UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JANUARY 2, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number 0-19655 TETRA TECH, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 95-4148514 ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) number) 670 N. Rosemead Boulevard, Pasadena, California 91107 ----------------------------------------------------- (Address of principal executive offices) (626) 351-4664 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of February 4, 2000, the total number of outstanding shares of the Registrant's common stock was 38,496,896.
TETRA TECH, INC. INDEX <TABLE> <CAPTION> PAGE NO. PART I. FINANCIAL INFORMATION <S> <C> <C> Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 Risk Factors 18 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 24 Signatures 29 </TABLE> -2-
PART I. FINANCIAL INFORMATION ITEM 1. Tetra Tech, Inc. Condensed Consolidated Balance Sheets <TABLE> <CAPTION> In thousands, except share data January 2, October 3, 2000 1999 ------------ ------------ (unaudited) <S> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents.......................................... $ 9,001 $ 8,189 Accounts receivable - net.......................................... 99,678 91,376 Unbilled receivables - net......................................... 88,583 85,072 Prepaid and other current assets................................... 9,140 7,174 Deferred income taxes.............................................. 3,259 3,259 ------------ ------------ Total Current Assets............................................ 209,661 195,070 ------------ ------------ PROPERTY AND EQUIPMENT: Leasehold improvements............................................. 2,773 3,343 Equipment, furniture and fixtures.................................. 43,583 39,488 ------------ ------------ Total........................................................... 46,356 42,831 Accumulated depreciation and amortization.......................... (23,246) (21,085) ----------- ------------ PROPERTY AND EQUIPMENT - NET........................................... 23,110 21,746 ------------ ------------ INTANGIBLE ASSETS - NET................................................ 159,989 160,686 OTHER ASSETS........................................................... 2,861 2,976 ------------ ------------ TOTAL ASSETS........................................................... $ 395,621 $ 380,478 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................................... $ 29,759 $ 32,570 Accrued compensation............................................... 17,709 21,900 Billings in excess of costs on uncompleted contracts............... 5,709 5,872 Other current liabilities.......................................... 11,145 14,606 Current portion of long-term obligations........................... 22,000 24,000 Income taxes payable............................................... 8,904 9,809 ------------ ------------ Total Current Liabilities....................................... 95,226 108,757 ------------ ------------ LONG-TERM OBLIGATIONS.................................................. 57,718 37,289 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock - authorized, 2,000,000 shares of $.01 par value; issued and outstanding 0 shares at January 2, 2000 and October 3, 1999.................................................. -- -- Exchangeable stock of a subsidiary................................. 13,239 13,239 Common stock - authorized, 50,000,000 shares of $.01 par value; issued and outstanding 38,466,095 and 38,433,621 shares at January 2, 2000 and October 3, 1999, respectively................ 385 384 Additional paid-in capital......................................... 128,258 127,978 Accumulated other comprehensive income............................. (400) (802) Retained earnings.................................................. 101,195 93,633 ------------ ----------- TOTAL STOCKHOLDERS' EQUITY............................................. 242,677 234,432 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................. $ 395,621 $ 380,478 ============ ============ </TABLE> See accompanying Notes to Condensed Consolidated Financial Statements. -3-
Tetra Tech, Inc. Condensed Consolidated Statements of Income (Unaudited) <TABLE> <CAPTION> In thousands, except per share data Three Months Ended ---------------------------------- January 2, January 3, 2000 1999 --------------- -------------- <S> <C> <C> Gross Revenue............................................................... $ 170,241 $ 113,973 Subcontractor costs...................................................... 41,070 24,728 ----------- ----------- Net Revenue................................................................. 129,171 89,245 Cost of Net Revenue......................................................... 100,417 70,187 ----------- ----------- Gross Profit................................................................ 28,754 19,058 Selling, General and Administrative Expenses................................ 12,553 7,876 Amortization of Intangibles................................................. 1,468 995 ----------- ----------- Income From Operations...................................................... 14,733 10,187 Interest Expense............................................................ 1,284 838 Interest Income............................................................. 56 139 ----------- ----------- Income Before Income Tax Expense............................................ 13,505 9,488 Income Tax Expense.......................................................... 5,942 4,061 ----------- ----------- Net Income.................................................................. $ 7,563 $ 5,427 =========== =========== Basic Earnings Per Share.................................................... $ 0.20 $ 0.15 =========== =========== Diluted Earnings Per Share.................................................. $ 0.19 $ 0.14 =========== =========== Weighted Average Common Shares Outstanding: Basic.................................................................... 38,453 35,820 =========== =========== Diluted.................................................................. 40,418 38,387 =========== =========== </TABLE> See accompanying Notes to Condensed Consolidated Financial Statements. -4-
