Prepared by MERRILL CORPORATION

10-Q 1 a2056876z10-q.htm 10-Q Prepared by MERRILL CORPORATION
QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

/x/	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 1, 2001

/ /	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
(State or other jurisdiction of
incorporation or organization)

95-4148514
(I.R.S. Employer Identification number)

670 N. Rosemead Boulevard, Pasadena, California 91107
(Address of principal executive offices)

(626) 351-4664
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /

As of August 10, 2001, the total number of outstanding shares of the Registrant's common stock was 41,631,150.

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 Condensed Consolidated Financial Statements	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
		Risk Factors	23
PART II.		OTHER INFORMATION
	Item 2.	Changes in Securities and Use of Proceeds	28
	Item 6.	Exhibits and Reports on Form 8-K	28
Signatures			32

PART I. FINANCIAL INFORMATION

Item 1.

Tetra Tech, Inc.
Condensed Consolidated Balance Sheets

In thousands, except share data			July 1, 2001			October 1, 2000
			(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	10,504		$	7,557
	Accounts receivable—net			156,107			153,527
	Unbilled receivables—net			119,482			117,870
	Contract retentions			4,353			4,232
	Prepaid expenses and other current assets			21,014			11,203
	Current income taxes receivable			10,740			—
	Deferred income taxes receivable			2,551			2,551

		Total Current Assets		324,751			296,940

PROPERTY AND EQUIPMENT:
	Equipment, furniture and fixtures			69,432			59,361
	Leasehold improvements			5,854			4,182

		Total		75,286			63,543
	Accumulated depreciation and amortization			(35,223	)		(28,331	)

PROPERTY AND EQUIPMENT—NET				40,063			35,212

INTANGIBLE ASSETS—NET				244,051			190,452
OTHER ASSETS				4,022			3,434

TOTAL ASSETS			$	612,887		$	526,038

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable		$	43,658		$	50,304
	Accrued compensation			31,774			25,705
	Billings in excess of costs on uncompleted contracts			14,139			15,947
	Other current liabilities			20,493			17,523
	Current portion of long-term obligations			28,000			26,000
	Income taxes payable			—			7,120

		Total Current Liabilities		138,064			142,599

LONG-TERM OBLIGATIONS				123,447			85,532

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
	Preferred stock—authorized, 2,000,000 shares of $.01 par value; issued and outstanding 0 shares at July 1, 2001 and October 1, 2000			—			—
	Exchangeable stock of a subsidiary			13,804			13,887
	Common stock—authorized, 85,000,000 shares of $.01 par value; issued and outstanding 41,593,533 and 39,830,633 shares at July 1, 2001 and October 1, 2000, respectively			416			398
	Additional paid-in capital			187,976			150,391
	Accumulated other comprehensive loss			(970	)		(844	)
	Retained earnings			150,150			134,075

TOTAL STOCKHOLDERS' EQUITY				351,376			297,907

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY			$	612,887		$	526,038

See accompanying Notes to Condensed Consolidated Financial Statements.

Tetra Tech, Inc.
Condensed Consolidated Statements of Income
(Unaudited)

		Three Months Ended					Nine Months Ended
In thousands, except per share data		July 1, 2001			July 2, 2000		July 1, 2001		July 2, 2000
Gross Revenue		$	250,124		$	203,795	$	713,769	$	551,617
	Subcontractor costs		58,576			47,327		175,425		127,132

Net Revenue			191,548			156,468		538,344		424,485
Cost of Net Revenue			147,022			116,266		413,681		326,245

Gross Profit			44,526			40,202		124,663		98,240
Selling, General and Administrative Expenses			57,616			18,810		95,043		43,361
Amortization of Intangibles			2,430			1,719		6,629		4,492

(Loss)/Income from Operations			(15,520	)		19,673		22,991		50,387
Interest Expense			2,440			2,077		6,903		4,868
Interest Income			162			119		431		209

(Loss)/Income Before Income Tax (Benefit)/Expense			(17,798	)		17,715		16,519		45,728
Income Tax (Benefit)/Expense			(13,969	)		7,795		444		20,120

Net (Loss)/Income		$	(3,829	)	$	9,920	$	16,075	$	25,608

Basic (Loss)/Earnings Per Share		$	(0.09	)	$	0.25	$	0.40	$	0.66

Diluted (Loss)/Earnings Per Share		$	(0.09	)	$	0.24	$	0.37	$	0.62

Weighted Average Common Shares Outstanding:
	Basic		40,987			39,287		40,455		38,768

	Diluted		40,987			42,104		43,146		41,221

See accompanying Notes to Condensed Consolidated Financial Statements.

Tetra Tech, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

			Nine Months Ended
In thousands			July 1, 2001			July 2, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	16,075		$	25,608
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
	Depreciation and amortization			13,621			11,287
	Provision for losses on receivables			38,808			(1,074	)
Changes in operating assets and liabilities, net of effects of acquisitions:
	Accounts receivable			(24,144	)		(25,728	)
	Unbilled receivables			7,924			(15,739	)
	Contract retentions			(121	)		(1,135	)
	Prepaid expenses and other assets			(8,709	)		(6,370	)
	Accounts payable			(16,402	)		(3,607	)
	Accrued compensation			3,092			3,501
	Billings in excess of costs on uncompleted contracts			(2,238	)		1,326
	Other current liabilities			(2,697	)		(2,226	)
	Income taxes payable			(20,511	)		(3,142	)

		Net Cash Provided By/(Used In) Operating Activities		4,698			(17,299	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures				(6,380	)		(12,025	)
Payments for business acquisitions, net of cash acquired				(36,627	)		(28,387	)

		Net Cash Used In Investing Activities		(43,007	)		(40,412	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term obligations				(155,260	)		(44,616	)
Proceeds from issuance of long-term obligations				189,000			97,000
Net proceeds from issuance of common stock				7,642			6,357

		Net Cash Provided By Financing Activities		41,382			58,741

EFFECT OF EXCHANGE RATE CHANGES ON CASH				(126	)		649

NET INCREASE IN CASH AND CASH EQUIVALENTS				2,947			1,679
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				7,557			8,189

CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	10,504		$	9,868

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
	Interest		$	6,320		$	4,810
	Income taxes		$	21,182		$	23,262

(Continued)

Tetra Tech, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

				Nine Months Ended
In thousands				July 1, 2001			July 2, 2000
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
	In June 2001, the Company purchased all of the capital stock of Western Utility Contractors, Inc. and Western Utility Cable, Inc. In conjunction with these acquisitions, liabilities were assumed as follows:
		Fair value of assets acquired		$	20,325
		Cash paid			(15,979	)
		Other acquisition costs			(70	)

			Liabilities assumed	$	4,276

	In June 2001, the Company purchased all of the capital stock of The Design Exchange Architects, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired		$	1,557
		Cash paid			(1,300	)
		Other acquisition costs			(50	)

			Liabilities assumed	$	207

	In June 2001, the Company purchased all of the capital stock of Commonwealth Technology, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired		$	3,981
		Cash paid			(1,095	)
		Issuance of common stock			(2,555	)
		Other acquisition costs			(50	)

			Liabilities assumed	$	281

	In May 2001, the Company purchased all of the capital stock of Maxim Technologies, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired		$	17,961
		Cash paid			(6,800	)
		Issuance of common stock			(6,800	)
		Other acquisition costs			(100	)

