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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 4, 1998.
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________
to__________.
Commission file number 0-19655
TETRA TECH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-4148514
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
670 N. Rosemead Blvd.
Pasadena, California 91107
(Address of registrant's principal executive offices) (Zip Code)
(Registrant's telephone number, including area code:) (626) 351-4664
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) (Name of each exchange on which registered)
None None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant on December 18, 1998 was $577,495,874.
The number of shares of Common Stock, $.01 par value, outstanding (the only
class of common stock of the registrant outstanding) was 28,666,131 on December
18, 1998.
Portions of registrant's Annual Report to Stockholders for the fiscal year ended
October 4, 1998 are incorporated by reference in Part II of this report.
Portions of registrant's Proxy Statement for our 1999 Annual Meeting of
Stockholders are incorporated by reference in Part III of this report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
PART I
ITEM 1. BUSINESS.
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 have more than 3,600
employees worldwide, 3,500 of whom are located in North America in more than 100
locations. In addition, we have established a presence in Asia, South America
and Europe. From fiscal 1991 through fiscal 1998, we generated a net revenue
compounded annual growth rate of approximately 34.2%, and achieved a net income
compounded annual growth rate of approximately 36.4%.
INDUSTRY OVERVIEW
Due to increased competition, changing regulatory environments and rapid
technological advancement, many organizations face new and complex challenges.
Increasingly, these organizations are turning to professional services firms to
assist them with addressing these challenges. Since each industry presents its
own unique set of challenges, organizations often seek professional service
firms with industry-specific expertise to analyze their problems and develop
appropriate solutions. These solutions are then implemented by firms possessing
the required engineering and technical service capabilities. Each of the
following three business areas faces its own unique set of problems:
RESOURCE MANAGEMENT. The world's natural resources, including water, air
and soil, are interdependent, creating a delicate balance. Factors such as
agricultural and residential development, commercial construction and
industrialization often upset this balance. Public concern over environmental
issues, especially water quality and availability, has been a driving force
behind numerous laws and regulations that are designed to prevent environmental
degradation and mandate restorative measures. To comply with environmental laws
and regulations, respond to public pressure and attain operating efficiencies,
public and private organizations are increasing their focus on resource
management. Two areas particularly affected by these trends are water management
and waste management.
- Water Management. Insufficient water supplies, concern over the
cost, quality and availability of water and the need in many parts of the
world to replace aging infrastructure used to capture, safeguard and
distribute water are critical social and economic concerns. According to
the U.S. Environmental Protection Agency (EPA), contamination of
groundwater and surface water resulting from agricultural, residential,
commercial and industrial development is one of the most serious
environmental problems facing the United States. To alleviate these social
and economic concerns, public and private organizations seek water
management advice. According to the ENVIRONMENTAL BUSINESS JOURNAL, the
size of the consulting, engineering services and wastewater treatment
segments of the water management industry totaled more than $30 billion in
1997.
- Waste Management. In the past, many waste disposal practices
caused significant environmental damage. Since the 1970s, more stringent
controls on municipal and industrial waste have been established by
governments around the world to protect the environment. Recently, the
Federal government has committed approximately $15 billion to various
environmental initiatives in an attempt to curb pollution, accelerate
toxic waste cleanups and
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combat other forms of pollution. Organizations seek waste management
advice to comply with complex and evolving environmental regulations, to
minimize the economic impact of waste generation and disposal, and to
realize significant costs savings through increased operating
efficiencies.
INFRASTRUCTURE. Continued population and economic growth places
significant strain on an overburdened infrastructure, thereby requiring
additional development. This development includes water and wastewater treatment
plants, roads, pipelines, communication and power networks, and educational,
recreational and correctional facilities. Additionally, as existing facilities
age, they require upgrading or replacement. Further, the trend toward
privatization of infrastructure is causing public and private organizations that
develop and maintain these facilities to evaluate their cost structures and
establish more efficient systems. These factors drive the need for development
and planning services that are often provided by consulting firms. According to
the ENGINEERING NEWS-RECORD, the market opportunity in the United States for
technical services in infrastructure development including water and wastewater,
transportation, hazardous waste, and educational, recreational and correctional
facilities, ranges from $15 to $20 billion.
COMMUNICATIONS. Technological change and government deregulation have
spurred sweeping changes in the communications industry. Local and long-distance
telephone companies, cable operators and wireless service providers are
penetrating each other's markets and trying to establish a foothold in new
markets created by new technologies. For example, traditional cable operators
are installing advanced capabilities such as digital cable, cable modem, cable
telephony and other high-speed data transmission services. At the same time,
various service providers are consolidating in order to offer their subscribers
a comprehensive set of services and to maintain dominance in their markets. As
these trends continue, network service providers will increasingly turn to
professional service firms for advice and assistance in planning, deploying and
maintaining their communications networks.
Organizations within each of the above business areas face unique
problems but often lack the internal resources and experience necessary to
identify issues and evaluate possible solutions. As a result, many of these
organizations rely on advice from outside management consultants. Most
consulting companies provide limited front-end problem assessment and solution
design and require clients to engage other engineering and technical services
companies to implement recommended solutions. A significant opportunity exists
for consulting companies that not only develop, but also implement, solutions.
These professional service firms are often in the best position to help clients
respond to the challenges they face.
THE TETRA TECH SOLUTION
Tetra Tech provides the specialized management consulting services that
assist clients in identifying industry-specific problems and defining
appropriate solutions. We also provide the technical services required to
implement these solutions. We believe that we are a leader in this market and
that the following factors distinguish us from our competitors:
UNDERSTANDING CLIENT NEEDS. The ability to identify client needs is
essential to strategic planning and execution. Even before the proposal process
begins, we assist our clients by helping them define their business objectives
and strategies and identify issues that are critical to their success. We strive
to develop numerous contacts at various levels within our clients' organizations
to help us identify the key issues from a variety of perspectives. We believe
that our long history and exposure to a broad client base increase our awareness
of the issues being confronted by organizations and thereby help us identify and
solve our clients' problems.
CAPITALIZING ON OUR EXTENSIVE TECHNICAL EXPERIENCE. Since our inception
in 1966, we have provided innovative consulting and engineering services,
historically focusing on cost-effective solutions to water resource management
and environmental problems. We have been successful in leveraging this
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foundation of scientific and engineering capabilities into other areas,
including infrastructure and communications. Our services are provided by a wide
range of professionals including: archaeologists, biologists, chemical
engineers, chemists, civil engineers, computer scientists, economists,
electrical engineers, environmental engineers, environmental scientists,
geologists, hydrogeologists, mechanical engineers, oceanographers and
toxicologists. Because of the experience that we have gained from thousands of
completed projects, we often are able to apply proven solutions to client
problems without the time-consuming process of developing new approaches.