Tetra Tech, Inc. Condensed Consolidated Statements of Cash Flow (Unaudited) <TABLE> <CAPTION> In thousands Three Months Ended ---------------------------------- January 2, January 3, 2000 1999 -------------- -------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................................. $ 7,562 $ 5,427 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization......................................... 3,629 1,990 Provision for losses on receivables................................... (727) (28) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable................................................... (7,631) (11,586) Unbilled receivables.................................................. (2,567) 570 Prepaid and other assets.............................................. (1,846) (1,380) Accounts payable...................................................... (3,803) (5,895) Accrued compensation.................................................. (4,191) (3,365) Other current liabilities............................................. (2,368) 5,546 Income taxes payable.................................................. (905) 1,113 ----------- ----------- Net Cash Used In Operating Activities............................. (12,847) (7,608) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures........................................................ (3,430) (1,254) Payments for business acquisitions, net of cash acquired.................... (1,834) -- ---------- ----------- Net Cash Used In Investing Activities............................. (5,264) (1,254) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term obligations........................................... (10,571) (4,000) Proceeds from issuance of long-term obligations............................. 29,000 8,032 Net proceeds from issuance of common stock.................................. 92 375 ----------- ----------- Net Cash Provided By Financing Activities......................... 18,521 4,407 ----------- ----------- EFFECT OF RATE CHANGES ON CASH.............................................. 402 -- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ 812 (4,455) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................ 8,189 4,889 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................. $ 9,001 $ 434 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest.............................................................. $ 1,273 $ 850 Income taxes.......................................................... $ 6,847 $ 2,948 </TABLE> (Continued) -5-
Tetra Tech, Inc. Condensed Consolidated Statements of Cash Flow (Unaudited) <TABLE> <CAPTION> In thousands Three Months Ended ---------------------------------- January 2, January 3, 2000 1999 -------------- -------------- <S> <C> <C> SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: In October 1999, the Company purchased all of the capital stock of LC of Illinois, Inc. and HFC Technologies, Inc. In conjunction with this acquisition, liabilities were assumed as follows: Fair value of assets acquired....................................... $ 2,795 Cash paid........................................................... (1,700) Other acquisition costs............................................. (80) ----------- Liabilities assumed.............................................. $ 1,015 =========== </TABLE> See accompanying Notes to Condensed Consolidated Financial Statements. (Concluded) -6-
TETRA TECH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated balance sheets as of January 2, 2000, the condensed consolidated statements of income and the condensed consolidated statements of cash flows for the three-month periods ended January 2, 2000 and January 3, 1999 are unaudited, and in the opinion of management include all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1999. The results of operations for the three-month period ended January 2, 2000 are not necessarily indicative of the results to be expected for the fiscal year ending October 1, 2000. 2. EARNINGS PER SHARE Due to the Company's complex capital structure, the Company presents both basic and diluted Earnings Per Share (EPS). Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing 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 and the weighted average dilutive effects of outstanding stock options. The exchangeable stock of a subsidiary is non-voting and is exchangeable for the Company's common stock on a 1.25 to one basis. Basic and diluted EPS reflect, on a retroactive basis, a 5-for-4 stock split effected in the form of a 25% stock dividend, wherein one additional share of stock was issued on June 15, 1999 for each four shares outstanding as of the record date of May 14, 1999. 3. CURRENT ASSETS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents totaled $9.0 million and $8.2 million at January 2, 2000 and October 3, 1999, respectively. 4. MERGERS AND ACQUISITIONS 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, -7-
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 the state of 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, 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, and is subject to a purchase price and purchase allocation adjustment based on the final determination of BCI's net asset value as of June 30, 1999. Of the 176,168 shares of Company common stock, 29,272 shares are being held in escrow as contingent consideration until July 31, 2000 and will be released dependent upon BCI's operational performance, as specified in the related escrow agreement, during the previous 12-month period. Simultaneously with the acquisition, BCI assigned to its former owners accounts receivable having a net value of $1.0 million. 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, and is subject to a purchase price and purchase allocation adjustment based upon the final determination of ASL's net asset value as of July 2, 1999. 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, and is subject to a purchase price and purchase allocation adjustment based upon the final determination of CAA's net asset value as of -8-
June 30, 1999. Simultaneously with the acquisition, CAA assigned to its former owners accounts receivable having a gross value of $18.4 million. On August 3, 1999, the Company merged its wholly-owned subsidiaries, Simons Li & Associates, Inc., IWA Engineers, FLO Engineering, Inc. and C.D.C. Engineering, Inc. into a single operating division of the Company. The Company believes this combination provides synergy and cohesiveness for the combined group. On August 4, 1999, the Company merged its wholly owned-subsidiary Integration Technologies, Inc. (IT) into its newly acquired wholly-owned subsidiary, DCC. IT and DCC provide substantially similar services to the same client in similar markets. The Company believes this combination provides a stronger market position. 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, and is subject to a purchase price and purchase allocation adjustment based upon the final determination of PDR's net asset value as of September 3, 1999. 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, and is subject to a purchase price and purchase allocation adjustment based upon the final determination of EUC's net asset value as of October 2, 1999. 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 $1.8 million, consisting of cash, and is subject to a purchase price and purchase allocation adjustment based upon the final determination of LCI's net asset value as of October 25, 1999. 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 values stock exchanged in acquisitions based on extended restriction periods and economic factors specific to the Company's circumstances. During fiscal 1999, 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. -9-
