TETRA TECH INC, 10-K/A, 1997-09-05

TETRA TECH INC
10-K/A, 1997-09-05
ENGINEERING SERVICES

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

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FORM 10-K/A
(AMENDMENT NO. 3)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended Commission File Number:
September 29, 1996 0-19655

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TETRA TECH, INC.
(Exact name of registrant as specified in its charter)

Delaware 95-4148214
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

670 N. Rosemead Boulevard, Pasadena, California 91107
(Address of principal executive offices)

(626) 351-4664
(Registrant's telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

Title of each class: Common Stock, $.01 Par Value

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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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

The aggregate market value of the Common Stock held by non-affiliates of the
Registrant on September 2, 1997, based on the closing price of the Common
Stock as reported by the Nasdaq National Market on such date, was
approximately $281,432,392.

As of September 2, 1997, the Registrant had outstanding 16,558,842 shares of
Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

None

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The undersigned Registrant hereby amends the following items of its Annual
Report on Form 10-K for the fiscal year ended September 29, 1996, as set forth
below:

PART I

ITEM 1. BUSINESS.

THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. THESE STATEMENTS ARE IN THE FOURTH PARAGRAPH
UNDER "OVERVIEW," IN THE FIRST PARAGRAPH UNDER "MARKETING," IN THE SOLE
PARAGRAPH UNDER "BACKLOG," IN THE LAST PARAGRAPH UNDER "ENVIRONMENTAL
LEGISLATION," IN THE SECOND AND THIRD PARAGRAPHS UNDER "POTENTIAL LIABILITY AND
INSURANCE," IN THE LAST PARAGRAPH UNDER "PROPERTIES," AND IN THE SOLE PARAGRAPH
UNDER "LEGAL PROCEEDINGS." ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET
FORTH BELOW UNDER "RISK FACTORS."

INTRODUCTION

Tetra Tech, Inc. ("Tetra Tech" or the "Company") provides nationally
recognized comprehensive environmental engineering and consulting services
addressing complex water contamination and other environmental problems. These
services are directed to a broad base of public and private sector clients and
include substantially all types of engineering and consulting services in the
environmental area, such as water chemistry, geohydrology, soil science, water
and wastewater treatment, hydrodynamics, geology, air quality and civil
engineering.

The Company was incorporated in Delaware in February 1988 to acquire the
assets of the Water Management Group of Tetra Tech, Inc. (the "Predecessor"), a
subsidiary of Honeywell Inc. ("Honeywell"), in a management buy-out in March
1988. The Predecessor was founded in 1966 as a coastal and marine engineering
business. Honeywell acquired the Predecessor in 1982, by which time the
Predecessor had developed an integrated water and environmental science and
engineering business. In November 1988, the Company acquired GeoTrans, Inc., a
groundwater service firm, and in March 1990, the Company acquired M.H. Loe
Company ("Loe"), an underground storage tank removal and remediation company.
In October 1991, Loe was merged into the Company. As of October 1993, the
Company acquired Simons, Li & Associates, Inc., a firm engaged primarily in
advanced water resources and environmental engineering, and in June 1994, the
Company acquired Hydro-Search, Inc., a groundwater hydrology and remediation
firm. In September 1995, the Company acquired PRC Environmental Management,
Inc., an environmental engineering and consulting firm which provides services
ranging from policy analysis to innovative remedial technology evaluation,
including feasibility studies, remedial investigations and design, economic and
financial analyses, environmental audits, risk management services, and
regulatory compliance assistance. In November 1995, Tetra Tech acquired KCM,
Inc., an engineering firm specializing in the areas of water quality, water and
wastewater systems, surface water management, fisheries and facilities. Since
1966, the Company's business has expanded through the establishment of an
international network of over 70 offices, allowing the development of technical
and marketing expertise in a variety of geographic areas.

OVERVIEW

Tetra Tech works in partnership with government and industry to balance the
need for economic growth with sustainable development of natural resources. The
Company responds to its partnerships by recognizing the uniqueness of each
client; by recognizing the requirements and needs of the client; setting
priorities and ensuring proper allocation and control of resources applied to a
problem; as well as monitoring results. The Company's goal is to help the
client build environmental performance into each aspect of their organizational
activities to enhance both environmental and fiscal performance. Tetra Tech
achieves this goal by assisting clients to be more effective in pollution
prevention, better manage the spectrum of environmental compliance, and apply
innovative and costeffective solutions to remediation or corrective action to
problems impacting our environment.

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Tetra Tech has a commitment to people and results, technical excellence and
teamwork and cost-effective solutions for its clients' technical problems. The
challenges of today's environmental issues requires an integrated
multi-disciplinary approach to assist clients in making informed decisions and
to implement them in the most cost-effective way. These challenges are driven
by:

- Complex and continuously evolving environmental regulations and the
need for a more strategic approach to meet national and international
environmental challenges in a way that allows the government and
industry to be cost-effective and competitive in the markets they
serve.

- Increased emphasis on pollution prevention and waste minimalization as
a necessary part of a longterm solution to sound natural resource
management.

- Competition for limited resources and the need for new and more
effective technology to achieve pollution prevention, resource
management and remediation goals more cost-effectively.

Public concern with water resources and other environmental issues has been
a driving force behind the promulgation of numerous laws and regulations which
seek to control or prevent environmental degradation and mandate restorative
measures. According to the United States Environmental Protection Agency
("EPA"), contamination of groundwater and surface water resulting from
industrial, agricultural and residential development is one of the most serious
environmental problems facing the United States. Because of the interrelated
nature of groundwater, surface water and rainwater in the water cycle,
contamination of one source of water affects the quality of other sources.
Surface water can be affected by direct contamination or runoff from cities or
agricultural areas. In addition, soil contamination from hazardous materials
often leads to water contamination through surface runoff and infiltration.
Similarly, air pollution and the resulting acid rain and other forms of
deposition can contribute to the contamination of water resources over a wide
geographic area. This contamination can threaten the quality of the water
supplies that serve as drinking water sources and detrimentally affect aquatic
life and the quality of lakes, rivers, estuaries, harbors and oceans.

The economic and environmental consequences from continuously evolving
regulations present new opportunities for the Company to assist public and
private sector clients in achieving compliance. Past enforcement efforts under
the Clean Water Act ("CWA") have focused on regulating sources of pollution
which originate from a discrete point, such as industrial facilities and
municipal treatment plants. Much of the Company's water-related environmental
business has been derived from this market. However, the EPA estimates that
nonpoint sources, such as stormwater runoff from urban streets, runoff from
farmland and construction sites, atmospheric deposition, drainage and combined
sewer overflow, currently account for more than 50% of the pollution entering
the nation's waters. As a result, the EPA is currently developing programs and
allocating funding to address the complex problem of nonpoint source pollution
within the context of holistic watershed management. Under National Pollutant
Discharge Elimination System ("NPDES") regulations promulgated in November 1990,
for example, the EPA will require municipalities and industries to apply for
nonpoint discharge permits. The Company's ongoing technical support of the
EPA's water programs has led to early involvement in the development and
implementation of this emerging nonpoint source program. However, no assurance
can be given that the Company will continue to participate in this program.

In addition to the CWA, other laws, such as the Resource Conservation and
Recovery Act of 1976 ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") and the Safe Drinking Water Act
("SDWA"), require companies and government agencies to make considerable
environmental expenditures. Major environmental expenditures are also planned
by the United States government, including expenditures by the United States
Department of Defense ("DOD") and the United States Department of Energy ("DOE")
to clean up defense and nuclear weapons production and test facilities that have
become contaminated over the past four decades.

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COMPANY SERVICES

The Company's services generally fall within six business areas: surface
water, groundwater, waste management, nuclear environmental, resource management
and facilities management. The Company provides its clients with a wide range
of services including research and development, environmental assessment and
engineering, design and construction management, and facility operation and
maintenance. These services are offered individually or together as part of the
Company's full service approach to environmental problems. The Company is
currently performing services under more than 800 active contracts, which range
from small site investigations to large, comprehensive assessment and
remediation projects.

SURFACE WATER

Public concern with the quality of surface water resources, defined as
rivers, lakes and streams as well as coastal and marine waters, and the ensuing
legislative and regulatory response, have led to a demand for the Company's
services. Over the past 30 years, the Company and the Predecessor have
developed a specialized set of technical skills which position the Company to
compete effectively for surface water and watershed management projects. The
Company provides water resource services to public clients such as the EPA, DOD
and DOE and to a broad base of private clients including those in the chemical,
pharmaceutical, utility, aerospace and petroleum industries. The Company also
provides surface water services to state and local agencies, particularly in the
areas of watershed management, flood control and drainage designs. The
Company's services in the management of surface water quantity and quality
include research and development for new generations of computer models that can
predict and compare the response of water quality parameters under various
watershed management practices; design of monitoring programs; consulting
services, particularly in regulatory compliance, permitting and nonpoint source
management; and engineering design of integrated best management practices
(e.g., stormwater detention ponds and artificial wetlands), stream, lake and
wetland restoration and enhancement measures, and flood conveyance and control
structures.

Traditional "command and control" solutions used since the 1970s by the
federal government to bring industrial and municipal wastewater treatment plant
discharges into compliance have been successful in reducing impacts to U.S.
surface waters. However, a significant percentage of waters remain polluted due
primarily to diffuse "nonpoint source" pollution generated by man's activities
on the rural and urban landscape. Under a reauthorized Clean Water Act expected
within the next one to two years, EPA has set as a high priority working with
states and local governments to implement more effective nonpoint source and
watershed management programs to address this problem.

The Company has also worked closely with the U.S. Army Corps of Engineers
("ACE") to develop and implement nationwide non-traditional approaches to flood
control policy, planning, and design. As a consultant to ACE, the Company has
implemented flood control practices using natural, non-structural features. In
addition to ensuring human health, safety, and welfare protection, this new
approach results in a decreased federal investment, higher benefit-to-cost
ratios, the creation of recreational opportunities, and the enhancement and
effective long-term management of endangered urban watersheds.

The Company has worked closely with the EPA since the passage of the CWA in
1977 in researching and evaluating surface water environmental systems. Under
contracts with the EPA, the Company has assisted in the development of national
guidelines on surface water monitoring strategies, nonpoint source pollution
control practices, pollution trading and other economic incentive-based control
strategies, and public education methods for use by states and local agencies in
their ongoing surface water and watershed management programs. Through its work
for the EPA, the Company has developed expertise in complex modeling, Geographic
Information Systems ("GIS"), remote sensing, surface water monitoring, data
analyses, publication of national guidance documents and environmental impact
assessments for surface water projects. The development of this knowledge base
has strategically positioned Tetra Tech as an authority on regulations affecting
discharges to surface water and best management practices.

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Examples of past and current projects in the surface water field include
the following:

- STORMWATER RUNOFF. The Company recommended methods to manage
stormwater runoff and other point and nonpoint sources of pollution
for a variety of clients including Guilford County, North Carolina;
Baltimore and Prince Georges Counties, Maryland; Suffolk County, New
York; Prince William County, Virginia; and the City of Tucson,
Arizona. For Prince Georges County, Tetra Tech developed several new
investigative technologies to assess and manage stormwater pollution
under the NPDES program. Predictive models and statistical algorithms
integrated with GIS help prioritize water quality efforts. Models are
also being developed to assess water quality benefits derived from
wetland systems and other best management practices. The Company is
assisting the California Department of Transportation to establish a
statewide stormwater quality monitoring program to meet state and
federal regulations.

- WATER SUPPLY PROTECTION. Tetra Tech is assisting several local
agencies in watershed restoration and pollution source assessments in
areas where surface water supplies are susceptible to land activities
(e.g., urbanization, agriculture). These include, for example, the
assessment of pathogen sources and fate in the Occoquan Watershed,
Virginia, and the development of stream channel restoration methods in
several watersheds within New York City's water supply system.

- WATERSHED ASSESSMENT TOOL DEVELOPMENT. Under contracts with the EPA
and Prince Georges County, Maryland, Tetra Tech has developed a number
of watershed assessment tools that provide integration of watershed
and receiving water models, databases, monitoring and design data, and
watershed attribute information within a GIS platform (PC-Windows and
UNIX workstations). These tools range from "BASINS," which was
developed for EPA to be used by states to perform local and regional
scale watershed assessments, to "SAM," which was developed for Prince
Georges County for detailed assessment and optimization of best
management practices.

- COASTAL NONPOINT POLLUTION. As the prime contractor to the EPA's
Assessment and Watershed Protection Division, Tetra Tech is assisting
in the development of implementation strategies and technical guidance
for nonpoint source pollution control within the coastal zone under
the Coastal Nonpoint Pollution Control Program. The Company is also
assisting the EPA in developing guidance for the assessment of
stormwater discharges and combined sewer overflows as required under
NPDES regulations. The Company is also assisting the government of
the Philippines in addressing problems related to the management of
the country's vital coastal resources. Under this contract, the
Company provides scientific and engineering services and policy
support for the development and implementation of effective
community-based coastal resources and watershed management.

