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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 28, 1997.
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to_______
Commission file number 0-19655
TETRA TECH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-4148514
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
670 N. Rosemead Blvd.
Pasadena, California 91107
(Address of registrant's principal (Zip Code)
executive offices)
(Registrant's telephone number,
including area code:) (626) 351-4664
Securities registered pursuant
to Section 12(b) of the Act:
(Title of each class) (Name of each exchange on which registered)
None None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant on December 9, 1997 was $366,641,534.
The number of shares of Common Stock, $.01 par value, outstanding (the only
class of common stock of the registrant outstanding) was 22,268,958 on December
9, 1997.
Portions of registrant's Annual Report to Stockholders for the fiscal year ended
September 28, 1997 are incorporated by reference in Part II of this report.
Portions of registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III of this report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
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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
SECOND PARAGRAPH UNDER "OVERVIEW," IN THE FIRST AND SECOND PARAGRAPHS UNDER
"RESOURCE MANAGEMENT BUSINESS AREA," AND IN THE FIRST, FIFTH AND FOURTEENTH
PARAGRAPHS UNDER "ENVIRONMENTAL LEGISLATION." 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 engineering and management consulting services focusing on
cost-effective solutions to engineering, environmental and natural resource
management 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. Engineering services also include
mechanical, electrical, chemical and structural engineering, as well as
architecture and design, and are applied to infrastructure projects including
wastewater treatment plants, roads, schools and telecommunications projects
including structures and construction management.
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. 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. In
October 1993, the Company acquired Simons, Li & Associates, Inc., a firm
engaged primarily in advanced water resources and environmental engineering.
In June 1994, the Company acquired Hydro-Search, Inc., a groundwater
hydrology and remediation firm. In September 1995, the Company acquired
Tetra Tech EM Inc. (formerly known as PRC Environmental Management, Inc.), an
environmental engineering and consulting firm which provides services ranging
from policy analysis to innovative remedial technology evaluation. In
November 1995, the Company acquired KCM, Inc., an engineering firm
specializing in the areas of water quality, water and wastewater systems,
surface water management, fisheries and facilities. In December 1996, the
Company acquired IWA Engineers, an architecture and engineering ("A/E") firm
providing a wide range of planning, engineering and design capabilities in
water, wastewater and facility design. In December 1996, the Company also
acquired FLO Engineering, Inc., a consulting and engineering firm
specializing in water resource engineering involving hydraulic engineering
and hydrographic data collection. In January 1997, the Company merged
Hydro-Search, Inc. into GeoTrans, Inc. and changed the name of the combined
entity to HSI GeoTrans, Inc. In March 1997, the Company acquired SCM
Consultants, Inc., a consulting and engineering firm, providing design of
irrigation, water and wastewater systems, as well as facility and
infrastructure engineering services. In June 1997, the Company acquired
Whalen & Company, Inc. and Whalen Service Corps Inc. (collectively, "WAC"), a
wireless telecommunication services firm providing site development services
for PCS, cellular, ESMR, air-to-ground, microwave, paging, fiber optic and
switching centers technology. In July 1997, the Company acquired CommSite
Development Corporation, a wireless telecommunication site development
service firm. Since 1966, the Company's business has expanded through the
establishment of an international network of over 90 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 and
adequate infrastructure to sustain economic activity. 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
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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
cost-effective solutions to remediation or corrective action to problems
impacting our environment.
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 resource management and infrastructure 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 minimization as
a necessary part of a long-term 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.
- Population growth requiring new municipal infrastructure including
water and wastewater treatment plants, roads, and pipelines, as well
as schools, office buildings and criminal justice facilities.
COMPANY SERVICES
The Company's services generally fall within three business areas:
resource management, infrastructure and telecommunications services. The
Company provides its clients with five lines of service including research and
development, applied science and management consulting, engineering and
architectural design, construction management, and facility operation and
maintenance. These services are offered individually or together as part of the
Company's full service approach to problems. The Company is currently
performing services under more than 800 active contracts, which range from small
site investigations to large, complex infrastructure projects.
RESOURCE MANAGEMENT BUSINESS AREA
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
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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.
In the Resource Management Business Area, the Company's services extend
from research and development through applied science and management consulting;
to engineering and architectural design and construction management, and
operation and maintenance.
SURFACE WATER PROJECTS
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 31 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 CWA expected within the
next one to two years, the EPA has set as a high priority working with state
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
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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.
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 Clermont County, Ohio; 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 assisted 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, facilitating and refining management objectives for the
Orange Water and Sewer Authority, North Carolina; development of a
watershed plan for the Loch Raven Reservoir, Baltimore, Maryland;
and nitrogen loading impacts of domestic septic systems within the
Patuxent River Watershed, Maryland.
- 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 the 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.
- 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 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. The Company recently completed
development and analysis of alternative flood control measures for
the Los Angeles River, one of the most important urban flood control
projects in the country. The Company considered numerous advanced
flood protection measures, including stormwater detention using
gravel pits, development of large greenbelts and flood walls.
Although this was one of the most contentious projects of its kind,
Tetra Tech successfully balanced habitat needs with structural flood
control solutions to develop a widely accepted plan.
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- 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.
- BLUE RIVER WETLANDS RESTORATION, BRECKENRIDGE, COLORADO. The
Company completed the design of wetland creation and channel
restoration of the Blue River for the Town of Breckenridge. The
project restored a one-mile reach of the Blue River which had been
disturbed by dredge boat mining from 1890 to 1940. Project features
included the removal of 500,000 cu. yd. of dredge rock,
reconstruction of a stream channel including 22 drop structures to
enhance channel stability and overbank grading to create wetlands.
Approximately ten acres of riparian wetlands were developed.
- RIO GRANDE HYDROGRAPHIC DATA COLLECTION PROGRAM, NEW MEXICO. The
Company is conducting a five-year hydrographic data collection
project on the Rio Grande in New Mexico for the Bureau of
Reclamation, Albuquerque Project Office. Data collection includes
geomorphic observations, cross-sectional survey, flow measurement,
sediment transport and bed material samples.
GROUNDWATER PROJECTS
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:
- INVESTIGATION, CHARACTERIZATION, AND REMEDIATION AT A FORTUNE 500
MANUFACTURING FACILITY IN WESTERN NEW YORK. At a former
manufacturing facility with metals and volatile organic
compound impacted soil, the Company is implementing an innovative
combination of excavation, stabilization, and phytoremediation. The
Company is currently coordinating the testing of the
phytoremediation component of the remedy, which uses vegetation for
the in-situ treatment of impacted soil. The New York State
Department of Environmental Conservation is allowing the site to be
used to test a passive phytoremediation strategy.
- HYDROGEOLOGIC SUPPORT FOR GUANACO MINE IN ANTOFAGASTA, CHILE. The
Company provided hydrogeologic services to substantially increase
the mine's current water supply. At a site located in one of the
driest deserts in the world, the Company performed design and
supervision of the water-well and water exploration drilling
programs; well design and construction; review of hydrogeologic data
collected to date; new target area identification for groundwater
exploration; review of the hydrogeologic database currently used at
the mine; design of bid documents and screening of final bids for
securing new drillers; aquifer testing to evaluate adequacy of water
supply for life of mine; and general advice to the customer
pertaining to strategy for water supply development. Tetra Tech's
efforts were successful after earlier efforts failed to produce
adequate water after drilling more than 100 boreholes.
- 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
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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 PROJECTS
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:
- RCRA FACILITY INVESTIGATION, INTERIM MEASURES, AND VERIFICATION
INVESTIGATIONS, WEST VIRGINIA FACILITY. For a Fortune 500 client,
the Company is providing RCRA services at a facility with over 30
solid waste management units and areas of concern. One task
involved the investigation of a landfill onsite where several cells
of buried drums and impacted soils were discovered. The Company
successfully excavated, characterized, and disposed of the drums in
less than three months. At another landfill onsite, the Company
provided construction management services for stabilization of a
20,000-foot area along a stream bank.
- 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 has 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 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.
- 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
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unexploded ordnance (UXO) for the U.S. Army Environmental Center's
UXO Advanced Technology Demonstration Program.
- 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 PROJECTS
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 the National Environmental Policy
Act ("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 capabilities. 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:
- 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.
- 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.
REGULATORY COMPLIANCE PROJECTS
The Company's regulatory compliance services include the full spectrum of
regulatory requirements under RCRA, the CWA, the Clean Air Act, the NEPA and
other environmental laws. Although services are provided to both public and
private sector clients, the Company's current emphasis is on providing
regulatory compliance 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 regulatory compliance projects include the
following:
- PHILIPPINES RESOURCE MANAGEMENT. 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. Supporting
Philippine environmental and resource management policies which focus
on market-driven incentives that encourage industry to comply with
standards.
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- U.S. AIR FORCE. A nationwide contract with the Air Mobility Command
to perform environmental compliance activities at Air Force bases.
- U.S. NAVY. Environmental documentation for base realignment and
closure activities at U.S. Naval bases in the San Francisco Bay area.
- U.S. ARMY. A nationwide contract with Army Material Command ("AMC")
to support compliance requirements of AMC installations and facility
tenants.
INFRASTRUCTURE BUSINESS AREA
Tetra Tech's focus is on engineering projects such as water and wastewater
treatment plants, institutional facilities and leisure facilities. These
facilities are an essential part of everyday life as well as being critical to
sustaining economic activity. Much of the U.S. infrastructure needs repair,
renovation or replacement, whereas developing countries need new infrastructure.
Tetra Tech's engineers, architects and planners are working in partnership with
public and private sector customers to ensure adequate infrastructure within
fiscal objectives.
In this business area, the Company's services include engineering and
architectural design, construction management, and operation and maintenance.
Examples of the Company's projects in the Infrastructure Business Area
include:
- SEWAGE PUMP STATION AND FORCEMAIN. The Company designed Portland,
Oregon's Fanno Pump Station and Forcemain Project to replace five
existing pump stations located in the uplands of the Fanno Creek
watershed. The project includes construction of a gravity bypass
sewer to connect the existing gravity sewer to the pump station.
The project also includes construction of a forcemain approximately
16,200 feet in length. The pump station is designed for flows in
the range of 4.2 to 13.5 million gallons per day ("MGD"). The
pumping station encloses a full carbon odor scrubber system,
stand-by power, chemical injection for downstream corrosion control,
automated controls and connection to the City of Portland's
monitoring system. Due to the nature of the site and surrounding
development, significant measures were taken to maintain the
integrity of wildlife habitat. This was accomplished by careful
selection of plantings and landscaping materials to screen the
structure from surrounding homes and produce a habitat that
optimizes the site's wildlife carrying capacity.
- FISH HATCHERY AND VISITOR CENTER. The Texas Parks and Wildlife
Department selected the Company as prime consultant to plan and
develop a new, state-of-the-art, marine fish hatchery and visitor
center at Lake Jackson, Texas. Sea Center Texas is located on a
60-acre parcel donated by the Dow Chemical Company. Major project
components include a 30,000 sq. ft. hatchery building, a visitor
center, 40 one-acre lined ponds, a seawater pump station with five
miles of transmission piping, and a fresh water pump station with
2,000 feet of transmission piping. A sophisticated ozone
disinfection/biofiltration system for seawater reuse is also in use.
The project involved the development of a master plan, preliminary
design, final design and construction administration. In addition,
the Company provided engineering and bioengineering for all life
support systems.
- DESIGN-BUILD RESIDENTIAL PROJECT. The Company is currently
designing a 74 unit, four-story, residence hall for the Naval
Homeport in Everett, Washington. This design-build project was
successfully awarded based upon the Company's design team's technical
and price proposals. The Company is developing the final design for
this concrete, steel, and masonry structure. Site improvements
include formal entries, basketball court and recreational field. The
Company's responsibilities include design management, architectural,
civil, structural, site planning & construction services.
- WASTEWATER LARGE-DIAMETER PIPELINE ADDITION. The Company is
currently designing the Wilburton Siphon, a critical element of the
160 MGD Eastside Interceptor in King County, Washington, conveying
flows from Woodinville to Renton. The project evaluates the existing
siphon in terms of flow capacity, condition, and odor control. In
order to meet the future
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capacity of 160 MGD through the siphon, a new parallel 48-inch
siphon barrel is to be added to the existing 16-, 30-, and 48-inch
barrels. Additionally, new structures upstream and downstream of the
existing siphon will be constructed to allow the flow to be bypassed
around the siphon control structure to allow for new lining of the
structures and future inspection and maintenance. A new odor
control and chemical dosing facility is also being constructed at
the upstream end of the siphon to control odors at the siphon and
corrosion in the siphon and downstream tunnel.
- ROADWAY WIDENING. The Company is currently completing plans,
specifications, and estimates ("PS&E") for the City of Bellingham,
Washington, for design of a two-mile section of Bakerview Road. The
project calls for widening the 35-mph, two-lane paved road with
5-foot shoulders to a roadway with two travel lanes in each
direction, a continuous left-turn lane, 5-foot bike paths, curbs,
gutters, and 7-to 9.5-foot sidewalks on both sides. New traffic
channelization and signalization at four intersections are included
in the design requirements. The Company prepared alternative
analyses, a design report, PS&E and right-of-way plans. Improvements
include filling existing ditches, removing vegetation, and providing
wetland mitigation.
- LAKE AND WATERSHED RESTORATION AND CREATION. Tetra Tech is one of
the Southwest's leaders in developing lakes and watersheds within
coastal, arid and semi-arid regions. These projects offer multiple
benefits, including habitat enhancement, recreation, flood control,
water quality protection, beach sand replenishment, and species
re-introduction. The Company is providing lake design services,
including grant application preparation, planning, permitting,
engineering and design, and construction services for a new
recreation lake in Picacho, Arizona. The Company is working with
the ACE on watershed management and enhancement
plans in the Aliso Creek and San Juan Creek systems in coastal
southern California as well as the Gila River near Tucson, Arizona.
- 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 ACE's
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. The Company is currently
charged with developing design for the City of Scottsdale's Desert
Greenbelt multi-million dollar flood control project. The project
will protect homeowners from flash flooding within alluvial fans,
one of the most challenging environments for effective flood
control. In addition to design of channels and sediment basins, the
team will also design roadway, bridges, and park features, and is
responsible for landscape architecture to create not just a simple
flood control project but also a community amenity.
- REGIONAL STORMWATER DETENTION AND WATER QUALITY FACILITY. The
Company designed a 21-acre regional detention and water quality
treatment facility for the City of Federal Way, Washington, to serve
a largely commercial and industrial tributary watershed. Runoff
from the tributary area was being directed to an undersized
detention pond and discharged into Tributary 0013 of West Hylebos
Creek, an important anadromous fish bearing creek. Following a
feasibility assessment, the Company used the "HSPF" model to
evaluate conditions for land use as they existed in 1975, a time of
much lighter development, prior to significant water quality and
flooding problems. Using the "HSPF" base case model, a facility was
sized to achieve the target goals. Features to enhance water quality
included a sedimentation forebay, meandering low flow channels to
maximize contact with stormwater, and an outlet micropool for
trapping organics that may transfer through the facility.
Landscaping visually screens the facility. All plantings emphasize
the use of native, drought-tolerant vegetation to promote survival
and minimize maintenance. The Company developed a plan
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for planting vegetation that would tolerate the fluctuations and
duration of stormwater and also benefit the biological and
biochemical treatment of the stormwater runoff quality.