			Liabilities assumed	$	4,261

	In May 2001, the Company purchased all of the capital stock of Vertex Engineering Services, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired		$	14,896
		Cash paid			(2,000	)
		Issuance of common stock			(8,000	)
		Other acquisition costs			(50	)

			Liabilities assumed	$	4,846

(Continued)

Tetra Tech, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

				Nine Months Ended
In thousands				July 1, 2001			July 2, 2000
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
	In March 2001, the Company purchased all of the capital stock of Williams, Hatfield & Stoner, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired		$	10,725
		Cash paid			(6,234	)
		Issuance of common stock			(2,500	)
		Other acquisition costs			(50	)

			Liabilities assumed	$	1,941

	In March 2001, the Company purchased all of the capital stock of Wahco Construction, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired		$	4,567
		Cash paid			(400	)
		Issuance of common stock			(950	)
		Purchase price payable			(200	)
		Other acquisition costs			(65	)

			Liabilities assumed	$	2,952

	In December 2000, the Company purchased all of the capital stock of Rocky Mountain Consultants, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired		$	22,112
		Cash paid			(6,524	)
		Issuance of common stock			(8,700	)
		Other acquisition costs			(70	)

			Liabilities assumed	$	6,818

	In June 2000, the Company purchased all of the capital stock of Drake Contractors, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired					$	9,466
		Cash paid						(4,923	)
		Contingent consideration						(1,000	)
		Other acquisition costs						(100	)

			Liabilities assumed				$	3,443

	In May 2000, the Company purchased all of the capital stock of Rizzo Associates, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired					$	17,588
		Issuance of common stock						(1,785	)
		Cash paid						(8,400	)
		Other acquisition costs						(120	)

			Liabilities assumed				$	7,283

(Continued)

Tetra Tech, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

				Nine Months Ended
In thousands				July 1, 2001	July 2, 2000
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
	In May 2000, the Company purchased all of the capital stock of FHC, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired			$	6,357
		Issuance of common stock				(833	)
		Cash paid				(3,920	)
		Other acquisition costs				(100	)

			Liabilities assumed		$	1,504

	In May 2000, the Company purchased, through its majority-owned subsidiary, Tetra Tech Canada Ltd., all of the capital stock of 1261248 Ontario, Inc., which does business as Engineered Communications. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired			$	1,521
		Issuance of exchangeable stock				(647	)
		Cash paid				(762	)
		Other acquisition costs				(100	)

			Liabilities assumed		$	12

	In April 2000, the Company purchased all of the capital stock of eXpert Wireless Solutions, Inc. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired			$	21,381
		Issuance of common stock				(8,585	)
		Cash paid				(10,090	)
		Other acquisition costs				(100	)

			Liabilities assumed		$	2,606

	In March 2000, concurrent with Tetra Tech Engineers, P.C's acquisition of certain assets of Edward A. Sears Associates, the Company's subsidiary Cosentini Associates, Inc. acquired certain non-licensed assets of Edward A. Sears Associates from Tetra Tech Engineers, P.C. In conjunction with this acquisition, liabilities were assumed as follows:
		Fair value of assets acquired			$	505
		Cash paid				(350	)
		Other acquisition costs				(80	)

			Liabilities assumed		$	75

	In October 1999, the Company purchased all of the capital stock of LC of Illinois, Inc. and HFC Technologies, Inc. In conjunction with these acquisitions, liabilities were assumed as follows:
		Fair value of assets acquired			$	2,606
		Cash paid				(1,513	)
		Other acquisition costs				(80	)

			Liabilities assumed		$	1,013

See accompanying Notes to Condensed Consolidated Financial Statements.
(Concluded)

TETRA TECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying condensed consolidated balance sheet as of July 1, 2001, the condensed consolidated statements of income for the three-month and nine-month periods ended July 1, 2001 and July 2, 2000 and the condensed consolidated statements of cash flows for the nine months ended July 1, 2001 and July 2, 2000 are unaudited, and in the opinion of management include all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented.

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 2000.

The results of operations for the three and nine months ended July 1, 2001 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2001.

2. Accounting Pronouncements

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, which outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. SAB No. 101 requires companies to report any changes in revenue recognition as a cumulative change in accounting principle at the time of implementation in accordance with Accounting Principles Board (APB) Opinion No. 20, Accounting Changes. SAB No. 101, as amended, is effective no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Company will adopt SAB No. 101 in the fourth quarter of fiscal year 2001. The Company believes its existing revenue recognition policies and procedures are in compliance with SAB No. 101, and that the adoption of SAB No. 101 will have no material impact on the Company's results of operations or financial position.

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations, which supercedes APB Opinion No. 16, Business Combinations. SFAS No. 141 eliminates the pooling-of-interest method of accounting for business combinations for combinations initiated after July 1, 2001. The Statement also changes the criteria to recognize intangible assets apart from goodwill. The requirements of this Statement are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001. The Company is currently analyzing the impact of this Statement on future operations.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which supercedes APB Opinion No. 17, Intangible Assets. Under SFAS No. 142, goodwill and other indefinite lived intangible assets are no longer amortized but are reviewed, at a minimum, annually for impairment. Separable intangible assets that have finite lives will continue to be amortized over their useful lives. The amortization provisions of this Statement are effective for goodwill and intangible assets acquired after June 30, 2001. The remaining provisions of this Statement are effective for fiscal years beginning after December 15, 2001, although early adoption is permitted. The Company is currently analyzing the impact of this Statement has not yet determined if it will adopt this Statement prior to fiscal year 2003.

3. Earnings Per Share

Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted

EPS is computed by dividing net income by the weighted average number of common shares outstanding and dilutive potential common shares. The Company includes as potential common shares the weighted average number shares of exchangeable stock of a subsidiary and the weighted average dilutive effects of outstanding stock options. The exchangeable stock of a subsidiary is non-voting and is exchangeable on a one for one basis, as adjusted for stock splits and stock dividends subsequent to the original issuance, for the Company's common stock. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended					Nine Months Ended
		July 1, 2001			July 2, 2000		July 1, 2001		July 2, 2000
Numerator—
	Net (loss)/income	$	(3,829,000	)	$	9,920,000	$	16,075,000	$	25,608,000
Denominator—
	Denominator for basic earnings per share—weighted average shares		40,987,000			39,287,000		40,455,000		38,768,000
Effect of dilutive securities:
	Stock options		—			1,811,000		1,676,000		1,462,000
	Exchangeable stock of a subsidiary		—			1,006,000		1,015,000		991,000

	Dilutive potential common shares		—			2,817,000		2,691,000		2,453,000

	Denominator for diluted earnings per share—adjusted weighted average shares and assumed conversions		40,987,000			42,104,000		43,146,000		41,221,000

Basic (loss)/earnings per share		$	(0.09	)	$	0.25	$	0.40	$	0.66

Diluted (loss)/earnings per share		$	(0.09	)	$	0.24	$	0.37	$	0.62

4. Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents totaled $10.5 million and $7.6 million at July 1, 2001 and October 1, 2000, respectively.

5. Mergers and Acquisitions

On October 25, 1999, the Company acquired 100% of the capital stock of LC of Illinois, Inc. and HFC Technologies, Inc. (collectively, LCI), providers of engineering and network infrastructure services for cable television and fiber optic telephone networks including design, construction and maintenance capabilities for communications and information transport systems. The purchase was valued at approximately $1.6 million and consisted of cash.

