-----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, MLG9j7ZlRa+NvaH2ezFAO//gbtSDTgqcuIia0fFMhg3JpDwSQ97URL/YGKHQrBr5 D870T8WXuYtKImriEEjDQA== 0000898430-97-002103.txt : 19970515 0000898430-97-002103.hdr.sgml : 19970515 ACCESSION NUMBER: 0000898430-97-002103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970330 FILED AS OF DATE: 19970514 SROS: NASD 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: 97605121 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ----------- Commission File Number 0-19655 TETRA TECH, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-4148514 - -------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) number) 670 N. Rosemead Boulevard, Pasadena, California 91107 ------------------------------------------------------------------ (Address of principal executive offices) (818) 351-4664 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of April 28, 1997, the total number of outstanding shares of the Registrant's common stock was 14,543,661. -1- TETRA TECH, INC. INDEX
PART I. FINANCIAL INFORMATION PAGE NO. 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 Risk Factors 11 PART II. OTHER INFORMATION Item 2. Changes in Securities 14 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
$ in thousands, except share data March 30, September 29, 1997 1996 (Unaudited) ----------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents............................................... $ 9,239 $ 6,129 Accounts receivable - net............................................... 23,339 22,306 Unbilled receivables - net............................................. 27,718 25,201 Prepaid and other current assets........................................ 3,503 1,939 Deferred income tax benefit............................................. 2,358 2,358 ------- ------- Total Current Assets.................................................. 66,157 57,933 PROPERTY AND EQUIPMENT: Leasehold improvements.................................................. 961 733 Equipment, furniture and fixtures....................................... 14,526 13,072 ------- ------- Total................................................................. 15,487 13,805 Accumulated depreciation and amortization............................... (8,035) (6,790) ------- ------- PROPERTY AND EQUIPMENT - NET............................................. 7,452 7,015 INTANGIBLE ASSETS - NET.................................................. 22,999 22,047 OTHER ASSETS............................................................. 526 1,468 ------- ------- TOTAL ASSETS............................................................. $97,134 $88,463 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................................................ $11,222 $13,423 Accrued compensation.................................................... 7,388 7,311 Other current liabilities............................................... 5,138 3,356 Income taxes payable.................................................... 954 1,104 ------- ------- Total Current Liabilities............................................. 24,702 25,194 STOCKHOLDERS' EQUITY: Preferred stock - authorized, 2,000,000 shares; none issued and outstanding........................................................... --- --- Common stock - authorized, 20,000,000 shares of $.01 par value; issued and outstanding 14,436,958 and 14,127,002 shares at March 30, 1997 and September 29, 1996, respectively.................. 144 141 Additional paid-in capital.............................................. 37,144 33,452 Retained earnings....................................................... 35,144 29,676 ------- ------- TOTAL STOCKHOLDERS' EQUITY............................................... 72,432 63,269 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................... $97,134 $88,463 ======= =======
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 Six Months Ended ----------------------- ----------------------- March 30, March 31, March 30, March 31, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Gross Revenue..................................... $55,545 $53,929 $110,483 $108,091 Subcontractor costs............................. 11,631 13,853 26,146 29,992 -------- -------- --------- --------- Net Revenue....................................... 43,914 40,076 84,337 78,099 Cost of Net Revenue............................... 33,367 30,676 64,418 60,159 -------- -------- --------- --------- Gross Profit...................................... 10,547 9,400 19,919 17,940 Selling, General and Administrative Expenses...... 5,655 5,281 10,634 10,091 -------- -------- --------- --------- Income From Operations............................ 4,892 4,119 9,285 7,849 Interest Expense.................................. 27 361 42 820 Interest Income................................... (58) (70) (122) (181) -------- -------- --------- --------- Income Before Income Taxes........................ 4,923 3,828 9,365 7,210 Income Tax Expense................................ 2,051 1,531 3,897 2,884 -------- -------- --------- --------- Net Income........................................ $ 2,872 $ 2,297 $ 5,468 $ 4,326 ======== ======== ========= ========= Net Income Per Common Share....................... $0.20 $0.16 $0.37 $0.30 ======== ======== ========= ========= Shares Used in Per Share Calculations............. 14,633 14,504 14,661 14,328 ======== ======== ========= ========= See accompanying notes to the condensed consolidated financial statements.
