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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 28, 1997.October 4, 1998.
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to_________________
to__________.
Commission file number 0-19655
TETRA TECH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-4148514
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
670 N. Rosemead Blvd.
Pasadena, California 91107
(Address of registrant's principal executive offices) (Zip Code)
executive offices)
(Registrant's telephone number, including area code:) (626) 351-4664
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) (Name of each exchange on which registered)
None None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant on December 9, 199718, 1998 was $366,641,534.$577,495,874.
The number of shares of Common Stock, $.01 par value, outstanding (the only
class of common stock of the registrant outstanding) was 22,268,95828,666,131 on December
9, 1997.18, 1998.
Portions of registrant's Annual Report to Stockholders for the fiscal year ended
September 28, 1997October 4, 1998 are incorporated by reference in Part II of this report.
Portions of registrant's Proxy Statement for its 1998our 1999 Annual Meeting of
Stockholders are incorporated by reference in Part III of this report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
PART I
ITEM 1. BUSINESS.
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE STATEMENTS ARE IN THE
SECOND PARAGRAPH UNDER "OVERVIEW," IN THE FIRST AND SECOND PARAGRAPHS UNDER
"RESOURCE MANAGEMENT BUSINESS AREA," AND IN THE FIRST, FIFTH AND FOURTEENTH
PARAGRAPHS UNDER "ENVIRONMENTAL LEGISLATION." ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT
OF THE RISK FACTORS SET FORTH BELOW UNDER "RISK FACTORS."
INTRODUCTION
Tetra Tech, Inc. ("Tetra Tech" or the "Company") provides nationally
recognized engineering andis a leading provider of specialized management
consulting services focusing on
cost-effective solutions to engineering, environmental and natural resource
management problems. These services are directed to a broad base of public and
private sector clients and include substantially all types of engineering and
consultingtechnical services in the environmental area, such as water chemistry,
geohydrology, soil science, water and wastewater treatment, hydrodynamics,
geology, air quality and civil engineering. Engineering services also include
mechanical, electrical, chemical and structural engineering, as well as
architecture and design, and are applied to infrastructure projects including
wastewater treatment plants, roads, schools and telecommunications projects
including structures and construction management.
The Company was incorporated in Delaware in February 1988 to acquire the
assets of the Water Management Group of Tetra Tech, Inc. (the "Predecessor"),
a subsidiary of Honeywell Inc. ("Honeywell"), in a management buy-out in
March 1988. The Predecessor was founded in 1966 as a coastal and marine
engineering business. Honeywell acquired the Predecessor in 1982, by which
time the Predecessor had developed an integrated water and environmental
science and engineering business. In November 1988, the Company acquired
GeoTrans, Inc., a groundwater service firm. In March 1990, the Company
acquired M.H. Loe Company ("Loe"), an underground storage tank removal and
remediation company. In October 1991, Loe was merged into the Company. In
October 1993, the Company acquired Simons, Li & Associates, Inc., a firm
engaged primarily in advanced water resources and environmental engineering.
In June 1994, the Company acquired Hydro-Search, Inc., a groundwater
hydrology and remediation firm. In September 1995, the Company acquired
Tetra Tech EM Inc. (formerly known as PRC Environmental Management, Inc.), an
environmental engineering and consulting firm which provides services ranging
from policy analysis to innovative remedial technology evaluation. In
November 1995, the Company acquired KCM, Inc., an engineering firm
specializing in the areas of water quality, water and wastewater systems,
surface water management, fisheries and facilities. In December 1996, the
Company acquired IWA Engineers, an architecture and engineering ("A/E") firm
providing a wide range of planning, engineering and design capabilities in
water, wastewater and facility design. In December 1996, the Company also
acquired FLO Engineering, Inc., a consulting and engineering firm
specializing in water resource engineering involving hydraulic engineering
and hydrographic data collection. In January 1997, the Company merged
Hydro-Search, Inc. into GeoTrans, Inc. and changed the name of the combined
entity to HSI GeoTrans, Inc. In March 1997, the Company acquired SCM
Consultants, Inc., a consulting and engineering firm, providing design of
irrigation, water and wastewater systems, as well as facility and
infrastructure engineering services. In June 1997, the Company acquired
Whalen & Company, Inc. and Whalen Service Corps Inc. (collectively, "WAC"), a
wireless telecommunication services firm providing site development services
for PCS, cellular, ESMR, air-to-ground, microwave, paging, fiber optic and
switching centers technology. In July 1997, the Company acquired CommSite
Development Corporation, a wireless telecommunication site development
service firm. Since 1966, the Company's business has expanded through the
establishment of an international network of over 90 offices, allowing the
development of technical and marketing expertise in a variety of geographic
areas.
OVERVIEW
Tetra Tech works in partnership with government and industry to balance the
need for economic growth with sustainable development of natural resources and
adequate infrastructure to sustain economic activity. The Company responds to
its partnerships by recognizing the uniqueness of each client; by recognizing
the requirements and needs of the client; setting priorities and ensuring proper
allocation and control of resources applied to a problem; as well
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as monitoring results. The Company's goal is to help the client build
environmental performance into each aspect of their organizational activities to
enhance both environmental and fiscal performance. Tetra Tech achieves this
goal by assisting clients to be more effective in pollution prevention, better
manage the spectrum of environmental compliance, and apply innovative and
cost-effective solutions to remediation or corrective action to problems
impacting our environment.
Tetra Tech has a commitment to people and results, technical excellence and
teamwork and cost-effective solutions for its clients' technical problems. The
challenges of today's resource management and infrastructure issues requires an
integrated multi-disciplinary approach to assist clients in making informed
decisions and to implement them in the most cost-effective way. These
challenges are driven by:
- Complex and continuously evolving environmental regulations and the
need for a more strategic approach to meet national and
international environmental challenges in a way that allows the
government and industry to be cost-effective and competitive in the
markets they serve.
- Increased emphasis on pollution prevention and waste minimization as
a necessary part of a long-term solution to sound natural resource
management.
- Competition for limited resources and the need for new and more
effective technology to achieve pollution prevention, resource
management and remediation goals more cost-effectively.
- Population growth requiring new municipal infrastructure including
water and wastewater treatment plants, roads, and pipelines, as well
as schools, office buildings and criminal justice facilities.
COMPANY SERVICES
The Company's services generally fall within three principal business areas: resource
management, infrastructure and telecommunicationscommunications. 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. The
Company provides its clients with five lines of service includingThese technical services, which
implement solutions, include research and development, applied science, and management consulting,
engineering and architectural design, construction management, and facility operationoperations
and maintenance. Our clients include a diverse base of public and private
organizations located in the United States and internationally.
Since our initial public offering in December 1991, we have increased the
size and scope of our business and have expanded our service offerings through a
series of strategic acquisitions and internal growth. We have more than 3,600
employees worldwide, 3,500 of whom are located in North America in more than 100
locations. In addition, we have established a presence in Asia, South America
and Europe. From fiscal 1991 through fiscal 1998, we generated a net revenue
compounded annual growth rate of approximately 34.2%, and achieved a net income
compounded annual growth rate of approximately 36.4%.
INDUSTRY OVERVIEW
Due to increased competition, changing regulatory environments and rapid
technological advancement, many organizations face new and complex challenges.
Increasingly, these organizations are turning to professional services firms to
assist them with addressing these challenges. Since each industry presents its
own unique set of challenges, organizations often seek professional service
firms with industry-specific expertise to analyze their problems and develop
appropriate solutions. These servicessolutions are offered individually or together as partthen implemented by firms possessing
the required engineering and technical service capabilities. Each of the
Company's full service approach to problems.following three business areas faces its own unique set of problems:
RESOURCE MANAGEMENT. The Company is currently
performing services under more than 800 active contracts, which range from small
site investigations to large, complex infrastructure projects.
RESOURCE MANAGEMENT BUSINESS AREAworld's natural resources, including water, air
and soil, are interdependent, creating a delicate balance. Factors such as
agricultural and residential development, commercial construction and
industrialization often upset this balance. Public concern withover environmental
issues, especially water resourcesquality and other environmental issuesavailability, has been a driving force
behind the promulgation of numerous laws and regulations which
seekthat are designed to control or prevent environmental
degradation and mandate restorative measures. To comply with environmental laws
and regulations, respond to public pressure and attain operating efficiencies,
public and private organizations are increasing their focus on resource
management. Two areas particularly affected by these trends are water management
and waste management.
- Water Management. Insufficient water supplies, concern over the
cost, quality and availability of water and the need in many parts of the
world to replace aging infrastructure used to capture, safeguard and
distribute water are critical social and economic concerns. According to
the United StatesU.S. Environmental Protection Agency ("EPA")(EPA), contamination of
groundwater and surface water resulting from industrial, agricultural, residential,
commercial and residentialindustrial development is one of the most serious
environmental problems facing the United States. To alleviate these social
and economic concerns, public and private organizations seek water
management advice. According to the ENVIRONMENTAL BUSINESS JOURNAL, the
size of the consulting, engineering services and wastewater treatment
segments of the water management industry totaled more than $30 billion in
1997.
- Waste Management. In the past, many waste disposal practices
caused significant environmental damage. Since the 1970s, more stringent
controls on municipal and industrial waste have been established by
governments around the world to protect the environment. Recently, the
Federal government has committed approximately $15 billion to various
environmental initiatives in an attempt to curb pollution, accelerate
toxic waste cleanups and
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combat other forms of pollution. Organizations seek waste management
advice to comply with complex and evolving environmental regulations, to
minimize the economic impact of waste generation and disposal, and to
realize significant costs savings through increased operating
efficiencies.
INFRASTRUCTURE. Continued population and economic growth places
significant strain on an overburdened infrastructure, thereby requiring
additional development. This development includes water and wastewater treatment
plants, roads, pipelines, communication and power networks, and educational,
recreational and correctional facilities. Additionally, as existing facilities
age, they require upgrading or replacement. Further, the trend toward
privatization of infrastructure is causing public and private organizations that
develop and maintain these facilities to evaluate their cost structures and
establish more efficient systems. These factors drive the need for development
and planning services that are often provided by consulting firms. According to
the ENGINEERING NEWS-RECORD, the market opportunity in the United States for
technical services in infrastructure development including water and wastewater,
transportation, hazardous waste, and educational, recreational and correctional
facilities, ranges from $15 to $20 billion.
COMMUNICATIONS. Technological change and government deregulation have
spurred sweeping changes in the communications industry. Local and long-distance
telephone companies, cable operators and wireless service providers are
penetrating each other's markets and trying to establish a foothold in new
markets created by new technologies. For example, traditional cable operators
are installing advanced capabilities such as digital cable, cable modem, cable
telephony and other high-speed data transmission services. At the same time,
various service providers are consolidating in order to offer their subscribers
a comprehensive set of services and to maintain dominance in their markets. As
these trends continue, network service providers will increasingly turn to
professional service firms for advice and assistance in planning, deploying and
maintaining their communications networks.
Organizations within each of the above business areas face unique
problems but often lack the internal resources and experience necessary to
identify issues and evaluate possible solutions. As a result, many of these
organizations rely on advice from outside management consultants. Most
consulting companies provide limited front-end problem assessment and solution
design and require clients to engage other engineering and technical services
companies to implement recommended solutions. A significant opportunity exists
for consulting companies that not only develop, but also implement, solutions.
These professional service firms are often in the best position to help clients
respond to the challenges they face.
THE TETRA TECH SOLUTION
Tetra Tech provides the specialized management consulting services that
assist clients in identifying industry-specific problems and defining
appropriate solutions. We also provide the technical services required to
implement these solutions. We believe that we are a leader in this market and
that the following factors distinguish us from our competitors:
UNDERSTANDING CLIENT NEEDS. The ability to identify client needs is
essential to strategic planning and execution. Even before the proposal process
begins, we assist our clients by helping them define their business objectives
and strategies and identify issues that are critical to their success. We strive
to develop numerous contacts at various levels within our clients' organizations
to help us identify the key issues from a variety of perspectives. We believe
that our long history and exposure to a broad client base increase our awareness
of the issues being confronted by organizations and thereby help us identify and
solve our clients' problems.
CAPITALIZING ON OUR EXTENSIVE TECHNICAL EXPERIENCE. Since our inception
in 1966, we have provided innovative consulting and engineering services,
historically focusing on cost-effective solutions to water resource management
and environmental problems. We have been successful in leveraging this
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foundation of scientific and engineering capabilities into other areas,
including infrastructure and communications. Our services are provided by a wide
range of professionals including: archaeologists, biologists, chemical
engineers, chemists, civil engineers, computer scientists, economists,
electrical engineers, environmental engineers, environmental scientists,
geologists, hydrogeologists, mechanical engineers, oceanographers and
toxicologists. Because of the interrelated
natureexperience that we have gained from thousands of
groundwater, surface water and rainwater in the water cycle,
contamination of one source of water affects the quality of other sources.
Surface water can be affected by direct contamination or runoff from cities or
agricultural areas. In addition, soil contamination from hazardous materialscompleted projects, we often leads to water contamination through surface runoff and infiltration.
Similarly, air pollution and the resulting acid rain and other forms of
deposition can contribute to the contamination of water resources over a wide
geographic area. This contamination can threaten the quality of the water
supplies that serve as drinking water sources and detrimentally affect aquatic
life and the quality of lakes, rivers, estuaries, harbors and oceans.
The economic and environmental consequences from continuously evolving
regulations present new opportunities for the Company to assist public and
private sector clients in achieving compliance. Past enforcement efforts under
the Clean Water Act ("CWA") have focused on regulating sources of pollution
which originate from a discrete point, such as industrial facilities and
municipal treatment plants. Much of the Company's water-related environmental
business has been derived from this market. However, the EPA estimates that
nonpoint sources, such as stormwater runoff from urban streets, runoff from
farmland and construction sites, atmospheric deposition, drainage and combined
sewer overflow, currently account for more than 50% of the pollution entering
the nation's waters. As a result, the EPA is currently developing programs and
allocating funding to address the complex problem
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of nonpoint source pollution within the context of holistic watershed
management. Under National Pollutant Discharge Elimination System ("NPDES")
regulations promulgated in November 1990, for example, the EPA will require
municipalities and industriesare able to apply for nonpoint discharge permits. The
Company's ongoingproven solutions to client
problems without the time-consuming process of developing new approaches.
