<PAGE>
EXHIBIT 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------------
Oct. 1,(1) Oct. 3,(2) Oct. 4, Sept. 28, Sept. 29,
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Gross revenue.......................... $ 794,578 $ 566,490 $ 382,934 $ 246,767 $ 220,099
Net revenue............................ 598,121 432,080 297,597 190,791 161,037
Income from operations................. 74,245 55,424 39,813 24,599 17,735
Net income............................. 40,442 29,115 20,586 14,256 10,105
Basic earnings per share............... 1.04 0.78 0.59 0.49 0.37
Diluted earnings per share ............ 0.97 0.74 0.56 0.46 0.36
Weighted average common shares
outstanding:
Basic............................. 39,003 37,159 34,962 29,214 27,314
Diluted........................... 41,602 39,550 36,488 30,820 28,226
Net cash flow from operating
activities(3)...................... (12,188) 30,258 (6,620) 1,144 21,124
Working capital........................ 154,341 86,313 77,049 42,539 32,739
Total assets........................... 526,038 380,478 266,610 159,513 88,463
Long-term obligations, excluding
current portion..................... 85,532 37,289 33,546 -- --
Stockholders' equity................... 297,907 234,432 167,781 107,641 63,269
</TABLE>
(1) REVENUE AND INCOME FROM OPERATIONS WERE UPWARDLY IMPACTED BY A
REVERSAL OF RESERVES IN THE AMOUNT OF $2.00 MILLION, OR $1.16 MILLION
ON AN AFTER TAX BASIS.
(2) REVENUE AND INCOME FROM OPERATIONS WERE UPWARDLY IMPACTED BY A
REVERSAL OF RESERVES IN THE AMOUNT OF $1.75 MILLION, OR $0.98 MILLION
ON AN AFTER TAX BASIS.
(3) NET CASH FROM OPERATING ACTIVITIES WAS REDUCED BY $10.7 MILLION, $9.3
MILLION, $10.3 MILLION AND $15.6 MILLION FOR THE YEARS ENDED OCTOBER 1,
2000, OCTOBER 3, 1999, OCTOBER 4, 1998 AND SEPTEMBER 28, 1997,
RESPECTIVELY, AS A RESULT OF OUR ASSIGNMENT OF ACCOUNTS RECEIVABLE TO THE
FORMER OWNERS OF CERTAIN ACQUIRED COMPANIES.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------------------------
Oct. 1,(1) Oct. 3,(2) Oct. 4,(3) Sept. 28,(4) Sept. 29,(5)
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA
Gross revenue.......................... $ 794,578 $ 566,490 $ 382,934 $ 246,767 $ 220,099
Subcontractor costs.................... 196,457 134,410 85,337 55,976 59,062
---------- ---------- ---------- ---------- ---------
Net revenue............................ 598,121 432,080 297,597 190,791 161,037
Cost of net revenue.................... 452,872 327,336 223,871 141,019 122,084
---------- ---------- ---------- ---------- ---------
Gross profit........................... 145,249 104,744 73,726 49,772 38,953
Selling, general and administrative
expenses............................ 71,004 49,320 33,913 25,173 21,218
---------- ---------- ---------- ---------- ---------
Income from operations................. 74,245 55,424 39,813 24,599 17,735
Net interest expense................... 7,026 3,135 1,910 20 776
----------- ---------- ---------- ---------- --------
Income before minority interest and
income tax expense.................. 67,219 52,289 37,903 24,579 16,959
Minority interest...................... -- -- 1,397 -- --
---------- ---------- ---------- ---------- ---------
Income before income tax expense....... 67,219 52,289 36,506 24,579 16,959
Income tax expense..................... 26,777 23,174 15,920 10,323 6,854
---------- ---------- ---------- ---------- ---------
Net income............................. $ 40,442 $ 29,115 $ 20,586 $ 14,256 $ 10,105
========== ========== ========== ========== =========
Basic earnings per share .............. $ 1.04 $ 0.78 $ 0.59 $ 0.49 $ 0.37
========== ========== ========== ========== =========
Diluted earnings per share ............ $ 0.97 $ 0.74 $ 0.56 $ 0.46 $ 0.36
========== ========== ========== ========== =========
Weighted average common shares
outstanding:
Basic............................. 39,003 37,159 34,962 29,214 27,314
========== ========== ========== ========== =========
Diluted........................... 41,602 39,550 36,488 30,820 28,226
========== ========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Oct. 1, Oct. 3, Oct. 4, Sept. 28, Sept. 29,
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital........................ $ 154,341 $ 86,313 $ 77,049 $ 42,539 $ 32,739
Total assets........................... 526,038 380,478 266,610 159,513 88,463
Long-term obligations, excluding
current portion..................... 85,532 37,289 33,546 -- --
Stockholders' equity................... 297,907 234,432 167,781 107,641 63,269
</TABLE>
(Continued)
2
<PAGE>
(1) INCLUDED IN OUR REVENUE AND INCOME FROM OPERATIONS IS $2.00 MILLION OR
$1.16 MILLION ON AN AFTER TAX BASIS, RELATING TO THE REVERSAL OF
CERTAIN RESERVES. ADDITIONALLY, WE HAVE INCLUDED THE RESULTS OF
OPERATIONS AND FINANCIAL POSITIONS OF LC OF ILLINOIS, INC. AND HFC
TECHNOLOGIES, INC. (COLLECTIVELY ACQUIRED OCTOBER 25, 1999), EDWARD A.
SEARS ASSOCIATES (ACQUIRED MARCH 30, 2000), EXPERT WIRELESS SOLUTIONS, INC.
(ACQUIRED APRIL 3, 2000), 1261248 ONTARIO, INC., WHICH DOES BUSINESS AS
ENGINEERED COMMUNICATIONS (ACQUIRED MAY 3, 2000), FHC, INC. (ACQUIRED
MAY 17, 2000), RIZZO ASSOCIATES, INC. (ACQUIRED MAY 24, 2000), DRAKE
CONTRACTORS, INC. (ACQUIRED JUNE 16, 2000), AND WM. BETHLEHEM TRENCHING
LTD. (ACQUIRED JULY 5, 2000) FROM THE EFFECTIVE ACQUISITION DATES.
(2) INCLUDED IN OUR REVENUE AND INCOME FROM OPERATIONS IS $1.75 MILLION, OR
$0.98 MILLION ON AN AFTER TAX BASIS, RELATING TO THE REVERSAL OF CERTAIN
RESERVES. ADDITIONALLY, WE HAVE INCLUDED THE RESULTS OF OPERATIONS AND
FINANCIAL POSITIONS OF MFG, INC. (FORMERLY MCCULLEY, FRICK & GILMAN, INC.,
ACQUIRED FEBRUARY 26, 1999), COLLINS/PINA CONSULTING ENGINEERS, INC.
(ACQUIRED MAY 7, 1999), D.E.A. CONSTRUCTION COMPANY (ACQUIRED MAY 19, 1999),
BAHA COMMUNICATIONS, INC. (ACQUIRED MAY 21, 1999), UTILITIES & C.C., INC.
(ACQUIRED JUNE 18, 1999), ASL CONSULTANTS, INC. (ACQUIRED JUNE 25, 1999),
COSENTINI ASSOCIATES, INC. (FORMERLY PARTNERSHIP INTERESTS AND CERTAIN
COMPANIES AFFILIATED WITH COSENTINI ASSOCIATES LLP, ACQUIRED JUNE 30, 1999),
PDR ENGINEERS, INC. (ACQUIRED SEPTEMBER 3, 1999), AND EVERGREEN UTILITY
CONTRACTORS, INC., CONTINENTAL UTILITY CONTRACTORS, INC. AND GIG HARBOR
CONSTRUCTION, INC. (COLLECTIVELY ACQUIRED OCTOBER 2, 1999) FROM THE
EFFECTIVE ACQUISITION DATES.
(3) WE HAVE INCLUDED THE RESULTS OF OPERATIONS AND FINANCIAL POSITIONS OF TETRA
TECH NUS, INC. (ACQUIRED DECEMBER 31, 1997), WHALEN/SENTREX LLC (FORMED
MARCH 2, 1998), C.D.C. ENGINEERING, INC. (ACQUIRED MARCH 26, 1998 AND
SUBSEQUENTLY MERGED INTO TETRA TECH, INC. ON JULY 29, 1999), MCNAMEE, PORTER
& SEELEY, INC. (ACQUIRED JULY 8, 1998) AND THE SENTREX GROUP OF COMPANIES
(ACQUIRED SEPTEMBER 22, 1998) FROM THE EFFECTIVE ACQUISITION DATES.
(4) WE HAVE INCLUDED THE RESULTS OF OPERATIONS AND FINANCIAL POSITIONS OF IWA
ENGINEERS (ACQUIRED DECEMBER 11, 1996 AND SUBSEQUENTLY MERGED INTO TETRA
TECH, INC. ON JULY 29, 1999), FLO ENGINEERING, INC. (ACQUIRED DECEMBER 20,
1996 AND SUBSEQUENTLY MERGED INTO TETRA TECH, INC. ON JULY 29, 1999), SCM
CONSULTANTS, INC. (ACQUIRED MARCH 19, 1997), WHALEN & COMPANY, INC.
(ACQUIRED JUNE 11, 1997) AND COMMSite DEVELOPMENT CORPORATION (ACQUIRED JULY
11, 1997 AND SUBSEQUENTLY MERGED INTO WHALEN & COMPANY, INC. ON JANUARY 4,
1999) FROM THE EFFECTIVE ACQUISITION DATES.
(5) WE HAVE INCLUDED THE RESULTS OF OPERATIONS AND FINANCIAL POSITION OF KCM,
INC. (ACQUIRED NOVEMBER 7, 1995) FROM THE EFFECTIVE ACQUISITION DATE.
(Concluded)
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED BELOW, THE MATTERS
DISCUSSED IN THIS SECTION ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER
OF RISKS AND UNCERTAINTIES. OUR ACTUAL LIQUIDITY NEEDS, CAPITAL RESOURCES AND
OPERATING RESULTS MAY DIFFER MATERIALLY FROM THE DISCUSSION SET FORTH BELOW IN
THESE FORWARD-LOOKING STATEMENTS. FOR ADDITIONAL INFORMATION, REFER TO THE NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS.
OVERVIEW
Tetra Tech, Inc. is a leading provider of specialized management
consulting and technical services in three principal business areas: resource
management, infrastructure and communications. As a specialized management
consultant, we assist our clients in defining problems and developing
innovative and cost-effective solutions. Our management consulting services
are complemented by our technical services. These technical services, which
implement solutions, include research and development, applied science,
engineering and architectural design, construction management, and operations
and maintenance. Our clients include a diverse base of public and private
organizations located in the United States and internationally.
Since our initial public offering in December 1991, we increased the
size and scope of our business and have expanded our service offerings
through a series of strategic acquisitions and internal growth. From fiscal
1991 through fiscal 2000, we generated a net revenue compounded annual growth
rate of approximately 35.8% and achieved a net income compounded annual
growth rate of approximately 37.2%.
We derive our revenue from fees from professional services. Our
services are billed under various types of contracts with our clients,
including:
- fixed-price;
- fixed-rate time and materials;
- cost-reimbursement plus fixed fee; and
- cost-reimbursement plus fixed and award fee.
In the course of providing our services, we routinely subcontract
services. These subcontractor costs are passed through to our clients and, in
accordance with industry practice, are included in our gross revenue. Because
subcontractor services can change significantly from project to project, we
believe net revenue, which is gross revenue less the cost of subcontractor
services, is a more appropriate measure of our performance.