The effect of unaudited pro forma operating results of the LCI transaction, had it been acquired on October 5, 1998, is not material. Pro forma operating results assuming the Company had acquired MFG, CPC, DCC, BCI, UCC, ASL, CAA, PDR and EUC on October 5, 1998 is presented in Note 6. UNAUDITED PRO FORMA OPERATING RESULTS. 5. ACCOUNTS RECEIVABLE Accounts receivable are presented net of a valuation allowance to provide for doubtful accounts and for the potential disallowance of billed and unbilled costs. The allowance for doubtful accounts as of January 2, 2000 and October 3, 1999 was $4.1 million. The allowance for disallowed costs as of January 2, 2000 and October 3, 1999 was $3.7 million and $4.4 million, respectively. Disallowance of billed and unbilled costs is primarily associated with contracts with the U.S. government which contain clauses that subject contractors to several levels of audit. During the three months ended January 2, 2000, the Company recovered $0.76 million of previously reserved for receivables. Accordingly, the Company reversed $0.76 million of allowances for disallowed costs. Management believes that resolution of these matters will not have a material adverse impact on the Company's financial position or results of operations. 6. UNAUDITED PRO FORMA OPERATING RESULTS The following table presents summarized unaudited pro forma operating results assuming that the Company had acquired MFG, CPC, DCC, BCI, UCC, ASL, CAA, PDR and EUC on October 5, 1998: <TABLE> <CAPTION> PRO FORMA THREE MONTHS ENDED JANUARY 3, 1999 ---------------------------- (In thousands, except per share data) <S> <C> Gross revenue $ 152,777 Income from operations 13,332 Net income 6,342 Basic earnings per share 0.18 Diluted earnings per share 0.16 Weighted average shares outstanding: Basic 36,020 Diluted 38,587 </TABLE> 7. 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 -10-
upgrading and replacement of existing infrastructure to both public and private organizations. The Communications Operating Segment provides a comprehensive set of services including engineering, consulting and field 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 Three months ended January 2, 2000 Management Infrastructure Communications Total ---------- -------------- -------------- ---------- <S> <C> <C> <C> <C> Gross Revenue.......................... $ 84,385 $ 52,397 $ 37,307 $ 174,089 Net Revenue............................ 56,122 41,587 29,758 127,467 Income from Operations................. 7,062 4,920 4,531 16,513 Depreciation Expense................... 567 925 604 2,096 Resource Three months ended January 3, 1999 Management Infrastructure Communications Total ---------- -------------- -------------- ---------- <S> <C> <C> <C> <C> Gross Revenue.......................... $ 70,587 $ 22,206 $ 23,668 $ 116,461 Net Revenue............................ 49,198 18,293 21,346 88,837 Income from Operations................. 4,977 2,417 3,750 11,144 Depreciation Expense................... 511 353 82 946 </TABLE> RECONCILIATIONS: <TABLE> <CAPTION> Three Months Ended ---------------------------------- Jan. 2, 2000 Jan. 3, 1999 --------------- --------------- <S> <C> <C> GROSS REVENUE Gross revenue from reportable segments............................... $ 174,089 $ 116,461 Elimination of inter-segment revenue................................. (5,551) (3,218) Other revenue........................................................ 1,703 730 ------------ ------------ Total consolidated gross revenue................................. $ 170,241 $ 113,973 ============ ============ NET REVENUE Net revenue from reportable segments................................. $ 127,467 $ 88,837 Other revenue........................................................ 1,704 408 ------------ ------------ Total consolidated net revenue................................... $ 129,171 $ 89,245 ============ ============ -11-
<S> <C> <C> INCOME FROM OPERATIONS Income from operations of reportable segments........................ $ 16,513 $ 11,144 Elimination of inter-segment income.................................. (339) (82) Other income......................................................... 27 120 Amortization of intangibles.......................................... (1,468) (995) ------------ ------------ Total consolidated income from operations............................ $ 14,733 $ 10,187 ============ ============ </TABLE> MAJOR CLIENTS The Company's net revenue attributable to the U.S. Federal government was approximately $39.2 million and $37.1 million for the three months ended January 2, 2000 and January 3, 1999, respectively. Both the Resource Management and Infrastructure operating segments report revenue from the U.S. government. 8. COMPREHENSIVE INCOME Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. These sources include net income and other revenues, expenses, gains and losses incurred. The Company includes as other comprehensive income translation gains and losses from subsidiaries with functional currencies different than that of the Company. For the three months ended January 2, 2000, comprehensive income was approximately $8.0 million. For the three months ended January 2, 2000, the Company incurred net translation gains of $0.4 million. The Company incurred no translation gains or losses for the three months ended January 3, 1999. 9. SUBSEQUENT EVENT On January 31, 2000, the Company amended its revolving credit facility to defer the mandatory reduction of this facility to $60.0 million to the earlier of March 31, 2000 or the completion of the refinancing of this facility to a facility with a potential credit capacity of $150.0 million. -12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED BELOW, THE MATTERS DISCUSSED IN THIS SECTION ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. OUR ACTUAL LIQUIDITY NEEDS, CAPITAL 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS FILING. OVERVIEW Tetra Tech, Inc. is a leading provider of specialized management consulting and technical services in three principal business areas: resource management, infrastructure and communications. As a specialized management consultant, we assist our clients in defining problems and developing innovative and cost-effective solutions. Our management consulting services are complemented by our technical services. These technical services, which implement solutions, include research and development, applied science, engineering and architectural design, construction management, and operations and maintenance. Our clients include a diverse base of public and private organizations located in the United States and internationally. Since our initial public offering in December 1991, we have increased the size and scope of our business and have expanded our service offerings through a series of strategic acquisitions and internal growth. We derive our 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 clients and, in accordance with industry practice, are included in gross revenue. Because subcontractor services can change significantly from project to project, we believe net revenue, which is gross revenue less the cost of subcontractor services, is a more appropriate measure of our performance. Our cost of net revenue includes professional compensation and certain direct and indirect overhead costs such as rents, utilities and travel. Professional compensation represents the majority of these costs. Our selling, general and administrative (SG&A) expenses are comprised primarily of our corporate headquarters' costs related to our executive offices, corporate finance and accounting, information technology, marketing, and bid and proposal costs. These costs are generally unrelated to specific client projects and can vary as expenses are -13-