- MUNICIPAL FLOOD CONTROL DESIGN. The Company has provided design
services for numerous flood control projects in western states. The
Company provided design and construction engineering services for the
Talbert Channel ocean outlet, a major component of the U.S. Army Corps
of Engineers' Santa Ana River flood control project. This project is
the largest of its kind west of the Mississippi River. For the city
of Federal Way, Washington, the Company performed the feasibility
assessment, predesign and final design for a regional stormwater
detention basin to address existing and predicted future flooding on a
rapidly urbanizing portion of Hylebos Creek. The results of the
analysis identified flood frequency levels, identified unstable
downstream channel reaches, and predicted typical water quality
expected for the site. The subsequent design required balancing
various environmental (wetlands, fisheries, water quality) and
physical (property availability, geologic) constraints.

- FLOOD CONTROL PLANNING. The Company is currently providing flood
control related planning services to the U.S. Army Corps of Engineers'
Los Angeles District. Individual projects include flood
investigations of 72 sites in Arizona; an analysis of flooding effects
to 300 in-stream

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structures in California, Arizona, Nevada, and Utah; a reconnaissance
study for habitat restoration along the Gila River in Arizona; and
development of multiple-use flood mitigation alternatives for 35 miles
of the Salt River through the metropolitan Phoenix area.

- POWER PLANT DISCHARGES. Under a contract with the Electric Power
Research Institute, the Company developed RIVRISK, a multi-purpose
mathematical model used to assess potential human health risks from
power plant discharges into rivers. The model is designed to help
utilities evaluate options, design new or restored wetlands, and
obtain permits for activities involving existing and constructed
wetlands such as power corridors, road construction and habitat
improvement.

- WATER QUALITY SURVEY OF LOWER COLUMBIA RIVER. Tetra Tech conducted a
three-year investigation of the overall status and health of the
Columbia River from the mouth of the river to the first dam at
Bonneville, Oregon. The project included identification of point and
nonpoint sources of contamination; development of modeling approaches
for estimating contaminant transport and fate; human health risk
assessment of consumption of fish; identification of beneficial river
uses and their susceptibility to changes in water quality; water,
sediment and biological field investigations; and preparation of a
comprehensive initial assessment of water quality in the lower
Columbia River.

GROUNDWATER SERVICES

According to the EPA, groundwater contamination is one of the most severe
environmental problems currently confronting the United States. Groundwater is
located in the saturated zone beneath the land surface, is the source of
drinking water for approximately 50% of the population and accounts for
approximately 25% of all water consumed for residential, industrial and
agricultural purposes. Tetra Tech's activities in the groundwater field are
diverse and typically include such projects as the investigation and
identification of sources of chemical contamination in groundwater; the
examination of the extent of contamination; the analysis of the speed and
direction of contamination migration; and the design and evaluation of remedial
alternatives. In addition, the Company conducts monitoring studies to assess
the effectiveness of groundwater treatment and extraction wells. Tetra Tech's
professionals have the ability to analyze complex groundwater data using
sophisticated computer models.

Examples of past and current projects in the groundwater field include the
following:

- GROUNDWATER STUDIES AND REGULATORY NEGOTIATION AT A SUPERFUND SITE.
At the Pagel's Pit CERCLA site in Illinois, the Company has
demonstrated the effectiveness of a sparge curtain remedy that will
save the client an estimated $8 million compared to the remedy
originally specified. To support this documentation, Tetra Tech
conducted a study of groundwater impacts and remedial alternatives,
prepared an Explanation of Significant Difference and presented the
recommended remedy to the regulatory agency, which has conceptually
approved the preliminary design. The sparge curtain will include
approximately 31 wells to remove TCE contamination in groundwater at
the facility.

- GROUNDWATER CLEANUP AT FORMER MUNICIPAL SOLID WASTE LANDFILL IN NEW
HAMPSHIRE. The Company has provided technical analysis to the
landfill Trust in support of regulatory negotiations regarding remedy
selection and development of a Scope of Work for Remedial Design and
Remedial Action ("RD/RA"). The management of migration remedy
includes groundwater extraction from the bedrock. In addition, Tetra
Tech has assisted with the identification and evaluation of adjacent
contributors to contamination at the site. The Company is also
evaluating the use of an innovative chemical reactive wall to be
installed downgradient of the landfill.

- AEROSPACE SITE. Tetra Tech performed a remedial investigation of
possible subsurface contamination at five manufacturing plants of a
large aerospace company. Over 400 soil borings,

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15,000 feet of drilling and over 3,500 samples were collected and
analyzed in 5 months. An innovative database was developed for
analysis and presentation of data to the client and governmental
regulators. Tetra Tech also designed and installed a Phase I remedial
well field to extract 6,000 gallons-per-minute ("gpm") of contaminated
groundwater. Subsequent phases will culminate in a 12,000 gpm
treatment plant.

- UTILITIES CLEANUP. The Company is supporting activities ranging from
initial site investigations through cleanup and demolition at
approximately 50 former manufactured gas plant sites across the United
States, including work in Oregon, Washington, California, Iowa,
Wisconsin, New York, New Jersey, West Virginia, and Washington, DC.
Of primary concern at most of these sites are dense non-aqueous phase
liquids ("DNAPL"). The Company is the author of the standard
reference text, DNAPL SITE CHARACTERIZATION, and has taught seminars
for the EPA in all ten regions focusing on DNAPL investigation,
cleanup and control strategies.

WASTE MANAGEMENT

The Company has utilized its experience and technical expertise in
water-related environmental services to expand into complementary environmental
services. For example, Tetra Tech established a hazardous waste capability in
the early 1980s which focused on water and soil contamination problems. Tetra
Tech currently provides a wide range of engineering and consulting services for
hazardous waste projects, from initial site assessment through design and
implementation of remedial solutions. In addition, the Company performs risk
assessments to determine the probability of adverse health effects that may
result from exposure to toxic substances in environmental media. The Company
also provides waste minimization and pollution prevention services, and
evaluates the effectiveness of innovative technologies.

Examples of past and current projects in hazardous waste management
include:

- TECHNICAL ANALYSES AND REGULATORY SUPPORT AT SUPERFUND SITE IN RHODE
ISLAND. The Company is assisting in the implementation of remedial
design/remedial action activities at a site at which liquid bulk
wastes and more than 10,000 drums containing hazardous waste were
disposed in several trenches. Tetra Tech has assisted the PRP Group
in negotiating a revised scope of work that includes sequential pilot
testing of remedy components. This allows the effectiveness of the
proposed remedy to be evaluated prior to full scale implementation.

- NAVY INSTALLATION RESTORATION PROGRAM. The Company is providing
program management and technical support for the Navy CLEAN program
under a ten-year contract. Activities include installation
restoration, base realignment and closure, and underground storage
tank programs. The Company has conducted numerous treatability
studies of both conventional and innovative treatment technologies to
assist in selecting cleanup strategies for naval installations. The
Company supports the Navy Environmental Leadership Program by
identifying and demonstrating innovative methods for the Navy to
achieve compliance with applicable laws and regulations, accelerate
cleanup, implement pollution prevention techniques, and conserve
natural resources.

- INNOVATIVE TECHNOLOGY EVALUATION. The Company is the prime contractor
for the nationwide Superfund Innovative Technology Evaluation ("SITE")
program, to demonstrate and evaluate the performance and cost of
various processes for treating contaminated soil and groundwater.
Under SITE and similar federal government efforts for the DOD and DOE,
as well as state and private industry partners, Tetra Tech has tested,
evaluated, and disseminated information on hundreds of new and
emerging treatment technologies and have supported government and
industry efforts to foster the continued development of these and
other new technologies.

- RCRA SUPPORT AT INDUSTRIAL PLANT. The Company is performing a RCRA
Facility Investigation and streamlined Corrective Measures Study in a
fractured aquifer in Stonewall, Virginia. A

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phased and risk-based screening approach was used at the site to
delineate 22 source areas, resulting in the consolidation of 22 areas
into five areas of concern. The Company negotiated a streamlined
approach that focuses on passive remediation and limited source
reduction, thus limiting costs at the site.

- MUNICIPAL SOLID WASTE LANDFILLS. The Company is participating in
remedial action at a landfill in Howard County, Maryland, including
contractor oversight, waste characterization, air monitoring, and
reporting functions at a hazardous waste removal action for more than
500 buried drums. Work included setting up site zones, health and
safety procedures, and standard procedures for drum removal, as well
as comprehensive community relations activities. As part of the same
contract, the Company performed remedial investigation/feasibility
studies ("RI/FS") activities at three municipal solid waste landfills.

- SITE INVESTIGATION AND REMEDIATION SERVICES. The Company is providing
investigation and remediation services to the California Department of
Transportation in connection with hazardous waste sites encountered
during freeway construction; and site investigation, risk assessment
and remedial design services for State superfund sites for the
California Department of Toxic Substances Control.

- SUPPORT FOR ORDNANCE REMEDIATION. The Company supported a
first-of-its-kind, large-scale demonstration of over 50
state-of-the-art technologies that detect, identify, and remediate
buried unexploded ordnance ("UXO") for the U.S. Army Environmental
Center's UXO Advanced Technology Demonstration Program.

- RI/FS ACTIVITIES. The Company is engaged in RI/FS activities at 12
sites for a Fortune 50 company.

- ARMY DEPOT CLEANUP. The Company is providing site investigation and
remedial design services for the Army Corps of Engineers at various
Army Depots in western states.

- PORT OF LONG BEACH. Tetra Tech is conducting site investigation and
remediation of petroleum-contaminated soils for the Port of Long
Beach, California.

NUCLEAR ENVIRONMENTAL PROGRAMS

The DOE's nuclear weapons plants and research laboratories have a wide
variety of environmental needs, including groundwater and surface water
contamination, as well as hazardous waste management and environmental
compliance. Tetra Tech's services to the DOE are focused in areas compatible
with the Company's core businesses and include NEPA analysis and documentation,
environmental audits and risk assessments, regulatory compliance support,
groundwater characterization, RI/FS and project management and oversight. The
end of the Cold War and subsequent arms reduction agreements have reduced the
Nation's requirements for nuclear weapons. These changes have resulted in
increased opportunities for Tetra Tech's nuclear environmental services. The
Company's environmental analyses will assist DOE with the storage or disposition
of surplus materials from dismantled nuclear components from weapons no longer
required for the U.S. weapons stockpile.

Examples of DOE projects performed by the Company include the following:

- ENVIRONMENTAL IMPACT ANALYSIS. Programmatic Environmental Impact
Statement ("PEIS") for Reconfiguration of the Nuclear Weapons Complex
involving environmental analysis of planned modernization activities
at 13 sites nationwide. Tetra Tech has received contract
modifications expanding the PEIS contract to over seven times its
original value.

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- NUCLEAR TEST SITE. The Company is a subcontractor under a multi-year
DOE contract for an RI/FS of radioactive contamination resulting from
activities, including nuclear test explosions, at the DOE's Nevada
Test Site. This contract includes investigation of the magnitude and
extent of groundwater contamination, preparation of environmental
impact statements and corrective action under RCRA.

- SAVANNAH RIVER SITE. The Company is a prime contractor to the DOE
Savannah River Site operator in South Carolina. Ongoing programs are
being conducted by Tetra Tech to aid in the assessment of closure and
remedial action options for various waste units at this site. The
Company is also providing multi-disciplinary support for low-level
radioactive and mixed waste management activities including the
assessment of waste characterization, sampling and analysis,
treatment, and disposal alternatives.

- PANTEX PLANT. The Company is preparing the site-wide Environmental
Impact Statement for the Pantex Plant, Amarillo, Texas.

- SUPPORT TO ENVIRONMENTAL MANAGEMENT OFFICE. The Company is providing
technical support to the office of Environmental Management at DOE
Headquarters on a wide range of issues. The focus of this program is
on applying successful environmental practices to improve the
efficiency and cost-effectiveness of environmental restoration and
waste management activities throughout the DOE complex.

RESOURCE MANAGEMENT

The Company's resource management services include the full spectrum of
regulatory requirements under RCRA, the CWA, the Clean Air Act, the National
Environmental Policy Act ("NEPA") and other environmental laws. Although
services are provided to both public and private sector clients, the Company's
current emphasis is on providing resource management services to Army, Navy and
Air Force installations. Activities have been conducted at bases which are
closing as well as those which are remaining open.