Our cost of net revenue includes professional compensation and
certain direct and indirect overhead costs such as rents, utilities and
travel. Professional compensation represents the majority of these costs. Our
selling, general and administrative (SG&A) expenses are comprised primarily
of our corporate headquarters' costs related to the executive offices,
corporate accounting, information technology, marketing, and bid and proposal
costs. These costs are generally unrelated to specific client projects. In
addition, we include amortization of certain intangible assets resulting from
acquisitions in SG&A expenses.
4
<PAGE>
We provide services to a diverse base of Federal, state and local
government agencies, and private and international clients. The following table
presents, for the periods indicated, the approximate percentage of our net
revenue attributable to these client sectors:
<TABLE>
<CAPTION>
Percentage of Net Revenue
----------------------------------------------
Client Fiscal 2000 Fiscal 1999 Fiscal 1998
------ ----------- ----------- -----------
<S> <C> <C> <C>
Federal government............................... 29.1% 39.1% 48.7%
State and local government....................... 16.3 16.3 12.7
Private.......................................... 51.4 41.3 35.4
International.................................... 3.2 3.3 3.2
----------- ----------- -----------
Total............................................ 100.0% 100.0% 100.0%
=========== =========== ===========
</TABLE>
We manage our business in three operating segments: Resource
Management, Infrastructure and Communications. The following table presents, for
the periods indicated, the approximate percentage of net revenue attributable to
the operating segments:
<TABLE>
<CAPTION>
Percentage of Net Revenue
----------------------------------------------
Operating Segment Fiscal 2000 Fiscal 1999 Fiscal 1998
----------------- ----------- ----------- -----------
<S> <C> <C> <C>
Resource Management.............................. 41.3% 53.6% 66.8%
Infrastructure................................... 31.8 25.9 15.9
Communications................................... 25.6 20.5 17.2
Other revenue.................................... 1.3 0.0 0.1
----------- ----------- -----------
Total............................................ 100.0% 100.0% 100.0%
=========== =========== ===========
</TABLE>
Our revenue and operating results fluctuate from quarter to quarter as a
result of a number of factors, such as:
- the seasonality of the spending cycle of our public sector clients
and the spending patterns of our private sector clients;
- employee hiring and utilization rates;
- the number and significance of client engagements commenced and
completed during a quarter;
- delays incurred in connection with an engagement;
- the ability of clients to terminate engagements without penalties;
- the size and scope of engagements;
- the timing and size of the return on investment capital; and
- general economic and political conditions.
Variations in any of these factors can cause significant variations in
operating results from quarter to quarter and could result in losses.
RECENT ACQUISITIONS
As a part of our growth strategy, we expect to pursue complementary
acquisitions to expand our geographical reach and the breadth and depth of
our service offerings. During fiscal 2000, we purchased nine companies in the
following eight transactions:
5
<PAGE>
- LC OF ILLINOIS, INC. - In October 1999, we acquired LC of Illinois,
Inc. and HFC Technologies, Inc. (collectively, LCI). The purchase was valued
at approximately $1.6 million. LCI, an Illinois-based firm, provides
engineering and network infrastructure services for cable television and
fiber optic telephone networks including design, construction and maintenance
capabilities for communications and information transport systems.
- EDWARD A. SEARS ASSOCIATES - In March 2000, Tetra Tech Engineers, P.C.
acquired certain assets of Edward A. Sears Associates (ESA). Concurrent with
this transaction, our wholly-owned subsidiary, Cosentini Associates, Inc.,
acquired certain non-licensed assets of ESA from Tetra Tech Engineers, P.C.
The purchase was valued at approximately $0.4 million. ESA, a New York-based
firm, provides engineering services to hospitals primarily in New York.
- EXPERT WIRELESS SOLUTIONS, INC. - In April 2000, we acquired eXpert
Wireless Solutions, Inc. (EWS). The purchase was valued at approximately
$18.8 million, excluding the value of the accounts receivable of $1.8 million
which were assigned to the former owners at the time of acquisition. EWS, a
New Jersey-based firm, provides radio-frequency engineering and consulting
services to the wireless communications industry.
- ENGINEERED COMMUNICATIONS - In May 2000, we acquired, through our
majority-owned subsidiary, Tetra Tech Canada Ltd., 1261248 Ontario, Inc.,
which does business as Engineered Communications (ENG). The purchase was
valued at approximately $1.5 million. ENG, a Canadian-based firm, provides
engineering and network services for the wired communications industry in
Ontario, Canada.
- FHC, INC. - In May 2000, we acquired FHC, Inc. (FHC). The purchase was
valued at approximately $5.2 million. FHC, an Oklahoma-based firm, provides
engineering consulting services primarily to state and local governments in
Oklahoma.
- RIZZO ASSOCIATES, INC. - In May 2000, we acquired Rizzo Associates,
Inc. (RAI). The purchase was valued at approximately $10.3 million. RAI, a
Massachusetts-based firm, provides engineering consulting services to state
and local governments and commercial clients in the upper Northeast region of
the United States.
- DRAKE CONTRACTORS, INC. - In June 2000, we acquired Drake Contractors,
Inc. (DCI). The purchase was valued at approximately $5.5 million, excluding
the value of the accounts receivable of $2.1 million which were assigned to
the former owners at the time of acquisition. DCI, a Colorado-based firm,
provides infrastructure installation and maintenance services primarily in
Colorado.
- WM. BETHLEHEM TRENCHING LTD. - In July 2000, we acquired Wm. Bethlehem
Trenching Ltd. (BTL). The purchase was valued at approximately $0.3 million.
BTL, a Canadian-based firm, provides infrastructure installation and
maintenance services primarily in Ontario, Canada.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating information as a percentage of net revenue:
<TABLE>
<CAPTION>
Percentage of Net Revenue
------------------------------------------------
Fiscal Year Ended
------------------------------------------------
Oct. 1, Oct. 3, Oct. 4,
2000 1999 1998
--------- --------- --------
<S> <C> <C> <C>
Net revenue............................. 100.0% 100.0% 100.0%
Cost of net revenue..................... 75.7 75.8 75.2
--------- --------- --------
Gross profit............................ 24.3 24.2 24.8
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C>
Selling, general and administrative
expenses............................. 11.9 11.4 11.4
--------- --------- --------
Income from operations.................. 12.4 12.8 13.4
Net interest expense.................... 1.2 0.7 0.7
--------- --------- --------
Income before minority interest and
income tax expense................... 11.2 12.1 12.7
Minority interest....................... -- -- (0.5)
--------- --------- --------
Income before income tax expense........ 11.2 12.1 12.2
Income tax expense...................... 4.4 5.4 5.3
--------- --------- --------
Net income.............................. 6.8 % 6.7% 6.9%
======== ========= =========
</TABLE>
FISCAL 2000 COMPARED TO FISCAL 1999
NET REVENUE. Net revenue increased $166.0 million, or 38.4%, to
$598.1 million in fiscal 2000 from $432.1 million in fiscal 1999. All three
business segments and all four client sectors continued to show net revenue
increases in actual dollars. These increases were primarily attributable to
the expansion of our infrastructure services throughout the United States,
the continued expansion of new lines of service in our communications
business and companies acquired in fiscal 2000. As a percentage of net
revenue, an increase was realized in the private sector. We segregate from
our total revenue, revenue from companies acquired during the current fiscal
year as well as revenue recognized from acquired companies during the first
12 months following their respective effective dates of acquisition. Revenue
recognized from acquired companies during such first 12 months is referred to
as acquisitive revenue. Organic revenue is measured as total revenue less any
acquisitive revenue. Net revenue provided by companies acquired during fiscal
2000 totaled $32.7 million. Excluding this net revenue, we realized 30.9%
growth in our net revenue from fiscal 1999 to fiscal 2000. Acquisitive net
revenue for fiscal 2000 totaled $114.2 million. Excluding this net revenue,
we realized organic growth in our net revenue of 12.0%.
Gross revenue increased $228.1 million, or 40.3%, to $794.6 million
in fiscal 2000 from $566.5 million in fiscal 1999. In fiscal 2000,
subcontractor costs comprised 24.7% of gross revenue compared to 23.7% for
fiscal 1999.
COST OF NET REVENUE. Cost of net revenue increased $125.5 million,
or 38.3%, to $452.9 million in fiscal 2000 from $327.3 million in fiscal
1999. As a percentage of net revenue, cost of net revenue decreased from
75.8% in fiscal 1999 to 75.7% in fiscal 2000. Professional compensation, the
largest component of our cost of net revenue, rose as the number of our
employees increased by 677, or 12.4%, to 6,120 in fiscal 2000 from 5,443 in
fiscal 1999. However, excluding the 681 employees provided from acquired
companies, the number of our employees remained flat. Gross profit increased
$40.5 million, or 38.7%, to $145.2 million in fiscal 2000 from $104.7 million
in fiscal 1999. Included in our net revenue and gross profit was $2.00
million and $1.75 million relating to reversals of previously established
allowances for disallowed costs in fiscal 2000 and fiscal 1999, respectively.
(See Note 3 of Notes to Consolidated Financial Statements.) As a percentage
of net revenue, gross profit increased from 24.2% in fiscal 1999 to 24.3% in
fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses,
exclusive of amortization expense, increased $20.0 million, or 45.1%, to
$64.5 million in fiscal 2000 from $44.5 million in fiscal 1999. This increase
was primarily attributable to expenses associated with the automation of our
corporate business systems and processes, business development activities and
higher administrative costs associated with acquired companies. As a
percentage of net revenue, SG&A expenses, exclusive of amortization expense,
increased to 10.8% in fiscal 2000 from 10.3% in fiscal 1999. The amortization
7
<PAGE>
expense related to acquisitions increased $1.7 million, or 33.5%, to $6.5
million in fiscal 2000 from $4.8 million in fiscal 1999.
NET INTEREST EXPENSE. Net interest expense increased $3.9 million,
or 124.1%, from $3.1 million in fiscal 1999 to $7.0 million in fiscal 2000.
This increase was primarily attributable to increased borrowings on our
credit facility in order to fund working capital and investing needs of
acquisitions as well as increase in interest rates. In fiscal 2000,
borrowings on our credit facility averaged $95.4 million compared to $44.6
million in fiscal 1999.
INCOME TAX EXPENSE. Income tax expense increased $3.6 million, or
15.5%, to $26.8 million in fiscal 2000 from $23.2 million in fiscal 1999.
This increase was due to higher income before income taxes and a change in
our effective tax rate. During fiscal 2000, we performed an extensive review
of our current tax position and certain tax strategies which could
potentially reduce our effective tax rate. As a result of this review, we
have determined that we are entitled to certain tax credits for fiscal 2000
as well as certain prior years. These credits are primarily responsible for
the reduction in our effective tax rate to 39.8% in fiscal 2000 from 44.3% in
fiscal 1999. We expect our future effective tax rate to be approximately
42.0%.
FISCAL 1999 COMPARED TO FISCAL 1998
NET REVENUE. Net revenue increased $134.5 million, or 45.2%, to
$432.1 million in fiscal 1999 from $297.6 million in fiscal 1998. All four
client sectors continued to show net revenue increases in actual dollars.
These increases were primarily attributable to the expansion of our
infrastructure services throughout the United States, the continued expansion
of new lines of service in our communications business and companies acquired
in fiscal 1999. As a percentage of net revenue, increases were realized in
the state and local sector, the private sector and the international sector.