incurred supporting corporate activities and initiatives. In addition, we include amortization of certain intangible assets resulting from acquisitions in SG&A expenses. We provide our services to a diverse base of Federal, state and local government agencies, and private sector and international clients. The following table presents, for the periods indicated, the approximate percentage of net revenue attributable to these client sectors: <TABLE> <CAPTION> Percentage of Net Revenue ---------------------------------------- Quarter Ended ---------------------------------------- Client Sector January 2, 2000 January 3, 1999 ------------- --------------- --------------- <S> <C> <C> Federal government 30.4% 41.5% State and local government 16.8 13.0 Private sector 50.1 40.2 International 2.7 5.3 ------ ------ 100.0% 100.0% ====== ====== </TABLE> RECENT ACQUISITION 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 made the following acquisition: 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 $1.8 million. LCI, an Illinois-based construction and field services firm, provides construction and maintenance of communications and information transport systems to the communications industry primarily in the Midwestern United States. RESULTS OF OPERATIONS The following table presents certain operating information as a percentage of net revenue: <TABLE> <CAPTION> Percentage of Net Revenue ---------------------------------------- Quarter Ended ---------------------------------------- January 2, 2000 January 3, 1999 ------------------- ----------------- <S> <C> <C> Net revenue 100.0% 100.0% Cost of net revenue 77.7 78.6 ------ ------ Gross profit 22.3 21.4 Selling, general and administrative expenses 9.7 8.9 Amortization of intangibles 1.2 1.1 ------ ------ Income from operations 11.4 11.4 Net interest (expense) income (0.9) (0.8) ------ ------ Income before income tax expense 10.5 10.6 Income tax expense 4.6 4.6 ------ ------ Net income 5.9% 6.1% ====== ====== </TABLE> -14-
NET REVENUE. Net revenue increased $40.0 million, or 44.7%, to $129.2 million for the three months ended January 2, 2000 from $89.2 million for the comparable period last year. Included in net revenue for the three months ended January 2, 2000 was $0.76 million relating to the over accrual of an allowance for disallowed costs. This allowance relates to amounts previously not recognized as revenue as they were deemed to be unallowable. These amounts were subsequently recovered and therefore included as revenue. Excluding this adjustment, net revenue increased 43.9% for the quarter. Excluding international operations, all client sectors continued to show net revenue increases in actual dollars. As a percentage of net revenue, a decrease was realized in the Federal government sector due to the growth in revenue from private sector clients and revenue associated with acquired companies. These acquisitions provided increases in our revenue from both state and local governments and private sector clients. For the three months ended January 2, 2000, net revenue provided by companies acquired in the past one year on acquired contracts totaled $36.9 million. Excluding this net revenue, we recognized 3.4% internal or organic growth in our net revenue. Gross revenue increased $56.3 million, or 49.4%, to $170.2 million for the three months ended January 2, 2000 from $114.0 million for the comparable period last year. Gross revenue provided by companies acquired in the past one year on acquired contracts totaled $44.5 million. Excluding this gross revenue, we recognized 10.3% internal or organic growth in our gross revenue. COST OF NET REVENUE. Cost of net revenue increased $30.2 million, or 43.1%, to $100.4 million for the three months ended January 2, 2000 from $70.2 million for the comparable period last year. These increases were primarily due to the volume increases in our infrastructure and communications business areas, as well as the higher cost of net revenue for the acquired companies. However, as a percentage of net revenue, cost of net revenue for the three months ended January 2, 2000 was 77.7% compared to 78.6% for the comparable period last year. Included in net revenue for the three months ended January 2, 2000 was $0.76 million for the reversal of an allowance for disallowed costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses, excluding amortization of intangibles, increased $4.7 million, or 59.4%, to $12.6 million for the three months ended January 2, 2000 from $7.9 million for the comparable period last year. As a percentage of net revenue, SG&A expenses, excluding amortization of intangibles, increased to 9.7% for the three months ended January 2, 2000 from 8.8% for the comparable period last year. For the three months ended January 2, 2000, amortization of intangibles increased $0.5 million, or 47.5%, to $1.5 million from $1.0 million for the comparable period last year. Amortization expense relating to acquisitions increased to 1.2% of net revenue for the three months ended January 2, 2000 from 1.1% for the comparable period last year. As a percentage of net revenue, the increase in SG&A expenses was primarily related to the timing of expenses associated with the further development of our corporate systems and processes and higher costs of acquired companies. NET INTEREST EXPENSE. For the three months ended January 2, 2000, net interest expense increased $0.5 million, or 75.7%, to $1.2 million from $0.7 million for the -15-
