-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CvmVQCL5UoVMVWDNo4BrwgA1/bJxf9R/c84YjmNYYIiPnJrSjxq6y2HrxpVsK1sp fOU2K/P3avbIF0+1KT2YIg== 0000898430-96-003730.txt : 19960814 0000898430-96-003730.hdr.sgml : 19960814 ACCESSION NUMBER: 0000898430-96-003730 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TETRA TECH INC CENTRAL INDEX KEY: 0000831641 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 954148514 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19655 FILM NUMBER: 96609744 BUSINESS ADDRESS: STREET 1: 670 N ROSEMEAD BOULEVARD CITY: PASEDENA STATE: CA ZIP: 91107-2190 BUSINESS PHONE: 8184496400 MAIL ADDRESS: STREET 1: 670 N ROSEMEAD BLVD CITY: PASADENA STATE: CA ZIP: 91107 10-Q 1 FORM 10-Q FOR PERIOD ENDED JUNE 30, 1996 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 1996 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 NORTH ROSEMEAD BOULEVARD, PASADENA, CALIFORNIA 91107 --------------------------------------------------------- (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (818) 351-4664 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 ------- ------- Number of shares of Common Stock outstanding as of July 26, 1996: 14,111,903 TETRA TECH, INC. INDEX
PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Cash Flows 5 Notes to the Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
-2- PART I. FINANCIAL INFORMATION Item 1. - ------ Tetra Tech, Inc. Condensed Consolidated Balance Sheets (Unaudited)
$ in thousands, except share data June 30, October 1, 1996 1995 --------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents.............. $ 7,746 $13,130 Accounts receivable - net.............. 20,561 26,975 Unbilled receivables - net............ 24,276 25,529 Prepaid and other current assets....... 2,093 1,869 Deferred income tax benefit............ 1,680 4,758 ------- ------- Total Current Assets................. 56,356 72,261 PROPERTY AND EQUIPMENT: Leasehold improvements................. 709 433 Equipment, furniture and fixtures...... 13,022 10,959 ------- ------- Total................................ 13,731 11,392 Accumulated depreciation............... (6,707) (5,001) ------- ------- PROPERTY AND EQUIPMENT - NET............ 7,024 6,391 INTANGIBLE ASSETS - NET................. 21,379 14,044 OTHER ASSETS............................ 2,474 234 ------- ------- TOTAL ASSETS............................ $87,233 $92,930 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable....................... $ 9,881 $14,820 Accrued compensation................... 7,275 8,287 Other current liabilities.............. 3,656 2,954 Purchase price payable................. 0 5,000 Current portion of long-term 58 1,000 obligations........................... Income taxes payable................... 932 328 ------- ------- Total Current Liabilities............ 21,802 32,389 Long-term obligations................... 6,129 19,045 STOCKHOLDERS' EQUITY: Preferred stock - authorized, 2,000,000 shares; none issued and outstanding........................... Common stock - authorized, 15,000,000 shares of $0.1 par value; issued and outstanding 14,100,313 and 13,211,172 shares at June 30, 1996 and October 1, 1995, respectively.... 141 106 Additional paid-in capital............. 32,639 21,819 Retained earnings...................... 26,522 19,571 TOTAL STOCKHOLDERS' EQUITY.............. 59,302 41,496 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $87,233 $92,930 ======= =======
See accompanying notes to the condensed consolidated financial statements. -3- Tetra Tech, Inc. Condensed Consolidated Statements of Income (Unaudited)
$ in thousands, except share data Three Months Ended Nine Months Ended -------------------- --------------------- June 30, July 2, June 30, July 2, 1996 1995 1996 1995 -------- -------- --------- -------- Gross Revenue........................... $54,152 $29,150 $162,243 $84,648 Subcontractor costs................... 13,838 7,651 43,830 22,051 ------- ------- -------- ------- Net Revenue............................. 40,314 21,499 118,413 62,597 Cost of Net Revenue..................... 30,479 16,222 90,638 47,179 ------- ------- -------- ------- Gross Profit............................ 9,835 5,277 27,775 15,418 Selling, General and Administrative Expenses............................... 4,998 2,258 14,482 7,165 Goodwill Amortization................... 331 100 938 318 ------- ------- -------- ------- Income From Operations.................. 4,506 2,919 12,355 7,935 Interest Expense........................ 203 3 1,023 14 Interest Income......................... (72) (262) (253) (656) ------- ------- -------- ------- Income Before Income Taxes.............. 4,375 3,178 11,585 8,577 Income Tax Expense...................... 1,750 1,271 4,634 3,431 ------- ------- -------- ------- Net Income.............................. $ 2,625 $ 1,907 $ 6,951 $ 5,146 ======= ======= ======== ======= Net Income Per Common Share............. $ 0.18 $ 0.14 $ 0.48 $ 0.38 ======= ======= ======== ======= Shares Used in Per Share Calculations... 14,565 13,551 14,405 13,480 ======= ======= ======== =======
