acquired 100% of the capital stock of PDR Engineers, Inc. (PDR), a provider of engineering consulting services to Federal, state and local government and private-sector clients. The purchase was valued at approximately $6.6 million, consisting of cash and 236,525 shares of Company common stock, and is subject to a purchase price and purchase allocation adjustment based upon the final determination of PDR's net asset value as of September 3, 1999. On October 2, 1999, the Company acquired 100% of the capital stock of Evergreen Utility Contractors, Inc., Continental Utility Contractors, Inc. and Gig Harbor Construction, Inc. (collectively, EUC), a provider of engineering and network services for cable TV and fiber optic networks in the Pacific Northwest Region of the U.S. The purchase was valued at approximately $11.8 million, consisting of cash, and is subject to a purchase price and purchase allocation adjustment based upon the final determination of EUC's net asset value as of October 2, 1999. All of the acquisitions above have been accounted for as purchases and accordingly, the purchase prices of the businesses acquired have been allocated to the assets and liabilities acquired based upon their fair values. The excess of the purchase cost of the acquisitions over the fair value of the net assets acquired was recorded as goodwill and is included in Intangible Assets - Net in the accompanying consolidated balance sheets. The Company values stock exchanged in acquisitions based on extended restriction periods and economic factors specific to the Company's circumstances. During fiscal 1998 and 1999, stock exchanged in acquisitions was discounted by 15.0%. During fiscal 1997, the discount on stock exchanged in acquisitions ranged from 16% to 28%. The results of operations of each of the companies acquired have been included in the Company's financial statements from the effective acquisition dates. The effect of unaudited pro forma operating results of the SGOC and CDE acquisitions, had they been acquired on September 29, 1997, is not material. The following table presents summarized unaudited pro forma operating results assuming that the Company had acquired EUC, PDR, CAA, ASL, UCC, BCI, DCC, CPC, MFG, MPS and NUS on September 29, 1997: 24
Fiscal Year Ended ------------------------------------------------------- Oct. 3, 1999 Oct. 4, 1998 -------------------------- --------------------------- Gross revenue $ 660,815,000 $ 558,727,000 Income before income tax expense 58,996,000 48,269,000 Net income 32,861,000 22,275,000 Basic earnings per share $ 0.88 $ 0.62 Diluted earnings per share 0.82 0.59 Weighted average common shares outstanding: Basic 37,559,000 36,019,000 Diluted 39,950,000 37,545,000
3. ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at October 3, 1999 and October 4, 1998:
Oct. 3, 1999 Oct. 4, 1998 --------------- --------------- Billed accounts receivable.................................... $ 95,465,000 $ 71,745,000 --------------- --------------- Unbilled accounts receivable: Billable amounts not invoiced, amounts billable at stipulated stages of completion of contract work, and unbilled amounts pending negotiation or receipt of contract modifications..................... 84,230,000 58,384,000 Costs and fee retention billable upon audit of total contract costs ....................................... 5,282,000 11,278,000 --------------- --------------- Total unbilled accounts receivable ........................... 89,512,000 69,662,000 --------------- --------------- Allowance for uncollectible accounts: Allowance for doubtful accounts.......................... (4,089,000) (2,911,000) Allowance for disallowed costs .......................... (4,440,000) (9,774,000) --------------- --------------- Total allowance for uncollectible accounts................... (8,529,000) (12,685,000) --------------- --------------- Total ........................................................ $ 176,448,000 $ 128,722,000 =============== ===============
The accounts receivable valuation allowance includes amounts to provide for doubtful accounts and for the potential disallowance of billed and unbilled costs. The Company's contracts with the Federal government are subject to audit by the government, primarily the Defense Contract Audit Agency (DCAA), which reviews the Company's overhead rates, operating systems and cost proposals. During the course of its audit, the DCAA may disallow costs if it determines that the Company improperly accounted for such costs in a manner inconsistent with Cost Accounting Standards. Historically, the Company has not had any material cost disallowances by the DCAA as a result of audit, except for disallowances of acquired receivables as further described. There can be no assurance that DCAA audits will not result in