OFFERING A FULL RANGE OF SERVICES. Our depth of consulting and technical
skills allows us to respond to client needs at every phase of a project,
including initial planning, research and development, applied science,
engineering and architectural design, and construction management. Once a
particular project is completed, we are able to offer our clients additional
value-added services such as operations and maintenance. Our expertise across
industries and our broad service offerings enable us to be a single source
provider to our clients.
PROVIDING BROAD GEOGRAPHIC COVERAGE AND LOCAL EXPERTISE. We believe that
proximity to our clients is instrumental to understanding their needs and
delivering comprehensive services. We have significantly broadened our
geographic presence in recent years through strategic acquisitions and internal
growth. Our historical geographic base was primarily in the western portion of
the United States. However, we currently have operations in more than 40 states.
We have also increased our international presence, and we now have operations in
Canada, Taiwan, the Philippines, Argentina, Chile, Brazil and the Czech
Republic.
COMPANY STRATEGY
Our objective is to become the leading provider of specialized management
consulting and technical services in our chosen business areas. To achieve this
objective, we plan to continue the following primary strategies that we believe
have been integral to our success:
IDENTIFY AND EXPAND INTO NEW BUSINESS AREAS. We use our management
consulting services and certain of our technical services as an entry point to
evaluate and to enter new business areas. After our consulting practice is
established in a new business area, we can expand our operations by offering
additional technical services. For example, based on our provision of site
acquisition services to communications industry participants, we identified
infrastructure services within the communications industry as an appropriate
area into which we could expand our operations.
EXPAND SERVICE OFFERINGS AND GEOGRAPHIC PRESENCE THROUGH
ACQUISITIONS. We believe that acquisition opportunities exist that will allow
us to continue our growth in selected business areas, broaden our service
offerings and extend our geographic presence. We intend to make acquisitions
that will enable us to consolidate our position in certain key business areas,
such as communications, or further strengthen our position in our more
established service offerings. We believe that our reputation and public company
status make us an attractive partner and provide us with an advantage in
pursuing acquisitions.
FOCUS ON GOVERNMENT PROJECTS. We intend to continue marketing to
government organizations and bidding for government projects to stay on the
leading edge of policy development. This experience helps us identify market
opportunities and enhances our ability to serve other public and private
clients. Additionally, government contracts provide more predictable revenues
than private sector contracts.
MANAGE INTERNAL FINANCIAL CONTROLS. We take a disciplined approach to
monitoring, managing and improving our return on investment in each of our
business areas through the prompt billing and collection of accounts
receivables, the negotiation of favorable contract terms and the management of
our contract performance to prevent cost overruns. We believe that this approach
to managing our
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financial affairs enables us to improve our cash position and thereby fund
acquisitions and internal growth.
LEVERAGE EXISTING CLIENT BASE. Some of our clients engage us to provide
limited services. We believe that we can increase our revenue by selling
additional services to our existing client base. For example, we may be able to
secure an operations and maintenance contract after working with a client on the
design and construction phases of a facility. In addition, we believe that our
ability to offer a full spectrum of services will allow us to grow our business
and compete more effectively for larger projects.
SERVICES
We provide our clients with comprehensive management consulting and
technical services that focus on our clients' industry-specific needs. We offer
these services individually or as part of our full service approach to problem
solving. We are currently performing services under 1,000 active contracts,
ranging from small site investigations to large, complex infrastructure
projects. Our service offerings include:
- MANAGEMENT CONSULTING to assist clients in identifying and addressing
operational and competitive problems they face within their industries;
- RESEARCH AND DEVELOPMENT to formulate solutions to complex problems and
develop advanced computer simulation techniques for modeling problems,
ranging from microscopic to global;
- APPLIED SCIENCE to assess all aspects of problems and develop practical
and cost-effective solutions through the application of new technology
and data interpretation;
- ENGINEERING AND ARCHITECTURAL DESIGN to provide services from concept
development and initial planning and design through project completion;
- CONSTRUCTION MANAGEMENT to provide experienced and specialized
construction managers to assist clients in minimizing the risk of cost
overruns, delays and contractual conflicts; and
- OPERATIONS AND MAINTENANCE to allow clients to outsource routine
functions, permitting them to streamline contractor relationships and
reduce operating costs.
BUSINESS AREAS
We provide our services in the following three principal business areas:
resource management, infrastructure and communications.
RESOURCE MANAGEMENT
One of our major concentrations is water resource management, where we
have a leadership position in understanding the interrelationships of water
quality and human activities. We support high priority government programs for
water quality improvement, environmental restoration, productive reuse of
defense facilities and strategic environmental resource planning. We provide
comprehensive services, including management consulting, research and
development, applied science, engineering and architectural design, construction
management, and operations and maintenance. Our service offerings in the
resource management business area are focused on the following project areas:
SURFACE WATER PROJECTS: Public concern with the quality of rivers, lakes
and streams as well as coastal and marine waters and the ensuing
legislative and regulatory response is driving demand for our services.
Over the past 32 years, we have developed a specialized set of technical
skills that positions us to compete effectively for surface water and
watershed management projects. We provide water resource services to
government clients such as the
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EPA, the Department of Defense (DOD) and the Department of Energy (DOE),
and to a broad base of private sector clients including those in the
chemical, pharmaceutical, utility, aerospace and petroleum industries. We
also provide surface water services to state and local agencies,
particularly in the area of watershed management.
GROUNDWATER PROJECTS: Groundwater is the source of drinking water for
approximately 50% of the U.S. population and accounts for approximately
25% of all water consumed for residential, industrial and agricultural
purposes. Our activities in the groundwater field are diverse and
typically include projects such as investigating and identifying sources
of chemical contamination, examining the extent of contamination,
analyzing the speed and direction of contamination migration, and
designing and evaluating remedial alternatives. In addition, we conduct
monitoring studies to assess the effectiveness of groundwater treatment
and extraction wells.
WASTE MANAGEMENT PROJECTS: We currently provide a wide range of
engineering and consulting services for hazardous waste contamination and
remediation projects, from initial site assessment through design and
implementation phases of remedial solutions. In addition, we perform risk
assessments to determine the probability of adverse health effects that
may result from exposure to toxic substances. We also provide waste
minimization and pollution prevention services, and evaluate the
effectiveness of innovative technologies and novel solutions to
environmental problems.