See accompanying notes to the condensed consolidated financial statements. -4- Tetra Tech, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
$ in thousands Nine Months Ended --------------------- June 30, July 2, 1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............................. $ 6,951 $ 5,146 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation......................... 1,793 1,048 Amortization......................... 938 319 Other................................ (2) (130) Changes in operating assets and liabilities, net of effects of acquisition: Accounts receivable.................. 15,157 1,052 Unbilled receivables................. 224 2,177 Prepaid and other assets............. (519) (198) Accounts payable..................... (7,618) (3,299) Accrued compensation................. (1,467) (366) Other current liabilities............ 525 (53) Income taxes payable................. 410 (781) -------- ------- Net Cash Provided By Operating Activities........................ 16,392 4,915 CASH FLOWS FROM INVESTING ACTIVITIES: Payment for short-term investment....... --- (3,003) Capital expenditures.................... (1,751) (972) Proceeds from sale of property and equipment.............................. 45 13 Payments for business acquisitions, net of cash acquired....................... (6,748) --- -------- ------- Net Cash Used In Investing Activities........................ (8,454) (3,962) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt.............. (19,003) --- Proceeds from issuance of long-term debt 5,145 --- Payments on obligations under capital leases................................. (6) --- Net proceeds from issuance of common stock.................................. 542 471 Payments to acquire treasury stock...... --- (189) -------- ------- Net Cash (Used In) Provided By Financing Activities.............. (13,322) 282 -------- ------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....................... (5,384) 1,235 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................. 13,130 15,890 -------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................. $ 7,746 $17,125 ======== =======
-5- Tetra Tech, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
$ in thousands Nine Months Ended ------------------- June 30, July 2, 1996 1995 --------- ------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest............................. $ 1,077 $ 12 Income taxes......................... $ 4,225 $4,255 SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: In November 1995, the Company purchased all of the capital stock of KCM, Inc. In conjunction with this acquisition, liabilities were assumed as follows: Fair value of assets acquired........ $ 20,393 Cash paid............................ (2,645) Issuance of common stock............. (10,313) Other acquisition costs.............. (415) -------- Liabilities assumed................ $ 7,020 ========
See accompanying notes to the condensed consolidated financial statements. -6- TETRA TECH, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION --------------------- The accompanying condensed consolidated balance sheet as of June 30, 1996, the condensed consolidated statements of income and the condensed consolidated statements of cash flows for the three-month and nine-month periods ended June 30, 1996 and July 2, 1995 are unaudited, and in the opinion of management include all 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 for the fiscal year ended October 1, 1995. The results of operations for the three and nine months ended June 30, 1996 are not necessarily indicative of the results to be expected for the fiscal year ending September 29, 1996. The computation of net income per common share is based upon the weighted average number of shares outstanding, including the effects of common stock equivalents (common stock options), and, 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 21, 1996 for each four shares outstanding as of the record date of June 7, 1996. 2. CURRENT ASSETS -------------- The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents totalled $4,913,000 at June 30, 1996. 