Net revenue from the companies acquired in fiscal 1999 totaled $61.5 million.
Excluding the net revenue from these companies, we realized 24.5% growth in
our net revenue. Acquisitive net revenue for fiscal 1999 totaled $117.3
million. Excluding this net revenue, we realized organic growth in our net
revenue of 5.8%.
Gross revenue increased $183.6 million, or 47.9%, to $566.5 million
in fiscal 1999 from $382.9 million in fiscal 1998. In fiscal 1999,
subcontractor costs comprised 23.7% of gross revenue compared to 22.3% for
fiscal 1998.
COST OF NET REVENUE. Cost of net revenue increased $103.5 million,
or 46.2%, to $327.3 million in fiscal 1999 from $223.9 million in fiscal
1998. As a percentage of net revenue, cost of net revenue increased from
75.2% in fiscal 1998 to 75.8% in fiscal 1999. This increase was primarily
attributable to higher costs incurred from the acquired companies.
Professional compensation, the largest component of our cost of net revenue,
rose as the number of our employees increased by 1,781, or 48.6%, to 5,443 in
fiscal 1999 from 3,662 in fiscal 1998. Excluding the employees provided from
acquired companies, our number of employees increased by 74, or 2.0%. Gross
profit increased $31.0 million, or 42.1%, to $104.7 million in fiscal 1999
from $73.7 million in fiscal 1998. Included in our fiscal 1999 net revenue
and gross profit was $1.75 million relating to the reversal of previously
established allowances for disallowed costs. (See Note 3 of Notes to
Consolidated Financial Statements.) However, as a percentage of net revenue,
gross profit decreased from 24.8% in fiscal 1998 to 24.2% in fiscal 1999,
primarily due to lower margins of acquired companies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses
increased $15.4 million, or 45.4%, to $49.3 million in fiscal 1999 from
$33.9 million in fiscal 1998. This increase was primarily attributable to
additional headquarters' costs associated with centralizing corporate
functions, other corporate initiatives, costs associated with year 2000
compliance, as well as additional amortization expense relating to acquired
companies. As a percentage of net revenue, SG&A expenses remained at
8
<PAGE>
11.4%. The amortization expense related to acquisitions increased $1.8
million, or 63.1%, to $4.8 million in fiscal 1999 from $3.0 million in fiscal
1998.
NET INTEREST EXPENSE. Net interest expense increased $1.2 million,
or 64.1%, from $1.9 million to $3.1 million from fiscal 1998 to fiscal 1999.
This increase was primarily attributable to the financing and working capital
needs of certain acquisitions.
INCOME TAX EXPENSE. Income tax expense increased $7.3 million, or
45.6%, to $23.2 million in fiscal 1999 from $15.9 million in fiscal 1998.
This increase was due to higher income before income taxes and an increase in
our effective tax rate from 43.6% in fiscal 1998 to 44.3% in fiscal 1999.
This increase was primarily attributable to increased amounts of
non-deductible goodwill resulting from our business acquisitions.
UNAUDITED QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly operating
results for each of our last three fiscal years ended October 1, 2000,
October 3, 1999 and October 4, 1998. This data is also expressed as a
percentage of net revenue for the respective quarters. The information has
been derived from unaudited consolidated financial statements that, in our
opinion, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such quarterly information.
The operating results for any quarter are not necessarily indicative of the
results to be expected for any future period.
<TABLE>
<CAPTION>
Fiscal 2000 Quarter Ended Fiscal 1999 Quarter Ended
----------------------------------------- ---------------------------------------
Jan. 2, Apr. 2, Jul. 2, Oct. 1, Jan. 3, Apr. 4, Jul. 4, Oct. 3,
2000 2000 2000 2000 1999 1999 1999 1999
-------- -------- -------- -------- ------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue $129,171 $138,846 $156,468 $173,636 $89,245 $96,955 $120,739 $125,141
Cost of net revenue 100,417 109,562 116,266 126,627 70,187 74,402 88,189 94,558
-------- -------- -------- -------- ------- ------- -------- --------
Gross profit 28,754 29,284 40,202 47,009 19,058 22,553 32,550 30,583
Selling, general and
administrative expenses 14,021 13,304 20,529 23,150 8,871 10,684 16,951 12,814
-------- -------- -------- -------- ------- ------- -------- --------
Income from operations 14,733 15,980 19,673 23,859 10,187 11,869 15,599 17,769
Net interest expense 1,228 1,473 1,958 2,367 699 532 550 1,354
-------- -------- -------- -------- ------- ------- -------- --------
Income before minority
interest and income
tax expense 13,505 14,507 17,715 21,492 9,488 11,337 15,049 16,415
Minority interest - - - - - - - -
-------- -------- -------- -------- ------- ------- -------- --------
Income before income
tax expense 13,505 14,507 17,715 21,492 9,488 11,337 15,049 16,415
Income tax expense 5,942 6,383 7,795 6,657 4,061 4,875 6,546 7,692
-------- -------- -------- -------- ------- ------- -------- --------
Net income $ 7,563 $ 8,124 $ 9,920 $14,835 $ 5,427 $ 6,462 $ 8,503 $ 8,723
======== ======== ======== ======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998 Quarter Ended
----------------------------------------
Dec. 28, Mar. 29, Jun. 28, Oct. 4,
1997 1998 1998 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net revenue $53,664 $71,806 $75,149 $96,978
Cost of net revenue 40,339 54,786 54,405 74,341
-------- -------- -------- -------
Gross profit 13,325 17,020 20,744 22,637
Selling, general and
administrative expenses 6,146 8,148 9,333 10,286
-------- -------- -------- -------
Income from operations 7,179 8,872 11,411 12,351
Net interest expense 73 596 510 731
-------- -------- -------- -------
Income before minority
interest and income
tax expense 7,106 8,276 10,901 11,620
Minority interest - 203 1,194 -
-------- -------- -------- -------
Income before income
tax expense 7,106 8,073 9,707 11,620
Income tax expense 3,055 3,552 4,214 5,099
-------- -------- -------- -------
Net income $ 4,051 $ 4,521 $ 5,493 $ 6,521
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Fiscal 2000 Quarter Ended Fiscal 1999 Quarter Ended
----------------------------------------- ---------------------------------------
Jan. 2, Apr. 2, Jul. 2, Oct. 1, Jan. 3, Apr. 4, Jul. 4, Oct. 3,
2000 2000 2000 2000 1999 1999 1999 1999
-------- -------- -------- -------- ------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of net revenue 77.7 78.9 74.3 72.9 78.6 76.7 73.0 75.6
-------- -------- -------- -------- ------- ------- -------- --------
Gross profit 22.3 21.1 25.7 27.1 21.4 23.3 27.0 24.4
Selling, general and
administrative expenses 10.9 9.6 13.1 13.4 10.0 11.1 14.1 10.2
-------- -------- -------- -------- ------- ------- -------- --------
Income from operations 11.4 11.5 12.6 13.7 11.4 12.2 12.9 14.2
Net interest expense 0.9 1.1 1.3 1.3 0.8 0.5 0.4 1.1
-------- -------- -------- -------- ------- ------- -------- --------
Income before minority
interest and income
tax expense 10.5 10.4 11.3 12.4 10.6 11.7 12.5 13.1
Minority interest - - - - - - - -
-------- -------- -------- -------- ------- ------- -------- --------
Income before income
tax expense 10.5 10.4 11.3 12.4 10.6 11.7 12.5 13.1
Income tax expense 4.6 4.5 5.0 3.9 4.5 5.0 5.5 6.1
-------- -------- -------- -------- ------- ------- -------- --------
Net income 5.9% 5.9% 6.3% 8.5% 6.1% 6.7% 7.0% 7.0%
======== ======== ======== ======== ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998 Quarter Ended
----------------------------------------
Dec. 28, Mar. 29, Jun. 28, Oct. 4,
1997 1998 1998 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of net revenue 75.2 76.3 72.4 76.7
-------- -------- -------- -------
Gross profit 24.8 23.7 27.6 23.3
Selling, general and
administrative expenses 11.5 11.3 12.4 10.6
-------- -------- -------- -------
Income from operations 13.3 12.4 15.2 12.7
Net interest expense 0.1 0.9 0.7 0.7
-------- -------- -------- -------
Income before minority
interest and income
tax expense 13.2 11.5 14.5 12.0
Minority interest - 0.3 1.6 -
-------- -------- -------- -------
Income before income
tax expense 13.2 11.2 12.9 12.0
Income tax expense 5.7 4.9 5.6 5.3
-------- -------- -------- -------
Net income 7.5% 6.3% 7.3% 6.7%
======== ======== ======== =======
</TABLE>
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of October 1, 2000, our working capital was $154.3 million, an
increase of $68.0 million from $86.3 million on October 3, 1999, of which
cash and cash equivalents totaled $7.6 million at October 1, 2000. In fiscal
2000, $12.2 million was used in operating activities and $42.3 million was
used in investing activities, of which $27.5 million was related to business
acquisitions. In fiscal 1999, $30.3 million was provided by operating
activities and $57.7 million was used in investing activities, of which $50.7
million was related to business acquisitions. In both fiscal years 2000 and
1999, cash provided by/used in operating activities was affected by the
structure of certain transactions. One of our acquisition structures is to
assign accounts receivable to the former owners at the time of the
transaction in lieu of cash consideration. This structure allows us to reduce
our cash used in investing activities. However, cash must be invested in
future periods to finance the working capital needs of the acquired company.
In fiscal 2000, in the EWS and DCI acquisitions, accounts receivable in the
aggregate amount of $3.9 million were assigned to the former owners.
Collections on assigned receivables totaled $10.7 million. If we had not
assigned these receivables at the time of acquisition, cash used in operating
activities could have been $1.5 million. In fiscal 1999, in the BAHA
Communications, Inc. and Cosentini Associates, Inc. acquisitions, accounts
receivable in the aggregate amount of $19.4 million were assigned to the
former owners. Collections on these receivables during fiscal 1999 totaled
$9.3 million. If we had not assigned these receivables at the time of
acquisition, cash provided by operating activities in fiscal 1999 could have
been $39.6 million. Our capital expenditures during fiscal years 2000 and
1999 were approximately $14.7 million and $7.0 million, respectively. Capital
expenditures were primarily for the replacement of field equipment, the
enhancement of computer equipment and office expansion.
We have a credit agreement with a bank (the "Credit Agreement")
which provides us with a revolving credit facility (the "Facility") of $150.0
million. The Facility matures on March 17, 2005 or earlier at our discretion
upon payment in full of loans and other obligations. Throughout fiscal 2000,
maximum borrowings under the Facility were $128.5 million. At October 1,
2000, borrowings and standby letters of credit totaled $110.0 million and
$1.7 million, respectively.
In conjunction with our investment strategy, we continuously
evaluate the marketplace for strategic acquisition opportunities. Once an
opportunity is identified, we examine the effect an acquisition may have on
the business environment, as well as on our results of operations. We proceed
with an acquisition if we determine that the acquisition is anticipated to
have an accretive effect on future operations or could expand our service
offerings. As successful integration and implementation are essential to
achieve favorable results, no assurances can be given that all acquisitions
will provide accretive results. Our strategy is to position ourselves to
address existing and emerging markets. We view acquisitions as a key
component of our growth strategy, and we intend to use both cash and our
securities, as we deem appropriate, to fund such acquisitions.