NUCLEAR ENVIRONMENTAL PROJECTS: The DOE's nuclear weapons plants and
research laboratories face a wide variety of environmental challenges
including groundwater and surface water contamination, hazardous waste
management and environmental compliance. Our services include
environmental impact analyses and documentation, environmental audits and
risk assessments, regulatory compliance support, groundwater
characterization, remedial investigation/feasibility studies, and project
management and oversight. Our environmental analyses provide the DOE with
information it requires in order to make decisions regarding the storage
or disposition of surplus materials from dismantled nuclear weapon
components.
REGULATORY COMPLIANCE PROJECTS: Our regulatory compliance services include
advising our clients on the full spectrum of regulatory requirements under
the Resource Conservation and Recovery Act, the Clean Water Act, the Clean
Air Act, the National Environmental Policy Act and other environmental
laws. Although we provide services to both public and private clients, our
current emphasis is on providing regulatory compliance services to the
Army, Navy and Air Force.
INFRASTRUCTURE
In the infrastructure area, we focus on the development of water resource
projects, institutional facilities, commercial, recreational and leisure
facilities and transportation projects. These facilities are an essential part
of everyday life and also sustain economic activity and the quality of life. Our
engineers, architects and planners work in partnership with our clients to
provide adequate infrastructure development within their financial constraints.
We assist clients with infrastructure projects by providing management
consulting, engineering and architectural design, construction management, and
operations and maintenance. Our service offerings in the infrastructure business
area are focused on the following project areas:
WATER RESOURCE PROJECTS: Our technical services are applied to all aspects
of water quantity and quality management ranging from stormwater
management through drainage and flood control projects to major water and
wastewater treatment plants. Our experience includes planning, design and
construction services for drinking water projects, the design of water
treatment facilities and reservoirs, and the design of distribution
systems including pipelines and pump
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stations. Our capabilities are also applied to specialized technical
challenges associated with the design and construction of fisheries and
hatcheries worldwide.
INSTITUTIONAL FACILITIES PROJECTS: We provide architectural engineering
and construction services for projects including site planning for land
development, complete architectural design, interior design,
civil/structural engineering and mechanical/electrical engineering of
multi-story facilities. We have completed engineering and construction
projects for a wide range of clients with specialized needs such as
security systems, clean rooms, laboratories and emergency preparedness
facilities.
COMMERCIAL, RECREATIONAL AND LEISURE FACILITIES PROJECTS: We specialize in
the planning and design of water-related entertainment and leisure
facilities from theme park attractions to large marine aquariums. Our
projects also include hotels, parks, visitor centers and marinas. We have
designed complex aquatic life support systems and provided structural,
civil and mechanical engineering and design of interpretive exhibits for a
series of large aquarium projects worldwide.
TRANSPORTATION PROJECTS: We provide architectural, engineering and
construction services for transportation projects to improve public safety
and mobility. Our projects include roadway improvements, commuter railway
stations and expansion of airports. We have also completed numerous
transportation projects including bridges, major highways, and repair,
replacement and upgrading of older transportation facilities.
COMMUNICATIONS
In the communications area, we focus on the delivery of technical
solutions necessary to build and manage communications infrastructure projects.
Our capabilities support a wide range of technologies including broadband and
wireless communications. Our communications clients seek management consulting,
applied science, engineering and architectural design, and construction
management services. Our service offerings in the communications business area
are focused on the following project areas:
NETWORK FEASIBILITY PROJECTS: We apply our technical services to all
aspects of assessing the feasibility of network systems development,
expansion and upgrades for our clients. Our experience includes
feasibility and remote site selection studies, cost-benefit modeling and
market assessments. We also assist network service providers with
technical requirements definition, sensitivity/risk analysis and key
economic projections.
NETWORK PLANNING PROJECTS: We specialize in network planning, including
short- and long-term network configuration and development planning. We
develop outside plant designs, civil engineering and regulatory compliance
assessment and support efforts. In addition, our projects have included
employment analysis, staffing, logistics, planning, and materials
provisioning and management.
NETWORK ENGINEERING PROJECTS: We provide a full range of onsite and
offsite premises engineering and support services for projects ranging
from developing computer aided design workprints to field surveys. Our
experience includes digital evaluation and terrain modeling, right-of-way
permitting and site acquisition for wireless and broadband networks. In
addition, we have performed outside and inside plant design projects for
twisted pair, coaxial fiber optic and copper cable networks, and wireless
networks.
NETWORK DEVELOPMENT PROJECTS: We have performed both inside and outside
plant projects for major network service providers in both the broadband
and wireless sectors. Our construction projects include urban and long
haul underground cable installation. We have also applied our capabilities
to wireless cell site construction and aerial cable placement.
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The following table presents brief examples of specific projects in our
three primary business areas:
BUSINESS AREA REPRESENTATIVE PROJECTS
- --------------------------- --------------------------------------------------------
Resource Management - Currently conducting a remedial design/remedial action
for contaminated groundwater at a Superfund site in
Hendersonville, North Carolina for a private
corporation.
- Currently providing program management and technical
support for the Comprehensive Long-term Environmental
Action Navy (CLEAN) program under several ten-year
contracts. Activities include installation,
restoration, base realignment and closure, and
underground storage tank programs.
- Currently serving as prime contractor for
environmental operations and maintenance services at
Vandenberg Air Force Base in California. Also
providing operations and maintenance services for a
wastewater treatment plant and a hazardous waste
collection plant, and air monitoring and other
services.
Infrastructure - Completed the development and analysis of alternative
flood control measures for the Los Angeles River.
- Currently providing design and program management for
Taiwan's National Museum of Marine Biology/Aquarium.
Responsible for civil, structural and mechanical
engineering and for aquatic life support systems.
Designed water, wastewater and parking facilities.
- Selected by Texas Parks and Wildlife Department as the
prime contractor to plan and develop a new,
state-of-the-art, marine fish hatchery and visitor
center at Lake Jackson, Texas. Provided design and
construction administration, and engineering and
bioengineering for all life support systems.
Communications - Provided site acquisition, obtained entitlements,
supervised construction and installation of equipment,
and provided program management services for a
Canadian corporation.
- Supported the initiative to enhance Emergency 911
services and to improve the dispatch of emergency
services to Henrico County near Richmond, Virginia.
Assisted in the buildout of the Emergency 911
communications network through installation of
antennas, coaxial cables, microwave dishes and
elliptical waveguides.
- Currently redesigning and reconstructing 25% of Tele-
Communications Inc.'s U.S. cable TV networks under a
turnkey contract.