-4- Tetra Tech, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
$ in thousands Six Months Ended ----------------------- March 30, March 31, 1997 1996 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............................................................. $ 5,468 $ 4,326 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization........................................ 1,830 1,883 Other................................................................ (56) 2 Changes in operating assets and liabilities, net of effects of acquisition: Accounts receivable.................................................. 1,839 10,961 Unbilled receivables................................................. (2,799) (485) Prepaid and other assets............................................. 665 (294) Accounts payable..................................................... (2,830) (6,077) Accrued compensation................................................. (339) (1,954) Other current liabilities............................................ 652 41 Income taxes payable................................................. (188) (1,400) ------- -------- Net Cash Provided By Operating Activities.......................... 4,242 7,003 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.................................................... (985) (1,062) Proceeds from sale of property and equipment............................ 23 41 Payments for business acquisitions, net of cash acquired................ (261) (6,748) ------- -------- Net Cash Used In Investing Activities.............................. (1,223) (7,769) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt.............................................. (405) (12,003) Proceeds from issuance of long-term debt................................ --- 5,003 Payments on obligations under capital leases............................ --- (6) Net proceeds from issuance of common stock.............................. 496 376 ------- -------- Net Cash Provided By (Used In) Financing Activities............. 91 (6,630) ------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................... 3,110 (7,396) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........................ 6,129 13,130 ------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 9,239 $ 5,734 ======= ========
-5- Tetra Tech, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
$ in thousands Six Months Ended ----------------------- March 30, March 31, 1997 1996 ---------- --------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest......................................................... $ 9 $ 796 Income taxes..................................................... $ 5,826 $ 4,285 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 ======== In December 1996, the Company purchased all of the capital stock of IWA Engineers. In conjunction with this acquisition, liabilities were assumed as follows: Fair value of assets acquired................................... $ 2,956 Cash paid....................................................... (310) Issuance of common stock........................................ (1,056) Other acquisition costs......................................... (70) ------- Liabilities assumed........................................... $ 1,520 ======= In December 1996, the Company purchased all of the capital stock of FLO Engineering, Inc. In conjunction with this acquisition, liabilities were assumed as follows: Fair value of assets acquired.................................... $ 888 Cash paid........................................................ (139) Issuance of common stock......................................... (459) Other acquisition costs.......................................... (70) ------- Liabilities assumed............................................ $ 220 ======= In March 1997, the Company purchased all of the capital stock of SCM Consultants, Inc. In conjunction with this acquisition, liabilities were assumed as follows: Fair value of assets acquired.................................... $ 2,656 Cash paid........................................................ (286) Issuance of common stock......................................... (1,683) Other acquisition costs.......................................... (70) ------- Liabilities assumed............................................ $ 617 =======