We believe our operations have not been and, in the foreseeable
future, are not expected to be materially adversely affected by inflation or
changing prices.
10
<PAGE>
RECENTLY ISSUED FINANCIAL STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which was amended by SFAS No.
138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES. These Statements required derivatives to be measured at fair
value and to be recorded as assets or liabilities on the balance sheet. The
accounting for gains or losses resulting from changes in the fair values of
those derivatives would be dependent upon the use of the derivative and
whether it qualifies for hedge accounting. These Statements are effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. We will
adopt these Statements in fiscal year 2001 and believe that the adoption of
SFAS No. 133 and SFAS No. 138 will have no material impact on our results of
operations or financial position.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION, which outlines
the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. SAB No. 101
requires companies to report any changes in revenue recognition as a
cumulative change in accounting principle at the time of implementation in
accordance with Accounting Principles Board Opinion No. 20, ACCOUNTING
CHANGES. SAB No. 101, as amended, is effective no later than the fourth
quarter of fiscal years beginning after December 15, 1999. We will adopt SAB
No. 101 in fiscal year 2001. We believe our existing revenue recognition
policies and procedures are in compliance with SAB No. 101, and that the
adoption of SAB No. 101 will have no material impact on our results of
operations or financial position.
MARKET RISKS
We do not currently utilize any material derivative financial
instruments which expose us to significant market risk. We are exposed to
cash flow risk due to interest rate fluctuations with respect to our
long-term debt. At our option, we borrow on our Facility (a) at a base rate
(the greater of the federal funds rate plus 0.50% or the bank's reference
rate) or (b) at a eurodollar rate plus a margin which ranges from 0.75% to
1.25%. Borrowings at the base rate have no designated term and may be repaid
without penalty anytime prior to the Facility's maturity date. Borrowings at
a eurodollar rate have a term no less than 30 days and no greater than 90
days. Typically, at the end of such term, such borrowings may be rolled over
at our discretion into either a borrowing at the base rate or a borrowing at
a eurodollar rate with similar terms, not to exceed the maturity date of the
Facility. The Facility matures on March 17, 2005 or earlier at our discretion
upon payment in full of loans and other obligations. Accordingly, we classify
total outstanding debt between current liabilities and long-term obligations
based on anticipated payments within and beyond one year's period of time. We
presently anticipate repaying $26.0 million of our long-term obligations in
fiscal 2001. Assuming we pay our long-term debt in the amounts of $26.0
million, $31.0 million, $37.0 million and $17.5 million for the next four
years ratably throughout each year, and our average interest rate on our
long-term debt increases or decreases by one percentage point, our interest
expense could increase or decrease by $0.9 million, $0.6 million, $0.3
million and $0.1 million in fiscal 2001, 2002, 2003 and 2004, respectively.
However there can be no assurance that we will, or will be able to, repay our
debt in the prescribed manner or obtain alternate financing. We could incur
additional debt under this credit facility or our operating results could be
worse than we expect.
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
Tetra Tech, Inc.:
We have audited the accompanying consolidated balance sheets of
Tetra Tech, Inc. and its subsidiaries as of October 1, 2000 and October 3,
1999, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
October 1, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Tetra Tech, Inc.
and its subsidiaries as of October 1, 2000 and October 3, 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended October 1, 2000 in conformity with accounting principles
generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
November 15, 2000
12
<PAGE>
TETRA TECH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Oct. 1, Oct. 3,
2000 1999
----------------- ------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................... $ 7,557,000 $ 8,189,000
Accounts receivable - net..................................... 153,527,000 91,376,000
Unbilled receivables - net.................................... 122,102,000 85,072,000
Prepaid expenses and other current assets..................... 11,203,000 7,174,000
Deferred income taxes......................................... 2,551,000 3,259,000
--------------- ---------------
Total Current Assets....................................... 296,940,000 195,070,000
--------------- ---------------
Property and Equipment:
Equipment, furniture and fixtures............................. 59,361,000 39,488,000
Leasehold improvements........................................ 4,182,000 3,343,000
--------------- ---------------
Total...................................................... 63,543,000 42,831,000
Accumulated depreciation and amortization..................... (28,331,000) (21,085,000)
--------------- ---------------
Property and Equipment - Net...................................... 35,212,000 21,746,000
--------------- ---------------
Intangible Assets - Net........................................... 190,452,000 160,686,000
Other Assets...................................................... 3,434,000 2,976,000
--------------- ---------------
Total Assets...................................................... $ 526,038,000 $ 380,478,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................. $ 50,304,000 $ 32,570,000
Accrued compensation.......................................... 25,705,000 21,900,000
Billings in excess of costs on uncompleted contracts.......... 15,947,000 5,872,000
Other current liabilities..................................... 17,523,000 14,606,000
Income taxes payable.......................................... 7,120,000 9,809,000
Current portion of long-term obligations...................... 26,000,000 24,000,000
--------------- ---------------
Total Current Liabilities.................................. 142,599,000 108,757,000
--------------- ---------------
Long-term Obligations............................................. 85,532,000 37,289,000
--------------- ---------------
Commitments and Contingencies (Notes 8 and 10)
Stockholders' Equity:
Preferred stock - authorized, 2,000,000 shares of $.01 par value;
issued and outstanding 0 shares at October 1, 2000 and
October 3, 1999............................................. -- --
Exchangeable stock of a subsidiary............................ 13,887,000 13,239,000
Common stock - authorized, 50,000,000 shares of $.01 par
value; issued and outstanding 39,830,633 shares at
October 1, 2000 and 38,433,621 shares at October 3, 1999.... 398,000 384,000
Additional paid-in capital.................................... 150,391,000 127,978,000
Accumulated other comprehensive income (loss)................. (844,000) (802,000)
Retained earnings............................................. 134,075,000 93,633,000
--------------- ---------------
Total Stockholders' Equity........................................ 297,907,000 234,432,000
--------------- ---------------
Total Liabilities and Stockholders' Equity........................ $ 526,038,000 $ 380,478,000
=============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
13
<PAGE>
TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------
Oct. 1, Oct. 3, Oct. 4,
2000 1999 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenue:
Gross revenue................................. $ 794,578,000 $ 566,490,000 $ 382,934,000
Subcontractor costs........................... 196,457,000 134,410,000 85,337,000
---------------- ---------------- ----------------
Net Revenue........................................ 598,121,000 432,080,000 297,597,000
Cost of Net Revenue................................ 452,872,000 327,336,000 223,871,000
---------------- ---------------- ----------------
Gross Profit....................................... 145,249,000 104,744,000 73,726,000
Selling, General and Administrative Expenses....... 71,004,000 49,320,000 33,913,000
---------------- ---------------- ----------------
Income From Operations............................. 74,245,000 55,424,000 39,813,000
Interest Expense................................... 7,355,000 3,561,000 2,329,000
Interest Income.................................... 329,000 426,000 419,000
---------------- ---------------- ----------------
Income Before Minority Interest and Income
Tax Expense..................................... 67,219,000 52,289,000 37,903,000
Minority Interest.................................. -- -- 1,397,000
---------------- ---------------- ----------------
Income Before Income Tax Expense................... 67,219,000 52,289,000 36,506,000
Income Tax Expense................................. 26,777,000 23,174,000 15,920,000
---------------- ---------------- ----------------
Net Income......................................... $ 40,442,000 $ 29,115,000 $ 20,586,000
================ ================ ================
Basic Earnings Per Share........................... $ 1.04 $ 0.78 $ 0.59
================ ================ ================
Diluted Earnings Per Share......................... $ 0.97 $ 0.74 $ 0.56
================ ================ ================
Weighted Average Common Shares Outstanding:
Basic........................................ 39,003,000 37,159,000 34,962,000
================ ================ ================
Diluted...................................... 41,602,000 39,550,000 36,488,000
================ ================ ================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
14
<PAGE>
TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED OCTOBER 1, 2000, OCTOBER 3, 1999 AND OCTOBER 4, 1998
<TABLE>
<CAPTION>
Additional
Exchangeable Stock Common Stock Paid-In Retained
Shares Amount Shares Amount Capital Earnings
-------- ----------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 28, 1997 -- $ -- 32,366,023 $324,000 $ 63,385,000 $43,932,000
Net income and comprehensive
income........................ 20,586,000
Shares issued in acquisitions.... 920,354 15,411,000 432,435 4,000 5,520,000
Stock options exercised.......... 440,331 4,000 2,613,000
Shares issued in Employee
Stock Purchase Plan.............. 144,431 1,000 1,505,000
Preferred shares converted to
common......................... 2,405,938 24,000 13,502,000
Tax benefit for disqualifying
dispositions of stock
options........................ 977,000
Payment for fractional shares.... (908) (7,000)
-------- ----------- ---------- -------- ------------ ------------
BALANCE, OCTOBER 4, 1998 920,354 15,411,000 35,788,250 357,000 87,495,000 64,518,000
Comprehensive income:
Net income .................... 29,115,000
Foreign currency translation
adjustment....................
Comprehensive income ............
Shares issued in secondary
offering..................... 1,250,000 12,000 22,159,000
Shares issued in acquisitions.... 787,051 8,000 11,563,000
Stock options exercised ......... 289,972 3,000 1,920,000
Shares issued in Employee
Stock Purchase Plan............ 156,361 2,000 2,220,000
Exchangeable shares of a
subsidiary exchanged for
common shares.................. (129,712) (2,172,000) 162,140 2,000 2,170,000
Tax benefit for disqualifying
dispositions of stock
options........................ 473,000
Payment for fractional shares.... (153) (22,000)
-------- ----------- ---------- -------- ------------ ------------
BALANCE, OCTOBER 3, 1999 790,642 13,239,000 38,433,621 384,000 127,978,000 93,633,000
Comprehensive income:
Net income .................... 40,442,000
Foreign currency translation
adjustment....................
Comprehensive income ............