3. ACQUISITIONS ------------ In September 1995, the Company acquired 100% of the capital stock of PRC Environmental Management, Inc. ("EMI"), a scientific and information technology firm, from PRC Inc. The acquisition was accounted for as a purchase. The purchase price, estimated at $40,000,000, is subject to adjustment based upon the Net Asset Value of the Business on September 14, 1995 as described in the related purchase agreement. From the effective acquisition date, the results of EMI operations have been included in the Company's condensed consolidated financial statements. -7- In November 1995, the Company acquired 100% of the capital stock of KCM, Inc. ("KCM"), an engineering services firm specializing in areas of water quality, water and wastewater systems, surface water management, fisheries and facilities. The acquisition was accounted for as a purchase. The purchase price of $12,958,000 consists of cash and Company stock which was issued under Regulation D under the Securities Act of 1933, as amended, and had a value of $10,313,000. From the effective acquisition date, the results of KCM operations have been included in the Company's condensed consolidated financial statements. The purchase price of the acquisitions in excess of the fair value of the net assets acquired is being amortized over a period of 20 years and is included under the caption "Intangible Assets-Net" in the accompanying condensed consolidated balance sheets. The final determination of such excess is subject to a financial determination of the value of the net assets acquired and the purchase price. The following table presents summarized unaudited pro forma operating results assuming that the Company had acquired EMI and KCM on October 3, 1994:
Pro Forma Nine Months Ended ---------------------------- June 30, 1996 July 2, 1995 ------------- ------------ ($ in thousands, except per share data) Gross revenue $164,294 $173,187 Income before income taxes 11,745 9,720 Net income 7,048 5,832 Net income per share 0.49 0.41 Weighted average shares outstanding 14,530 14,270
-8- Item 2. - ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table presents the percentage relationship of selected items in the Company's condensed consolidated Statements of Income to net revenue, and the percentage increase or (decrease) in the dollar amount of such items:
% Relationship to Net Revenue % Relationship to Net Revenue ------------------------------- ----------------------------- Quarter Ended Period to Nine Months Ended Period to ------------------------------- Period ----------------------------- Period Jun. 30, 1996 Jul. 2, 1995 Change Jun. 30, 1996 Jul. 2, 1995 Change ------------- ------------- ----------- ------------- ------------ --------- Net revenue 100.0% 100.0% 87.5% 100.0% 100.0% 89.2% Cost of net revenue 75.6 75.5 87.9 76.5 75.4 92.1 ----- ----- ------ ----- ----- ------ Gross profit 24.4 24.5 86.4 23.5 24.6 80.1 Selling, general and administrative expenses 13.2 10.9 126.0 13.0 11.9 106.1 ----- ----- ------ ----- ----- ------ Income from operations 11.2 13.6 54.4 10.5 12.7 55.7 Net interest (expense) income (0.3) 1.2 (150.4) (0.7) 1.0 (219.8) ----- ----- ------ ----- ----- ------ Income before income taxes 10.9 14.8 37.7 9.8 13.7 35.1 Income tax expense 4.4 5.9 37.7 3.9 5.5 35.1 ----- ----- ------ ----- ----- ------ Net income 6.5% 8.9% 37.7% 5.9% 8.2% 35.1% ===== ===== ====== ===== ===== ======
Gross revenue increased by 85.8% to $54,152,000 for the three months ended June 30, 1996 compared to $29,150,000 for the comparable prior year period. For the nine months ended June 30, 1996, gross revenue increased by 91.7% to $162,243,000 from $84,648,000 in the prior year. Net revenue increased by 87.5% to $40,314,000 for the quarter from $21,499,000 a year ago. For the nine months ended June 30, 1996, net revenue increased by 89.2% to $118,413,000 from $62,597,000 last year. For both gross and net revenue, growth in actual dollars was experienced in all client sectors. The percentage of the Company's net revenue attributable to the Federal government, state and local government, commercial clients, and international clients was affected by the acquisitions of PRC Environmental Management, Inc. ("EMI") and KCM, Inc. (the "Acquisitions"). The following table presents the percentage of net revenue for each client sector:
Percentage of Net Revenue ----------------------------------------------------------- Quarter Ended Nine Months Ended ---------------------------- ---------------------------- Client Sector June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995 - --------------------------- ------------- ------------ ------------- ------------ Federal government 60 55 62 53 State & local government 17 11 16 12 Commercial 22 34 20 35 International 1 -- 2 --
For the quarter ended June 30, 1996, the Acquisitions contributed $19,869,000 in net revenue growth, of which $13,760,000 was in the Federal government sector, and $5,295,000 was in the -9- state and local government sector. For the nine months ended June 30, 1996, the Acquisitions contributed $57,646,000 in net revenue growth of which $41,706,000 was in the Federal government sector, and $10,834,000 was in the state and local government sector. Cost of net revenue increased 87.9% to $30,479,000 for the three months ended June 30, 1996 compared to $16,222,000 for the comparable prior year period. For the nine months ended June 30, 1996, cost of net revenue increased 92.1% to $90,638,000 from $47,179,000 in the prior year. As a percentage of net revenue, cost of net revenue increased in the quarter and nine months from 75.5% and 75.4% last year to 75.6% and 76.5% this year, respectively. This increase was due substantially to the higher