OFFERING A FULL RANGE OF SERVICES. Our depth of consulting and technical
supportskills allows us to respond to client needs at every phase of the EPA's water programs has led to early
involvement in the development and implementation of this emerging nonpoint
source program. However, no assurance can be given that the Company will
continue to participate in this program.
In addition to the CWA, other laws, such as the Resource Conservation and
Recovery Act of 1976 ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") and the Safe Drinking Water Act
("SDWA"), require companies and government agencies to make considerable
environmental expenditures. Major environmental expenditures are also planned
by the United States government,a project,
including expenditures by the United States
Department of Defense ("DOD") and the United States Department of Energy ("DOE")
to clean up defense and nuclear weapons production and test facilities that have
become contaminated over the past four decades.
In the Resource Management Business Area, the Company's services extend
frominitial planning, research and development, through applied science, and management consulting;
to
engineering and architectural design, and construction management. Once a
particular project is completed, we are able to offer our clients additional
value-added services such as operations and maintenance. Our expertise across
industries and our broad service offerings enable us to be a single source
provider to our clients.
PROVIDING BROAD GEOGRAPHIC COVERAGE AND LOCAL EXPERTISE. We believe that
proximity to our clients is instrumental to understanding their needs and
delivering comprehensive services. We have significantly broadened our
geographic presence in recent years through strategic acquisitions and internal
growth. Our historical geographic base was primarily in the western portion of
the United States. However, we currently have operations in more than 40 states.
We have also increased our international presence, and we now have operations in
Canada, Taiwan, the Philippines, Argentina, Chile, Brazil and the Czech
Republic.
COMPANY STRATEGY
Our objective is to become the leading provider of specialized management
consulting and technical services in our chosen business areas. To achieve this
objective, we plan to continue the following primary strategies that we believe
have been integral to our success:
IDENTIFY AND EXPAND INTO NEW BUSINESS AREAS. We use our management
consulting services and certain of our technical services as an entry point to
evaluate and to enter new business areas. After our consulting practice is
established in a new business area, we can expand our operations by offering
additional technical services. For example, based on our provision of site
acquisition services to communications industry participants, we identified
infrastructure services within the communications industry as an appropriate
area into which we could expand our operations.
EXPAND SERVICE OFFERINGS AND GEOGRAPHIC PRESENCE THROUGH
ACQUISITIONS. We believe that acquisition opportunities exist that will allow
us to continue our growth in selected business areas, broaden our service
offerings and extend our geographic presence. We intend to make acquisitions
that will enable us to consolidate our position in certain key business areas,
such as communications, or further strengthen our position in our more
established service offerings. We believe that our reputation and public company
status make us an attractive partner and provide us with an advantage in
pursuing acquisitions.
FOCUS ON GOVERNMENT PROJECTS. We intend to continue marketing to
government organizations and bidding for government projects to stay on the
leading edge of policy development. This experience helps us identify market
opportunities and enhances our ability to serve other public and private
clients. Additionally, government contracts provide more predictable revenues
than private sector contracts.
MANAGE INTERNAL FINANCIAL CONTROLS. We take a disciplined approach to
monitoring, managing and improving our return on investment in each of our
business areas through the prompt billing and collection of accounts
receivables, the negotiation of favorable contract terms and the management of
our contract performance to prevent cost overruns. We believe that this approach
to managing our
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financial affairs enables us to improve our cash position and thereby fund
acquisitions and internal growth.
LEVERAGE EXISTING CLIENT BASE. Some of our clients engage us to provide
limited services. We believe that we can increase our revenue by selling
additional services to our existing client base. For example, we may be able to
secure an operations and maintenance contract after working with a client on the
design and construction phases of a facility. In addition, we believe that our
ability to offer a full spectrum of services will allow us to grow our business
and compete more effectively for larger projects.
SERVICES
We provide our clients with comprehensive management consulting and
technical services that focus on our clients' industry-specific needs. We offer
these services individually or as part of our full service approach to problem
solving. We are currently performing services under 1,000 active contracts,
ranging from small site investigations to large, complex infrastructure
projects. Our service offerings include:
- MANAGEMENT CONSULTING to assist clients in identifying and addressing
operational and competitive problems they face within their industries;
- RESEARCH AND DEVELOPMENT to formulate solutions to complex problems and
develop advanced computer simulation techniques for modeling problems,
ranging from microscopic to global;
- APPLIED SCIENCE to assess all aspects of problems and develop practical
and cost-effective solutions through the application of new technology
and data interpretation;
- ENGINEERING AND ARCHITECTURAL DESIGN to provide services from concept
development and initial planning and design through project completion;
- CONSTRUCTION MANAGEMENT to provide experienced and specialized
construction managers to assist clients in minimizing the risk of cost
overruns, delays and contractual conflicts; and
- OPERATIONS AND MAINTENANCE to allow clients to outsource routine
functions, permitting them to streamline contractor relationships and
reduce operating costs.
BUSINESS AREAS
We provide our services in the following three principal business areas:
resource management, infrastructure and communications.
RESOURCE MANAGEMENT
One of our major concentrations is water resource management, where we
have a leadership position in understanding the interrelationships of water
quality and human activities. We support high priority government programs for
water quality improvement, environmental restoration, productive reuse of
defense facilities and strategic environmental resource planning. We provide
comprehensive services, including management consulting, research and
development, applied science, engineering and architectural design, construction
management, and operationoperations and maintenance. Our service offerings in the
resource management business area are focused on the following project areas:
SURFACE WATER PROJECTSPROJECTS: Public concern with the quality of surface water resources, defined as rivers, lakes
and streams as well as coastal and marine waters and the ensuing
legislative and regulatory response have led to ais driving demand for the Company'sour services.
Over the past 3132 years, the Company and the Predecessorwe have developed a specialized set of technical
skills which position the Companythat positions us to compete effectively for surface water and
watershed management projects. The
Company providesWe provide water resource services to
publicgovernment clients such as the
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EPA, DODthe Department of Defense (DOD) and DOEthe Department of Energy (DOE),
and to a broad base of private sector clients including those in the
chemical, pharmaceutical, utility, aerospace and petroleum industries. The CompanyWe
also providesprovide surface water services to state and local agencies,
particularly in the areasarea of watershed management, flood control and drainage designs. The
Company's services in the management of surface water quantity and quality
include research and development for new generations of computer models that can
predict and compare the response of water quality parameters under various
watershed management practices; design of monitoring programs; consulting
services, particularly in regulatory compliance, permitting and nonpoint source
management; and engineering design of integrated best management practices
(e.g., stormwater detention ponds and artificial wetlands), stream, lake and
wetland restoration and enhancement measures, and flood conveyance and control
structures.
Traditional "command and control" solutions used since the 1970s by the
federal government to bring industrial and municipal wastewater treatment plant
discharges into compliance have been successful in reducing impacts to U.S.
surface waters. However, a significant percentage of waters remain polluted due
primarily to diffuse "nonpoint source" pollution generated by man's activities
on the rural and urban landscape. Under a reauthorized CWA expected within the
next one to two years, the EPA has set as a high priority working with state
and local governments to implement more effective nonpoint source and watershed
management programs to address this problem.
The Company has also worked closely with the U.S. Army Corps of Engineers
("ACE") to develop and implement nationwide non-traditional approaches to flood
control policy, planning, and design. As a consultant to ACE, the Company has
implemented flood control practices using natural, non-structural features. In
addition to ensuring human health, safety, and welfare protection, this new
approach results in a decreased federal investment, higher benefit-to-cost
ratios, the creation of recreational opportunities, and the enhancement and
effective long-term management of endangered urban watersheds.
The Company has worked closely with the EPA since the passage of the CWA in
1977 in researching and evaluating surface water environmental systems. Under
contracts with the EPA, the Company has assisted in the development of national
guidelines on surface water monitoring strategies, nonpoint source pollution
control practices, pollution trading and other economic incentive-based control
strategies, and public education methods for use by states and local agencies in
their ongoing surface water and watershed management programs. Through its work
for the
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EPA, the Company has developed expertise in complex modeling, Geographic
Information Systems ("GIS"), remote sensing, surface water monitoring, data
analyses, publication of national guidance documents and environmental impact
assessments for surface water projects. The development of this knowledge base
has strategically positioned Tetra Tech as an authority on regulations affecting
discharges to surface water and best management practices.
Examples of past and current projects in the surface water field include
the following:
- STORMWATER RUNOFF. The Company recommended methods to manage
stormwater runoff and other point and nonpoint sources of pollution
for a variety of clients including Clermont County, Ohio; Baltimore
and Prince Georges Counties, Maryland; Suffolk County, New York;
Prince William County, Virginia; and the City of Tucson, Arizona.
For Prince Georges County, Tetra Tech developed several new
investigative technologies to assess and manage stormwater pollution
under the NPDES program. Predictive models and statistical
algorithms integrated with GIS help prioritize water quality
efforts. Models are also being developed to assess water quality
benefits derived from wetland systems and other best management
practices. The Company assisted the California Department of
Transportation to establish a statewide stormwater quality
monitoring program to meet state and federal regulations.
- WATER SUPPLY PROTECTION. Tetra Tech is assisting several local
agencies in watershed restoration and pollution source assessments
in areas where surface water supplies are susceptible to land
activities (e.g., urbanization, agriculture). These include, for
example, facilitating and refining management objectives for the
Orange Water and Sewer Authority, North Carolina; development of a
watershed plan for the Loch Raven Reservoir, Baltimore, Maryland;
and nitrogen loading impacts of domestic septic systems within the
Patuxent River Watershed, Maryland.
- WATERSHED ASSESSMENT TOOL DEVELOPMENT. Under contracts with the EPA
and Prince Georges County, Maryland, Tetra Tech has developed a
number of watershed assessment tools that provide integration of
watershed and receiving water models, databases, monitoring and
design data, and watershed attribute information within a GIS
platform (PC-Windows and UNIX workstations). These tools range from
"BASINS," which was developed for the EPA to be used by states to
perform local and regional scale watershed assessments, to "SAM,"
which was developed for Prince Georges County for detailed
assessment and optimization of best management practices.
- COASTAL NONPOINT POLLUTION. As the prime contractor to the EPA's
Assessment and Watershed Protection Division, Tetra Tech is
assisting in the development of implementation strategies and
technical guidance for nonpoint source pollution control within the
coastal zone under the Coastal Nonpoint Pollution Control Program.
The Company is also assisting the EPA in developing guidance for the
assessment of stormwater discharges and combined sewer overflows as
required under NPDES regulations. The Company is also assisting the
government of the Philippines in addressing problems related to the
management of the country's vital coastal resources. Under this
contract, the Company provides scientific and engineering services
and policy support for the development and implementation of
effective community-based coastal resources and watershed management.
- FLOOD CONTROL PLANNING. The Company is currently providing flood
control related planning services to the U.S. Army Corps of
Engineers' Los Angeles District. Individual projects include flood
investigations of 72 sites in Arizona; an analysis of flooding
effects to 300 in-stream structures in California, Arizona, Nevada,
and Utah; a reconnaissance study for habitat restoration along the
Gila River in Arizona; and development of multiple-use flood
mitigation alternatives for 35 miles of the Salt River through the
metropolitan Phoenix area. The Company recently completed
development and analysis of alternative flood control measures for
the Los Angeles River, one of the most important urban flood control
projects in the country. The Company considered numerous advanced
flood protection measures, including stormwater detention using
gravel pits, development of large greenbelts and flood walls.
Although this was one of the most contentious projects of its kind,
Tetra Tech successfully balanced habitat needs with structural flood
control solutions to develop a widely accepted plan.
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- POWER PLANT DISCHARGES. Under a contract with the Electric Power
Research Institute, the Company developed "RIVRISK," a multi-purpose
mathematical model used to assess potential human health risks from
power plant discharges into rivers. The model is designed to help
utilities evaluate options, design new or restored wetlands, and
obtain permits for activities involving existing and constructed
wetlands such as power corridors, road construction and habitat
improvement.
- BLUE RIVER WETLANDS RESTORATION, BRECKENRIDGE, COLORADO. The
Company completed the design of wetland creation and channel
restoration of the Blue River for the Town of Breckenridge. The
project restored a one-mile reach of the Blue River which had been
disturbed by dredge boat mining from 1890 to 1940. Project features
included the removal of 500,000 cu. yd. of dredge rock,
reconstruction of a stream channel including 22 drop structures to
enhance channel stability and overbank grading to create wetlands.
Approximately ten acres of riparian wetlands were developed.
- RIO GRANDE HYDROGRAPHIC DATA COLLECTION PROGRAM, NEW MEXICO. The
Company is conducting a five-year hydrographic data collection
project on the Rio Grande in New Mexico for the Bureau of
Reclamation, Albuquerque Project Office. Data collection includes
geomorphic observations, cross-sectional survey, flow measurement,
sediment transport and bed material samples.
GROUNDWATER PROJECTS
According to the EPA, groundwater contamination is one of the most severe
environmental problems currently confronting the United States.PROJECTS: Groundwater is
located in the saturated zone beneath the land surface, is the source of drinking water for
approximately 50% of the U.S. population and accounts for approximately
25% of all water consumed for residential, industrial and agricultural
purposes. Tetra Tech'sOur activities in the groundwater field are diverse and
typically include projects such projects as the investigationinvestigating and identification ofidentifying sources
of chemical contamination, in groundwater; the
examination ofexamining the extent of contamination; the analysis ofcontamination,
analyzing the speed and direction of contamination migration;migration, and
the designdesigning and evaluation ofevaluating remedial alternatives. In addition, the Company conductswe conduct
monitoring studies to assess the effectiveness of groundwater treatment
and extraction wells.
