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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 4, 1999
OR
[ ] 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.
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(Exact name of registrant as specified in its charter)
Delaware 95-4148514
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
670 N. Rosemead Boulevard, Pasadena, California 91107
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(Address of principal executive offices)
(626) 351-4664
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of May 7, 1999, the total number of outstanding shares of the Registrant's
common stock was 30,103,440.
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TETRA TECH, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Risk Factors 18
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 25
Item 4. Submission of matters to a Vote of Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 30
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1.
Tetra Tech, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
In thousands, except share data April 4, October 4,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,072 $ 4,889
Accounts receivable - net 54,633 68,834
Unbilled receivables - net 67,137 59,888
Prepaid and other current assets 5,135 4,955
Deferred income taxes 3,766 3,766
---------- ----------
Total Current Assets 142,743 142,332
---------- ----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 2,007 1,348
Equipment, furniture and fixtures 27,956 25,616
---------- ----------
Total 29,963 26,964
Accumulated depreciation and amortization (15,641) (13,219)
---------- ----------
PROPERTY AND EQUIPMENT - NET 14,322 13,745
---------- ----------
INTANGIBLE ASSETS - NET 112,081 108,638
LOAN TO UNCONSOLIDATED AFFILIATE 3,000 --
OTHER ASSETS 2,636 1,895
---------- ----------
TOTAL ASSETS $ 274,782 $ 266,610
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 18,747 $ 24,027
Accrued compensation 13,652 15,614
Other current liabilities 9,574 8,283
Current portion of long-term obligations 25,077 14,065
Income taxes payable 1,909 3,294
---------- ----------
Total Current Liabilities 68,959 65,283
---------- ----------
LONG-TERM OBLIGATIONS 315 33,546
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - authorized, 2,000,000
shares of $.01 par value;issued and
outstanding 0 shares at April 4, 1999
and October 4, 1998, respectively -- --
Exchangeable stock of a subsidiary 13,569 15,411
Common stock - authorized, 50,000,000 shares
of $.01 par value; issued and outstanding
30,062,528 and 28,630,600 shares at April 4,
1999 and October 4, 1998, respectively 301 287
Additional paid-in capital 116,010 87,565
Cumulative translation gain (loss) (778) --
Retained earnings 76,406 64,518
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 205,508 167,781
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 274,782 $ 266,610
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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Tetra Tech, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
In thousands, except per Three Months Ended Six Months Ended
share data --------------------- ---------------------
April 4, March 29, April 4, March 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross Revenue $128,083 $ 92,727 $242,056 $159,165
Subcontractor costs 31,128 20,921 55,856 33,695
---------- ---------- ---------- ----------
Net Revenue 96,955 71,806 186,200 125,470
Cost of Net Revenue 74,402 54,786 144,589 95,125
---------- ---------- ---------- ----------
Gross Profit 22,553 17,020 41,611 30,345
Selling, General and
Administrative Expenses 9,646 7,465 17,522 12,969
Amortization of Intangibles 1,038 683 2,033 1,325
---------- ---------- ---------- ----------
Income from Operations 11,869 8,872 22,056 16,051
Interest Expense 656 671 1,494 809
Interest Income (124) (75) (263) (140)
---------- ---------- ---------- ----------
Income Before Income Tax Expense
and Minority Interest 11,337 8,276 20,825 15,382
Income to Minority Interest -- 203 -- 203
---------- ---------- ---------- ----------
Income Before Income Tax Expense 11,337 8,073 20,825 15,179
Income Tax Expense 4,875 3,552 8,936 6,608
---------- ---------- ---------- ----------
Net Income $ 6,462 $ 4,521 $ 11,889 $ 8,571
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic Earnings Per Share $ 0.22 $ 0.16 $ 0.41 $ 0.31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted Earnings Per Share $ 0.21 $ 0.16 $ 0.38 $ 0.30
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted Average Common Shares Outstanding:
Basic 29,435 27,905 29,045 27,561
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted 31,411 28,956 31,061 28,895
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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Tetra Tech, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
In thousands Six Months Ended
------------------------
April 4, March 29,
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,889 $ 8,571
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,456 3,220
Undistributed earnings to minority interest -- 203
Other (542) (662)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable 18,071 (8,724)
Unbilled receivables (7,148) (4,862)
Prepaid and other assets (672) (4,028)
Accounts payable (5,305) 3,806
Accrued compensation (2,473) (702)
Other current liabilities 927 23
Income taxes payable (2,638) (3,859)
---------- ----------
Net Cash Provided By (Used In)
Operating Activities 16,565 (7,014)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,355) (1,061)
Payments for business acquisitions,
net of cash acquired (4,033) (25,640)
Payments on loans to unconsolidated affiliate (3,000) --
---------- ----------
Net Cash Used In Investing Activities (9,388) (26,701)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (29,219) (15,002)
Proceeds from issuance of long-term debt 7,000 42,000
Net proceeds from issuance of common stock 23,003 914
---------- ----------
Net Cash (Used In) Provided By
Financing Activities 784 27,912
---------- ----------
EFFECT OF RATE CHANGES ON CASH (778) --
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,183 (5,803)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,889 12,262
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,072 $ 6,459
---------- ----------
---------- ----------
SUPPLIMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,347 $ 574
Income taxes $ 10,321 $ 10,080
</TABLE>
(Continued)
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Tetra Tech, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
In thousands Six Months Ended
------------------------
April 4, March 29,
1999 1998
---------- ----------
<S> <C> <C>
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING
ACTIVITIES:
In February 1999, the Company purchased all of
the capital stock of McCulley, Frick & Gilman,
Inc. In conjunction with this acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 10,086
Cash paid (4,250)
Issuance of common stock (3,613)
Other acquisition costs (70)
----------
Liabilities assumed $ 2,153
----------
----------
In December 1997, the Company, through its
wholly-owned subsidiary Tetra Tech NUS, Inc.,
purchased the assets of certain environmental
services businesses of Brown & Root, Inc. and
Halliburton NUS Corporation, both of which were
subsidiaries of Halliburton Company. In
conjunction with this acquisition, liabilities
were assumed as follows:
Fair value of assets acquired $ 27,794
Cash paid (24,872)
Other acquisition costs (325)
----------
Liabilities assumed $ 2,597
----------
----------
In March 1998, the Company, through its
wholly-owned subsidiary Whalen Service Corps
Inc., purchased certain assets of TANCO LLC,
dba Integration Technologies from ANTEC
Corporation. This purchase was related to a
limited liability company agreement between
Whalen Service Corps Inc. and Sentrex Cen-Comm.
In conjunction with this acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 1,572
Cash paid (623)
----------
Liabilities assumed $ 949
----------
----------
In March 1998, the Company purchased all of
the capital stock of C.D.C. Engineering, Inc.
In conjunction with this acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 2,299
Cash paid (323)
Issuance of common stock (1,294)
Other acquisition costs (70)
----------
Liabilities assumed $ 612
----------
----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
(Concluded)
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TETRA TECH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet as of April 4, 1999,
the condensed consolidated statements of income for the three-month and six-
month periods ended April 4, 1999 and March 29, 1998 and the condensed
consolidated statements of cash flows for the six months ended April 4, 1999 and
March 29, 1998 are unaudited, and in the opinion of management include all
adjustments, consisting of only normal and recurring adjustments, necessary for
a fair presentation of the financial position and the results of operations for
the periods presented.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
October 4, 1998.
The results of operations for the three and six months ended April 4, 1999
are not necessarily indicative of the results to be expected for the fiscal year
ending October 3, 1999.
2. EARNINGS PER SHARE
Due to the Company's complex capital structure, the Company presents both
basic and diluted Earnings Per Share (EPS). Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed by dividing net income by the weighted average number of common shares
outstanding and dilutive potential common shares. The Company includes as
potential common shares the weighted average number shares of exchangeable stock
of a subsidiary and the weighted average dilutive effects of outstanding stock
options. The exchangeable stock of a subsidiary is non-voting and is
exchangeable, share for share, for the Company's common stock. Basic and
diluted EPS reflect, on a retroactive basis, a 5-for-4 stock split effected in
the form of a 25.0% stock dividend, wherein one additional share of stock was
issued on September 15, 1998 for each four shares outstanding as of the record
date of July 27, 1998.
3. CURRENT ASSETS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Cash and cash
equivalents totaled $12.1 million and $4.9 million at April 4, 1999 and October
4, 1998, respectively.
4. MERGERS AND ACQUISITIONS
On December 31, 1997, the Company acquired, through its wholly-owned
subsidiary Tetra Tech NUS, Inc., the assets of certain environmental services
businesses of Brown &
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Root, Inc. and Halliburton Corporation, both of which are subsidiaries of
Halliburton Company (collectively, NUS). NUS provides consulting, engineering
and design services for the environmental remediation of contaminated air, water
and soil conditions. The purchase price was valued at approximately $25.2
million, as adjusted, and consisted of cash.
On March 2, 1998, Whalen Service Corps Inc. (WSC) agreed to participate in
a partnership with Sentrex Cen-Comm and ANTEC Corporation to provide design,
engineering, information management and construction services to support
advanced communication system upgrades to the broadband information transport
industries. The agreement required the purchase of certain assets of TANCO LLC
from ANTEC Corporation for a price in cash of approximately $0.6 million. WSC
initially held a 51.0% majority interest in Whalen/Sentrex LLC, a California
limited liability company, while LAL Corp. held the remaining 49.0% minority
interest.