- INDUSTRIAL OIL-WATER SEPARATION. The Company provided complete
engineering services for design of two coalescing plate oil-water
separators at the North Boeing Field facility in Seattle,
Washington. The new separators will treat stormwater runoff and
provide spill protection in fueling areas. The larger of the
separators was 50' x 20' and designed to support the full
operational load of a Boeing 757 jet liner. Associated taxiway
paving comprised approximately 10,000 square feet of area.
- WASTEWATER TREATMENT PLANT DESIGN. The City of Snoqualmie,
Washington, is projected to increase from 1,200 to over 18,000
people in the next 20 years, necessitating a major upgrade to the
existing aerated lagoon treatment plant and river bank outfall. The
Company prepared an engineering report and design documents for
these improvements on a fast track time schedule. The facilities
include a 2 MGD oxidation ditch plant with ultra violet
disinfection, coagulation and filtration to meet Class A reclaimed
water standards and provisions for future biological nutrient
removal. The existing lagoon will be used for sludge treatment and
storage, with future sludge disposal by dredging and land
application. Effluent disposal is based on discharging secondary
effluent to a new Snoqualmie River outfall in the winter, and Class
A reclaimed water to the outfall and golf course irrigation in the
summer. Provisions are included for pilot testing rapid
infiltration disposal of Class A reclaimed water, because future
total maximum daily load ("TMDL") limits for biochemical oxygen
demand, toxic metals and nutrients may effectively prohibit summer
discharge to the river. Intensive pretreatment and water supply
corrosion control efforts are planned to minimize toxic heavy metals
concentrations (copper, cadmium, zinc, etc.) in the sewage. River
water quality will be monitored for heavy metals using the EPA's "clean
techniques."
- NEW MAIN OFFICE BUILDING. The Company provided complete design and
construction administration services for this 33,500 sq. ft., $3.3
million building, including drive-through bill paying,
accounting/data processing, personnel, purchasing, engineering,
Board Meeting room and community auditorium, all served by a
fully-integrated computer network, energy-efficient heat pump
system, and low-maintenance building systems.
- WASHINGTON STATE PENITENTIARY TELECOMMUNICATIONS PROJECT. This $3
million project included construction of a new 4,500 sq. ft.,
one-story building with offices, work rooms, and telecommunications
equipment room. Telecommunications work included design,
construction, and installation of a new high-bandwidth, digital
telecommunications infrastructure for voice and data services. The
Company provided development of drawings and specifications, and
construction administration services.
- SCHOOL OVERPRESSURIZATION PROJECT. This $4.3 million project
created pressurized, protected areas of refuge for the students and
staff at eleven schools in the communities of Hermiston, Umatilla,
and Irrigon, Oregon. The project began with defining protective
zones within each of the facilities. This involved facility surveys
and interviews with users of each facility. Protective designs were
developed and construction documents were prepared for bid. This
design features include high efficiency particulate and gas
absorption filters, air handling units with high-pressure fans and
heating and cooling systems, diesel generator systems for emergency
electrical power, and a pressure sensing and control system.
- PASCO HIGH SCHOOL RENOVATION AND EXPANSION. The Company provided
full A/E services for the 106,000 sq. ft. remodel and 20,000 sq. ft.
expansion of this mid-1950's high school facility Construction cost
was $13.5 million for the project, which was completed in 1995.
Completely redesigned auditorium, administration, gymnasium and
laboratory spaces are featured in the highly functional new layout.
Audio, video and data networks have been provided throughout the
building.
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OPERATION AND MAINTENANCE PROJECTS
The Company also 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 Operation &
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 clients' 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.
TELECOMMUNICATIONS SERVICES BUSINESS AREA
In today's highly mobile society, the ability to communicate rapidly has
become critical to commerce as well as to individual needs. Technical advances
have improved the ability to communicate voice, video, and data through wireless
telecommunications. Wireless communications continues to evolve from a
convenience to a modern necessity, and is one of the world's fastest growing
economic sectors. Tetra Tech provides services to locate and construct the
infrastructure necessary to support this rapidly growing industry. The Company
also provides program management services including the application of advanced
siting tools and engineering project management techniques to expedite the
time-critical process of bringing new communication sites online and to upgrade
existing networks with the most advanced technology.
Tetra Tech currently serves the wireless telecommunications and cable
television industry segments, and is expanding its services to the broader
telecommunications industry, including wireless, cable, fiber, satellite, and
land line local and long distance telephone companies. The Company has
developed over 15,000 sites and 20 switching areas in five continents, 42
states, and across Canada. The Company applies state-of-the-art geographic
mapping technologies to rapidly identify optimal locations for wireless
antenna sites, and provide complete design and implementation services for
tower construction. The Company's program management experience enables it to
bring high quality networks online quickly and cost-effectively, providing a
competitive advantage to its customers. The Company's services include
applied science and management consulting, engineering and architectural
design, and construction management.
Project experience includes:
- SITE DEVELOPMENT OF 415 CELLULAR MOBILE RADIO BASE STATIONS. The
Company provided site acquisition, obtained entitlements,
supervised construction and installation of equipment, and
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provided program management services for a Canadian corporation.
- SITE DEVELOPMENT FOR CELLULAR TELEPHONE SYSTEM IN INDONESIA. The
Company provided site development consulting services for
approximately 174 radio base stations at three locations in
Indonesia. The Company developed and implemented a written site
acquisition process and tracking database. The Company performed
civil engineering surveys of all candidate sites to determine site
suitability, and provided construction management support. The
Company also managed the construction of a 30,000 square feet master
switching center and operations office, including the erection of a
90 meter tower, installation of all mechanical components and
electronics, and installation of switching equipment.
- CELLULAR BUILDOUT PROGRAM MANAGER. The Company performed as the
primary program manager, site acquisition and construction firm for
McCaw Cellular's initial U.S. cellular buildouts. The Company was
also program manager for systemwide electronic radio base station
equipment change-outs in central Florida, south Florida and western
Washington for McCaw Cellular.
- WORLD'S FIRST ESMR SYSTEM. The Company acquired and built the
world's first ESMR system for Motorola and Nextel Communications.
The Company program managed, acquired and built Nextel's initial
1,800 site build out.
- NATION'S FIRST PCS SYSTEM. The Company was the primary site
acquisition firm for the nation's first PCS system in
Washington-Baltimore for American Personal Communications, Inc.
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, telecommunications 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. In fiscal
1997, 32.2%, 25.4% and 42.4% 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 1997, the EPA, DOD and DOE accounted for 16.9%, 27.5%
and 4.3%, 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,
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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.
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 the 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
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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
90 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.
BACKLOG
At September 28, 1997, Tetra Tech's gross revenue backlog was approximately
$217.5 million, compared to $206.3 million at September 29, 1996. 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 $192.2 million of the gross revenue backlog at September 28,
1997 will be recognized during fiscal 1998. 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.
In addition, Section 303(d) of the CWA requires all states and
authorized Indian tribes to list waters for which these technology-based
treatment requirements alone do not assure attainment of water quality
standards. States and tribes are then required to develop TMDLs for these
water; these TMDLs recommend the additional controls (often for nonpoint
source discharges) that will be needed to meet water quality standards.
The states and tribes must submit these lists of impaired waters and
associated TMDLs to the EPA for approval and,
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in cases where they are disapproved by the EPA, the CWA requires the EPA to
establish the list and/or TMDL for the state or tribe.
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 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.
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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 resource management 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 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 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. It is difficult to assess accurately the magnitude of potential
risk to the Company.
The Company maintains two comprehensive general liability policies, both
in the amount of $1,000,000. These amounts, together with two $9,000,000
umbrella policies, provide total general liability coverage of $10,000,000
for the Environmental business and Architecture & Engineering business
segments and coverage of $10,000,000 for the Telecommunications business
segment. The Company's professional liability insurance ("E&O") policy,
which included pollution coverage, for 1997 provided $10,000,000 in coverage
for Environmental and Architecture & Engineering, with $100,000 self-insured
retention. The same E&O policy covered the Telecommunications segment with a
sublimit of $1,000,000 each claim/$1,000,000 aggregate. For 1998, the Company
expects to maintain similar coverages as to 1997 for professional services
including pollution-related services rendered by the Company. The Company
procures insurance coverage through a broker who is experienced in
professional liability. The broker, together with the Company's Risk Manager,
reviews 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, allows 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
16
<PAGE>
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 premiums paid by the Company for its professional liability
policies during fiscal 1997 were approximately $726,000 for E&O. The projected
amounts to be paid for fiscal 1998 will be approximately $722,000.
EMPLOYEES
At September 28, 1997, the Company had 2,262 employees, including 1,508
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,
toxicologists and project managers. 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.
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 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. It is difficult to assess accurately
the magnitude of potential risk to the Company.
The Company maintains two comprehensive general liability policies, both
in the amount of $1,000,000. These amounts, together with two $9,000,000
umbrella policies, provide total general liability coverage of $10,000,000
for the Environmental business and Architecture & Engineering business
segments and coverage of $10,000,000 for the Telecommunications business
segment. The Company's professional liability insurance ("E&O") policy,
which included pollution coverage, for 1997 provided $10,000,000 in coverage
for Environmental and Architecture & Engineering, with $100,000 self-insured
retention. The same E&O policy covered the Telecommunications segment with a
sublimit of $1,000,000 each claim/$1,000,000 aggregate. For 1998, the Company
expects to maintain similar coverages as to 1997 for professional services
including pollution-related services rendered by the Company. The Company
procures insurance coverage through a broker who is experienced in the
engineering field. The broker, together with the Company's Risk Manager,
reviews 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, allows 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 premiums paid by the Company for its professional liability
policies during fiscal 1997 were approximately $726,000 for E&O. The
projected amounts to be paid for fiscal 1998 will be approximately $722,000.
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 it 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
17
<PAGE>
uninsured claim, if successful and of significant magnitude, could have a
material adverse effect on the Company.
SIGNIFICANT 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, primarily in the resource
management, infrastructure, and the telecommunication service business areas.
Services within these business areas are provided to a client 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 range of competitors for any one procurement can
vary from 10 to 100 firms, depending upon the relative value of the project, the
financial terms and risks associated with the work, and any restrictions placed
upon competition by the customer. 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, International, Inc., International
Technology Corp., TRC Companies, Inc., URS Consultants, Inc., Roy F. Weston,
Inc., Castle Tower Corporation and OSP Consultants, Inc.
CONTRACTS. The Company's contracts with the 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 DCAA, which reviews the Company's overhead rates, operating systems and
cost proposals. During the course of its audit, the DCAA may disallow costs
if it determines that the Company improperly accounted for such costs in a
manner inconsistent with Cost Accounting Standards. Historically, the Company
has not had any material cost disallowances by the DCAA as a result of audit,
however, there can be no assurance that DCAA audits will not result in
material cost disallowances in the future.
In September 1995, the Company acquired Tetra Tech EM Inc. (formerly known
as PRC Environmental Management, Inc., "EMI"). EMI likewise contracts with the
Federal government and such contracts are subject to the same auditing standards
as those of the Company. Audits and negotiations for the years 1987 through
1992 have recently been completed and cost disallowances as a result of audit
totaled approximately $672,000. Negotiations for the 1993 audit are currently
underway. Audits for the years 1994 and 1995 have yet to be completed.
The Company enters into various contracts with its clients, which include
fixed-price contracts. In fiscal 1997, 32.2% 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 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, should they occur, could have a material adverse effect on the
Company.
The Company contracts with both domestic and international customers.
Certain contracts with international customers are denominated in a currency
other than the U.S. dollar. Contracts denominated in any currency other than
the U.S. dollar contain certain inherent risks, including risks on foreign
currency translation and risks in expatriating funds from foreign countries. In
fiscal 1997, 3.7% of the Company's net revenue was derived from the
international marketplace compared to 1.6% for fiscal 1996. As the Company's
net revenue derived from the international marketplace increases, so increases
risks associated in realizing the full contract value of those contracts
denominated in foreign currencies. The Company is currently evaluating options
to hedge future potential losses from foreign currency transactions.
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
18
<PAGE>
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.
COMPUTER SYSTEMS AND BUSINESS PROCESSES. The Company is currently
converting its computer systems and business processes to ensure that its
computer systems will be capable of processing periods for the year 2000 and
beyond as well as ensure that its business processes will be able to support
current and anticipated growth projections. The Company does not anticipate the
costs associated with ensuring these capabilities will have a material adverse
effect on the Company.
ITEM 2. PROPERTIES.
The Company's corporate headquarters facilities are located in Pasadena,
California. These facilities contain approximately 25,000 square feet of office
space. A portion of these facilities are subject to a lease which expires in
February 1998 and gives the Company an option to extend the term for one
additional five-year period. Another portion of these facilities is subject to
a lease which expires in January 2001. The Company leases office space in
approximately 80 locations in the United States. The Company also rents some
additional office space on a month-to-month basis.
The Company believes that its existing facilities are adequate to meet
current requirements and that suitable additional or substitute space will be
available as needed to accommodate any expansion of operations and for
additional offices.
ITEM 3. LEGAL PROCEEDINGS.
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 effect on the Company's financial position or results of operations.
See "Item 1. Business - Potential Liability and Insurance."
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
The information required by Items 5 through 8 of this report is set forth
on pages 17 through 34 of the Company's Annual Report to Stockholders for the
fiscal year ended September 28, 1997. Such information is incorporated in this
report and made a part hereof by reference. Item 9 is not applicable.
19
<PAGE>
PART III
The information required by Items 10 through 13 of this report is set forth
in the sections entitled "Security Ownership of Principal Stockholders,
Directors and Executive Officers," "Election of Directors," and "Executive
Officers, Compensation and Other Information" in the Company's Proxy Statement
for its 1998 Annual Meeting of Stockholders. Such information is incorporated
in this report and made a part hereof by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
The Financial Statements filed as part of this report
are listed in the accompanying index at page 24.
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's Annual Report on
Form 10-K for the fiscal year ended October 1, 1995).
3.2 Bylaws of the Company, as amended to date
(incorporated herein by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1, No.
33-43723).
3.3 Certificate of Amendment of Incorporation of the
Company.
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 Second Amendment dated as of June 20, 1997 to the
Credit Agreement dated as of September 15, 1995
between the Company and Bank of America Illinois
(incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 29, 1997).
10.3 Third Amendment dated as of December 15, 1997 to the
Credit Agreement dated as of September 15, 1995
between the Company and Bank of America National
Trust and Savings Association (successor in interest
of Bank of America Illinois).
10.4 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).
10.5 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).
10.6 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).
20
<PAGE>
10.7 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).
10.8 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).
10.9 Executive Medical Reimbursement Plan provided to
Messrs. Hwang, Rodrigue and Gherini (incorporated
herein by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-1, No. 33-43723).
10.10 1992 Incentive Stock Plan (incorporated herein by
reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended October
3, 1993).
10.11 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).
10.12 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).
10.13 Form of Nonqualified Stock Option Agreement used by
the Company in connection with the Company's 1992
Stock Option Plan for Nonemployee Directors
(incorporated herein by reference to Exhibit 10.21 to
the Company's Annual Report on Form 10-K for the
fiscal year ended October 3, 1993).
10.14 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).
10.15 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).
10.16 Employment Agreement dated as of June 11, 1997
between the Company and Daniel A. Whalen
(incorporated by reference to Exhibit 10.16 to the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 29, 1997).
10.17 Registration Rights Agreement dated as of June 11,
1997 among the Company and the parties listed on
Schedule A attached thereto (incorporated by
reference to Exhibit 10.17 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June
29, 1997).