material cost disallowances in the future. On September 15, 1995, the Company acquired Tetra Tech EM Inc. (EMI). EMI likewise contracts with the Federal government. At the time of acquisition, audits had not been performed for years beyond 1986 and reserves for disallowances relating to those unaudited years were adjusted to reflect the estimated ultimate disallowances relating to those receivables. As of September 1999, audits and negotiations relating to the EMI contracts for years 1987 through 1995 were complete, and cost disallowances as a result of these audits totaled approximately $4.4 milllion. Beyond the $4.4 million in 25 cost disallowances, there remains uncollected receivables of approximately $2.1 million. Although it has been determined that the Company is entitled to these payments, collectibility of such amounts cannot be assured as each Federal agency must obtain separate funding approval. The reserves established for these receivables exceeded the disallowances and the uncollected amounts by $1.75 million. Accordingly, this excess was taken into income during fiscal 1999. Allowances to provide for doubtful accounts have been determined through reviews of specific amounts determined to be uncollectible, plus a general allowance for other amounts for which some potential loss is determined to be probable based on current events and circumstances. Given the above, management believes that the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations. As of October 3, 1999, the Company has approximately $5.3 million under retainage provisions of contracts and approximately $1.7 million of accounts receivable which may not be realized within one year. 4. INCOME TAXES Income tax expense for the years ended October 3, 1999, October 4, 1998 and September 28, 1997 consisted of the following:
Fiscal Year Ended ------------------------------------------------------- Oct. 3, Oct. 4, Sept. 28, 1999 1998 1997 -------------- -------------- -------------- Current: Federal............................ $ 18,763,000 $ 15,284,000 $ 9,220,000 State.............................. 4,661,000 3,535,000 2,291,000 Deferred ............................. (250,000) (2,899,000) (1,188,000) -------------- -------------- -------------- Total income tax expense.............. $ 23,174,000 $ 15,920,000 $ 10,323,000 ============== ============== ============== Temporary differences comprising the net deferred income tax asset shown on the consolidated balance sheets were as follows: Oct. 3, Oct. 4, 1999 1998 -------------- -------------- Allowance for doubtful accounts............................. $ 1,787,000 $ 3,662,000 Cash to accrual............................................. (1,119,000) (1,250,000) Accrued vacation............................................ 2,189,000 1,247,000 State taxes................................................. 1,477,000 1,038,000 Prepaid expense............................................. (307,000) (632,000) Depreciation................................................ (1,047,000) (299,000) Other....................................................... 279,000 -- ------------- ------------- Net deferred income tax asset............................... $ 3,259,000 $ 3,766,000 ============= =============
26 Total income tax expense was different than the amount computed by applying the federal statutory rate as follows:
Fiscal Year Ended ------------------------------------------------------------------------ Oct. 3, 1999 Oct. 4, 1998 Sept. 28, 1997 ------------------------ ------------------------- --------------------- Amount % Amount % Amount % ------------- -------- ------------- -------- ------------ -------- Tax at federal statutory rate.......... $ 18,301,000 35.0% $ 12,777,000 35.0% $ 8,603,000 35.0% State taxes, net of federal benefit.... 2,719,000 5.2 1,898,000 5.2 1,348,000 5.5 Goodwill............................... 1,434,000 2.7 990,000 2.7 528,000 2.1 Other.................................. 720,000 1.4 255,000 0.7 (156,000) (0.6) ------------- -------- ------------- -------- ------------ -------- Total income tax expense............... $ 23,174,000 44.3% $ 15,920,000 43.6% $ 10,323,000 42.0% ============= ======== ============= ======== ============ ========