On March 26, 1998, the Company acquired 100.0% of the capital stock of
C.D.C. Engineering, Inc. (CDE), a consulting and engineering firm specializing
in civil engineering, transportation engineering, structural engineering and
land surveying. The purchase has been valued at approximately $1.5 million,
consisting of cash and 71,060 shares of Company common stock.
On July 8, 1998, the Company acquired 100.0% of the capital stock of
McNamee, Porter & Seeley, Inc. (MPS), a provider of engineering services with
expertise in the areas of water, industrial wastewater and process controls.
The purchase was valued at approximately $14.2 million, consisting of cash and
274,888 shares of Company common stock. Simultaneously with the acquisition, MPS
distributed to its former shareholders accounts receivable having a net value of
$8.0 million.
On September 22, 1998, the Company acquired, through its subsidiary Tetra
Tech Canada Ltd. (TtC), 100.0% of the capital stock of 1056584 Ontario Limited,
1056585 Ontario Limited, Venture Cable Limited, Cen-Comm Communications, Inc.,
Sentrex Electronics Inc. and LAL Corp. (collectively, the Sentrex Group of
Companies (SGOC)), providers of engineering and technical services to the cable
television, telephony and data networking industries. The purchase has been
valued at approximately $19.2 million, consisting of cash and 920,354 shares of
TtC exchangeable stock. The TtC exchangeable stock is exchangeable, share for
share, for Company common stock as described in the related purchase agreement.
Upon completion of the SGOC acquisition, the Company beneficially owns 100.0% of
Whalen/Sentrex LLC.
On February 26, 1999, the Company acquired 100.0% of the capital stock of
McCulley, Frick & Gilman, Inc. (MFG), a provider of professional environmental
science and consulting services to private-sector clients. The purchase was
valued at approximately $7.9 million, consisting of cash and 185,192 shares of
Company common stock, and is subject to a purchase price and purchase allocation
adjustment based on the final determination of MFG's net asset value as of
February 26, 1999.
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<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 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 Company values stock exchanged in
acquisitions based on extended restriction periods and economic factors specific
to the Company's circumstances. During fiscal 1998 and 1999, stock exchanged in
acquisitions was discounted by 15.0%. 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 MFG, SGOC and
CDE transactions, had they been acquired on September 29, 1997, is not material.
Pro forma operating results assuming the Company had acquired MPS and NUS
on September 29, 1997 is presented in Note 6. UNAUDITED PRO FORMA OPERATING
RESULTS.
5. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of a valuation allowance to provide
for doubtful accounts and for the potential disallowance of billed and unbilled
costs. The allowance for doubtful accounts as of April 4, 1999 and October 4,
1998 was $2.4 million and $2.9 million, respectively. The allowance for
disallowed costs as of both April 4, 1999 and October 4, 1998 was $9.8 million.
Disallowance of billed and unbilled costs is primarily associated with contracts
with the Federal government which contain clauses that subject contractors to
several levels of audit. The Company establishes reserves on those contract
receivables, especially those acquired in acquisitions, where collectibility is
not assured. Management believes that resolution of these matters will not have
a material adverse impact on the Company's financial position or results of
operations.
6. UNAUDTED PRO FORMA OPERATING RESULTS
The table below presents summarized unaudited pro forma operating results
assuming that the Company had acquired MPS and NUS on September 29, 1997. These
amounts are based on historical results and assumptions and estimates in which
the Company believes to be reasonable. The pro forma results do not reflect
anticipated cost savings and do not necessarily represent results which would
have occurred if the MPS and NUS acquisitions had actually taken place on
September 29, 1997.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Six Months Ended
--------------------------
March 29, 1998
--------------
<S> <C>
Gross revenue $ 196,897,000
Income from operations 17,071,000
Net income 8,835,000
Basic earnings per share 0.32
Diluted earnings per share 0.30
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<PAGE>
Weighted average shares outstanding:
Basic 27,698,000
Diluted 29,032,000
</TABLE>
7. SUBSEQUENT EVENTS
On April 19, 1999, the Company's board of directors approved a 5-for-4
stock split, to be effected in the form of a 25.0% stock dividend, wherein one
additional share of stock will be issued for each four shares outstanding. The
record date for the stock split is May 14, 1999, and the distribution date is
June 15, 1999. On a pro forma basis, the following table presents basic and
diluted earnings per share for the periods presented giving effect to this
stock split:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
April 4, March 29, April 4, March 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic earnings per share $0.18 $0.13 $0.33 $0.25
Diluted earnings per share $0.16 $0.12 $0.31 $0.24
</TABLE>
8. COMPREHENSIVE INCOME
Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non
owner sources. These sources include net income and other revenues, expenses,
gains and losses incurred. The Company includes as other comprehensive income
translation gains and losses from subsidiaries with functional currencies
different than that of the Company. For the three and six months ended April 4,
1999, the Company incurred net translation losses of $0.8 million. The Company
incurred no translation gains or losses for the three and six months ended March
29, 1998.
9. LOAN TO UNCONSOLIDATED AFFILIATE
During the six months ended April 4, 1999, the Company loaned to TANCO LLC,
a 50% owned affiliate, $3.0 million for working capital needs.
10. SECONDARY OFFERING OF COMMON STOCK
In February 1998, the Company, along with certain selling stockholders,
offered 3,175,000 shares of its Common Stock through a public offering. The
Company offered 1,000,000 shares and received $22.0 million in net proceeds from
the offering of these shares. These proceeds were used for the partial repayment
of outstanding indebtedness under the Company's revolving credit facility.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED BELOW, THE MATTERS
DISCUSSED IN THIS SECTION ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER
OF RISKS AND UNCERTAINTIES. OUR ACTUAL LIQUIDITY NEEDS, CAPITAL RECOURCES AND
OPERATING RESULTS MAY DIFFER MATERIALLY FROM THE DISCUSSION SET FORTH BELOW IN
THESE FORWARD-LOOKING STATEMENTS. FOR ADDITIONAL INFORMATION, REFER TO THE
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS
FILING.
OVERVIEW
Tetra Tech, Inc. is a leading provider of specialized management consulting
and technical services in three principal business areas: resource management,
infrastructure and communications. As a specialized management consultant, we
assist our clients in defining problems and developing innovative and
cost-effective solutions. Our management consulting services are complemented by
our technical services. These technical services, which implement solutions,
include research and development, applied science, engineering and architectural
design, construction management, and operations and maintenance. Our clients
include a diverse base of public and private organizations located in the United
States and internationally.
Since our initial public offering in December 1991, we have increased the
size and scope of our business and have expanded our service offerings through a
series of strategic acquisitions and internal growth.
We derive our gross revenues from fees from professional services. Our
services are billed under various types of contracts with our clients,
including:
- Fixed-price;
- Fixed-rate time and materials;
- Cost-reimbursement plus fixed fee; and
- Cost-reimbursement plus fixed and award fee.
In the course of providing our services, we routinely subcontract services.
These subcontractor costs are passed through to clients and, in accordance with
industry practice, are included in gross revenue. Because subcontractor
services can change significantly from project to project, we believe net
revenue, which is gross revenue less the cost of subcontractor services, is a
more appropriate measure of our performance.
Our cost of net revenue includes professional compensation and certain
direct and indirect overhead costs such as rents, utilities and travel.
Professional compensation represents the majority of these costs. Our selling,
general and administrative (SG&A) expenses are comprised primarily of our
corporate headquarters' costs related to the executive offices, corporate
accounting, information technology, marketing, and bid and proposal costs.
These
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costs are generally unrelated to specific client projects. In addition, we
include amortization of certain intangible assets resulting from acquisitions in
SG&A expenses.
We provide our 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 net revenue
attributable to these client sectors:
<TABLE>
<CAPTION>
Percentage of Net Revenue
--------------------------------------------
Three Months Ended Six Months Ended
--------------------- ---------------------
April 4, March 29, April 4, March 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CLIENT SECTOR
Federal government 41.9% 51.3% 41.7% 48.8%
State & local government 14.3 11.8 14.5 12.5
Commercial 39.4 34.7 39.0 36.4
International 4.4 2.2 4.8 2.3
</TABLE>
RECENT ACQUISITIONS
As a part of our growth strategy, we expect to pursue complementary
acquisitions to expand our geographical reach and the breadth and depth of our
service offerings. During the second quarter of fiscal 1999, we made the
following acquisition:
McCulley, Frick & Gilman, Inc. -- In February 1999, we acquired McCulley,
Frick & Gilman, Inc. (MFG). The purchase was valued at approximately $7.9
million. MFG, a Colorado-based consulting and engineering firm, provides
professional environmental science and consulting services to private-sector
clients throughout the United States.