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 sheets as of March 30, 1997, the condensed consolidated statements of income and the condensed consolidated statements of cash flows for the three-month and six-month periods ended March 30, 1997 and March 31, 1996 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 September 29, 1996. The results of operations for the three and six months ended March 30, 1997 are not necessarily indicative of the results to be expected for the fiscal year ending September 28, 1997. 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 totalled $5,528,000 and cash equivalents totalled $3,711,000 at March 30, 1997. 3. ACQUISITIONS ------------ The Company acquired 100% of the capital stock of SCM Consultants, Inc. ("SCM") on March 20, 1997. SCM, a consulting and engineering firm, provides design of irrigation, water and wastewater systems, as well as facility and infrastructure engineering services, to state and local government, private and industrial customers. The purchase price of approximately $2,531,000 consists of cash and common stock which is subject to adjustment based upon SCM's Net Asset Value on March 30, 1997 as described in the related purchase agreement. The acquisition was accounted for as a purchase. -7- On December 18, 1996, the Company acquired 100% of the capital stock of FLO Engineering, Inc. ("FLO"), a consulting and engineering firm specializing in water resource engineering involving hydraulic engineering and hydrographic data collection. The acquisition was accounted for as a purchase. The purchase price of approximately $700,000 consisting of cash and Company common stock was adjusted to approximately $752,000 based upon FLO's Net Asset Value on December 29, 1996 as described in the related purchase agreement. On December 11, 1996, the Company acquired 100% of the capital stock of IWA Engineers ("IWA"), an architecture and engineering firm providing a wide range of planning, engineering, and design capabilities in water, wastewater, and facility design, and serving state, local and private customers. The acquisition was accounted for as a purchase. The purchase price of approximately $1,500,000 consisting of cash and Company common stock was adjusted to approximately $1,700,000 based upon IWA's Net Asset Value on December 29, 1996 as described in the related purchase agreement. The purchase price of the acquisitions in excess of the fair value of the net assets acquired is being amortized over a period of 30 years and is included under the caption "Intangible Assets - Net" in the accompanying consolidated balance sheets. The final determination of such excess amount is subject to a final determination of the value of the net assets acquired. The effect of unaudited pro forma operating results of these transactions, had they been acquired as of September 30, 1996, is not material. In November 1995, the Company acquired 100% of the capital stock of KCM, Inc. ("KCM"). The following table presents summarized unaudited pro forma operating results assuming that the Company had acquired KCM on October 2, 1995:
Pro Forma Six Months Ended -------------------------- March 31, 1996 -------------- ($ in thousands, except per share data) Gross revenue $110,142 Income before income taxes 7,370 Net income 4,423 Net income per share 0.30 Weighted average shares outstanding 14,516
4. ACCOUNTS RECEIVABLE ------------------- The Accounts Receivable valuation allowance includes amounts to provide for doubtful accounts and for the potential disallowance of billed and unbilled costs. Disallowance of billed and unbilled costs is primarily associated with contracts with the U.S. government which contain clauses that subject contractors to several levels of audit. Management believes that resolution of these matters will not have a material adverse impact on the Company's financial position or results of operations. -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 Period to % Relationship to Net Revenue Period to ----------------------------- ----------------------------- Quarter Ended Period Six Months Ended Period --------------- ------------------- Mar. 30, 1997 Mar. 31, 1996 Change Mar. 30, 1997 Mar. 31, 1996 Change ------------- -------------- ------- ------------- ------------- --------- Net revenue 100.0% 100.0% 9.6% 100.0% 100.0% 8.0% Cost of net revenue 76.0 76.5 8.8 76.4 77.0 7.1 ----- ----- ----- ----- ----- ------ Gross profit 24.0 23.5 12.2 23.6 23.0 11.0 Selling, general and administrative expenses 12.9 13.2 7.1 12.6 12.9 5.4 ----- ----- ---- ----- ----- ------ Income from operations 11.1 10.3 18.8 11.0 10.1 18.3 Net interest (expense) income 0.1 (0.8) 10.7 0.1 (0.8) 112.5 ----- ----- ---- ----- ----- ------ Income before income taxes 11.2 9.5 28.6 11.1 9.3 29.9 Income tax expense 4.7 3.8 34.0 4.6 3.7 35.1 ----- ----- ---- ----- ----- ------ Net income 6.5% 5.7% 25.0% 6.5% 5.6% 26.4% ===== ===== ==== ===== ===== ======
Gross revenue increased by 3.0% to $55,545,000 for the three months ended March 30, 1997 compared to $53,929,000 for the comparable prior year period. For the six months ended March 30, 1997, gross revenue increased by 2.2% to $110,483,000 from $108,091,000 in the prior year. Net revenue increased by 9.6% to $43,914,000 for the quarter from $40,076,000 a year ago. For the six months ended March 30, 1997, net revenue increased by 8.0% to $84,337,000 from $78,099,000 last year. For both gross and net revenue, growth in actual dollars was experienced in the commercial and international client sectors. The percentage of the Company's net revenue attributable to the Federal government, state and local government, commercial, and international clients was affected by the acquisitions of IWA Engineers, FLO Engineering, Inc. and SCM Consultants, Inc. (the "Acquisitions"). The following table presents the percentage of net revenue for each client sector:
Percentage of Net Revenue ----------------------------------------------------------------- Quarter Ended Six Months Ended ------------------------------- ------------------------------- Client Sector March 30, 1997 March 31, 1996 March 30, 1997 March 31, 1996 - ------------- -------------- -------------- -------------- -------------- Federal government 56 61 57 63 State & local government 17 18 17 16 Commercial 24 19 23 19 International 3 2 3 2
For the quarter ended March 30, 1997, the Acquisitions contributed $2,598,000 in net revenue growth, of which $268,000 was in the Federal government sector, $1,113,000 was in the state -9- and local government sector, and $1,217,000 was in the commercial sector. For the six months ended, the Acquisitions contributed $3,832,000 in net revenue growth of which $347,000 was in the Federal government sector, $1,399,000 was in the state and local government sector, and $2,086,000 was in the commercial sector. Cost of net revenue increased 8.8% to $33,367,000 for the three months ended March 30, 1997 compared to $30,676,000 for the comparable prior year period. For the six months ended March 30, 1997, cost of net revenue increased 7.1% to $64,418,000 from $60,159,000 in the prior year. As a percentage of net revenue, cost of net revenue decreased in the quarter and six months from 76.5% and 77.0% last year to 76.0% and 76.4% this year, respectively. The Company continues to emphasize strong project management techniques. Selling, general and administrative ("SG&A") expenses, inclusive of amortization, increased 7.1% to $5,655,000 for the three months ended March 30, 1997 compared to $5,281,000 for the comparable prior year period. For the quarter ended March 30, 1997, this increase was primarily due to the amortization of goodwill associated with the Acquisitions ($34,000), and the addition of SG&A expenses of the Acquisitions ($288,000). For the six months ended March 30, 1997, SG&A increased 5.4% to $10,634,000 from $10,091,000 in the comparable period last year. The amortization of goodwill associated with the Acquisitions was $37,000, and the SG&A expenses of the Acquisitions were $529,000 for the six months ended March 30, 1997. As a percentage of net revenue, SG&A expenses decreased to 12.9% for the quarter ended March 30, 1997 from 13.2% for the comparable period last year, and for the six months ended March 30, 1997, SG&A expenses decreased to 12.6% from 12.9% for the comparable period last year. For the quarter ended March 30, 1997, net interest income of $31,000 was recognized compared to net interest expense of $291,000 in the quarter ended March 31, 1996, primarily due to the repayment of borrowings on the Company's revolving credit facility. For the six months ended March 30, 1997, net interest income increased to $80,000, compared to net interest expense of $639,000 in the prior year. Income tax expense increased to $2,051,000 and $3,897,000 for the quarter and six months ended March 30, 1997, respectively, from $1,531,000 and $2,884,000 for the comparable prior year period due to higher income before income taxes. The Company estimates that its fiscal 1997 effective tax rate will be approximately 41.5%, compared to 40.4% for fiscal year 1996, primarily due to the non-deductibility of goodwill amortization for income tax purposes. LIQUIDITY AND CAPITAL RESOURCES As of March 30, 1997, the Company's cash and cash equivalents totalled $9,239,000. 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. This facility was voluntarily reduced to $15,000,000 in September, 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 -10- of March 30, 1997, there were no borrowings under the Credit Agreement and outstanding letters of credit totalled $1,995,000. Cash provided by operating activities was $4,242,000. The increase in accounts receivable 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 1997. ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which the Company will adopt in its annual financial statements for the year ended October 4, 1998. The Statement prohibits adoption during the fiscal 1997 and 1998 interim periods. The Statement replaces the presentation of primary EPS with a presentation of basic EPS, which excludes dilution and is computed by dividing income available to common stockholders by the weighed average number of common shares outstanding for the period. The Statement also requires the dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Diluted EPS is computed similarly to fully diluted EPS pursuant to Accounting Principles Board Opinion No.15. The Company has determined that the effect of adoption of SFAS No. 128 would not have a material effect on the Company's financial statements for the three months and the six months ended March 30, 1997. 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, 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, in 1997 provides $10,000,000 in coverage, with a $100,000 self-insured retention. 