Tetra Tech's
professionals have the ability to analyze complex groundwater data using
sophisticated computer models.
Examples of past and current projects in the groundwater field include the
following:
- INVESTIGATION, CHARACTERIZATION, AND REMEDIATION AT A FORTUNE 500
MANUFACTURING FACILITY IN WESTERN NEW YORK. At a former
manufacturing facility with metals and volatile organic
compound impacted soil, the Company is implementing an innovative
combination of excavation, stabilization, and phytoremediation. The
Company is currently coordinating the testing of the
phytoremediation component of the remedy, which uses vegetation for
the in-situ treatment of impacted soil. The New York State
Department of Environmental Conservation is allowing the site to be
used to test a passive phytoremediation strategy.
- HYDROGEOLOGIC SUPPORT FOR GUANACO MINE IN ANTOFAGASTA, CHILE. The
Company provided hydrogeologic services to substantially increase
the mine's current water supply. At a site located in one of the
driest deserts in the world, the Company performed design and
supervision of the water-well and water exploration drilling
programs; well design and construction; review of hydrogeologic data
collected to date; new target area identification for groundwater
exploration; review of the hydrogeologic database currently used at
the mine; design of bid documents and screening of final bids for
securing new drillers; aquifer testing to evaluate adequacy of water
supply for life of mine; and general advice to the customer
pertaining to strategy for water supply development. Tetra Tech's
efforts were successful after earlier efforts failed to produce
adequate water after drilling more than 100 boreholes.
- UTILITIES CLEANUP. The Company is supporting activities ranging
from initial site investigations through cleanup and demolition at
approximately 50 former manufactured gas plant sites across the
United States, including work in Oregon, Washington, California,
Iowa, Wisconsin, New York, New Jersey, West Virginia, and
Washington, DC. Of primary concern at most of these sites are dense
non-aqueous phase liquids ("DNAPL"). The Company is the author of
the standard reference
5
text, DNAPL SITE CHARACTERIZATION, and has taught seminars for the
EPA in all ten regions focusing on DNAPL investigation, cleanup and
control strategies.
WASTE MANAGEMENT PROJECTS
Tetra TechPROJECTS: We currently providesprovide a wide range of
engineering and consulting services for hazardous waste contamination and
remediation projects, from initial site assessment through design and
implementation phases of remedial solutions. In addition, the Company
performswe perform risk
assessments to determine the probability of adverse health effects that
may result from exposure to toxic substances in environmental media. The
Companysubstances. We also providesprovide waste
minimization and pollution prevention services, and evaluatesevaluate the
effectiveness of innovative technologies.
Examples of past and current projects in hazardous waste management
include:
- RCRA FACILITY INVESTIGATION, INTERIM MEASURES, AND VERIFICATION
INVESTIGATIONS, WEST VIRGINIA FACILITY. For a Fortune 500 client,
the Company is providing RCRA services at a facility with over 30
solid waste management units and areas of concern. One task
involved the investigation of a landfill onsite where several cells
of buried drums and impacted soils were discovered. The Company
successfully excavated, characterized, and disposed of the drums in
less than three months. At another landfill onsite, the Company
provided construction management services for stabilization of a
20,000-foot area along a stream bank.
- NAVY INSTALLATION RESTORATION PROGRAM. The Company is providing
program management and technical support for the Navy CLEAN program
under a ten-year contract. Activities include installation
restoration, base realignment and closure, and underground storage
tank programs. The Company has conducted numerous treatability
studies of both conventional and innovative treatment technologies
to assist in selecting cleanup strategies for naval installations.
The Company supports the Navy Environmental Leadership Program by
identifying and demonstrating innovative methods for the Navy to
achieve compliance with applicable laws and regulations, accelerate
cleanup, implement pollution prevention techniques, and conserve
natural resources.
- INNOVATIVE TECHNOLOGY EVALUATION. The Company is the prime
contractor for the nationwide Superfund Innovative Technology
Evaluation ("SITE") program, to demonstrate and evaluate the
performance and cost of various processes for treating contaminated
soil and groundwater. Under SITE and similar federal government
efforts for the DOD and DOE, as well as state and private industry
partners, Tetra Tech has tested, evaluated, and disseminated
information on hundreds of new and emerging treatment technologies and has supported government and industry effortsnovel solutions to
foster the
continued development of these and other new technologies.
- RCRA SUPPORT AT INDUSTRIAL PLANT. The Company is performing a RCRA
Facility Investigation and streamlined Corrective Measures Study in
a fractured aquifer in Stonewall, Virginia. A phased and risk-based
screening approach was used at the site to delineate 22 source
areas, resulting in the consolidation of 22 areas into five areas of
concern. The Company negotiated a streamlined approach that focuses
on passive remediation and limited source reduction, thus limiting
costs at the site.
- MUNICIPAL SOLID WASTE LANDFILLS. The Company is participating in
remedial action at a landfill in Howard County, Maryland, including
contractor oversight, waste characterization, air monitoring, and
reporting functions at a hazardous waste removal action for more
than 500 buried drums. Work included setting up site zones, health
and safety procedures, and standard procedures for drum removal, as
well as comprehensive community relations activities. As part of
the same contract, the Company performed remedial
investigation/feasibility studies ("RI/FS") activities at three
municipal solid waste landfills.
- SUPPORT FOR ORDNANCE REMEDIATION. The Company supported a
first-of-its-kind, large-scale demonstration of over 50
state-of-the-art technologies that detect, identify, and remediate
buried
6
unexploded ordnance (UXO) for the U.S. Army Environmental Center's
UXO Advanced Technology Demonstration Program.
- PORT OF LONG BEACH. Tetra Tech is conducting site investigation and
remediation of petroleum-contaminated soils for the Port of Long
Beach, California.environmental problems.
NUCLEAR ENVIRONMENTAL PROJECTSPROJECTS: The DOE's nuclear weapons plants and
research laboratories haveface a wide variety of environmental needs,challenges
including groundwater and surface water contamination, as well as hazardous waste
management and environmental compliance. Tetra Tech'sOur services to the DOE are focused in areas compatible
with the Company's core businesses and include
the National Environmental Policy
Act ("NEPA") analysisenvironmental impact analyses and documentation, environmental audits and
risk assessments, regulatory compliance support, groundwater
characterization, RI/FSremedial investigation/feasibility studies, and project
management and oversight. The end of the Cold War and subsequent
arms reduction agreements have reduced the nation's requirements for nuclear
weapons. These changes have resulted in increased opportunities for Tetra
Tech's nuclear environmental capabilities. The Company'sOur environmental analyses will assistprovide the DOE with
information it requires in order to make decisions regarding the storage
or disposition of surplus materials from dismantled nuclear components from weapons no longer required for the U.S.
weapons stockpile.
Examples of DOE projects performed by the Company include the following:
- NUCLEAR TEST SITE. The Company is a subcontractor under a
multi-year DOE contract for an RI/FS of radioactive contamination
resulting from activities, including nuclear test explosions, at the
DOE's Nevada Test Site. This contract includes investigation of the
magnitude and extent of groundwater contamination, preparation of
environmental impact statements and corrective action under RCRA.
- SAVANNAH RIVER SITE. The Company is a prime contractor to the DOE
Savannah River Site operator in South Carolina. Ongoing programs
are being conducted by Tetra Tech to aid in the assessment of
closure and remedial action options for various waste units at this
site. The Company is also providing multi-disciplinary support for
low-level radioactive and mixed waste management activities
including the assessment of waste characterization, sampling and
analysis, treatment, and disposal alternatives.
- SUPPORT TO ENVIRONMENTAL MANAGEMENT OFFICE. The Company is
providing technical support to the Office of Environmental
Management at DOE Headquarters on a wide range of issues. The focus
of this program is on applying successful environmental practices to
improve the efficiency and cost-effectiveness of environmental
restoration and waste management activities throughout the DOE
complex.weapon
components.
REGULATORY COMPLIANCE PROJECTS
The Company'sPROJECTS: Our regulatory compliance services include
advising our clients on the full spectrum of regulatory requirements under
RCRA, the CWA,Resource Conservation and Recovery Act, the Clean Water Act, the Clean
Air Act, the NEPANational Environmental Policy Act and other environmental
laws. Although we provide services are provided to both public and private sector clients, the Company'sour
current emphasis is on providing regulatory compliance services to the
Army, Navy and Air Force installations.
Activities have been conducted at bases which are closing as well as those which
are remaining open.
Examples of Tetra Tech's regulatory compliance projects includeForce.
INFRASTRUCTURE
In the following:
- PHILIPPINES RESOURCE MANAGEMENT. Assisting the
government of the Philippines, through the U.S. Agency for
International Development, with managing the country's natural
resources, including the nation's coastal environments. Supporting
Philippine environmental and resource management policies whichinfrastructure area, we focus on market-driven incentives that encourage industry to comply with
standards.
7
- U.S. AIR FORCE. A nationwide contract with the Air Mobility Command
to perform environmental compliance activities at Air Force bases.
- U.S. NAVY. Environmental documentation for base realignment and
closure activities at U.S. Naval bases in the San Francisco Bay area.
- U.S. ARMY. A nationwide contract with Army Material Command ("AMC")
to support compliance requirementsdevelopment of AMC installations and facility
tenants.
INFRASTRUCTURE BUSINESS AREA
Tetra Tech's focus is on engineeringwater resource
projects, such as water and wastewater
treatment plants, institutional facilities, commercial, recreational and leisure
facilities.facilities and transportation projects. These facilities are an essential part
of everyday life as well as being critical to
sustainingand also sustain economic activity. Muchactivity and the quality of the U.S. infrastructure needs repair,
renovation or replacement, whereas developing countries need new infrastructure.
Tetra Tech'slife. Our
engineers, architects and planners are workingwork in partnership with public and private sector customersour clients to
ensureprovide adequate infrastructure development within fiscal objectives.
In this business area, the Company's services includetheir financial constraints.
We assist clients with infrastructure projects by providing management
consulting, engineering and architectural design, construction management, and
operationoperations and maintenance. Examples of the Company's projectsOur service offerings in the Infrastructure Business Area
include:
- SEWAGE PUMP STATION AND FORCEMAIN. The Company designed Portland,
Oregon's Fanno Pump Stationinfrastructure business
area are focused on the following project areas:
WATER RESOURCE PROJECTS: Our technical services are applied to all aspects
of water quantity and Forcemain Project to replace five
existing pump stations located in the uplands of the Fanno Creek
watershed. The project includes construction of a gravity bypass
sewer to connect the existing gravity sewer to the pump station.
The project also includes construction of a forcemain approximately
16,200 feet in length. The pump station is designed for flows in
the range of 4.2 to 13.5 million gallons per day ("MGD"). The
pumping station encloses a full carbon odor scrubber system,
stand-by power, chemical injection for downstream corrosion control,
automated controlsquality management ranging from stormwater
management through drainage and connection to the City of Portland's
monitoring system. Due to the nature of the site and surrounding
development, significant measures were taken to maintain the
integrity of wildlife habitat. This was accomplished by careful
selection of plantings and landscaping materials to screen the
structure from surrounding homes and produce a habitat that
optimizes the site's wildlife carrying capacity.
- FISH HATCHERY AND VISITOR CENTER. The Texas Parks and Wildlife
Department selected the Company as prime consultant to plan and
develop a new, state-of-the-art, marine fish hatchery and visitor
center at Lake Jackson, Texas. Sea Center Texas is located on a
60-acre parcel donated by the Dow Chemical Company. Major project
components include a 30,000 sq. ft. hatchery building, a visitor
center, 40 one-acre lined ponds, a seawater pump station with five
miles of transmission piping, and a fresh water pump station with
2,000 feet of transmission piping. A sophisticated ozone
disinfection/biofiltration system for seawater reuse is also in use.
The project involved the development of a master plan, preliminary
design, final design and construction administration. In addition,
the Company provided engineering and bioengineering for all life
support systems.
- DESIGN-BUILD RESIDENTIAL PROJECT. The Company is currently
designing a 74 unit, four-story, residence hall for the Naval
Homeport in Everett, Washington. This design-build project was
successfully awarded based upon the Company's design team's technical
and price proposals. The Company is developing the final design for
this concrete, steel, and masonry structure. Site improvements
include formal entries, basketball court and recreational field. The
Company's responsibilities include design management, architectural,
civil, structural, site planning & construction services.
- WASTEWATER LARGE-DIAMETER PIPELINE ADDITION. The Company is
currently designing the Wilburton Siphon, a critical element of the
160 MGD Eastside Interceptor in King County, Washington, conveying
flows from Woodinville to Renton. The project evaluates the existing
siphon in terms of flow capacity, condition, and odor control. In
order to meet the future
8
capacity of 160 MGD through the siphon, a new parallel 48-inch
siphon barrel is to be added to the existing 16-, 30-, and 48-inch
barrels. Additionally, new structures upstream and downstream of the
existing siphon will be constructed to allow the flow to be bypassed
around the siphon control structure to allow for new lining of the
structures and future inspection and maintenance. A new odor
control and chemical dosing facility is also being constructed at
the upstream end of the siphon to control odors at the siphon and
corrosion in the siphon and downstream tunnel.
- ROADWAY WIDENING. The Company is currently completing plans,
specifications, and estimates ("PS&E") for the City of Bellingham,
Washington, for design of a two-mile section of Bakerview Road. The
project calls for widening the 35-mph, two-lane paved road with
5-foot shoulders to a roadway with two travel lanes in each
direction, a continuous left-turn lane, 5-foot bike paths, curbs,
gutters, and 7-to 9.5-foot sidewalks on both sides. New traffic
channelization and signalization at four intersections are included
in the design requirements. The Company prepared alternative
analyses, a design report, PS&E and right-of-way plans. Improvements
include filling existing ditches, removing vegetation, and providing
wetland mitigation.