<PAGE>
RESULTS OF OPERATIONS
The following table presents the percentage relationship of selected items
to net revenue in our condensed consolidated statements of income:
<TABLE>
<CAPTION>
% Relationship to Net Revenue
--------------------------------------------
Three Months Ended Six Months Ended
--------------------- ---------------------
April 4, March 29, April 4, March 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of net revenue 76.7 76.3 77.7 75.8
---------- ---------- ---------- ----------
Gross profit 23.3 23.7 22.3 24.2
Selling, general and
administrative expenses 11.1 11.3 10.5 11.4
---------- ---------- ---------- ----------
Income from operations 12.2 12.4 11.8 12.8
Net interest (expense) income (0.5) (0.9) (0.6) (0.5)
---------- ---------- ---------- ----------
Income before income taxes
and minority interest 11.7 11.5 11.2 12.3
Income to minority interest -- (0.3) -- (0.2)
---------- ---------- ---------- ----------
Income before income taxes 11.7 11.2 11.2 12.1
Income tax expense 5.0 4.9 4.8 5.3
---------- ---------- ---------- ----------
Net income 6.7% 6.3% 6.4% 6.8%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
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NET REVENUE. Net revenue increased $25.1 million, or 35.0%, to $97.0
million for the three months ended April 4, 1999 from $71.8 million for the
comparable period last year. For the six months ended April 4, 1999, net
revenue increased $60.7 million, or 48.4%, to $186.2 million from $125.4 million
for the comparable period last year. All sectors continued to show net revenue
increases in actual dollars. As a percentage of net revenue, decreases were
realized in the Federal government sector due to growth in the revenue from
private sector clients and revenue contributed by the fourth quarter fiscal 1998
acquisitions. These acquisitions provided increases in our revenue from state
and local governments and generated international revenue. For the three months
ended April 4, 1999, net revenue provided by companies acquired in the past year
totaled $14.8 million. Excluding this net revenue, we realized 14.5% growth in
our net revenue. For the six months ended April 4, 1999, net revenue provided
by companies acquired in the past year totaled $25.7 million. Excluding this
net revenue, we realized 28.0% growth in our net revenue. Gross revenue
increased $35.4 million, or 38.1%, to $128.1 million for the three months ended
April 4, 1999 from $92.7 million for the comparable period last year. For the
six months ended April 4, 1999, gross revenue increased $82.9 million, or 52.1%,
to $242.1 million from $159.2 million for the comparable period last year.
COST OF NET REVENUE. Cost of net revenue increased $19.6 million, or
35.8%, to $74.4 million for the three months ended April 4, 1999 from $54.8
million for the comparable period last year. As a percentage of net revenue,
cost of net revenue for the three months ended April 4, 1999 was 76.7% compared
to 76.3% for the comparable period last year. For the six months ended April 4,
1999, cost of net revenue increased $49.5 million, or 52.0%, to $144.6 million
from $95.1 million for the comparable period last year. As a percentage of net
revenue, cost of net revenue for the six months ended April 4, 1999 was 77.7%
compared to 75.8 % for the comparable period last year. These increases were
primarily due to the volume increases in cost-reimbursable type work in our
resource management business area.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $2.5
million, or 31.1%, to $10.7 million for the three months ended April 4, 1999
from $8.1 million for the comparable period last year. As a percent of net
revenue, SG&A expenses decreased to 11.1% for the three months ended April 4,
1999 from 11.3% for the comparable period last year. For the six months ended
April 4, 1999, SG&A expenses increased $5.3 million, or 36.8%, to $19.6 million
from $14.3 million for the comparable period last year. As a percentage of net
revenue, SG&A expenses decreased to 10.5% for the six months ended April 4, 1999
from 11.4% for the comparable period last year. Amortization expense relating
to acquisitions remained relatively flat at 1.1% of net revenue for both the
three months and six months ended April 4, 1999. As our net revenue has
increased, we have not commensurately increased our headquarters' costs.
Additionally, we have realized cost reductions by centralizing certain corporate
functions.
NET INTEREST EXPENSE. Net interest expense decreased 10.7% to less than
$0.6 million for the three months ended April 4, 1999. This decrease was
primarily attributable to the collection of receivables and the receipt of
approximately $22.2 million in net proceeds from our secondary offering of
common stock in February, 1999. For the six months ended April 4, 1999, net
interest expense increased $0.6 million, or 84.0%, to $1.2 million from $0.6
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million for the comparable period last year. This increase was primarily
attributable to borrowings on our line of credit to facilitate acquisitions.
INCOME TAX EXPENSE. Income tax expense increased $1.3 million, or 37.2%,
to $4.9 million for the three months ended April 4, 1999 from $3.6 million for
the comparable period last year. For the six months ended April 4, 1999, income
tax expense increased $2.3 million, or 35.2%, to $8.9 million from $6.6 million
for the comparable period last year. Our effective tax rate varies as we
acquire companies. Certain amortization expenses relating to acquisitions are
not tax deductible. Our current effective tax rate is 43.0% compared to 43.6%
in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of April 4, 1999, our working capital was $73.8 million, a decrease $3.2
million from October 4, 1998, of which cash and cash equivalents totaled $12.1
million. In addition, we have a credit agreement (the "Credit Agreement") with
a bank which provides for a revolving credit facility (the "Facility") of $65.0
million. Under our Credit Agreement, we may also request standby letters of
credit up to the aggregate sum of $20.0 million outstanding at any given time.
Our Credit Agreement provides for a mandatory reduction of $5.0 million on
December 15, 1999. Our Facility matures on December 15, 2000 or earlier at our
discretion upon payment in full of loans and other obligations. As of April 4,
1999, borrowings and standby letters of credit totaled $25.0 million and $1.4
million, respectively.
In the six months ended April 4, 1999, we generated $15.8 million from
operating activities compared to the usage of $7.0 million for the comparable
period last year. This increase was primarily attributable to our efforts to
increase our efficiency in the timing of our billings and the collection of our
receivables. In the six months ended April 4, 1999, cash used in investing
activities was $6.4 million compared to $26.7 million for the comparable period
last year. This decrease primarily was the result of fewer business
acquisitions. In the six months ended April 4, 1999, cash used in financing
activities was $2.2 million compared to cash generation of $27.9 million for the
comparable period last year. During the six months ended April 4, 1999, cash
generated from operating activities and the proceeds of our secondary offering
allowed us to reduce the outstanding borrowings on our Facility.
We expect that internally generated funds, our existing cash balances and
availability under the Credit Agreement will be sufficient to meet our capital
requirements through the end of fiscal 1999. However, we may seek to expand our
borrowing capabilities to accommodate acquisition opportunities.
We continuously evaluate the marketplace for strategic opportunities. Once
an opportunity is identified, we examine the effect an acquisition may have on
the business environment, as well as on our results of operations. We proceed
with an acquisition if we determine that the acquisition is anticipated to have
an accretive effect on future operations. However, as successful integration and
implementation are essential to achieve favorable results, no assurances can be
given that all acquisitions will provide accretive results. Our strategy is to
position ourselves to address existing and emerging markets. We view
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acquisitions as a key component of our growth strategy, and we intend to use
both cash and our securities, as we deem appropriate, to fund such acquisitions.
We believe our operations have not been and, in the foreseeable future, do
not expect to be materially adversely affected by inflation or changing prices.
MARKET RISKS
We currently utilize no material derivative financial instruments which
expose us to significant market risk. We are exposed to cash flow risk due to
interest rate fluctuations with respect to our long-term debt. At our option,
we borrow on our Facility (a) at a base rate (the greater of the federal funds
rate plus 0.50% or the bank's reference rate) or (b) at a eurodollar rate plus a
margin which ranges from 0.75% to 1.25%. Borrowings at the base rate have no
designated term and may be repaid without penalty anytime prior to the
Facility's maturity date. Borrowings at a eurodollar rate have a term no less
than 30 days and no greater than 90 days. Typically, at the end of such term,
such borrowings may be rolled over at our discretion upon payment in full of
loans and other obligations. Accordingly, we classify total outstanding debt
between current liabilities and long-term debt based on anticipated payments
within and beyond one year's period of time. We currently anticipate repaying
all of our $25.0 outstanding indebtedness under the Facility by the end of this
fiscal year. However there can be no assurance that we will, or will be able
to, repay our long-term debt in the manner described. We could incur additional
debt under the Facility or our operating results could be worse than currently
anticipated.
YEAR 2000
We are working to resolve the potential impact of the year 2000 (Y2K) on
our business operations and the ability of our computerized information systems
to accurately process information that may be date-sensitive. Any of our
programs that recognize a date using "00" as the year 1900 rather than the Y2K
could result in errors or system failures.
We utilize a number of computer programs across our entire operation. The
primary information technology (IT) systems we utilize are (1) the accounting
and financial systems which include general ledger, accounts payable, accounts
receivable, billing and collection, fixed assets, job cost accounting and
payroll, and (2) human resource information management systems. We do not
believe we have a material amount of non-IT systems upon which we rely.
We have established both a Y2K review committee and a Y2K action team. The
purpose of the review committee is to develop and communicate our Y2K plan to
achieve our Y2K compliance mission. The purpose of the action team is to
identify, remediate and implement plans to resolve Y2K related issues. Through
the review committee and the action team, we are in the process of completing
our full assessment of all issues relating to the Y2K. We have developed
questionnaires regarding Y2K readiness to be used internally and externally. We
have completed our internal assessment and are in the process of assessing the
Y2K issues of our clients and vendors. We rely on certain software vendors who
are the makers of Y2K compliance statements as they apply to our specific
software. Our references to the Y2K compliance status
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of these systems are republications of their statements. Based on the
information collected to date, we do not believe that the cost of addressing our
Y2K issues will have a material adverse impact on our financial position. We
plan to devote all resources required to resolve any significant Y2K issues in a
timely manner.