5. LONG-TERM OBLIGATIONS The Company has a credit agreement (as amended, the "Credit Agreement") with a bank to support its working capital and acquisition needs. At October 3, 1999, the Credit Agreement provided a revolving credit facility of $85.0 million. On December 24, 1999, the Company amended the Credit Agreement to provide a revolving credit facility of $93.0 million. The facility must be reduced to $60.0 million on February 1, 2000 and matures on December 15, 2000 or earlier at the discretion of the Company upon payment in full of loans and other obligations. Interest on borrowings under the Credit Agreement is payable at the Company's option (a) at a base rate (the greater of the federal funds rate plus 0.50% or the bank's reference rate) as defined in the Credit Agreement or (b) at a eurodollar rate plus a margin which ranges from 0.75% to 1.25%. The weighted average interest rate on outstanding borrowings under the Credit Agreement at October 3, 1999 was 6.58%. Borrowings under the Credit Agreement are secured by the Company's accounts receivable and the stock of 12 of the Company's subsidiaries. The Credit Agreement contains various covenants including, but not limited to, restrictions related to tangible net worth, net income, additional indebtedness, asset sales, mergers and acquisitions, capital expenditures, creation of liens, and dividends on capital stock (other than stock dividends). For the fiscal year ended October 3, 1999, the Company exceeded its capital expenditure limitation by $0.04 million. The bank provided a waiver for this covenant. As of October 3, 1999, outstanding borrowings totaled $57.5 million and standby letters of credit totaled $1.5 million. At October 3, 1999, approximately $3.8 million of additional debt existed from acquired companies. Of this amount, $2.5 million was paid on October 6, 1999. The weighted average interest rate on these outstanding borrowings at October 3, 1999 was 8.88%. It is the Company's intention to pay the remainder of this debt in fiscal 2000 and terminate all such agreements. 6. STOCKHOLDERS' EQUITY On June 15, 1999, the Company paid a five-for-four split of the Company's common stock, effected in the form of a 25% stock dividend, to the stockholders of record on May 14, 1999. All agreements concerning stock options and other commitments payable in shares of the Company's common stock are affected by the five-for-four split. All references to number of shares (except shares 27 authorized), stock options, share prices and per share information in the consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis. In February 1999, the Company, along with certain selling stockholders, offered a total of 3,968,750 shares of its common stock through a public offering. The Company offered 1,250,000 shares and received approximately $22.2 million in net proceeds which were used for the partial repayment of outstanding indebtedness under the Company's revolving credit facility. In connection with the SGOC acquisition, the Company issued 920,354 shares of exchangeable stock of its subsidiary, Tetra Tech Canada Ltd. (the "Exchangeable Shares"), a corporation existing under the laws of the Province of Ontario, Canada. The Exchangeable Shares are non-voting but carry exchange rights under which a holder of Exchangeable Shares is entitled, at any time after five months from the date of issue of the Exchangeable Shares, to require the Company to redeem all or any part of the Exchangeable Shares for an amount per share equal to (a) the current market price of a share of the Company's common stock, which shall be satisfied in full by the Company causing to be delivered to such holder one share of the Company's common stock for each Exchangeable Share presented and surrendered, plus (b) a dividend amount or dividend shares, if any. The Exchangeable Shares cannot be put back to the Company for cash. Pursuant to the Company's 1989 Stock Option Plan, key employees may be granted options to purchase an aggregate of 1,192,090 shares of the Company's common stock at prices ranging from 85% to 100% of the market value on the date of grant. All options granted to date by the Company have been at 100% of the market value as determined by the Board of Directors at the date of grant. These options become exercisable beginning one year from date of grant, become fully vested in four years and terminate ten years from the date of grant. The Company also has a 1992 Incentive Stock Plan under which key employees may be granted options to purchase an aggregate of 5,761,718 shares of the Company's common stock at prices not less than the market value on the date of grant. From such date of grant, these options become exercisable after one year, are fully vested no later than five years after grant and terminate no later than ten years after grant. Pursuant to the Company's 1992 Non-employee Director Plan, non-employee directors may be granted options to purchase an aggregate of 143,047 shares of the Company's common stock at prices not less than the market value on the date of grant. These options vest and become exercisable when, and only if, the optionee continues to serve as a director until the Annual Meeting following the year in which the options were granted. The Company also has an Employee Stock Purchase Plan (the "Purchase Plan") which provides for the granting