- LAKE AND WATERSHED RESTORATION AND CREATION. Tetra Tech is one of
the Southwest's leaders in developing lakes and watersheds within
coastal, arid and semi-arid regions. These projects offer multiple
benefits, including habitat enhancement, recreation, flood control projects to major water quality protection, beach sand replenishment, and
species
re-introduction. The Company is providing lake design services,
including grant application preparation,wastewater treatment plants. Our experience includes planning, permitting,
engineering and design and
construction services for a new
recreation lake in Picacho, Arizona. The Company is workingdrinking water projects, the design of water
treatment facilities and reservoirs, and the design of distribution
systems including pipelines and pump
6
stations. Our capabilities are also applied to specialized technical
challenges associated with the ACE on watershed management and enhancement
plans in the Aliso Creek and San Juan Creek systems in coastal
southern California as well as the Gila River near Tucson, Arizona.
- MUNICIPAL FLOOD CONTROL DESIGN. The Company has provided design
services for numerous flood control projects in western states.
The Company provided design and construction of fisheries and
hatcheries worldwide.
INSTITUTIONAL FACILITIES PROJECTS: We provide architectural engineering
and construction services for the Talbert Channel ocean outlet, a major componentprojects including site planning for land
development, complete architectural design, interior design,
civil/structural engineering and mechanical/electrical engineering of
the ACE's
Santa Ana River flood control project. This project is the largest
of its kind west of the Mississippi River. For the city of Federal
Way, Washington, the Company performed the feasibility assessment,
predesignmulti-story facilities. We have completed engineering and final designconstruction
projects for a regional stormwater detention basin
to address existingwide range of clients with specialized needs such as
security systems, clean rooms, laboratories and predicted future flooding on a rapidly
urbanizing portion of Hylebos Creek. The results ofemergency preparedness
facilities.
COMMERCIAL, RECREATIONAL AND LEISURE FACILITIES PROJECTS: We specialize in
the analysis
identified flood frequency levels, identified unstable downstream
channel reaches,planning and predicted typical water quality expected for the
site. The subsequent design required balancing various environmental
(wetlands, fisheries, water quality) and physical (property
availability, geologic) constraints. The Company is currently
charged with developing design for the City of Scottsdale's Desert
Greenbelt multi-million dollar flood control project. The project
will protect homeowners from flash flooding within alluvial fans,
one of the most challenging environments for effective flood
control. In addition to design of channelswater-related entertainment and sediment basins, the
team willleisure
facilities from theme park attractions to large marine aquariums. Our
projects also include hotels, parks, visitor centers and marinas. We have
designed complex aquatic life support systems and provided structural,
civil and mechanical engineering and design roadway, bridges,of interpretive exhibits for a
series of large aquarium projects worldwide.
TRANSPORTATION PROJECTS: We provide architectural, engineering and
park features, and is
responsible for landscape architecture to create not just a simple
flood control project but also a community amenity.
- REGIONAL STORMWATER DETENTION AND WATER QUALITY FACILITY. The
Company designed a 21-acre regional detention and water quality
treatment facility for the City of Federal Way, Washington, to serve
a largely commercial and industrial tributary watershed. Runoff
from the tributary area was being directed to an undersized
detention pond and discharged into Tributary 0013 of West Hylebos
Creek, an important anadromous fish bearing creek. Following a
feasibility assessment, the Company used the "HSPF" model to
evaluate conditions for land use as they existed in 1975, a time of
much lighter development, prior to significant water quality and
flooding problems. Using the "HSPF" base case model, a facility was
sized to achieve the target goals. Features to enhance water quality
included a sedimentation forebay, meandering low flow channels to
maximize contact with stormwater, and an outlet micropool for
trapping organics that may transfer through the facility.
Landscaping visually screens the facility. All plantings emphasize
the use of native, drought-tolerant vegetation to promote survival
and minimize maintenance. The Company developed a plan
9
for planting vegetation that would tolerate the fluctuations and
duration of stormwater and also benefit the biological and
biochemical treatment of the stormwater runoff quality.
- INDUSTRIAL OIL-WATER SEPARATION. The Company provided complete
engineeringconstruction services for design of two coalescing plate oil-water
separators at the North Boeing Field facility in Seattle,
Washington. The new separators will treat stormwater runofftransportation projects to improve public safety
and provide spill protection in fueling areas. The larger of the
separators was 50' x 20'mobility. Our projects include roadway improvements, commuter railway
stations and designed to support the full
operational load of a Boeing 757 jet liner. Associated taxiway
paving comprised approximately 10,000 square feet of area.
- WASTEWATER TREATMENT PLANT DESIGN. The City of Snoqualmie,
Washington, is projected to increase from 1,200 to over 18,000
people in the next 20 years, necessitating a major upgrade to the
existing aerated lagoon treatment plant and river bank outfall. The
Company prepared an engineering report and design documents for
these improvements on a fast track time schedule. The facilities
include a 2 MGD oxidation ditch plant with ultra violet
disinfection, coagulation and filtration to meet Class A reclaimed
water standards and provisions for future biological nutrient
removal. The existing lagoon will be used for sludge treatment and
storage, with future sludge disposal by dredging and land
application. Effluent disposal is based on discharging secondary
effluent to a new Snoqualmie River outfall in the winter, and Class
A reclaimed water to the outfall and golf course irrigation in the
summer. Provisions are included for pilot testing rapid
infiltration disposal of Class A reclaimed water, because future
total maximum daily load ("TMDL") limits for biochemical oxygen
demand, toxic metals and nutrients may effectively prohibit summer
discharge to the river. Intensive pretreatment and water supply
corrosion control efforts are planned to minimize toxic heavy metals
concentrations (copper, cadmium, zinc, etc.) in the sewage. River
water quality will be monitored for heavy metals using the EPA's "clean
techniques."
- NEW MAIN OFFICE BUILDING. The Company provided complete design and
construction administration services for this 33,500 sq. ft., $3.3
million building, including drive-through bill paying,
accounting/data processing, personnel, purchasing, engineering,
Board Meeting room and community auditorium, all served by a
fully-integrated computer network, energy-efficient heat pump
system, and low-maintenance building systems.
- WASHINGTON STATE PENITENTIARY TELECOMMUNICATIONS PROJECT. This $3
million project included construction of a new 4,500 sq. ft.,
one-story building with offices, work rooms, and telecommunications
equipment room. Telecommunications work included design,
construction, and installation of a new high-bandwidth, digital
telecommunications infrastructure for voice and data services. The
Company provided development of drawings and specifications, and
construction administration services.
- SCHOOL OVERPRESSURIZATION PROJECT. This $4.3 million project
created pressurized, protected areas of refuge for the students and
staff at eleven schools in the communities of Hermiston, Umatilla,
and Irrigon, Oregon. The project began with defining protective
zones within each of the facilities. This involved facility surveys
and interviews with users of each facility. Protective designs were
developed and construction documents were prepared for bid. This
design features include high efficiency particulate and gas
absorption filters, air handling units with high-pressure fans and
heating and cooling systems, diesel generator systems for emergency
electrical power, and a pressure sensing and control system.
- PASCO HIGH SCHOOL RENOVATION AND EXPANSION. The Company provided
full A/E services for the 106,000 sq. ft. remodel and 20,000 sq. ft. expansion of this mid-1950's high school facility Construction cost
was $13.5 million forairports. We have also completed numerous
transportation projects including bridges, major highways, and repair,
replacement and upgrading of older transportation facilities.
COMMUNICATIONS
In the project, which was completed in 1995.
Completely redesigned auditorium, administration, gymnasium and
laboratory spaces are featured incommunications area, we focus on the highly functional new layout.
Audio, video and data networks have been provided throughout the
building.
10
OPERATION AND MAINTENANCE PROJECTS
The Company also works in partnership with government and somedelivery of the
world's leading corporations to develop long-termtechnical
solutions to their total
facility management and operation needs. Tetra Tech's approach to Operation &
Maintenance ("O&M") services is to provide a fully integrated capability that
targets improving technical effectiveness at the operating unit and process
levels.
The Company's O&M services include the operation and maintenance of
facilities as well as oversight and support for day-to-day compliance
activities. Tetra Tech has operated treatment plants, soil and groundwater
remediation systems, air monitoring stations, hazardous waste
transfer/collection stations, landfills, and industrial systems. The Company's
approach to O&M services focuses on improving operating efficiencies and
maintaining continued effectiveness of operating units. O&M services offered by
the Company range from overall facility operating management to obtaining a
facility's operating permits and licenses and providing the necessary
documentation through automated data management systems. In addition, Tetra
Tech has the capability to manage its clients' complete waste management
requirements; to mitigate environmental impact from past management practices;
and also to ensure that operations meet the stringent operating, reporting and
administrative demands placed on today's facility managers.
- LARGE AIR FORCE BASE FACILITIES. The Company is prime contractor
for O&M services at a large Air Force Base in California. The
Company provides O&M services for a wastewater treatment plant and a
hazardous waste collection plant, as well as air monitoring and
other services. The Company's contract represents the consolidation
of numerous individual contracts into one contract to provide cost
savings and improve efficiency, a model which is expected to be
adopted at additional military bases in the future.
- AEROSPACE CORPORATION LANDFILLS. The Company is providing O&M
services of wastewater treatment plants to treat leachate from
several landfills owned by a private corporation.
- LARGE AIR FORCE BASE SITE. The Company is providing O&M services of
the facilities' soil biofarm/bioventing systems.
TELECOMMUNICATIONS SERVICES BUSINESS AREA
In today's highly mobile society, the ability to communicate rapidly has
become critical to commerce as well as to individual needs. Technical advances
have improved the ability to communicate voice, video, and data through wireless
telecommunications. Wireless communications continues to evolve from a
convenience to a modern necessity, and is one of the world's fastest growing
economic sectors. Tetra Tech provides services to locate and construct the
infrastructure necessary to build and manage communications infrastructure projects.
Our capabilities support this rapidly growing industry. The Company
also provides programa wide range of technologies including broadband and
wireless communications. Our communications clients seek management services including the application of advanced
siting tools and engineering project management techniques to expedite the
time-critical process of bringing new communication sites online and to upgrade
existing networks with the most advanced technology.
Tetra Tech currently serves the wireless telecommunications and cable
television industry segments, and is expanding its services to the broader
telecommunications industry, including wireless, cable, fiber, satellite, and
land line local and long distance telephone companies. The Company has
developed over 15,000 sites and 20 switching areas in five continents, 42
states, and across Canada. The Company applies state-of-the-art geographic
mapping technologies to rapidly identify optimal locations for wireless
antenna sites, and provide complete design and implementation services for
tower construction. The Company's program management experience enables it to
bring high quality networks online quickly and cost-effectively, providing a
competitive advantage to its customers. The Company's services includeconsulting,
applied science, and management consulting, engineering and architectural design, and construction
management services. Our service offerings in the communications business area
are focused on the following project areas:
NETWORK FEASIBILITY PROJECTS: We apply our technical services to all
aspects of assessing the feasibility of network systems development,
expansion and upgrades for our clients. Our experience includes
feasibility and remote site selection studies, cost-benefit modeling and
market assessments. We also assist network service providers with
technical requirements definition, sensitivity/risk analysis and key
economic projections.
NETWORK PLANNING PROJECTS: We specialize in network planning, including
short- and long-term network configuration and development planning. We
develop outside plant designs, civil engineering and regulatory compliance
assessment and support efforts. In addition, our projects have included
employment analysis, staffing, logistics, planning, and materials
provisioning and management.
ProjectNETWORK ENGINEERING PROJECTS: We provide a full range of onsite and
offsite premises engineering and support services for projects ranging
from developing computer aided design workprints to field surveys. Our
experience includes:
- SITE DEVELOPMENT OF 415 CELLULAR MOBILE RADIO BASE STATIONS. The
Company providedincludes digital evaluation and terrain modeling, right-of-way
permitting and site acquisition obtained entitlements,
supervisedfor wireless and broadband networks. In
addition, we have performed outside and inside plant design projects for
twisted pair, coaxial fiber optic and copper cable networks, and wireless
networks.
NETWORK DEVELOPMENT PROJECTS: We have performed both inside and outside
plant projects for major network service providers in both the broadband
and wireless sectors. Our construction projects include urban and long
haul underground cable installation. We have also applied our capabilities
to wireless cell site construction and installationaerial cable placement.
7
The following table presents brief examples of equipment, and
11
provided program management services for a Canadian corporation.
- SITE DEVELOPMENT FOR CELLULAR TELEPHONE SYSTEM IN INDONESIA. The
Company provided site development consulting services for
approximately 174 radio base stations atspecific projects in our
three locations in
Indonesia. The Company developed and implemented a written site
acquisition process and tracking database. The Company performed
civil engineering surveys of all candidate sites to determine site
suitability, and provided construction management support. The
Company also managed the construction of a 30,000 square feet master
switching center and operations office, including the erection of a
90 meter tower, installation of all mechanical components and
electronics, and installation of switching equipment.
- CELLULAR BUILDOUT PROGRAM MANAGER. The Company performed as the
primary program manager, site acquisition and construction firm for
McCaw Cellular's initial U.S. cellular buildouts. The Company was
also program manager for systemwide electronic radio base station
equipment change-outs in central Florida, south Florida and western
Washington for McCaw Cellular.
- WORLD'S FIRST ESMR SYSTEM. The Company acquired and built the
world's first ESMR system for Motorola and Nextel Communications.
The Company program managed, acquired and built Nextel's initial
1,800 site build out.
- NATION'S FIRST PCS SYSTEM. The Company was the primary site
acquisition firm for the nation's first PCS system in
Washington-Baltimore for American Personalbusiness areas:
BUSINESS AREA REPRESENTATIVE PROJECTS
- --------------------------- --------------------------------------------------------
Resource Management - Currently conducting a remedial design/remedial action
for contaminated groundwater at a Superfund site in
Hendersonville, North Carolina for a private
corporation.
- Currently providing program management and technical
support for the Comprehensive Long-term Environmental
Action Navy (CLEAN) program under several ten-year
contracts. Activities include installation,
restoration, base realignment and closure, and
underground storage tank programs.