On March 30, 2000, Tetra Tech Engineers, P.C. acquired certain assets of Edward A. Sears Associates (ESA), a provider of engineering services to hospitals in New York. Concurrent with this transaction, the Company's subsidiary, Cosentini Associates, Inc., acquired certain non-licensed assets of ESA from Tetra Tech Engineers, P.C. The purchase was valued at approximately $0.4 million and consisted of cash.

On April 3, 2000, the Company acquired 100% of the capital stock of eXpert Wireless Solutions, Inc. (EWS), a provider of radio-frequency engineering and consulting services to the wireless communications industry. The purchase was valued at approximately $18.8 million and consisted of cash (of which $500,000 was dependent on operational performance) and 407,877 shares of Company common stock. Additionally, concurrently with the acquisition, EWS distributed to its former shareholders accounts receivable valued at approximately $1.8 million.

On May 3, 2000, the Company, through its majority-owned subsidiary, Tetra Tech Canada Ltd. (TTC), acquired 100% of the capital stock of 1261248 Ontario, Inc., which does business as Engineered Communications (ENG), a provider of engineering and network services for the wired communications industry in Ontario, Canada. The purchase was valued at approximately $1.5 million and consisted of cash and 33,606 shares of exchangeable stock of TTC.

On May 17, 2000, the Company acquired 100% of the capital stock of FHC, Inc. (FHC), a provider of engineering consulting services primarily to the state and local governments in Oklahoma. The purchase was valued at approximately $5.2 million and consisted of cash and 56,334 shares of Company common stock.

On May 24, 2000, the Company acquired 100% of the capital stock of Rizzo Associates, Inc. (RAI), a provider of engineering consulting services to state and local governments and commercial clients in the upper Northeast region of the U.S. This purchase was valued at approximately $10.3 million and consisted of cash and 112,436 shares of Company common stock.

On June 16, 2000, the Company acquired 100% of the capital stock of Drake Contractors, Inc. (DCI), a provider of infrastructure installation and maintenance services primarily in Colorado. The purchase was valued at approximately $5.5 million and consisted of cash (of which $1.0 million was contingent on operational performance). Additionally, concurrent with the acquisition, DCI distributed to its former shareholders accounts receivable valued at approximately $2.1 million.

On July 5, 2000, the Company, through TTC, acquired 100% of the capital stock of Wm. Bethlehem Trenching Ltd. (BTL), a provider of infrastructure installation and maintenance services primarily in Ontario, Canada. The purchase was valued at approximately $0.3 million and consisted of cash.

On December 21, 2000, the Company acquired 100% of the capital stock of Rocky Mountain Consultants, Inc. (RMC), a provider of water-related engineering and facility development services to state and local governments and private clients primarily in the western and midwestern United States. The purchase was valued at approximately $15.3 million and consisted of cash and 296,667 shares of Company common stock.

On March 2, 2001, the Company acquired 100% of the capital stock of Wahco Construction, Inc. (WCI), a provider of network and field services to the utility and communications industry primarily in the northwestern United States. The purchase was valued at approximately $1.6 million and consisted of cash and 51,982 shares of Company common stock and is subject to a purchase price and purchase allocation adjustment based upon the final determination of WCI's net asset value as of March 2, 2001.

On March 30, 2001, the Company acquired 100% of the capital stock of Williams, Hatfield & Stoner, Inc. (WHS), a provider of civil engineering, planning and environmental services primarily in the southeastern United States. The purchase was valued at approximately $8.8 million and consisted of cash and 127,547 shares of Company common stock and is subject to a purchase price and purchase allocation adjustment based upon the final determination of WHS's net asset value as of March 30, 2001.

On May 21, 2001, the Company acquired 100% of the capital stock of Vertex Engineering Services, Inc. (VES), a provider environmental engineering, consulting and surety and insurance construction management services throughout the United States. The purchase was valued at approximately $10.0 million and consisted of cash and 299,534 shares of Company common stock and is subject to a purchase price and purchase allocation adjustment based upon the final determination of VES's net asset value as of May 21, 2001.

On May 25, 2001, the Company acquired 100% of the capital stock of Maxim Technologies, Inc. (MTI), a provider of environmental and engineering consulting services throughout the United States.

The purchase was valued at approximately $13.7 million and consisted of cash and 237,596 shares of Company common stock and is subject to a purchase price and purchase allocation adjustment based upon the final determination of MTI's net asset value as of May 25, 2001.

On June 1, 2001, the Company acquired certain assets of Commonwealth Technology, Inc. (CTI), a provider of environmental and infrastructure engineering and consulting services primarily in the southeastern United States. The purchase was valued at approximately $3.7 million and consisted of cash and 86,510 shares of Company common stock and is subject to a purchase price and purchase allocation adjustment based upon the final determination of CTI's net asset value as of June 1, 2001.

On June 27, 2001, the Company acquired 100% of the capital stock of The Design Exchange Architects, Inc. (DXA), a provider of architectural, planning and interior design services primarily in the eastern United States. The purchase was valued at approximately $1.4 million and consisted of cash and is subject to a purchase price and purchase allocation adjustment based upon the final determination of DXA's net asset value as of June 27, 2001.

On June 29, 2001, the Company acquired 100% of the capital stock of Western Utility Contractors, Inc. and Western Utility Cable, Inc. (collectively, WUC), providers of engineering, design and construction services primarily in the midwestern United States. The purchase was valued at approximately $16.0 million and consisted of cash and is subject to a purchase price and purchase allocation adjustment based upon the final determination of WUC's net asset value as of June 29, 2001.

All of the acquisitions above have been accounted for as purchases and, accordingly, the purchase prices of the businesses acquired have been allocated to the assets and liabilities acquired based upon their fair values. The excess of the purchase cost of the acquisitions over the fair value of the net assets acquired was recorded as goodwill and is included in Intangible Assets—Net in the accompanying condensed consolidated balance sheets. Prior to fiscal 2001, the Company valued stock exchanged in acquisitions based on extended restriction periods, high volatility in the trading price of the Company's common stock and other economic factors specific to the Company's circumstances at the time of acquisition. During the first three quarters of fiscal 2000, stock exchanged in acquisitions was discounted by 15%. During fiscal 2001, the stock exchanged in acquisitions was not discounted. The results of operations of each of the companies acquired have been included in the Company's financial statements from the effective acquisition dates.

6. Accounts Receivable

Accounts receivable are presented net of a valuation allowance to provide for doubtful accounts and for the potential disallowance of billed and unbilled costs. The allowance for doubtful accounts as of July 1, 2001 and October 1, 2000 was $44.8 million and $5.5 million, respectively. The allowance for doubtful accounts at July 1, 2001 includes a reserve of $38.3 million for an account debtor that has filed for Chapter 11 protection under the U.S. Bankruptcy Code. The allowance for disallowed costs as of July 1, 2001 and October 1, 2000 was $1.1 million and $1.6 million, respectively. Disallowance of billed and unbilled costs is primarily associated with contracts with the Federal government which contain clauses that subject contractors to several levels of audit. The Company establishes reserves on those contract receivables where collectibility is not assured. Management believes that resolution of these matters will not have a material adverse impact on the Company's financial position or results of operations.

7. Unaudited Pro Forma Operating Results

The table below presents summarized unaudited pro forma operating results assuming that the Company had acquired EWS, FHC, RAI, RMC, VES, CTI and WUC on October 4, 1999. The effect of unaudited pro forma results of LCI, ENG, ESA, DCI, BTL, WCI, WHS, MTI and DXA had they been acquired on October 4, 1999 is not material. These amounts are based on historical results and

assumptions and estimates which the Company believes to be reasonable. The pro forma results do not reflect anticipated cost savings and do not necessarily represent results which would have occurred if these acquisitions had actually taken place on October 4, 1999.