of Purchase Rights to purchase common stock to regular full and part-time employees or officers of the Company and its subsidiaries. Under the Purchase Plan, shares of common stock will be issued upon exercise of the Purchase Rights. Under the Purchase Plan, an aggregate of 1,098,632 shares may be issued pursuant to the exercise of Purchase Rights. The maximum amount that an employee can contribute during a Purchase Right Period is $4,000, and the minimum contribution per payroll period is $25. Under the Purchase Plan, the exercise price of a Purchase Right will be the lesser of 100% of the fair market value of such shares on the first day of the Purchase Right Period or 85% of the fair market value on the last day of the Purchase Right Period. For this purpose, the fair market value of the stock is its closing price as reported on the Nasdaq Stock Market on the day in question. 28 During the three years in the period ended October 3, 1999, option activity was as follows:
Number Weighted Average of Options Exercise Price ------------ ---------------- Balance, September 29, 1996..................... 2,461,556 $ 6.16 Granted.................................... 953,365 10.05 Exercised.................................. (282,435) 4.64 Cancelled.................................. (209,518) 7.70 ------------ Balance, September 28, 1997..................... 2,922,968 7.46 Granted.................................... 711,957 13.51 Exercised.................................. (440,331) 5.94 Cancelled.................................. (234,007) 10.09 ------------ Balance, October 4, 1998........................ 2,960,587 8.94 Granted.................................... 899,284 16.51 Exercised.................................. (289,972) 6.63 Cancelled.................................. (189,386) 11.02 ------------ Outstanding at October 3, 1999.................. 3,380,513 $ 11.27 ------------ ------------ Exercisable at October 3, 1999.................. 1,676,411 $ 7.78 ------------ ------------
The following table summarizes information concerning currently outstanding and exercisable options:
Options Outstanding Options Exercisable ----------------------------------------------- ----------------------------- Weighted Average Weighted Weighted Remaining Average Average Range of Exercise Number Contractual Exercise Number Exercise Price Outstanding Life Price Exercisable Price ------------------ ----------- --------------- ------------ ----------- -------- $0.55 - $0.75 10,531 1.03 $ 0.70 10,531 $ 0.70 $0.94 - $0.94 24,554 1.75 0.94 24,554 0.94 $2.56 - $3.82 108,606 3.14 3.47 108,606 3.47 $4.27 - $6.31 600,932 4.77 5.24 600,932 5.24 $7.10 - $10.43 1,142,851 6.87 9.44 728,124 9.29 $11.01 - $16.50 874,488 8.58 13.88 203,664 13.38 $16.56 - $20.63 618,551 9.40 18.78 -- -- ------------ ----------- ---------- ----------- ---------- 3,380,513 7.23 $ 11.27 1,676,411 $ 7.78 ============ =========== ========== ===========
The Company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations in accounting for its employee stock option plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Pro forma net income and earnings per share had the Company accounted for stock options issued to employees in accordance with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, are as follows: 29
Fiscal Year Ended ----------------------------------------------------------------- Oct. 3, 1999 Oct. 4, 1998 Sept. 28, 1997 ------------------- ------------------- ------------------ Net income-as reported.............................. $ 29,115,000 $ 20,586,000 $ 14,256,000 Net income-pro forma................................ 27,004,000 18,945,000 13,091,000 Basic earnings per share-as reported................ $ 0.78 $ 0.59 $ 0.49 Diluted earnings per share-as reported.............. 0.74 0.56 0.46 Basic earnings per share-pro forma.................. 0.73 0.54 0.45 Diluted earnings per share-pro forma................ 0.68 0.52 0.42
The fair value of the Company's stock options used to compute pro forma net income and pro forma earnings per share disclosures is the estimated value using the Black-Scholes option-pricing model. The weighted average fair values per share of options granted in fiscal 1999, 1998 and 1997 are $6.59, $4.90 and $3.30, respectively. The following assumptions were used in completing the model:
Fiscal Year Ended ----------------------------------------------------------------- Oct. 3, 1999 Oct. 4, 1998 Sept. 28, 1997 ------------------- ------------------- ------------------ Dividend yield...................................... 0.0% 0.0% 0.0% Expected volatility................................. 42.2% 42.5% 40.5% Risk-free rate of return, annual.................... 6.4% 6.4% 6.4% Expected life....................................... 3.26 yrs. 3.11 yrs. 2.76 yrs.
7. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Fiscal Year Ended ----------------------------------------------- Oct. 3, Oct. 4, Sept. 28, 1999 1998 1997 --------------- --------------- ------------ Numerator-- Net income............................................... $ 29,115,000 $ 20,586,000 $ 14,256,000 --------------- --------------- --------------- Denominator-- Denominator for basic earnings per share-- weighted average shares............................. 37,159,000 34,962,000 29,214,000 Effect of dilutive securities: Stock options....................................... 1,320,000 1,300,000 886,000 Redeemable preferred stock.......................... -- 189,000 720,000 Exchangeable stock of a subsidiary.................. 1,071,000 37,000 -- -------------- -------------- -------------- Dilutive potential common shares......................... 2,391,000 1,526,000 1,606,000 Denominator for diluted earnings per share-- adjusted weighted average shares and assumed conversions............................... 39,550,000 36,488,000 30,820,000 =============== =============== =============== Basic earnings per share.................................... $ 0.78 $ 0.59 $ 0.49 =============== =============== =============== Diluted earnings per share.................................. $ 0.74 $ 0.56 $ 0.46 =============== =============== ===============
30 8. LEASES The Company leases land, buildings and equipment under various operating leases. Rent expense under all operating leases was approximately $20.6 million, $13.4 million and $10.2 million for the fiscal years ended October 3, 1999, October 4, 1998 and September 28, 1997, respectively. Amounts payable under noncancelable operating lease commitments are as follows during the fiscal years ending in: 2000....................................................................... $ 21,979,000 2001....................................................................... 17,652,000 2002....................................................................... 12,366,000 2003....................................................................... 8,752,000 2004....................................................................... 6,080,000 Thereafter................................................................. 9,467,000 -------------- Total...................................................................... $ 76,296,000 ==============
9. RETIREMENT PLANS The Company and its subsidiaries have established defined contribution plans and 401(k) plans. Generally, employees are eligible to participate in the defined contribution plans upon completion of one year of service and in the 401(k) plans upon commencement of employment. For the fiscal years ended October 3, 1999, October 4, 1998 and September 28, 1997 employer contributions relating to the plans were approximately $6.4 million, $4.0 million and $3.5 million, respectively. 10. CONTINGENCIES The Company is subject to certain claims and lawsuits typically filed against the engineering and consulting professions, primarily alleging professional errors or omissions. The Company carries professional liability insurance, subject to certain deductibles and policy limits against such claims. Management is of the opinion that the resolution of these claims will not have a material adverse effect on the Company's financial position and results of operations. 11. OPERATING SEGMENTS The Company's management has organized its operations into three operating segments: Resource Management, Infrastructure, and Communications. The Resource Management Operating Segment provides specialized environmental engineering and consulting services primarily relating to water quality and water availability to both public and private organizations. The Infrastructure Operating Segment provides engineering services to provide additional development, as well as upgrading and replacement of existing infrastructure to both public and private organizations. The Communications Operating Segment provides a comprehensive set of services including engineering, consulting and field services to telecommunications companies, wireless service providers and cable operators. Management has established these operating segments based upon the services provided, the different marketing strategies, and the specialized needs of the clients. The Company accounts for inter-segment sales and transfers as if the sales and transfers were to third parties, that is, by applying a negotiated fee onto the cost of the services performed. Management evaluates the performance of these operating segments based upon their respective income from operations before the effect of any acquisition related amortization and any fee from inter-segment sales and transfers. 31 The following table sets forth (in thousands) summarized financial information on the Company's reportable segments. Reportable Segments:
Resource Fiscal year ended October 3, 1999 Management Infrastructure Communications Total ---------- -------------- -------------- --------- Gross Revenue......................... $340,955 $135,589 $102,378 $578,922 Net Revenue........................... 231,518 111,776 88,765 432,059 Income from Operations................ 30,147 15,703 14,905 60,755 Depreciation Expense.................. 1,446 4,430 1,565 7,441 Segment Assets........................ 154,375 48,633 44,444 247,452
Resource Fiscal year ended October 4, 1998 Management Infrastructure Communications Total ---------- -------------- -------------- --------- Gross Revenue......................... $279,582 $ 56,464 $ 54,739 $390,785 Net Revenue........................... 198,701 47,174 51,084 296,959 Income from Operations................ 24,572 8,337 9,967 42,876 Depreciation Expense.................. 1,851 1,101 530 3,482 Segment Assets........................ 124,951 20,329 24,931 170,211
Resource Fiscal year ended September 28, 1997 Management Infrastructure Communications Total ---------- -------------- -------------- --------- Gross Revenue......................... $196,466 38,401 $ 15,488 $250,355 Net Revenue........................... 144,964 30,397 15,419 190,780 Income from Operations................ 16,668 4,733 4,998 26,399 Depreciation Expense.................. 1,981 524 210 2,715 Segment Assets........................ 79,039 17,329 8,324 104,692
Reconciliations:
Fiscal Year Ended ---------------------------------------------------- Oct. 3, 1999 Oct. 4, 1998 Sept. 28, 1997 -------------- ------------- -------------- GROSS REVENUE Gross revenue from reportable segments.................. $ 578,922 $ 390,785 $ 250,355 Elimination of inter-segment revenue.................... (15,850) (11,237) (4,614) Other revenue........................................... 3,418 3,386 1,026 ----------- ----------- ----------- Total consolidated gross revenue.................... $ 566,490 $ 382,934 $ 246,767 =========== =========== =========== NET REVENUE Net revenue from reportable segments.................... $ 432,059 $ 296,959 $ 190,780 Other revenue........................................... 21 638 11 ----------- ----------- ----------- Total consolidated net revenue...................... $ 432,080 $ 297,597 $ 190,791 =========== =========== =========== INCOME FROM OPERATIONS Income from operations of reportable segments........... $ 60,755 $ 42,876 $ 26,399 Elimination of inter-segment income..................... (730) (1,286) (404) Other income/(expense).................................. 240 1,191 174 Amortization of intangibles............................. (4,841) (2,968) (1,570) ----------- ----------- ----------- Total consolidated income from operations........... $ 55,424 $ 39,813 $ 24,599 =========== =========== =========== TOTAL ASSETS Total assets from reportable segments................... $ 247,452 $ 170,211 $ 104,692 Goodwill not allocated to segments...................... 160,686 108,638 69,439 Elimination of inter-segment assets..................... (27,660) (12,239) (14,618) ----------- ----------- ----------- Total consolidated total assets..................... $ 380,478 $ 266,610 $ 159,513 =========== =========== ===========
32 GEOGRAPHIC INFORMATION
Fiscal Year Ended ---------------------------------------------------------------------------------------------- (in thousands) Oct. 3, 1999 Oct. 4, 1998 Sept. 28, 1997 -------------------------------- -------------------------------- -------------------------- Net Long-Lived Net Long-Lived Net Long-Lived Revenue (a) Assets (b) Revenue (a) Assets (b) Revenue (a) Assets (b) ------------ ----------- ------------ ----------- ------------ ---------- United States............. $ 417,983 $ 185,408 $ 288,020 $ 124,278 $ 183,820 $ 78,628 Foreign countries......... 14,097 -- 9,576 -- 7,151 --
(a) Net revenue is attributed to countries based on the location of clients (b) Long-lived assets include non-current assets of the Company. MAJOR CLIENTS The Company's net revenue attributable to the U.S. Federal government was approximately $169.3 million, $144.4 million and $99.7 million for fiscal years ended October 3, 1999, October 4, 1998 and September 28, 1997, respectively. Both the Resource Management and Infrastructure operating segments report revenue from the U.S. government. 12. QUARTERLY FINANCIAL INFORMATION - UNAUDITED In the opinion of management, the following unaudited quarterly data for the years ended October 3, 1999 and October 4, 1998 reflect all adjustments necessary for a fair statement of the results of operations. All such adjustments are of a normal recurring nature. (In thousands, except per share data)