- Currently serving as prime contractor for
environmental operations and maintenance services at
Vandenberg Air Force Base in California. Also
providing operations and maintenance services for a
wastewater treatment plant and a hazardous waste
collection plant, and air monitoring and other
services.
Infrastructure - Completed the development and analysis of alternative
flood control measures for the Los Angeles River.
- Currently providing design and program management for
Taiwan's National Museum of Marine Biology/Aquarium.
Responsible for civil, structural and mechanical
engineering and for aquatic life support systems.
Designed water, wastewater and parking facilities.
- Selected by Texas Parks and Wildlife Department as the
prime contractor to plan and develop a new,
state-of-the-art, marine fish hatchery and visitor
center at Lake Jackson, Texas. Provided design and
construction administration, and engineering and
bioengineering for all life support systems.
Communications - Provided site acquisition, obtained entitlements,
supervised construction and installation of equipment,
and provided program management services for a
Canadian corporation.
- Supported the initiative to enhance Emergency 911
services and to improve the dispatch of emergency
services to Henrico County near Richmond, Virginia.
Assisted in the buildout of the Emergency 911
communications network through installation of
antennas, coaxial cables, microwave dishes and
elliptical waveguides.
- Currently redesigning and reconstructing 25% of Tele-
Communications Inc.'s U.S. cable TV networks under a
turnkey contract.
CLIENTS
The Company hasWe have developed a diverse client base of over 500 current700 clients including Federal, stateboth in the
public and local governmentprivate sectors. During fiscal 1998, the DOD, EPA and DOE accounted
for 26.2%, 17.1% and 3.5%, respectively, of our net revenue. Although agencies utilities,
private companies, professional firms (such as law, consulting and engineering
firms) and real estate development firms. As a result
of the diversity of the
Company's services, it mayFederal government are among our most significant clients, we often
support multiple programs within a specificsingle Federal agency. Tetra Tech'sOur private sector
clients include companies in the chemical, mining, pharmaceutical, aerospace,
automotive, petroleum, telecommunicationscommunications and utility companies.industries. No private sector
client accounted for more than 10% of our net revenue in fiscal 1998.
8
The following table presents a list of representative clients in our
three primary business areas:
REPRESENTATIVE CLIENTS
- --------------------- -------------------------------------------------------------------------------------------
BUSINESS AREA FEDERAL GOVERNMENT STATE, COUNTY AND LOCAL PRIVATE
- --------------------- ----------------------------- ----------------------------- -----------------------------
RESOURCE MANAGEMENT U.S. Environmental Protection California Department of Lockheed Martin Corporation;
Agency; U.S. Air Force; U.S. Health Services; Washington Merck & Co.; General Electric
Navy; U.S. Army; U.S. Coast Department of Ecology; Prince Company; Westwood Squibb
Guard; U.S. Forest Service Georges County, Maryland; Pharmaceuticals, Inc.
Clarmont County, Ohio; City
of San Jose, California
INFRASTRUCTURE U.S. Army Corps of Engineers; City of Tucson, Arizona; City Universal Studios, Inc.;
U.S. Bureau of Reclamation; of Breckenridge, Colorado; Boeing Corporation; E.I.
U.S. Air Force; Federal Washington Department of DuPont de Nemours and
Emergency Management Agency Transportation; City of Company; Ford Motor Company
Detroit, Michigan; City of
Portland, Oregon; Texas Parks
and Wildlife Department; King
County, Washington; Delaware
Department of Transportation;
Delaware Department of
Corrections
COMMUNICATIONS Henrico County, Virginia AT&T Wireless Services;
Nextel Communications, Inc.;
AirTouch Communications,
Inc.; Motorola, Inc.; Sprint
Communications Company; TCI
CONTRACTS
The Company entersWe enter into various types of contracts with itsour clients, which
includeincluding
fixed-price, fixed-rate time and materials, cost-reimbursement plus fixed fee
and cost-reimbursement plus fixed and award fee contracts. In fiscal 1997, 32.2%1998,
26.1%, 25.4%33.5% and 42.4%40.4% of the Company'sour net revenue was derived from fixed-price,
fixed-rate time and materials, and cost-reimbursement plus fixed fee and award
fee contracts, respectively. Under a fixed-price contract, the customerclient agrees to
pay a specified price for the Company'sour performance of the entire contract. Fixed-price
contracts carry certain inherent risks, including risks of losses from
underestimating costs, delays in project completion, problems with new
technologies and economic and other changes that may occur over the contract
period. Consequently, the profitability of fixed-price contracts may vary
substantially. The amount of the fee received for a cost-reimbursement plus fixed and award
fee contract partially depends upon the government's discretionary periodic
assessment of the Company'sour performance on that contract. The Company's fee
fromOur various clients determine
which type of contract we enter into for a cost-reimbursement plus fixed and award fee contract may vary based upon
the Company's performance.
Agencies of the Federal government are among the Company's most significant
clients. During fiscal 1997, the EPA, DOD and DOE accounted for 16.9%, 27.5%
and 4.3%, respectively, of the Company's net revenue.particular engagement.
Some contracts made with the Federal government are subject to annual
approval of funding. Limitations
imposed on spending by Federal government agencies may impose spending
restrictions that limit the continued funding of the Company'sour existing contracts with the
Federal government and may limit the Company'sour ability to obtain additional contracts.
These limitations, if significant, could have a material adverse effect on the Company.us.
To date, spending limitations have not had a significant effect on the Company.us. All
contracts made with the Federal government may be terminated by the government
at any time, with or without cause.
Federal government agencies have formal policies against continuing or
awarding contracts that would create actual or potential conflicts of interest
with other activities of a contractor. These policies among other things, may prevent the Companyus in certain
cases from bidding for or performing contracts resulting from or relating to
certain work the Company haswe have performed for the government. In addition,
12
services
performed for a private client may create conflicts of interest whichthat preclude or
limit the Company'sour ability to obtain work for another private entity. The Company attemptsorganization. We attempt to
identify actual or potential conflicts of interest and to minimize the
9
possibility that such conflicts would affect itsour work under current contracts or
itsour ability to compete for future contracts. The Company has,We have, on occasion, declined to
bid on a project because of an existing potential conflict of interest. However,
the Company haswe have not experienced disqualification during a bidding or award negotiation
process by any government or private client as a result of a conflict of
interest.
None of
the Company's government contracts are subject to renegotiation of profits
without a change in the contractual scope of work.
All of the Company'sOur contracts with the Federal government are subject to audit by the
government, primarily by the Defense Contract Audit Agency (the
"DCAA")(DCAA). The DCAA
generally seeks to (i)(1) identify and evaluate all activities which either
contribute to, or have an impact on, proposed or incurred costs of government
contracts; (ii)(2) evaluate the contractor's policies, procedure,procedures, controls and
performance; and (iii)(3) prevent or avoid wasteful, careless and inefficient
production or service. To accomplish the foregoing,this, the DCAA (i)
examines the Company'sour internal
control systems, management policies and financial capability, (ii) evaluates the
accuracy, reliability and reasonableness of the Company'sour cost representations and
records, and (iii)
assesses compliance by the Company under its contractsus with Cost Accounting Standards and
defective-pricing clauses found within the Federal Acquisition Regulations. The
DCAA also performs the annual review of the Company'sour overhead rates and assists in the
establishment of the Company'sour final rates. This review focuses on the allowability of
cost items as well asand the allocabilityallowability and applicability of Cost Accounting Standards.
The DCAA also audits cost-based contracts, including the close-out of those
contracts.
The DCAA also reviews all types of proposals, including those of award,
administration, modification orand repricing. Factors considered are the Company'sour cost
accounting system, estimating methods and procedures, and specific proposal
requirements. Operational audits are also performed by the DCAA. A review of the Company'sour
operations at anyevery major organizationorganizational level that havehas a significant effect on
the performance of future government contracts is also conducted during the
proposal review period.
During the course of its audit, the DCAA may disallow costs if it
determines that the Companywe improperly accounted for such costs in a manner inconsistent
with Cost Accounting Standards. Under a government contract, only those costs
that are reasonable, allocable and allowable are recoverable. A disallowance of
costs by the DCAA could have a material adverse effect on us.
In September 1995, we acquired PRC Environmental Management, Inc. (EMI).
The Defense Contract Audit Agency (DCAA) recently completed an audit of EMI for
the Company.fiscal years 1987 through 1995. As a result of the completed audit and our
negotiations with the DCAA, the DCAA disallowed approximately $2.9 million in
costs. Because we were aware of these issues prior to completing the
acquisition, we established a sufficient reserve and, consequently, the
disallowance did not have a material adverse effect on our business.
Due to the severity of the legal remedies available to the government,
including the required payment of damages and/or penalties, criminal and civil
sanctions, and debarment, the Company maintainswe maintain controls to avoid the occurrence of fraud
and other unlawful activity. In addition, the Company maintainswe maintain preventative audit
programs to ensure appropriate control systems and mitigate control weaknesses.
The Company provides itsWe provide our services pursuant tounder contracts, purchase orders or retainer
letters. CompanyOur policy provides that, where possible, all contracts will be in
writing. The Company billsWe bill all of itsour clients periodically based on costs incurred, on
either an hourly-fee basis or on a percentage of completion basis, as the
project progresses. Generally, Tetra
Tech'sour contracts do not require that itwe provide
performance bonds. A performance bond, issued by a surety company, guarantees
the contractor's performance under the contract. If the contractor defaults
under the contract, the surety will, in its discretion, step in to finish the
job or pay the client the amount of the bond. If the contractor does not have a
performance bond and defaults in the performance of a contract, the contractor
is responsible for all damages resulting from the breach of contract. These
damages include the cost of completion, together with possible consequential
damages such as lost profits. To date, the Company
haswe have not incurred material damages
beyond the coverage of any performance bond.
10
Most of the Company'sour agreements permit termination by the clientclients upon payment of
fees and expenses through the date of the termination.
MARKETING
The Company's marketing activities are managed by theWe utilize both a centralized corporate marketing department which establishes the Company'sand local
marketing groups within each of our operating units. Our corporate marketing
department assists management in establishing our business plan, our target
markets and developsan overall marketing strategies.strategy. The corporate marketing department
also identifies and tracks the development of large Federal programs, positions
the Companyus for new business areas, selects appropriate partners, if any, for new
projects and assists in the bid process for new projects. We market throughout
the organizations we target, focusing primarily on senior representatives in
government organizations and senior management in private companies. In
addition, the corporate marketing department supports marketing activities
firm-wide by coordinating corporate promotional and 13
professional activities,
including appearances at trade shows, direct mailings, telemarketing and public
and media relations.
LocalWe also perform marketing activities for the Company are implemented through its over
90our local offices. A local presence enables the Company's professionals to gainWe
believe that these offices have a greater knowledgeunderstanding of local environmental
issues, and a better understanding of
local laws and regulations. Localregulations and, therefore, can better target their marketing
activities. These marketing activities are coordinated by full time marketing
staff located in certain local offices andof our offices. These activities include meetings with
potential clients and localstate, county and municipal regulators, presentations to
civic and professional organizations and seminars on current regulatory topics.
COMPETITION
The market for the Company'sour services is highly competitive. The Company
competesWe compete with many
other firms, ranging from small local firms to large national firms havingthat may
have greater financial and marketing resources than the Company. The
Company performsresources. We perform a broad spectrum of
engineering and consulting services across a broad spectrum of
business areas including facilities management,the resource management,
nuclear
management, waste management,infrastructure and ground and surface water management. These
servicescommunications business areas. Services within these business
areas are provided to a customerclient base includingwhich includes Federal (Departmentsagencies, such as the
DOD, the DOE, the Department of Defense,the Interior, and Energy; U.S. Environmental Protection Agency;the EPA and the U.S. Post Office),Postal
Service, state and local agencies, as well asand the commercialprivate sector. The
Company'sOur competition
varies and is a function of the business areas in which, and client sectors for
which, the Company performs itswe perform our services. The range of
competitors for any one procurement can vary from ten to 100 firms, depending
upon the relative value of the project, the financial terms and risks associated
with the work, and any restrictions placed upon competition by the client.
Historically, competition has been based primarily on the quality and timeliness
of service. However, the Company believes that price has become an increasingly
important competitive factor. The Company believes that its principal
competitors include Dames & Moore, Inc., E A Engineering Science & Technology,
Inc., EMCON, Ecology & Environment, Inc., Harding Associates, Inc., ICF Kaiser
International, Inc., International Technology Corp., TRC Companies, Inc., URS
Consultants, Inc. and Roy F. Weston, Inc.
BACKLOG
At September 28, 1997, Tetra Tech's gross revenue backlog was approximately
$217.5 million, compared to $206.3 million at September 29, 1996. The Company
includes in gross revenue backlog only those contracts for which funding has
been provided and work authorizations have been received. The Company estimates
that approximately $192.2 million of the gross revenue backlog at September 28,
1997 will be recognized during fiscal 1998. No assurance can be given that all
amounts included in backlog ultimately will be realized, even if evidenced by
written contracts. See "Contracts."
ENVIRONMENTAL LEGISLATION
The demand for the Company's environmental services is a result of public
concern over environmental issues and the ensuing legislative response. As a
result, the Company's clients have become subject to an increasing number of
frequently overlapping Federal, state and local laws concerned with the
protection of the environment, as well as regulations promulgated by
administrative agencies pursuant to such laws.
The Company has provided services to clients with respect to the following
Federal statutes and regulations:
THE CLEAN WATER ACT. Under the CWA, as amended, a system of permits and
enforcement procedures for the discharge of pollutants into waters of the United
States from industrial, municipal and other wastewater sources was established.
The EPA sets discharge standards for certain wastewater discharges and provides
grants to assist municipalities in complying with treatment requirements.
In addition, Section 303(d) of the CWA requires all states and
authorized Indian tribes to list waters for which these technology-based
treatment requirements alone do not assure attainment of water quality
standards. States and tribes are then required to develop TMDLs for these
water; these TMDLs recommend the additional controls (often for nonpoint
source discharges) that will be needed to meet water quality standards.