	Pro Forma Nine Months Ended
	July 1, 2001		July 2, 2000
Gross revenue	$	741,337,000	$	616,394,000
Income from operations		24,914,000		55,363,000
Net income		16,777,000		26,804,000
Basic earnings per share	$	0.41	$	0.68
Diluted earnings per share	$	0.39	$	0.64
Weighted average shares outstanding:
Basic		40,730,000		39,582,000
Diluted		43,421,000		42,035,000

8. Operating Segments

The Company's management has organized its operations into three operating segments: Resource Management, Infrastructure, and Communications. The Resource Management operating segment provides specialized environmental engineering and consulting services primarily relating to water quality and water availability to both public and private organizations. The Infrastructure operating segment provides engineering services to provide additional development, as well as upgrading and replacement of existing infrastructure to both public and private organizations. The Communications operating segment provides a comprehensive set of services including engineering, consulting and field services to telecommunications companies, wireless service providers and cable operators. Management has established these operating segments based upon the services provided, the different marketing strategies, and the specialized needs of the clients. The Company accounts for inter-segment sales and transfers as if the sales and transfers were to third parties; that is, by applying a negotiated fee onto the cost of the services performed. Management evaluates the performance of these operating segments based upon their respective income from operations before the effect of any acquisition related amortization.

The following tables set forth (in thousands) summarized financial information on the Company's reportable segments:

Reportable Segments:

		Resource Management		Infrastructure		Communications			Total
Three months ended July 1, 2001
	Gross Revenue	$	108,448	$	80,858	$	68,384		$	257,690
	Net Revenue		77,498		64,949		47,889			190,336
	Income/(Loss) from Operations		9,261		8,493		(30,952	)		(13,198	)
	Depreciation Expense		629		973		528			2,130

		Resource Management		Infrastructure		Communications			Total
Nine months ended July 1, 2001
	Gross Revenue	$	300,064	$	227,809	$	211,544		$	739,417
	Net Revenue		207,690		183,940		143,052			534,682
	Income/(Loss) from Operations		23,853		22,305		(16,989	)		29,169
	Depreciation Expense		1,434		2,834		2,300			6,568

		Resource Management		Infrastructure		Communications		Total
Three months ended July 2, 2000
	Gross Revenue	$	91,000	$	63,647	$	54,824	$	209,471
	Net Revenue		62,227		50,955		41,469		154,651
	Income from Operations		7,930		5,789		7,878		21,597
	Depreciation Expense		517		839		776		2,132

		Resource Management		Infrastructure		Communications		Total
Nine months ended July 2, 2000
	Gross Revenue	$	264,906	$	170,196	$	130,204	$	565,306
	Net Revenue		178,805		136,961		102,591		418,357
	Income from Operations		21,888		15,223		18,129		55,240
	Depreciation Expense		1,715		2,779		2,123		6,617

Reconciliations:

			Three Months Ended
			July 1, 2001			July 2, 2000
Gross Revenue
	Gross revenue from reportable segments		$	257,690		$	209,471
	Elimination of inter-segment revenue			(8,778	)		(7,493	)
	Other revenue			1,212			1,817

		Total consolidated gross revenue	$	250,124		$	203,795

Net Revenue
	Net revenue from reportable segments		$	190,336		$	154,651
	Other revenue			1,212			1,817

		Total consolidated net revenue	$	191,548		$	156,468

(Loss)/Income from Operations
	(Loss)/Income from operations of reportable segments		$	25,102		$	21,597
	Other income/(expense)			108			(205	)
	Amortization of intangibles			(2,430	)		(1,719	)

		Total consolidated (loss)/income from operations	$	(15,520	)	$	19,673

			Nine Months Ended
			July 1, 2001			July 2, 2000
Gross Revenue
	Gross revenue from reportable segments		$	739,417		$	565,306
	Elimination of inter-segment revenue			(29,310	)		(19,817	)
	Other revenue			3,662			6,128

		Total consolidated gross revenue	$	713,769		$	551,617

Net Revenue
	Net revenue from reportable segments		$	534,682		$	418,357
	Other revenue			3,662			6,128

		Total consolidated net revenue	$	538,344		$	424,485

Income from Operations
	Income from operations of reportable segments		$	29,169		$	55,240
	Other income/(expense)			451			(361	)
	Amortization of intangibles			(6,629	)		(4,492	)

		Total consolidated income from operations	$	22,991		$	50,387

Major Clients

The Company's net revenue attributable to the U.S. government was approximately $49.2 million and $41.8 million for the three months ended July 1, 2001 and July 2, 2000, respectively. Net revenue attributable to the U.S. government was approximately $134.8 million and $122.9 million for the nine months ended July 1, 2001 and July 2, 2000, respectively. Both the Resource Management and Infrastructure operating segments report revenue from the U.S. government.

9. Comprehensive Income

Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non owner sources. These sources include net income and other revenues, expenses, gains and losses incurred. The Company includes as other comprehensive income translation gains and losses from subsidiaries with functional currencies different than that of the Company. Comprehensive loss was $3.6 million and comprehensive income was $9.6 million for the three months ended July 1, 2001 and July 2, 2000, respectively. For the nine months ended July 1, 2001 and July 2, 2000, comprehensive income was $16.0 million and $26.3 million, respectively. For the three months ended July 1, 2001, the Company realized net translation gains of $0.2 million. For the nine months ended July 1, 2001, the Company incurred net translation losses of $0.1 million. For the three months ended July 2, 2000, the Company incurred net translation losses of $0.3 million. For the nine months ended July 2, 2000, the Company incurred net translation gains of $0.6 million.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Except for the historical information contained below, the matters discussed in this section are forward-looking statements that involve a number of risks and uncertainties. Our actual liquidity needs, capital resources and operating results may differ materially from the discussion set forth below in these forward-looking statements. For additional information, refer to the Notes to Condensed Consolidated Financial Statements included elsewhere in this filing.

Overview

Tetra Tech, Inc. is a leading provider of specialized management consulting and technical services in three principal business areas: resource management, infrastructure and communications. As a specialized management consultant, we assist our clients in defining problems and developing innovative and cost-effective solutions. Our management consulting services are complemented by our technical services. These technical services, which implement solutions, include research and development, applied science, engineering and architectural design, construction management, and operations and maintenance. Our clients include a diverse base of public and private organizations located in the United States and internationally.

Since our initial public offering in December 1991, we have increased the size and scope of our business and have expanded our service offerings through a series of strategic acquisitions and internal growth.

We derive our revenue from fees from professional services. Our services are billed under various types of contracts with our clients, including:

•: Fixed-price;
•: Fixed-rate time and materials;
•: Cost-reimbursement plus fixed fee; and
•: Cost-reimbursement plus fixed and award fee.

In the course of providing our services, we routinely subcontract services. These subcontractor costs are passed through to clients and, in accordance with industry practice, are included in gross revenue. Because subcontractor services can change significantly from project to project, we believe net revenue, which is gross revenue less the cost of subcontractor services, is a more appropriate measure of our performance.

Our cost of net revenue includes professional compensation and certain direct and indirect overhead costs such as rents, utilities and travel. Professional compensation represents the majority of these costs. Our selling, general and administrative (SG&A) expenses are comprised primarily of our corporate headquarters' costs related to our executive offices, corporate finance and accounting, information technology, marketing, and bid and proposal costs. These costs are generally unrelated to specific client projects and can vary as expenses are incurred supporting corporate activities and initiatives. In addition, we include amortization of certain intangible assets resulting from acquisitions in SG&A expenses.