CLIENTS
We have developed a diverse client base of over 700 clients both in the
public and private sectors. During fiscal 1998, the DOD, EPA and DOE accounted
for 26.2%, 17.1% and 3.5%, respectively, of our net revenue. Although agencies
of the Federal government are among our most significant clients, we often
support multiple programs within a single Federal agency. Our private sector
clients include companies in the chemical, mining, pharmaceutical, aerospace,
automotive, petroleum, communications and utility industries. No private sector
client accounted for more than 10% of our net revenue in fiscal 1998.
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The following table presents a list of representative clients in our
three primary business areas:
REPRESENTATIVE CLIENTS
- --------------------- -------------------------------------------------------------------------------------------
BUSINESS AREA FEDERAL GOVERNMENT STATE, COUNTY AND LOCAL PRIVATE
- --------------------- ----------------------------- ----------------------------- -----------------------------
RESOURCE MANAGEMENT U.S. Environmental Protection California Department of Lockheed Martin Corporation;
Agency; U.S. Air Force; U.S. Health Services; Washington Merck & Co.; General Electric
Navy; U.S. Army; U.S. Coast Department of Ecology; Prince Company; Westwood Squibb
Guard; U.S. Forest Service Georges County, Maryland; Pharmaceuticals, Inc.
Clarmont County, Ohio; City
of San Jose, California
INFRASTRUCTURE U.S. Army Corps of Engineers; City of Tucson, Arizona; City Universal Studios, Inc.;
U.S. Bureau of Reclamation; of Breckenridge, Colorado; Boeing Corporation; E.I.
U.S. Air Force; Federal Washington Department of DuPont de Nemours and
Emergency Management Agency Transportation; City of Company; Ford Motor Company
Detroit, Michigan; City of
Portland, Oregon; Texas Parks
and Wildlife Department; King
County, Washington; Delaware
Department of Transportation;
Delaware Department of
Corrections
COMMUNICATIONS Henrico County, Virginia AT&T Wireless Services;
Nextel Communications, Inc.;
AirTouch Communications,
Inc.; Motorola, Inc.; Sprint
Communications Company; TCI
CONTRACTS
We enter into 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 contracts. In fiscal 1998,
26.1%, 33.5% and 40.4% of our net revenue was derived from fixed-price,
fixed-rate time and materials, and cost-reimbursement plus fixed fee and award
fee contracts, respectively. Under a fixed-price contract, the client agrees to
pay a specified price for our performance of the entire contract. Fixed-price
contracts carry certain inherent risks, including risks of losses from
underestimating costs, delays in project completion, problems with new
technologies and economic and other changes that may occur over the contract
period. Consequently, the profitability of fixed-price contracts may vary
substantially. The amount of the fee received for a cost-reimbursement and award
fee contract partially depends upon the government's discretionary periodic
assessment of our performance on that contract. Our various clients determine
which type of contract we enter into for a particular engagement.
Some contracts made with the Federal government are subject to annual
approval of funding. Federal government agencies may impose spending
restrictions that limit the continued funding of our existing contracts with the
Federal government and may limit our ability to obtain additional contracts.
These limitations, if significant, could have a material adverse effect on us.
To date, spending limitations have not had a significant effect on us. All
contracts made with the Federal government may be terminated by the government
at any time, with or without cause.
Federal government agencies have formal policies against continuing or
awarding contracts that would create actual or potential conflicts of interest
with other activities of a contractor. These policies may prevent us in certain
cases 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 conflicts of interest that preclude or
limit our ability to obtain work for another private organization. We attempt to
identify actual or potential conflicts of interest and to minimize the
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possibility that such conflicts would affect our work under current contracts or
our ability to compete for future contracts. We have, on occasion, declined to
bid on a project because of an existing potential conflict of interest. However,
we have not experienced disqualification during a bidding or award negotiation
process by any government or private client as a result of a conflict of
interest.
Our contracts with the Federal government are subject to audit by the
government, primarily by the Defense Contract Audit Agency (DCAA). The DCAA
generally seeks to (1) identify and evaluate all activities which either
contribute to, or have an impact on, proposed or incurred costs of government
contracts; (2) evaluate the contractor's policies, procedures, controls and
performance; and (3) prevent or avoid wasteful, careless and inefficient
production or service. To accomplish this, the DCAA examines our internal
control systems, management policies and financial capability, evaluates the
accuracy, reliability and reasonableness of our cost representations and
records, and assesses compliance by us with Cost Accounting Standards and
defective-pricing clauses found within the Federal Acquisition Regulations. The
DCAA also performs the annual review of our overhead rates and assists in the
establishment of our final rates. This review focuses on the allowability of
cost items and the allowability and applicability of Cost Accounting Standards.
The DCAA also audits cost-based contracts, including the close-out of those
contracts.
The DCAA also reviews all types of proposals, including those of award,
administration, modification and repricing. Factors considered are our cost
accounting system, estimating methods and procedures, and specific proposal
requirements. Operational audits are also performed by the DCAA. A review of our
operations at every major organizational level that has a significant effect on
the performance of future government contracts is also conducted during the
proposal review period.
During the course of its audit, the DCAA may disallow costs if it
determines that we improperly accounted for such costs in a manner inconsistent
with Cost Accounting Standards. Under a government contract, only those costs
that are reasonable, allocable and allowable are recoverable. A disallowance of
costs by the DCAA could have a material adverse effect on us.
In September 1995, we acquired PRC Environmental Management, Inc. (EMI).
The Defense Contract Audit Agency (DCAA) recently completed an audit of EMI for
the fiscal years 1987 through 1995. As a result of the completed audit and our
negotiations with the DCAA, the DCAA disallowed approximately $2.9 million in
costs. Because we were aware of these issues prior to completing the
acquisition, we established a sufficient reserve and, consequently, the
disallowance did not have a material adverse effect on our business.
Due to the severity of the legal remedies available to the government,
including the required payment of damages and/or penalties, criminal and civil
sanctions, and debarment, we maintain controls to avoid the occurrence of fraud
and other unlawful activity. In addition, we maintain preventative audit
programs to ensure appropriate control systems and mitigate control weaknesses.