The states and tribes must submit these lists of impaired waters and
associated TMDLs to the EPA for approval and,
14
in cases where they are disapproved by the EPA, the CWA requires the EPA to
establish the list and/or TMDL for the state or tribe.
The CWA requires pretreatment of industrial wastewater before discharge
into municipal systems and gives the EPA the authority to set pretreatment
limits under certain circumstances. These efforts by the EPA will prompt
facility upgrading and better control of industrial discharges. The surface
water toxics regulations require states to identify waters adversely affected by
toxics and propose control strategies. Promulgated regulations require permits
for stormwater discharges for industrial activities and large (populations
greater than 100,000) municipal stormwater systems.
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976. RCRA, as amended by
the Hazardous and Solid Waste Amendments of 1984 ("HSWA"), provides a
comprehensive scheme for the regulation of hazardous waste from the time of
generation to its ultimate disposal (and sometimes thereafter), as well as the
regulation of persons engaged in generation, handling, transportation,
treatment, storage and disposal of hazardous waste. The RCRA scheme includes
both a permitting and a manifest tracking system. With few exceptions, every
facility that treats, stores or disposes of hazardous waste must obtain a RCRA
permit from the EPA, or a state agency which has been authorized by the EPA to
administer the RCRA program, and must comply with certain operating, financial
responsibility and disclosure requirements. Although most states have obtained
authority to administer this program within their respective states, the
applicable state statutes must be at least as stringent as the Federal standards
and the Federal government retains enforcement authority. Regulations have been
issued pursuant to RCRA in the following areas, among others: permitting
assistance, remediation of environmental complications associated with
underground storage tanks, municipal solid waste disposal and land disposal of
hazardous waste. HSWA also imposes land disposal restrictions on certain listed
hazardous wastes which do not meet specified treatment standards, prescribes
more stringent standards for hazardous waste disposal sites, sets standards for
underground storage tanks and provides for corrective action at or near sites of
waste management units.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF
1980. This legislation, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), established the Superfund program to
identify and clean up inactive hazardous waste sites and provides for penalties
and punitive damages for noncompliance with EPA orders. Superfund also covers
the emergency cleanup of spills. Superfund may impose strict joint and several
liability on certain hazardous substance generators, transporters and disposal
facility owners and operators for the costs of removal or remedial action, other
necessary response costs and damages for injury, destruction or loss of natural
resources, and the cost of any health effects study. Federal funds may be used
to pay for the cleanup. SARA provided a separate fund, supported by a tax on
gasoline, for the cleanup of leaks from underground storage tanks. In addition,
under SARA, the EPA has the mandate to emphasize permanent remedies and
treatment at Superfund sites, developing a technology oriented market.
THE NATIONAL ENVIRONMENTAL POLICY ACT. NEPA is the basic national charter
for protection of the environment. The purpose of NEPA is to guide public
officials in making decisions that are based on an understanding of the
environmental consequences of those decisions.
NEPA requires that an environmental impact statement ("EIS") be prepared
for "major federal actions significantly affecting the quality of the human
environment." A "major federal action" includes actions with effects that may
be major and which are potentially subject to Federal control and
responsibility. The term includes legislation proposed by an agency; adoption
of agency rules, regulation and policies; adoption of formal plans; and approval
of specific Federal projects. In addition, Federal permits, licenses, loans,
grants, leases and other Federal actions that are necessary for private
developments may require preparation of an EIS, although actual Federal
involvement in the activity may be minimal.
NEPA requires the EIS to contain a detailed statement on: the
environmental impact of the proposed action; any adverse environmental effects
which cannot be avoided should the proposal be implemented; alternatives to the
proposed action; the relationship between local short-term uses of the
environment and the maintenance and enhancement of long-term productivity; and
any irreversible and irretrievable commitments of resources which would be
involved in the proposed action should it be implemented.
15
In addition to NEPA, several states have adopted legislation requiring
environmental impact analysis to be prepared for actions at the state level.
THE SAFE DRINKING WATER ACT. Under the SDWA and its subsequent
reauthorizations, the EPA is empowered to set drinking water standards for water
supply systems in the United States. The SDWA requires that the EPA set maximum
groundwater contamination levels for 83 previously unregulated toxic substances
and also requires the EPA to establish a priority list every three years of
contaminants that may cause adverse health effects and may require regulation.
The first priority list was published in January 1988. Water supply systems are
required to begin monitoring within defined time limits following the
publication of the final regulations. The SDWA also requires that the EPA set
criteria specifying when utilities using surface water supplies should filter
their water and issue national primary drinking water regulations requiring all
utilities to disinfect their water. By June 1993, all surface water supply
systems must provide filtration and disinfection. The EPA regulations under the
SDWA are expected to result in significant expenditures by water supply systems
for evaluation and, ultimately, for upgrading of many facilities.
OTHER REGULATIONS. The Company's services are also utilized by its clients
in complying with the following Federal laws: the Oil Pollution Act of 1990,
the Toxic Substances Control Act, the Clean Air Act, the Emergency Planning and
Community Right-to-Know Act of 1986, and the Marine Protection, Research and
Sanctuaries Act of 1972.
Many states have passed legislation and established policies to cover more
detailed aspects of hazardous waste management. The State of California, for
example, has consistently been a leader in passing and implementing waste
management legislation. These laws, and similar laws in other states, address
such topics as air pollution control, underground storage tanks, water quality,
solid waste, hazardous materials, surface impoundments, site cleanup and waste
discharge. Several states have modeled their environmental laws and regulations
on those of California. The Company believes that its experience in California
makes it prepared to respond to the regulatory environment in such states.
Because much of the Company's resource management business is generated
either directly or indirectly as a result of Federal and state governmental
programs and regulations, changes in governmental policies affecting such
programs, or regulations or administrative actions affecting the funding or
sponsorship of such programs, could have a material adverse effect on the
Company's business. However, the Company believes that it will benefit from
current regulatory initiatives emphasizing risk management, cost/benefit
analysis, pollution prevention and source control, and natural resources
conservation and disaster planning.
POTENTIAL LIABILITY AND INSURANCE
Because of the type of 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 the magnitude of potential
risk to the Company.
The Company maintains two comprehensive general liability policies, both
in the amount of $1,000,000. These amounts, together with two $9,000,000
umbrella policies, provide total general liability coverage of $10,000,000
for the Environmental business and Architecture & Engineering business
segments and coverage of $10,000,000 for the Telecommunications business
segment. The Company's professional liability insurance ("E&O") policy,
which included pollution coverage, for 1997 provided $10,000,000 in coverage
for Environmental and Architecture & Engineering, with $100,000 self-insured
retention. The same E&O policy covered the Telecommunications segment with a
sublimit of $1,000,000 each claim/$1,000,000 aggregate. For 1998, the Company
expects to maintain similar coverages as to 1997 for professional services
including pollution-related services rendered by the Company. The Company
procures insurance coverage through a broker who is experienced in
professional liability. The broker, together with the Company's Risk Manager,
reviews the Company's risk/insurance programs with those of the Company's
competitors and clients. This review, combined with historical experience,
claims history and contractual requirements, allows the Company to determine
the adequate amount of insurance. 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
16
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 fiscal 1997 were approximately $726,000 for E&O. The projected
amounts to be paid for fiscal 1998 will be approximately $722,000.
EMPLOYEES
At September 28, 1997, the Company had 2,262 employees, including 1,508
professionals. The Company's professional staff includes archaeologists,
biologists, cartographers, chemists, chemical engineers, civil engineers,
electrical engineers, environmental engineers, environmental scientists,
geologists, hydrogeologists, mechanical engineers, oceanographers,
toxicologists and project managers. The Company's ability to retain and
expand its staff of qualified professionals will be an important factor in
determining the Company's future growth and success. None of the Company's
employees is represented by a labor organization, and management considers
its relations with its employees to be good.
RISK FACTORS
STATEMENTS REGARDING THE COMPANY'S PERFORMANCE PROSPECTS COULD CONTAIN
FORWARD-LOOKING INFORMATION THAT INVOLVES RISK AND UNCERTAINTIES SUCH AS THE
LEVEL OF DEMAND FOR THE COMPANY'S SERVICES, FUNDING DELAYS FOR PROJECTS, LACK OF
REGULATORY CLARITY AFFECTING THE MARKETPLACE AND INDUSTRY-WIDE COMPETITIVE
FACTORS. THE FOLLOWING RISK FACTORS SHOULD BE REVIEWED IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K.
POTENTIAL LIABILITY AND INSURANCE. Because of the type of 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
the magnitude of potential risk to the Company.
The Company maintains two comprehensive general liability policies, both
in the amount of $1,000,000. These amounts, together with two $9,000,000
umbrella policies, provide total general liability coverage of $10,000,000
for the Environmental business and Architecture & Engineering business
segments and coverage of $10,000,000 for the Telecommunications business
segment. The Company's professional liability insurance ("E&O") policy,
which included pollution coverage, for 1997 provided $10,000,000 in coverage
for Environmental and Architecture & Engineering, with $100,000 self-insured
retention. The same E&O policy covered the Telecommunications segment with a
sublimit of $1,000,000 each claim/$1,000,000 aggregate. For 1998, the Company
expects to maintain similar coverages as to 1997 for professional services
including pollution-related services rendered by the Company. The Company
procures insurance coverage through a broker who is experienced in the
engineering field. The broker, together with the Company's Risk Manager,
reviews the Company's risk/insurance programs with those of the Company's
competitors and clients. This review, combined with historical experience,
claims history and contractual requirements, allows the Company to determine
the adequate amount of insurance. 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 fiscal 1997 were approximately $726,000 for E&O. The
projected amounts to be paid for fiscal 1998 will be approximately $722,000.
The Company evaluates and determines the risk associated with an uninsured
claim. In the event the Company determines that an uninsured claim has
potential liability, the Company establishes an appropriate reserve. The
Company does not establish a reserve if it determines that the claim has no
merit. The Company's historical levels of insurance coverage and reserves have
been shown to be adequate. However, a partially or completely
17
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. The Company performs engineering and consulting
services across a broad spectrum of business areas, primarily in the resource
management, infrastructure, and the telecommunication service business areas.
Services within these business areas are provided to a client base including
Federal (Departments of Defense, Interior and Energy; U.S Environmental
Protection Agency; and the U.S. Post Office), state and local agencies, as well
as the commercial sector. The range of competitors for any one procurement
can vary from 10 to 100 firms, depending upon the relative value of the project,
the financial terms and risks associated with the work, and any restrictions
placed upon competition by the customer.client. Historically, competition has beenclients have chosen among
competing firms based primarily on the quality and timeliness of the firm's
service. However, the Company
believeswe believe that price has become an increasingly important
competitive factor. The Company believesWe believe that itsif this trend continues it could have a
material adverse effect on our operating margins and profitability.
We believe that our principal competitors include, in alphabetical order,
Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser &
McKee; CH2M Hill Companies Ltd., Dames & Moore Inc.,
E AGroup; EA Engineering, Science &
Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc., International
Technology Corp., TRC Companies,; IT Group
Inc., URS; Mastec, Inc.; Montgomery Watson; OSP Consultants, Inc.,; Roy F. Weston,
Inc., Castle Tower Corporation; and OSP Consultants, Inc.
CONTRACTS. The Company'sURS Greiner Corporation.
BACKLOG
At October 4, 1998, our gross revenue backlog was approximately $405.0
million, compared to $217.5 million at September 28, 1997. We include in gross
revenue backlog only those contracts for which funding has been provided and
work authorizations have been received. We estimate that approximately $329.6
million of the gross revenue backlog at October 4, 1998 will be recognized
during fiscal 1999. No assurance can be given that all amounts included in
backlog will ultimately be realized, even if evidenced by written contracts. For
example, certain of our contracts with the Federal
11
government and other clients are terminable at will. If any of these clients
terminate their contracts prior to completion, we would not recognize revenue.
ENVIRONMENTAL LEGISLATION
Our clients have become subject to an increasing number of frequently
overlapping Federal, state and local laws concerned with the protection of the
environment, as well as regulations promulgated by administrative agencies
pursuant to these laws. We provide services with respect to Federal
environmental laws, and regulations including: the Clean Water Act; the Resource
Conservation and Recovery Act; CERCLA; the National Environmental Policy Act;
the Safe Drinking Water Act; and other laws.
POTENTIAL LIABILITY AND INSURANCE
Our business activities could expose us to potential liability under
various environmental laws such as CERCLA. In addition, we occasionally
contractually assume liability under indemnification agreements. We cannot
predict the magnitude of such potential liabilities.
We currently maintain comprehensive general liability, umbrella and
professional liability insurance policies. These policies are "claims made"
policies. This means that only claims made during the term of the policy are
covered. If we terminate our policies and do not obtain retroactive coverage, we
would be uninsured for claims made after termination even if based on events or
acts that occurred during the term of the policy.
We obtain insurance coverage through a broker who is experienced in the
engineering field. The broker, together with our Risk Manager, periodically
review the adequacy of our insurance programs. However, because there are
various exclusions and retentions under our insurance policies, there can be no
assurance that all potential liabilities will be covered by our insurance.
Further, in the event we expand our services into new markets, we may not be
able to obtain insurance coverage for such activities or, if insurance is
obtained, the dollar amount of any liabilities incurred could exceed our
insurance coverage.
We evaluate the risk associated with uninsured claims. If we determine
that an uninsured claim has potential liability, we establish an appropriate
reserve. A reserve is not established if we determine that the claim has no
merit. Our historic levels of insurance coverage and reserves have been
adequate. However, a partially or completely uninsured claim, if successful and
of significant magnitude, could have a material adverse effect on our business.
EMPLOYEES
At October 4, 1998, we had 3,662 total employees or 3,077 full-time
equivalent employees. Of the 3,662 total employees, 2,144 are professionals. Our
professional staff includes archaeologists, biologists, chemical engineers,
chemists, civil engineers, computer scientists, economists, electrical
engineers, environmental engineers, environmental scientists, geologists,
hydrogeologists, mechanical engineers, oceanographers, toxicologists and project
managers. Our ability to retain and expand our staff of qualified professionals
will be an important factor in determining our future growth and success. Three
employees of one of our subsidiaries will be represented by a labor
organization. Management considers its relations with our employees to be good.