We provide our services to a diverse base of Federal, state and local government agencies, and private sector and international clients. The following table presents, for the periods indicated, the approximate percentage of net revenue attributable to these client sectors:

	Percentage of Net Revenue
	Three Months Ended				Nine Months Ended
Client Sector	July 1, 2001		July 2, 2000		July 1, 2001		July 2, 2000
Federal government	25.6	%	26.7	%	25.0	%	28.9	%
State & local government	19.9		18.5		18.0		17.5
Private sector	51.3		51.7		53.4		50.8
International	3.2		3.1		3.6		2.8

We manage our business in three operating segments, Resource Management, Infrastructure and Communications. The following table presents, for the periods indicated, the approximate percentage of net revenue attributable to the operating segments:

	Percentage of Net Revenue
	Three Months Ended				Nine Months Ended
Operating Segment	July 1, 2001		July 2, 2000		July 1, 2001		July 2, 2000
Resource Management	40.6	%	39.8	%	38.6	%	42.1	%
Infrastructure	33.8		32.5		34.3		32.3
Communications	25.0		26.5		26.6		24.2
Other revenue	0.6		1.2		0.7		1.4

Recent Acquisitions

As a part of our growth strategy, we expect to pursue complementary acquisitions to expand our geographical reach and the breadth and depth of our service offerings. During the third quarter of fiscal 2001, we made the following acquisitions:

Vertex Engineering Services, Inc.—In May 2001, we acquired Vertex Engineering Services, Inc. (VES). The purchase was valued at approximately $10.0 million. VES, a Massachusetts-based engineering services firm, provides environmental, engineering and consulting services with full general construction capabilities and specializes in surety and insurance construction management throughout the United States.

Maxim Technologies, Inc.—In May 2001, we acquired Maxim Technologies, Inc. (MTI). The purchase was valued at approximately $13.7 million. MTI, a Texas-based professional consulting firm, provides engineering and environmental services to a variety of clients throughout the United States.

Commonwealth Technology, Inc.—In June 2001, we acquired certain assets of Commonwealth Technology, Inc. (CTI). The purchase was valued at approximately $3.7 million. CTI, a Kentucky-based environmental and infrastructure engineering and consulting firm, provides civil, environmental and industrial engineering services to state and local governments and private clients primarily in the southeastern United States.

Design Exchange Architects, Inc.—In June 2001, we acquired Design Exchange Architects, Inc. (DXA). The purchase was valued at approximately $1.4 million. DXA, a Delaware-based architectural firm, provides architectural, planning and interior design services to private clients throughout the eastern United States.

Western Utility Contractors, Inc.—In June 2001, we acquired Western Utility Contractors, Inc. and Western Utility Cable, Inc. (collectively, WUC). The purchase was valued at approximately $16.0 million. WUC, an engineering, design and construction firm provides walkout, design and

construction of coaxial and fiber-optic related infrastructure to private clients primarily in the midwestern United States.

Results of Operations

Reflected in the results for the three and nine months ended July 1, 2001 is a special charge to provide for a reserve allowance for an account debtor that has filed for Chapter 11 protection under the U.S. Bankruptcy Code. The amount of this charge, on a pre-tax basis, is $38.3 million and is included in selling, general and administrative expenses. Based upon our current effective tax rate of 39%, this charge has an impact on our net income of $23.4 million. The results for the three and nine months ended July 1, 2001 also reflect the favorable impact on our net income of the realization of $7.0 million in tax credits relating to prior years. For comparability purposes, the following discussion of our results of operations exclude these two items. The actual results, including these two items, are reflected in the Condensed Consolidated Financial Statements and the notes thereto.

The following table presents the percentage relationship of selected items to net revenue in our condensed consolidated statements of income exclusive of the special charge and prior year tax credits:

	% Relationship to Net Revenue				% Relationship to Net Revenue
	Three Months Ended				Nine Months Ended
	July 1, 2001		July 2, 2000		July 1, 2001		July 2, 2000
Net revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of net revenue	76.8		74.3		76.8		76.9

Gross profit	23.2		25.7		23.2		23.1
Selling, general and administrative expenses	10.1		12.0		10.5		10.2
Acquisition amortization	1.3		1.1		1.2		1.1

Income from operations	11.9		12.6		11.4		11.9
Net interest expense	1.2		1.3		1.2		1.1

Income before income tax expense	10.7		11.3		10.2		10.8
Income tax expense	4.2		5.0		4.2		4.7

Net income	6.5	%	6.3	%	6.0	%	6.0	%

Net Revenue. Net revenue increased $35.1 million, or 22.4%, to $191.5 million for the three months ended July 1, 2001 from $156.5 million for the comparable period last year. For the nine months ended July 1, 2001, net revenue increased $113.9 million, or 26.8%, to $538.3 million from $424.5 million for the comparable period last year. Included in net revenue for the nine months ended July 2, 2000 was $0.76 million relating to the reversal of previously established allowances for disallowed costs. This allowance relates to amounts previously not recognized as revenue as they were deemed to be unallowable. These amounts were subsequently recovered and therefore included as revenue. Excluding this amount, net revenue increased 27.0%. All client sectors continued to show net revenue increases in actual dollars. As a percentage of net revenue, slight reductions were realized in the Federal government client sector and the commercial client sector. These reductions were due to growth in revenue from state and local government clients and revenue associated with acquired companies. Acquisitions provided increases in our revenue from both commercial clients and state and local government clients.

We segregate from our total revenue, revenue from companies acquired during the current fiscal year, as well as revenue recognized from acquired companies during the first 12 months following their respective effective dates of acquisition. Revenue recognized from acquired companies during such first 12 months is referred to as acquisitive revenue. Organic revenue is measured as total revenue less any acquisitive revenue. For the three months ended July 1, 2001, net revenue provided by companies

acquired in the nine months ended July 1, 2001 totaled $17.6 million. Excluding this net revenue, we realized 11.2% growth in our net revenue. For the nine months ended July 1, 2001, net revenue provided by companies acquired in the nine months ended July 1, 2001 totaled $28.7 million. Excluding this net revenue and the net revenue provided by the reserve reversal in the prior year, we realized 20.3% growth in our net revenue. Acquisitive net revenue for the three months ended July 1, 2001 totaled $18.6 million. Excluding this net revenue, we realized 10.6% organic growth in our net revenue. Acquisitive net revenue for the nine months ended July 1, 2001 totaled $60.5 million. Excluding this net revenue and the net revenue provided by the reserve reversal in the prior year, we realized 12.6% organic growth in our net revenue.

Gross revenue increased $46.3 million, or 22.7%, to $250.1 million for the three months ended July 1, 2001 from $203.8 million for the comparable period last year. For the nine months ended July 1, 2001, gross revenue increased $162.2 million, or 29.4%, to $713.8 million from $551.6 million for the comparable period last year. For the three months ended July 1, 2001, gross revenue provided by companies acquired in the nine months ended July 1, 2001 totaled $22.6 million. Excluding this revenue, we realized an 11.6% increase in our gross revenue. For the nine months ended July 1, 2001, gross revenue provided by companies acquired in the nine months ended July 1, 2001 totaled $34.0 million. Excluding this revenue and the revenue provided by the reserve reversal in the prior year, we realized a 23.4% increase in our gross revenue. For the three months ended July 1, 2001, acquisitive gross revenue totaled $22.6 million. Excluding this gross revenue, we realized an 11.6% increase in our gross revenue. For the nine months ended July 1, 2001, acquisitive gross revenue totaled $73.1 million. Excluding this revenue and the revenue provided by the reserve reversal in the prior year, we realized 16.1% organic growth in our gross revenue.