10.18 Registration Rights Agreement dated as of July 11,
1997 among the Company and the parties listed on
Schedule A attached thereto.
11. Computation of Net Income Per Common Share.
21
<PAGE>
13. Annual Report to Stockholders for the fiscal year
ended September 28, 1997, portions of which are
incorporated by reference in this report as set forth
in Part II hereof. With the exception of these
portions, such Annual Report is not to be deemed
filed as part of this report.
21. Subsidiaries of the Company.
23. Independent Auditors' Consent.
27. Financial Data Schedule.
(b) Reports on Form 8-K
1. Current Report on Form 8-K/A (Amendment No. 2) for
event of June 11, 1997, as filed with the Securities
and Exchange Commission on August 25, 1997.
2. Current Report on Form 8-K/A (Amendment No. 2) for
event of June 11, 1997, as filed with the Securities
and Exchange Commission on September 19, 1997.
22
<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: December 24, 1997 By: /s/ Li-San Hwang
-------------------------------------
Li-San Hwang, Chairman of the Board of
Directors, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Li-San Hwang Chairman of the Board of Directors, December 24, 1997
- ------------------------ President and Chief Executive
Li-San Hwang Officer (Principal Executive Officer)
/s/ James M. Jaska Vice President, Chief Financial December 24, 1997
- ------------------------ Officer and Treasurer (Principal
James M. Jaska Financial and Accounting Officer)
/s/ Daniel A. Whalen
- ------------------------ Director December 24, 1997
Daniel A. Whalen
/s/ J. Christopher Lewis
- ------------------------ Director December 24, 1997
J. Christopher Lewis
/s/ Patrick C. Haden
- ------------------------ Director December 24, 1997
Patrick C. Haden
/s/ James J. Shelton
- ------------------------ Director December 24, 1997
James J. Shelton
</TABLE>
23
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the Notes thereto
and report thereon of Deloitte & Touche LLP dated November 7, 1997, appearing
on pages 26 through 34 of the accompanying 1997 Annual Report to
Stockholders, are incorporated by reference in this Form 10-K Annual Report.
With the exception of the aforementioned information and Part II information
set forth on pages 17 through 34, the 1997 Annual Report to Stockholders is
not to be deemed filed as part of this report.
FINANCIAL STATEMENT SCHEDULES
Page No.
--------
Report of Independent Accountants on Financial Statement
Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
Tetra Tech, Inc.:
We have audited the consolidated financial statements of Tetra Tech, Inc. and
its subsidiaries as of September 28, 1997 and September 29, 1996, and for
each of the three years in the period ended September 28, 1997, and have
issued our report thereon dated November 7, 1997 (except for Note 5, as to
which the date is December 15, 1997); such financial statements and report
are included in your 1997 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 7, 1997 (except for Note 5, as to which the date is December 15,
1997)
25
<PAGE>
TETRA TECH, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED
OCTOBER 1, 1995, SEPTEMBER 29, 1996 AND SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
Balance at Additions Charges to Deductions
Beginning of through Costs and Net of Balance at
Period Acquisitions Expenses Recoveries End of Period
------------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended October 1, 1995
Allowance for loss on accounts
receivable . . . . . . . . . . . . . . $ 1,641,000 $9,635,000 $(56,000) $ (67,000) $11,153,000
Fiscal year ended September 29, 1996
Allowance for loss on accounts
receivable . . . . . . . . . . . . . . $11,153,000 $1,365,000 $241,000 $(1,658,000) $11,101,000
Fiscal year ended September 28, 1997
Allowance for loss on accounts
receivable . . . . . . . . . . . . . . $11,101,000 $ 228,000 $(56,000) $ (120,000) $11,153,000
</TABLE>
26
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TETRA TECH, INC.
Li-San Hwang and Richard A. Lemmon hereby certify that:
A. They are the President and the Secretary, respectively, of Tetra Tech,
Inc., a Delaware corporation (the "Corporation").
B. The Certificate of Incorporation of the Corporation is amended so that
the first paragraph of Article IV is amended and superseded in full by
the following paragraph:
"ARTICLE IV
The total number of shares of stock that the corporation
shall have authority to issue is thirty-two million (32,000,000),
consisting of thirty million (30,000,000) shares of common stock, par
value $.01, and two million (2,000,000) shares of preferred stock, par
value of $.01. The designation and the powers, preferences and rights,
and the qualifications, limitations or restrictions thereof are as
follows:"
C. The foregoing Amendment to Certificate of Incorporation of the
Corporation was duly adopted by a majority of the duly elected directors
of the Corporation in accordance with the provisions of Section 242 of
the Delaware General Corporation Law and in accordance with their
direction was submitted to the stockholders of the Corporation.
D. Thereafter, pursuant to the resolution of the directors of the Corporation,
the vote of the stockholders of the Corporation was solicited wherein a
majority of the outstanding shares of capital stock of the Corporation
entitled to vote thereon approved the foregoing Amendment to the
Certificate of Incorporation.
IN WITNESS WHEREOF, Li-San Hwang and Richard A. Lemmon being the
President and Secretary, respectively, of the Corporation, do hereby certify
under penalty of perjury under the laws of the State of Delaware that the
facts hereinabove stated are truly set forth, and accordingly each of us has
hereunto set our hands this 28th day of October, 1997.
/s/ Li-San Hwang /s/ Richard A. Lemmon
- ------------------------------ -------------------------------
Li-San Hwang, President Richard A. Lemmon, Secretary
<PAGE>
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "TETRA TECH, INC.", FILED IN THIS OFFICE ON THE TWENTY-NINTH DAY
OF OCTOBER, A.D. 1997, AT 12:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL] /s/ Edward J. Freel
---------------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
2151089 8100 AUTHENTICATION: 8730335
971366442 DATE: 10-30-97
<PAGE>
Exhibit - 10.3
THIRD AMENDMENT
THIS THIRD AMENDMENT (this "Third Amendment") dated as of December 15, 1997
is to the Credit Agreement (the "Credit Agreement") dated as of September 15,
1995 between TETRA TECH, INC. (the "Company") and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION (successor in interest by merger to Bank of America
Illinois) (the "Bank"). Unless otherwise defined herein, terms defined in the
Credit Agreement are used herein as defined therein.
WHEREAS, the parties hereto have entered into the Credit Agreement which
provides for the Bank to make Loans to, and to issue Letters of Credit for the
account of, the Company from time to time; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective on (and subject to the occurrence of) the
Third Amendment Effective Date (as defined below), the Credit Agreement shall be
amended as follows:
SECTION 1.1 REVOLVING TERMINATION DATE. The definition of "Revolving
Termination Date" in Section 1 of the Credit Agreement is amended by deleting
the date "May 30, 2000" therein and substituting therefor the date "December 15,
2000".
SECTION 1.2 SECTION 2.1. Section 2.1 of the Credit Agreement is amended
by deleting the amount "$25,000,000" therein and substituting the amount
"$45,000,000" therefor.
SECTION 1.3 SECTION 6.1.1. Section 6.1.1 of the Credit Agreement is
amended in its entirety to read as follows:
6.1.1 SCHEDULED REDUCTIONS OF COMMITMENT.1.1 SCHEDULED
REDUCTIONS OF COMMITMENT.1.1 SCHEDULED REDUCTIONS OF COMMITMENT. The
amount of the Commitment shall be permanently reduced on each of the
following dates to the amounts set forth opposite such dates:
Commitment Maximum
Reduction Date Commitment
-------------- ----------
December 15, 1998 $40,000,000
December 15, 1999 35,000,000.
<PAGE>
SECTION 1.4 SECTION 10.6.1. Section 10.6.1 of the Credit Agreement is
amended in its entirety to read as follows:
10.6.1 MINIMUM TANGIBLE NET WORTH. Not at any time permit Tangible
Net Worth to be less than the sum of (i) $35,000,000 PLUS (ii) 50% of
Consolidated Net Income for each Fiscal Quarter ending after December 31,
1997 PLUS (iii) 100% of all proceeds (net of any underwriting discounts and
brokers' commissions) of any offering or distribution of the Company's
common stock or of any other equity investment in the Company since June
30, 1997.
SECTION 1.5 SECTION 10.6.5. Section 10.6.5 of the Credit Agreement is
amended in its entirety to read as follows:
10.6.7 CAPITAL EXPENDITURES, ETC. Not, and not permit any
Subsidiary to, make or commit to make any Capital Expenditure, except
Capital Expenditures by the Company and its Subsidiaries which do not in
the aggregate exceed $7,000,000 per Fiscal Year.
SECTION 1.6 SECTION 9. Section 9 of the Credit Agreement is amended by
adding a new Section 9.19 following Section 9.18 which will read as follows:
9.19 YEAR 2000 PROBLEM. The Company and its Subsidiaries have
reviewed the areas within their business and operations which could be
adversely affected by, and have developed or are developing a program to
address on a timely basis, the "Year 2000 Problem" (that is, the risk that
computer applications used by the Company and its Subsidiaries may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999). Based on
such review and program, the Company reasonably believes that the "Year
2000 Problem" will not have a Material Adverse Effect.
SECTION 1.7 EXHIBIT A. Exhibit A to the Credit Agreement is hereby
amended in its entirety to read in the form of EXHIBIT A hereto.
SECTION 2 CONSENT. The Bank hereby consents to the acquisition (the
"Acquisition") by NUS Acquisition Corp., ("NUS"), a wholly-owned Subsidiary of
the Company, of the environmental services business of Brown & Root, Inc., a
Delaware corporation ("B&R") and Halliburton NUS Corporation, a Delaware
corporation ("Halliburton") pursuant to the Purchase and Sale Agreement dated as
of October 18, 1997 among the Company and NUS, B&R and Halliburton.
SECTION 3 COLLATERAL DOCUMENTS. The Company and the Bank hereby agree
that, prior to or concurrently with the transfer of any assets to NUS, the
Company will deliver the following documents to the Bank (it being understood
that the failure to deliver any such
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<PAGE>
documents shall constitute an Event of Default under the Credit Agreement):
(a) RESOLUTIONS OF NUS. Certified copies of resolutions of the Board of
Directors of NUS authorizing the execution and delivery of the Security
Agreement, the Security Agreement Amendment and the Guaranty and the performance
of its obligations under each of the Amended Security Agreement and the
Guaranty.
(b) INCUMBENCY AND SIGNATURE CERTIFICATES OF NUS. A certificate of the
Secretary or the Assistant Secretary of NUS certifying the names and true
signatures of the officers of NUS authorized to execute, deliver and perform, as
applicable, the Guaranty, the Security Agreement and all other documents to be
executed in connection therewith.
(c) GUARANTY. A counterpart of the Guaranty duly executed by NUS.
(d) SECURITY AGREEMENT. A counterpart of the Security Agreement duly
executed by NUS, together with such UCC financing statements as the Bank may
request in order to perfect the security interest of the Bank in the collateral
granted by NUS under the Security Agreement.
(e) SECURITY AGREEMENT AMENDMENT. A counterpart of the Security Agreement
Amendment duly executed by the Company and its Subsidiaries (including NUS).
(f) PLEDGE AGREEMENT AMENDMENT. A counterpart of the Pledge Agreement
Amendment duly executed by the Company, together with the share certificates of
NUS and stock powers executed in blank with respect thereto.
(g) OPINION. The opinion of Riordan & McKinzie, counsel to the Company
and its Subsidiaries, in form and substance satisfactory to the Bank.
SECTION 4 REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Bank that each warranty set forth in Section 9 of the Credit
Agreement is true and correct as if made on the date hereof, (b) the execution
and delivery by the Company of this Third Amendment and the New Note (as defined
below), and the performance by the Company of its obligations under the Credit
Agreement as amended hereby (as so amended, the "Amended Credit Agreement") and
the New Note (i) are within the corporate powers of the Company and each
Subsidiary, (ii) have been duly authorized by all necessary corporate action,
(iii) have received all necessary governmental approval and (iv) do not and will
not contravene or conflict with any provision of law or of the charter or
by-laws of the Company or any Subsidiary or of any indenture, loan agreement or
other material contract, order or decree which is binding upon the Company or
any Subsidiary, and (c) this Third Amendment, the Amended Credit Agreement, and
the New Note are the legal, valid and binding obligations of the Company and
each Subsidiary which is party hereto, enforceable against the Company and each
Subsidiary in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency or other similar laws of general application
affecting the enforcement of creditor's rights or by general principles
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<PAGE>
of equity limiting the availability of equitable remedies.
SECTION 5 EFFECTIVENESS. The amendments set forth in SECTION 1 shall
become effective, as of the day and year first above written, on such date (the
"Third Amendment Effective Date") that the Bank shall have received (i) an
amendment fee of $30,000, (ii) counterparts of this Third Amendment executed by
the parties hereto and (iii) each of the following documents in form and
substance satisfactory to the Bank:
(a) RESOLUTIONS OF COMPANY. Certified copies of resolutions of the Board
of Directors of the Company authorizing the execution and delivery of this Third
Amendment and the performance of its obligations under the Amended Credit
Agreement.
(b) INCUMBENCY AND SIGNATURE CERTIFICATE OF COMPANY. A certificate of the
Secretary or the Assistant Secretary of the Company certifying the names and
true signatures of the officers of the Company authorized to execute, deliver
and perform, as applicable, this Third Amendment and all other documents to be
executed in connection therewith.
(c) NEW NOTE. The promissory note of the Company (the "New Note"), in the
form of EXHIBIT A hereto.
(d) ACQUISITION. Evidence, satisfactory to the Bank, that the Acquisition
has occurred or will occur concurrently with the effectiveness of this Third
Amendment.
SECTION 6 MISCELLANEOUS.
SECTION 6.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
SECTION 6.2 COUNTERPARTS. This Third Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts,
and each such counterpart shall be deemed to be an original but all such
counterparts shall together constitute one and the same Third Amendment.
SECTION 6.3 GOVERNING LAW. This Third Amendment shall be a contract made
under and governed by the internal laws of the State of Illinois.
SECTION 6.4 SUCCESSORS AND ASSIGNS. This Third Amendment shall be binding
upon the Company and the Bank and their respective successors and assigns, and
shall inure to the benefit of the Company and the Bank and the successors and
assigns of the Bank.
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<PAGE>
Delivered at Chicago, Illinois, as of the day and year first above written.
TETRA TECH, INC.
By: /s/ James M. Jaska
-----------------------------
Title: Chief Financial Officer
-------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
-----------------------------
Title:
--------------------------
<PAGE>
Each of the undersigned hereby acknowledges and agrees to the foregoing Third
Amendment and the Amended Credit Agreement and hereby confirms the continuing
effectiveness of the Guaranty and the Security Agreement with respect to the
Amended Credit Agreement.
HSI GEOTRANS, INC.
By: /s/ James M. Jaska
-----------------------------
Title: Assistant Treasurer
--------------------------
SIMONS, LI & ASSOCIATES, INC.
By: /s/ James M. Jaska
-----------------------------
Title: Assistant Treasurer
--------------------------
TETRA TECH EM INC.
By: /s/ James M. Jaska
-----------------------------
Title: Treasurer
--------------------------
WHALEN & COMPANY, INC.