Examples of Tetra Tech's resource management projects include the
following:

- PHILIPPINES RESOURCE MANAGEMENT. The Company is assisting the
government of the Philippines, through the U.S. Agency for
International Development, with managing the country's natural
resources, including the nation's coastal environments. The Company
provides services supporting Philippine environmental and resource
management policies which focus on marketdriven incentives that
encourage industry to comply with standards.

- U.S. AIR FORCE. A nationwide contract with the Air Mobility Command
to perform environmental compliance activities at Air Force bases.

- U.S.NAVY. Performance of a wide variety of task orders for
environmental assessment of proposed projects for a Southwest Division
Naval Facilities Engineering Command contract covering Naval and
Marine Corps facilities in California, Arizona and New Mexico.

- EDWARDS AIR FORCE BASE. Environmental documentation for Base
Comprehensive Planning at Edwards Air Force Base, California.
Services performed for this project have included the assessment of
air, wastewater and nonpoint source emissions, as well as technical
support for source reduction and spill prevention contingency
planning.

- U.S. NAVY. Environmental documentation for base realignment and
closure activities at U.S. Naval bases in the San Francisco Bay area.

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- U.S. ARMY. A nationwide contract with Army Material Command ("AMC")
to support compliance requirements of AMC installations and facility
tenants.

FACILITIES MANAGEMENT

The Company works in partnership with government and some of the world's
leading corporations to develop long-term solutions to their total facility
management and operation needs. Tetra Tech's approach to Operations &
Maintenance ("O&M") services is to provide a fully integrated capability that
targets improving technical effectiveness at the operating unit and process
levels.

The Company's O&M services include the operation and maintenance of
facilities as well as oversight and support for day-to-day compliance
activities. Tetra Tech has operated treatment plants, soil and groundwater
remediation systems, air monitoring stations, hazardous waste
transfer/collection stations, landfills, and industrial systems. The Company's
approach to O&M services focuses on improving operating efficiencies and
maintaining continued effectiveness of operating units. O&M services offered by
the Company range from overall facility operating management to obtaining a
facility's operating permits and licenses and providing the necessary
documentation through automated data management systems. In addition, Tetra
Tech has the capability to manage its customer's complete waste management
requirements; to mitigate environmental impact from past management practices;
and also to ensure that operations meet the stringent operating, reporting and
administrative demands placed on today's facility managers.

- LARGE AIR FORCE BASE FACILITIES. The Company is prime contractor for
O&M services at a large Air Force Base in California. The Company
provides O&M services for a wastewater treatment plant and a hazardous
waste collection plant, as well as air monitoring and other services.
The Company's contract represents the consolidation of numerous
individual contracts into one contract to provide cost savings and
improve efficiency, a model which is expected to be adopted at
additional military bases in the future.

- AEROSPACE CORPORATION LANDFILLS. The Company is providing O&M
services of wastewater treatment plants to treat leachate from several
landfills owned by a private corporation.

- LARGE AIR FORCE BASE SITE. The Company is providing O&M services of
the Facilities' soil biofarm/bioventing systems.

OTHER ENGINEERING PROJECTS

The Company also provides engineering and construction management services
for projects which are not necessarily environmental in nature, such as
governmental, industrial and commercial buildings, as well as flood control,
recreation and water storage dams and reservoirs. Net revenue from these civil
engineering projects in fiscal 1994, 1995 and 1996 represented 5.7%, 3.7% and
10.3%, respectively, of the Company's net revenue.

CLIENTS

The Company has developed a diverse client base of over 500 current
clients, including Federal, state and local government agencies, utilities,
private companies, professional firms (such as law, consulting and engineering
firms) and real estate development firms. As a result of the diversity of the
Company's services, it may support multiple programs within a specific Federal
agency. Tetra Tech's private sector clients include chemical, mining,
pharmaceutical, aerospace, petroleum and utility companies.

CONTRACTS

The Company enters into various types of contracts with its clients which
include fixed-price, fixed-rate time and materials, cost-reimbursement plus
fixed fee and cost-reimbursement plus fixed and award fee contracts.

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<PAGE>

In fiscal 1996, 17.1%, 32.5% and 50.4% of the Company's 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 customer agrees to pay a specified price for the Company's performance of
the entire contract. Fixed-price contracts carry certain inherent risks,
including risks of losses from underestimating costs, 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 plus
fixed and award fee contract partially depends upon the government's
discretionary periodic assessment of the Company's performance on that contract.
The Company's fee from a cost-reimbursement plus fixed and award fee contract
may vary based upon the Company's performance.

Agencies of the Federal government are among the Company's most significant
clients. During fiscal 1996, the EPA, DOD and DOE accounted for 11.6%, 33.7%
and 11.5%, respectively, of the Company's net revenue. Some contracts made with
the Federal government are subject to annual approval of funding. Limitations
imposed on spending by Federal government agencies may limit the continued
funding of the Company's existing contracts with the Federal government and may
limit the Company's ability to obtain additional contracts. These limitations,
if significant, could have a material adverse effect on the Company. To date,
spending limitations have not had a significant effect on the Company. 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, among other things, may prevent the Company in certain cases from
bidding for or performing contracts resulting from or relating to certain work
the Company has performed for the government. In addition, services performed
for a private client may create conflicts of interest which preclude or limit
the Company's ability to obtain work for another private entity. The Company
attempts to identify actual or potential conflicts of interest and to minimize
the possibility that such conflicts would affect its work under current
contracts or its ability to compete for future contracts. The Company has, on
occasion, declined to bid on a project because of an existing potential conflict
of interest. However, the Company has not experienced disqualification during a
bidding or award negotiation process by any government or private client as a
result of a conflict of interest. None of the Company's government contracts
are subject to renegotiation of profits without a change in the contractual
scope of work.

All of the Company's contracts with the Federal government are subject to
audit by the government, primarily by the Defense Contract Audit Agency (the
"DCAA"). The DCAA generally seeks to (i) identify and evaluate all activities
which either contribute to, or have an impact on, proposed or incurred costs of
government contracts; (ii) evaluate the contractor's policies, procedure,
controls and performance; and (iii) prevent or avoid wasteful, careless and
inefficient production or service. To accomplish the foregoing, the DCAA (i)
examines the Company's internal control systems, management policies and
financial capability, (ii) evaluates the accuracy, reliability and
reasonableness of the Company's cost representations and records, and (iii)
assesses compliance by the Company under its contracts with Cost Accounting
Standards and defective-pricing clauses found within the Federal Acquisition
Regulations. The DCAA also performs the annual review of the Company's overhead
rates and assists in the establishment of the Company's final rates. This
review focuses on the allowability of cost items as well as the allocability 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 or repricing. Factors considered are the Company's
cost accounting system, estimating methods and procedures, and specific proposal
requirements. Operational audits are also performed by the DCAA. A review of
the Company's operations at any major organization level that have 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 the Company 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 the
Company.

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<PAGE>

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, the Company maintains controls to avoid the occurrence
of fraud and other unlawful activity. In addition, the Company maintains
preventative audit programs to ensure appropriate control systems and mitigate
control weaknesses.

The Company provides its services pursuant to contracts, purchase orders or
retainer letters. Company policy provides that, where possible, all contracts
will be in writing. The Company bills all of its clients periodically based on
costs incurred, on either an hourly-fee basis or on a percentage of completion
basis, as the project progresses. Generally, Tetra Tech's contracts do not
require that it 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, the Company has
not incurred material damages beyond the coverage of any performance bond. Most
of the Company's agreements permit termination by the client upon payment of
fees and expenses through the date of termination.

MARKETING

The Company's marketing activities are managed by the corporate marketing
department, which establishes the Company's business plan, target markets and
develops overall marketing strategies. The marketing department also identifies
and tracks the development of large Federal programs, positions the Company for
new business areas, selects appropriate partners, if any, for new projects and
assists in the bid process for new projects. In addition, the corporate
marketing department supports marketing activities firm-wide by coordinating
corporate promotional and professional activities, including appearances at
trade shows, direct mailings, telemarketing and public and media relations.

Local marketing activities for the Company are implemented through its over
70 local offices. A local presence enables the Company's professionals to gain
greater knowledge of local environmental issues and a better understanding of
local laws and regulations. Local marketing activities are coordinated by full
time marketing staff located in certain local offices and include meetings with
potential clients and local regulators, presentations to civic and professional
organizations and seminars on current regulatory topics.

COMPETITION

The market for the Company's services is highly competitive. The Company
competes with many other firms, ranging from small local firms to large national
firms having greater financial and marketing resources than the Company. The
Company performs engineering and consulting services across a broad spectrum of
business areas including facilities management, resource management, nuclear
management, waste management, and ground and surface water management. These
services are provided to a customer base including Federal (Departments of
Defense, Interior and Energy; U.S. Environmental Protection Agency; and the U.S.
Post Office), state and local agencies, as well as the commercial sector. The
Company's competition varies and is a function of the business areas in which,
and client sectors for which, the Company performs its services. The range of
competitors for any one procurement can vary from ten 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, competition has been based primarily on the quality and timeliness
of service. However, the Company believes that price has become an increasingly
important competitive factor. The Company believes that its principal
competitors include Dames & Moore, Inc., E A Engineering Science & Technology,
Inc., EMCON, Ecology & Environment, Inc., Harding Associates, Inc., ICF Kaiser
International, Inc., International Technology Corp., TRC Companies, Inc., URS
Consultants, Inc. and Roy F. Weston, Inc.

12
<PAGE>

BACKLOG

At September 29, 1996, Tetra Tech's gross revenue backlog was approximately
$206.3 million, compared to $190.2 million at October 1, 1995. The Company
includes in gross revenue backlog only those contracts for which funding has
been provided and work authorizations have been received. The Company estimates
that approximately $167.8 million of the gross revenue backlog at September 29,
1996 will be recognized during fiscal 1997. No assurance can be given that all
amounts included in backlog ultimately will be realized, even if evidenced by
written contracts. See "Contracts."

ENVIRONMENTAL LEGISLATION

The demand for the Company's environmental services is a result of public
concern over environmental issues and the ensuing legislative response. As a
result, the Company's 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 such laws.

The Company has provided services to clients with respect to the following
Federal statutes and regulations:

THE CLEAN WATER ACT. Under the CWA, as amended, a system of permits and
enforcement procedures for the discharge of pollutants into waters of the United
States from industrial, municipal and other wastewater sources was established.
The EPA sets discharge standards for certain wastewater discharges and provides
grants to assist municipalities in complying with treatment requirements.

The CWA requires pretreatment of industrial wastewater before discharge
into municipal systems and gives the EPA the authority to set pretreatment
limits under certain circumstances. These efforts by the EPA will prompt
facility upgrading and better control of industrial discharges. The surface
water toxics regulations require states to identify waters adversely affected by
toxics and propose control strategies. Promulgated regulations require permits
for stormwater discharges for industrial activities and large (populations
greater than 100,000) municipal stormwater systems.

THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976. RCRA, as amended by
the Hazardous and Solid Waste Amendments of 1984 ("HSWA"), provides a
comprehensive scheme for the regulation of hazardous waste from the time of
generation to its ultimate disposal (and sometimes thereafter), as well as the
regulation of persons engaged in generation, handling, transportation,
treatment, storage and disposal of hazardous waste. The RCRA scheme includes
both a permitting and a manifest tracking system. With few exceptions, every
facility that treats, stores or disposes of hazardous waste must obtain a RCRA
permit from the EPA, or a state agency which has been authorized by the EPA to
administer the RCRA program, and must comply with certain operating, financial
responsibility and disclosure requirements. Although most states have obtained
authority to administer this program within their respective states, the
applicable state statutes must be at least as stringent as the Federal standards
and the Federal government retains enforcement authority. Regulations have been
issued pursuant to RCRA in the following areas, among others: permitting
assistance, remediation of environmental complications associated with
underground storage tanks, municipal solid waste disposal and land disposal of
hazardous waste. HSWA also imposes land disposal restrictions on certain listed
hazardous wastes which do not meet specified treatment standards, prescribes
more stringent standards for hazardous waste disposal sites, sets standards for
underground storage tanks and provides for corrective action at or near sites of
waste management units.

THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF
1980. This legislation, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), established the Superfund program to
identify and clean up inactive hazardous waste sites and provides for penalties
and punitive damages for noncompliance with EPA orders. Superfund also covers
the emergency cleanup of spills. Superfund may impose strict joint and several
liability on certain hazardous substance generators, transporters and disposal
facility owners and operators for the costs of removal or remedial action, other
necessary response costs and damages for injury, destruction or loss of natural
resources, and the cost of any health effects study. Federal funds may be used
to pay

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<PAGE>

for the cleanup. SARA provided a separate fund, supported by a tax on gasoline,
for the cleanup of leaks from underground storage tanks. In addition, under
SARA, the EPA has the mandate to emphasize permanent remedies and treatment at
Superfund sites, developing a technology oriented market.