STATE OF READINESS
We began our risk assessment in 1995. Since that time we have procured and
implemented certain accounting and financial reporting systems as well as
contract administration and billing systems that have been certified as Y2K
compliant by our vendors. Currently, 11 of our 14 operating units are accounted
for, or 85.3% of our gross revenue is recognized on, these Y2K compliant
systems. We are in the process of converting an additional operating unit and
plan to either convert the two remaining units or upgrade them to a Y2K
compliant version of their existing applications. In all cases, we believe that
our financial and accounting systems will be Y2K compliant in a timely manner
and will not be materially impacted by Y2K.
We have installed a Y2K compliant human resource information management
system. We have converted six of our operating units to date. We are currently
in the process of converting our non-Y2K compliant units by July 1999 In all
cases, we believe that our human resource management information systems will be
Y2K compliant in a timely manner and will not be materially impacted by the Y2K.
We have expended or obligated approximately $2.6 million on the procurement
of these systems, the conversion of data from legacy systems to these systems,
and on the implementation and testing of these systems.
We have extensive business with the Federal government. Should the Federal
government, specifically the Department of Defense, experience significant
business interruptions relating to non-Y2K compliance, we could be materially
impacted. To the extent that other third parties upon which we rely, such as
banking institutions, clients and vendors, are unable to address their Y2K
issues in a timely manner, we could be materially impacted. We believe the
worst case scenario relating to Y2K would be an extensive period of time in
which the Federal government and other third parties could not process payments
promptly.
RISKS
We believe the risks associated with non-Y2K compliance include:
- our inability to invoice and process payments;
- our inability to produce accurate and timely financials;
- the impact on our cash flow and working capital needs;
- the impact on our profitability; and
- our potential liability to third parties for not meeting contracted
deliverables.
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CONTINGENCY PLANS
We currently do not have formal contingency plans for the failure of our
financial and accounting systems. We have substantial experience in the
conversion process from multiple legacy systems to our vendor certified Y2K
systems. We have an experienced and dedicated staff to perform the functions
identified and are reasonably confident that the projected conversions will be
accomplished as projected.
We currently do not have formal contingency plans for the failure of our
human resource information management system. Our implementation strategy has
been to install the system as simply as possible, with little customization.
Our vendor supports this implementation strategy and has agreed to a financial
penalty if the implementation is not achieved within three months. If conversion
is not achieved by August 1999, we believe there will still be sufficient time
to meet the Y2K deadline.
We maintain, as a matter of policy and practice, mitigation plans in the
event of systems failure, which include regular backup of historical
information.
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RISK FACTORS
SOME OF THE INFORMATION IN THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
YOU CAN IDENTIFY THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY,"
"WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE" and "CONTINUE" OR SIMILAR
WORDS. YOU SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY BECAUSE
THEY: (1) DISCUSS OUR FUTURE EXPECTATIONS; (2) CONTAIN PROJECTIONS OF OUR FUTURE
OPERATING RESULTS OR OF OUR FUTURE FINANCIAL CONDITION; OR (3) STATE OTHER
"FORWARD-LOOKING" INFORMATION. WE BELIEVE IT IS IMPORTANT TO COMMUNICATE OUR
EXPECTATIONS TO OUR INVESTORS. THERE MAY BE EVENTS IN THE FUTURE, HOWEVER, THAT
WE ARE NOT ACCURATELY ABLE TO PREDICT OR OVER WHICH WE HAVE NO CONTROL. THE
RISK FACTORS LISTED IN THIS SECTION, AS WELL AS ANY CAUTIONARY LANGUAGE IN THIS
QUARTERLY REPORT ON FORM 10-Q, PROVIDE EXAMPLES OF RISKS, UNCERTAINTIES AND
EVENTS THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTATIONS
DESCRIBED IN FORWARD-LOOKING STATEMENTS. THE OCCURRENCE OF ANY OF THE EVENTS
DESCRIBED IN THESE RISK FACTORS AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM
10-Q COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION
AND OPERATING RESULTS. UPON THE OCCURRENCE OF ANY OF THESE EVENTS, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE.
RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY
A significant part of our growth strategy is to acquire other companies
that complement our lines of business or that broaden our geographic presence.
During fiscal 1998, we purchased ten companies in five separate transactions.
During the six months ended April 4, 1999, we purchased one company. We expect
to continue to acquire companies as an element of our growth strategy.
Acquisitions involve certain risks that could cause our actual growth or
operating results to differ from our expectations or the expectations of
security analysts. For example:
- We may not be able to identify suitable acquisition candidates or to
acquire additional companies on favorable terms;
- We compete with others to acquire companies. Competition may increase
and may result in decreased availability or increased price for
suitable acquisition candidates;
- We may not be able to obtain the necessary financing, on favorable
terms or at all, to finance any potential acquisitions;
- We may ultimately fail to consummate an acquisition even if announced
that we plan to acquire a company;
- We may fail to successfully integrate or manage these acquired
companies due to differences in business backgrounds or corporate
cultures;
- These acquired companies may not perform as we expect;
- We may find it difficult to provide a consistent quality of service
across our geographically diverse operations; and
- If we fail to successfully integrate any acquired company, our
reputation could be damaged. This could make it more difficult to
market our services or to acquire additional companies in the future.
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In addition, our acquisition strategy may divert management's attention away
from our primary service offerings, result in the loss of key clients or
personnel and expose us to unanticipated liabilities.
Finally, acquired companies that derive a significant portion of their
revenues from the Federal government and that do not follow the same cost
accounting policies and billing procedures as we do may be subject to larger
cost disallowances for greater periods than we typically encounter. If we fail
to determine the existence of unallowable costs and establish appropriate
reserves in advance of an acquisition we may be exposed to material
unanticipated liabilities, which could have a material adverse effect on our
business.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
Our quarterly revenues, expenses and operating results may fluctuate
significantly because of a number of factors, including:
- The seasonality of the spending cycle of public sector clients,
notably the Federal government;
- Employee hiring and utilization rates;
- The number and significance of client engagements commenced and
completed during a quarter;
- Delays incurred in connection with an engagement;
- The ability of clients to terminate engagements without penalties;
- The size and scope of engagements;
- The timing and size of the return on investment capital; and
- General economic and political conditions.
Variations in any of these factors could cause significant fluctuations in our
operating results from quarter to quarter and could result in net losses.
POTENTIAL VOLATILITY OF OUR STOCK PRICE
The trading price of our Common Stock has fluctuated widely. In addition,
in recent years the stock market has experienced extreme price and volume
fluctuations. The overall market and the price of our Common Stock may continue
to fluctuate greatly. The trading price of our Common Stock may be significantly
affected by various factors, including:
- Quarter to quarter variations in our operating results;
- Changes in environmental legislation;
- Changes in investors' and analysts' perception of the business risks
and conditions of our business;
- Broader market fluctuations; and
- General economic or political conditions.
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MANAGEMENT OF GROWTH
We are growing rapidly. Our growth presents numerous managerial,
administrative, operational and other challenges. Our ability to manage the
growth of our operations will require us to continue to improve our operational,
financial and human resource management information systems and our other
internal systems and controls. In addition, our growth will increase our need to
attract, develop, motivate and retain both our management and professional
employees. The inability of our management to manage our growth effectively or
the inability of our employees to achieve anticipated performance or utilization
levels, could have a material adverse effect on our business.
RELIANCE ON KEY PERSONNEL AND QUALIFIED PROFESSIONALS
We depend upon the efforts and skills of our executive officers, senior
managers and consultants. With limited exceptions, we do not have employment
agreements with any of these individuals. The loss of the services of any of
these key personnel could adversely affect our business. Although we have
obtained non-compete agreements from certain principals and stockholders of
companies we have acquired, we generally do not have non-compete or employment
agreements with key employees who were not once equity shareholders of these
companies. We do not maintain key-man life insurance policies on any of our
executive officers or senior managers.
Our future growth and success depends on our ability to attract and retain
qualified scientists and engineers. The market for these professionals is
competitive and we may not be able to attract and retain such professionals.
DEPENDENCE UPON EXISTING LAWS AND REGULATIONS
A significant amount of our resource management business is generated
either directly or indirectly as a result of existing Federal and state
governmental laws, regulations and programs. Any changes in these laws or
regulations that reduce funding or affect the sponsorship of these programs
could reduce the demand for our services and could have a material adverse
effect on our business.
CONCENTRATION OF REVENUES
Agencies of the Federal government are among our most significant clients.
During the six months ended April 4, 1999, approximately 41.7% of our net
revenue was derived from federal agencies, of which 27.2% was derived from the
Department of Defense (DOD), 16.2% from the Environmental Protection Agency
(EPA), and 2.7% from the Department of Energy (DOE). Some contracts with
Federal government agencies require annual funding approval and may be
terminated at their discretion. A reduction in spending by Federal government
agencies could limit the continued funding of existing contracts with them and
could limit our ability to obtain additional contracts. These limitations, if
significant, could have a material adverse effect on our business.
Additionally, the failure of clients to pay significant amounts due us for
our services could adversely affect our business. For example, we recently
received notification from a Federal government agency that we are entitled to
payments in excess of our billings. However, the agency involved must obtain
specific funding approval for amounts owed to us and there can be no assurance
this funding approval will be obtained.