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 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 E&O policy was renewed through September 30, 1997 (approximately 6 months) for $363,000. The shortened period was requested by the Company in order to realign all policies with the Company's fiscal year end. -11- 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 and audits of the Company's business systems and rates. Limitations imposed on spending by Federal government agencies may limit or delay the continued funding of the Company's existing contracts with the Federal government and may limit or delay 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. 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. -12- 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 2. Changes in Securities - ------- --------------------- On March 20, 1997, the Company acquired 100% of the capital stock of SCM Consultants, Inc., a Washington corporation ("SCM"), through the merger of the Company's wholly-owned subsidiary with and into SCM (the "SCM Merger"). In connection with the SCM Merger, the Company issued an aggregate of 145,393 shares of its Common Stock, $.01 par value ("Common Stock"), to the former shareholders of SCM. For purposes of the SCM Merger, the shares of Common Stock were valued at $15.4375 per share. The issuances of Common Stock were made by private placement in reliance on the exemption from the registration provisions of the Securities Act of 1933, as amended (the "Act"), provided for in Section 4(2) of the Act. On March 25 and May 7, 1997, the Company issued an aggregate of 6,323 shares of Common Stock to certain former shareholders of IWA Engineers, a California corporation ("IWA"). Such shares were issued in connection with an adjustment to the purchase price the Company paid for 100% of the capital stock of IWA on December 11, 1996, in accordance with the terms of the related purchase agreement. For purposes of the purchase price adjustment, the shares of Common Stock were valued at $19.475. The issuances of Common Stock were made by private placement in reliance on the exemption from the registration provisions of the Act provided for in Section 4(2) of the Act. Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibits -------- (i) Exhibit 3.1 - Certificate of Amendment of Certificate of Incorporation of the Company (ii) Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K ------------------- None -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 14, 1997 TETRA TECH, INC. By: /s/ Li-San Hwang ------------------ Li-San Hwang Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) By: /s/ James M. Jaska -------------------- James M. Jaska Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) -15- EX-3.1 2 CERT. OF AM. OF CERT. OF INC. OF TETRA TECH EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF TETRA TECH, INC. Li-San Hwang and Richard A. Lemmon hereby certify that: A. They are the President and the Secretary, respectively, of Tetra Tech, Inc., a Delaware corporation (the "Corporation"). B. The Certificate of Incorporation of the Corporation is amended so that the first paragraph of Article IV is amended and superseded in full by the following paragraph: "ARTICLE IV The total number of shares of stock that the corporation shall have authority to issue is twenty-two million (22,000,000), consisting of twenty million (20,000,000) shares of common stock, par value $.01, and two million (2,000,000) shares of preferred stock, par value of $.01. The designation and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof are as follows:" C. The foregoing Amendment to Certificate of Incorporation of the Corporation was duly adopted by a majority of the duly elected directors of the Corporation in accordance with the provisions of Section 242 of the Delaware General Corporation Law and in accordance with their direction was submitted to the stockholders of the Corporation. D. Thereafter, pursuant to the resolution of the directors of the Corporation, the vote of the stockholders of the Corporation was solicited wherein a majority of the outstanding shares of capital stock of the Corporation entitled to vote thereon approved the foregoing Amendment to the Certificate of Incorporation. IN WITNESS WHEREOF, Li-San Hwang and Richard A. Lemmon being the President and Secretary, respectively, of the Corporation, do hereby certify under penalty of perjury under the laws of the State of Delaware that the facts hereinabove stated are truly set forth, and accordingly each of us has hereunto set our hands this 8th day of May, 1997. /s/ Li-San Hwang /s/ Richard A. Lemmon - ------------------------ ---------------------------- Li-San Hwang, President Richard A. Lemmon, Secretary EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS SEP-28-1997 MAR-30-1997 9,239 0 51,057 0 0 66,157 15,487 8,035 97,134 24,702 0 0 0 144 72,288 97,134 55,545 55,545 44,998 44,998 0 0 27 4,923 2,051 2,872 0 0 0 2,872 .20 0
-----END PRIVACY-ENHANCED MESSAGE-----