By: /s/ James M. Jaska
-----------------------------
Title: Chief Financial Officer
--------------------------
<PAGE>
EXHIBIT A
FORM OF
NOTE
$45,000,000 ______________, 1997
Chicago, Illinois
The undersigned, for value received, promises to pay to the order of BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, an Illinois banking
corporation having its principal office at 231 South LaSalle Street, Chicago,
Illinois (the "Bank") at the principal office of the Bank in Chicago, Illinois,
FORTY-FIVE MILLION DOLLARS or, if less, the aggregate unpaid amount of all Loans
made by the undersigned pursuant to the Credit Agreement referred to below (as
shown on the schedule attached hereto (and any continuation thereof) or in the
records of the Bank), such principal amount to be payable in installments as set
forth in the Credit Agreement.
The undersigned further promises to pay interest on the unpaid principal
amount of each Loan from the date of such Loan until such Loan is paid in full,
payable at the rate(s) and at the time(s) set forth in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money of the
United States of America.
This Note evidences indebtedness incurred under, and is subject to the
terms and provisions of, the Credit Agreement, dated as of September 15, 1995
(as amended or otherwise modified from time to time, the "Credit Agreement";
terms not otherwise defined herein are used herein as defined in the Credit
Agreement), between the undersigned and the Bank, to which Credit Agreement
reference is hereby made for a statement of the terms and provisions under which
this Note may or must be paid prior to its due date or its due date accelerated.
In addition to and not in limitation of the foregoing and the provisions of
the Credit Agreement, the undersigned further agrees, subject only to any
limitation imposed by applicable law, to pay all expenses, including reasonable
attorneys' fees and legal expenses, incurred by the holder of this Note in
endeavoring to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise.
<PAGE>
This Note is made under and governed by the internal laws of the State of
Illinois.
TETRA TECH, INC.
By: /s/ James M. Jaska
--------------------------
Title: Chief Financial Officer
-----------------------
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<PAGE>
Schedule Attached to Note dated _____________, 1997 of TETRA TECH, INC. payable
to the order of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION.
Date and Date and
Amount of Amount of
Loan or of Repayment or of Interest
Conversion from Conversion into Period/ Unpaid
another type of another type of Maturity Principal Notation
Loan Loan Date Balance Made by
1. FLOATING RATE LOANS
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2. EURODOLLAR LOANS
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<PAGE>
EXHIBIT 10.18
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as of
July 11, 1997 by and among Tetra Tech, Inc., a Delaware corporation ("Tetra
Tech"), and the parties listed on SCHEDULE A attached hereto (each, a "Holder"
and collectively, the "Holders").
R E C I T A L S
A. Tetra Tech, CDC Acquisition Corporation, a California corporation
("Acquisition"), CommSite Development Corporation, a California corporation
("CDC"), and the Holders are parties to an Agreement and Plan of Reorganization
dated as of July 11, 1997 (the "Reorganization Agreement"), pursuant to which
Acquisition will merge with and into CDC; and
B. Pursuant to the Reorganization Agreement, the shareholders of CDC will
receive shares of the common stock, $.01 par value, of Tetra Tech ("Tetra Tech
Common Stock"); and
C. This Agreement is the Registration Rights Agreement referred to in
SECTION 7.12 of the Reorganization Agreement and, pursuant thereto, must be
entered into by the parties as a condition to the consummation of the
transactions contemplated by the Reorganization Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"FORM S-3" shall mean such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by Tetra Tech with
the SEC.
<PAGE>
"PROSPECTUS" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such Prospectus.
"REGISTER", "REGISTERED" and "REGISTRATION" shall mean and refer to a
registration effected by preparing and filing a Registration Statement and
taking all other actions that are necessary or appropriate in connection
therewith, and the declaration or ordering of effectiveness of such Registration
Statement by the SEC.
"REGISTRATION EXPENSES" shall have the meaning set forth in SECTION 6.
"REGISTRABLE SECURITIES" shall mean the shares of Tetra Tech Common
Stock (i) issued pursuant to the Reorganization Agreement, and (ii) issued as a
dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in (i) above; PROVIDED, HOWEVER, that
Registrable Securities shall not include any shares of Tetra Tech Common Stock
that have previously been registered or sold to the public or have been sold in
a private transaction (excluding the issuance of the Tetra Tech Common Stock
pursuant to the Reorganization Agreement).
"REGISTRATION STATEMENT" shall mean any registration statement of
Tetra Tech in compliance with the Securities Act that covers Registrable
Securities pursuant to the provisions of this Agreement, including, without
limitation, the Prospectus, all amendments and supplements to such Registration
Statement, including all post-effective amendments, all exhibits and all
material incorporated by reference in such Registration Statement.
"RULE 144" shall mean Rule 144 promulgated under the Securities Act or
any similar successor rule, as the same shall be in effect from time to time.
"RULE 144A" shall mean Rule 144A promulgated under the Securities Act
or any similar successor rule, as the same shall be in effect from time to time.
"RULE 145" shall mean Rule 145 promulgated under the Securities Act,
or any similar successor rule, as the same shall be in effect from time to time.
"RULE 415" shall mean Rule 415 promulgated under the Securities Act,
or any similar successor rule, as the same shall be in effect from time to time.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time.
2.
<PAGE>
"SEC" shall mean the Securities and Exchange Commission.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall mean a
registration in which securities of Tetra Tech are sold to an underwriter or
through an underwriter as agent for reoffering to the public.
2. TETRA TECH REGISTRATION. If Tetra Tech shall determine to register
any shares of Tetra Tech Common Stock, or any securities convertible into or
exchangeable or exercisable for shares of Tetra Tech Common Stock, for its own
account or for the account of any stockholder (other than a registration
relating to the sale of securities to employees of Tetra Tech pursuant to an
employee benefit plan or pursuant to a transaction of the type described in
Rule 145 under the Securities Act), the Holders shall be entitled to include
Registrable Securities in such registration (and related underwritten offering,
if any) on the following terms and conditions:
(a) Tetra Tech shall promptly give written notice of such
determination to each Holder and each such Holder shall have the right to
request, by written notice given to Tetra Tech within 30 days of the receipt by
such Holder of such notice, that a specific number of Registrable Securities
held by such Holder be included in such Registration Statement;
(b) If the Registration Statement relates to an underwritten
offering, the notice called for by SECTION 2(a) shall specify the name of the
managing underwriter for such offering and the number of securities to be
registered for the account of Tetra Tech and for the account of any other
stockholder of Tetra Tech;
(c) If the Registration Statement relates to an underwritten
offering, each Holder to be included therein must (i) sell such person's
Registrable Securities on the same basis provided in the underwriting
arrangements approved by Tetra Tech and (ii) complete and execute all
questionnaires, powers of attorney, indemnities, hold-back agreements,
underwriting agreements and other documents required under the terms of such
underwriting arrangements or by the SEC;
(d) If the managing underwriter for the underwritten offering under
the Registration Statement to be filed by Tetra Tech determines that inclusion
of all or any portion of the Registrable Securities in such offering would
adversely affect the ability of the underwriter for such offering to sell all of
the securities requested to be included for sale or the price per share in such
offering, the number of shares that may be included in such registration in such
offering shall be allocated as follows: (i) first, Tetra Tech shall be
permitted to include all shares of capital stock to be registered thereby;
(ii) second, the Holders under that certain Registration Rights Agreement dated
as of June 11, 1997 by and among Tetra Tech and the parties listed on Schedule A
attached thereto, on a pro rata basis based on the total number of
3.
<PAGE>
Registrable Securities held thereby (or on such other basis as may be agreed
among them), shall be allowed to include such amount of the Registrable
Securities as the managing underwriter deems appropriate; (iii) third, the
Holders, on a pro rata basis based on the total number of Registrable Securities
held thereby (or on such other basis as may be agreed among them), shall be
allowed to include such amount of the Registrable Securities as the managing
underwriter deems appropriate; and (iv) fourth, any other selling stockholder
exercising piggyback registration rights shall be allowed to include securities
in such amounts as may be deemed appropriate by such managing underwriter;
(e) Holders shall have the right to withdraw their Registrable
Securities from the Registration Statement at any time prior to the effective
date thereof, but if the same relates to an underwritten offering, they may only
do so during the time period and on terms deemed appropriate by the underwriters
for such underwritten offering; and
(f) Tetra Tech shall have the right to terminate or withdraw any
registration initiated by it under this SECTION 2 prior to the effective date of
such registration for any reason without liability to any Holder as a result
thereof, whether or not any Holder has elected to include such securities in
such registration.
3. FORM S-3 REGISTRATION.
(a) Tetra Tech shall file a Registration Statement on Form S-3
providing for the sale by the Holders, pursuant to Rule 415, and/or any similar
rule that may be adopted by the SEC, of the Registrable Securities, and Tetra
Tech shall use all commercially reasonable efforts to cause such Registration
Statement to become effective on or before November 30, 1997 and to keep such
Registration Statement continuously effective for a period ending on the date on
which all Holders are eligible to sell Registrable Securities under Rule 144
without any volume limitation (or similar successor Rule).
(b) No Holder shall have the right to register securities under this
Agreement unless such Holder provides and/or confirms in writing prior to or
after the filing of the Registration Statement such information (including,
without limitation, information as to the number of Registrable Securities that
such Holder has sold pursuant to any such Registration Statement from time to
time) as Tetra Tech requests in connection with such Registration Statement.
(c) Notwithstanding the foregoing, for a period not to exceed 90 days
in any 12-month period, Tetra Tech shall not be obligated to prepare and file,
or be prevented from delaying or abandoning, the Registration Statement required
hereunder if Tetra Tech, in its good faith judgment, reasonably believes that
the filing or maintenance of such Registration Statement would require the
disclosure of material non-public information regarding Tetra Tech and,
accordingly, that the filing thereof, at the time requested, or the offering of
Tetra
4.
<PAGE>
Tech Common Stock pursuant thereto, would materially and adversely affect (A) a
pending or scheduled public offering or private placement of securities of Tetra
Tech, (B) an acquisition, merger, consolidation or similar transaction by or of
Tetra Tech, (C) preexisting and continuing negotiations, discussions or pending
proposals with respect to any of the foregoing transactions, or (D) the
financial condition of Tetra Tech in view of the disclosure of any pending or
threatened litigation, claim, assessment or governmental investigation which
might be required thereby.
In the event that Tetra Tech, in good faith, reasonably believes that such
conditions are continuing after such 90-day period, it may, with the consent of
the Holders of a majority of the Registrable Securities subject (or to be
subject) to the Registration Statement, which consent shall not be unreasonably
withheld, extend such 90-day period for an additional 30 days. Any further
delay shall require the consent of the Holders of all such shares.
4. RESTRICTIONS ON PUBLIC SALE BY HOLDERS OF REGISTRABLE SECURITIES.
Each Holder whose Registrable Securities are included (in whole or in part) in a
Registration Statement filed by Tetra Tech under SECTION 2 for sale in an
underwritten offering agrees, if requested by the managing underwriter of such
offering, not to sell, make any short sale of, loan, grant any option for the
purchase of, dispose of or effect any public sale or distribution of securities
of the same series and class as (or securities exchangeable or exercisable for
or convertible into securities of the same series and class as) the Registrable
Securities included in the Registration Statement, including a sale pursuant to
Rule 144 (except as part of such underwritten registration), during the ten day
period prior to, and during the 180 day period (or shorter period requested by
the underwriter) beginning on the closing date of such underwritten offering, to
the extent timely notified in writing by Tetra Tech or the managing underwriter.
5. REGISTRATION PROCEDURES. In connection with Tetra Tech's registration
obligations pursuant to SECTIONS 2 or 3 hereof, Tetra Tech will use its diligent
efforts to effect such registration to permit the sale of the Registrable
Securities covered thereby in accordance with the intended method or methods of
disposition thereof, and pursuant thereto Tetra Tech will:
(a) prepare and file with the SEC a Registration Statement with
respect to such Registrable Securities and use its diligent efforts to cause
such Registration Statement to become effective; PROVIDED that, before filing
any Registration Statement or Prospectus or any amendments or supplements
thereto, Tetra Tech will furnish to the Holders of the Registrable Securities
covered by such Registration Statement and their counsel, copies of all such
documents proposed to be filed at least ten days prior thereto, and Tetra Tech
will not file any such Registration Statement or amendment thereto or any
Prospectus or any supplement thereto to which any such Holder shall reasonably
object within such ten day period; PROVIDED, FURTHER, that Tetra Tech will not
name or otherwise provide any information
5.
<PAGE>
with respect to any Holder in any Registration Statement or Prospectus without
the express written consent of such Holder, unless required to do so by the
Securities Act and the rules and regulations thereunder;
(b) prepare and file with the SEC such amendments, post-effective
amendments and supplements to the Registration Statement and the Prospectus as
may be necessary to comply with the provisions of the Securities Act and the
rules and regulations thereunder with respect to the disposition of all
securities covered by such Registration Statement;
(c) promptly notify the selling Holders (i) when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by Tetra Tech of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose and (v) of the happening of any event which makes any statement
made in the Registration Statement, the Prospectus or any document incorporated
therein by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading in light of the
circumstances then existing;
(d) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) furnish to each selling Holder, without charge, at least one
signed copy of the Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference);
(f) deliver to each selling Holder, without charge, such reasonable
number of conformed copies of the Registration Statement (and any post-effective
amendment thereto) and such number of copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto (and any
documents incorporated by reference therein) as such Holder may reasonably
request; Tetra Tech consents to the use of the Prospectus or any amendment or
supplement thereto by each of the selling Holders in connection with the offer
and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
6.
<PAGE>
(g) prior to any offering of Registrable Securities covered by a
Registration Statement, register or qualify or cooperate with the selling
Holders in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any such selling Holder reasonably requests, and use its
reasonable efforts to keep each such registration or qualification effective,
including through new filings, or amendments or renewals, during the period such
Registration Statement is required to be kept effective pursuant to the terms of
this Agreement; and do any and all other acts or things necessary or advisable
to enable the disposition in all such jurisdictions reasonably requested by the
Holders of the Registrable Securities covered by such Registration Statement,
PROVIDED that under no circumstances shall Tetra Tech be required in connection
therewith or as a condition thereof to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions;
(h) cooperate with the selling Holders and the managing underwriter
or underwriters to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, free of any and all
restrictive legends, such certificates to be in such denominations and
registered in such names as the managing underwriter or underwriters, if any, or
such Holders may request;
(i) upon the occurrence of any event contemplated by SECTION 5(c)(v)
above, prepare a supplement or post-effective amendment to the Registration
Statement or the Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading;
(j) make generally available to the holders of Tetra Tech's
outstanding securities earnings statements satisfying the provisions of
Section 11(a) of the Securities Act, no later than 60 days after the end of any
12 month period (or 90 days, if such period is a fiscal year) (i) commencing at
the end of any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm or best efforts underwritten offering, or, if not sold to
underwriters in such an offering, (ii) beginning with the first month of Tetra
Tech's first fiscal quarter commencing after the effective date of the
Registration Statement, which statements shall cover said 12 month period;
(k) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by each Registration Statement from and
after a date not later than the effective date of such Registration Statement;
(l) use its best efforts to cause all Registrable Securities covered
by each Registration Statement to be listed, subject to notice of issuance,
prior to the date of the
7.
<PAGE>
first sale of such Registrable Securities pursuant to such Registration
Statement, on each securities exchange on which the Tetra Tech Common Stock is
then listed, and admitted to trading on the Nasdaq Stock Market, if the Tetra
Tech Common Stock is then admitted to trading on the Nasdaq Stock Market;
(m) enter into such agreements (including underwriting agreements in
customary form containing, among other things, reasonable and customary
indemnities) and take such other actions as a majority of the Holders shall
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities; and
(n) cooperate with the selling Holders and the managing underwriter
or underwriters in their marketing efforts with respect to the sale of the
Registrable Securities, including participation by Tetra Tech management in
"road show" presentations.