We provide our services under contracts, purchase orders or retainer
letters. Our policy provides that, where possible, all contracts will be in
writing. We bill all of our clients periodically based on costs incurred, on
either an hourly-fee basis or on a percentage of completion basis, as the
project progresses. Generally, our contracts do not require that we provide
performance bonds. A performance bond, issued by a surety company, guarantees
the contractor's performance under the contract. If the contractor defaults
under the contract, the surety will, in its discretion, step in to finish the
job or pay the client the amount of the bond. If the contractor does not have a
performance bond and defaults in the performance of a contract, the contractor
is responsible for all damages resulting from the breach of contract. These
damages include the cost of completion, together with possible consequential
damages such as lost profits. To date, we have not incurred material damages
beyond the coverage of any performance bond.
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Most of our agreements permit termination by the clients upon payment of
fees and expenses through the date of the termination.
MARKETING
We utilize both a centralized corporate marketing department and local
marketing groups within each of our operating units. Our corporate marketing
department assists management in establishing our business plan, our target
markets and an overall marketing strategy. The corporate marketing department
also identifies and tracks the development of large Federal programs, positions
us for new business areas, selects appropriate partners, if any, for new
projects and assists in the bid process for new projects. We market throughout
the organizations we target, focusing primarily on senior representatives in
government organizations and senior management in private companies. In
addition, the corporate marketing department supports marketing activities
firm-wide by coordinating corporate promotional and professional activities,
including appearances at trade shows, direct mailings, telemarketing and public
and media relations.
We also perform marketing activities through our local offices. We
believe that these offices have a greater understanding of local environmental
issues, laws and regulations and, therefore, can better target their marketing
activities. These marketing activities are coordinated by full time marketing
staff located in certain of our offices. These activities include meetings with
potential clients and state, county and municipal regulators, presentations to
civic and professional organizations and seminars on current regulatory topics.
COMPETITION
The market for our services is highly competitive. We compete with many
other firms, ranging from small local firms to large national firms that may
have greater financial and marketing resources. We perform a broad spectrum of
engineering and consulting services across the resource management,
infrastructure and communications business areas. Services within these business
areas are provided to a client base which includes Federal agencies, such as the
DOD, the DOE, the Department of the Interior, the EPA and the U.S. Postal
Service, state and local agencies, and the private sector. Our competition
varies and is a function of the business areas in which, and client sectors for
which, we perform our services. The range of competitors for any one procurement
can vary from 10 to 100 firms, depending upon the relative value of the project,
the financial terms and risks associated with the work, and any restrictions
placed upon competition by the client. Historically, clients have chosen among
competing firms based primarily on the quality and timeliness of the firm's
service. However, we believe that price has become an increasingly important
competitive factor. We believe that if this trend continues it could have a
material adverse effect on our operating margins and profitability.
We believe that our principal competitors include, in alphabetical order,
Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser &
McKee; CH2M Hill Companies Ltd., Dames & Moore Group; EA Engineering, Science &
Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc.; IT Group
Inc.; Mastec, Inc.; Montgomery Watson; OSP Consultants, Inc.; Roy F. Weston,
Inc.; and URS Greiner Corporation.
BACKLOG
At October 4, 1998, our gross revenue backlog was approximately $405.0
million, compared to $217.5 million at September 28, 1997. We include in gross
revenue backlog only those contracts for which funding has been provided and
work authorizations have been received. We estimate that approximately $329.6
million of the gross revenue backlog at October 4, 1998 will be recognized
during fiscal 1999. No assurance can be given that all amounts included in
backlog will ultimately be realized, even if evidenced by written contracts. For
example, certain of our contracts with the Federal
11
government and other clients are terminable at will. If any of these clients
terminate their contracts prior to completion, we would not recognize revenue.
ENVIRONMENTAL LEGISLATION
Our clients have become subject to an increasing number of frequently
overlapping Federal, state and local laws concerned with the protection of the
environment, as well as regulations promulgated by administrative agencies
pursuant to these laws. We provide services with respect to Federal
environmental laws, and regulations including: the Clean Water Act; the Resource
Conservation and Recovery Act; CERCLA; the National Environmental Policy Act;
the Safe Drinking Water Act; and other laws.
POTENTIAL LIABILITY AND INSURANCE
Our business activities could expose us to potential liability under
various environmental laws such as CERCLA. In addition, we occasionally
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. These policies are "claims made"
policies. This means that only claims made during the term of the policy are
covered. If we terminate our policies and do not obtain retroactive coverage, we
would be uninsured for claims made after termination even if based on events or
acts that occurred during the term of the policy.
We obtain insurance coverage through a broker who is experienced in the
engineering field. The broker, together with our Risk Manager, periodically
review the adequacy of our insurance programs. However, because there are
various exclusions and retentions under our insurance policies, there can be no
assurance that all potential liabilities will be covered by our insurance.
Further, in the event we expand our services 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.
We evaluate the risk associated with uninsured claims. If we determine
that an uninsured claim has potential liability, we establish an appropriate
reserve. A reserve is not established if we determine that the claim has no
merit. Our historic levels of insurance coverage and reserves have been
adequate. However, a partially or completely uninsured claim, if successful and
of significant magnitude, could have a material adverse effect on our business.
EMPLOYEES
At October 4, 1998, we had 3,662 total employees or 3,077 full-time
equivalent employees. Of the 3,662 total employees, 2,144 are professionals. Our
professional staff includes archaeologists, biologists, chemical engineers,
chemists, civil engineers, computer scientists, economists, electrical
engineers, environmental engineers, environmental scientists, geologists,
hydrogeologists, mechanical engineers, oceanographers, toxicologists and project
managers. Our ability to retain and expand our staff of qualified professionals
will be an important factor in determining our future growth and success. Three
employees of one of our subsidiaries will be represented by a labor
organization. Management considers its relations with our employees to be good.
In addition, we supplement our consultants on certain engagements with
independent contractors. We believe that the practice of retaining independent
contractors on a per engagement basis provides us with significant flexibility
in adjusting professional personnel levels in response to changes in demand for
our services.
12
RISK FACTORS
SOME OF THE INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K 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 ANNUAL REPORT ON FORM 10-K, PROVIDE EXAMPLES OF
RISKS, UNCERTAINTIES AND EVENTS THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE EXPECTATIONS WE DESCRIBE IN OUR FORWARD-LOOKING
STATEMENTS. YOU SHOULD BE AWARE THAT THE OCCURRENCE OF ANY OF THE EVENTS
DESCRIBED IN THESE RISK FACTORS AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM
10-K COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
CONDITION AND OPERATING RESULTS AND THAT UPON THE OCCURRENCE OF ANY OF THESE
EVENTS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE.
RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY
A significant part of our growth strategy is to acquire other companies
that complement our lines of business or that broaden our geographic presence.