THE NATIONAL ENVIRONMENTAL POLICY ACT. NEPA is the basic national charter
for protection of the environment. The purpose of NEPA is to guide public
officials in making decisions that are based on an understanding of the
environmental consequences of those decisions.

NEPA requires that an environmental impact statement ("EIS") be prepared
for "major federal actions significantly affecting the quality of the human
environment." A "major federal action" includes actions with effects that may
be major and which are potentially subject to Federal control and
responsibility. The term includes legislation proposed by an agency; adoption
of agency rules, regulation and policies; adoption of formal plans; and approval
of specific Federal projects. In addition, Federal permits, licenses, loans,
grants, leases and other Federal actions that are necessary for private
developments may require preparation of an EIS, although actual Federal
involvement in the activity may be minimal.

NEPA requires the EIS to contain a detailed statement on: the environmental
impact of the proposed action; any adverse environmental effects which cannot be
avoided should the proposal be implemented; alternatives to the proposed action;
the relationship between local short-term uses of the environment and the
maintenance and enhancement of long-term productivity; and any irreversible and
irretrievable commitments of resources which would be involved in the proposed
action should it be implemented.

In addition to NEPA, several states have adopted legislation requiring
environmental impact analysis to be prepared for actions at the state level.

THE SAFE DRINKING WATER ACT. Under the SDWA and its subsequent
reauthorizations, the EPA is empowered to set drinking water standards for water
supply systems in the United States. The SDWA requires that the EPA set maximum
groundwater contamination levels for 83 previously unregulated toxic substances
and also requires the EPA to establish a priority list every three years of
contaminants that may cause adverse health effects and may require regulation.
The first priority list was published in January 1988. Water supply systems are
required to begin monitoring within defined time limits following the
publication of the final regulations. The SDWA also requires that the EPA set
criteria specifying when utilities using surface water supplies should filter
their water and issue national primary drinking water regulations requiring all
utilities to disinfect their water. By June 1993, all surface water supply
systems must provide filtration and disinfection. The EPA regulations under the
SDWA are expected to result in significant expenditures by water supply systems
for evaluation and, ultimately, for upgrading of many facilities.

OTHER REGULATIONS. The Company's services are also utilized by its clients
in complying with the following Federal laws: the Oil Pollution Act of 1990,
the Toxic Substances Control Act, the Clean Air Act, the Emergency Planning and
Community Right-to-Know Act of 1986, and the Marine Protection, Research and
Sanctuaries Act of 1972.

Many states have passed legislation and established policies to cover more
detailed aspects of hazardous waste management. The State of California, for
example, has consistently been a leader in passing and implementing waste
management legislation. These laws, and similar laws in other states, address
such topics as air pollution control, underground storage tanks, water quality,
solid waste, hazardous materials, surface impoundments, site cleanup and waste
discharge. Several states have modeled their environmental laws and regulations
on those of California. The Company believes that its experience in California
makes it prepared to respond to the regulatory environment in such states.

Because much of the Company's business is generated either directly or
indirectly as a result of Federal and state governmental programs and
regulations, changes in governmental policies affecting such programs, or
regulations or administrative actions affecting the funding or sponsorship of
such programs, could have a material

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<PAGE>

adverse effect on the Company's business. However, the Company believes that it
will benefit from current regulatory initiatives emphasizing risk management,
cost/benefit analysis, pollution prevention and source control, and natural
resources conservation and disaster planning.

POTENTIAL LIABILITY AND INSURANCE

Because of the type of environmental projects in which the Company is or
may be involved, the Company's current and anticipated future services may
involve risks of potential liability under Superfund, common law or contractual
indemnification agreements. The Company is involved in numerous environmental
and hazardous waste projects. These projects, and the associated risks, range
in both size and complexity. The risk factors include, but are not limited to,
location; site characteristics; past, present and future uses; and political,
legal and economic environments. Such factors make it difficult to assess
accurately both the areas and magnitude of potential risks.

The Company maintains comprehensive general liability insurance in the
amount of $1,000,000. This amount, together with $9,000,000 coverage under
umbrella policies, provide total general liability coverage of $10,000,000. The
Company's professional liability insurance ("E&O") policy, which includes
pollution coverage, for 1997 provides $10,000,000 in coverage, with a $100,000
self-insured retention. The Company procures insurance coverage through a
broker who is experienced in the engineering field. The broker, together with
the Company's Risk Manager, review the Company's risk/insurance programs with
those of the Company's competitors and clients. This review, combined with
historical experience, claims history and contractual requirements, allow the
Company to determine the adequate amount of insurance. However, because there
are various exclusions and retentions under the Company's insurance policies,
there can be no assurance that all liabilities that may be incurred by the
Company are subject to insurance coverage. In addition, the E&O policy is a
"claims made" policy which only covers claims made during the term of the
policy. If a policy terminates and retroactive coverage is not obtained, a
claim subsequently made, even a claim based on events or acts which occurred
during the term of the policy, would not be covered by the policy. In the event
the Company expands its services into new markets, no assurance can be given
that the Company will be able to obtain insurance coverage for such activities
or, if insurance is obtained, that the dollar amount of any liabilities incurred
in connection with the performance of such services will not exceed policy
limits.

The Company evaluates and determines the risk associated with an uninsured
claim. In the event the Company determines that an uninsured claim has
potential liability, the Company establishes an appropriate reserve. The
Company does not establish a reserve if its determines that the claim has no
merit. The Company's historical levels of insurance coverage and reserves have
been shown to be adequate. However, a partially or completely uninsured claim,
if successful and of significant magnitude, could have a material adverse effect
on the Company.

EMPLOYEES

At September 29, 1996, the Company had 1,899 employees, including 1,303
professionals. The Company's professional staff includes archaeologists,
biologists, cartographers, chemists, chemical engineers, civil engineers,
electrical engineers, environmental engineers, environmental scientists,
geologists, hydrogeologists, mechanical engineers, oceanographers and
toxicologists. The Company's ability to retain and expand its staff of
qualified professionals will be an important factor in determining the Company's
future growth and success. None of the Company's employees is represented by a
labor organization, and management considers its relations with its employees to
be good.

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<PAGE>

RISK FACTORS

STATEMENTS REGARDING THE COMPANY'S PERFORMANCE PROSPECTS COULD CONTAIN
FORWARD-LOOKING INFORMATION THAT INVOLVES RISK AND UNCERTAINTIES SUCH AS THE
LEVEL OF DEMAND FOR THE COMPANY'S SERVICES, FUNDING DELAYS FOR PROJECTS, LACK OF
REGULATORY CLARITY AFFECTING THE MARKETPLACE AND INDUSTRY-WIDE COMPETITIVE
FACTORS. THE FOLLOWING RISK FACTORS SHOULD BE REVIEWED IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K.

POTENTIAL LIABILITY AND INSURANCE. Because of the type of environmental
projects in which the Company is or may be involved, the Company's current and
anticipated future services may involve risks of potential liability under
Superfund, common law or contractual indemnification agreements. The Company is
involved in numerous environmental and hazardous waste projects. These
projects, and the associated risks, range in both size and complexity. The risk
factors include, but are not limited to, location; site characteristics; past,
present and future uses; and political, legal and economic environments. Such
factors make it difficult to assess accurately both the areas and magnitude of
potential risks.

CONTRACTS. The Company's contracts with Federal and state governments and
some of its other client contacts are subject to termination at the discretion
of the client. Some contracts made with the Federal government are subject to
annual approval of funding and audits of the Company's rates. Limitations
imposed on spending by Federal government agencies may limit the continued
funding of the Company's existing contracts with the Federal government and may
limit the Company's ability to obtain additional contracts. These limitations,
if significant, could have a material adverse effect on the Company.

All of the Company's contracts with the Federal government are subject to
audit by the government, primarily by the Defense Contract Audit Agency (the
"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. A disallowance of costs by the
DCAA could have a material adverse effect on the Company. Historically, the
Company has not had any material cost disallowances resulting from a government
audit. The Company's government contracts are also subject to renegotiation of
profits in the event of a change in the contractual scope of work to be
performed.

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<PAGE>

On September 15, 1995, the Company acquired 100% of the capital stock of
PRC Environmental Management, Inc. ("EMI"). EMI's customers include the U.S.
Environmental Protection Agency, the U.S. Department of Defense and other
governmental and commercial entities. EMI's Federal government contracts are
subject to the same auditing standards as those of the Company. The government
audits of EMI for the years 1986, 1987, 1988 and 1989 have been finalized.
Audits for the years 1990, 1991 and 1992 have been completed, and negotiations
with EMI are scheduled to take place in October 1997. For these completed
audits, cost disallowances of approximately $2.0 million have been proposed by
the government, and will be vigorously contested by EMI during the negotiations.
Negotiations for the 1993 audit will commence at such time as the 1992 audit is
finalized. Audits for the years 1994, 1995 and 1996, and for the period from
September 30, 1996 through June 29, 1997, have not yet been completed.

The Company enters into various types of contracts with its clients, which
include fixed-price contracts. In fiscal 1996, 17.1% of the Company's net
revenue was derived from fixed-price contracts. Under a fixed-price contract,
the customer agrees to pay a specified price for the Company's performance of
the entire contract. Fixed-price contracts carry certain inherent risks,
including risks of losses from underestimating costs, problems with new
technologies and economic and other changes that may occur over the contract
period. Losses under fixed-price contracts could have a material adverse effect
on the Company.

CONFLICTS OF INTEREST. Many of the Company's clients are concerned about
potential or actual conflicts of interest in retaining environmental consultants
and engineers. For example, 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 the Company in certain cases from bidding for or
performing contracts resulting from or relating to certain work the Company has
performed for the government. In addition, services performed for a private
client may create a conflict of interest which precludes or limits the Company's
ability to obtain work from another private entity. The Company has, on
occasion, declined to bid on a project because of an actual or potential
conflict of interest. However, the Company has not experienced disqualification
during a bidding or award negotiation process by any government or private
client as a result of a conflict of interest.

POTENTIAL VOLATILITY OF STOCK PRICE. The market price of the Company's
Common Stock may be significantly affected by factors such as quarter-to-quarter
variations in the Company's results of operations, changes in environmental
legislation and changes in investors' perception of the business risks and
conditions in the environmental services business. In addition, market
fluctuations, as well as general economic or political conditions, may adversely
affect the market price of the Company's Common Stock, regardless of the
Company's actual performance.

QUALIFIED PROFESSIONALS. The Company's ability to attract and retain
qualified scientists and engineers is an important factor in determining the
Company's future growth and success. The market for environmental professionals
is competitive and there can be no assurance that the Company will continue to
be successful in its efforts to attract and retain such professionals.

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

GENERAL

The Company, in the course of providing its services, routinely
subcontracts for services such as laboratory testing, soil cartage and other
services and capabilities. 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.

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<PAGE>

One of the Company's business strategies is to serve as the prime contractor on
contracts, which results in the use of subcontractors. The Company believes
that in the early stages of establishing a new service capability, ongoing fixed
expenses must be controlled by selectively utilizing qualified subcontractors to
assist in providing such capability. Additionally, qualified subcontractors are
utilized to provide services in areas in which the Company does not intend to
develop internal capabilities.

Net revenue includes the fees for services provided directly by the Company
and fees charged by the Company for arranging subcontractor services. Cost of
net revenue incorporates the expenses of the Company's 87 locations performing
services under contracts, including professional salaries and certain direct and
indirect overhead costs such as rents, utilities and travel.

Selling, general and administrative ("SG&A") expense is comprised primarily
of corporate headquarters costs related to the executive offices, corporate
accounting, data processing, marketing and bid and proposal costs. These costs
are generally unrelated to specific client projects. In addition, amortization
of certain intangible assets resulting from purchase accounting adjustments
associated with acquisitions is included in SG&A expense.

The Company provides 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 the Company's
net revenue attributable to Federal government, state and local government, and
private and international clients:

PERCENTAGE OF NET REVENUE
-----------------------------------
FISCAL FISCAL FISCAL
CLIENT 1996 1995 1994
---------------------------- ------ ------ ------

Federal government 61.7% 54.8% 52.2%
State and local government 16.6 11.1 14.5
Private 20.1 34.1 33.3
International 1.6 -- --
Total 100.0% 100.0% 100.0%

A significant portion of the Company's net revenue is derived from
contracts with the Federal government which are subject to termination at any
time by the client. Some of these contracts are subject to annual approval of
funding. Accordingly, Federal budget allocation changes may have an effect on
the future operations of the Company.