Cost of Net Revenue. Cost of net revenue increased $30.8 million, or 26.5%, to $147.0 million for the three months ended July 1, 2001 from $116.3 million for the comparable period last year. As a percentage of net revenue, cost of net revenue for the three months ended July 1, 2001 was 76.8% compared to 74.3% for the comparable period last year. For the nine months ended July 1, 2001, cost of net revenue increased $87.4 million, or 26.8%, to $413.7 million from $326.2 million for the comparable period last year. As a percentage of net revenue, cost of net revenue for the nine months ended July 1, 2001 was 76.8% compared to 76.9% for the comparable period last year. These increases in cost of net revenue were primarily due to the higher cost of net revenue for the acquired companies.

Selling, General and Administrative Expenses. SG&A expenses, excluding the special charge and amortization of intangibles, increased $0.5 million, or 2.7%, to $19.3 million for the three months ended July 1, 2001 from $18.8 million for the comparable period last year. As a percentage of net revenue, SG&A expenses, excluding the special charge and amortization of intangibles, decreased to 10.1% for the three months ended July 1, 2001 from 12.0% for the comparable period last year. For the nine months ended July 1, 2001, SG&A expenses, excluding the special charge and amortization of intangibles, increased $13.4 million, or 30.9%, to $56.7 million from $43.4 million for the comparable period last year. As a percentage of net revenue, SG&A expenses, excluding the special charge and amortization of intangibles, increased to 10.5% for the nine months ended July 1, 2001 from 10.2% for the comparable period last year. Amortization expense relating to acquisitions increased to 1.3% of net revenue for the three months ended July 1, 2001 from 1.1% for the comparable period last year. For the nine months ended July 1, 2001, amortization expense increased to 1.2% of net revenue from 1.1% for the comparable period last year. As a percentage of net revenue, the fluctuations in SG&A expenses, excluding the special charge and amortization of intangibles, primarily relate to the timing of expenses associated with the automation of our corporate business systems and processes, business development activities and the timing of professional services expenses.

Net Interest Expense. Net interest expense increased $0.3 million, or 16.3% to $2.3 million for the three months ended July 1, 2001 from $2.0 million for the comparable period last year. For the nine months ended July 1, 2001, net interest expense increased $1.8 million, or 38.9%, to $6.5 million from

$4.7 million for the comparable period last year. These increases were primarily attributable to borrowings on our line of credit to facilitate acquisitions and to fund working capital needs. Our average indebtedness for the three and nine months ended July 1, 2001 was $140.9 million and $125.5 million, respectively, as compared to $105.4 million and $88.7 million for the comparable periods last year. On May 22, 2001, we received proceeds of $110.0 million relating to our private placement of two series of senior secured notes. These proceeds were used to refinance a portion of our existing indebtedness under our bank credit agreement and to fund future acquisitions and working capital needs.

Income Tax Expense. Income tax expense, excluding the special charge and the $7.0 million relating to prior year credits, increased $0.2 million, or 2.6%, to $8.0 million for the three months ended July 1, 2001 from $7.8 million for the comparable period last year. For the nine months ended July 1, 2001, income tax expense, excluding the special charge and the $7.0 million relating to prior year credits, increased $2.3 million, or 11.4%, to $22.4 million from $20.1 million for the comparable period last year. Our current effective tax rate is 39.0% compared to 44.0% for the comparable periods last year. This decrease is primarily attributable to our utilization of certain tax credits.

Liquidity and Capital Resources

As of July 1, 2001, our working capital was $186.7 million, an increase of $32.3 million from October 1, 2000, of which cash and cash equivalents totaled $10.5 million. In addition, we have a credit agreement (the "Credit Agreement") with a bank which provides for a revolving credit facility (the "Facility") of $140.0 million, as amended. Under our Credit Agreement, we may also request standby letters of credit up to the aggregate sum of $25.0 million outstanding at any given time. Our Facility matures on March 17, 2005 or earlier at our discretion upon payment in full of loans and other obligations. As of July 1, 2001, borrowings and standby letters of credit on this facility totaled $39.0 million and $1.5 million, respectively. On May 22, 2001, we issued two series of senior secured notes in the aggregate amount of $110.0 million, of which Series A, totaling $92.0 million with an interest rate of 7.28%, matures on May 30, 2011, and Series B, totaling $18.0 million with an interest rate of 7.08%, matures on May 30, 2008.

In the nine months ended July 1, 2001, we generated $4.7 million from operating activities compared to the usage of $17.3 million in the comparable period last year. This increase was in part attributable to the lower current levels of unbilled accounts receivable offset partially by lower current levels of accounts payable. In the nine months ended July 1, 2001, cash used in investing activities was $43.0 million compared to $40.4 million for the comparable period last year. This increase primarily was the result of cash used for business acquisitions. In the nine months ended July 1, 2001, cash provided by financing activities was $41.4 million compared to $58.7 million for the comparable period last year. This change was attributable to cash generated by operating activities.

We expect that internally generated funds, our existing cash balances and availability under the Credit Agreement will be sufficient to meet our capital requirements through the end of fiscal 2001.

We continuously evaluate the marketplace for strategic opportunities. Once an opportunity is identified, we examine the effect an acquisition may have on the business environment, as well as on our results of operations. We proceed with an acquisition if we determine that the acquisition is anticipated to have an accretive effect on future operations. However, as successful integration and implementation are essential to achieve favorable results, no assurances can be given that all acquisitions will provide accretive results. Our strategy is to position ourselves to address existing and emerging markets. We view acquisitions as a key component of our growth strategy, and we intend to use both cash and our securities, as we deem appropriate, to fund such acquisitions.

We believe our operations have not been and, in the foreseeable future, do not expect to be materially adversely affected by inflation or changing prices. However, current general economic

conditions may impact our client base and as such, may impact their credit worthiness and our ability to collect cash to meet our operating needs.

Recently Issued Financial Standards

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, which outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. SAB No. 101 requires companies to report any changes in revenue recognition as a cumulative change in accounting principle at the time of implementation in accordance with Accounting Principles Board (APB) Opinion No. 20, Accounting Changes. SAB No. 101, as amended, is effective no later than the fourth quarter of fiscal years beginning after December 15, 1999. We will adopt SAB No. 101 in the fourth quarter of fiscal year 2001. We believe our existing revenue recognition policies and procedures are in compliance with SAB No. 101, and that the adoption of SAB No. 101 will have no material impact on our results of operations or financial position.

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations, which supercedes APB Opinion No. 16, Business Combinations. SFAS No. 141 eliminates the pooling-of-interest method of accounting for business combinations for combinations initiated after July 1, 2001. This Statement also changes the criteria to recognize intangible assets apart from goodwill. The requirements of this Statement are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001. We are currently analyzing the impact of this Statement on our future operations.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which supercedes APB Opinion No. 17, Intangible Assets. Under SFAS No. 142, goodwill and other indefinite lived intangible assets are no longer amortized but are reviewed, at a minimum, annually for impairment. Separable intangible assets that have finite lives will continue to be amortized over their useful lives. The amortization provisions of this Statement are effective for goodwill and intangible assets acquired after June 30, 2001. The remaining provisions of this Statement are effective for fiscal years beginning after December 15, 2001, although early adoption is permitted. We are currently analyzing the impact of this Statement and have not yet determined whether we will adopt this Statement prior to fiscal year 2003.