Shares issued in acquisitions.... 33,606 648,000 585,795 6,000 11,380,000
Stock options exercised ......... 645,106 6,000 5,694,000
Shares issued in Employee
Stock Purchase Plan............ 166,111 2,000 2,843,000
Tax benefit for disqualifying
dispositions of stock
options........................ 2,496,000
-------- ----------- ---------- -------- ------------ ------------
BALANCE, OCTOBER 1, 2000 824,248 $13,887,000 39,830,633 $398,000 $150,391,000 $134,075,000
======== =========== ========== ======== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income (Loss) Total
------------- -----
<S> <C> <C>
BALANCE, SEPTEMBER 28, 1997 $ -- $107,641,000
Net income and comprehensive
income........... 20,586,000
Shares issued in acquisitions.. 20,935,000
Stock options exercised.......... 2,617,000
Shares issued in Employee
Stock Purchase Plan............ 1,506,000
Preferred shares converted to
common......................... 13,526,000
Tax benefit for disqualifying
dispositions of stock
options.................. 977,000
Payment for fractional shares.. (7,000)
----------- ------------
BALANCE, OCTOBER 4, 1998 -- 167,781,000
Comprehensive income:
Net income .................... 29,115,000
Foreign currency
translation adjustment........ (802,000) (802,000)
------------
Comprehensive income ............ 28,313,000
------------
Shares issued in secondary
offering..................... 22,171,000
Shares issued in acquisitions.... 11,571,000
Stock options exercised ......... 1,923,000
Shares issued in Employee
Stock Purchase Plan............ 2,222,000
Exchangeable shares of a
subsidiary exchanged for
common shares.................. --
Tax benefit for disqualifying
dispositions of stock
options........................ 473,000
Payment for fractional shares.... (22,000)
----------- ------------
BALANCE, OCTOBER 3, 1999 (802,000) 234,432,000
Comprehensive income:
Net income .................... 40,442,000
Foreign currency
translation adjustment........ (42,000) (42,000)
------------
Comprehensive income ............ 40,400,000
------------
Shares issued in acquisitions.... 12,034,000
Stock options exercised ......... 5,700,000
Shares issued in Employee
Stock Purchase Plan............ 2,845,000
Tax benefit for disqualifying
dispositions of stock
options........................ 2,496,000
----------- ------------
BALANCE, OCTOBER 1, 2000 $ (844,000) $297,907,000
=========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
15
<PAGE>
TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
Oct. 1, Oct. 3, Oct. 4,
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $40,442,000 $29,115,000 $20,586,000
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization............................ 13,709,000 12,708,000 6,595,000
Deferred income taxes.................................... 723,000 (211,000) (2,899,000)
Provision for losses on receivables...................... 3,056,000 (667,000) (334,000)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable...................................... (47,102,000) 4,713,000 (23,262,000)
Unbilled receivables..................................... (31,439,000) (13,727,000) (11,502,000)
Prepaid expenses and other current assets................ (4,337,000) 998,000 (1,375,000)
Accounts payable......................................... 12,746,000 (8,306,000) 10,203,000
Accrued compensation..................................... 3,053,000 (935,000) (32,000)
Other current liabilities................................ (2,185,000) 3,973,000 (6,548,000)
Income taxes payable..................................... (854,000) 2,597,000 1,948,000
----------- ----------- -----------
Net Cash (Used In) Provided By Operating Activities.. (12,188,000) 30,258,000 (6,620,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................... (14,745,000) (7,040,000) (3,511,000)
Payments for business acquisitions, net of cash acquired...... (27,515,000) (50,655,000) (37,778,000)
----------- ----------- ------------
Net Cash Used In Investing Activities................ (42,260,000) (57,695,000) (41,289,000)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term obligations............................. (67,763,000) (67,605,000) (39,580,000)
Proceeds from issuance of long-term obligations............... 112,000,000 72,841,000 76,000,000
Proceeds from issuance of common stock........................ 8,545,000 26,576,000 4,116,000
----------- ----------- -----------
Net Cash Provided By Financing Activities............ 52,782,000 31,812,000 40,536,000
----------- ----------- -----------
Effect of Rate Changes on Cash................................... 1,034,000 (1,075,000) --
----------- ----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents............. (632,000) 3,300,000 (7,373,000)
Cash and Cash Equivalents at Beginning of Year................... 8,189,000 4,889,000 12,262,000
----------- ----------- -----------
Cash and Cash Equivalents at End of Year......................... $ 7,557,000 $ 8,189,000 $ 4,889,000
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................... $ 6,734,000 $ 3,524,000 $ 2,129,000
=========== =========== ===========
Income taxes............................................... $27,844,000 $20,067,000 $17,195,000
=========== =========== ===========
</TABLE>
(Continued)
16
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
Oct. 1, Oct. 3, Oct. 4,
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
In fiscal 2000, the Company purchased all of the capital stock
of LC of Illinois, Inc., HFC Technologies, Inc., eXpert
Wireless Solutions, Inc., 1261248 Ontario, Inc., FHC, Inc.,
Rizzo Associates, Inc., Drake Contractors, Inc. and
Wm. Bethlehem Trenching Ltd. The Company also purchased
certain assets of Edward A. Sears Associates. In conjunction
with these acquisitions, liabilities were assumed as follows:
Fair value of assets acquired.......................... $ 59,653,000
Cash paid.............................................. (29,466,000)
Issuance of common stock and exchangeable stock........ (11,903,000)
Purchase price payable (1,500,000)
Other acquisition costs................................ (730,000)
------------
Liabilities assumed................................ $ 16,054,000
============
In fiscal 1999, the Company purchased all of the capital stock
of McCulley, Frick & Gilman, Inc., Collins/Pina Consulting
Engineers, Inc., D.E.A. Construction Company, BAHA
Communications, Inc., Utilities & C.C., Inc., ASL Consultants,
Inc., Cosentini Associates, Evergreen Utility Contractors,
Inc., Continental Utility Contractors, Inc., Gig Harbor
Construction, Inc. and PDR Engineers, Inc. In conjunction
with these acquisitions, liabilities were assumed as follows:
Fair value of assets acquired.......................... $110,616,000
Cash paid.............................................. (52,275,000)
Issuance of common stock............................... (11,571,000)
Purchase price payable (282,000)
Other acquisition costs................................ (965,000)
------------
Liabilities assumed................................ $ 45,523,000
============
In fiscal 1998, the Company purchased all of the capital stock of
C.D.C. Engineering, Inc., McNamee, Porter & Seeley, Inc. and
the Sentrex Group of Companies. The Company also purchased
certain assets of Brown & Root, Inc. and Halliburton
Corporation. In conjunction with these acquisitions,
liabilities were assumed as follows:
Fair value of assets acquired.......................... $ 80,209,000
Cash paid.............................................. (38,348,000)
Issuance of common and exchangeable stock.............. (20,935,000)
Other acquisition costs................................ (985,000)
--------------
Liabilities assumed................................ $ 19,941,000
=============
</TABLE>
(Concluded)
See accompanying Notes to Consolidated Financial Statements.
17
<PAGE>
TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED OCTOBER 1, 2000,
OCTOBER 3, 1999 AND OCTOBER 4, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - Tetra Tech, Inc. (the "Company") provides specialized
management consulting and technical services in three principal business
areas: resource management, infrastructure and communications. The Company's
management consulting services are complemented by its technical services.
These technical services, which implement solutions, include research and
development, applied science, engineering and architectural design,
construction management, and operations and maintenance.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company, its wholly-owned subsidiaries and its
majority-owned subsidiary Tetra Tech Canada Ltd. All significant intercompany
balances and transactions have been eliminated in consolidation.
FISCAL YEAR - The Company reports results of operations based on 52-
or 53-week periods ending near September 30. Fiscal years 2000 and 1999
contained 52 weeks. Fiscal year 1998 contained 53 weeks.
CONTRACT REVENUE AND COSTS - In the course of providing its
services, the Company routinely subcontracts for services. These costs are
passed through to clients and, in accordance with industry practice, are
included in the Company's gross revenue. Because subcontractor services can
change significantly from project to project, changes in gross revenue may
not be indicative of business trends. Accordingly, the Company also reports
net revenue, which is gross revenue less the cost of subcontractor services.
Contract revenue and contract costs on both cost-type and fixed-price-type
contracts are recorded using the percentage-of-completion (cost-to-cost)
method. Under this method, contract revenue on long-term contracts is
recognized in the ratio that contract costs incurred bear to total estimated
costs. Costs and income on long-term contracts are subject to revision
throughout the lives of the contracts and any required adjustments are made
in the period in which the revisions become known. Losses on contracts are
recorded in full as they are identified.
Selling, general and administrative costs are expensed in the period
incurred.
Net revenue under Federal government contracts and subcontracts
accounted for approximately 29.1%, 39.1% and 48.7% of net revenue for the fiscal
years ended October 1, 2000, October 3, 1999 and October 4, 1998, respectively.
CASH AND CASH EQUIVALENTS - Cash equivalents include all investments
with initial maturities of 90 days or less.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost
and are depreciated over their estimated useful lives using the straight-line
method. Expenditures for maintenance and repairs are expensed as incurred.
Generally, estimated useful lives range from three to ten years for
equipment, furniture and fixtures. Leasehold improvements are amortized on a
straight-line basis over the shorter of their estimated useful lives or the
remaining terms of the leases.
18
<PAGE>
LONG-LIVED ASSETS - Management's policy regarding long-lived assets
is to evaluate the recoverability of its assets when the facts and
circumstances suggest that the assets may be impaired. This assessment is
performed based on the estimated undiscounted cash flows compared with the
carrying value of the assets. If the future cash flows (undiscounted and
without interest charges) are less than the carrying value, a writedown would
be recorded to reduce the related asset to its estimated fair value.
Intangible assets as of October 1, 2000 and October 3, 1999 consist
principally of goodwill resulting from business acquisitions which is being
amortized over periods ranging from 15 to 30 years. The accumulated
amortization of intangible assets as of October 1, 2000 and October 3, 1999
was $17.8 million and $11.3 million, respectively.
INCOME TAXES - The Company files a consolidated federal income tax
return and combined California franchise tax reports, as well as other
returns which are required in the states in which the Company does business,
which include the Company and its subsidiaries. Income taxes are recognized
for (a) the amount of taxes payable or refundable for the current period, and
(b) deferred income tax assets and liabilities for the future tax
consequences of events that have been recognized in the Company's financial
statements or income tax returns. The effects of income taxes are measured
based on enacted tax laws and rates.
EARNINGS PER SHARE - Basic Earnings Per Share (EPS) excludes
dilution and is computed by dividing the income available to common
stockholders by the weighted average number of common shares outstanding for
the period. Diluted EPS is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding and
dilutive potential common shares. The Company includes as potential common
shares the weighted average number of shares of exchangeable stock of a
subsidiary, the weighted average number of shares of redeemable preferred
stock and the weighted average dilutive effects of outstanding stock options.
The exchangeable stock of a subsidiary is non-voting and is exchangeable on a
one to one basis, as adjusted for stock splits and stock dividends subsequent
to the original issuance, for the Company's common stock. The redeemable
preferred stock had voting and dividend rights substantially similar to those
of common. The redeemable preferred stock outstanding at September 28, 1997
was converted to common stock during the fiscal year ended October 4, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash
and cash equivalents, accounts receivable, unbilled receivables and accounts
payable approximate fair value because of the short maturities of these
instruments. The carrying amount of the revolving credit facility and other
long-term debt approximates fair value because the interest rates are based
upon variable reference rates.
CONCENTRATION OF CREDIT RISK - Financial instruments which subject
the Company to credit risk consist primarily of cash and cash equivalents,
accounts receivable and unbilled receivables. The Company places its
temporary cash investments with high credit quality financial institutions
and, by policy, limits the amount of investment exposure to any one financial
institution. As of October 1, 2000, approximately 10.2% of accounts
receivable was due from various agencies of the Federal government. The
remaining accounts receivable are generally diversified due to the large
number of organizations comprising the Company's client base and their
geographic dispersion. The Company performs ongoing credit evaluations of its
clients and maintains an allowance for potential credit losses.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the
19
<PAGE>
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which
was amended by SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS
AND CERTAIN HEDGING ACTIVITIES. These Statements required derivatives to be
measured at fair value and to be recorded as assets or liabilities on the
balance sheet. The accounting for gains or losses resulting from changes in
the fair values of those derivatives would be dependent upon the use of the
derivative and whether it qualifies for hedge accounting. These Statements
are effective for all fiscal quarters of fiscal years beginning after June
15, 2000. The Company will adopt these Statements in fiscal year 2001 and
believe that the adoption of SFAS No. 133 and SFAS No. 138 will have no
material impact on its results of operations or financial position.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION, which outlines
the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. SAB No. 101
requires companies to report any changes in revenue recognition as a
cumulative change in accounting principle at the time of implementation in
accordance with Accounting Principles Board (APB) Opinion No. 20, ACCOUNTING
CHANGES. SAB No. 101, as amended, is effective no later than the fourth
quarter of fiscal years beginning after December 15, 1999. The Company will
adopt SAB No. 101 in fiscal year 2001. The Company believes its existing
revenue recognition policies and procedures are in compliance with SAB No.