RESULTS OF OPERATIONS

The Results of Operations table presents for the periods indicated the
percentage relationship which certain items in the Company's Consolidated
Statements of Operations bear to net revenue and the percentage increase or
(decrease) in the dollar amount of such items.

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<PAGE>

<TABLE>
<CAPTION>
PERCENTAGE RELATIONSHIP TO NET REVENUE PERIOD TO PERIOD
FISCAL YEARS ENDED CHANGE
-------------------------------------- ---------------------
SEPT. 29, OCT. 1, OCT. 2, 1996 VS. 1995 VS.
RESULTS OF OPERATIONS 1996 1995 1994 1995 1994
- ----------------------------------- ------------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 83.3% 29.6%
Cost of net revenue 75.8 74.5 75.3 6.4 28.2
Gross profit 24.2 25.5 24.7 74.0 33.7
Selling, general and
administrative expenses 13.2 12.1 11.2 99.5 40.1
Income from operations 11.0 13.4 13.5 51.0 28.3
Net interest income (expense) (0.5) 0.9 0.5 (193.2) 135.3
Income before income taxes 10.5 14.3 14.0 34.7 32.3
Income tax expense 4.2 5.7 5.6 36.1 32.3
Net income 6.3% 8.6% 8.4% 33.8% 32.3%

</TABLE>

FISCAL 1996 COMPARED TO FISCAL 1995

NET REVENUE. Net revenue increased from $87,874,000 to $161,037,000, or
83.3%, from fiscal 1995 to fiscal 1996. Net revenue, exclusive of revenue
related to acquired entities (see Note 2 to Consolidated Financial Statements)
decreased from $86,004,000 to $83,359,000, or 3.2%. Net revenue, exclusive of
revenue related to acquired entities, for Federal government contracts decreased
$4,399,000 due to the budget impasse and resulting Federal government shutdown
experienced in 1996. The Company attempted to minimize the financial impact of
the decrease in Federal government revenue by shifting its employees to private
and other public sector contracts and by key acquisitions. Due to the
infrequency of budget impasses, the Company does not expect this trend to
continue. However, since the Federal government is the Company's largest
client, limitations on government spending can have a significant impact on the
Company's ability to generate net revenue. The Company is attempting to
mitigate this impact by pursuing a strategic objective of balancing its revenue
mix between Federal and private sector programs and thereby increasing the
amount of business driven by economics rather than regulatory requirements. Net
revenue from acquired entities totalled $77,678,000. Total net revenue in all
four client sectors -- Federal government, state and local government, and
private and international -- showed increases in actual dollars. Gross revenue
increased from $120,034,000 to $220,099,000, or 83.4%, from fiscal 1995 to
fiscal 1996. In both fiscal 1995 and fiscal 1996, subcontractor costs were
26.8% of gross revenue.

COST OF NET REVENUE. Cost of net revenue increased from $65,484,000 to
$122,084,000, or 86.4%, from fiscal 1995 to fiscal 1996. This increase was
attributable to costs incurred in connection with the additional net revenue
from the PRC Environmental Management, Inc. ("EMI") and KCM, Inc. acquisitions,
and growth in project volume. The number of employees increased from 1,706 at
the end of fiscal 1995 to 1,899 (118 from the fiscal 1996 acquisitions) at the
end of fiscal 1996. As a percentage of net revenue, cost of net revenue
increased from 74.5% in fiscal 1995 to 75.8% in fiscal 1996 due primarily to the
acquisitions. Gross profit increased from $22,390,000 to $38,953,000, or 74.0%,
from fiscal 1995 to fiscal 1996. However, as a percentage of net revenue, gross
profit decreased from 25.5% in fiscal 1995 to 24.2% in fiscal 1996, primarily as
a result of the amount of EMI's cost-type contracts.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased from
$10,634,000 to $21,218,000, or 99.5%, from fiscal 1995 to fiscal 1996. As a
percentage of net revenue, SG&A expenses increased from 12.1% in fiscal 1995 to
13.2% in fiscal 1996. These increases were due principally to the entities
acquired (see Note 2 to Consolidated Financial Statements), associated goodwill
amortization and to the Company's continuing efforts to identify and secure new
contracts by increasing its business development expenditures.

19
<PAGE>

NET INTEREST INCOME/EXPENSE. Net interest income decreased from $833,000
in fiscal 1995 to $776,000 of interest expense in fiscal 1996, or 193.2%, due to
the cost of long-term obligations incurred for the purchase of EMI in September
1995.

INCOME TAX EXPENSE. Income tax expense increased from $5,036,000 to
$6,854,000, or 36.1%, from fiscal 1995 to fiscal 1996 as a result of an increase
in income before taxes.

FISCAL 1995 COMPARED TO FISCAL 1994

NET REVENUE. Net revenue increased from $67,819,000 to $87,874,000, or
29.6%, from fiscal 1994 to fiscal 1995. All three client sectors in those years
- -- Federal government, state and local government, and private -- continued to
show net revenue increases in actual dollars. The increase in net revenue
associated with entities acquired in fiscal 1994 and 1995 (see Note 2 to
Consolidated Financial Statements) totalled $10,409,000. Gross revenue
increased from $96,472,000 to $120,034,000, or 24.4%, from fiscal 1994 to fiscal
1995. In fiscal 1995, subcontractor costs were 26.8% of gross revenue as
compared to 29.7% in fiscal 1994.

COST OF NET REVENUE. Cost of net revenue increased from $51,069,000 to
$65,484,000, or 28.2%, from fiscal 1994 to fiscal 1995. This increase was
attributable to costs incurred to support the growth in project volume. The
number of employees increased from 893 at the end of fiscal 1994 to 1,706 (776
from the 1995 acquisition) at the end of fiscal 1995. As a percentage of net
revenue, cost of net revenue decreased from 75.3% in fiscal 1994 to 74.5% in
fiscal 1995. The percentage decline was a result of overall improved project
management. As a result, gross profit increased from $16,750,000 to
$22,390,000, or 33.7%, from fiscal 1994 to fiscal 1995.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased from
$7,589,000 to $10,634,000, or 40.1%, from fiscal 1994 to fiscal 1995. As a
percentage of net revenues, SG&A expenses increased from 11.2% in fiscal 1994 to
12.1% in fiscal 1995. These increases were due principally to the entities
acquired (see Note 2 to Consolidated Financial Statements) and to the Company's
continuing efforts to identify and secure new contracts by increasing its
business development expenditures.

NET INTEREST INCOME. Net interest income increased from $354,000 in fiscal
1994 to $833,000 in fiscal 1995, or 135.3%, due to the generation of interest
income on invested funds throughout fiscal 1995.

INCOME TAX EXPENSE. Income tax expense increased from $3,806,000 to
$5,036,000, or 32.3%, from fiscal 1994 to fiscal 1995 as a result of an increase
in income before taxes.

INFLATION

Management believes that the Company's operations have not been adversely
affected by inflation or changing prices.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital as of September 29, 1996 was $32,739,000, a
decrease of $7,133,000 from October 1, 1995. Cash and cash equivalents as of
September 29, 1996 totalled $6,129,000. In fiscal 1995, the Company augmented
cash generated from operations with a $30,000,000 credit facility, while in
fiscal 1996, the Company financed its operations through cash generated from
operations. In fiscal 1996, the Company generated $21,124,000 from operating
activities and used $8,755,000 for investing activities ($6,441,000 of which
related to business acquisitions). In fiscal 1995, the Company generated
$13,578,000 in cash from operating activities and used $36,729,000 for investing
activities ($35,462,000 of which related to business acquisitions). The
increase in

20
<PAGE>

cash from operating activities in both fiscal 1996 and fiscal 1995 resulted
primarily from the management of receivables and increase in net income.

The Company has a credit agreement (as amended, the "Credit Agreement")
with a bank to support its working capital and acquisition needs. The Credit
Agreement provided a revolving credit facility (the "Facility") of $30,000,000,
although the Company voluntarily reduced the Facility to $15,000,000 at
September 29, 1996. Interest on borrowings under the Facility is payable at the
Company's option (a) at a base rate (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 1.25% to 1.75%. Borrowings under the Facility
are secured by the Company's accounts receivable and the stock of four 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, creation
of liens, and dividends on capital stock (other than stock dividends). The
Facility matures on September 15, 1998 or earlier at the discretion of the
Company upon payment in full of loans and other obligations. Throughout fiscal
1996, maximum borrowings under the Facility were $20,000,000. At September 29,
1996 there were no borrowings under the Facility, however, standby letters of
credit issued thereunder totalled $1,815,000.

Capital expenditures during fiscal years 1996, 1995 and 1994 were
approximately $2,385,000, $1,453,000 and $1,433,000, respectively. The
expenditures were principally for computer equipment, leasehold improvements and
office expansion.

The Company continuously evaluates the marketplace for strategic
acquisition opportunities. Once an opportunity is identified, the Company
examines the effect an acquisition may have on the business environment, as well
as on the Company's results of operations. The Company proceeds with an
acquisition only if it determines that the acquisition is anticipated to have an
accretive effect on future operations. The Company's strategy is to position
itself to address existing and emerging markets. The Company views acquisitions
as a key component of its growth strategy, and intends to use both cash and its
securities, as it deems appropriate, to fund such acquisitions.

The Company expects that internally generated funds, its existing cash
balances, and its available line of credit will be sufficient to meet the
Company's capital requirements through the end of fiscal 1997.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See the Index included at "Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K."

21
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS

The following table sets forth certain information concerning each person
who is a Director of the Company.

Name Age Position
---- --- --------

Li-San Hwang . . . . . . . . 61 Chairman of the Board of Directors,
President and Chief Executive Officer

J. Christopher Lewis . . . . 40 Director

Patrick C. Haden . . . . . . 43 Director

James J. Shelton . . . . . . 80 Director

Dr. Hwang joined the Company's predecessor in 1967 and has held his present
positions since the acquisition by the Company of the Water Management Group of
Tetra Tech, Inc., a subsidiary of Honeywell, Inc., in March 1988 (the
"Acquisition"). He was named Director of Engineering at the Company in 1972 and
a Vice President in 1974. Prior to the Acquisition, Dr. Hwang was Senior Vice
President of Operations and was responsible for the development and expansion of
the current business base. He has served as an advisor to numerous government
and professional society committees and has published extensively in the field
of hydrodynamics. Dr. Hwang is a graduate of the National Taiwan University,
Michigan State University and the California Institute of Technology, holding
B.S., M.S. and Ph.D. degrees, respectively, in Civil Engineering, specializing
in water resources. He also serves as a director of Data Processing Resources
Corporation.

Mr. Lewis has been a member of the Board of Directors of the Company since
February 1988. Since 1982, Mr. Lewis has been a general partner of Riordan,
Lewis & Haden, a Los Angeles-based partnership which invests in management
buy-out and venture capital transactions. Mr. Lewis also serves as a director
of Data Processing Resources Corporation, California Beach Restaurants, Inc. and
several privately-held companies.

Mr. Haden has been a member of the Board of Directors of the Company since
December 1, 1992. Mr. Haden is a general partner of Riordan, Lewis & Haden,
which he joined in 1987. Mr. Haden also serves as a director of PIA
Merchandising Services, Inc. and several privately-held companies.

Mr. Shelton has been a member of the Board of Directors of the Company
since March 1995. Mr. Shelton is a self-employed investor and venture
capitalist. He is the former (retired) President of the Baker Drilling
Equipment Co., and formerly served as the Director of Corporate Relations and a
director of Baker Hughes Incorporated (formerly Baker International Corp.).

22
<PAGE>

EXECUTIVE OFFICERS

The following table sets forth certain information concerning each person
who is an executive officer of the Company:

Name Age Position
---- --- --------
Li-San Hwang. . . . . . . . . 61 Chairman of the Board of Directors,
President and Chief Executive Officer
Thomas D. Brisbin . . . . . . 44 Executive Vice President, Chief
Operating Officer
William R. Brownlie . . . . . 43 Senior Vice President
Kim K. Hoag . . . . . . . . . 46 Senior Vice President, Marketing
Steven A. Gherini . . . . . . 51 Vice President, Research and
Development
Arkan Say . . . . . . . . . . 61 Vice President
Charles R. Faust. . . . . . . 51 Vice President
James M. Jaska. . . . . . . . 45 Vice President, Chief Financial
Officer and Treasurer
Richard A. Lemmon . . . . . . 37 Vice President and Secretary

Executive officers of the Company are elected by and serve at the
discretion of the Board of Directors. Set forth below is a brief description of
the business experience of all executive officers other than Li-San Hwang. For
information concerning the business experience of Dr. Hwang, who is also a
Director of the Company, see "Directors" above.