Each Holder agrees that, upon receipt of any notice from Tetra Tech of the
happening of any event of the kind described in SECTION 5(c)(v) hereof, such
Holder will forthwith discontinue disposition of Registrable Securities under
the Prospectus related to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by SECTION 5(i) hereof, or until it is advised in writing by Tetra
Tech that the use of the Prospectus may be resumed. It shall be a condition
precedent to the obligations of Tetra Tech to take any action pursuant to this
SECTION 5 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to Tetra Tech such information regarding itself and
the Registrable Securities held by it as shall be required by the Securities Act
to effect the registration of such Holder's Registrable Securities.
6. REGISTRATION EXPENSES. All expenses incident to any registration to
be effected hereunder and incident to Tetra Tech's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, National Association of Securities
Dealers, Inc., stock exchange and qualification fees, fees and disbursements of
Tetra Tech's counsel and of independent certified public accountants of Tetra
Tech (including the expenses of any special audit required by or incident to
such performance), the fees of one counsel and one accountant representing the
Holders in such offering, expenses of the underwriters that are customarily
requested in similar circumstances by such underwriters (excluding discounts,
commissions or fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals relating to the distribution of the
Registrable Securities, which will be borne by the Holders), all such expenses
being herein called "Registration Expenses," will be borne by Tetra Tech. Tetra
Tech will also pay its internal expenses, the expense of any annual audit and
the fees and expenses of any person retained by Tetra Tech.
8.
<PAGE>
7. INDEMNIFICATION.
(a) INDEMNIFICATION BY TETRA TECH. Tetra Tech agrees to indemnify
and hold harmless each Holder of Registrable Securities, its officers,
directors, partners and employees and each person who controls such Holder
(within the meaning of Section 15 of the Securities Act) from and against any
and all losses, claims, damages and liabilities (including any investigation,
legal or other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted)
(collectively, "Damages") to which such Holder may become subject under the
Securities Act, the Exchange Act or other federal or state securities law or
regulation, at common law or otherwise, insofar as such Damages arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, Prospectus or preliminary
prospectus or any amendment or supplement thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading and (iii) any violation or alleged
violation by Tetra Tech of the Securities Act, the Exchange Act or any state
securities or blue sky laws in connection with the Registration Statement,
Prospectus or preliminary prospectus or any amendment or supplement thereto,
PROVIDED that Tetra Tech will not be liable to any Holder to the extent that
such Damages arise from or are based upon any untrue statement or omission
(x) based upon written information furnished to Tetra Tech by such Holder
expressly for the inclusion in such Registration Statement, (y) made in any
preliminary prospectus if such Holder failed to deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale by such Holder
to the party asserting the claim underlying such Damages and such Prospectus
would have corrected such untrue statement or omission and (z) made in any
Prospectus if such untrue statement or omission was corrected in an amendment or
supplement to such Prospectus and such Holder failed to deliver such amendment
or supplement prior to or concurrently with the sale of Registrable Securities
to the party asserting the claim underlying such Damages.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. Each Holder
of Registrable Securities whose Registrable Securities are sold under a
Prospectus which is a part of a Registration Statement agrees to indemnify and
hold harmless Tetra Tech, its directors and each officer who signed such
Registration Statement and each person who controls Tetra Tech (within the
meaning of Section 15 of the Securities Act), and each other Holder of
Registrable Securities whose Registrable Securities are sold under the
Prospectus which is a part of such Registration Statement (and such Holder's
officers, directors and employees and each person who controls such Holder
within the meaning of Section 15 of the Securities Act), under the same
circumstances as the foregoing indemnity from Tetra Tech to each Holder of
Registrable Securities to the extent that such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement of a
material fact or omission of a material fact that was made in the Prospectus,
the Registration Statement, or any amendment or supplement thereto, in reliance
upon and in conformity with information relating to such
9.
<PAGE>
Holder furnished in writing to Tetra Tech by such Holder expressly for use
therein, PROVIDED that in no event shall the aggregate liability of any selling
Holder of Registrable Securities exceed the amount of the net proceeds received
by such Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation. Tetra Tech and the selling Holders shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as customarily furnished by such persons in
similar circumstances.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; PROVIDED, HOWEVER, that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person and not of the
indemnifying party unless (A) the indemnifying party has agreed to pay such fees
or expenses, (B) the indemnifying party shall have failed to assume the defense
of such claim and employ counsel reasonably satisfactory to such person or
(C) in the reasonable judgment of such person and the indemnifying party, based
upon advice of their respective counsel, a conflict of interest may exist
between such person and the indemnifying party with respect to such claims (in
which case, if the person notifies the indemnifying party in writing that such
person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person). If such defense is not assumed by the
indemnifying party, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent will not be
unreasonably withheld). No indemnified party will be required to consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by all claimants or plaintiffs to such
indemnified party of a release from all liability in respect to such claim or
litigation. Any indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim. As used in this SECTION 7(c), the terms
"indemnifying party", "indemnified party" and other terms of similar import are
intended to include only Tetra Tech (and its officers, directors and control
persons as set forth above) on the one hand, and the Holders (and their
officers, directors, partners, employees, attorneys and control persons as set
forth above) on the other hand, as applicable.
(d) CONTRIBUTION. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other, or (ii) if the allocation provided by
10.
<PAGE>
CLAUSE (i) above is not permitted by applicable law or provides a lesser sum to
the indemnified party than the amount hereinafter calculated, in such proportion
as is appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other but
also the relative fault of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. Notwithstanding the
foregoing, no Holder shall be required to contribute any amount in excess of the
amount such Holder would have been required to pay to an indemnified party if
the indemnity under SECTION 7(b) hereof was available. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligation of any person to
contribute pursuant to this SECTION 7(d) shall be several and not joint.
(e) TIMING OF PAYMENTS. An indemnifying party shall make payments of
all amounts required to be made pursuant to the foregoing provisions of this
SECTION 7 to or for the account of the indemnified party from time to time
promptly upon receipt of bills or invoices relating thereto or when otherwise
due or payable.
(f) SURVIVAL. The indemnity and contribution agreements contained in
this SECTION 7 shall remain in full force and effect, regardless of any
investigation made by or on behalf of a participating Holder, its officers,
directors, partners, attorneys, agents or any person, if any, who controls such
Holder as aforesaid, and shall survive the transfer of such Registrable
Securities by such Holder.
8. PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of a Registration Statement pursuant to the terms of this
Agreement:
(a) Tetra Tech shall, with respect to a Registration Statement filed
pursuant to SECTION 3, give the Holders of such Registrable Securities so
registered, their underwriters, if any, and their respective counsel and
accountants the opportunity to participate in the preparation of such
Registration Statement (other than reports and proxy statements incorporated
therein by reference and lawfully and properly filed with the SEC) and each
Prospectus included therein or filed with the SEC, and each amendment thereof or
supplement thereto; and
(b) Tetra Tech shall give the Holders of such Registrable Securities
so registered, their underwriters, if any, and their respective counsel and
accountants such reasonable access to its books and records and such
opportunities to discuss the business of Tetra Tech with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such Holders or such underwriters, to
conduct a reasonable investigation within the meaning of Section 11(b)(3) of the
Securities Act.
11.
<PAGE>
9. RULE 144. Tetra Tech covenants that it will use commercially
reasonable efforts to file, on a timely basis, the reports required to be filed
by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and it will take such further action
as any Holder may reasonably request (including, without limitation, compliance
with the current public information requirements of Rule 144(c) and Rule 144A),
all to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the conditions provided by Rule 144, Rule 144A or any similar rule
or regulation hereafter adopted by the SEC. Upon the request of any Holder,
Tetra Tech will deliver to such holder a written statement verifying that it has
complied with such information and requirements.
10. SPECIFIC PERFORMANCE. Each Holder, in addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. Tetra Tech agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
11. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by United States first-class
mail, postage prepaid, sent by facsimile or delivered personally by hand or
nationally recognized courier addressed (a) if to a Holder, as indicated on the
list of Holders attached hereto as SCHEDULE A, or at such other address as such
Holder or permitted assignee shall have furnished to Tetra Tech in writing, or
(b) if to Tetra Tech, at such address or facsimile number as Tetra Tech shall
have furnished to each Holder in writing. All such notices and other written
communications shall be effective on the date of mailing, facsimile transfer or
delivery.
12. SUCCESSORS AND ASSIGNS: ASSIGNMENT OF RIGHTS. The rights and benefits
of a Holder hereunder may not be assigned to a transferee or assignee, without
the consent of Tetra Tech; PROVIDED, HOWEVER, that, no later than the 10th day
prior to the filing of the Registration Statement under SECTION 3 hereof, the
rights and benefits of a Holder hereunder may be transferred in connection with
a transfer or assignment of any Registrable Securities held by such Holder
(i) by gift to immediate family members of such Holder, or trusts or other
entities for the sole benefit thereof, or (ii) by gift to any entity in which
such Holder, his or her immediate family members, or trusts or other entities
for the sole benefit thereof beneficially own all of the voting securities;
PROVIDED, HOWEVER, that in each case, the transferee executes an instrument
pursuant to which the transferee agrees to be bound by the terms and conditions
hereof as a Holder, and such other documents as Tetra Tech or its counsel may
reasonably require, after which, such transferee shall be deemed a "Holder"
hereunder. Any transfer of Registrable Securities, and rights hereunder, shall
be subject to compliance with applicable securities laws and the restrictions
contained in the Investment Letter executed by each Holder pursuant to the
Reorganization Agreement.
12.
<PAGE>
13. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
14. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement, the
Reorganization Agreement and the other agreements contemplated thereby
constitute the full and entire understanding and agreement among the parties
with regard to the subjects hereof and thereof. Without limiting the foregoing,
the rights of the Holders to registration pursuant to the terms of this
Agreement shall be subject to the limitations on resale contained in the
Investment Letter (as defined in the Reorganization Agreement). Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated,
except by a written instrument signed by Tetra Tech and the holders of at least
51% of the Registrable Securities and any such amendment, waiver, discharge or
termination shall be binding upon all the parties hereto, but in no event shall
the obligation of any party hereto be materially increased, except upon the
written consent of such party.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be original, and all of which together shall
constitute one instrument.
16. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware without giving effect to
principles of conflicts of laws thereof.
17. NO THIRD PARTY BENEFICIARIES. The covenants and agreements set forth
herein are for the sole and exclusive benefit of the parties hereto and their
respective
13.
<PAGE>
successors and assigns and such covenants and agreements shall not be construed
as conferring, and are not intended to confer, any rights or benefits upon any
other persons.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TETRA TECH: TETRA TECH, INC.
By: /s/ Li-San Hwang
-------------------------------------------------
Li-San Hwang
Chairman, Chief Executive Officer and President
HOLDERS: The Michael E. Flynn and Bonnie F. Flynn Community
Property Trust Dated 3/28/97
By: /s/ Michael E. Flynn
-------------------------------------------------
Michael E. Flynn, Co-Trustee
By: /s/ Bonnie F. Flynn
-------------------------------------------------
Bonnie F. Flynn, Co-Trustee
/s/ Gregory H. Guerrazzi
Gregory H. Guerrazzi
/s/ John D. Petersen
John D. Petersen
14.
<PAGE>
SCHEDULE A
SCHEDULE OF HOLDERS
Number of Shares of Tetra Tech
Common Stock Issued Pursuant
Holder's Name/Address/Telecopier No. to the Reorganization Agreement
- ------------------------------------ ------------------------------------
The Michael E. Flynn and Bonnie F. 84,821 shares
Flynn Community Property Trust
Dated 3/28/97
397 Thomson Lane
Copperopolis, California 95228
Telecopier: (209) 785-7576
Gregory H. Guerrazzi 84,821 shares
P.O. Box 939
Glen Ellen, California 95442
Telecopier: (707) 935-4497
John D. Petersen 84,821 shares
8787 Palomino Court
Granite Bay, California 95746
Telecopier: (916) 797-1991
15.
<PAGE>
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Sept. 28, Sept. 29, Oct. 1,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Primary:
Common stock outstanding, beginning of period . . . . . 17,658,752 16,544,136 16,425,055
Stock options exercised . . . . . . . . . . . . . . . . 180,759 127,032 137,370
Stock purchase plan issuance. . . . . . . . . . . . . . 123,279 -- --
Payment of fractional/cancelled shares. . . . . . . . . -- (211) (244)
Issuance of common stock. . . . . . . . . . . . . . . . 2,751,464 987,795 --
Stock purchased and retired . . . . . . . . . . . . . . -- -- (18,045)
----------- ----------- -----------
Common stock outstanding, end of period . . . . . . . . 20,714,254 17,658,752 16,544,136
----------- ----------- -----------
----------- ----------- -----------
Preferred stock outstanding . . . . . . . . . . . . . . 1,231,840 -- --
----------- ----------- -----------
Weighted average common stock outstanding during the
period . . . . . . . . . . . . . . . . . . . . . . . 18,697,143 17,481,164 16,467,823
Common stock equivalents under the treasury stock
method assuming the exercise of options and
warrants and the conversion of preferred stock . . . 1,028,083 583,356 449,099
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . 19,725,226 18,064,520 16,916,922
----------- ----------- -----------
----------- ----------- -----------
Net income as reported in consolidated financial
statements . . . . . . . . . . . . . . . . . . . . . $14,256,000 $10,105,000 $ 7,553,000
----------- ----------- -----------
----------- ----------- -----------
Primary net income per common share . . . . . . . . . . $ 0.72 $ 0.56 $ 0.45
----------- ----------- -----------
----------- ----------- -----------
Fully Diluted:
Weighted average common stock outstanding during the
period . . . . . . . . . . . . . . . . . . . . . . . 18,697,143 17,481,164 16,467,823
Common stock equivalents under the treasury stock
method assuming the exercise of options and
warrants and the conversion of preferred stock . . . 1,248,480 798,424 674,404
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . 19,945,623 18,279,588 17,142,227
----------- ----------- -----------
----------- ----------- -----------
Net income as reported in consolidated financial
statements . . . . . . . . . . . . . . . . . . . . . $14,256,000 $10,105,000 $ 7,533,000
----------- ----------- -----------
----------- ----------- -----------
Fully diluted net income per common share . . . . . . . $ 0.71 $ 0.55 $ 0.44
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------------------------------
Sept. 28, Sept. 29, Oct. 1, Oct. 2, Oct. 3,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Gross revenue. . . . . . . . . . . . . . . $ 246,767 $ 220,099 $ 120,034 $ 96,472 $ 74,488
Net revenue. . . . . . . . . . . . . . . . 190,791 161,037 87,874 67,819 51,165
Income from operations . . . . . . . . . . 24,599 17,735 11,756 9,161 6,841
Net income . . . . . . . . . . . . . . . . 14,256 10,105 7,553 5,709 4,279
Weighted average shares
outstanding(1) . . . . . . . . . . . . . 19,725 18,065 16,917 16,649 16,334
Net income per share(1). . . . . . . . . . 0.72 0.56 0.45 0.34 0.26
Cash flow from operating activities. . . . 1,144 21,124 13,578 11,115 5,428
Working capital. . . . . . . . . . . . . . 42,539 32,739 39,872 24,833 23,722
Total assets . . . . . . . . . . . . . . . 159,513 88,463 92,930 51,606 38,572
Long-term obligations. . . . . . . . . . . -- -- 19,045 -- --
Stockholders' equity . . . . . . . . . . . 107,641 63,269 41,496 33,507 26,446
</TABLE>
- ----------
(1) REFLECTS THE EFFECT, ON A RETROACTIVE BASIS, OF A 5-FOR-4 STOCK SPLIT,
EFFECTED IN THE FORM OF A 25% STOCK DIVIDEND, IN DECEMBER 1997.