101, and that the adoption of SAB No. 101 will have no material impact on its
results of operations or financial position.
2. 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 & Root, Inc. and Halliburton Corporation, both of which
are subsidiaries of Halliburton Company (collectively, NUS). NUS provides
consulting, engineering and design services for the environmental remediation
of contaminated air, water and soil conditions. The purchase price was valued
at approximately $25.2 million, as adjusted, and consisted of cash.
On March 2, 1998, Whalen Service Corps Inc. (WSC) agreed to
participate in a partnership with Sentrex Cen-Comm and ANTEC Corporation to
provide design, engineering, information management and construction services
to support advanced communication system upgrades to the broadband
information transport industries. The agreement required the purchase of
certain assets of TANCO LLC from ANTEC Corporation for a price in cash of
approximately $0.3 million. WSC initially held a 51% majority interest in
Whalen/Sentrex LLC, a California limited liability company, while LAL Corp.
held the remaining 49% minority interest.
On March 26, 1998, the Company acquired 100% of the capital stock of
C.D.C. Engineering, Inc. (CDE), a consulting and engineering firm
specializing in civil engineering, transportation engineering, structural
engineering and land surveying. The purchase was valued at approximately $1.5
million, consisting of cash and 88,825 shares of Company common stock.
On July 8, 1998, the Company acquired 100% of the capital stock of
McNamee, Porter & Seeley, Inc. (MPS), a provider of engineering services with
expertise in the areas of water, industrial wastewater and process controls.
The purchase was valued at approximately $14.9 million, consisting of cash
and 343,610 shares of Company common stock. Simultaneously with the
acquisition, MPS assigned to its former owners accounts receivable having a
net value of $8.0 million.
On September 22, 1998, the Company acquired, through its
majority-owned subsidiary Tetra Tech Canada Ltd. (TtC), 100% of the capital
stock of 1056584 Ontario Limited, 1056585 Ontario Limited, 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 was valued at approximately $19.2
million, consisting of cash and 920,354 shares of TtC exchangeable stock. The
TtC exchangeable stock is exchangeable, share for share, subject to
adjustment, for Company common stock as described in the related purchase
agreement. Upon completion of the SGOC acquisition, the Company beneficially
owns 100% of Whalen/Sentrex LLC.
On February 26, 1999, the Company acquired 100% of the capital stock
of McCulley, Frick & Gilman, Inc. (MFG), a provider of professional
environmental science and consulting services to private-sector clients. The
purchase was valued at approximately $8.1 million, as adjusted, consisting of
cash and 237,413 shares of Company common stock, of which 5,923 shares were
issued in October 1999 pursuant to the purchase price adjustment clause in
the related purchase agreement.
On May 7, 1999, the Company acquired 100% of the capital stock of
Collins/Pina Consulting Engineers, Inc. (CPC), a provider of consulting
engineering and related services primarily in Arizona. The purchase was
valued at approximately $2.7 million, as adjusted, consisting of cash and
4,938 shares of Company common stock.
On May 19, 1999, the Company acquired 100% of the capital stock of
D.E.A. Construction Company (DCC), a provider of engineering and network
infrastructure services for cable television and fiber optic telephone
networks including design and construction and maintenance capabilities of
communications and information transport systems. The purchase was valued at
approximately $15.5 million, as adjusted, consisting of cash.
On May 21, 1999, the Company acquired 100% of the capital stock of
BAHA Communications, Inc. (BCI), a supplier of infrastructure installation
and maintenance services to the wireless personal communications industry.
The purchase was valued at approximately $2.6 million, consisted of 176,168
shares of Company common stock. Simultaneously with the acquisition, BCI
assigned to its former owners accounts receivable having a net value of $1.0
million.
20
<PAGE>
On June 18, 1999, the Company acquired 100% of the capital stock of
Utilities & C.C., Inc. (UCC), a supplier of infrastructure installation and
maintenance services to the wireless personal communications industry. The
purchase was valued at approximately $2.2 million, as adjusted, consisting of
144,482 shares of Company common stock, of which 6,552 shares were issued in
October 1999 pursuant to the purchase price adjustment clause in the related
purchase agreement.
On June 25, 1999, the Company acquired 100% of the capital stock of
ASL Consultants, Inc. (ASL), a provider of water and wastewater treatment,
transportation, and other engineering services. The purchase was valued at
approximately $10.1 million, consisting of cash.
On June 30, 1999, the Company acquired 100% of the capital stock of
L.M.W. Associates, Inc., Cosentini Associates, Inc. and Cobin, Inc., and 100%
of the limited liability partnership interests of Cosentini Associates IL
LLP, Cosentini Associates MA LLP, Cosentini Associates DC LLP and Cosentini
Associates FL LLP (collectively, CAA). The purchase was valued at
approximately $5.3 million, consisting of cash. Simultaneously with the
acquisition, CAA assigned to its former owners accounts receivable having a
gross value of $18.4 million.
On September 3, 1999, the Company acquired 100% of the capital stock
of PDR Engineers, Inc. (PDR), a provider of engineering consulting services
to Federal, state and local government and private-sector clients. The
purchase was valued at approximately $6.6 million, consisting of cash and
236,525 shares of Company common stock.
On October 2, 1999, the Company acquired 100% of the capital stock
of Evergreen Utility Contractors, Inc., Continental Utility Contractors, Inc.
and Gig Harbor Construction, Inc. (collectively, EUC), a provider of
engineering and network services for cable TV and fiber optic networks in the
Pacific Northwest Region of the U.S. The purchase was valued at approximately
$11.8 million, consisting of cash.
On October 25, 1999, the Company acquired 100% of the capital stock
of LC of Illinois, Inc. and HFC Technologies, Inc. (collectively, LCI), a
provider of engineering and network infrastructure services for cable
television and fiber optic telephone networks including design, construction
and maintenance capabilities for communications and information transport
systems. The purchase was valued at approximately $1.6 million, consisting of
cash.
On March 30, 2000, Tetra Tech Engineers, P.C. acquired certain
assets of Edward A. Sears Associates (ESA), a provider of engineering
services to hospitals in New York. Concurrent with this transaction, the
Company's subsidiary, Cosentini Associates, Inc., acquired certain
non-licensed assets of ESA from Tetra Tech Engineers, P.C. The purchase was
valued at approximately $0.4 million, and consisted of cash.
On April 3, 2000, the Company acquired 100% of the capital stock of
eXpert Wireless Solutions, Inc. (EWS), a provider of radio-frequency
engineering and consulting services to the wireless communications industry.
The purchase was valued at approximately $18.8 million, consisting of cash
(of which $500,000 is dependent on operational performance) and 407,877
shares of Company common stock. Additionally, concurrently with the
acquisition, EWS distributed to its former shareholders accounts receivable
valued at approximately $1.8 million.
On May 3, 2000, the Company, through its majority-owned subsidiary,
Tetra Tech Canada Ltd., acquired 100% of the capital stock of 1261248
Ontario, Inc., which does business as Engineered Communications (ENG), a
provider of engineering and network services for the wired communications
21
<PAGE>
industry in Ontario, Canada. The purchase was valued at approximately
$1.5 million, consisting of cash and 33,606 shares of exchangeable stock of
the Company's majority-owned subsidiary.
On May 17, 2000, the Company acquired 100% of the capital stock of
FHC, Inc. (FHC), a provider of engineering consulting services primarily to
the state and local governments in Oklahoma. The purchase was valued at
approximately $5.2 million, consisting of cash and 56,334 shares of Company
common stock.
On May 24, 2000, the Company acquired 100% of the capital stock of
Rizzo Associates, Inc. (RAI), a provider of engineering consulting services
to state and local governments and commercial clients in the upper Northeast
region of the U.S. This purchase was valued at approximately $10.3 million,
consisting of cash and 112,436 shares of Company common stock.
On June 16, 2000, the Company acquired 100% of the capital stock of
Drake Contractors, Inc. (DCI), a provider of infrastructure installation and
maintenance services primarily in Colorado. The purchase was valued at
approximately $5.5 million, consisting of cash (of which $1.0 million is
contingent on operational performance). Additionally, concurrent with the
acquisition, DCI distributed to its former shareholders accounts receivable
valued at approximately $2.1 million.
On July 5, 2000, the Company, through its majority-owned subsidiary,
Tetra Tech Canada Ltd., acquired 100% of the capital stock of Wm. Bethlehem
Trenching Ltd. (BTL), a provider of infrastructure installation and
maintenance services primarily in Ontario, Canada. The purchase was valued at
approximately $0.3 million and consisted of cash.
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 condensed consolidated balance
sheets. The Company historically valued stock exchanged in acquisitions based
on extended restriction periods, high volatility in the trading price of the
Company's common stock and other economic factors specific to the Company's
circumstances. During the first three fiscal quarters of fiscal 2000 and all
of fiscal 1999 and fiscal 1998, stock exchanged in acquisitions was
discounted by 15%. The results of operations of each of the companies
acquired have been included in the Company's financial statements from the
effective acquisition dates.
The effect of unaudited pro forma operating results of the LCI, ENG,
ESA, DCI and BTL acquisitions, had they been acquired on October 5, 1998, is
not material.
The following table presents summarized unaudited pro forma
operating results assuming that the Company had acquired MFG, CPC, DCC, BCI,
UCC, ASL, CAA, PDR, EUC, EWS, FHC and RAI on October 5, 1998:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------
Oct. 1, 2000 Oct. 3, 1999
-------------------- -------------------
<S> <C> <C>
Gross revenue $823,125,000 $706,990,000
Income before income tax expense 67,457,000 57,179,000
Net income 40,580,000 32,020,000
Basic earnings per share $ 1.03 $ 0.84
Diluted earnings per share 0.97 0.79
Weighted average common shares outstanding:
Basic 39,305,000 38,135,000
Diluted 41,904,000 40,526,000
</TABLE>
22
<PAGE>
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at October 1, 2000
and October 3, 1999:
<TABLE>
<CAPTION>
Oct. 1, 2000 Oct. 3, 1999
--------------- ---------------
<S> <C> <C>
Billed accounts receivable.................................... $ 158,992,000 $ 95,465,000
--------------- ---------------
Unbilled accounts receivable:
Billable amounts not invoiced, amounts billable at
stipulated stages of completion of contract work,
and unbilled amounts pending negotiation or receipt
of contract modifications............................. 119,478,000 84,230,000
Costs and fee retention billable upon audit of total
contract costs ....................................... 4,232,000 5,282,000
--------------- ---------------
Total unbilled accounts receivable ........................... 123,710,000 89,512,000
--------------- ---------------
Billings in excess of costs on uncompleted contracts.......... (15,947,000) (5,872,000)
--------------- ---------------
Allowance for uncollectible accounts:
Allowance for doubtful accounts.......................... (5,465,000) (4,089,000)
Allowance for disallowed costs .......................... (1,608,000) (4,440,000)
---------------- ---------------
Total allowance for uncollectible accounts................... (7,073,000) (8,529,000)
--------------- ---------------
Total ........................................................ $ 259,682,000 $ 170,576,000
=============== ===============
</TABLE>
The accounts receivable valuation allowance includes amounts to
provide for doubtful accounts and for the potential disallowance of billed
and unbilled costs. The Company's contracts with the Federal government are
subject to audit by the government, primarily the Defense Contract Audit
Agency (DCAA), which reviews the Company's overhead rates, operating systems
and cost proposals. During the course of its audit, the DCAA may disallow
costs if it determines that the Company improperly accounted for such costs
in a manner inconsistent with Cost Accounting Standards. Historically, the
Company has not had any material cost disallowances by the DCAA as a result
of audit, except for disallowances of acquired receivables as further
described. There can be no assurance that DCAA audits will not result in
material cost disallowances in the future.
