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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 2)
[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 June 23, 1997, based on the closing price of the Common Stock as
reported by the Nasdaq National Market on such date, was approximately
$275,208,135.
As of June 23, 1997, the Registrant had outstanding 16,259,169 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.
1. The Registrant hereby amends the third paragraph under the heading
"Contracts" to read in full as follows:
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.
2. The Registrant hereby adds the following as the new third through
sixth paragraphs under the heading "Contracts:"
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.
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
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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.
3. The Registrant hereby amends the paragraph under the heading
"Competition" to read in full as follows:
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.
4. The Registrant hereby amends the Risk Factor entitled "Potential
Liability and Insurance" to read in full as follows:
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
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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.
5. The Registrant hereby amends the Risk Factor entitled "Contracts" to
read in full as follows:
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. 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.
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.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Registrant hereby amends the Management's Discussion and Analysis of
Financial Condition and Results of Operations that appears in the Registrant's
Annual Report to Stockholders for the fiscal year ended September 29, 1996 by
adding the following as the new fourth paragraph under the heading "Liquidity
and Capital Resources:"
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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant hereby amends the description of the business experience
of James M. Jaska, the Registrant's Vice President and Chief Financial Officer,
that appears in the Registrant's definitive Proxy Statement
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dated January 8, 1997 with respect to the Registrant's 1997 Annual Meeting of
Stockholders, to read in full as follows:
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
The Registrant hereby amends Item 14 by adding the following Exhibits:
3. EXHIBITS.
99.1 Independent Auditors' Report.
99.2 Independent Auditors' Report.
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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: June 27, 1997 By: /s/ James M. Jaska
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James M. Jaska
Vice President and Chief Financial
Officer
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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. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Tetra Tech, Inc. and its
subsidiaries as of 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.
DELOITTE & TOUCHE LLP
LOS ANGELES, CALIFORNIA
NOVEMBER 12, 1996
EXHIBIT 99.1
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INDEPENDENT AUDITORS' REPORT
Tetra Tech, Inc.:
We have audited the consolidated financial statements of Tetra Tech, Inc. and
its subsidiaries as of September 29, 1996 and October 1, 1995, and for each of
the three years in the period ended September 29, 1996, and have issued our
report thereon dated November 12, 1996; such financial statements and report are
included in your 1996 Annual Report to Stockholders and are incorporated herein
by reference. Our audits also included the financial statement schedule of
Tetra Tech, Inc. and its subsidiaries, listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 12, 1996
EXHIBIT 99.2