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RISKS ASSOCIATED WITH GOVERNMENTAL AUDITS
Contracts with the Federal government and other governmental agencies are
subject to audit. Most of these audits are conducted by the Defense Contract
Audit Agency (DCAA), which reviews our overhead rates, operating systems and
cost proposals. The DCAA may disallow costs if it determines that we accounted
for these costs incorrectly or in a manner inconsistent with Cost Accounting
Standards. A disallowance of costs by the DCAA, or other governmental auditors,
could have a material adverse effect on our business.
In September 1995, we acquired PRC Environmental Management, Inc. (EMI).
EMI also contracts with Federal government agencies and such contracts are also
subject to the same governmental audits. The DCAA has completed audits of EMI's
contracts for the fiscal years 1987 through 1996. As a result of these audits
and negotiations with the DCAA, the DCAA disallowed approximately $3.1 million
in costs.
CONTRACTS
We contract with Federal and state governments as well as with the private
sector. These contracts are often subject to termination at the discretion of
the client. Additionally, we enter into various types of contracts with our
clients, including fixed-price contracts. In the six months ended April 4, 1999,
approximately 31.4% of our net revenue was derived from fixed-price contracts.
Fixed-price contracts protect clients and expose us to a number of risks. These
risks include underestimation of costs, problems with new technologies,
unforeseen costs or difficulties, delays beyond our control and economic and
other changes that may occur during the contract period. Losses under
fixed-price contracts or termination of contracts at the discretion of the
client could have a material adverse effect on our business.
DEPENDENCE ON SUBCONTRACTORS
Under some of our contracts, we depend on the efforts and skills of
subcontractors for the performance of certain tasks. Reliance on subcontractors
varies from project to project. In the six months ended April 4, 1999,
subcontractor costs comprised 23.1% of our gross revenue. The absence of
qualified subcontractors with whom we have a satisfactory relationship could
adversely affect the quality of our service and our ability to perform under
some of our contracts.
SIGNIFICANT COMPETITION
We provide specialized management consulting and technical services to a
broad range of public and private sector clients. The market for our services
is highly competitive and we
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compete with many other firms. These firms range from small regional firms to
large national firms which may have greater financial and marketing resources
than ours.
We focus primarily on the resource management, infrastructure and
communications business areas. We provide services to our clients which include
Federal, state and local agencies, and organizations in the private sector.
We compete for projects and engagements with a number of competitors which
can vary from 10 to 100 firms. Historically, clients have chosen among competing
firms based on the quality and timeliness of the firm's service. We believe,
however, that price has become an increasingly important factor.
We believe that our principal competitors include, in alphabetical order,
Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser &
McKee; CH2M Hill Companies Ltd.; Dames & Moore Group; EA Engineering, Science &
Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc.; IT Group
Inc.; Mastec, Inc.; Montgomery Watson; OSP Consultants, Inc.; Roy F. Weston,
Inc.; and URS Greiner Corporation.
POTENTIAL LIABILITY AND INSURANCE
Our services involve significant risks of professional and other
liabilities which may substantially exceed the fees we derive from our services.
Our business activities could expose us to potential liability under various
environmental laws such as the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA). In addition, we sometimes
contractually assume liability under indemnification agreements. We cannot
predict the magnitude of such potential liabilities.
We currently maintain comprehensive general liability, umbrella and
professional liability insurance policies. We believe that our insurance
policies are adequate for our business operations. Professional liability
policies are "claims made" policies; thus, only claims made during the term of
the policy are covered. Should we terminate our professional liability policy
and not obtain retroactive coverage, we would be uninsured for claims made after
termination even if these claims are based on events or acts that occurred
during the term of the policy. Additionally, our insurance policies may not
protect us against potential liability due to various exclusions and retentions.
Should we expand into new markets, we may not be able to obtain insurance
coverage for such activities or, if insurance is obtained, the dollar amount of
any liabilities incurred could exceed our insurance coverage. Partially or
completely uninsured claims, if successful and of significant magnitude, could
have a material adverse affect on our business.
CONFLICTS OF INTEREST
Many of our clients are concerned about potential or actual conflicts of
interest in retaining management consultants. Federal government agencies have
formal policies against continuing or awarding contracts that would create
actual or potential conflicts of interest with other activities of a contractor.
These policies, among other things, may prevent us from bidding
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for or performing contracts resulting from or relating to certain work we have
performed for the government. In addition, services performed for a private
client may create a conflict of interest that precludes or limits our ability to
obtain work from other public or private organizations. We have, on occasion,
declined to bid on projects because of these conflicts of interest issues.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
In the six months ended April 4, 1999, approximately 4.8% of our net
revenue was derived from the international marketplace. Some contracts with our
international clients are denominated in foreign currencies. As such, these
contracts contain inherent risks including foreign currency exchange risk and
the risk associated with expatriating funds from foreign countries. If our
international revenue increases, our exposure to foreign currency fluctuations
will also increase. We have entered into forward exchange contracts to address
foreign currency fluctuations.
YEAR 2000
We are working to resolve the potential impact of the year 2000 (Y2K) on
its business operations and the ability of its computerized information systems
to accurately process information that may be date-sensitive. Any of its
programs that recognize a date using "00" as the year 1900 rather than the Y2K
could result in errors or system failures.
We utilize a number of computer programs across our entire operation. The
primary information technology systems we utilize are the accounting and
financial and human resource information management systems. We began our risk
assessment in 1995. Since that time we have procured and implemented certain
accounting and financial reporting systems as well as contract administration
and billing systems that have been certified as Y2K compliant by our vendors.
Currently, 11 of our 14 operating units are accounted for, or 85.3% of our gross
revenue is recognized on, these Y2K compliant systems. We are in the process of
converting an additional operating unit and plan to either convert the two
remaining units or upgrade them to a Y2K compliant version of their existing
applications. In all cases, we believe that our financial and accounting
systems will be Y2K compliant in a timely manner and will not be materially
impacted by Y2K.
We have extensive business with the Federal government. Should the Federal
government, especially the Department of Defense, experience significant
business interruptions relating to non-Y2K compliance, we could be materially
impacted. To the extent that other third parties upon which we rely, such as
banking institutions, clients and vendors, are unable to address their Y2K
issues in a timely manner, we could be materially impacted. We believe that
the worst case scenario relating to Y2K would be an extensive period of time in
which the Federal government and other third parties could not process payments
promptly, in addition to the Company's financial institutions not being able to
supply the Company with its working capital needs.
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Additional risks associated with non-Y2K compliance include:
- our inability to invoice and process payments;
- our inability to produce accurate and timely financials;
- the impact on our cash flow and working capital needs;
- the impact on our profitability; and
- our potential liability to third parties for not meeting contracted
deliverables.
IMPACT OF ANTI-TAKEOVER PROVISIONS ON OUR STOCK PRICE
Our certificate of incorporation and by-laws and the Delaware General
Corporation Law include provisions that may be deemed to have anti-takeover
effects. These anti-takeover effects could delay or prevent a takeover attempt
that our stockholders might consider in their best interests.
In addition, our board of directors is authorized to issue, without
obtaining stockholder approval, up to 2.0 million shares of preferred stock and
to determine the price, rights, preferences and privileges of such shares
without any further stockholder action. The existence of this "blank-check"
preferred stock could make more difficult or discourage an attempt to obtain
control of us by means of a tender offer, merger, proxy contest or otherwise.
In the future, we may adopt other measures that may have the effect of
delaying, deferring or preventing an unsolicited takeover, even if such a change
in control were at a premium price or favored by a majority of unaffiliated
stockholders. Certain of these measures may be adopted without any further vote
or action by the stockholders.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On February 26, 1999, we acquired 100.0% of the capital stock of McCulley,
Frick & Gilman, Inc., a Texas corporation (MFG), through stock purchases from
the former shareholders of MFG (the "Stock Purchase"). In connection with the
Stock Purchase, we issued an aggregate of 185,192 shares of our common stock,
$.01 par value ("Common Stock"), to the former shareholders of MFG. For
purposes of the Stock Purchase, each share of Common Stock was valued at $22.95.
The issuances of Common Stock were made by 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 17, 1999, we held our annual meeting of stockholders for the
sole purpose of re-electing the following five directors to our Board of
Directors: Li-San Hwang, Daniel A. Whalen, J. Christopher Lewis, Patrick C.
Haden and James J. Shelton. The votes cast in the election were as follows:
<TABLE>
<CAPTION>
BROKER
DIRECTOR FOR WITHHOLD AUTHORITY ABSTENTIONS NON-VOTES
- -------- ---------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Li-San Hwang 25,065,507 202,647 0 0
Daniel A. Whalen 24,925,742 342,412 0 0
J. Christopher Lewis 25,066,169 201,985 0 0
Patrick C. Haden 25,027,163 240,991 0 0
James J. Shelton 25,064,415 203,739 0 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 1, 1995).
3.2 Bylaws of the Company as amended to date (incorporated herein
by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1, No. 33-43723).
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3.3 Certificate of Amendment of Certificate of Incorporation of
the Company (incorporated herein by reference to Exhibit 3.4
to the Company's Annual Report on Form 10-K for the fiscal
year ended October 4, 1998).
10.1 Credit Agreement dated as of September 15, 1995 between the
Company and Bank of America Illinois, as amended by the First
Amendment to Credit Agreement dated as of November 27, 1995
(incorporated herein by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 1, 1995).
10.2 Second Amendment dated as of June 20, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company
and Bank of America Illinois (incorporated herein by
reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 29, 1997).