comparable period last year. This increase was primarily attributable to borrowings on our line of credit which facilitated previous acquisitions and working capital needs. INCOME TAX EXPENSE. Income tax expense increased $1.9 million, or 46.3%, to $5.9 million for the three months ended January 2, 2000 from $4.1 million for the comparable period last year. Our current effective tax rate is 44.0% compared to 42.8% in the comparable period last year. This increase is primarily attributable to amortization amounts relating to acquisitions which are not tax deductible. LIQUIDITY AND CAPITAL RESOURCES As of January 2, 2000, our working capital was $114.4 million, an increase of $28.1 million from October 3, 1999, of which cash and cash equivalents totaled $9.0 million. In addition, we have a credit agreement (the "Credit Agreement") with a bank which provides for a revolving credit facility (the "Facility") of $93.0 million. Under the Credit Agreement, we may also request standby letters of credit up to the aggregate sum of $20.0 million outstanding at any one time. The Credit Agreement currently provides for a mandatory reduction of the Facility to $60.0 million on the earlier of March 31, 2000 or the completion of the refinancing of the Facility. The Facility matures on December 15, 2000 or earlier at our discretion upon payment in full of loans and other obligations. We are currently in the process of refinancing the Facility with a $150.0 facility to be provided by a syndicate of banks. As of January 2, 2000, borrowings and standby letters of credit totaled $78.0 million and $1.7 million, respectively. In the three months ended January 2, 2000, cash used in operating activities was $12.8 million compared to $7.6 million for the comparable period last year. The increase is primarily attributable to the timing of payments for liabilities. For the three months ended January 2, 2000, cash used in investing activities was $5.3 million compared to $1.3 million for the comparable period last year. The increase was primarily due to increases in capital expenditures. For the three months ended January 2, 2000, cash provided by financing activities was $18.5 million primarily from the proceeds from the incurrence of long-term debt, compared to $4.4 million for the comparable period last year. We continuously evaluate the marketplace for strategic opportunities. Once an opportunity is identified, we examine the effect an acquisition may have on the business environment, as well as on our results of operations. We proceed with an acquisition if we determine that the acquisition is anticipated to have an accretive effect on our future operations. However, as successful integration and implementation are essential to achieve favorable results, no assurances can be given that all acquisitions will provide accretive results. Our strategy is to position ourselves to address existing and emerging markets. We view 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 expect that existing cash balances, internally generated funds, and availability under the Credit Agreement, assuming the completion of our refinancing, will be sufficient to meet our capital requirements through the end of fiscal 2000. However, no assurance can be given that we will successfully complete the refinancing of our Credit Facility. If we are unable to refinance our -16-
indebtedness, we will need to obtain alternate financing to reduce our Facility and meet our fiscal 2000 capital needs. We believe our operations have not been and, in the foreseeable future, do not expect to be materially adversely affected by inflation or changing prices. MARKET RISKS We currently utilize no material derivative financial instruments which expose us to significant market risk. We are exposed to cash flow risk due to interest rate fluctuations with respect to our long-term obligations. At our option, we borrow on our Facility (a) at a base rate (the greater of the federal funds rate plus 0.50% or the bank's reference rate) or (b) at a eurodollar rate plus a margin which ranges from 0.75% to 1.25%. Borrowings at the base rate have no designated term and may be repaid without penalty anytime prior to the Facility's maturity date. Borrowings at a eurodollar rate have a term no less than 30 days and no greater than 90 days. Typically, at the end of such term, such borrowings may be rolled over at our discretion upon payment in full of loans and other obligations. Accordingly, we classify total outstanding obligations between current liabilities and long-term obligations based on anticipated payments within and beyond one year's period of time. We currently anticipate refinancing our current Facility and repaying $22.0 million of our outstanding indebtedness in the next 12 months. However, there can be no assurance that we will, or will be able to, refinance our current Facility or repay our long-term obligations in the manner described. We could incur additional debt under the Facility or our operating results could be worse than currently anticipated. YEAR 2000 We worked in a comprehensive manner to resolve the potential impact of the year 2000 (Y2K) on our business operations and those of our clients and vendors and the ability of information systems upon which we rely to accurately process information that may be date-sensitive. We expended approximately $2.6 million on our efforts. As a result of these efforts, we have not experienced any business interruptions relating to Y2K to date. We will continue to monitor our systems and significant relationships with third parties. We do not believe Y2K will have a material impact on our results of operations or financial position. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Please refer to the information we have included under the heading "Market Risks" in ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. -17-
RISK FACTORS SOME OF THE INFORMATION IN THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. YOU CAN IDENTIFY THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE" AND "CONTINUE" OR SIMILAR WORDS. YOU SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY BECAUSE THEY: (1) DISCUSS OUR FUTURE EXPECTATIONS; (2) CONTAIN PROJECTIONS OF OUR FUTURE OPERATING RESULTS OR OF OUR FUTURE FINANCIAL CONDITION; OR (3) STATE OTHER "FORWARD-LOOKING" INFORMATION. WE BELIEVE IT IS IMPORTANT TO COMMUNICATE OUR EXPECTATIONS TO OUR INVESTORS. THERE MAY BE EVENTS IN THE FUTURE, HOWEVER, THAT WE ARE NOT ACCURATELY ABLE TO PREDICT OR OVER WHICH WE HAVE NO CONTROL. THE RISK FACTORS LISTED IN THIS SECTION, AS WELL AS ANY CAUTIONARY LANGUAGE IN THIS QUARTERLY REPORT ON FORM 10-Q, PROVIDE EXAMPLES OF RISKS, UNCERTAINTIES AND EVENTS THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTATIONS DESCRIBED IN FORWARD-LOOKING STATEMENTS. THE OCCURRENCE OF ANY OF THE EVENTS DESCRIBED IN THESE RISK FACTORS AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS. UPON THE OCCURRENCE OF ANY OF THESE EVENTS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE. THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY THAT COULD ADVERSELY IMPACT OUR BUSINESS AND OPERATING RESULTS A significant part of our growth strategy is to acquire other companies that complement our lines of business or that broaden our geographic presence. During fiscal 1999, we purchased 11 companies in nine separate transactions. During the three months ended January 2, 2000, we purchased two companies in one