Dr. Brisbin was named Executive Vice President and Chief Operating Officer
of the Company in 1996. He joined Planning Research Corporation ("PRC"), a
wholly-owned subsidiary of The Black & Decker Corporation, in 1978 and was
co-founder and President of PRC Environmental Management, Inc. ("PRC EMI").
During his 17 year tenure at PRC, he was involved in all aspects of marketing,
operations and finance. Before joining PRC, he was a research associate at
Argonne National Laboratory and an adjunct professor at the Illinois Institute
of Technology. Dr. Brisbin holds a B.S. degree from Northern Illinois
University and a Ph.D. in Environmental Engineering from Illinois Institute of
Technology. He also completed Harvard Business School's Advanced Management
Program in 1988.

Dr. Brownlie joined the Company in 1981, has been a Vice President since
1988 and was named a Senior Vice President in December 1993. He has managed
several large government environmental support programs and serves as head of
two of the Company's largest profit centers. Dr. Brownlie is a registered Civil
Engineer with a technical background in hydrology, hydraulics, water quality
analysis and numerical modeling. Dr. Brownlie holds B.S. and M.S. degrees in
Civil Engineering at the State University of New York at Buffalo, and earned a
Ph.D. in Civil Engineering from the California Institute of Technology.

Mr. Hoag joined the Company in 1995 as Senior Vice President of Marketing.
Prior to joining the Company, he served as Vice President, Department of Energy
(DOE) Programs at Jacobs Engineering Group Inc. for six years. He also held
sales and operations management positions at Ralph M. Parsons Company and
Westinghouse Electric Company. For 10 years, he held various environmental and
safety management positions for the DOE. Mr. Hoag holds B.S. and M.S. degrees
from Central Missouri State University.

Mr. Gherini joined the Company in 1976. Mr. Gherini has served as Program
Manager on a variety of contracts involving chemistry, water quality control and
water quality modeling, and served as Division Vice President prior to being
named to his present position in 1988. He is the author of numerous technical
publications and is the developer of several models for pollutant fate and
transport. He has served on two National Academy

23
<PAGE>

of Science panels. Mr. Gherini is a registered engineer with B.S. and M.S.
degrees in Civil Engineering from Stanford University, and a M.S. degree in
Aquatic Chemistry from Harvard University.

Mr. Say joined Edward H. Richardson & Associates (a firm that was acquired
by the Company's predecessor in 1981 and became a division of the Company in
1991) in 1958 and was named to his present position in 1988. He has authored
several publications on site development, engineering and storm drainage. Mr.
Say holds a B.S. in Civil Engineering from Robert College in Istanbul, Turkey
and an M.S. in Civil Engineering from the University of Delaware.

Dr. Faust, Vice President of the Company since 1988 and Executive Vice
President of GeoTrans, Inc. ("GeoTrans"), a subsidiary of the Company,
co-founded GeoTrans in 1979. In addition to his management responsibilities, he
is engaged in the quantitative assessment and investigation of highly technical
groundwater problems. He has published 23 articles and has co-authored a book
on groundwater modeling. Dr. Faust holds B.S. and Ph.D. degrees in Geology from
Pennsylvania State University.

Mr. Jaska joined the Company in 1994 as Vice President, Chief Financial
Officer and Treasurer. From 1991 to 1994, Mr. Jaska held several operations and
management positions at Alliant Techsystems, Inc., in addition to leading the
environmental business venture and having operational responsibility for large
government defense plants. From 1988 to 1990, he served as the Director of
Finance and Business Management at Honeywell Inc.'s Precision Weapons
Operations. From 1981 to 1987, he was responsible for environmental affairs at
Honeywell Inc. From 1977 to 1981, he managed regulatory affairs dealing with
the production of specialty chemicals at Ecolab, Inc. Mr. Jaska also served as
an advisor to numerous governmental and professional committees. Mr. Jaska
holds B.S. and M.S. degrees from Western Illinois University and completed an
executive management program through Harvard University.

Mr. Lemmon, Director of Administration and Corporate Secretary, joined the
Company in 1981. Until 1985, he served in several technical capacities. He
transferred to Corporate Human Resources, and was promoted to Corporate Manager
of Human Resources in 1987. Following the Company's divestiture from Honeywell,
Inc., Mr. Lemmon structured and managed the Company's Risk Management, Human
Resource and Office Leasing programs. In 1990, he was promoted to Director of
Administration and in 1994 assumed responsibility for contracts administration
and was elected as the Company's Secretary. In November 1995, Mr. Lemmon was
elected a Vice President. Mr. Lemmon holds a B.A. degree in Business
Administration.

24
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) INDEX TO FINANCIAL STATEMENTS:

PAGE
NUMBER
------
Independent Auditors' Report . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets - September 29, 1996 and October 1,
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income - For the fiscal years ended
September 29, 1997, October 1, 1995 and October 2, 1994. . . . . F-3
Consolidated Statements of Stockholders' Equity - For the
fiscal years ended September 29, 1996, October 1, 1995 and
October 2, 1994. . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows - For the fiscal years
ended September 29, 1996, October 1, 1995 and October 2, 1994. . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . F-7

(a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:

Schedule II - Valuation and Qualifying Accounts and
Reserves - For the fiscal years ended September 29,
1996, October 1, 1995 and October 2, 1994. . . . . . . . . . . . F-16

(a)(3) EXHIBITS:

3.1 Restated Certificate of Incorporation of the Company, as
amended to date (incorporated herein by reference to
Exhibit 3.1 to the Company Is 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).

10.1 Credit Agreement dated as of Sept. 15, 1995 between the
Company, and Bank of America Illinois, as amended by the First
Amendment to Credit Agreement dated as of Nov. 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 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).

10.3 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).

10.4 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).

*10.5 Architect-Engineer Contract No. N62474-88-R-5086 dated as of
June 6, 1989 between PRC Environmental Management, Inc. (a
subsidiary of the Company) and the Western Division, Naval
Facilities Engineering Command.

10.6 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).

10.7 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).

10.8 Executive Medical Reimbursement Plan Provided to Messrs.
Hwang, Rodriguez and Gherini (incorporated herein by reference
to Exhibit 10.16 to the Company's Registration Statement on
Form S-1, No. 33-43723).

10.9 1992 Incentive Stock Plan (incorporated herein by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 3, 1993).

10.10 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).

10.11 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).

10.12 Form of Nonqualified Stock Option Agreement used by the
Company in connection with the Company Is 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).

10.13 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).

10.14 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 Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 2, 1994).

11. Computation of Net Income Per Common Share (filed with the
original filing of this Annual Report on Form 10-K).

13. Annual Report to Stockholders for the fiscal year ended
September 29, 1996, portions of which are incorporated by
reference in this report (filed with the original filing of
this Annual Report on Form 10-K). With the exception of these
portions, such Annual Report is not to be deemed filed as part
of this report.

21. Subsidiaries of the Company (filed with the original filing of
this Annual Report on Form 10-K).

23. Independent Auditors' Consent.

27. Financial Data Schedule (filed with the original filing of
this Annual Report on Form 10-K).

__________________

* Certain portions of this Exhibit were omitted from the copies filed as part
of the Annual Report on Form 10-K. Complete copies of this Exhibit have
been filed separately, together with an application to obtain confidential
treatment with respect thereto.

(b) No Report on Form 8-K was filed during the quarter ended September 29,
1996.

25
<PAGE>

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: September 2, 1997 By: /s/ James M. Jaska
------------------------------------
James M. Jaska
Vice President and Chief
Financial Officer

26
<PAGE>

INDEPENDENT AUDITORS' REPORT

Tetra Tech, Inc.:

We have audited the accompanying consolidated balance sheets of Tetra Tech,
Inc. and its subsidiaries as of September 29, 1996 and October 1, 1995, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended September 29, 1996.
Our audits also included the financial statement schedule listed in the Index
at Item 14(a)(2). These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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 September 29, 1996 and October 1, 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended September 29, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Los Angeles, California
November 12, 1996

F-1

<PAGE>

TETRA TECH, INC.
CONSOLIDATED BALANCE SHEETS

ASSETS Sept. 29, Oct. 1,
1996 1995
---- ----
Current Assets:
Cash and cash equivalents. . . . . . . . . . $ 6,129,000 $13,130,000
Accounts receivable - net. . . . . . . . . . 22,306,000 22,886,000
Unbilled receivables - net . . . . . . . . . 25,201,000 29,618,000
Prepaid and other current assets . . . . . . 1,939,000 1,869,000
Deferred income taxes. . . . . . . . . . . . 2,358,000 4,758,000
----------- -----------
Total Current Assets . . . . . . . . . . . 57,933,000 72,261,000
----------- -----------
Property and Equipment:
Equipment, furniture and fixtures. . . . . . 13,072,000 10,959,000
Leasehold improvements . . . . . . . . . . . 733,000 433,000
----------- -----------
Total. . . . . . . . . . . . . . . . . . . 13,805,000 11,392,000
Accumulated depreciation and amortization. . (6,790,000) (5,001,000)
----------- -----------
Property and Equipment - Net . . . . . . . . . 7,015,000 6,391,000
----------- -----------
Intangible Assets - Net. . . . . . . . . . . . 22,047,000 14,044,000
Other Assets . . . . . . . . . . . . . . . . . 1,468,000 234,000
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . $88,463,000 $92,930,000
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable . . . . . . . . . . . . . . $13,423,000 $14,820,000
Accrued compensation . . . . . . . . . . . . 7,311,000 8,287,000
Other current liabilities. . . . . . . . . . 3,356,000 2,954,000
Purchase price payable . . . . . . . . . . . -- 5,000,000
Income taxes payable . . . . . . . . . . . . 1,104,000 328,000
Current portion of long-term obligations . . -- 1,000,000
----------- -----------
Total Current Liabilities. . . . . . . . . 25,194,000 32,389,000
----------- -----------

Long-Term Obligations. . . . . . . . . . . . . -- 19,045,000
----------- -----------
Commitments and Contingencies (Notes 7 and 9)
Stockholders' Equity:
Preferred stock - authorized 2,000,000
shares; none issued and outstanding
Common stock - authorized 15,000,000 shares
of $.01 par value; issued and outstanding
14,127,002 shares at September 29, 1996,
and 13,235,309 shares at October 1, 1995 . 141,000 132,000
Additional paid-in capital . . . . . . . . . 33,452,000 21,793,000
Retained earnings. . . . . . . . . . . . . . 29,676,000 19,571,000
----------- -----------

Total Stockholders' Equity . . . . . . . . . . 63,269,000 41,496,000
----------- -----------
Total Liabilities and Stockholders' Equity . . $88,463,000 $92,930,000
----------- -----------
----------- -----------

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-2

<PAGE>

TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------------
Sept. 29, Oct. 1, Oct. 2,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Gross revenue. . . . . . . . . . . . . . . . . . $220,099,000 $120,034,000 $ 96,472,000
Subcontractor costs. . . . . . . . . . . . . . . 59,062,000 32,160,000 28,653,000
------------ ------------ ------------
Net Revenue. . . . . . . . . . . . . . . . . . . . . 161,037,000 87,874,000 67,819,000
Cost of Net Revenue. . . . . . . . . . . . . . . . . 122,084,000 65,484,000 51,069,000
------------ ------------ ------------
Gross Profit . . . . . . . . . . . . . . . . . . . . 38,953,000 22,390,000 16,750,000
Selling, General and Administrative Expenses . . . . 21,218,000 10,634,000 7,589,000
------------ ------------ ------------
Income From Operations . . . . . . . . . . . . . . . 17,735,000 11,756,000 9,161,000
Interest Expense . . . . . . . . . . . . . . . . . . 1,076,000 90,000 22,000
Interest Income. . . . . . . . . . . . . . . . . . . 300,000 923,000 376,000
------------ ------------ ------------
Income Before Income Taxes . . . . . . . . . . . . . 16,959,000 12,589,000 9,515,000
Income Tax Expense . . . . . . . . . . . . . . . . . 6,854,000 5,036,000 3,806,000
------------ ------------ ------------
Net Income . . . . . . . . . . . . . . . . . . . . . $ 10,105,000 $ 7,553,000 $ 5,709,000
------------ ------------ ------------
------------ ------------ ------------

Net Income Per Common and Common Equivalent Share $ 0.70 $ 0.56 $ 0.43
------------ ------------ ------------
------------ ------------ ------------

Weighted Average Shares Outstanding. . . . . . . . . 14,451,616 13,533,538 13,319,130
------------ ------------ ------------
------------ ------------ ------------

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-3

<PAGE>

TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED SEPTEMBER 29, 1996, OCTOBER 1, 1995 AND OCTOBER 2, 1994