On September 15, 1995, the Company acquired Tetra Tech EM Inc. (EMI)
which contracts with the Federal government. At the time of acquisition,
audits had not been performed for years beyond 1986 and reserves for
disallowances relating to those unaudited years were adjusted to reflect the
estimated ultimate disallowances relating to those receivables. As of October
3, 1999, audits and negotiations relating to the EMI contracts for years 1987
through 1995 were complete, and cost disallowances as a result of these
audits totaled approximately $4.4 million. Beyond the $4.4 million in cost
disallowances, there remained uncollected receivables of $2.1 million.
Although it was determined that the Company was entitled to payments,
collectibility of such amounts was not assured as each Federal agency must
obtain separate funding approval. The reserves established for these
receivables exceeded the disallowances and the uncollected amounts by $1.75
million. Accordingly, this amount was taken into income in fiscal 1999.
During fiscal 2000, the Company collected $2.0 million and reversed
previously established reserves related to these receivables. As of October
1, 2000, substantially all of these outstanding receivables have been
collected and all reserves relating to these receivables have been reversed.
Allowances to provide for doubtful accounts have been determined
through reviews of specific amounts determined to be uncollectible, plus a
general allowance for other amounts for which some
23
<PAGE>
potential loss is determined to be probable based on current events and
circumstances. Given the above, management believes that the resolution of
these matters will not have a material adverse effect on the Company's
financial position or results of operations.
As of October 1, 2000, the Company had approximately $4.2 million
under retainage provisions of contracts.
4. INCOME TAXES
Income tax expense for the fiscal years ended October 1, 2000,
October 3, 1999 and October 4, 1998 consisted of the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------
Oct. 1, Oct. 3, Oct. 4,
2000 1999 1998
-------------- -------------- ------------
<S> <C> <C> <C>
Current:
Federal............................ $ 20,845,000 $ 18,763,000 $ 15,284,000
State.............................. 5,224,000 4,661,000 3,535,000
Deferred ............................. 708,000 (250,000) (2,899,000)
------------- ------------- -------------
Total income tax expense.............. $ 26,777,000 $ 23,174,000 $ 15,920,000
============= ============= =============
</TABLE>
Temporary differences comprising the net deferred income tax asset
shown on the consolidated balance sheets were as follows:
<TABLE>
<CAPTION>
Oct. 1, Oct. 3,
2000 1999
------------- -------------
<S> <C> <C>
Allowance for doubtful accounts............................. $ 3,041,000 $ 1,787,000
Cash to accrual............................................. (994,000) (1,119,000)
Accrued vacation............................................ 1,871,000 2,189,000
State taxes................................................. 1,337,000 1,477,000
Prepaid expense............................................. (514,000) (307,000)
Depreciation................................................ (2,317,000) (1,047,000)
Other....................................................... 127,000 279,000
------------- -------------
Net deferred income tax asset............................... $ 2,551,000 $ 3,259,000
============= =============
</TABLE>
Total income tax expense was different than the amount computed by
applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------
Oct. 1, 2000 Oct. 3, 1999 Oct. 4, 1998
--------------------- ---------------------- -----------------------
Amount % Amount % Amount %
------------- ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Tax at federal statutory rate.......... $ 23,527,000 35.0% $ 18,301,000 35.0% $ 12,777,000 35.0%
State taxes, net of federal benefit.... 3,495,000 5.2 2,719,000 5.2 1,898,000 5.2
Tax credit............................. (2,800,000) (4.2) -- -- -- --
Goodwill............................... 2,053,000 3.1 1,434,000 2.7 990,000 2.7
Other.................................. 502,000 0.7 720,000 1.4 255,000 0.7
------------- ----- ------------ ----- ------------ -----
Total income tax expense............... $ 26,777,000 39.8% $ 23,174,000 44.3% $ 15,920,000 43.6%
============= ===== ============ ===== ============= =====
</TABLE>
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<PAGE>
5. LONG-TERM OBLIGATIONS
The Company has a credit agreement (as amended, the "Credit
Agreement") with a bank to support its working capital and acquisition needs.
The Credit Agreement provides a revolving credit facility of $150.0 million
and matures on March 17, 2005 or earlier at the discretion of the Company
upon payment in full of loans and other obligations.
Interest on borrowings under the Credit Agreement is payable at the
Company's option (a) at a base rate (the greater of the federal funds rate
plus 0.50% or the bank's reference rate) as defined in the Credit Agreement
or (b) at a eurodollar rate plus a margin which ranges from 0.75% to 1.25%.
The weighted average interest rate on outstanding borrowings under the Credit
Agreement at October 1, 2000 was 7.71%.
Borrowings under the Credit Agreement are secured by the Company's
accounts receivable and the stock of the Company's subsidiaries.
The Credit Agreement contains various covenants including, but not
limited to, restrictions related to tangible net worth, net income,
additional indebtedness, asset sales, mergers and acquisitions, creation of
liens, and dividends on capital stock (other than stock dividends).
As of October 1, 2000, outstanding borrowings totaled $110.0 million
and standby letters of credit totaled $1.7 million.
At October 1, 2000, approximately $1.5 million of additional debt
existed from acquired companies. The weighted average interest rate on these
outstanding borrowings at October 1, 2000 was 7.99%. This debt is primarily
related to pre-acquisition borrowings to facilitate equipment purchases. The
Company intends to repay these amounts prior to the end of their term and
terminate all such agreements.
6. STOCKHOLDERS' EQUITY
In February 1999, the Company, along with certain selling
stockholders, offered a total of 3,968,750 shares of its common stock through
a public offering. The Company offered 1,250,000 shares and received
approximately $22.2 million in net proceeds which were used for the partial
repayment of outstanding indebtedness under the Company's revolving credit
facility.
In connection with the ENG and SGOC acquisitions, the Company issued
an aggregate of 953,960 shares of exchangeable stock of its subsidiary, Tetra
Tech Canada Ltd. (the "Exchangeable Shares"), a corporation existing under
the laws of the Province of Ontario, Canada. The Exchangeable Shares are
non-voting but carry exchange rights under which a holder of Exchangeable
Shares is entitled, at any time after five months from the date of issue of
the Exchangeable Shares, to require the Company to redeem all or any part of
the Exchangeable Shares for an amount per share equal to (a) the current
market price of a share of the Company's common stock, which shall be
satisfied in full by the Company's delivery to such holder of one share of
its common stock for each Exchangeable Share presented and surrendered, plus
(b) a dividend amount or dividend shares, if any. The Exchangeable Shares
cannot be put back to the Company for cash.
Pursuant to the Company's 1989 Stock Option Plan, key employees may
be granted options to purchase an aggregate of 1,192,090 shares of the
Company's common stock at prices ranging from 85% to 100% of the market value
on the date of grant. All options granted to date by the Company have been at
100% of the market value as determined by the Board of Directors at the date
of grant. These options
25
<PAGE>
become exercisable beginning one year from date of grant, become fully vested
in four years and terminate ten years from the date of grant.
The Company also has a 1992 Incentive Stock Plan under which key
employees may be granted options to purchase an aggregate of 5,761,718 shares
of the Company's common stock at prices not less than the market value on the
date of grant. From such date of grant, these options become exercisable
after one year, are fully vested no later than five years after grant and
terminate no later than ten years after grant.
Pursuant to the Company's 1992 Stock Option Plan for Nonemployee
Directors, non-employee directors may be granted options to purchase an
aggregate of 143,047 shares of the Company's common stock at prices not less
than the market value on the date of grant. These options vest and become
exercisable when, and only if, the optionee continues to serve as a director
until the Annual Meeting following the year in which the options were granted.
The Company also has an Employee Stock Purchase Plan (the "Purchase
Plan") which provides for the granting of Purchase Rights to purchase common
stock to regular full and part-time employees or officers of the Company and
its subsidiaries. Under the Purchase Plan, shares of common stock will be
issued upon exercise of the Purchase Rights. Under the Purchase Plan, an
aggregate of 1,098,632 shares may be issued pursuant to the exercise of
Purchase Rights. The maximum amount that an employee can contribute during a
Purchase Right Period is $4,000, and the minimum contribution per payroll
period is $25.
Under the Purchase Plan, the exercise price of a Purchase Right will
be the lesser of 100% of the fair market value of such shares on the first
day of the Purchase Right Period or 85% of the fair market value on the last
day of the Purchase Right Period. For this purpose, the fair market value of
the stock is its closing price as reported on the Nasdaq Stock Market on the
day in question.
During the three years in the period ended October 1, 2000, option
activity was as follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Options Exercise Price
-------------- ---------------
<S> <C> <C>
Balance, September 28, 1997..................... 2,922,968 $ 7.46
Granted.................................... 711,957 13.51
Exercised.................................. (440,331) 5.94
Cancelled.................................. (234,007) 10.09
------------ ------------
Balance, October 4, 1998........................ 2,960,587 8.94
Granted.................................... 899,284 16.51
Exercised.................................. (289,972) 6.63
Cancelled.................................. (189,386) 11.02
------------ ------------
Balance, October 3, 1999........................ 3,380,513 11.27
Granted.................................... 709,722 12.88
Exercised.................................. (645,106) 8.84
Cancelled.................................. (106,824) 15.03
------------ ------------
Outstanding at October 1, 2000.................. 3,338,305 $ 11.96
------------ ------------
Exercisable at October 1, 2000.................. 1,660,664 $ 9.45
------------ ------------
</TABLE>
The following table summarizes information concerning currently
outstanding and exercisable options:
26
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Yrs.) Price Exercisable Price
----------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.75 - $0.94 24,152 0.73 $ 0.93 24,152 $ 0.93
$2.56 - $3.82 84,413 2.09 3.44 84,413 3.44
$4.27 - $6.31 444,596 3.75 5.23 444,596 5.23
$7.10 - $10.43 797,508 6.03 9.43 636,560 9.34
$10.91 - $15.84 1,216,299 8.20 12.37 310,162 13.34
$16.50 - $24.50 770,437 8.64 19.07 160,761 18.49
$25.56 - $26.88 900 9.86 26.29 -- --
----------------- ----------- ------------ -------- ----------- --------
$0.75 - $26.88 3,338,305 6.98 $ 11.96 1,660,644 $ 9.45
================= =========== ============ ======== =========== ========
</TABLE>
The Company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, and related interpretations in accounting for its employee
stock option plans. Accordingly, no compensation expense has been recognized
for its stock-based compensation plans. Pro forma net income and earnings per
share had the Company accounted for stock options issued to employees in
accordance with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, are as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
Oct. 1, 2000 Oct. 3, 1999 Oct. 4, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net income-as reported.............................. $ 40,442,000 $ 29,115,000 $ 20,586,000
Net income-pro forma................................ 36,324,000 27,004,000 18,945,000
Basic earnings per share-as reported................ $ 1.04 $ 0.78 $ 0.59
Diluted earnings per share-as reported.............. 0.97 0.74 0.56
Basic earnings per share-pro forma.................. 0.93 0.73 0.54
Diluted earnings per share-pro forma................ 0.87 0.68 0.52
</TABLE>
The fair value of the Company's stock options used to compute pro
forma net income and pro forma earnings per share disclosures is the
estimated value using the Black-Scholes option-pricing model. The weighted
average fair values per share of options granted in fiscal 2000, 1999 and
1998 are $5.48, $6.59 and $4.90, respectively. The following assumptions were
used in completing the model:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
Oct. 1, 2000 Oct. 3, 1999 Oct. 4, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Dividend yield...................................... 0.0% 0.0% 0.0%
Expected volatility................................. 46.5% 42.2% 42.5%
Risk-free rate of return, annual.................... 7.7% 6.4% 6.4%
Expected life....................................... 3.51 yrs. 3.26 yrs. 3.11 yrs.