transaction. We expect to continue to acquire companies as an element of our growth strategy. Acquisitions involve certain risks that could cause our actual growth or operating results to differ from our expectations or the expectations of security analysts. For example: - We may not be able to identify suitable acquisition candidates or to acquire additional companies on favorable terms; - We compete with others to acquire companies. Competition may increase and may result in decreased availability or increased price for suitable acquisition candidates; - We may not be able to obtain the necessary financing, on favorable terms or at all, to finance any potential acquisitions; - We may ultimately fail to consummate an acquisition even if announced that we plan to acquire a company; - We may fail to successfully integrate or manage these acquired companies due to differences in business backgrounds or corporate cultures; - These acquired companies may not perform as we expect; - We may find it difficult to provide a consistent quality of service across our geographically diverse operations; and - If we fail to successfully integrate any acquired company, our reputation could be damaged. This could make it more difficult to market our services or to acquire additional companies in the future. -18-
In addition, our acquisition strategy may divert management's attention away from our primary service offerings, result in the loss of key clients or personnel and expose us to unanticipated liabilities. Finally, acquired companies that derive a significant portion of their revenues from the Federal government and that do not follow the same cost accounting policies and billing procedures as we do may be subject to larger cost disallowances for greater periods than we typically encounter. If we fail to determine the existence of unallowable costs and establish appropriate reserves in advance of an acquisition we may be exposed to material unanticipated liabilities, which could have a material adverse effect on our business. OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD HAVE A NEGATIVE EFFECT ON THE PRICE OF OUR COMMON STOCK Our quarterly revenues, expenses and operating results may fluctuate significantly because of a number of factors, including: - The seasonality of the spending cycle of public sector clients, notably the Federal government; - Employee hiring and utilization rates; - The number and significance of client engagements commenced and completed during a quarter; - Delays incurred in connection with an engagement; - The ability of clients to terminate engagements without penalties; - The size and scope of engagements; - The timing of expenses incurred for corporate initiatives; - The timing and size of the return on investment capital; and - General economic and political conditions. Variations in any of these factors could cause significant fluctuations in our operating results from quarter to quarter and could result in net losses. THE VALUE OF OUR COMMON STOCK COULD CONTINUE TO BE VOLATILE The trading price of our common stock has fluctuated widely. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. The overall market and the price of our common stock may continue to fluctuate greatly. The trading price of our common stock may be significantly affected by various factors, including: - Quarter to quarter variations in our operating results; - Changes in environmental legislation; - Changes in investors' and analysts' perception of the business risks and conditions of our business; - Broader market fluctuations; and -19-
- General economic or political conditions. IF WE ARE NOT ABLE TO SUCCESSFULLY MANAGE OUR GROWTH STRATEGY, OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED We are growing rapidly. Our growth presents numerous managerial, administrative, operational and other challenges. Our ability to manage the growth of our operations will require us to continue to improve our operational, financial and human resource management information systems and our other internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate and retain both our management and professional employees. The inability of our management to manage our growth effectively or the inability of our employees to achieve anticipated performance or utilization levels, could have a material adverse effect on our business. THE LOSS OF KEY PERSONNEL OR OUR INABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD SIGNIFICANTLY DISRUPT OUR BUSINESS We depend upon the efforts and skills of our executive officers, senior managers and consultants. With limited exceptions, we do not have employment agreements with any of these individuals. The loss of the services of any of these key personnel could adversely affect our business. Although we have obtained non-compete agreements from certain principals and stockholders of companies we have acquired, we generally do not have non-compete or employment agreements with key employees who were not once equity shareholders of these companies. We do not maintain key-man life insurance policies on any of our executive officers or senior managers. Our future growth and success depends on our ability to attract and retain qualified scientists and engineers. The market for these professionals is competitive and we may not be able to attract and retain such professionals. CHANGES IN EXISTING LAWS AND REGULATIONS COULD REDUCE THE DEMAND FOR OUR SERVICES A significant amount of our resource management business is generated either directly or indirectly as a result of existing Federal and state governmental laws, regulations and programs. Any changes in these laws or regulations that reduce funding or affect the sponsorship of these programs could reduce the demand for our services and could have a material adverse effect on our business. OUR REVENUES FROM AGENCIES OF THE FEDERAL GOVERNMENT ARE CONCENTRATED, AND A REDUCTION IN SPENDING BY THESE AGENCIES COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS Agencies of the Federal government are among our most significant clients. During the three months ended January 2, 2000, approximately 30.4% of our net revenue was derived from Federal agencies, of which 17.0% was derived from the Department of Defense (DOD), 9.2% from the Environmental Protection Agency (EPA), 2.2% from the Department of Energy (DOE), and 2.0% from various other Federal government agencies. Some contracts with Federal -20-