<TABLE>
<CAPTION>
Common Stock
-------------------------- Additional
Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 3, 1993
as previously reported. . . . . . . . 10,338,094 $104,000 $20,123,000 $ 6,309,000 $ (90,000) $26,446,000
Five-for-four common stock
split (Note 6). . . . . . . . . . . 2,584,523 26,000 (26,000) 0
-------------------------------------------------------------------------------------

BALANCE, OCTOBER 3, 1993
as adjusted . . . . . . . . . . . . . 12,922,617 130,000 20,097,000 6,309,000 (90,000) 26,446,000
Net income. . . . . . . . . . . . . . 5,709,000 5,709,000
Payment for fractional shares . . . . (390) (4,000) (4,000)
Shares issued in Simons, Li &
Associates, Inc. acquisition. . . . 136,891 1,000 1,112,000 1,113,000
Stock options exercised . . . . . . . 63,633 1,000 150,000 151,000
Stock purchase plan . . . . . . . . . 28,548 219,000 219,000
Treasury stock purchased. . . . . . . (11,255) (127,000) (127,000)
-------------------------------------------------------------------------------------

BALANCE, OCTOBER 2, 1994. . . . . . . . 13,140,044 132,000 21,574,000 12,018,000 (217,000) 33,507,000
Net income. . . . . . . . . . . . . . 7,553,000 7,553,000
Payment for fractional shares . . . . (195) (3,000) (3,000)
Stock options exercised . . . . . . . 109,896 1,000 628,000 629,000
Treasury stock retired. . . . . . . . (217,000) 217,000 0
Stock purchased and retired . . . . . (14,436) (1,000) (189,000) (190,000)
-------------------------------------------------------------------------------------

BALANCE, OCTOBER 1, 1995. . . . . . . . 13,235,309 132,000 21,793,000 19,571,000 0 41,496,000
Net income. . . . . . . . . . . . . . 10,105,000 10,105,000
Payment for fractional shares . . . . (169) (3,000) (3,000)
Shares issued in KCM, Inc.
acquisition . . . . . . . . . . . . 790,236 8,000 10,305,000 10,313,000
Stock options exercised . . . . . . . 101,626 1,000 683,000 684,000
Tax benefit for disqualifying
dispositions of stock options . . . 674,000 674,000

BALANCE, SEPTEMBER 29, 1996 . . . . . . 14,127,002 141,000 33,452,000 29,676,000 0 63,269,000
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-4

<PAGE>

TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
Sept. 29, Oct. 1, Oct. 2,
1996 1995 1994
------------- -------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,105,000 $ 7,553,000 $ 5,709,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 3,613,000 1,894,000 1,372,000
Deferred income taxes . . . . . . . . . . . . . . . . . . (519,000) (278,000) 129,000
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . 18,043,000 4,335,000 465,000
Unbilled receivables. . . . . . . . . . . . . . . . . . . (5,916,000) (1,581,000) 810,000
Prepaid and other assets. . . . . . . . . . . . . . . . . 246,000 (226,000) (428,000)
Accounts payable. . . . . . . . . . . . . . . . . . . . . (4,080,000) 446,000 1,276,000
Accrued compensation. . . . . . . . . . . . . . . . . . . (1,431,000) 1,165,000 1,234,000
Other current liabilities . . . . . . . . . . . . . . . . (192,000) 716,000 142,000
Income taxes payable. . . . . . . . . . . . . . . . . . . 1,255,000 (446,000) 406,000
------------ ------------ -----------
Net Cash Provided By Operating Activities . . . . . . . 21,124,000 13,578,000 11,115,000
------------ ------------ -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for short-term investments. . . . . . . . . . . . . . -- (3,003,000) --
Proceeds from short-term investments . . . . . . . . . . . . . -- 3,173,000 --
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (2,385,000) (1,453,000) (1,433,000)
Proceeds from sale of property and equipment . . . . . . . . . 71,000 16,000 3,000
Payment for business acquisitions, net of cash acquired. . . . (6,441,000) (35,462,000) (7,067,000)
------------ ------------ -----------
Net Cash Used In Investing Activities . . . . . . . . . (8,755,000) (36,729,000) (8,497,000)
------------ ------------ -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term obligations. . . . . . . . . . . . . . . (25,048,000) (2,045,000) (335,000)
Proceeds from issuance of long-term obligations. . . . . . . . 5,003,000 22,000,000 --
Payments on obligations under capital leases . . . . . . . . . (6,000) -- --
Proceeds from issuance of common stock . . . . . . . . . . . . 681,000 626,000 366,000
Payments to acquire common stock . . . . . . . . . . . . . . . -- (190,000) (127,000)
------------ ------------ -----------
Net Cash Provided By (Used In) Financing Activities . . (19,370,000) 20,391,000 (96,000)
------------ ------------ -----------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . (7,001,000) (2,760,000) 2,522,000
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . 13,130,000 15,890,000 13,368,000
------------ ------------ -----------
Cash and Cash Equivalents at End of Year . . . . . . . . . . . . $ 6,129,000 $ 13,130,000 $15,890,000
------------ ------------ -----------
------------ ------------ -----------

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,149,000 $ 18,000 $ 24,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ 6,123,000 $ 5,879,000 $ 3,270,000

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
In fiscal 1996, the Company purchased all of the capital
stock of KCM, Inc. In conjunction with this acquisition,
liabilities were assumed as follows:
Fair value of assets acquired. . . . . . . . . . . . . . . . $ 20,393,000
Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . (2,645,000)
Issuance of common stock . . . . . . . . . . . . . . . . . . (10,313,000)
Other acquisition costs. . . . . . . . . . . . . . . . . . . (415,000)
------------
Liabilities assumed . . . . . . . . . . . . . . . . . . . $ 7,020,000
------------
------------

</TABLE>

F-5

<PAGE>

<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
Sept. 29, Oct. 1, Oct. 2,
1996 1995 1994
------------- -------------- ------------
<S> <C> <C> <C>
In fiscal 1995, the Company purchased all of the capital
stock of PRC Environmental Management, Inc. In conjunction
with this acquisition, liabilities were assumed as follows:
Fair value of assets acquired. . . . . . . . . . . . . . . . $47,377,000
Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . (35,000,000)
Purchase price payable . . . . . . . . . . . . . . . . . . . (5,000,000)
Other acquisition costs. . . . . . . . . . . . . . . . . . . (600,000)
-----------
Liabilities assumed . . . . . . . . . . . . . . . . . . . $ 6,777,000
-----------
-----------

In fiscal 1994, the Company purchased all of the capital
stock of Simons, Li & Associates, Inc. and acquired
substantially all of the assets and assumed certain
liabilities of Simon Hydro-Search, Inc. In conjunction with
these acquisitions, liabilities were assumed as follows:
Fair value of assets acquired. . . . . . . . . . . . . . . . $11,360,000
Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . (7,194,000)
Issuance of common stock . . . . . . . . . . . . . . . . . . (1,113,000)
-----------

Liabilities assumed . . . . . . . . . . . . . . . . . . . $ 3,053,000
-----------
-----------

</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-6

<PAGE>

TETRA TECH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED SEPTEMBER 29, 1996,
OCTOBER 1, 1995 AND OCTOBER 2, 1994

1. SIGNIFICANT ACCOUNTING POLICIES

BUSINESS - Tetra Tech, Inc. (the "Company") provides comprehensive
environmental engineering and consulting services addressing complex water
contamination and other environmental matters.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries, GeoTrans,
Inc. ("GeoTrans"), Simons, Li & Associates, Inc. ("SLA"), Hydro-Search, Inc.
("HSI"), PRC Environmental Management, Inc. ("EMI"), KCM, Inc. ("KCM"), and
Tetra Tech Technical Services, Inc. ("TtTS"). 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 on the Sunday nearest to September 30. Fiscal years
1996, 1995 and 1994 each contained 52 weeks.

CONTRACT REVENUES AND COSTS - In the course of providing its services, the
Company routinely subcontracts for services such as laboratory testing, soil
cartage and other services and capabilities. 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 revenues 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
revenues on long-term contracts are 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.

General and administrative costs are expensed in the period incurred.

Contract revenues under United States government contracts and subcontracts
accounted for approximately 62%, 55% and 52% of net contract revenue for the
years ended September 29, 1996, October 1, 1995 and October 2, 1994,
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.

F-7
<PAGE>

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.

INTANGIBLE ASSETS - The Company reviews the recoverability of intangible
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 intangible 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 September 29, 1996 and October 1, 1995 consists principally of
goodwill resulting from business acquisitions which is being amortized over
periods ranging from 15 to 40 years.

INCOME TAXES - The Company files a consolidated federal income tax return
and combined California franchise tax reports, 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.

NET INCOME PER COMMON SHARE - Per share information is computed using the
weighted average number of shares of common stock outstanding and dilutive
common equivalent shares from stock options and warrants (using the treasury
stock method).

FAIR VALUE OF FINANCIAL INSTRUMENTS -

CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, UNBILLED RECEIVABLES AND
ACCOUNTS PAYABLE - The carrying amounts approximate fair value because of
the short maturities of these instruments.

REVOLVING CREDIT FACILITY- The carrying amount 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 temporary cash investments and
accounts receivable. The Company places its temporary cash investments with
high credit qualified financial institutions and, by policy, limits the amount
of investment exposure to any one financial institution. Approximately 70% of
accounts receivable is due from various agencies of the Federal government. The
remaining accounts receivable are generally diversified due to the large number
of entities comprising the Company's customer base and their geographic
dispersion. The Company performs ongoing credit evaluations of its customers
and maintains an allowance for potential credit losses.

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 - During the fiscal year ended September 29,
1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. Among other provisions, the

F-8
<PAGE>

statement changed current accounting practices for the evaluation of impairment
of long-lived assets. The adoption did not have a material effect on the
Company's financial statements.

In 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which will be effective for the Company beginning September 30,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock-based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share upon adoption of SFAS No.
123.

2. ACQUISITIONS

In November 1995, the Company acquired 100% of the capital stock of
KCM, Inc. ("KCM"), an engineering services firm specializing in areas of
water quality, water and wastewater systems, surface water management,
fisheries and facilities. The purchase price of $12,958,000 consisted of
cash and Company stock which was issued under Regulation D under the
Securities Act of 1933, as amended, and had a value of $10,313,000. The
Company's stock was valued based upon the extended restriction period and
economic factors specific to the Company's circumstances which resulted in a
fair valuation approximately 26% below the then prevailing market price.

On September 15, 1995, the Company acquired 100% of the capital stock of
PRC Environmental Management, Inc. ("EMI") from The Black & Decker Corporation.
EMI provides a full range of environmental consulting and engineering services,
including feasibility studies, remedial investigations and design, construction
management, economic and financial analysis, environmental audits, risk
management services and regulatory compliance assistance. EMI's customers
include the U.S. Environmental Protection Agency, U.S. Department of Defense and
other governmental and commercial entities. The purchase price was approximately
$40,000,000.

The acquisitions of EMI and KCM have been accounted for as purchases. 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 balance sheets. The results of operations of EMI and
KCM have been included in the Company's financial statements from their
respective acquisition dates.

The following table presents summarized unaudited pro forma operating
results assuming that the Company had acquired KCM and EMI on October 3, 1994:

Fiscal Years Ended
---------------------------------------
Sept. 29, 1996 Oct. 1, 1995
------------------- ----------------
($ in thousands, except per share data)
Gross revenue $ 222,150 $ 232,008
Income before income taxes 17,119 10,842
Net income 10,200 6,505
Net income per share 0.70 0.45
Weighted average shares outstanding 14,546 14,324

F-9
<PAGE>

3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at September 29, 1996 and
October 1, 1995:

1996 1995
---- ----
Billed accounts receivable. . . . . . . $ 23,338,000 $ 24,782,000
------------- ------------
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 . . . . . . . . . . . . .25,067,000 28,207,000
Costs and fee retention billable
upon audit of total contract costs. . .10,203,000 10,668,000
------------- ------------

Total unbilled accounts receivable. . . . .35,270,000 38,875,000
------------- ------------

Allowance for uncollectible accounts
and disallowed costs. . . . . . . . . . (11,101,000) (11,153,000)
------------- ------------

Total . . . . . . . . . . . . . . . . . $ 47,507,000 $ 52,504,000
------------- ------------
------------- ------------

The accounts receivable valuation allowance includes amounts to provide for
doubtful accounts and for the potential disallowance of billed and unbilled
costs. Disallowance of billed and unbilled costs is primarily associated with
contracts with the U.S. government which contain clauses that subject
contractors to many levels of audit. Payments made to EMI on U.S. government
contracts are subject to proposed adjustments upon audit. Audits for the years
1986, 1987, 1992 and 1993 have been completed, and cost disallowances of
approximately $2.3 million have been proposed. Final negotiations between EMI
and the U.S. government are in process, and EMI is vigorously contesting
substantially all of the proposed disallowances. Audits for the years 1988,
1989, 1990, 1991, 1994 and 1995 and the period from January 1, 1996 to September
29, 1996 have yet to be completed. 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 has been determined to be probable based on current events and
circumstances. Given the above, management believes that resolution of these
matters will not have a material adverse impact on the Company's financial
position or results of operations.