During fiscal 1998, we purchased ten companies in five separate transactions. 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. We believe that this
competition will 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 of our potential acquisitions;
- We may ultimately fail to consummate an acquisition even if we announce
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.
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.
13
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 are. If we fail to determine the
existence of unallowable costs and establish appropriate reserves in advance of
an acquisition we may be exposed to material unanticipated liabilities, which
could have a material adverse effect on our business.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
Our quarterly revenues, expenses and operating results may fluctuate
significantly because of a number of factors, including:
- The seasonality of the spending cycle of our 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 our clients to terminate engagements without penalties;
- The size and scope of engagements;
- The timing and size of the return on investment capital; and
- General economic and political conditions.
Variations in any of these factors could cause significant fluctuations in our
operating results from quarter to quarter and could result in net losses.
POTENTIAL VOLATILITY OF OUR STOCK PRICE
The trading price of our common stock has fluctuated widely. In addition,
in recent years the stock market has experienced extreme price and volume
fluctuations. The overall market and the price of our common stock may continue
to fluctuate greatly. The trading price of our common stock may be significantly
affected by various factors, including:
- Quarter to quarter variations in our operating results;
- Changes in environmental legislation;
- Changes in investors' and analysts' perception of the business risks and
conditions of our business;
- Broader market fluctuations; and
- General economic or political conditions.
MANAGEMENT OF GROWTH
We are growing rapidly. Our growth presents numerous managerial,
administrative, operational and other challenges. Our ability to manage the
growth of our operations will require us to continue to improve our operational,
financial and human resource management information systems and our other
internal systems and controls. In addition, our growth will increase our need to
attract, develop, motivate and retain both our management and professional
employees. The inability of our
14
management to manage our growth effectively or the inability of our employees to
achieve anticipated performance or utilization levels, could have a material
adverse effect on our business.
RELIANCE ON KEY PERSONNEL AND QUALIFIED PROFESSIONALS
We depend upon the efforts and skills of our executive officers, senior
managers and consultants. With limited exceptions, we do not have employment
agreements with any of these individuals. The loss of the services of any of
these key personnel could adversely affect our business. Although we have
obtained non-compete agreements from the principal stockholders of each of the
companies we have acquired, we generally do not have non-compete or employment
agreements with key employees who were not equity holders of these companies. We
do not maintain key-man life insurance policies on any of our executive officers
or senior managers.
Our future growth and success depends on our ability to attract and
retain qualified scientists and engineers. The market for these professionals is
competitive and we may not be able to attract and retain such professionals.
DEPENDENCE UPON EXISTING LAWS AND REGULATIONS
A significant amount of our resource management business is generated
either directly or indirectly as a result of existing Federal and state
governmental laws, regulations and programs. Any changes in these laws or
regulations that reduce funding or affect the sponsorship of these programs
could reduce the demand for our services and could have a material adverse
effect on our business.
CONCENTRATION OF REVENUES
Agencies of the Federal government are among our most significant
clients. During fiscal 1998, approximately 46.8% of our net revenue was derived
from three federal agencies as follows: 26.2% of our net revenue was derived
from the Department of Defense (DOD), 17.1% from the Environmental Protection
Agency (EPA), and 3.5% from the Department of Energy (DOE). Some of our
contracts with Federal government agencies require annual funding approval and
may be terminated at their discretion. A reduction in spending by Federal
government agencies could limit the continued funding of our 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.
RISKS ASSOCIATED WITH GOVERNMENTAL AUDITS
Our contracts with the Federal government and other governmental agencies
are subject to audit. Most of these audits are conducted by the Defense Contract
Audit Agency (DCAA), which reviews our overhead rates, operating systems and
cost proposals. The DCAA may disallow costs if it determines that we accounted
for these costs incorrectly or in a manner inconsistent with Cost Accounting
Standards. A disallowance of costs by the DCAA, or other governmental auditors,
could have a material adverse effect on our business.
In September 1995, we acquired PRC Environmental Management, Inc. (EMI).
EMI also contracts with Federal government agencies and such contracts are also
subject to the same governmental audits. The DCAA has completed audits of EMI's
contracts for the fiscal years 1987
15
through 1995. As a result of these audits and our negotiations with the DCAA,
the DCAA disallowed approximately $2.9 million in costs.
FIXED PRICE CONTRACTS
We enter into various contracts with our clients, including fixed-price
contracts. In fiscal 1998, approximately 26.1% of our net revenue was derived
from fixed-price contracts. Fixed-price contracts protect clients and expose us
to a number of risks. These risks include underestimation of costs, problems
with new technologies, unforeseen costs or difficulties, delays beyond our
control and economic and other changes that may occur during the contract
period. If we incur losses under fixed-price contracts it could have a material
adverse effect on our business.
DEPENDENCE ON SUBCONTRACTORS
Under some of our contracts, we depend on the efforts and skills of
subcontractors for the performance of certain tasks. Our reliance on
subcontractors varies from project to project. In fiscal 1998, subcontractor
costs comprised 22.3% of our gross revenue. The absence of qualified
subcontractors with whom we have a satisfactory relationship could adversely
affect the quality of our service and our ability to perform under some of our
contracts.
SIGNIFICANT COMPETITION
We provide specialized management consulting and technical services to a
broad range of public and private sector clients. The market for our services is
highly competitive and we compete with many other firms. These firms range from
small regional firms to large national firms which have greater financial and
marketing resources than we do.
We focus primarily on the resource management, infrastructure and
communications business areas. We provide services to our clients which include
Federal, state and local agencies, and organizations in the private sector.
We compete for projects and engagements with a number of competitors
which can vary from 10 to 100 firms. Historically, clients have chosen among
competing firms based on the quality and timeliness of the firm's service. We
believe, however, that price has become an increasingly important factor.
We believe that our principal competitors include, in alphabetical order,
Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser &
McKee; CH2M Hill Companies Ltd.; Dames & Moore Group; EA Engineering, Science &
Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc.; IT Group
Inc.; Mastec, Inc.; Montgomery Watson; OSP Consultants, Inc.; Roy F. Weston,
Inc.; and URS Greiner Corporation.
POTENTIAL LIABILITY AND INSURANCE
Our services involve significant risks of professional and other
liabilities which may substantially exceed the fees we derive from our services.
Our business activities could expose us to potential liability under various
environmental laws such as the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA). In addition, we sometimes
contractually assume liability under indemnification agreements. We cannot
predict the magnitude of such potential liabilities.