Market Risks

We currently utilize no material derivative financial instruments which expose us to significant market risk. We are exposed to cash flow risk due to interest rate fluctuations with respect to our long-term obligations. At our option, we borrow on our Facility (a) at a base rate (the greater of the federal funds rate plus 0.50% or the bank's reference rate) or (b) at a eurodollar rate plus a margin which ranges from 0.75% to 1.25%. Borrowings at the base rate have no designated term and may be repaid without penalty anytime prior to the Facility's maturity date. Borrowings at a eurodollar rate have a term no less than 30 days and no greater than 90 days. Typically, at the end of such term, such borrowings may be rolled over at our discretion upon payment in full of loans and other obligations. Accordingly, we classify total outstanding obligations between current liabilities and long-term obligations based on anticipated payments within and beyond one year's period of time. In addition, we have outstanding Series A and Series B senior secured notes. Both Series A and Series B notes bear interest at a fixed rate. We currently anticipate repaying $28.0 million of our outstanding indebtedness in the next 12 months. Assuming we repay $28.0 million ratably during the next twelve months, and our average interest rate increases or decreases by one percentage point, our interest expense could increase or decrease by $1.1 million during the next twelve months. However, there can be no assurance that we will, or will be able to repay our long-term obligations in the manner described. We could incur additional debt under the Facility or our operating results could be worse than currently anticipated.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Please refer to the information we have included under the heading "Market Risks" in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

RISK FACTORS

Some of the information in this Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. You should read statements that contain these words carefully because they: (1) discuss our future expectations; (2) contain projections of our future operating results or of our future financial condition; or (3) state other "forward-looking" information. We believe it is important to communicate our expectations to our investors. There may be events in the future, however, that we are not accurately able to predict or over which we have no control. The risk factors listed in this section, as well as any cautionary language in this Quarterly Report on Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from expectations described in forward-looking statements. The occurrence of any of the events described in these risk factors and elsewhere in this Quarterly Report on Form 10-Q could have a material adverse effect on our business, financial condition and operating results. Upon the occurrence of any of these events, the trading price of our common stock could decline.

There are risks associated with our acquisition strategy that could adversely impact our business and operating results

A significant part of our growth strategy is to acquire other companies that complement our lines of business or that broaden our geographic presence. During fiscal 2000, we purchased nine companies in eight separate transactions. During the nine months ended July 1, 2001, we purchased nine companies in eight 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. Competition may increase and may result in decreased availability of 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.

Finally, acquired companies that derive a significant portion of their revenues from the Federal government and that do not follow the same cost accounting policies and billing procedures as we do may be subject to larger cost disallowances for greater periods than we typically encounter. If we fail to determine the existence of unallowable costs and establish appropriate reserves in advance of an

acquisition, we may be exposed to material unanticipated liabilities, which could have a material adverse effect on our business.

Our quarterly operating results may fluctuate significantly, which could have a negative effect on the price of our common stock

Our quarterly revenues, expenses and operating results may fluctuate significantly because of a number of factors, including:

•: The seasonality of the spending cycle of our public sector clients and the spending patterns of our private sector clients;
•: Employee hiring and utilization rates;
•: The number and significance of client engagements commenced and completed during a quarter;
•: Credit worthiness and solvency of clients;
•: The ability of our clients to terminate engagements without penalties;
•: Delays incurred in connection with an engagement;
•: The size and scope of engagements;
•: The timing of expenses incurred for corporate initiatives;
•: The timing and size of the return on investment capital; and
•: General economic and political conditions.

Variations in any of these factors could cause significant fluctuations in our operating results from quarter to quarter and could result in net losses.

The value of our common stock could continue to be volatile

The trading price of our common stock has fluctuated widely. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. The overall market and the price of our common stock may continue to fluctuate greatly. The trading price of our common stock may be significantly affected by various factors, including:

•: Quarter to quarter variations in our operating results;
•: Changes in environmental legislation;
•: Changes in investors' and analysts' perception of the business risks and conditions of our business;
•: Broader market fluctuations; and
•: General economic or political conditions.

If we are not able to successfully manage our growth strategy, our business and results of operations may be adversely affected

We are growing rapidly. Our growth presents numerous managerial, administrative, operational and other challenges. Our ability to manage the growth of our operations will require us to continue to improve our operational, financial and human resource management information systems and our other internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate and retain both our management and professional employees. The inability of our

management to manage our growth effectively or the inability of our employees to achieve anticipated performance or utilization levels could have a material adverse effect on our business.

The loss of key personnel or our inability to attract and retain qualified personnel could significantly disrupt our business

We depend upon the efforts and skills of our executive officers, senior managers and consultants. With limited exceptions, we do not have employment agreements with any of these individuals. The loss of the services of any of these key personnel could adversely affect our business. Although we have obtained non-compete agreements from certain principals and stockholders of companies we have acquired, we generally do not have non-compete or employment agreements with key employees who were not once equity 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.

Changes in existing laws and regulations could reduce the demand for our services

A significant amount of our resource management business is generated either directly or indirectly as a result of existing Federal and state governmental laws, regulations and programs. Any changes in these laws or regulations that reduce funding or affect the sponsorship of these programs could reduce the demand for our services and could have a material adverse effect on our business.

Our revenue from agencies of the Federal government is concentrated, and a reduction in spending by these agencies could adversely affect our business and operating results

Agencies of the Federal government are among our most significant clients. During the nine months ended July 1, 2001, approximately 25.0% of our net revenue was derived from Federal agencies of which 12.8% was derived from the Department of Defense (DOD), 8.8% from the Environmental Protection Agency (EPA), 1.2% from the Department of Energy (DOE) and 2.2% from various other Federal agencies. Some 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.

Our revenue from commercial clients is significant, and the credit risks associated with certain of these clients could adversely affect our operating results

During the nine months ended July 1, 2001, approximately 53.4% of our net revenue was derived from commercial clients. We rely upon the financial stability and credit worthiness of these clients. To the extent the credit quality of these clients deteriorates or these clients seek bankruptcy protection, our ability to collect our receivables, and ultimately operating results, may be adversely affected.

On July 2, 2001, our client, Metricom, Inc. ("Metricom"), filed for protection under Chapter 11 of the U.S. Bankruptcy Code. At the time of filing, we had outstanding accounts receivable with Metricom in the aggregate amount of $38.3 million. Potential proceeds from the resolution of this bankruptcy proceeding cannot be reasonably estimated at this time.

Our contracts with governmental agencies are subject to audit, which could result in the disallowance of certain costs

Contracts with the Federal government and other governmental agencies are subject to audit. Most of these audits are conducted by the Defense Contract Audit Agency (DCAA), which reviews our overhead rates, operating systems and cost proposals. The DCAA may disallow costs if it determines that we accounted for these costs incorrectly or in a manner inconsistent with Cost Accounting Standards. A disallowance of costs by the DCAA, or other governmental auditors, could have a material adverse effect on our business.

Our business and operating results could be adversely affected by losses under fixed-price contracts or termination of contracts at the client's discretion

We contract with Federal and state governments as well as with the commercial sector. These contracts are often subject to termination at the discretion of the client with or without cause. Additionally, we enter into various types of contracts with our clients, including fixed-price contracts. During the nine months ended July 1, 2001, approximately 43.4% 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. Losses under fixed-price contracts or termination of contracts at the discretion of the client could have a material adverse effect on our business.