10.3 Third Amendment dated as of December 15, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company
and Bank of America National Trust and Savings Association
(incorporated herein by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 28, 1997).
10.4 Fourth Amendment dated as of January 30, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company
and Bank of America National Trust and Savings Association
(incorporated herein by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 28, 1997).
10.5 Fifth Amendment dated as of July 6, 1998 to the Credit
Agreement dated as of September 15, 1995 between the Company
and Bank of America National Trust and Savings Association
(incorporated herein by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended).
10.6 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).
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<PAGE>
<PAGE>
10.7 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).
10.8 Guaranty dated as of September 15, 1995, executed by the
Company in favor of Bank of America Illinois (incorporated
herein by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 1,
1995).
10.9 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).
10.10 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).
10.11 Executive Medical Reimbursement Plan (incorporated herein by
reference to Exhibit 10.16 to the Company's Registration
Statement on Form S-1, No. 33-43723).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
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<PAGE>
<PAGE>
10.16 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).
10.17 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).
10.18 Employment Agreement dated as of June 11, 1997 between the
Company and Daniel A. Whalen (incorporated herein by
reference to Exhibit 10.16 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 29, 1997).
10.19 Registration Rights Agreement dated as of June 11, 1997 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.17 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 29, 1997).
10.20 Registration Rights Agreement dated as of July 11, 1997 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.18 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 28, 1997).
10.21 Registration Rights Agreement dated as of March 26, 1998
among the Company and the parties listed on Schedule A
attached thereto (incorporated herein by reference to Exhibit
10.20 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 29, 1998).
10.22 Registration Rights Agreement dated as of July 9, 1998 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.22 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 28, 1998).
10.23 Registration Rights Agreement dated as of September 22, 1998
among the Company and the parties listed on Schedule A
attached thereto (incorporated herein by reference to Exhibit
10.23 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 4, 1998).
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<PAGE>
<PAGE>
10.24 Registration Rights Agreement dated as of February 26, 1999
among the Company and the parties listed on Schedule A
attached hereto.
11 Computation of Net Income Per Common Share.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None
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<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Dated: May 19, 1999 TETRA TECH, INC.
By: /s/ Li-San Hwang
-------------------------------------------
Li-San Hwang
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ James M. Jaska
-------------------------------------------
James M. Jaska
Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
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<PAGE>
<PAGE>
<PAGE>
Exhibit 10.24
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as of
February 26, 1999 by and among Tetra Tech, Inc., a Delaware corporation ("Tetra
Tech"), and the parties listed on SCHEDULE A attached hereto (each, a "Holder"
and collectively, the "Holders").
R E C I T A L S
A. Tetra Tech and the Holders are parties to an Agreement and Plan of
Reorganization of even date (the "Reorganization Agreement"), pursuant to which
McCulley, Frick & Gilman, Inc., a Texas corporation ("MFG"), will merge into MFG
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
Tetra Tech.
B. Pursuant to the Reorganization Agreement, the shareholders of MFG will
receive shares of the common stock, $.01 par value, of Tetra Tech ("Tetra Tech
Common Stock"); and
C. This Agreement is the Registration Rights Agreement referred to in
SECTION 6.2 of the Reorganization Agreement and, pursuant thereto, must be
entered into by the parties in connection with the consummation of the
transactions contemplated by the Reorganization Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"FORM S-3" shall mean such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by Tetra Tech with
the SEC.
"PROSPECTUS" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such Prospectus.
"REGISTER", "REGISTERED" and "REGISTRATION" shall mean and refer to a
registration effected by preparing and filing a Registration Statement and
taking all other actions that are necessary or appropriate in connection
therewith, and the declaration or ordering of effectiveness of such Registration
Statement by the SEC.
"REGISTRATION EXPENSES" shall have the meaning set forth in SECTION 4.
"REGISTRABLE SECURITIES" shall mean the shares of Tetra Tech Common
Stock (i) issued pursuant to the Reorganization Agreement, and (ii) issued as a
dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in (i) above; PROVIDED, HOWEVER, that
Registrable Securities shall not include any shares of Tetra Tech Common Stock
that have previously been registered or sold to the public or have been sold
pursuant to Rule 144 (or similar successor Rule).
"REGISTRATION STATEMENT" shall mean any registration statement of
Tetra Tech in compliance with the Securities Act that covers Registrable
Securities pursuant to the provisions of this Agreement, including, without
limitation, the Prospectus, all amendments and supplements to such Registration
Statement, including all post-effective amendments, all exhibits and all
material incorporated by reference in such Registration Statement.
"RULE 144" shall mean Rule 144 promulgated under the Securities Act or
any similar successor rule, as the same shall be in effect from time to time.
"RULE 144A" shall mean Rule 144A promulgated under the Securities Act
or any similar successor rule, as the same shall be in effect from time to time.
"RULE 415" shall mean Rule 415 promulgated under the Securities Act,
or any similar successor rule, as the same shall be in effect from time to time.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended
from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"UNDERWRITTEN OFFERING" shall mean a registration in which securities
of Tetra Tech are sold to an underwriter or through an underwriter as agent for
reoffering to the public.
2. REGISTRATION.
(a) Tetra Tech shall file a Registration Statement on Form S-3,
providing for the sale by the Holders, pursuant to Rule 415, and/or any similar
rule that may be adopted by the SEC, of the Registrable Securities. Tetra Tech
shall use commercially reasonable efforts to cause such Registration Statement
to become effective on or before August 26, 1999, and to keep such Registration
Statement continuously effective for a period ending on the date on such all
Holders are eligible to sell Registrable Securities under Rule 144 (or similar
successor rule) without any volume limitation. If, at the time Tetra Tech is
required to file a Registration Statement pursuant to this SECTION 2(a), Tetra
Tech is not eligible to file a Registration Statement on Form S-3 to register
resales by stockholders, Tetra Tech shall initially file a Registration
Statement on Form S-1 and shall comply with the provisions of the immediately
preceding sentence. Upon becoming eligible to use the Registration Statement on
Form S-3 to register resales by stockholders (whether pursuant to a ruling or
waiver from the SEC or otherwise), Tetra Tech shall promptly file a Registration
Statement on Form S-3 or convert the existing Registration Statement to Form S-3
relating to the offer and sale of Registrable Securities by the Holders from
time to time. Thereafter, Tetra Tech shall use commercially reasonable efforts
to cause such new or amended Registration Statement to be declared effective by
the SEC as promptly as practicable.
(b) No Holder shall have the right to register securities under this
Agreement unless such Holder provides and/or confirms in writing prior to or
after the filing of the Registration Statement such information (including,
without limitation, information as to the number of Registrable Securities that
such Holder has sold pursuant to any such Registration Statement from time to
time) as Tetra Tech reasonably requests in connection with such Registration
Statement.
(c) Notwithstanding the foregoing, for a period not to exceed 90
days, Tetra Tech shall not be obligated to prepare and file the Registration
Statement required hereunder if Tetra Tech, in its good faith judgment,
reasonably believes that the filing of such Registration Statement would require
the disclosure of material non-public information regarding Tetra Tech and,
accordingly, that the filing thereof, at the time requested, or the offering of
Tetra Tech Common Stock pursuant thereto, would materially and adversely affect
(i) a pending or scheduled public offering or private placement of securities of
Tetra Tech, (ii) an acquisition, merger, consolidation or similar transaction by
or of Tetra Tech, (iii) preexisting and continuing negotiations, discussions or
pending proposals with respect to any of the foregoing transactions, or (iv) the
financial condition of Tetra Tech in view of the disclosure of any pending or
threatened litigation, claim, assessment or governmental investigation which
might be required thereby.
In the event that Tetra Tech, in good faith, reasonably believes that such
conditions are continuing after such 90-day period, it may, with the consent of
the Holders of a majority of the Registrable Securities subject (or to be
subject) to the Registration Statement, which consent shall not be unreasonably
withheld, extend such 90-day period for an additional 30 days. Any further
delay shall require the consent of the Holders of all such shares.