The Company has approximately $2,400,000 under retainage provisions of
contracts. Accounts receivable include approximately $4,748,891 that may not be
realized within one year.

F-10
<PAGE>

4. INCOME TAXES

The provision for income taxes for the years ended September 29, 1996,
October 1, 1995 and October 2, 1994 consisted of the following:

Sept. 29, Oct. 1, Oct. 2,
1996 1995 1994
-------- ------ ------
Current:
Federal $ 5,849,000 $ 4,185,000 $ 2,915,000
State 1,462,000 1,129,000 762,000
Deferred (457,000) (278,000) 129,000
---------- ---------- ----------
Total provision $ 6,854,000 $ 5,036,000 $ 3,806,000
---------- ---------- ----------
---------- ---------- ----------

Temporary differences comprising the net deferred income tax benefit shown
on the consolidated balance sheets were as follows:

Sept. 29, Oct. 1,
1996 1995
-------- ------
Allowance for doubtful accounts. . . . . $ 4,458,000 $ 4,635,000
Cash to accrual. . . . . . . . . . . . . (2,265,000) (211,000)
Accrued vacation . . . . . . . . . . . . 606,000 547,000
Prepaid expense. . . . . . . . . . . . . (584,000) (324,000)
Depreciation . . . . . . . . . . . . . . (399,000) (157,000)
Other. . . . . . . . . . . . . . . . . . 542,000 268,000
--------- ---------
Deferred income tax benefit. . . . . . . $ 2,358,000 $ 4,758,000
--------- ---------
--------- ---------

Total tax expense was different than the amount computed by applying the
federal statutory rate as follows:

Sept. 29, 1996 Oct. 1, 1995 Oct. 2, 1994
-------------- ------------ ------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Tax at federal statutory rate. . . . . . . $5,936,000 35.0% $4,406,000 35.0% $3,330,000 35.0%
State taxes, net of federal benefit . . . 933,000 5.5 692,000 5.5 528,000 5.5
Other . . . . . . . . . . . . . . . . . . (15,000) (0.1) (62,000) (0.5) (52,000) (0.5)
---------- ----- --------- ----- --------- -----
Total provision . . . . . . . . . . . . . $6,854,000 40.4% $5,036,000 40.0% $3,806,000 40.0%
---------- ----- --------- ----- --------- -----
---------- ----- --------- ----- --------- -----

</TABLE>

5. LONG-TERM OBLIGATIONS

In September 1995, the Company entered into a credit agreement (as amended,
the "Credit Agreement") with a bank to support its working capital and
acquisition needs. The Credit Agreement provides a revolving credit facility of
$30,000,000 which the Company has voluntarily reduced to $15,000,000 at
September 29, 1996. Under the Credit Agreement, the Company may also request
standby letters of credit up to the aggregate sum of $5,000,000 outstanding at
any one time.

Interest on borrowings under the Credit Agreement is payable at the
Company's option (a) at a base rate (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 1.25% to 1.75%. The interest rates on
outstanding borrowings at October 1, 1995 was 7.5625%.

F-11
<PAGE>

Borrowings under the Credit Agreement are secured by the Company's accounts
receivable and the stock of four 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, creation of liens, and
dividends on capital stock (other than stock dividends).

The Credit Agreement matures on September 15, 1998 or earlier at the
discretion of the Company upon payment in full of loans and other obligations.
As at September 29, 1996, there were no borrowings outstanding, however, standby
letters of credit totalled $1,815,000.

6. STOCKHOLDERS' EQUITY

On May 23, 1996, the Board of Directors declared a five-for-four split of
the Company's Common Stock, effected in the form of a 25% stock dividend,
payable on June 21, 1996 to shareholders of record on June 7, 1996. 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 authorized), stock options and per
share information in the consolidated financial statements have been adjusted to
reflect the stock split on a retroactive basis.

Pursuant to the Company's 1989 Stock Option Plan, key employees may be
granted options to purchase 610,351 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 date of grant. Additionally, in connection
with acquisitions in 1988 and 1990, the Company issued options to purchase
281,605 shares of the Company's Common Stock.

The Company also has a 1992 Incentive Stock Plan under which key employees
may be granted options to purchase 2,156,250 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 Nonemployee Director Plan, nonemployee
directors may be granted options to purchase 73,241 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-time and regular part-time employees and officers of the Company or
any of its Subsidiaries, including directors who are also 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, 562,500 shares may be issued pursuant to the exercise of Purchase Rights.

F-12
<PAGE>

Each Purchase Right lasts for a period of 52 weeks ("Purchase Right
Period"). The first Purchase Right Period began after the stockholders adopted
the Purchase Plan at the Annual Meeting on February 8, 1996. However, the
Committee may elect to suspend and/or recommence the Purchase Plan at anytime
following the end of a Purchase Right Period.

Prior to the beginning of each Purchase Right Period, employees may elect
to contribute fixed amounts to the Purchase Plan during that Purchase Right
Period to purchase Common Stock. Employees can only commence participation in
the Purchase Plan on the first day of a Purchase Right Period. 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.

The amounts that employees contribute to the Purchase Plan will
automatically be used to purchase Common Stock on the last day of the Purchase
Right Period, unless they elect to withdraw from the Purchase Plan or are
terminated prior to that date. If the Company is sold, all Purchase Rights will
become exercisable immediately preceding the sale. Employees who elect to
suspend their contributions can elect either to withdraw their contributions or
leave those amounts in the Purchase Plan to be used to purchase Common Stock at
the end of the Purchase Right Period. No interest is credited on any amounts
contributed to the Purchase Plan.

If the Common Stock is disposed of by a participant prior to the expiration
of the holding periods required to qualify for long-term capital gains
treatment, the participant is required to notify the Company in the event of
such a premature disposition.

During the three years ended September 29, 1996, option activity was as
follows:

NUMBER OF OPTION PRICE
OPTIONS PER SHARE TOTAL
--------- -------------- ---------
<S> <C> <C> <C>
Balance, October 3, 1993 . . . . . 435,961 $ 1.08 - $ 7.98 $ 1,992,000
Granted. . . . . . . . . . . . . 512,158 $ 8.06 - $12.16 4,826,000
Exercised. . . . . . . . . . . . (63,633) $ 1.08 - $ 7.53 (151,000)
Cancelled. . . . . . . . . . . . (41,026) $ 1.47 - $ 9.22 (266,000)
-------- ------------- ---------
Balance, October 2, 1994 . . . . . 843,460 $ 1.08 - $12.16 6,401,000
Granted. . . . . . . . . . . . . 347,770 $10.88 - $17.30 4,038,000
Exercised. . . . . . . . . . . . (109,896) $ 1.08 - $10.24 (629,000)
Cancelled. . . . . . . . . . . . (79,561) $ 1.47 - $11.04 (690,000)
-------- ------------- ---------
Balance, October 1, 1995 . . . . . 1,001,773 $ 1.08 - $17.30 9,120,000
Granted. . . . . . . . . . . . . 412,587 $16.00 - $21.00 7,318,000
Exercised. . . . . . . . . . . . (101,626) $ 1.08 - $12.48 (684,000)
Cancelled. . . . . . . . . . . . (52,417) $ 1.08 - $17.60 (583,000)
---------- ------------- ----------
Balance, September 29, 1996. . . 1,260,317 $ 1.08 - $21.00 $ 15,171,000
---------- ------------- ----------
---------- ------------- ----------

</TABLE>

F-13
<PAGE>

At September 29, 1996, the status of each plan was as follows:

1989 Stock Option Plan: Options to purchase 114,674 shares were
exercisable and no further options will be granted under this plan.
1992 Incentive Stock Option Plan: Options to purchase 293,283 shares were
exercisable and options to purchase 954,111 shares were available for
future grant.
1992 Nonemployee Director Plan: Options to purchase 9,764 shares were
exercisable and options to purchase 56,154 shares were available for
future grant.

7. LEASES

The Company leases land, buildings and equipment under various operating
leases. Rent expense under all operating leases was approximately $9,462,000,
$5,332,000 and $3,732,000 for the years ended September 29, 1996, October 1,
1995 and October 2, 1994, respectively. Amounts payable under noncancelable
operating lease commitments are as follows during the fiscal years ending in:

1997. . . . . . . . . . . . . . . . . . . . . $ 7,873,000
1998. . . . . . . . . . . . . . . . . . . . . 6,065,000
1999. . . . . . . . . . . . . . . . . . . . . 4,029,000
2000. . . . . . . . . . . . . . . . . . . . . 3,083,000
2001. . . . . . . . . . . . . . . . . . . . . 2,575,000
Thereafter. . . . . . . . . . . . . . . . . . 5,136,000
------------
Total . . . . . . . . . . . . . . . . . . . . $ 28,761,000
------------
------------

8. 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 years ended September 29,
1996, October 1, 1995 and October 2, 1994 expenses relating to the plans were
approximately $4,002,000, $1,971,000 and $1,479,000, respectively.

9. 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 statements.

F-14
<PAGE>

10. QUARTERLY FINANCIAL INFORMATION - UNAUDITED

In the opinion of management, the following unaudited quarterly data for
the years ended September 29, 1996 and October 1, 1995 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 1996 Quarter Quarter Quarter Quarter
- ----------- ------- ------- ------- -------
Gross revenue. . . . . . . . . . . . $ 54,162 $ 53,929 $ 54,152 $ 57,856
Net revenue. . . . . . . . . . . . . 38,023 40,076 40,314 42,624
Gross profit . . . . . . . . . . . . 8,540 9,400 9,835 11,178
Income from operations . . . . . . . 3,730 4,119 4,506 5,380
Net income . . . . . . . . . . . . . 2,029 2,297 2,625 3,154
Net income per share . . . . . . . . $ 0.14 $ 0.16 $ 0.18 $ 0.22
Weighted average shares
outstanding . . . . . . . . . . . . 14,151 14,504 14,565 14,601

First Second Third Fourth
Fiscal 1995 Quarter Quarter Quarter Quarter
- ----------- ------- ------- ------- -------
Gross revenue. . . . . . . . . . . . $ 27,646 $ 27,852 $ 29,150 $ 35,386
Net revenue. . . . . . . . . . . . . 19,947 21,151 21,499 25,277
Gross profit . . . . . . . . . . . . 4,897 5,244 5,277 6,972
Income from operations . . . . . . . 2,403 2,613 2,919 3,821
Net income . . . . . . . . . . . . . 1,551 1,688 1,907 2,407
Net income per share . . . . . . . . $ 0.12 $ 0.13 $ 0.14 $ 0.18
Weighted average shares outstanding 13,439 13,449 13,551 13,670

F-15
<PAGE>

TETRA TECH, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

For the Fiscal Years Ended
OCTOBER 2, 1994, OCTOBER 1, 1995 AND SEPTEMBER 29, 1996

BALANCE AT CHARGES TO
BEGINNING OF COSTS AND BALANCE AT
PERIOD EXPENSES DEDUCTIONS END OF PERIOD
------ -------- ---------- -------------
<S> <C> <C> <C>
Fiscal year ended October 2, 1994
Allowance for loss on accounts receivable $ 993,000 $720,000(b) $(72,000)(a) $ 1,641,000

Fiscal year ended October 1, 1995
Allowance for loss on accounts receivable 1,641,000 9,579,000(c) (67,000)(a) 11,153,000

Fiscal year ended September 29, 1996
Allowance for loss on accounts receivable 11,153,000 1,606,000(d) (1,658,000)(a) 11,101,000

</TABLE>
________________

(a) Represents write-offs of uncollectible accounts, net of recoveries on
accounts previously written off.
(b) Includes $293,000 for Simons, Li & Associates, Inc. and Simon Hydro-Search,
Inc. as of acquisition date.
(c) Includes $9,635,000 for PRC Environmental Management, Inc. as of
acquisition date.
(d) Includes $1,365,000 for PRC Environmental Management, Inc. and KCM, Inc. as
of acquisition date.

F-16

<PAGE>

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos.
33-46240, 33-47533, 33-80606 and 33-94706 of Tetra Tech, Inc. on Form S-8 and
No. 33-32766 of Tetra Tech, Inc. on Form S-3 of our report dated November 12,
1996, appearing in this Annual Report on Form 10-K/A (Amendment No. 3) for
the year ended September 29, 1996.

DELOITTE & TOUCHE LLP

Los Angeles, California
September 4, 1997

EXHIBIT 23