Our inability to find qualified subcontractors could adversely affect the quality of our service and our ability to perform under certain contracts

Under some of our contracts, we depend on the efforts and skills of subcontractors for the performance of certain tasks. Reliance on subcontractors varies from project to project. In the nine months ended July 1, 2001, subcontractor costs comprised 24.6% of our gross revenue. The absence of qualified subcontractors with whom we have a satisfactory relationship could adversely affect the quality of our service and our ability to perform under some of our contracts.

Our industry is highly competitive and we may be unable to compete effectively

We provide specialized management consulting and technical services to a broad range of public and private sector clients. The market for our services is highly competitive and we compete with many other firms. These firms range from small regional firms to large national firms which have greater financial and marketing resources than ours.

We focus primarily on the resource management, infrastructure and communications business areas. We provide services to our clients which include Federal, state and local agencies, and organizations in the private sector.

We compete for projects and engagements with a number of competitors which can vary from 10 to 100 firms. Historically, clients have chosen among competing firms based on the quality and timeliness of the firm's service. We believe, however, that price has become an increasingly important factor.

We believe that our principal competitors include, in alphabetical order, Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; CH2M Hill Companies Ltd.; Earth Tech, Inc.; IT Group, Inc.; Mastec, Inc.; Montgomery Watson; o2 Wireless Solutions, Inc.; Quanta Services; Roy F. Weston, Inc.; Science Applications International Corporation; URS Corporation and Wireless Facilities, Inc.

Our services expose us to significant risks of liability and our insurance policies may not provide adequate coverage

Our services involve significant risks of professional and other liabilities which may substantially exceed the fees we derive from our services. Our business activities could expose us to potential liability under various environmental laws such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA). In addition, we sometimes contractually assume liability under indemnification agreements. We cannot predict the magnitude of such potential liabilities.

We currently maintain comprehensive general liability, umbrella and professional liability insurance policies. We believe that our insurance policies are adequate for our business operations. Professional liability policies are "claims made" policies. Thus, only claims made during the term of the policy are covered. Should we terminate our professional liability 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 the term of the policy. Additionally, our insurance policies may not protect us against potential liability do to 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. Partially or completely uninsured claims, if successful and of significant magnitude, could have a material adverse affect on our business.

We may be precluded from providing certain services due to conflict of interest issues

Many of our clients are concerned about potential or actual conflicts of interest in retaining management consultants. Federal government agencies have formal policies against continuing or awarding contracts that would create actual or potential conflicts of interest with other activities of a contractor. These policies, among other things, may prevent us from bidding for or performing contracts resulting from or relating to certain work we have performed for the government. In addition, services performed for a private client may create a conflict of interest that precludes or limits our ability to obtain work from other public or private organizations. We have, on occasion, declined to bid on projects because of these conflicts of interest issues.

Our international operations expose us to risks such as foreign currency fluctuations

In the nine months ended July 1, 2001, approximately 3.6% 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 periodically enter into forward exchange contracts to address foreign currency fluctuations.

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds.

On May 21, 2001, we acquired 100% of the capital stock of Vertex Engineering Services, Inc., a Massachusetts corporation (VES). In connection with this transaction, we issued an aggregate of 299,534 shares of our common stock, $.01 par value ("Common Stock"), to the former shareholders of VES. For purposes of this transaction, each share of Common Stock was valued at $26.71. 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 May 25, 2001, we acquired 100% of the capital stock of Maxim Technologies, Inc., a Delaware corporation (MTI). In connection with this transaction, we issued 237,596 shares of Common Stock to the former shareholder of MTI. For purposes of this transaction, each share of Common Stock was valued at $28.62. The issuance of Common Stock was 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.

On June 1, 2001, we acquired certain assets of Commonwealth Technology, Inc., a Kentucky corporation (CTI). In connection with this transaction, we issued 86,510 shares of Common Stock to the shareholder of CTI. For purposes of this transaction, each share of Common Stock was valued at $29.53. The issuance of Common Stock was made in reliance on the exemption from 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

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 3.4 to the Company's Annual Report on Form 10-K for the fiscal year ended October 4, 1998).
3.4		Certificate of Amendment of Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q, as amended, for the fiscal quarter ended April 1, 2001).
10.1		Credit Agreement dated as of March 17, 2000 among the Company and the financial institutions named therein (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2000).
10.2		Amendment No. 1 dated as of April 9, 2001 to the Credit Agreement dated as of March 17, 2000 among the Company and the financial institutions named therein.
10.3		Note Purchase Agreement dated as of May 15, 2001 among the Company and the purchasers named therein.
10.4		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).

10.5		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).
10.6		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).
10.7		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).
10.8		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).
10.9		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).
10.10		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).
10.11		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).
10.12		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).
10.13		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).
10.14		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).
10.15		Registration Rights Agreement dated as of July 11, 1997 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1997).
10.16		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).
10.17		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).

10.18		Registration Rights Agreement dated as of September 22, 1998 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended October 4, 1998).
10.19		Registration Rights Agreement dated as of February 26, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 1999).
10.20		Registration Rights Agreement dated as of May 7, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999).
10.21		Registration Rights Agreement dated as of May 21, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999).
10.22		Registration Rights Agreement dated as of June 18, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 1999).
10.23		Registration Rights Agreement dated as of September 3, 1999 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 1999).
10.24		Registration Rights Agreement dated as of March 31, 2000 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 July 2, 2000).
10.25		Registration Rights Agreement dated as of May 3, 2000 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2000).
10.26		Registration Rights Agreement dated as of May 17, 2000 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2000).
10.27		Registration Rights Agreement dated as of May 24, 2000 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2000).
10.28		Registration Rights Agreement dated as of December 21, 2000 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 2000).

10.29		Registration Rights Agreement dated as of March 2, 2001 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q, as amended, for fiscal quarter ended April 1, 2001).
10.30		Registration Rights Agreement dated as of March 30, 2001 among the Company and the parties listed on Schedule A attached thereto (incorporated herein by reference to Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q, as amended, for fiscal quarter ended April 1, 2001).
10.31		Registration Rights Agreement dated as of May 21, 2001 among the Company and the parties listed on Schedule A attached thereto.
10.32		Registration Rights Agreement dated as of May 25, 2001 among the Company and the parties listed on Schedule A attached thereto.
10.33		Registration Rights Agreement dated as of June 1, 2001 among the Company and the parties listed on Schedule A attached thereto.

(b): Reports on Form 8-K

On July 6, 2001, we filed with the Securities and Exchange Commission a Current Report on Form 8-K. The items reported in the Form 8-K were Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits), which related to the press release dated July 2, 2001, titled "Tetra Tech Updates Guidance for Third Quarter Based on Charge for Metricom Work." The date of the Form 8-K was July 2, 2001.

On July 19, 2001, we filed with the Securities and Exchange Commission a Current Report on Form 8-K. The items reported in the Form 8-K were Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits), which related to the press release dated July 18, 2001, titled "Tetra Tech Reports Third Quarter 2001 Results." The date of the Form 8-K was July 18, 2001.

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: August 15, 2001	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 Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

QuickLinks

TETRA TECH, INC. INDEX
PART I. FINANCIAL INFORMATION
Tetra Tech, Inc. Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income
Condensed Consolidated Statements of Cash Flow
Notes to Condensed Consolidated Financial Statements
RISK FACTORS
PART II. OTHER INFORMATION
SIGNATURES