cost of net revenue associated with EMI. Although this percentage increased, the Company continues to emphasize strong project management techniques. Selling, general and administrative ("SG&A") expenses, inclusive of amortization, increased 126.0% to $5,329,000 for the three months ended June 30, 1996 compared to $2,358,000 for the comparable prior year period. For the quarter ended June 30, 1996, this increase was due to the amortization of the goodwill associated with the Acquisitions ($233,000), and the addition of SG&A expenses of the Acquisitions ($2,508,000). For the nine months ended June 30, 1996, SG&A increased 106.1% to $15,420,000 from $7,483,000 in the prior year and the amortization of the goodwill associated with the Acquisitions was $643,000, and the SG&A expenses of the Acquisitions was $7,166,000. As a percentage of net revenue, SG&A expenses increased to 13.2% for the quarter ended June 30, 1996 from 10.9% for the comparable period last year, and for the nine months ended June 30, 1996, SG&A expenses increased to 13.0% from 11.9% last year. For the quarter ended June 30, 1996, net interest expense of $131,000 was incurred compared to net interest income of $259,000 in the quarter ended July 2, 1995, primarily due to borrowings on the Company's revolving credit facility ($6,000,000 at June 30, 1996) to partially fund the EMI acquisition on September 15, 1995. For the nine months ended June 30, 1996, net interest expense increased to $770,000, compared to net interest income of $642,000 in the prior year. Income tax expense increased to $1,750,000 and $4,634,000 for the quarter and nine months ended June 30, 1996, respectively, from $1,271,000 and $3,431,000 for the comparable prior year period due to higher income before income taxes. The Company estimates that its fiscal 1996 effective tax rate will be approximately 40%, the same as experienced in fiscal 1995. The Federal government slowdown last quarter continued to have some affect on the Company's normal operations; however, the financial impact was minimized by: - staff adjustments to temporary status, and - workload shifts to private and other public sector contracts. -10- LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996, the Company's cash and cash equivalents totalled $7,746,000. In addition, the Company has a credit agreement (the "Credit Agreement") with a bank which provides for a revolving credit facility of $30,000,000, which was voluntarily reduced to $25,000,000 in March 1996, to $20,000,000 in April 1996, and to $15,000,000 in June 1996. Under the Credit Agreement, the Company may also request standby letters of credit up to the aggregate sum of $5,000,000 outstanding at any one time. As of June 30, 1996, outstanding borrowings totalled $6,000,000 and outstanding letters of credit totalled $37,000. The increase in cash from operating activities for the nine months ended June 30, 1996 resulted primarily from the management of receivables and increase in net income. The decrease in accounts payable and accrued compensation resulted primarily from the timing of these liabilities. The Company expects that existing cash balances, internally generated funds, and its credit facility will be sufficient to meet the Company's capital requirements through the end of fiscal 1996. RISK FACTORS Statements regarding the Company's performance prospects could contain forward-looking information that involves risk and uncertainties such as the level of demand for the Company's services, funding delays for projects, lack of regulatory clarity affecting the marketplace and industry-wide competitive factors. The following risk factors should be reviewed in addition to the other information contained in this Quarterly Report on Form 10-Q. POTENTIAL LIABILITY AND INSURANCE. Because of the type of environmental projects in which the Company is or may be involved, the Company's current and anticipated future services may involve risks of potential liability under Superfund, common law or contractual indemnification agreements. It is difficult to assess accurately both the areas and magnitude of potential risk to the Company. The Company maintains comprehensive general liability insurance in the amount of $1,000,000. This amount, together with $9,000,000 coverage under umbrella policies, provide total general liability coverage of $10,000,000. The Company's professional liability insurance ("E&O") policy, which includes pollution coverage, for 1996 provides $10,000,000 in coverage, with a $100,000 self-insured retention. For 1997, the Company expects to maintain similar coverages for current services including pollution-related services rendered by the Company. However, because there are various exclusions and retentions under the Company's insurance policies, there can be no assurance that all liabilities that may be incurred by the Company are subject to insurance coverage. In addition, the E&O policy is a "claims made" policy which only covers claims made