</TABLE>
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
Oct. 1, Oct. 3, Oct. 4,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C> <C>
Numerator--
Net income............................................... $ 40,442,000 $ 29,115,000 $ 20,586,000
------------ ------------ ------------
Denominator--
Denominator for basic earnings per share--
weighted average shares............................. 39,003,000 37,159,000 34,962,000
Effect of dilutive securities:
Stock options....................................... 1,601,000 1,320,000 1,300,000
Redeemable preferred stock.......................... -- -- 189,000
Exchangeable stock of a subsidiary.................. 998,000 1,071,000 37,000
------------ ------------ ------------
Dilutive potential common shares......................... 2,599,000 2,391,000 1,526,000
Denominator for diluted earnings per share--
adjusted weighted average shares and
assumed conversions............................... 41,602,000 39,550,000 36,488,000
============ ============ ============
Basic earnings per share.................................... $ 1.04 $ 0.78 $ 0.59
============ ============ ============
Diluted earnings per share.................................. $ 0.97 $ 0.74 $ 0.56
============ ============ ============
</TABLE>
8. LEASES
The Company leases land, buildings and equipment under various
operating leases. Rent expense under all operating leases was approximately
$28.3 million, $20.6 million and $13.4 million for the fiscal years ended
October 1, 2000, October 3, 1999 and October 4, 1998, respectively. Amounts
payable under noncancelable operating lease commitments are as follows during
the fiscal years ending in:
<TABLE>
<CAPTION>
<S> <C>
2001......................................... $ 22,087,000
2002......................................... 18,328,000
2003......................................... 14,215,000
2004......................................... 11,391,000
2005......................................... 8,942,000
Thereafter................................... 18,329,000
------------
Total........................................ $ 93,292,000
============
</TABLE>
9. RETIREMENT PLANS
The Company and its subsidiaries have established defined
contribution plans and 401(k) plans. Generally, employees are eligible to
participate in the defined contribution plans upon completion of one year of
service and in the 401(k) plans upon commencement of employment. For the
fiscal years ended October 1, 2000, October 3, 1999 and October 4, 1998,
employer contributions relating to the plans were approximately $7.2 million,
$6.4 million and $4.0 million, respectively.
28
<PAGE>
10. CONTINGENCIES
The Company is subject to certain claims and lawsuits typically
filed against the engineering and consulting professions, primarily alleging
professional errors or omissions. The Company carries professional liability
insurance, subject to certain deductibles and policy limits against such
claims. Management is of the opinion that the resolution of these claims will
not have a material adverse effect on the Company's financial position and
results of operations.
11. OPERATING SEGMENTS
The Company's management has organized its operations into three
operating segments: Resource Management, Infrastructure, and Communications.
The Resource Management operating segment provides specialized environmental
engineering and consulting services primarily relating to water quality and
water availability to both public and private organizations. The
Infrastructure operating segment provides engineering services to provide
additional development, as well as upgrading and replacement of existing
infrastructure to both public and private organizations. The Communications
operating segment provides a comprehensive set of services including network
planning, engineering, site acquisition, construction and construction
management, and operations and maintenance services to telecommunications
companies, wireless service providers and cable operators. Management has
established these operating segments based upon the services provided, the
different marketing strategies, and the specialized needs of the clients. The
Company accounts for inter-segment sales and transfers as if the sales and
transfers were to third parties, that is, by applying a negotiated fee onto
the cost of the services performed. Management evaluates the performance of
these operating segments based upon their respective income from operations
before the effect of any acquisition-related amortization and any fee from
inter-segment sales and transfers.
The following tables set forth (in thousands) summarized financial
information on the Company's reportable segments:
Reportable Segments:
<TABLE>
<CAPTION>
Resource
Fiscal year ended October 1, 2000 Management Infrastructure Communications Total
---------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Gross Revenue.......................... $ 374,875 $ 236,922 $ 207,936 $ 819,733
Net Revenue............................ 246,851 190,269 153,360 590,480
Income from Operations................. 32,901 20,866 28,020 81,787
Depreciation Expense................... 1,670 2,514 2,806 6,990
Segment Assets......................... 175,571 75,043 86,702 337,316
</TABLE>
<TABLE>
<CAPTION>
Resource
Fiscal year ended October 3, 1999 Management Infrastructure Communications Total
---------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Gross Revenue......................... $ 340,955 $ 135,589 $ 102,378 $ 578,922
Net Revenue........................... 231,518 111,776 88,765 432,059
Income from Operations................ 30,147 15,703 14,905 60,755
Depreciation Expense.................. 1,446 4,430 1,565 7,441
Segment Assets........................ 154,375 48,633 44,444 247,452
</TABLE>
<TABLE>
<CAPTION>
Resource
Fiscal year ended October 4, 1998 Management Infrastructure Communications Total
---------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Gross Revenue......................... $ 279,582 $ 56,464 $ 54,739 $ 390,785
Net Revenue........................... 198,701 47,174 51,084 296,959
Income from Operations................ 24,572 8,337 9,967 42,876
Depreciation Expense.................. 1,851 1,101 530 3,482
Segment Assets........................ 124,951 20,329 24,931 170,211
Reconciliations:
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------
Oct. 1, 2000 Oct. 3, 1999 Oct. 4, 1998
---------------- ----------------- ---------------
<S> <C> <C> <C>
GROSS REVENUE
Gross revenue from reportable segments.................. $ 819,733 $ 578,922 $ 390,785
Elimination of inter-segment revenue.................... (32,796) (15,850) (11,237)
Other revenue........................................... 7,641 3,418 3,386
----------- ----------- -----------
Total consolidated gross revenue.................... $ 794,578 $ 566,490 $ 382,934
=========== =========== ===========
NET REVENUE
Net revenue from reportable segments.................... $ 590,480 $ 432,059 $ 296,959
Other revenue........................................... 7,641 21 638
----------- ----------- -----------
Total consolidated net revenue...................... $ 598,121 $ 432,080 $ 297,597
=========== =========== ===========
INCOME FROM OPERATIONS
Income from operations of reportable segments........... $ 81,787 $ 60,755 $ 42,876
Elimination of inter-segment income..................... (2,069) (730) (1,286)
Other income............................................ 990 240 1,191
Amortization of intangibles............................. (6,463) (4,841) (2,968)
----------- ----------- -----------
Total consolidated income from operations........... $ 74,245 $ 55,424 $ 39,813
=========== =========== ===========
TOTAL ASSETS
Total assets from reportable segments................... $ 337,316 $ 247,452 $ 170,211
Goodwill not allocated to segments...................... 190,452 160,686 108,638
Elimination of inter-segment assets..................... (1,730) (27,660) (12,239)
----------- ----------- -----------
Total consolidated total assets..................... $ 526,038 $ 380,478 $ 266,610
=========== =========== ===========
</TABLE>
GEOGRAPHIC INFORMATION:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------------------------------
Oct. 1, 2000 Oct. 3, 1999 Oct. 4, 1998
--------------------------- --------------------------- --------------------------
Net Long-Lived Net Long-Lived Net Long-Lived
Revenue (a) Assets (b) Revenue (a) Assets (b) Revenue (a) Assets (b)
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States............. $ 579,593 $ 229,098 $ 417,983 $ 185,408 $ 288,020 $ 124,278
Foreign countries......... 18,528 -- 14,097 -- 9,577 --
</TABLE>
(a) Net revenue is attributed to countries based on the location of work
performed.
(b) Long-lived assets include non-current assets of the Company.
MAJOR CLIENTS
The Company's net revenue attributable to the U.S. Federal
government was approximately $174.2 million, $169.3 million and $144.4
million for fiscal years ended October 1, 2000, October 3, 1999 and October
4, 1998, respectively. Both the Resource Management and Infrastructure
operating segments report revenue from the U.S. government.
12. QUARTERLY FINANCIAL INFORMATION - UNAUDITED
In the opinion of management, the following unaudited quarterly data
for the fiscal years ended October 1, 2000 and October 3, 1999 reflect all
adjustments necessary for a fair statement of the results of operations. All
such adjustments are of a normal recurring nature. (In thousands, except per
share data)
30
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal Year 2000 Quarter Quarter Quarter Quarter
---------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Gross revenue................................ $ 170,241 $ 177,581 $ 203,795 $ 242,961
Net revenue.................................. 129,171 138,846 156,468 173,636
Gross profit................................. 28,754 29,284 40,202 47,009
Income from operations....................... 14,733 15,980 19,673 23,859
Net income................................... 7,563 8,124 9,920 14,835(a)
Basic earnings per share..................... $ 0.20 $ 0.21 $ 0.25 $ 0.37
Diluted earnings per share .................. 0.19 0.20 0.24 0.35
Weighted average common shares
outstanding:
Basic................................... 38,453 38,550 39,287 39,721
Diluted................................. 40,418 41,140 42,104 42,590
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal Year 1999 Quarter Quarter Quarter Quarter
---------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Gross revenue................................ $ 113,973 $ 128,083 $ 157,091 $ 167,343
Net revenue.................................. 89,245 96,955 120,739 125,141
Gross profit................................. 19,058 22,553 32,550 30,583
Income from operations....................... 10,187 11,869 15,599 17,769
Net income................................... 5,427 6,462 8,503 8,723
Basic earnings per share..................... $ 0.15 $ 0.18 $ 0.22 $ 0.23
Diluted earnings per share .................. 0.14 0.16 0.21 0.22
Weighted average common shares
outstanding:
Basic................................... 35,820 36,793 37,801 38,223
Diluted................................. 38,387 39,263 40,145 40,404
</TABLE>
--------------------------
(a) Includes a tax credit of $2.8 million.
31
<PAGE>
SECURITIES INFORMATION
Tetra Tech's common stock is traded on the Nasdaq Stock Market under
the symbol TTEK (formerly, WATR). There were 1,911 stockholders of record as
of December 15, 2000. Tetra Tech has not paid any cash dividends since its
inception and does not intend to pay any cash dividends on its common stock
in the foreseeable future. The high and low sales prices for the common stock
for the last two fiscal years, as reported by the National Association of
Securities Dealers, Inc., are set forth in the following tables.
<TABLE>
<CAPTION>
<S> <C> <C>
FISCAL YEAR 2000 HIGH LOW
---------------- ---- ---
First Quarter $ 17.63 $ 10.50
Second Quarter 28.25 13.38
Third Quarter 26.50 15.94
Fourth Quarter 31.44 21.13
FISCAL YEAR 1999 HIGH LOW
---------------- ---- ---
First Quarter $ 22.40 $ 12.50
Second Quarter 21.50 13.70
Third Quarter 20.70 15.20
Fourth Quarter 20.00 13.50
</TABLE>
32