3. REGISTRATION PROCEDURES. In connection with Tetra Tech's registration
obligations pursuant to SECTION 2 hereof, Tetra Tech will use commercially
reasonable efforts to effect such registration to permit the sale of the
Registrable Securities covered thereby in accordance with the intended method or
methods of disposition thereof, and pursuant thereto Tetra Tech will as
expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement with
respect to such Registrable Securities and use its commercially reasonable
efforts to cause such Registration Statement to become effective; PROVIDED that,
before filing any Registration Statement or Prospectus or any amendments or
supplements thereto, Tetra Tech will furnish to the Holders of the Registrable
Securities covered by such Registration Statement and their counsel, copies of
all such documents proposed to be filed at least ten days prior thereto, and
Tetra Tech will not file any such Registration Statement or amendment thereto or
any Prospectus or any supplement thereto to which any such Holder shall
reasonably object within such ten day period; PROVIDED, FURTHER, that Tetra Tech
will not name or otherwise provide any information with respect to any Holder in
any Registration Statement or Prospectus without the express written consent of
such Holder, unless required to do so by the Securities Act and the rules and
regulations thereunder;
(b) prepare and file with the SEC such amendments, post-effective
amendments and supplements to the Registration Statement and the Prospectus as
may be necessary to comply with the provisions of the Securities Act and the
rules and regulations thereunder with respect to the disposition of all
securities covered by such Registration Statement;
(c) notify the selling Holders (i) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by Tetra Tech of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose and (v) of the happening of any event which makes any statement
made in the Registration Statement, the Prospectus or any document incorporated
therein by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading in light of the
circumstances then existing;
(d) make every commercially reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment;
(e) deliver to each selling Holder, without charge, such reasonable
number of conformed copies of the Registration Statement (and any post-effective
amendment thereto) and such number of copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto (and any
documents incorporated by reference therein) as such Holder may reasonably
request. Tetra Tech consents to the use of the Prospectus or any amendment or
supplement thereto by each of the selling Holders in connection with the offer
and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(f) prior to any offering of Registrable Securities covered by a
Registration Statement, register or qualify or cooperate with the selling
Holders in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any such selling Holder reasonably requests, and use
commercially reasonable efforts to keep each such registration or qualification
effective, including through new filings, or amendments or renewals, during the
period such Registration Statement is required to be kept effective pursuant to
the terms of this Agreement; and do any and all other acts or things necessary
or advisable to enable the disposition in all such jurisdictions reasonably
requested by the Holders of the Registrable Securities covered by such
Registration Statement, PROVIDED that under no circumstances shall Tetra Tech be
required in connection therewith or as a condition thereof to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions;
(g) cooperate with the selling Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, free of any and all restrictive legends, such certificates to be in
such denominations and registered in such names as the Holders may request;
(h) upon the occurrence of any event contemplated by SECTION 3(c)(v)
above, prepare a supplement or post-effective amendment to the Registration
Statement or the Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading;
(i) make generally available to the holders of Tetra Tech's
outstanding securities earnings statements satisfying the provisions of
Section 11(a) of the Securities Act, no later than 60 days after the end of any
12 month period (or 90 days, if such period is a fiscal year) beginning with the
first month of Tetra Tech's first fiscal quarter commencing after the effective
date of the Registration Statement, which statements shall cover said 12 month
period;
(j) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by each Registration Statement from and
after a date not later than the effective date of such Registration Statement;
(k) use its best efforts to cause all Registrable Securities covered
by each Registration Statement to be listed, subject to notice of issuance,
prior to the date of the first sale of such Registrable Securities pursuant to
such Registration Statement, on each securities exchange on which the Tetra Tech
Common Stock is then listed, and admitted to trading on the Nasdaq Stock Market,
if the Tetra Tech Common Stock is then admitted to trading on the Nasdaq Stock
Market; and
(l) enter into such agreements 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.
Each Holder agrees that, upon receipt of any notice from Tetra Tech of the
happening of any event of the kind described in SECTION 3(c)(v) hereof, such
Holder will forthwith discontinue disposition of Registrable Securities under
the Prospectus related to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by SECTION 3(h) hereof, or until it is advised in writing by Tetra
Tech that the use of the Prospectus may be resumed.
It shall be a condition precedent to the obligations of Tetra Tech to take
any action pursuant to this SECTION 3 with respect to the Registrable Securities
of any selling Holder that such Holder shall furnish to Tetra Tech such
information regarding itself and the Registrable Securities held by it as shall
be required by the Securities Act to effect the registration of such Holder's
Registrable Securities.
4. REGISTRATION EXPENSES. All expenses incident to any registration to
be effected hereunder and incident to Tetra Tech's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, National Association of Securities
Dealers, Inc., stock exchange and qualification fees, fees and disbursements of
Tetra Tech's counsel and of independent certified public accountants of Tetra
Tech (including the expenses of any special audit required by or incident to
such performance), the fees and disbursements of one counsel and one accountant
representing the Holders in such offering, expenses of the underwriters that are
customarily requested in similar circumstances by such underwriters (excluding
discounts, commissions or fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals relating to the distribution of the
Registrable Securities, which will be borne by the Holders), all such expenses
being herein called "Registration Expenses," will be borne by Tetra Tech. Tetra
Tech will also pay its internal expenses, the expense of any annual audit and
the fees and expenses of any person retained by Tetra Tech.
5. INDEMNIFICATION.
(a) INDEMNIFICATION BY TETRA TECH. Tetra Tech agrees to indemnify
and hold harmless each Holder of Registrable Securities, its officers,
directors, partners and employees and each person who controls such Holder
(within the meaning of Section 15 of the Securities Act) from and against any
and all losses, claims, damages and liabilities (including any investigation,
legal or other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted)
(collectively, "Damages") to which such Holder may become subject under the
Securities Act, the Exchange Act or other federal or state securities law or
regulation, at common law or otherwise, insofar as such Damages arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, Prospectus or preliminary
prospectus or any amendment or supplement thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading and (iii) any violation or alleged
violation by Tetra Tech of the Securities Act, the Exchange Act or any state
securities or blue sky laws in connection with the Registration Statement,
Prospectus or preliminary prospectus or any amendment or supplement thereto,
provided that Tetra Tech will not be liable to any Holder to the extent that
such Damages arise from or are based upon any untrue statement or omission
(x) based upon written information furnished to Tetra Tech by such Holder
expressly for the inclusion in such Registration Statement, (y) made in any
preliminary prospectus if such Holder failed to deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale by such Holder
to the party asserting the claim underlying such Damages and such Prospectus
would have corrected such untrue statement or omission and (z) made in any
Prospectus if such untrue statement or omission was corrected in an amendment or
supplement to such Prospectus and such Holder failed to deliver such amendment
or supplement prior to or concurrently with the sale of Registrable Securities
to the party asserting the claim underlying such Damages.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. Each Holder
of Registrable Securities whose Registrable Securities are sold under a
Prospectus which is a part of a Registration Statement agrees to indemnify and
hold harmless Tetra Tech, its directors and each officer who signed such
Registration Statement and each person who controls Tetra Tech (within the
meaning of Section 15 of the Securities Act), and each other Holder of
Registrable Securities whose Registrable Securities are sold under the
Prospectus which is a part of such Registration Statement (and such Holder's
officers, directors and employees and each person who controls such Holder
within the meaning of Section 15 of the Securities Act), under the same
circumstances as the foregoing indemnity from Tetra Tech to each Holder of
Registrable Securities to the extent that such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement of a
material fact or omission of a material fact that was made in the Prospectus,
the Registration Statement, or any amendment or supplement thereto, in reliance
upon and in conformity with information relating to such Holder furnished in
writing to Tetra Tech by such Holder expressly for use therein, PROVIDED that in
no event shall the aggregate liability of any selling Holder of Registrable
Securities exceed the amount of the net proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation. Tetra Tech and the selling Holders shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as customarily furnished by such persons in similar circumstances.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; PROVIDED, HOWEVER, that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person and not of the
indemnifying party unless (A) the indemnifying party has agreed to pay such fees
or expenses, (B) the indemnifying party shall have failed to assume the defense
of such claim and employ counsel reasonably satisfactory to such person or
(C) in the reasonable judgment of such person and the indemnifying party, based
upon advice of their respective counsel, a conflict of interest may exist
between such person and the indemnifying party with respect to such claims (in
which case, if the person notifies the indemnifying party in writing that such
person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person). If such 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 5(c), the terms
"indemnifying party", "indemnified party" and other terms of similar import are
intended to include only Tetra Tech (and its officers, directors and control
persons as set forth above) on the one hand, and the Holders (and their
officers, directors, partners, employees, attorneys and control persons as set
forth above) on the other hand, as applicable.
(d) CONTRIBUTION. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the untrue statement or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by such indemnifying party
or by such indemnified party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The parties acknowledge and agree that it would not be just and
equitable if contribution pursuant to this SECTION 5(d) were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in this SECTION 5(d).
Notwithstanding the foregoing, no Holder shall be required to contribute any
amount in excess of the amount such Holder would have been required to pay to an
indemnified party if the indemnity under SECTION 5(b) hereof was available. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The obligation
of any person to contribute pursuant to this SECTION 5(d) shall be several and
not joint.
(e) TIMING OF PAYMENTS. An indemnifying party shall make payments of
all amounts required to be made pursuant to the foregoing provisions of this
SECTION 5 to or for the account of the indemnified party from time to time
promptly upon receipt of bills or invoices relating thereto or when otherwise
due or payable.
(f) SURVIVAL. The indemnity and contribution agreements contained in
this SECTION 5 shall remain in full force and effect, regardless of any
investigation made by or on behalf of Tetra Tech, a participating Holder, its
officers, directors, partners, attorneys, agents or any person, if any, who
controls Tetra Tech or such Holder as aforesaid, and shall survive the transfer
of such Registrable Securities by such Holder.
6. PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of a Registration Statement pursuant to the terms of this
Agreement:
(a) Tetra Tech shall, with respect to a Registration Statement filed
pursuant to SECTION 2, give the Holders of such Registrable Securities so
registered, their underwriters, if any, and their respective counsel and
accountants the opportunity to participate in the preparation of such
Registration Statement (other than reports and proxy statements incorporated
therein by reference and properly filed with the SEC) and each Prospectus
included therein or filed with the SEC, and each amendment thereof or supplement
thereto; and
(b) Tetra Tech shall give the Holders of such Registrable Securities
so registered, their underwriters, if any, and their respective counsel and
accountants such reasonable access to its books and records and such
opportunities to discuss the business of Tetra Tech with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such Holders or such underwriters, to
conduct a reasonable investigation within the meaning of Section 11(b)(3) of the
Securities Act.