during the term of the policy. If a policy terminates and retroactive coverage is not obtained, a claim subsequently made, even a claim based on events or acts which occurred during the term of the policy, would not be covered by the policy. In the event the -11- Company expands its services into new markets, no assurance can be given that the Company will be able to obtain insurance coverage for such activities or, if insurance is obtained, that the dollar amount of any liabilities incurred in connection with the performance of such services will not exceed policy limits. The premiums paid by the Company for its professional liability policies during 1996 were approximately $726,000 for E&O. The amounts to be paid for 1997 will be determined by March 14, 1997. The Company does not maintain funded reserves to provide for payment of partially or completely uninsured claims and, accordingly, a partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect on the Company. SIGNIFICANT COMPETITION. The market for the Company's services is highly competitive. The Company competes with many other firms, ranging from small local firms to large national firms having greater financial and marketing resources than the Company. Competition in the environmental services industry is likely to increase as the industry matures, as more companies enter the market and expand the range of services which they offer and as the Company and its competitors move into new geographic markets. Historically, competition has been based primarily on the quality and timeliness of service. However, as the industry continues to mature, the Company believes that price will become an increasingly important competitive factor. CONTRACTS. The Company's contracts with the Federal and State governments and some of its other client contracts are subject to termination at the discretion of the client. Some contracts made with the Federal government are subject to annual approval of funding. Limitations imposed on spending by Federal government agencies may limit the continued funding of the Company's existing contracts with the Federal government and may limit the Company's ability to obtain additional contracts. These limitations, if significant, could have a material adverse effect on the Company. All of the Company's contracts with the Federal government are subject to audit by the government. The Company's government contracts are subject to renegotiation of profits in the event of a change in the contractual scope of work to be performed. CONFLICTS OF INTEREST. Many of the Company's clients are concerned about potential or actual conflicts of interest in retaining environmental consultants and engineers. For example, Federal government agencies have formal policies against continuing or awarding contracts that would create actual or potential conflicts of interest with other activities of a contractor. These policies, among other things, may prevent the Company in certain cases from bidding for or performing contracts resulting from or relating to certain work the Company has performed for the government. In addition, services performed for a private client may create a conflict of interest which precludes or limits the Company's ability to obtain work from another private entity. The Company has, on occasion, declined to bid on a project because of an actual or potential conflict of interest. However, the Company has not experienced disqualification during a bidding or award negotiation process by any government or private client as a result of a conflict of interest. -12- POTENTIAL VOLATILITY OF STOCK PRICE. The market price of the Company's Common Stock may be significantly affected by factors such as quarter-to-quarter variations in the Company's results of operations, changes in environmental legislation and changes in investors' perception of the business risks and conditions in the environmental services business. In addition, market fluctuations, as well as general economic or political conditions, may adversely affect the market price of the Company's Common Stock, regardless of the Company's actual performance. QUALIFIED PROFESSIONALS. The Company's ability to attract and retain qualified scientists and engineers is an important factor in determining the Company's future growth and success. The market for environmental professionals is competitive and there can be no assurance that the Company will continue to be successful in its efforts to attract and retain such professionals. -13- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ------ -------------------------------- (a) Exhibits -------- (i) Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K ------------------- None -14- EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS SEP-29-1996 JUN-30-1996 7,746 0 44,837 0 0 56,356 13,731 6,707 87,233 21,802 0 0 0 141 59,161 87,233 54,152 54,152 44,317 44,317 0 0 203 4,375 1,750 2,625 0 0 0 2,625 0.18 0
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