1
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------------------------------------
Sept. 28,(2) Sept. 29,(3) Oct. 1, (4) Oct. 2,(5) Oct. 3,
1997 1996 1995 1994 1993
------------ ------------ ------------ ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Gross revenue. . . . . . . . . . . $ 246,767 $ 220,099 $ 120,034 $ 96,472 $ 74,488
Subcontractor costs. . . . . . . . 55,976 59,062 32,160 28,653 23,323
---------- ---------- ---------- --------- ---------
Net revenue. . . . . . . . . . . . 190,791 161,037 87,874 67,819 51,165
Cost of net revenue. . . . . . . . 141,019 122,084 65,484 51,069 38,628
---------- ---------- ---------- --------- ---------
Gross profit . . . . . . . . . . . 49,772 38,953 22,390 16,750 12,537
Selling, general and
administrative expenses. . . . 25,173 21,218 10,634 7,589 5,696
---------- ---------- ---------- --------- ---------
Income from operations . . . . . . 24,599 17,735 11,756 9,161 6,841
Net interest income (expense). . . (20) (776) 833 354 290
---------- ---------- ---------- --------- ---------
Income before income taxes . . . . 24,579 16,959 12,589 9,515 7,131
Income tax expense . . . . . . . . 10,323 6,854 5,036 3,806 2,852
---------- ---------- ---------- --------- ---------
Net income . . . . . . . . . . . . $ 14,256 $ 10,105 $ 7,553 $ 5,709 $ 4,279
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Net income per share(1). . . . . . $ 0.72 $ 0.56 $ 0.45 $ 0.34 $ 0.26
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Weighted average shares
outstanding(1) . . . . . . . . 19,725 18,065 16,917 16,649 16,334
</TABLE>
<TABLE>
<CAPTION>
Sept. 28, Sept. 29, Oct. 1, Oct. 2, Oct. 3,
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital. . . . . . . . . . $ 42,539 $ 32,739 $ 39,872 $ 24,833 $ 23,722
Total assets . . . . . . . . . . . 159,513 88,463 92,930 51,606 38,572
Long-term obligations, excluding
current installments . . . . . -- -- 19,045 -- --
Stockholders' equity . . . . . . . 107,641 63,269 41,496 33,507 26,446
</TABLE>
- ----------
(1) REFLECTS THE EFFECT, ON A RETROACTIVE BASIS, OF A 5-FOR-4 STOCK SPLIT,
EFFECTED IN THE FORM OF A 25% STOCK DIVIDEND, IN DECEMBER 1997.
(2) INCLUDES THE RESULTS OF OPERATIONS AND FINANCIAL POSITIONS OF IWA ENGINEERS
(ACQUIRED DECEMBER 11, 1996), FLO ENGINEERING, INC. (ACQUIRED DECEMBER 20,
1996), SCM CONSULTANTS, INC. (ACQUIRED MARCH 19, 1997), WHALEN & COMPANY,
INC. (ACQUIRED JUNE 11, 1997) AND COMMSITE DEVELOPMENT CORPORATION
(ACQUIRED JULY 11, 1997) FROM THE DATES SET FORTH IN THE RELATED PURCHASE
AGREEMENTS.
(3) INCLUDES THE RESULTS OF OPERATIONS AND FINANCIAL POSITION OF KCM, INC.
(ACQUIRED NOVEMBER 7, 1995) FROM THE DATE SET FORTH IN THE RELATED PURCHASE
AGREEMENT.
(4) INCLUDES THE RESULTS OF OPERATIONS AND FINANCIAL POSITION OF TETRA TECH EM
INC., FORMERLY KNOWN AS PRC ENVIRONMENTAL MANAGEMENT, INC. (ACQUIRED
SEPTEMBER 15, 1995.) FROM THE DATE SET FORTH IN THE RELATED PURCHASE
AGREEMENT.
(5) INCLUDES THE RESULTS OF OPERATIONS AND FINANCIAL POSITIONS OF SIMONS, LI &
ASSOCIATES, INC. (ACQUIRED OCTOBER 4, 1993) AND HYDRO-SEARCH, INC.
(ACQUIRED JUNE 3, 1994) FROM THE DATES SET FORTH IN THE RELATED PURCHASE
AGREEMENTS.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Tetra Tech, Inc. (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. 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 95 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) expenses are 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 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,
private and international clients:
Percentage of Net Revenue
-----------------------------------------
Client Fiscal 1997 Fiscal 1996 Fiscal 1995
------ ----------- ----------- -----------
Federal government . . . . . . . 52.3% 61.7% 54.8%
State and local government . . . 14.8 16.6 11.1
Private. . . . . . . . . . . . . 29.2 20.1 34.1
International. . . . . . . . . . 3.7 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.
3
<PAGE>
Except for the historical information contained below, the matters
discussed in this section are forward-looking statements that involve a number
of risks and uncertainties. The Company's actual liquidity needs, capital
resources and results may differ materially from the discussion set forth below
in such forward-looking statements.
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 Income bear to net revenue and the percentage increase or
(decrease) in the dollar amount of such items.
<TABLE>
<CAPTION>
Percentage Relationship to Net Revenue
--------------------------------------- Period to Period
Fiscal Years Ended Change
--------------------------------------- -----------------------
Sept. 28, Sept. 29, Oct. 1, 1997 vs. 1996 vs.
1997 1996 1995 1996 1995
--------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenue. . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 18.5% 83.3%
Cost of net revenue. . . . . . . . . . . . . 73.9 75.8 74.5 15.5 6.4
--------- --------- ------- -------- --------
Gross profit . . . . . . . . . . . . . . . . 26.1 24.2 25.5 27.8 74.0
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . 13.2 13.2 12.1 18.6 99.5
--------- --------- ------- -------- --------
Income from operations . . . . . . . . . . . 12.9 11.0 13.4 38.7 51.0
Net interest income (expense). . . . . . . . 0.0 (0.5) 0.9 (97.4) (193.2)
--------- --------- ------- -------- --------
Income before income taxes . . . . . . . . . 12.9 10.5 14.3 44.9 34.7
Income tax expense . . . . . . . . . . . . . 5.4 4.2 5.7 50.6 36.1
--------- --------- ------- -------- --------
Net income . . . . . . . . . . . . . . . . . 7.5% 6.3% 8.6% 41.1% 33.8%
--------- --------- ------- -------- --------
--------- --------- ------- -------- --------
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
NET REVENUE. Net revenue increased from $161,037,000 to $190,791,000, or
18.5%, from fiscal 1996 to fiscal 1997. All four client sectors - Federal
government, state and local government, private and international - continued to
show net revenue increases in actual dollars. However, only the private and
international sectors increased on a percentage of net revenue basis. The
increase in net revenue was primarily the result of revenue associated with
entities acquired in fiscal 1997 (see Note 2 to Consolidated Financial
Statements) which totaled $24,641,000. Despite the general market conditions of
the environmental industry, the Company attained a 3.2% growth in its net
revenue, exclusive of revenue related to acquired entities. Gross revenue
increased from $220,099,000 to $246,767,000, or 12.1%, from fiscal 1996 to
fiscal 1997. In fiscal 1997, subcontractor costs were 22.7% of gross revenue
compared to 26.8% for fiscal 1996.
COST OF NET REVENUE. Cost of net revenue increased from $122,084,000 to
$141,019,000, or 15.5%, from fiscal 1996 to fiscal 1997. This increase was
primarily attributable to costs incurred in connection with the additional net
revenue from the acquisitions. The number of employees increased from 1,899 at
the end of fiscal 1996 to 2,262 (347 from the fiscal 1997 acquisitions) at the
end of fiscal 1997. As a percentage of net revenue, cost of net revenue
decreased from 75.8% in fiscal 1996 to 73.9% in fiscal 1997. Gross profit
increased from $38,953,000 to $49,772,000, or 27.8%, from fiscal 1996 to fiscal
1997 primarily due to efficiencies in operations, acquisitions and higher profit
margins realized in the acquired businesses in the telecommunication service
industry.
4
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased from
$21,218,000 to $25,173,000, or 18.6%, from fiscal 1996 to fiscal 1997. However,
as a percentage of net revenue, SG&A expenses remained at 13.2% for fiscal 1997.
NET INTEREST INCOME/EXPENSE. Net interest expense decreased from $776,000
in fiscal 1996 to $20,000 in fiscal 1997, or 97.4%, due to the reduction of the
average outstanding borrowings from 1996 to 1997.
INCOME TAX EXPENSE. Income tax expense increased from $6,854,000 to
$10,323,000, or 50.6%, from fiscal 1996 to fiscal 1997. The Company's effective
tax rate increased from 40.4% in 1996 to 42.0% in 1997 primarily due to the
non-deductibility for tax purposes of certain goodwill amortization amounts.
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, decreased from $86,004,000 to $83,359,000, or
3.1%. 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 experiences 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 totaled
$77,678,000. All four client sectors - Federal government, state and local
government, private and international - continued to show net revenue 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 Tetra Tech EM Inc. (EMI [formerly known as PRC Environmental
Management, Inc.]) 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, associated goodwill amortization and to the Company's continuing
efforts to identify and secure new contracts by increasing its business
development expenditures.
5
<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.
INFLATION
Management believes the Company's operations have not been and, in the
foreseeable future, are not expected to be materially adversely affected by
inflation or changing prices.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital as of September 28, 1997 was $42,539,000, an
increase of $9,800,000 from September 29, 1996. Cash and cash equivalents as of
September 28, 1997 totaled $12,262,000. In fiscal 1997, the Company augmented
cash generated from operations with borrowings under a $25,000,000 credit
facility, while in fiscal 1996, the Company financed its operations through cash
generated from operations. In fiscal 1997, the Company generated $1,144,000 from
operating activities and used $3,834,000 for investing activities ($1,237,000 of
which related to business acquisitions). In fiscal 1996, the Company generated
$21,124,000 in cash from operating activities and used $8,755,000 for investing
activities ($6,441,000 of which related to business acquisitions). The decrease
in cash from operating activities in fiscal 1997 resulted primarily from an
increase in receivables and the terms of the Whalen & Company, Inc. (WAC)
acquisition in which substantially no receivables were acquired, resulting in a
lag in generating cash to fund the business' operations. The Company targets as
an ongoing effort to increase its efficiencies in the timing of billings and the
collection of receivables.
The Company has a credit agreement (as amended, the "Credit Agreement")
with a bank which, as of December 15, 1997, provides the Company with a
revolving credit facility (the "Facility") of $45,000,000. The Company
renegotiated the Facility during fiscal 1997 in order to accommodate the WAC and
future acquisitions. 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 0.75% to 1.25%. Borrowings under the
Facility are secured by the Company's accounts receivable and the stock of five
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 December 15, 2000 or earlier at the discretion of the
Company upon payment in full of loans and other obligations. Throughout fiscal
1997, maximum borrowings under the Facility were $13,000,000. At September 28,
1997 borrowings totaled $8,000,000 under the Facility and standby letters of
credit totaled $955,000.
Capital expenditures during fiscal years 1997, 1996 and 1995 were
approximately $2,640,000, $2,385,000 and $1,453,000, respectively. The
expenditures were primarily for computer equipment, leasehold improvements and
office expansion.
6
<PAGE>
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 if it determines that the acquisition is anticipated to have an
accretive effect on future operations. However, as successful integration and
implementation are essential to achieve favorable results, no assurances can be
given that all acquisitions will provide immediate accretive results. 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 1998.
The Company is currently assessing its computer systems and business
processes to ensure that its computer systems will be capable of processing
periods for the year 2000 and beyond as well as ensure that its business
processes will be able to support current and anticipated growth projections.
The Company does not anticipate the costs associated with ensuring these
capabilities will have a material adverse impact on the Company's financial
position or results of operations.
7
<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 28, 1997 and September 29, 1996, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended September 28, 1997. 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 28, 1997 and September 29, 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended September 28, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 7, 1997 (except for Note 5, as to which the date is
December 15, 1997)
8
<PAGE>
TETRA TECH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS Sept. 28, Sept. 29,
1997 1996
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 12,262,000 $ 6,129,000
Accounts receivable - net. . . . . . . . . . . . . . . . . . . . . . . . 30,089,000 22,306,000
Unbilled receivables - net . . . . . . . . . . . . . . . . . . . . . . . 35,145,000 25,201,000
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . 2,522,000 1,939,000
Deferred income taxes - net. . . . . . . . . . . . . . . . . . . . . . . 867,000 2,358,000
-------------- -------------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . 80,885,000 57,933,000
-------------- -------------
Property and Equipment:
Equipment, furniture and fixtures. . . . . . . . . . . . . . . . . . . . 16,838,000 13,072,000
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . 1,177,000 733,000
-------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,015,000 13,805,000
Accumulated depreciation and amortization. . . . . . . . . . . . . . . . (9,592,000) (6,790,000)
-------------- -------------
Property and Equipment - Net . . . . . . . . . . . . . . . . . . . . . . . 8,423,000 7,015,000
-------------- -------------
Intangible Assets - Net. . . . . . . . . . . . . . . . . . . . . . . . . . 69,439,000 22,047,000
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766,000 1,468,000
-------------- -------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 159,513,000 $ 88,463,000
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,621,000 $ 13,423,000
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 10,981,000 7,311,000
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 6,386,000 3,356,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,358,000 1,104,000
Current portion of long-term obligations . . . . . . . . . . . . . . . . 8,000,000 --
-------------- -------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . 38,346,000 25,194,000
-------------- -------------
Commitments and Contingencies (Notes 8 and 10) . . . . . . . . . . . . . .