We currently maintain comprehensive general liability, umbrella and
professional liability insurance policies. We believe that our insurance
policies are adequate for our business operations. These policies are "claims
made" policies. Thus, only claims made during the term of the policy are
covered. If we terminate our policies and do 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
16
the term of the policy. Our insurance may not protect us against liability
because our policies typically have various exclusions and retentions. In
addition, if 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. A partially or
completely uninsured claim, if successful and of significant magnitude, could
have a material adverse affect on our business.
CONFLICTS OF INTEREST
Many of our clients are concerned about potential or actual conflicts of
interest in retaining management consultants. Federal government agencies have
formal policies against continuing or awarding contracts that would create
actual or potential conflicts of interest with other activities of a contractor.
These policies, among other things, may prevent us from bidding for or
performing contracts resulting from or relating to certain work we have
performed for the government. In addition, services performed for a private
client may create a conflict of interest that precludes or limits our ability to
obtain work from other public or private organizations. We have, on occasion,
declined to bid on projects because of these conflicts of interest issues.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
In fiscal 1998, approximately 3.2% of our net revenue was derived from
the international marketplace. Some contracts with our international clients are
denominated in foreign currencies. As such, these contracts contain inherent
risks including foreign currency exchange risk and the risk associated with
expatriating funds from foreign countries. If our international revenue
increases, our exposure to foreign currency fluctuations will also increase. We
have entered into forward exchange contracts to address foreign currency
fluctuations.
YEAR 2000
We are working to resolve the potential impact of the year 2000 on our
business operations and the ability of our computerized information systems to
accurately process information that may be date-sensitive. Any of our programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures.
We utilize a number of computer programs across our entire operation. The
primary information technology systems we utilize are the accounting and
financial and human resource information management systems. We began our risk
assessment in 1995. Since that time we have procured and implemented certain
accounting and financial reporting systems as well as contract administration
and billing systems that have been certified as year 2000 compliant by our
vendors. Currently, approximately 72% of our gross revenue is recognized on
these year 2000 compliant systems. We believe that our financial and accounting
and human resource management information systems will be year 2000 compliant in
a timely manner and will not be materially impacted by the year 2000. We may
fail, however, in updating our various systems to be year 2000 compliant in a
timely manner.
We have extensive business with the Federal government. Should the
Federal government, especially the Department of Defense (DOD), experience
significant business interruptions relating to non-year 2000 compliance, our
business could be materially impacted. To the extent that other third parties
which we rely upon, such as banking institutions, clients and vendors, are
unable to address their year 2000 issues in a timely manner, our business could
be materially impacted. We believe that the worst case scenario relating to the
year 2000 would be an extensive period of time in which the Federal government
and other third parties could not process payments promptly, in addition to our
financial institutions not being able to supply us with our working capital
needs.
17
Additional risks associated with non-year 2000 compliance include:
- Our inability to invoice and process payments;
- Our inability to produce accurate and timely financials;
- The impact on our profitability; and
- Our potential liability to third parties for not meeting contracted
deliverables.
IMPACT OF ANTI-TAKEOVER PROVISIONS ON OUR STOCK PRICE
Our certificate of incorporation and by-laws and the Delaware General
Corporation Law include provisions that may be deemed to have anti-takeover
effects. These anti-takeover effects could delay or prevent a takeover attempt
that you or our other stockholders might consider in your or their best
interests.
In addition, our board of directors is authorized to issue, without
obtaining stockholder approval, up to 2,000,000 shares of preferred stock and to
determine the price, rights, preferences and privileges of such shares without
any further stockholder action. The existence of this "blank-check" preferred
stock could make more difficult or discourage an attempt to obtain control of us
by means of a tender offer, merger, proxy contest or otherwise.
In the future, we may adopt other measures that may have the effect of
delaying, deferring or preventing an unsolicited takeover, even if such a change
in control were at a premium price or favored by a majority of unaffiliated
stockholders. Certain of these measures may be adopted without any further vote
or action by the stockholders.
18
ITEM 2. PROPERTIES.
Our corporate headquarters facilities are located in Pasadena, California.
These facilities contain approximately 25,000 square feet of office space, and
are subject to leases which expire beyond the year 2001. We lease office space
in approximately 110 locations in the United States. We also rent some
additional office space on a month-to-month basis.
We believe that our existing facilities are adequate to meet current
requirements and that suitable additional or substitute space will be available
as needed to accommodate any expansion of operations.
ITEM 3. LEGAL PROCEEDINGS.
We are subject to certain claims and lawsuits typically filed against the
engineering and consulting professions, primarily alleging professional errors
or omissions. We carry professional liability insurance, subject to certain
deductibles and policy limits against such claims. We believe that the
resolution of these claims will not have a material effect on our financial
position or results of operations. See "Item 1. Business - Potential
Liability and Insurance."
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On September 14, 1998, we held a special meeting of stockholders to approve
an amendment to our Certificate of Incorporation to increase the number of
authorized shares of our Common Stock from 30,000,000 to 50,000,000. The number
of votes cast concerning this amendment was as follows:
For: 14,029,273
Against: 27,397
Absentions: 10,934
Broker non-votes: 0
19
PART II
The information required by Items 5 through 8 of this report is set forth
on pages 19 through 42 of our Annual Report to Stockholders for the fiscal
year ended October 4, 1998. Such information is incorporated in this report and
made a part hereof by reference. Item 9 is not applicable.
PART III
The information required by Items 10 through 13 of this report is set forth
in the sections entitled "Security Ownership of Principal Stockholders,
Directors and Executive Officers," "Election of Directors," and "Executive
Officers, Compensation and Other Information" in our Proxy Statement for our
1999 Annual Meeting of Stockholders. Such information is incorporated in this
report and made a part hereof by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES.
20
The Financial Statements filed as part of this report are listed
in the accompanying index at page 19.
3. EXHIBITS.
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 1, 1995).
3.2 Bylaws of the Company as amended to date (incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-1, No. 33-43723).
3.3 Certificate of Amendment of Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 28, 1997).
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company.
10.1 Credit Agreement dated as of September 15, 1995 between the
Company and Bank of America Illinois, as amended by the First
Amendment to Credit Agreement dated as of November 27, 1995
(incorporated herein by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 1, 1995).
10.2 Second Amendment dated as of June 20, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company and
Bank of America Illinois (incorporated herein by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 29, 1997).
10.3 Third Amendment dated as of December 15, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company and
Bank of America National Trust and Savings Association
(incorporated herein by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 28, 1997).
10.4 Fourth Amendment dated as of January 30, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company and
Bank of America National Trust and Savings Association.
(incorporated herein by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 28, 1997).