government agencies require annual funding approval and may be terminated at their discretion. A reduction in spending by Federal government agencies could limit the continued funding of existing contracts with them and could limit our ability to obtain additional contracts. These limitations, if significant, could have a material adverse effect on our business. Additionally, the failure of clients to pay significant amounts due us for our services could adversely affect our business. For example, we recently received notification from a Federal government agency that we are entitled to payments in excess of our billings. However, the agency involved must obtain specific funding approval for amounts owed to us and there can be no assurance this funding approval will be obtained. OUR CONTRACTS WITH GOVERNMENTAL AGENCIES ARE SUBJECT TO AUDIT, WHICH COULD RESULT IN THE DISALLOWANCE OF CERTAIN COSTS Contracts with the Federal government and other governmental agencies are subject to audit. Most of these audits are conducted by the Defense Contract Audit Agency (DCAA), which reviews our overhead rates, operating systems and cost proposals. The DCAA may disallow costs if it determines that we accounted for these costs incorrectly or in a manner inconsistent with Cost Accounting Standards. A disallowance of costs by the DCAA, or other governmental auditors, could have a material adverse effect on our business. In September 1995, we acquired PRC Environmental Management, Inc. (EMI). EMI also contracts with Federal government agencies and such contracts are also subject to the same governmental audits. At the time of acquisition, audits had not yet been completed or finalized. Accordingly, reserves were established for potential disallowances. Since then, the DCAA has completed audits of EMI's contracts for the fiscal years 1987 through 1995. As a result of these audits and negotiations with the DCAA, the DCAA has disallowed to date approximately $4.4 million in costs which have been applied against the established reserves. OUR BUSINESS AND OPERATING RESULTS COULD BE ADVERSELY AFFECTED BY LOSSES UNDER FIXED-PRICE CONTRACTS OR TERMINATION OF CONTRACT AT THE CLIENT'S DISCRETION We contract with Federal and state governments as well as with the private sector. These contracts are often subject to termination at the discretion of the client with or without cause. Additionally, we enter into various types of contracts with our clients, including fixed-price contracts. Fixed-price contracts protect clients and expose us to a number of risks. These risks include underestimation of costs, problems with new technologies, unforeseen costs or difficulties, delays beyond our control and economic and other changes that may occur during the contract period. Losses under fixed-price contracts or termination of contracts at the discretion of the client could have a material adverse effect on our business. In fiscal 1999, we had a contract change with Tele-Communications, Inc. involving three turnkey contracts. This change was due in part to Tele-Communications, Inc.'s change in strategy from the use of turnkey contracts to the use of direct service contracts in the upgrading of its network systems. -21-
OUR INABILITY TO FIND QUALIFIED SUBCONTRACTORS COULD ADVERSELY AFFECT THE QUALITY OF OUR SERVICE AND OUR ABILITY TO PERFORM UNDER CERTAIN CONTRACTS Under some of our contracts, we depend on the efforts and skills of subcontractors for the performance of certain tasks. Reliance on subcontractors varies from project to project. In the three months ended January 2, 2000, subcontractor costs comprised 24.1% of our gross revenue. The absence of qualified subcontractors with whom we have a satisfactory relationship could adversely affect the quality of our service and our ability to perform under some of our contracts. OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO COMPETE EFFECTIVELY We provide specialized management consulting and technical services to a broad range of public and private sector clients. The market for our services is highly competitive and we compete with many other firms. These firms range from small regional firms to large national firms which may have greater financial and marketing resources than ours. We focus primarily on the resource management, infrastructure and communications business areas. We provide services to our clients which include Federal, state and local agencies, and organizations in the private sector. We compete for projects and engagements with a number of competitors which can vary from 10 to 100 firms. Historically, clients have chosen among competing firms based on the quality and timeliness of the firm's service. We believe, however, that price has become an increasingly important factor. We believe that our principal competitors include, in alphabetical order, Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser & McKee; CH2M Hill Companies Ltd.; EA Engineering, Science & Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc.; IT Group Inc.; Mastec, Inc.; Montgomery Watson; Quanta Service, Inc.; Roy F. Weston, Inc.; URS Greiner Corporation; and Wireless Facilities, Inc. OUR SERVICES EXPOSE US TO SIGNIFICANT RISKS OF LIABILITY AND OUR INSURANCE POLICIES MAY NOT PROVIDE ADEQUATE COVERAGE Our services involve significant risks of professional and other liabilities which may substantially exceed the fees we derive from our services. Our business activities could expose us to potential liability under various environmental laws such as the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). In addition, we sometimes contractually assume liability under indemnification agreements. We cannot predict the magnitude of such potential liabilities. We currently maintain comprehensive general liability, umbrella and professional liability insurance policies. We believe that our insurance policies are adequate for our business operations. Professional liability policies are "claims made" policies; thus, only claims made during the term of the policy are covered. Should we terminate our professional liability policy -22-
and not obtain retroactive coverage, we would be uninsured for claims made after termination even if these claims are based on events or acts that occurred during the term of the policy. Additionally, our insurance policies may not protect us against potential liability due to various exclusions and retentions. Should we expand into new markets, we may not be able to obtain insurance coverage for such activities or, if insurance is obtained, the dollar amount of any liabilities incurred could exceed our insurance coverage. Partially or completely uninsured claims, if successful and of significant magnitude, could have a material adverse affect on our business. WE MAY BE PRECLUDED FROM PROVIDING CERTAIN SERVICES DUE TO CONFLICT OF INTEREST ISSUES Many of our clients are concerned about potential or actual conflicts of interest in retaining management consultants. Federal government agencies have formal policies against continuing or awarding contracts that would create actual or potential conflicts of interest with other activities of a contractor. These policies, among other things, may prevent us from bidding for or performing contracts resulting from or relating to certain work we have performed for the government. In addition, services performed for a private client may create a conflict of interest that precludes or limits our ability to obtain work from other public or private organizations. We have, on occasion, declined to bid on projects because of these conflicts of interest issues. OUR INTERNATIONAL OPERATIONS EXPOSE US TO RISKS SUCH AS FOREIGN CURRENCY FLUCTUATIONS In the three months ended January 2, 2000, approximately 2.7% of our net revenue was derived from the international marketplace. Some contracts with our international clients are denominated in foreign currencies. As such, these contracts contain inherent risks including foreign currency exchange risk and the risk associated with expatriating funds from foreign countries. If our international revenue increases, our exposure to foreign currency fluctuations will also increase. We have entered into forward exchange contracts to address foreign currency fluctuations. -23-
PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. <TABLE> <CAPTION> (a) EXHIBITS <S> <C> <C> 3.1 Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 3.2 Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 3.3 Bylaws of the Company as amended to date (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, No. 33-43723). 3.4 Certificate of Amendment of Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K for the fiscal year ended October 4, 1998). 10.1 Credit Agreement dated as of September 15, 1995 between the Company and Bank of America Illinois, as amended by the First Amendment to Credit Agreement dated as of November 27, 1995 (incorporated herein by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 10.2 Second Amendment dated as of June 20, 1997 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America Illinois (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 1997). 10.3 Third Amendment dated as of December 15, 1997 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and Savings Association (incorporated herein by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1997). -24-
10.4 Fourth Amendment dated as of January 30, 1997 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and Savings Association (incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 28, 1997). 10.5 Fifth Amendment dated as of July 6, 1998 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and Savings Association (incorporated herein by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1998). 10.6 Sixth Amendment dated as of July 21, 1999 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and Savings Association (incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). 10.7 Seventh Amendment dated as of December 24, 1999 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and Savings Association (incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1999). 10.8 Eighth Amendment dated as of January 31, 2000 to the Credit Agreement dated as of September 15, 1995 between the Company and Bank of America National Trust and Savings Association. 10.9 Security Agreement dated as of September 15, 1995 among the Company, GeoTrans, Inc., Simons Li & Associates, Inc., Hydro-Search, Inc., PRC Environmental Management, Inc. and Bank of America Illinois (incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 10.10 Pledge Agreement dated as of September 15, 1995 between the Company and Bank of America Illinois (incorporated herein by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 10.11 Guaranty dated as of September 15, 1995, executed by the Company in favor of Bank of America Illinois (incorporated herein by -25-
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1995). 10.12 1989 Stock Option Plan dated as of February 1, 1989 (incorporated herein by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, No. 33-43723). 10.13 Form of Incentive Stock Option Agreement executed by the Company and certain individuals in connection with the Company's 1989 Stock Option Plan (incorporated herein by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1, No. 33-43723). 10.14 Executive Medical Reimbursement Plan (incorporated herein by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1, No. 33-43723). 10.15 1992 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1993). 10.16 Form of Incentive Stock Option Agreement used by the Company in connection with the Company's 1992 Incentive Stock Plan (incorporated herein by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1993). 10.17 1992 Stock Option Plan for Nonemployee Directors (incorporated herein by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1993). 10.18 Form of Nonqualified Stock Option Agreement used by the Company in connection with the Company's 1992 Stock Option Plan for Nonemployee Directors (incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1993). 10.19 1994 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended October 2, 1994). 10.20 Form of Stock Purchase Agreement used by the Company in connection with the Company's 1994 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended October 2, 1994). -26-
10.21 Employment Agreement dated as of June 11, 1997 between the Company and Daniel A. Whalen (incorporated herein by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 1997). 10.22 Registration Rights Agreement dated as of June 11, 1997 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 1997). 10.23 Registration Rights Agreement dated as of July 11, 1997 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1997). 10.24 Registration Rights Agreement dated as of March 26, 1998 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 1998). 10.25 Registration Rights Agreement dated as of July 9, 1998 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.22 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1998). 10.26 Registration Rights Agreement dated as of September 22, 1998 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended October 4, 1998). 10.27 Registration Rights Agreement dated as of February 26, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 1999). 10.28 Registration Rights Agreement dated as of May 7, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.26 to the Company's -27-
Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). 10.29 Registration Rights Agreement dated as of May 21, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). 10.30 Registration Rights Agreement dated as of June 18, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999). 10.31 Registration Rights Agreement dated as of September 3, 1999 among the Company and the parties listed on Schedule A attached thereto. (incorporated herein by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1999). 11 Computation of Net Income Per Common Share. 27 Financial Data Schedule. </TABLE> (b) REPORTS ON FORM 8-K None -28-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: February 16, 2000 TETRA TECH, INC. By: /s/ Li-San Hwang ------------------------------ Li-San Hwang Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) By: /s/ James M. Jaska -------------------------------- James M. Jaska Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) -29-