Redeemable Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 13,526,000 --
-------------- -------------
Stockholders' Equity:
Preferred stock - authorized 2,000,000 shares of $.01 par value;
issued and outstanding 1,231,840 and 0 shares at September 28,
1997 and September 29, 1996, respectively . . . . . . . . . . . . . . -- --
Common stock - authorized 30,000,000 shares of $.01 par value;
issued and outstanding 20,714,254 shares at September 28,1997,
and 17,658,572 shares at September 29, 1996 . . . . . . . . . . . . . 207,000 176,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 63,502,000 33,417,000
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,932,000 29,676,000
-------------- -------------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . 107,641,000 63,269,000
-------------- -------------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . . . . $ 159,513,000 $ 88,463,000
-------------- -------------
-------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
9
<PAGE>
TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------------------------------------
Sept. 28, Sept. 29, Oct. 1,
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
Gross revenue. . . . . . . . . . . . . . . . . . . . $ 246,767,000 $ 220,099,000 $ 120,034,000
Subcontractor costs. . . . . . . . . . . . . . . . . 55,976,000 59,062,000 32,160,000
-------------- -------------- --------------
Net Revenue. . . . . . . . . . . . . . . . . . . . . . 190,791,000 161,037,000 87,874,000
Cost of Net Revenue. . . . . . . . . . . . . . . . . . 141,019,000 122,084,000 65,484,000
-------------- -------------- --------------
Gross Profit . . . . . . . . . . . . . . . . . . . . . 49,772,000 38,953,000 22,390,000
Selling, General and Administrative Expenses . . . . . 25,173,000 21,218,000 10,634,000
-------------- -------------- --------------
Income From Operations . . . . . . . . . . . . . . . . 24,599,000 17,735,000 11,756,000
Interest Expense . . . . . . . . . . . . . . . . . . . 320,000 1,076,000 90,000
Interest Income. . . . . . . . . . . . . . . . . . . . 300,000 300,000 923,000
-------------- -------------- --------------
Income Before Income Taxes . . . . . . . . . . . . . . 24,579,000 16,959,000 12,589,000
Income Tax Expense . . . . . . . . . . . . . . . . . . 10,323,000 6,854,000 5,036,000
-------------- -------------- --------------
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 14,256,000 $ 10,105,000 $ 7,553,000
-------------- -------------- --------------
-------------- -------------- --------------
Net Income Per Common and Common Equivalent Share. . . $ 0.72 $ 0.56 $ 0.45
-------------- -------------- --------------
-------------- -------------- --------------
Weighted Average Shares Outstanding. . . . . . . . . . 19,725,226 18,064,520 16,916,922
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
10
<PAGE>
TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED SEPTEMBER 28, 1997, SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional
Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 2, 1994
as previously reported. . . . . . . 13,140,044 $ 132,000 $ 21,574,000 $ 12,018,000 $ (217,000) $ 33,507,000
Five-for-four common stock
split (see Note 7). . . . . . . . 3,285,011 33,000 (33,000)
-------------------------------------------------------------------------------------
BALANCE, OCTOBER 2, 1994 . . . . . . 16,425,055 165,000 21,541,000 12,018,000 (217,000) 33,507,000
Net income . . . . . . . . . . . . 7,553,000 7,553,000
Payment for fractional shares. . . (244) (3,000) (3,000)
Stock options exercised. . . . . . 137,370 1,000 628,000 629,000
Treasury stock retired . . . . . . (217,000) 217,000 --
Stock purchased and retired. . . . (18,045) (1,000) (189,000) (190,000)
-------------------------------------------------------------------------------------
BALANCE, OCTOBER 1, 1995 . . . . . . 16,544,136 165,000 21,760,000 19,571,000 -- 41,496,000
Net income . . . . . . . . . . . . 10,105,000 10,105,000
Payment for fractional shares. . . (211) (3,000) (3,000)
Shares issued in acquisition. . . 987,795 10,000 10,303,000 10,313,000
Stock options exercised. . . . . . 127,032 1,000 683,000 684,000
Tax benefit for disqualifying
dispositions of stock options . . 674,000 674,000
-------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 29, 1996. . . . . 17,658,752 176,000 33,417,000 29,676,000 -- 63,269,000
Net income . . . . . . . . . . . . 14,256,000 14,256,000
Shares issued in acquisitions . . 2,751,464 28,000 27,022,000 27,050,000
Stock options exercised. . . . . . 180,759 2,000 1,308,000 1,310,000
Shares issued in Employee Stock
Purchase Plan. . . . . . . . . . 123,279 1,000 1,281,000 1,282,000
Tax benefit for disqualifying
dispositions of stock options. . 474,000 474,000
-------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 28, 1997. . . . . 20,714,254 $ 207,000 $ 63,502,000 $ 43,932,000 $ -- $ 107,641,000
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
11
<PAGE>
TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Years Ended
Sept. 28, Sept. 29, Oct. 1,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,256,000 $ 10,105,000 $ 7,553,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 4,514,000 3,613,000 1,894,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . 1,490,000 (519,000) (278,000)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . (3,776,000) 18,043,000 4,335,000
Unbilled receivables. . . . . . . . . . . . . . . . . . . . (8,037,000) (5,916,000) (1,581,000)
Prepaid and other current assets. . . . . . . . . . . . . . 1,823,000 246,000 (226,000)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . (3,551,000) (4,080,000) 446,000
Accrued compensation. . . . . . . . . . . . . . . . . . . . (3,909,000) (1,431,000) 1,165,000
Other current liabilities . . . . . . . . . . . . . . . . . (1,412,000) (192,000) 716,000
Income taxes payable. . . . . . . . . . . . . . . . . . . . (254,000) 1,255,000 (446,000)
------------- ------------- -------------
Net Cash Provided By Operating Activities. . . . . . . . 1,144,000 21,124,000 13,578,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for short-term investments. . . . . . . . . . . . . . . . . -- -- (3,003,000)
Proceeds from short-term investments . . . . . . . . . . . . . . . . -- -- 3,173,000
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . (2,640,000) (2,385,000) (1,453,000)
Proceeds from sale of property and equipment . . . . . . . . . . . . 44,000 71,000 16,000
Payment for business acquisitions, net of cash acquired. . . . . . . (1,237,000) (6,441,000) (35,462,000)
------------- ------------- -------------
Net Cash Used In Investing Activities. . . . . . . . . . (3,833,000) (8,755,000) (36,729,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term obligations. . . . . . . . . . . . . . . . . . (6,797,000) (25,048,000) (2,045,000)
Proceeds from issuance of long-term obligations. . . . . . . . . . . 13,000,000 5,003,000 22,000,000
Payments on obligations under capital leases . . . . . . . . . . . . -- (6,000) --
Proceeds from issuance of common stock . . . . . . . . . . . . . . . 2,619,000 681,000 626,000
Payments to acquire common stock . . . . . . . . . . . . . . . . . . -- -- (190,000)
------------- ------------- -------------
Net Cash Provided By (Used In) Financing Activities. . . 8,822,000 (19,370,000) 20,391,000
------------- ------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . 6,133,000 (7,001,000) (2,760,000)
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . 6,129,000 13,130,000 15,890,000
------------- ------------- -------------
Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . $ 12,262,000 $ 6,129,000 $ 13,130,000
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 309,000 $ 1,149,000 $ 18,000
------------- ------------- -------------
------------- ------------- -------------
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,407,000 $ 6,123,000 $ 5,879,000
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
In fiscal 1997, the Company purchased all of the capital stock of
IWA Engineers, FLO Engineering, Inc., SCM Consultants, Inc.,
Whalen & Company, Inc., Whalen Service Corps Inc. and
CommSite Development Corporation. In conjunction with these
acquisitions, liabilities were assumed as follows:
Fair value of assets acquired. . . . . . . . . . . . . . . . . $ 66,386,000
Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . . (8,811,000)
Purchase price payable . . . . . . . . . . . . . . . . . . . . (729,000)
Issuance of common and preferred stock . . . . . . . . . . . . (40,577,000)
Other acquisition costs. . . . . . . . . . . . . . . . . . . . (2,111,000)
-------------
Liabilities assumed. . . . . . . . . . . . . . . . . . . $ 14,158,000
-------------
-------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------------
Sept. 28, Sept. 29, Oct. 1,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES (CONT.):
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
-------------
-------------
In fiscal 1995, the Company purchased all of the capital stock of
Tetra Tech EM Inc. (EMI [formerly known as PRC
Environmental Management, Inc.]) In conjunction with this
acquisition, liabilities were assumed as follows:
Fair value of assets acquired. . . . . . . . . . . . . . . . . $ 47,377,000
Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . . (40,000,000)
Other acquisition costs. . . . . . . . . . . . . . . . . . . . (600,000)
-------------
Liabilities assumed . . . . . . . . . . . . . . . . . . . . $ 6,777,000
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
13
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED SEPTEMBER 28, 1997,
SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - Tetra Tech, Inc. (the "Company") provides comprehensive
environmental engineering and telecommunications support services including
research and development, engineering and design, construction management, and
operation and maintenance.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries, HSI
GeoTrans, Inc. (HSG [formed through the merger of GeoTrans, Inc. and
Hydro-Search, Inc.]), Simons, Li & Associates, Inc. (SLA), Tetra Tech EM Inc.
(EMI [formerly known as PRC Environmental Management, Inc.]), KCM, Inc. (KCM),
Tetra Tech Technical Services, Inc. (TtTS), IWA Engineers (IWA), FLO
Engineering, Inc. (FLO), SCM Consultants, Inc. (SCM), Whalen & Company, Inc.
(WAC) and CommSite Development Corporation (CDC). 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
1997, 1996 and 1995 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 52%, 62% and 55% of net contract revenue for the
years ended September 28, 1997, September 29, 1996 and October 1, 1995,
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.
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<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 28, 1997 and September 29, 1996 consists principally of
goodwill resulting from business acquisitions which is being amortized over
periods ranging from 15 to 30 years. The accumulated amortization of intangible
assets as of September 28, 1997 and September 29, 1996 were $3,522,000 and
$1,953,000, respectively.
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). The Company also includes the weighted average number of shares
of redeemable preferred stock as a common stock equivalent as the outstanding
redeemable preferred stock has voting and dividend rights substantially similar
to those of common.
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 41.6% 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
15
<PAGE>
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 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 Financial Accounting Standards Board (FASB) issued SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which was 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 Accounting Principles Board (APB) Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company has continued to apply APB Opinion No. 25 to
its stock-based compensation awards to employees and has disclosed the required
pro forma effect on net income and earnings per share upon adoption of SFAS No.
123 (see Note 7. STOCKHOLDERS' EQUITY).
In February 1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE, which
the Company will adopt in fiscal 1998. The Statement replaces the presentation
of primary EPS with a presentation of basic EPS, which excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. The Statement also
requires the dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Diluted EPS is
computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. The
Company does not anticipate that the effect of adoption of SFAS No. 128 will
have a material effect on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME.
The Statement is effective for fiscal years beginning after December 15, 1997.
The Statement establishes standards for reporting and display of comprehensive
income and its components in a company's financial statements. The Company will
adopt this Statement in fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This Statement is effective for fiscal
years beginning after December 15, 1997. This Statement establishes standards
for disclosure about operating segments, products and services, geographic areas
and major customers, as well as descriptive information on how the operating
segments were determined. The Company will adopt this Statement in fiscal 1999.
2. MERGERS AND ACQUISITIONS
On July 11, 1997, the Company acquired 100% of the capital stock of
CommSite Development Corporation (CDC), a wireless telecommunications site
development service firm. The purchase has been valued at approximately
$5,702,000 consisting of cash and 318,079 shares of Company common stock, as
adjusted based on CDC's Net Asset Value on July 11, 1997 as described in the
related purchase agreement.
16
<PAGE>
On June 11, 1997, the Company acquired 100% of the capital stock of Whalen
& Company, Inc. and Whalen Service Corps Inc. (collectively, WAC). WAC, a
wireless telecommunications firm, provides a full range of wireless
telecommunications site development services for PCS, cellular, ESMR,
air-to-ground, microwave, paging, fiber optic and switching centers technology.
The purchase has been valued at approximately $41,738,000 consisting of cash and
2,100,000 and 1,231,840 shares of Company common and preferred stock,
respectively. The common and preferred stock (see Note 6. REDEEMABLE PREFERRED
STOCK) was issued in a private placement and had a combined value of
$31,972,000. 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 28% below the then prevailing market
price. On the business day prior to the merger, WAC distributed to its
stockholders (i) cash in the amount of $4,138,000 and (ii) accounts receivable
having a net value of $18,456,000.
On March 20, 1997, the Company acquired 100% of the capital stock of SCM
Consultants, Inc. (SCM), a consulting and engineering firm, providing design of
irrigation, water and wastewater systems, as well as facility and infrastructure
engineering services, to state and local government, private and industrial
customers. The purchase was valued at approximately $2,431,000, consisting of
cash and 197,572 shares of Company common stock, as adjusted based upon SCM's
Net Asset Value on March 30, 1997 as described in the related purchase
agreement.
On December 18, 1996, the Company acquired 100% of the capital stock of FLO
Engineering, Inc. (FLO), a consulting and engineering firm specializing in water
resource engineering involving hydraulic engineering and hydrographic data
collection. The purchase was valued at approximately $724,000, consisting of
cash and 40,138 shares of Company common stock, as adjusted based upon FLO's Net
Asset Value on December 29, 1996 as described in the related purchase agreement.
On December 11, 1996, the Company acquired 100% of the capital stock of IWA
Engineers (IWA), an architecture and engineering firm providing a wide range of
planning, engineering, and design capabilities in water, wastewater, and
facility design, and serving state and local government and private customers.
The purchase was valued at approximately $1,632,000, consisting of cash and
95,675 shares of Company common stock, as adjusted based upon IWA's Net Asset
Value on December 29, 1996 as described in the related purchase agreement.
On November 7, 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 was valued at approximately $13,373,000 consisting of
cash and 987,795 shares of Company common stock issued in a private placement.
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
Tetra Tech EM Inc. (EMI [formerly known as PRC Environmental Management, Inc.]).
EMI provides a full range of environmental consulting and engineering services.
The purchase was valued at approximately $40,600,000 consisting of cash.
On January 1, 1997, the Company merged its wholly owned subsidiary,
Hydro-Search, Inc. into another of its wholly owned subsidiaries, GeoTrans, Inc.
The name of the combined entity was simultaneously changed to HSI GeoTrans, Inc.
The Company believes that this combination provides synergy and an expansion of
geographical presence and capabilities.
17
<PAGE>
All of the acquisitions above have been accounted for as purchases and
accordingly, the purchase prices of the businesses acquired have been allocated
to the assets and liabilities acquired based upon their fair market values. The
excess of the purchase cost of the acquisitions over the fair value of the net
assets acquired was recorded as goodwill and is included in Intangible Assets -
Net in the accompanying balance sheets. The final determination of such excess
amount is subject to a final determination of the value of the consideration
paid and the net assets acquired as various studies and valuations are not yet
complete. The results of operations of each of the companies acquired have been
included in the Company's financial statements from their respective acquisition
effective dates as set forth in the related purchase agreements.
The effect of unaudited pro forma operating results of the SCM, FLO and IWA
acquisitions, had they been acquired on October 2, 1995, is not material.
The following table presents summarized unaudited pro forma operating
results assuming that the Company had acquired CDC, WAC and KCM on October 2,
1995:
Fiscal Years Ended
----------------------------------
Sept. 28, 1997 Sept. 29, 1996
---------------- ----------------
(in thousands, except per share data)
Gross revenue $ 290,803 $ 282,758
Income before income taxes 31,147 33,019
Net income 18,974 19,906
Net income per share $ 0.86 $ 0.90
Weighted average shares outstanding 22,162 22,141
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at September 28, 1997 and
September 29, 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Billed accounts receivable. . . . . . . . . . . . . . . . . . . . . . $ 31,435,000 $ 23,338,000
------------- -------------
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 . . . . . . . . . . . . . . . 31,626,000 25,067,000
Costs and fee retention billable upon audit of total
contract costs. . . . . . . . . . . . . . . . . . . . . . . . . 13,326,000 10,203,000
------------- -------------
Total unbilled accounts receivable. . . . . . . . . . . . . . . . . . 44,952,000 35,270,000
------------- -------------
Allowance for uncollectible accounts:
Allowance for doubtful accounts. . . . . . . . . . . . . . . . . . (1,346,000) (1,032,000)
Allowance for disallowed costs . . . . . . . . . . . . . . . . . . (9,807,000) (10,069,000)
------------- -------------
Total allowance for uncollectible accounts. . . . . . . . . . . . . . (11,153,000) (11,101,000)
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,234,000 $ 47,507,000
------------- -------------
------------- -------------
</TABLE>
18
<PAGE>
The accounts receivable valuation allowance includes amounts to provide for
doubtful accounts and for the potential disallowance of billed and unbilled
costs. The Company's contracts with the Federal government are subject to audit
by the government, primarily the Defense Contract Audit Agency (DCAA), which
reviews the Company's overhead rates, operating systems and cost proposals.