First Second Third Fourth Fiscal Year 1999 Quarter Quarter Quarter Quarter - ---------------- ------- ------- ------- ------- Gross revenue................................ $ 113,973 $ 128,083 $ 157,091 $ 167,343 Net revenue.................................. 89,245 96,955 120,739 125,141 Gross profit................................. 19,058 22,553 32,550 30,583 Income from operations....................... 10,187 11,869 15,599 17,769 Net income................................... 5,427 6,462 8,503 8,723 Basic earnings per share..................... $ 0.15 $ 0.18 $ 0.22 $ 0.23 Diluted earnings per share .................. 0.14 0.16 0.21 0.22 Weighted average common shares outstanding: Basic................................... 35,820 36,793 37,801 38,223 Diluted................................. 38,387 39,263 40,145 40,404
33
First Second Third Fourth Fiscal Year 1998 Quarter Quarter Quarter Quarter - ---------------- ------- ------- ------- ------- Gross revenue................................ $ 66,438 $ 92,727 $ 98,231 $ 125,538 Net revenue.................................. 53,664 71,806 75,149 96,978 Gross profit................................. 13,325 17,020 20,744 22,637 Income from operations....................... 7,179 8,872 11,411 12,351 Net income................................... 4,051 4,521 5,493 6,521 Basic earnings per share..................... $ 0.12 $ 0.13 $ 0.16 $ 0.18 Diluted earnings per share .................. 0.11 0.12 0.15 0.18 Weighted average common shares outstanding: Basic................................... 34,021 34,881 35,184 35,708 Diluted................................. 36,042 36,195 36,501 37,149
34 SECURITIES INFORMATION Tetra Tech's common stock is traded on the Nasdaq Stock Market under the symbol WATR. There were 1,390 stockholders of record as of December 10, 1999. Tetra Tech has not paid any cash dividends since its inception and does not intend to pay any cash dividends on its common stock in the foreseeable future. The high and low sales prices for the common stock for the last two fiscal years, as reported by the National Association of Securities Dealers, Inc., are set forth in the following tables. The prices have been adjusted to reflect the effect, on a retroactive basis, of a five-for-four stock split, effected in the form of a 25% stock dividend, in June 1999.
FISCAL YEAR 1999 HIGH LOW ---------------- ---- --- First Quarter $ 22.40 $ 12.50 Second Quarter 21.50 13.70 Third Quarter 20.70 15.20 Fourth Quarter 20.00 13.50
FISCAL YEAR 1998 HIGH LOW ---------------- ---- --- First Quarter $ 14.21 $ 11.92 Second Quarter 15.36 12.16 Third Quarter 16.16 12.48 Fourth Quarter 18.40 12.32
35 EX-21 5 EXHIBIT 21 Exhibit 21 SUBSIDIARIES OF TETRA TECH, INC. HSI GeoTrans, Inc., a Virginia corporation Tetra Tech EM Inc., a Delaware corporation KCM, Inc., a Washington corporation Tetra Tech Technical Services, Inc., a Delaware corporation SCM Consultants, Inc., a Washington corporation Whalen & Company, Inc., a Delaware corporation Whalen Service Corps Inc., a Delaware corporation Tetra Tech NUS, Inc. a Delaware corporation McNamee, Porter & Seeley, Inc., a Delaware corporation Tetra Tech Canada Ltd., a Province of Ontario, Canada corporation (dba Sentrex Communications Company) IWA Services, Inc., a California corporation MFG, Inc., a Delaware corporation Collins/Pina Consulting Engineers, Inc., an Arizona corporation D.E.A. Construction Company, a Colorado corporation BAHA Communications, Inc., a Nevada corporation Utilities & C. C., Inc., a California corporation ASL Consultants, Inc., a California corporation Cosentini Associates, Inc., a New York corporation PDR Engineers, Inc., a Delaware corporation Evergreen Utility Contractors, Inc., a Washington corporation Gig Harbor Construction, Inc., a Delaware corporation All of such subsidiaries, other than Tetra Tech Canada Ltd., are wholly-owned by Tetra Tech, Inc. EX-23 6 EXHIBIT 23 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 033-47533, 033-80606 and 333-11757 of Tetra Tech, Inc. on Form S-8 and 333-02766, 333-26199, 333-48569, 333-61159, 333-64165, 333-70053, 333-72989, 333-86341 of Tetra Tech, Inc. on Form S-3 of our reports dated November 16, 1999 (except for Note 5, as to which the date is December 24, 1999), appearing in, and incorporated by reference in, this Annual Report on Form 10-K for the year ended October 3, 1999. DELOITTE & TOUCHE LLP Los Angeles, California December 28, 1999 EX-27 7 EXHIBIT 27
5 1,000 YEAR OCT-03-1999 OCT-05-1998 OCT-03-1999 8,189 0 184,977 8,529 0 195,070 42,831 21,085 380,478 108,757 0 0 0 384 234,048 380,478 566,490 566,490 461,746 461,746 0 0 3,561 52,289 23,174 29,115 0 0 0 29,115 0.78 0.74
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