10.5 Fifth Amendment dated as of July 6, 1998 to the Credit Agreement
dated as of September 15, 1995 between the Company and Bank of
America National Trust and Savings Association. (incorporated
herein by reference to Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 28, 1998).
10.6 Security Agreement dated as of September 15, 1995 among the
Company, GeoTrans, Inc., Simons Li & Associates, Inc.,
Hydro-Search, Inc., PRC Environmental Management, Inc. and Bank
of America Illinois (incorporated herein by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for the fiscal
year ended October 1, 1995).
10.7 Pledge Agreement dated as of September 15, 1995 between the
Company and Bank of America Illinois (incorporated herein by
reference to Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended October 1, 1995).
21
10.8 Guaranty dated as of September 15, 1995, executed by the Company
in favor of Bank of America Illinois (incorporated herein by
reference to Exhibit 10.4 to the Company's Annual Report on Form
10-K for the fiscal year ended October 1, 1995).
10.9 1989 Stock Option Plan dated as of February 1, 1989
(incorporated herein by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1, No. 33-43723).
10.10 Form of Incentive Stock Option Agreement executed by the Company
and certain individuals in connection with the Company's 1989
Stock Option Plan (incorporated herein by reference to Exhibit
10.14 to the Company's Registration Statement on Form S-1, No.
33-43723).
10.11 Executive Medical Reimbursement Plan (incorporated herein by
reference to Exhibit 10.16 to the Company's Registration
Statement on Form S-1, No. 33-43723).
10.12 1992 Incentive Stock Plan (incorporated herein by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 3, 1993).
10.13 Form of Incentive Stock Option Agreement used by the Company in
connection with the Company's 1992 Incentive Stock Plan
(incorporated herein by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 3, 1993).
10.14 1992 Stock Option Plan for Nonemployee Directors (incorporated
herein by reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 3, 1993).
10.15 Form of Nonqualified Stock Option Agreement used by the Company
in connection with the Company's 1992 Stock Option Plan for
Nonemployee Directors (incorporated herein by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 3, 1993).
10.16 1994 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.22 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 2, 1994).
10.17 Form of Stock Purchase Agreement used by the Company in
connection with the Company's 1994 Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 2, 1994).
10.18 Employment Agreement dated as of June 11, 1997 between the
Company and Daniel A. Whalen (incorporated herein by reference
to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 29, 1997).
10.19 Registration Rights Agreement dated as of June 11, 1997 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.17 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 29, 1997).
10.20 Registration Rights Agreement dated as of July 11, 1997 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.18 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 28, 1997).
22
10.21 Registration Rights Agreement dated as of March 26, 1998 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.20 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 29, 1998).
10.22 Registration Rights Agreement dated as of July 9, 1998 among the
Company and the parties listed on Schedule A attached thereto
(incorporated herein by reference to Exhibit 10.22 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 28, 1998).
10.23 Registration Rights Agreement dated as of September 22, 1998
among the Company and the parties listed on Schedule A attached
thereto.
13. Annual Report to Stockholders for the fiscal year ended October
4, 1998, portions of which are incorporated by reference in this
report as set forth in Part II hereof. With the exception of
these portions, such Annual Report is not to be deemed filed as
part of this report.
21. Subsidiaries of the Company.
23. Independent Auditors' Consent.
27. Financial Data Schedule.
(b) Reports on Form 8-K
1. Current Report on Form 8-K for event of September 22, 1998,
as filed with the Securities and Exchange Commission on
October 7, 1998.
2. Current Report on Form 8-K/A (Amendment No. 1) for event
of September 22, 1998, as filed with the Securities and
Exchange Commission on December 1, 1998.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TETRA TECH, INC.
Date: December 30, 1998 By: /s/ Li-San Hwang
-------------------------------------
Li-San Hwang, Chairman of the Board of
Directors, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Chairman of the Board of Directors, December 30, 1998
/s/ Li-San Hwang President and Chief Executive Officer
- ----------------------------------- (Principal Executive Officer)
Li-San Hwang
Vice President, Chief Financial Officer December 30, 1998
/s/ James M. Jaska and Treasurer (Principal Financial and
- ----------------------------------- Accounting Officer)
James M. Jaska
/s/ Daniel A. Whalen Director December 30, 1998
- -----------------------------------
Daniel A. Whalen
/s/ J. Christopher Lewis Director December 30, 1998
- -----------------------------------
J. Christopher Lewis
/s/ Patrick C. Haden Director December 30, 1998
- -----------------------------------
Patrick C. Haden
/s/ James J. Shelton Director December 30, 1998
- -----------------------------------
James J. Shelton
24
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the Notes thereto and
report thereon of Deloitte & Touche LLP dated November 13, 1998, appearing on
pages 27 through 41 of the accompanying 1998 Annual Report to Stockholders,
are incorporated by reference in this Annual Report on Form 10-K. With the
exception of the aforementioned information and Part II information set forth on
pages 19 through 26, the 1998 Annual Report to Stockholders is not to be
deemed filed as part of this report.
FINANCIAL STATEMENTS SCHEDULES
Page No.
--------
Report of Independent Accountants on Financial Statement
Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts and
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . 21
25
INDEPENDENT AUDITORS' REPORT
Tetra Tech, Inc.:
We have audited the consolidated financial statements of Tetra Tech, Inc. and
its subsidiaries as of October 4, 1998 and September 28, 1997, and for each
of the three years in the period ended October 4, 1998, and have issued our
report thereon dated November 13, 1998; such financial statements and report
are included in your 1998 Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the financial statement
schedule of Tetra Tech, Inc. and its subsidiaries, listed in Item 14. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 13, 1998
26
TETRA TECH, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED
SEPTEMBER 29, 1996, SEPTEMBER 28, 1997 AND OCTOBER 4, 1998
Balance at Additions Charges to Deductions
Beginning of through Costs and Net of Balance at
Period Acquisitions Expenses Recoveries End of Period
------------ ------------ ---------- ----------- -------------
Fiscal year ended September 29, 1996
Allowance for loss on accounts
receivable . . . . . . . . . . . $ 11,153,000 $ 1,365,000 $ 241,000 $ (1,658,000) $ 11,101,000
Fiscal year ended September 28, 1997
Allowance for loss on accounts
receivable . . . . . . . . . . . $ 11,101,000 $ 228,000 $ (56,000) $ (120,000) $ 11,153,000
Fiscal year ended October 4, 1998
Allowance for loss on accounts
receivable. . . . . . . . . $ 11,153,000 $ 3,187,000 $ (334,000) $ (1,321,000) $ 12,685,000
27