7. RULE 144. Tetra Tech covenants that it will use commercially
reasonable efforts to file, on a timely basis, the reports required to be filed
by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and it will take such further action
as any Holder may reasonably request (including, without limitation, compliance
with the current public information requirements of Rule 144(c) and Rule 144A),
all to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the conditions provided by Rule 144, Rule 144A or any similar rule
or regulation hereafter adopted by the SEC. Upon the request of any Holder,
Tetra Tech will promptly deliver to such Holder a written statement verifying
that it has complied with such information and requirements.
8. SPECIFIC PERFORMANCE. Each Holder, in addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. Tetra Tech agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
9. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by United States first-class
mail, postage prepaid, sent by facsimile or delivered personally by hand or
nationally recognized courier addressed (a) if to a Holder, as indicated on the
list of Holders attached hereto as SCHEDULE A, or at such other address as such
Holder or permitted assignee shall have furnished to Tetra Tech in writing, with
a copy to Steven A. Werner, c/o McCulley, Frick & Gilman, Inc., 4900 Pearl East
Circle, Suite 300W, Boulder, Colorado 80301 or (b) if to Tetra Tech, at such
address or facsimile number as Tetra Tech shall have furnished to each Holder in
writing. All such notices and other written communications shall be effective
on the date of mailing, facsimile transfer or delivery.
10. SUCCESSORS AND ASSIGNS: ASSIGNMENT OF RIGHTS. The rights and benefits
of a Holder hereunder may not be assigned to a transferee or assignee without
the consent of Tetra Tech; PRIVIDED, HOWEVER, that, no later than the 10th day
prior to the filing of the Registration Statement under SECTION 2 hereof, the
rights and benefits of a Holder hereunder may be transferred in connection with
a transfer or assignment of any Registrable Securities held by such Holder
(i) by gift to immediate family members of such Holder, or trusts or other
entities for the sole benefit thereof, or (ii) by gift to any entity in which
such Holder, his or her immediate family members, or trusts or other entities
for the sole benefit thereof beneficially own all of the voting securities;
PROVIDED, HOWEVER, that in each case, the transferee executes an instrument
pursuant to which the transferee agrees to be bound by the terms and conditions
hereof as a Holder, and such other documents as Tetra Tech or its counsel may
reasonably require, after which, such transferee shall be deemed a "Holder"
hereunder. Any transfer of Registrable Securities, and rights hereunder, shall
be subject to compliance with applicable securities laws and the restrictions
contained in the Investment Letter executed by each Holder pursuant to the
Reorganization Agreement.
11. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
12. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement, the
Reorganization Agreement and the other agreements contemplated thereby
constitute the full and entire understanding and agreement among the parties
with regard to the subjects hereof and thereof. Without limiting the foregoing,
the rights of the Holders to registration pursuant to the terms of this
Agreement shall be subject to the limitations on resale contained in the
Investment Letter (as defined in the Reorganization Agreement). Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated,
except by a written instrument signed by Tetra Tech and the holders of at least
51% of the Registrable Securities and any such amendment, waiver, discharge or
termination shall be binding upon all the parties hereto, but in no event shall
the obligation of any party hereto be materially increased, except upon the
written consent of such party.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be original, and all of which together shall
constitute one instrument.
14. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware without giving effect to
principles of conflicts of laws thereof.
15. NO THIRD PARTY BENEFICIARIES. The covenants and agreements set forth
herein are for the sole and exclusive benefit of the parties hereto and their
respective successors and assigns and such covenants and agreements shall not be
construed as conferring, and are not intended to confer, any rights or benefits
upon any other persons.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TETRA TECH, INC.
By: /s/ Li-San Hwang
---------------------------------
Li-San Hwang
Chairman, Chief Executive Officer
and President
/s/ Zenas F. Bliss
-------------------------
Zenas F. Bliss
/s/ Antonio J. Chavez
-------------------------
Antonio J. Chavez
/s/ Bence V. Close
-------------------------
Bence V. Close
/s/ Edward P. Conti
-------------------------
Edward P. Conti
/s/ Douglas R. Frick
-------------------------
Douglas R. Frick
<PAGE>
<PAGE>
/s/ Jeffrey A. Gilman
-------------------------
Jeffrey A. Gilman
/s/ Craig A. Hamilton
-------------------------
Craig A. Hamilton
/s/ Brian G. Hansen
-------------------------
Brian G. Hansen
/s/ Eric B. Hansen
-------------------------
Eric B. Hansen
/s/ Bryan L. McCulley
-------------------------
Bryan L. McCulley
/s/ Eric F. Pastor
-------------------------
Eric F. Pastor
/s/ Kenneth J. Richmond
-------------------------
Kenneth J. Richmond
/s/ Richard G. Steffel
-------------------------
Richard G. Steffel
/s/ Steven A. Werner
-------------------------
Steven A. Werner
/s/ Kirk D. Winges
-------------------------
Kirk D. Winges
<PAGE>
<PAGE>
SCHEDULE A
----------
SCHEDULE OF HOLDERS
<TABLE>
<CAPTION>
Number of Shares of Tetra Tech
Commons Stock Issued Pursuant
Holder's Name/Address/Facsimile No. To the Reorganization Agreement
------------------------------------- -------------------------------------
<S> <C>
Zenas F. Bliss 1,658 shares
7 Meadow Brook Road
Dover, MA 02030
Antonio J. Chavez 1,658 shares
2736 White Pines Drive
Coeur d'Alene, ID 83814
Bence V. Close 3,315 shares
366 Hunters Ridge Drive
Longmont, CO 80504
Edward P. Conti 3,315 shares
50 Lakeside Drive
Corte Madera, CA 94925
Douglas R. Frick 31,071 shares
7125 44th Avenue, SW
Seattle, WA 93136
Jeffrey A. Gilman 41,428 shares
753 Old Jonas Hill Road
Lafayette, CA 94549
Craig A. Hamilton 1,658 shares
2981 Goloen Eagle Circle
Lafayette, CO 80026
Brian G. Hansen 3,315 shares
9485 Old Mill Trail
Missoula, MT 59802
Eric B. Hansen 1,658 shares
5133 Bercot Road
Freeland, WA 98249
<PAGE>
<PAGE>
Bryan L. McCulley 41,428 shares
3817 Silver Plume Circle
Boulder, CO 80303
Eric F. Pastor 8,286 shares
1508 Hardouin Avenue
Austin, TX 78703
Kenneth J. Richmond 1,658 shares
13601 Kenwanda Drive
Snohomish, WA 98290
Richard G. Steffel 1,658 shares
7545 Jones Avenue NW
Seattle, WA 98117
Steven A. Werner 41,428 shares
217 Sentinal Rock Lane
Boulder, CO 80302
Kirk D. Winges 1,658 shares
18031 NE 99th Court
Redmond, WA 98052
</TABLE>
<PAGE>
<PAGE>
<PAGE>
Exhibit 11
Tetra Tech, Inc.
Computation of Net Income Per Common Share
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -------------------------
April 4, March 29, April 4, March 29,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic:
Common stock outstanding,
beginning of period 28,684,117 27,840,926 26,630,600 25,892,818
Stock options exercised 83,226 131,266 136,590 154,943
Stock purchase plan issuance -- -- 153 --
Issuance of common stock 1,295,185 77,008 1,295,185 2,001,757
Payment of fractional shares -- -- -- (318)
------------ ------------ ------------ ------------
Common stock outstanding,
end of period 30,062,528 28,049,200 30,062,528 28,049,200
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common
stock outstanding
during the period 29,435,000 27,905,000 29,045,000 27,561,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income as reported in
condensed consolidated
financial statements $ 6,462,000 $ 4,521,000 $11,889,000 $ 8,571,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic Earnings Per Share $ 0.22 $ 0.16 $ 0.41 $ 0.31
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted:
Weighted average common
stock outstanding
during the period 29,435,000 27,905,000 29,045,000 27,561,000
Potential common shares
under the treasury
stock method assuming
the exercise of options
and warrants and the
conversion of preferred
stock and exchangeable
stock of a subsidiary 1,976,000 1,051,000 2,016,000 1,334,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total 31,411,000 28,956,000 31,061,000 28,895,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income as reported in
condensed consolidated
financial statements $ 6,462,000 $ 4,521,000 $11,889,000 $ 8,571,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted Earnings Per Share $ 0.21 $ 0.16 $ 0.38 $ 0.30
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-03-1999
<PERIOD-END> APR-04-1999
<CASH> 12,072
<SECURITIES> 0
<RECEIVABLES> 133,982
<ALLOWANCES> 12,212
<INVENTORY> 0
<CURRENT-ASSETS> 142,743
<PP&E> 29,963
<DEPRECIATION> 15,641
<TOTAL-ASSETS> 274,782
<CURRENT-LIABILITIES> 68,959
<BONDS> 0
0
0
<COMMON> 301
<OTHER-SE> 205,207
<TOTAL-LIABILITY-AND-EQUITY> 274,782
<SALES> 128,083
<TOTAL-REVENUES> 128,083
<CGS> 105,530
<TOTAL-COSTS> 105,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 656
<INCOME-PRETAX> 11,337
<INCOME-TAX> 4,875
<INCOME-CONTINUING> 6,462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,462
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
<PAGE>
</TABLE>