In addition, we supplement our consultants on certain engagements with
independent contractors. We believe that the practice of retaining independent
contractors on a per engagement basis provides us with significant flexibility
in adjusting professional personnel levels in response to changes in demand for
our services.
12
RISK FACTORS
SOME OF THE INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
YOU CAN IDENTIFY THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY,"
"WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE" AND "CONTINUE" OR
SIMILAR WORDS. YOU SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY
BECAUSE THEY: (1) DISCUSS OUR FUTURE EXPECTATIONS; (2) CONTAIN PROJECTIONS OF
OUR FUTURE OPERATING RESULTS OR OF OUR FUTURE FINANCIAL CONDITION; OR (3)
STATE OTHER "FORWARD-LOOKING" INFORMATION. WE BELIEVE IT IS IMPORTANT TO
COMMUNICATE OUR EXPECTATIONS TO OUR INVESTORS. THERE MAY BE EVENTS IN THE
FUTURE, HOWEVER, THAT WE ARE NOT ACCURATELY ABLE TO PREDICT OR OVER WHICH WE
HAVE NO CONTROL. THE RISK FACTORS LISTED IN THIS SECTION, AS WELL AS ANY
CAUTIONARY LANGUAGE IN THIS ANNUAL REPORT ON FORM 10-K, PROVIDE EXAMPLES OF
RISKS, UNCERTAINTIES AND EVENTS THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE EXPECTATIONS WE DESCRIBE IN OUR FORWARD-LOOKING
STATEMENTS. YOU SHOULD BE AWARE THAT THE OCCURRENCE OF ANY OF THE EVENTS
DESCRIBED IN THESE RISK FACTORS AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM
10-K COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
CONDITION AND OPERATING RESULTS AND THAT UPON THE OCCURRENCE OF ANY OF THESE
EVENTS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE.
RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY
A significant part of our growth strategy is to acquire other companies
that complement our lines of business or that broaden our geographic presence.
During fiscal 1998, we purchased ten companies in five separate transactions. We
expect to continue to acquire companies as an element of our growth strategy.
Acquisitions involve certain risks that could cause our actual growth or
operating results to differ from our expectations or the expectations of
security analysts. For example:
- We may not be able to identify suitable acquisition candidates or to
acquire additional companies on favorable terms;
- We compete with others to acquire companies. We believe that this
competition will increase and may result in decreased availability or
increased price for suitable acquisition candidates;
- We may not be able to obtain the necessary financing, on favorable terms
or at all, to finance any of our potential acquisitions;
- We may ultimately fail to consummate an acquisition even if we announce
that we plan to acquire a company;
- We may fail to successfully integrate or manage these acquired companies
due to differences in business backgrounds or corporate cultures;
- These acquired companies may not perform as we expect;
- We may find it difficult to provide a consistent quality of service
across our geographically diverse operations; and
- If we fail to successfully integrate any acquired company, our
reputation could be damaged. This could make it more difficult to market
our services or to acquire additional companies in the future.
In addition, our acquisition strategy may divert management's attention away
from our primary service offerings, result in the loss of key clients or
personnel and expose us to unanticipated liabilities.
13
Finally, acquired companies that derive a significant portion of their
revenues from the Federal government and that do not follow the same cost
accounting policies and billing procedures as we do may be subject to larger
cost disallowances for greater periods than we are. If we fail to determine the
existence of unallowable costs and establish appropriate reserves in advance of
an acquisition we may be exposed to material unanticipated liabilities, which
could have a material adverse effect on our business.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
Our quarterly revenues, expenses and operating results may fluctuate
significantly because of a number of factors, including:
- The seasonality of the spending cycle of our public sector clients,
notably the Federal government;
- Employee hiring and utilization rates;
- The number and significance of client engagements commenced and
completed during a quarter;
- Delays incurred in connection with an engagement;
- The ability of our clients to terminate engagements without penalties;
- The size and scope of engagements;
- The timing and size of the return on investment capital; and
- General economic and political conditions.
Variations in any of these factors could cause significant fluctuations in our
operating results from quarter to quarter and could result in net losses.
POTENTIAL VOLATILITY OF OUR STOCK PRICE
The trading price of our common stock has fluctuated widely. In addition,
in recent years the stock market has experienced extreme price and volume
fluctuations. The overall market and the price of our common stock may continue
to fluctuate greatly. The trading price of our common stock may be significantly
affected by various factors, including:
- Quarter to quarter variations in our operating results;
- Changes in environmental legislation;
- Changes in investors' and analysts' perception of the business risks and
conditions of our business;
- Broader market fluctuations; and
- General economic or political conditions.
MANAGEMENT OF GROWTH
We are growing rapidly. Our growth presents numerous managerial,
administrative, operational and other challenges. Our ability to manage the
growth of our operations will require us to continue to improve our operational,
financial and human resource management information systems and our other
internal systems and controls. In addition, our growth will increase our need to
attract, develop, motivate and retain both our management and professional
employees. The inability of our
14
management to manage our growth effectively or the inability of our employees to
achieve anticipated performance or utilization levels, could have a material
adverse effect on our business.
RELIANCE ON KEY PERSONNEL AND QUALIFIED PROFESSIONALS
We depend upon the efforts and skills of our executive officers, senior
managers and consultants. With limited exceptions, we do not have employment
agreements with any of these individuals. The loss of the services of any of
these key personnel could adversely affect our business. Although we have
obtained non-compete agreements from the principal stockholders of each of the
companies we have acquired, we generally do not have non-compete or employment
agreements with key employees who were not equity holders of these companies. We
do not maintain key-man life insurance policies on any of our executive officers
or senior managers.
Our future growth and success depends on our ability to attract and
retain qualified scientists and engineers. The market for these professionals is
competitive and we may not be able to attract and retain such professionals.
DEPENDENCE UPON EXISTING LAWS AND REGULATIONS
A significant amount of our resource management business is generated
either directly or indirectly as a result of existing Federal and state
governmentsgovernmental laws, regulations and someprograms. Any changes in these laws or
regulations that reduce funding or affect the sponsorship of its other client contacts are subject to termination
atthese programs
could reduce the discretiondemand for our services and could have a material adverse
effect on our business.
CONCENTRATION OF REVENUES
Agencies of the client. Some contracts made with the Federal government are subject toamong our most significant
clients. During fiscal 1998, approximately 46.8% of our net revenue was derived
from three federal agencies as follows: 26.2% of our net revenue was derived
from the Department of Defense (DOD), 17.1% from the Environmental Protection
Agency (EPA), and 3.5% from the Department of Energy (DOE). Some of our
contracts with Federal government agencies require annual funding approval of funding and
audits of the
Company's rates. Limitations imposed onmay be terminated at their discretion. A reduction in spending by Federal
government agencies maycould limit the continued funding of the Company'sour existing contracts
with the Federal governmentthem and maycould limit the Company'sour ability to obtain additional contracts. These
limitations, if significant, could have a material adverse effect on our
business.
Additionally the Company. Allfailure of clients to pay significant amounts due us for
our services could adversely affect our business. For example, we recently
received notification from a federal government agency that we are entitled to
payments in excess of our billings. However, the Company'sagency involved must obtain
specific funding approval for amounts owed to us and there can be no assurance
this funding approval will be obtained.
RISKS ASSOCIATED WITH GOVERNMENTAL AUDITS
Our contracts with the Federal government and other governmental agencies
are subject to auditaudit. Most of these audits are conducted by the government, primarily by
the DCAA,Defense Contract
Audit Agency (DCAA), which reviews the Company'sour overhead rates, operating systems and
cost proposals. During the course of its audit, theThe DCAA may disallow costs if it determines that the Company improperlywe accounted
for suchthese costs incorrectly or in a manner inconsistent with Cost Accounting
Standards. Historically, the Company
has not had any material cost disallowancesA disallowance of costs by the DCAA, asor other governmental auditors,
could have a result of audit,
however, there can be no assurance that DCAA audits will not result in
material cost disallowances in the future.adverse effect on our business.
In September 1995, the Companywe acquired Tetra Tech EM Inc. (formerly known
as PRC Environmental Management, Inc., "EMI") (EMI).
EMI likewisealso contracts with the
Federal government agencies and such contracts are also
subject to the same auditing standards
as thosegovernmental audits. The DCAA has completed audits of the Company. Audits and negotiationsEMI's
contracts for the fiscal years 1987
15
through 1992 have recently been completed and cost disallowances as1995. As a result of audit
totaledthese audits and our negotiations with the DCAA,
the DCAA disallowed approximately $672,000. Negotiations for the 1993 audit are currently
underway. Audits for the years 1994 and 1995 have yet to be completed.
The Company enters$2.9 million in costs.
FIXED PRICE CONTRACTS
We enter into various contracts with itsour clients, which includeincluding fixed-price
contracts. In fiscal 1997, 32.2%1998, approximately 26.1% of the Company'sour net revenue was derived
from fixed-price contracts. Under a fixed-price contract, the customer
agrees to pay a specified price for the Company's performance of the entire
contract. Fixed-price contracts carry inherentprotect clients and expose us
to a number of risks. These risks including risksinclude underestimation of losses
from underestimating costs, problems
with new technologies, unforeseen costs or difficulties, delays beyond our
control and economic and other changes that may occur overduring the contract
period. LossesIf we incur losses under fixed-price contracts should they occur,it could have a material
adverse effect on our business.
DEPENDENCE ON SUBCONTRACTORS
Under some of our contracts, we depend on the Company.
The Company contracts with both domesticefforts and international customers.
Certain contracts with international customers are denominated in a currency
other thanskills of
subcontractors for the U.S. dollar. Contracts denominated in any currency other than
the U.S. dollar containperformance of certain inherent risks, including riskstasks. Our reliance on
foreign
currency translation and risks in expatriating fundssubcontractors varies from foreign countries.project to project. In fiscal 1997, 3.7%1998, subcontractor
costs comprised 22.3% of our gross revenue. The absence of qualified
subcontractors with whom we have a satisfactory relationship could adversely
affect the quality of our service and our ability to perform under some of our
contracts.
SIGNIFICANT COMPETITION
We provide specialized management consulting and technical services to a
broad range of public and private sector clients. The market for our services is
highly competitive and we compete with many other firms. These firms range from
small regional firms to large national firms which have greater financial and
marketing resources than we do.
We focus primarily on the resource management, infrastructure and
communications business areas. We provide services to our clients which include
Federal, state and local agencies, and organizations in the private sector.
We compete for projects and engagements with a number of competitors
which can vary from 10 to 100 firms. Historically, clients have chosen among
competing firms based on the quality and timeliness of the Company's net revenue was derivedfirm's service. We
believe, however, that price has become an increasingly important factor.
We believe that our principal competitors include, in alphabetical order,
Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser &
McKee; CH2M Hill Companies Ltd.; Dames & Moore Group; EA Engineering, Science &
Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc.; IT Group
Inc.; Mastec, Inc.; Montgomery Watson; OSP Consultants, Inc.; Roy F. Weston,
Inc.; and URS Greiner Corporation.
POTENTIAL LIABILITY AND INSURANCE
Our services involve significant risks of professional and other
liabilities which may substantially exceed the fees we derive from our services.
Our business activities could expose us to potential liability under various
environmental laws such as the international marketplace comparedComprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA). In addition, we sometimes
contractually assume liability under indemnification agreements. We cannot
predict the magnitude of such potential liabilities.
We currently maintain comprehensive general liability, umbrella and
professional liability insurance policies. We believe that our insurance
policies are adequate for our business operations. These policies are "claims
made" policies. Thus, only claims made during the term of the policy are
covered. If we terminate our policies and do not obtain retroactive coverage, we
would be uninsured for claims made after termination even if these claims are
based on events or acts that occurred during
16
the term of the policy. Our insurance may not protect us against liability
because our policies typically have various exclusions and retentions. In
addition, if we expand into new markets, we may not be able to 1.6%obtain insurance
coverage for fiscal 1996. Assuch activities or, if insurance is obtained, the Company's
net revenue derived from the international marketplace increases, so increases
risks associated in realizing the full contract valuedollar amount of
those contracts
denominated in foreign currencies. The Company is currently evaluating options
to hedge future potential losses from foreign currency transactions.any liabilities incurred could exceed our insurance coverage. A partially or
completely uninsured claim, if successful and of significant magnitude, could
have a material adverse affect on our business.
CONFLICTS OF INTEREST.INTEREST
Many of the Company'sour clients are concerned about potential or actual conflicts of
interest in retaining environmental consultants
and engineers. For example,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 the Company in certain casesus from bidding for or
performing contracts resulting from or relating to certain work the Company haswe have
performed for the government. In addition, services performed for a private
client may create a conflict of interest whichthat precludes or limits the
18
Company'sour ability to
obtain work from anotherother public or private entity. The Company has,organizations. We have, on occasion,
declined to bid on a projectprojects because of an actual orthese conflicts of interest issues.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
In fiscal 1998, approximately 3.2% of our net revenue was derived from
the international marketplace. Some contracts with our international clients are
denominated in foreign currencies. As such, these contracts contain inherent
risks including foreign currency exchange risk and the risk associated with
expatriating funds from foreign countries. If our international revenue
increases, our exposure to foreign currency fluctuations will also increase. We
have entered into forward exchange contracts to address foreign currency
fluctuations.
YEAR 2000
We are working to resolve the potential 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 priceimpact of the Company's
common stockyear 2000 on our
business operations and the ability of our computerized information systems to
accurately process information that may be significantly affected by factors suchdate-sensitive. Any of our programs
that recognize a date using "00" as quarter-to-quarter
variationsthe year 1900 rather than the year 2000
could result in errors or system failures.