During the course of its audit, the DCAA may disallow costs if it determines
that the Company improperly accounted for such costs in a manner inconsistent
with Cost Accounting Standards. Historically, the Company has not had any
material cost disallowances by the DCAA as a result of audit, however, there can
be no assurance that DCAA audits will not result in material cost disallowances
in the future. In addition, audits for the accounts receivable related to EMI
contracts for periods prior to the acquisition had not been finalized at the
beginning of fiscal year 1997. As of October 1997, audits and negotiations for
years 1987 through 1992 have been completed and cost disallowances as a result
of audits totaled approximately $672,000. Negotiations for the 1993 audit are
currently underway. Audits for the years 1994 and 1995 have yet to be
completed. In the event it is determined that the Company is entitled to
payments, collectibility of such payments cannot be assured as each agency must
obtain separate funding approval. 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 the resolution of
these matters will not have a material adverse effect on the Company's financial
position or results of operations.
The Company has approximately $6,146,000 under retainage provisions of
contracts. As of September 28, 1997, accounts receivable includes approximately
$8,726,000 that may not be realized within one year.
4. INCOME TAXES
The provision for income taxes for the years ended September 28, 1997,
September 29, 1996 and October 1, 1995 consisted of the following:
Sept. 28, Sept. 29, Oct. 1,
1997 1996 1995
------------ ------------ ------------
Current:
Federal . . . . . . . $ 9,220,000 $ 5,849,000 $ 4,185,000
State . . . . . . . . 2,291,000 1,462,000 1,129,000
Deferred . . . . . . . . (1,188,000) (457,000) (278,000)
------------ ------------ ------------
Total provision. . . . . $ 10,323,000 $ 6,854,000 $ 5,036,000
------------ ------------ ------------
------------ ------------ ------------
Temporary differences comprising the net deferred income tax asset shown on
the consolidated balance sheets were as follows:
Sept. 28, Sept. 29,
1997 1996
------------ ------------
Allowance for doubtful accounts. . . . . $ 2,872,000 $ 4,458,000
Cash to accrual. . . . . . . . . . . . . (2,600,000) (2,265,000)
Accrued vacation . . . . . . . . . . . . 641,000 606,000
Prepaid expense. . . . . . . . . . . . . (119,000) (584,000)
Depreciation . . . . . . . . . . . . . . (422,000) (399,000)
Other. . . . . . . . . . . . . . . . . . 495,000 542,000
------------ ------------
Net deferred income tax asset. . . . . . $ 867,000 $ 2,358,000
------------ ------------
------------ ------------
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<PAGE>
Total tax expense was different than the amount computed by applying the
federal statutory rate as follows:
<TABLE>
<CAPTION>
Sept. 28, 1997 Sept. 29, 1996 Oct. 1, 1995
--------------------- --------------------- ---------------------
Amount % Amount % Amount %
------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Tax at federal statutory rate. . . . . . . . $ 8,603,000 35.0% $ 5,936,000 35.0% $ 4,406,000 35.0%
State taxes, net of federal benefit. . . . . 1,348,000 5.5 933,000 5.5 692,000 5.5
Goodwill . . . . . . . . . . . . . . . . . . 528,000 2.1 384,000 2.3 77,000 0.6
Other. . . . . . . . . . . . . . . . . . . . (156,000) (0.6) (399,000) (2.4) (139,000) (1.1)
------------ ----- ------------ ----- ------------ -----
Total provision. . . . . . . . . . . . . . . $ 10,323,000 42.0% $ 6,854,000 40.4% $ 5,036,000 40.0%
------------ ----- ------------ ----- ------------ -----
------------ ----- ------------ ----- ------------ -----
</TABLE>
5. LONG-TERM OBLIGATIONS
The Company has a credit agreement (as amended, the "Credit Agreement")
with a bank to support its working capital and acquisition needs. At September
28, 1997, the Credit Agreement provided a revolving credit facility of
$25,000,000. In December 1997, the Company amended the Credit Agreement to
increase its facility to $45,000,000 in order to accommodate future
acquisitions.
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 0.75% to 1.25%. The weighted average interest
rate on outstanding borrowings at September 28, 1997 was 6.399%.
Borrowings under the Credit Agreement are secured by the Company's accounts
receivable and the stock of five 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 December 15, 2000 or earlier at the
discretion of the Company upon payment in full of loans and other obligations.
As of September 28, 1997, outstanding borrowings totaled $8,000,000 and standby
letters of credit totaled $955,000.
6. REEDEMABLE PREFERRED STOCK
In connection with the WAC acquisition, the Company issued 1,231,840 shares
of Series A Preferred Stock to the former stockholders of WAC. The issuance was
made by a private placement in reliance on the exemption from the registration
provisions of the Securities Act of 1933, as amended (the "Act"), provided for
in Section 4(2) of the Act. The preferred stock carried dividend and voting
rights substantially identical to those of common stock and was converted to
common stock on October 28, 1997, following the stockholder authorization of
additional common shares. Holders of the preferred stock, had the shares not
been converted by December 10, 1997, had the right to put the preferred stock to
the Company for cash at the average closing price of the Company's common stock
on the five days ending one day prior to the exercise of the put.
20
<PAGE>
7. STOCKHOLDERS' EQUITY
On October 28, 1997, a Special Meeting of the Stockholders (the "Special
Meeting") was held. During the Special Meeting, the stockholders approved a
proposal to amend the Company's Certificate of Incorporation to increase the
number of authorized shares of common stock, $.01 par value per share, from
20,000,000 to 30,000,000. Immediately following this increase, all of the
issued and outstanding redeemable preferred stock was converted into common
stock. On October 29, 1997, 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 December 1, 1997 to the stockholders of record on November
14, 1997. 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,
share prices 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 an aggregate of 762,939 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 352,006 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 an aggregate of 3,687,500 shares of the
Company's common stock at prices not less than the market value on the date of
grant. From such date of grant, these options become exercisable after one
year, are fully vested no later than five years after grant and terminate no
later than ten years after grant.
Pursuant to the Company's 1992 Non-employee Director Plan, non-employee
directors may be granted options to purchase an aggregate of 91,551 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, an aggregate of 703,125 shares may be issued pursuant to the exercise of
Purchase Rights.
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.
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.
21
<PAGE>
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 28, 1997, option activity was as
follows:
Number of Weighted Average
Options Exercise Price
--------- ----------------
Balance, October 2, 1994 . . . . . . . . 1,054,325 $ 6.07
Granted . . . . . . . . . . . . . . . 434,712 9.29
Exercised . . . . . . . . . . . . . . (137,370) 4.48
Cancelled . . . . . . . . . . . . . . (99,451) 6.94
--------- -------
Balance, October 1, 1995 . . . . . . . . 1,252,216 7.28
Granted . . . . . . . . . . . . . . . 515,734 14.19
Exercised . . . . . . . . . . . . . . (127,033) 5.38
Cancelled . . . . . . . . . . . . . . (65,521) 8.89
--------- -------
Balance, September 29, 1996. . . . . . . 1,575,396 9.63
Granted . . . . . . . . . . . . . . . 610,154 15.70
Exercised . . . . . . . . . . . . . . (180,759) 7.25
Cancelled . . . . . . . . . . . . . . (134,091) 12.02
--------- -------
Outstanding at September 28, 1997. . . . 1,870,700 $ 11.66
--------- -------
--------- -------
Exercisable at September 28, 1997. . . . 717,569 $ 8.54
--------- -------
--------- -------
22
<PAGE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.86 - $1.47 51,518 3.51 $ 1.37 51,518 $ 1.37
$3.93 - $6.34 121,293 5.17 5.42 120,530 5.41
$6.67 - $10.37 634,064 6.76 8.12 376,335 8.03
$11.10 - $16.66 1,011,575 8.93 14.85 169,186 14.08
$17.20 - $19.40 52,250 9.71 17.68 -- --
--------- ---- ------ ------- ------
1,870,700 7.82 $11.66 717,569 $ 8.54
--------- ---- ------ ------- ------
--------- ---- ------ ------- ------
</TABLE>
The Company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations in accounting for its employee stock
option plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Pro forma net income and net income per share
had the Company accounted for stock options issued to employees in accordance
with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, are as follows:
Fiscal Years Ended
---------------------------------------
September 28, 1997 September 29, 1996
------------------ ------------------
(in thousands, except per share data)
Net income-as reported . . . . . . . $ 14,256 $ 10,105
Net income-pro forma . . . . . . . . 13,059 9,598
Net income per share-as reported . . $ 0.72 $ 0.56
Net income per share-pro forma . . . 0.66 0.53
The pro forma effects of applying SFAS No. 123 may not be representative of
the effects on reported net income and net income per share for future years
since options vest over several years and additional awards are made each year.
The fair value of the Company's stock options used to compute pro forma net
income and pro forma earnings per share disclosures is the estimated value using
the Black-Scholes option-pricing model. The weighted average fair values per
share of options granted in 1997 and 1996 are $5.16 and $4.56, respectively.
The following assumptions were used in completing the model:
Fiscal Years Ended
---------------------------------------
September 28, 1997 September 29, 1996
------------------ ------------------
Dividend yield . . . . . . . . . . . 0.0% 0.0%
Expected volatility. . . . . . . . . 40.5% 39.1%
Risk-free rate of return, annual . . 6.4% 6.4%
Expected life. . . . . . . . . . . . 2.76 yrs. 2.76 yrs.
23
<PAGE>
8. LEASES
The Company leases land, buildings and equipment under various operating
leases. Rent expense under all operating leases was approximately $10,204,000,
$9,462,000 and $5,332,000 for the years ended September 28, 1997, September 29,
1996 and October 1, 1995, respectively. Amounts payable under noncancelable
operating lease commitments are as follows during the fiscal years ending in:
1998 . . . . . . . . . . . . . . . . . . $ 8,285,000
1999 . . . . . . . . . . . . . . . . . . 6,944,000
2000 . . . . . . . . . . . . . . . . . . 5,166,000
2001 . . . . . . . . . . . . . . . . . . 4,120,000
2002 . . . . . . . . . . . . . . . . . . 2,962,000
Thereafter . . . . . . . . . . . . . . . 3,236,000
------------
Total. . . . . . . . . . . . . . . . . . $30,713,000
------------
------------
9. RETIREMENT PLANS
The Company and its subsidiaries have established defined contribution
plans and 401(k) plans. Generally, employees are eligible to participate in the
defined contribution plans upon completion of one year of service and in the
401(k) plans upon commencement of employment. For the years ended September 28,
1997, September 29, 1996 and October 1, 1995 contributions relating to the plans
were approximately $3,536,000, $4,002,000 and $1,971,000, respectively.
10. CONTINGENCIES
The Company is subject to certain claims and lawsuits typically filed
against the engineering and consulting professions, primarily alleging
professional errors or omissions. The Company carries professional liability
insurance, subject to certain deductibles and policy limits against such claims.
Management is of the opinion that the resolution of these claims will not have a
material adverse effect on the Company's financial statements.
11. QUARTERLY FINANCIAL INFORMATION - UNAUDITED
In the opinion of management, the following unaudited quarterly data for
the years ended September 28, 1997 and September 29, 1996 reflect all
adjustments necessary for a fair statement of
24
<PAGE>
the results of operations. All such adjustments are of a normal recurring
nature. (In thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal 1997 Quarter Quarter Quarter Quarter
- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Gross revenue. . . . . . . . . . . . . . . $54,938 $55,545 $60,922 $75,362
Net revenue. . . . . . . . . . . . . . . . 40,423 43,914 48,621 57,833
Gross profit . . . . . . . . . . . . . . . 9,372 10,547 12,961 16,892
Income from operations . . . . . . . . . . 4,393 4,892 6,207 9,107
Net income . . . . . . . . . . . . . . . . 2,596 2,872 3,644 5,144
Net income per share . . . . . . . . . . . $ 0.14 $ 0.16 $ 0.19 $ 0.22
Weighted average shares outstanding . . . 18,369 18,300 19,339 22,925
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal 1996 Quarter Quarter Quarter Quarter
- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
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 . . . . . . . . . . . $ 0.11 $ 0.13 $ 0.14 $ 0.18
Weighted average shares outstanding . . . 17,689 18,130 18,206 18,251
</TABLE>
25
<PAGE>
SECURITIES INFORMATION
Tetra Tech's common stock is traded on the Nasdaq Stock Market under the
symbol WATR. There were 636 stockholders of record as of December 9, 1997.
Tetra Tech has not paid any cash dividends since its inception and does not
intend to pay any cash dividends on its common stock in the foreseeable future.
The high and low sales prices for the common stock for the last two fiscal
years, as reported by the National Association of Securities Dealers, Inc., are
set forth in the following tables. The prices have been adjusted to reflect the
effect, on a retroactive basis, of a five-for-four stock split, effected in the
form of a 25% stock dividend, in December 1997.
FISCAL 1997 HIGH LOW
----------- ---- ---
First Quarter $20.40 $14.90
Second Quarter 16.60 9.80
Third Quarter 18.50 11.10
Fourth Quarter 22.60 16.80
FISCAL 1996 HIGH LOW
----------- ---- ---
First Quarter $15.20 $13.12
Second Quarter 15.20 12.48
Third Quarter 17.92 12.64
Fourth Quarter 19.60 13.80
26
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF TETRA TECH, INC.
HSI GeoTrans, Inc., a Virginia corporation
Simons, Li & Associates, Inc., a Colorado corporation
Tetra Tech EM Inc., a Delaware corporation
KCM, Inc., a Washington corporation
Tetra Tech Technical Services, Inc., a Delaware corporation
IWA Engineers, a California corporation
FLO Engineering, Inc., a Colorado corporation
SCM Consultants, Inc., a Washington corporation
Whalen & Company, Inc., a Delaware corporation
Whalen Service Corps Inc., a Delaware corporation
CommSite Development Corporation, a California corporation
All of such subsidiaries are wholly-owned by Tetra Tech, Inc.
<PAGE>
EXHIBIT 23
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
333-2766 of Tetra Tech, Inc. on Form S-3 of our reports dated November 7,
1997 (except for Note 5, as to which the date is December 15, 1997),
appearing in, and incorporated by reference in, this Annual Report on Form
10-K for the year ended September 28, 1997.
DELOITTE & TOUCHE LLP
Los Angeles, California
December 22, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-END> SEP-28-1997
<CASH> 12,262
<SECURITIES> 0
<RECEIVABLES> 76,387
<ALLOWANCES> 11,153
<INVENTORY> 0
<CURRENT-ASSETS> 80,885
<PP&E> 18,015
<DEPRECIATION> 9,592
<TOTAL-ASSETS> 159,513
<CURRENT-LIABILITIES> 38,346
<BONDS> 0
0
13,526
<COMMON> 207
<OTHER-SE> 63,502
<TOTAL-LIABILITY-AND-EQUITY> 159,513
<SALES> 246,767
<TOTAL-REVENUES> 246,767
<CGS> 196,995
<TOTAL-COSTS> 196,995
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320
<INCOME-PRETAX> 24,579
<INCOME-TAX> 10,323
<INCOME-CONTINUING> 14,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,256
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.71
</TABLE>