We utilize a number of computer programs across our entire operation. The
primary information technology systems we utilize are the Company's results of operations, changesaccounting and
financial and human resource information management systems. We began our risk
assessment in environmental
legislation1995. Since that time we have procured and changes in investors' perception of the business risksimplemented certain
accounting and conditions in the environmental services business. In addition, market
fluctuations,financial reporting systems as well as general economic or political conditions, may adversely
affect the market pricecontract administration
and billing systems that have been certified as year 2000 compliant by our
vendors. Currently, approximately 72% of the Company's common stock, regardless of the
Company's actual performance.
QUALIFIED PROFESSIONALS. The Company's ability to attractour gross revenue is recognized on
these year 2000 compliant systems. We believe that our financial and retain
qualified scientistsaccounting
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.
COMPUTER SYSTEMS AND BUSINESS PROCESSES. The Company is currently
converting its computer systems and business processes to ensure that its
computerhuman resource management information systems will be capableyear 2000 compliant in
a timely manner and will not be materially impacted by the year 2000. We may
fail, however, in updating our various systems to be year 2000 compliant in a
timely manner.
We have extensive business with the Federal government. Should the
Federal government, especially the Department of processing periods forDefense (DOD), experience
significant business interruptions relating to non-year 2000 compliance, our
business could be materially impacted. To the extent that other third parties
which we rely upon, such as banking institutions, clients and vendors, are
unable to address their year 2000 issues in a timely manner, our business could
be materially impacted. We believe that the worst case scenario relating to the
year 2000 would be an extensive period of time in which the Federal government
and beyond as well as ensure that its business processes will beother third parties could not process payments promptly, in addition to our
financial institutions not being able to support
current and anticipated growth projections. The Company does not anticipate the
costssupply us with our working capital
needs.
17
Additional risks associated with ensuringnon-year 2000 compliance include:
- Our inability to invoice and process payments;
- Our inability to produce accurate and timely financials;
- The impact on our profitability; and
- Our potential liability to third parties for not meeting contracted
deliverables.
IMPACT OF ANTI-TAKEOVER PROVISIONS ON OUR STOCK PRICE
Our certificate of incorporation and by-laws and the Delaware General
Corporation Law include provisions that may be deemed to have anti-takeover
effects. These anti-takeover effects could delay or prevent a takeover attempt
that you or our other stockholders might consider in your or their best
interests.
In addition, our board of directors is authorized to issue, without
obtaining stockholder approval, up to 2,000,000 shares of preferred stock and to
determine the price, rights, preferences and privileges of such shares without
any further stockholder action. The existence of this "blank-check" preferred
stock could make more difficult or discourage an attempt to obtain control of us
by means of a tender offer, merger, proxy contest or otherwise.
In the future, we may adopt other measures that may have the effect of
delaying, deferring or preventing an unsolicited takeover, even if such a change
in control were at a premium price or favored by a majority of unaffiliated
stockholders. Certain of these capabilities will have a material adverse
effect onmeasures may be adopted without any further vote
or action by the Company.stockholders.
18
ITEM 2. PROPERTIES.
The Company'sOur corporate headquarters facilities are located in Pasadena, California.
These facilities contain approximately 25,000 square feet of office space. A portion of these facilitiesspace, and
are subject to aleases which expire beyond the year 2001. We lease which expires in
February 1998 and gives the Company an option to extend the term for one
additional five-year period. Another portion of these facilities is subject to
a lease which expires in January 2001. The Company leases office space
in approximately 80110 locations in the United States. The CompanyWe also rentsrent some
additional office space on a month-to-month basis.
The Company believesWe believe that itsour existing facilities are adequate to meet current
requirements and that suitable additional or substitute space will be available
as needed to accommodate any expansion of operations and for
additional offices.operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company isWe are subject to certain claims and lawsuits typically filed against the
engineering and consulting professions, primarily alleging professional errors
or omissions. The Company carriesWe carry professional liability insurance, subject to certain
deductibles and policy limits against such claims. Management is of the opinionWe believe that the
resolution of these claims will not have a material effect on the Company'sour financial
position or results of operations. See "Item 1. Business - Potential
Liability and Insurance."
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.On September 14, 1998, we held a special meeting of stockholders to approve
an amendment to our Certificate of Incorporation to increase the number of
authorized shares of our Common Stock from 30,000,000 to 50,000,000. The number
of votes cast concerning this amendment was as follows:
For: 14,029,273
Against: 27,397
Absentions: 10,934
Broker non-votes: 0
19
PART II
The information required by Items 5 through 8 of this report is set forth
on pages 1719 through 3442 of the Company'sour Annual Report to Stockholders for the fiscal
year ended September 28, 1997.October 4, 1998. Such information is incorporated in this report and
made a part hereof by reference. Item 9 is not applicable.
19
PART III
The information required by Items 10 through 13 of this report is set forth
in the sections entitled "Security Ownership of Principal Stockholders,
Directors and Executive Officers," "Election of Directors," and "Executive
Officers, Compensation and Other Information" in the Company'sour Proxy Statement for its 1998our
1999 Annual Meeting of Stockholders. Such information is incorporated in this
report and made a part hereof by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES.
20
The Financial Statements filed as part of this report are listed
in the accompanying index at page 24.19.
3. EXHIBITS.
3.1 Restated Certificate of Incorporation of the Company
as amended to date
(incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 1, 1995).
3.2 Bylaws of the Company as amended to date (incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-1, No. 33-43723).
3.3 Certificate of Amendment of Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 28, 1997).
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company.
10.1 Credit Agreement dated as of Sept.September 15, 1995 between the
Company and Bank of America Illinois, as amended by the First
Amendment to Credit Agreement dated as of Nov.November 27, 1995
(incorporated herein by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 1, 1995).
10.2 Second Amendment dated as of June 20, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company and
Bank of America Illinois (incorporated herein by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 29, 1997).
10.3 Third Amendment dated as of December 15, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company and
Bank of America National Trust and Savings Association
(successor in interest(incorporated herein by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 28, 1997).
10.4 Fourth Amendment dated as of January 30, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company and
Bank of America Illinois)National Trust and Savings Association.
(incorporated herein by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 28, 1997).
10.410.5 Fifth Amendment dated as of July 6, 1998 to the Credit Agreement
dated as of September 15, 1995 between the Company and Bank of
America National Trust and Savings Association. (incorporated
herein by reference to Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 28, 1998).
10.6 Security Agreement dated as of September 15, 1995 among the
Company, GeoTrans, Inc., Simons Li & Associates, Inc.,
Hydro-Search, Inc., PRC Environmental Management, Inc. and Bank
of America Illinois (incorporated herein by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for the fiscal
year ended October 1, 1995).
10.510.7 Pledge Agreement dated as of September 15, 1995 between the
Company and Bank of America Illinois (incorporated herein by
reference to Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended October 1, 1995).
10.621
10.8 Guaranty dated as of September 15, 1995, executed by the Company
in favor of Bank of America Illinois (incorporated herein by
reference to Exhibit 10.4 to the Company's Annual Report on Form
10-K for the fiscal year ended October 1, 1995).
20
10.710.9 1989 Stock Option Plan dated as of February 1, 1989
(incorporated herein by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1, No. 33-43723).
10.810.10 Form of Incentive Stock Option Agreement executed by the Company
and certain individuals in connection with the Company's 1989
Stock Option Plan (incorporated herein by reference to Exhibit
10.14 to the Company's Registration Statement on Form S-1, No.
33-43723).
10.910.11 Executive Medical Reimbursement Plan provided to
Messrs. Hwang, Rodrigue and Gherini (incorporated herein by
reference to Exhibit 10.16 to the Company's Registration
Statement on Form S-1, No. 33-43723).
10.1010.12 1992 Incentive Stock Plan (incorporated herein by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 3, 1993).
10.1110.13 Form of Incentive Stock Option Agreement used by the Company in
connection with the Company's 1992 Incentive Stock Plan
(incorporated herein by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 3, 1993).
10.1210.14 1992 Stock Option Plan for Nonemployee Directors (incorporated
herein by reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 3, 1993).
10.1310.15 Form of Nonqualified Stock Option Agreement used by the Company
in connection with the Company's 1992 Stock Option Plan for
Nonemployee Directors (incorporated herein by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 3, 1993).
10.1410.16 1994 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.22 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 2, 1994).
10.1510.17 Form of Stock Purchase Agreement used by the Company in
connection with the Company's 1994 Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 2, 1994).
10.1610.18 Employment Agreement dated as of June 11, 1997 between the
Company and Daniel A. Whalen (incorporated herein by reference
to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 29, 1997).
10.1710.19 Registration Rights Agreement dated as of June 11, 1997 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.17 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 29, 1997).
10.1810.20 Registration Rights Agreement dated as of July 11, 1997 among
the Company and the parties listed on Schedule A attached
thereto.
11. Computationthereto (incorporated herein by reference to Exhibit 10.18 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 28, 1997).
22
10.21 Registration Rights Agreement dated as of Net Income Per Common Share.
21
March 26, 1998 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.20 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 29, 1998).
10.22 Registration Rights Agreement dated as of July 9, 1998 among the
Company and the parties listed on Schedule A attached thereto
(incorporated herein by reference to Exhibit 10.22 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 28, 1998).
10.23 Registration Rights Agreement dated as of September 22, 1998
among the Company and the parties listed on Schedule A attached
thereto.
13. Annual Report to Stockholders for the fiscal year ended September 28, 1997,October
4, 1998, portions of which are incorporated by reference in this
report as set forth in Part II hereof. With the exception of
these portions, such Annual Report is not to be deemed filed as
part of this report.
21. Subsidiaries of the Company.
23. Independent Auditors' Consent.
27. Financial Data Schedule.
(b) Reports on Form 8-K
1. Current Report on Form 8-K/A (Amendment No. 2)8-K for event of June 11, 1997,September 22, 1998,
as filed with the Securities and Exchange Commission on
August 25, 1997.October 7, 1998.
2. Current Report on Form 8-K/A (Amendment No. 2)1) for event
of June 11, 1997,September 22, 1998, as filed with the Securities and
Exchange Commission on September 19, 1997.
22December 1, 1998.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TETRA TECH, INC.
Date: December 24, 199730, 1998 By: /s/ Li-San Hwang
-------------------------------------
Li-San Hwang, Chairman of the Board of
Directors, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATESignature Title Date
--------- ----- ----
/s/ Li-San Hwang
Chairman of the Board of Directors, December 24, 1997
- ------------------------30, 1998
/s/ Li-San Hwang President and Chief Executive Li-San Hwang Officer
- ----------------------------------- (Principal Executive Officer)
Li-San Hwang
Vice President, Chief Financial Officer December 30, 1998
/s/ James M. Jaska Vice President, Chief Financial December 24, 1997
- ------------------------ Officer and Treasurer (Principal Financial and
- ----------------------------------- Accounting Officer)
James M. Jaska Financial and Accounting Officer)
/s/ Daniel A. Whalen - ------------------------ Director December 24, 199730, 1998
- -----------------------------------
Daniel A. Whalen
/s/ J. Christopher Lewis - ------------------------ Director December 24, 199730, 1998
- -----------------------------------
J. Christopher Lewis
/s/ Patrick C. Haden - ------------------------ Director December 24, 199730, 1998
- -----------------------------------
Patrick C. Haden
/s/ James J. Shelton - ------------------------ Director December 24, 199730, 1998
- -----------------------------------
James J. Shelton
2324
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the Notes thereto and
report thereon of Deloitte & Touche LLP dated November 7, 1997,13, 1998, appearing on
pages 2627 through 3441 of the accompanying 19971998 Annual Report to Stockholders,
are incorporated by reference in this Annual Report on Form 10-K Annual Report.10-K. With the
exception of the aforementioned information and Part II information set forth on
pages 1719 through 34,26, the 19971998 Annual Report to Stockholders is not to be
deemed filed as part of this report.
FINANCIAL STATEMENTSTATEMENTS SCHEDULES
Page No.
--------
Report of Independent Accountants on Financial Statement
SchedulesSchedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2520
Financial Statement SchedulesSchedule
Schedule II --- Valuation and Qualifying Accounts and
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2421
25
INDEPENDENT AUDITORS' REPORT
Tetra Tech, Inc.:
We have audited the consolidated financial statements of Tetra Tech, Inc. and
its subsidiaries as of October 4, 1998 and September 28, 1997, and September 29, 1996, and for each
of the three years in the period ended September 28, 1997,October 4, 1998, and have issued our
report thereon dated November 7, 1997 (except for Note 5, as to
which the date is December 15, 1997);13, 1998; such financial statements and report
are included in your 19971998 Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the financial statement
schedule of Tetra Tech, Inc. and its subsidiaries, listed in Item 14. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 7, 1997 (except for Note 5, as to which the date is December 15,
1997)
2513, 1998
26
TETRA TECH, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED
OCTOBER 1, 1995, SEPTEMBER 29, 1996, AND SEPTEMBER 28, 1997 AND OCTOBER 4, 1998
Balance at Additions Charges to Deductions
Beginning of through Costs and Net of Balance at
Period Acquisitions Expenses Recoveries End of Period
------------- ------------ --------------------- ---------- ----------- -------------
Fiscal year ended October 1, 1995
Allowance for loss on accounts
receivable . . . . . . . . . . . . . . $ 1,641,000 $9,635,000 $(56,000) $ (67,000) $11,153,000
Fiscal year ended September 29, 1996
Allowance for loss on accounts
receivable . . . . . . . . . . . . . . $11,153,000 $1,365,000 $241,000 $(1,658,000) $11,101,000$ 11,153,000 $ 1,365,000 $ 241,000 $ (1,658,000) $ 11,101,000
Fiscal year ended September 28, 1997
Allowance for loss on accounts
receivable . . . . . . . . . . . $ 11,101,000 $ 228,000 $ (56,000) $ (120,000) $ 11,153,000
Fiscal year ended October 4, 1998
Allowance for loss on accounts
receivable. . . . $11,101,000. . . . . $ 228,000 $(56,000)11,153,000 $ (120,000) $11,153,0003,187,000 $ (334,000) $ (1,321,000) $ 12,685,000
2627