Tetra Tech 10K 2002 Annual report | TTEK Filing

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Exhibit 13

SELECTED CONSOLIDATED FINANCIAL DATA

		Fiscal Year Ended
		Sept. 29, 2002(1)		Sept. 30, 2001(2)		Oct. 1, 2000(3)		Oct. 3, 1999(4)		Oct. 4, 1998(5)
		(in thousands, except per share data)
Statements of Income Data
Gross revenue		$	966,223	$	973,944	$	794,578	$	566,490	$	382,934
Subcontractor costs			225,508		243,880		196,457		134,410		85,337

Net revenue			740,715		730,064		598,121		432,080		297,597
Cost of net revenue			582,153		559,474		452,872		327,336		223,871

Gross profit			158,562		170,590		145,249		104,744		73,726
Selling, general and administrative expenses			98,141		121,348		71,004		49,320		33,913

Income from operations			60,421		49,242		74,245		55,424		39,813
Net interest expense			5,452		8,543		7,026		3,135		1,910

Income before minority interest and income tax expense			54,969		40,699		67,219		52,289		37,903
Minority interest			—		—		—		—		1,397

Income before income tax expense			54,969		40,699		67,219		52,289		36,506
Income tax expense			23,059		9,874		26,777		23,174		15,920

Net income		$	31,910	$	30,825	$	40,442	$	29,115	$	20,586

Basic earnings per share		$	0.60	$	0.61	$	0.83	$	0.63	$	0.47

Diluted earnings per share		$	0.58	$	0.57	$	0.78	$	0.59	$	0.45

Weighted average common shares outstanding:
	Basic		52,760		50,939		48,754		46,449		43,703

	Diluted		55,086		54,166		52,003		49,438		45,610

	Sept. 29, 2002		Sept. 30, 2001		Oct. 1, 2000		Oct. 3, 1999		Oct. 4, 1998
	(in thousands)
Balance Sheet Data
Working capital	$	199,737	$	192,991	$	154,341	$	86,313	$	77,049
Total assets		671,980		607,221		526,038		380,478		266,610
Long-term obligations, excluding current portion		110,000		111,779		85,532		37,289		33,546
Stockholders' equity		416,303		372,146		297,907		234,432		167,781

(1): We have included the results of operations and financial positions of Thomas Associates Architects, Engineers, Landscape Architects P.C. and America's Schoolhouse Consulting Services, Inc. (collectively acquired March 25, 2002), Hartman & Associates, Inc. (acquired March 29, 2002) and Ardaman & Associates, Inc. (acquired June 28, 2002) from their respective effective acquisition dates.
(2): We have included the results of operations and financial positions of Rocky Mountain Consultants, Inc. (acquired December 21, 2000), Wahco Construction, Inc. (acquired March 2, 2001), Williams, Hatfield & Stoner, Inc. (acquired March 30, 2001), Vertex Engineering Services, Inc. (acquired May 21,

2001), Maxim Technologies, Inc. (acquired May 25, 2001), Commonwealth Technology, Inc. (acquired June 1, 2001), The Design Exchange Architects, Inc. (acquired June 27, 2001), Western Utility Contractors, Inc. and Western Utility Cable, Inc. (collectively acquired June 29, 2001), Shepherd Miller, Inc. (acquired September 26, 2001) and Sciences International, Inc. (acquired September 26, 2001) from their respective effective acquisition dates.

(3): We have included the results of operations and financial positions of LC of Illinois, Inc. and HFC Technologies, Inc. (collectively acquired October 25, 1999), Edward A. Sears Associates (acquired March 30, 2000), eXpert Wireless Solutions, Inc. (acquired April 3, 2000), 1261248 Ontario, Inc., which does business as Engineered Communications (acquired May 3, 2000), FHC, Inc. (acquired May 17, 2000), Rizzo Associates, Inc. (acquired May 24, 2000), Drake Contractors, Inc. (acquired June 16, 2000) and Wm. Bethlehem Trenching Ltd. (acquired July 5, 2000) from their respective effective acquisition dates.
(4): We have included the results of operations and financial positions of MFG, Inc. (formerly McCulley, Frick & Gilman, Inc., acquired February 26, 1999), Collins/Piña Consulting Engineers, Inc. (acquired May 7, 1999), D.E.A. Construction Company (acquired May 19, 1999), BAHA Communications, Inc. (acquired May 21, 1999), Utilities & C.C., Inc. (acquired June 18, 1999), ASL Consultants, Inc. (acquired June 25, 1999), Cosentini Associates, Inc. (formerly partnership interests and certain companies affiliated with Cosentini Associates LLP, acquired June 30, 1999), PDR Engineers, Inc. (acquired September 3, 1999) and Evergreen Utility Contractors, Inc., Continental Utility Contractors, Inc. and Gig Harbor Construction, Inc. (collectively acquired October 2, 1999) from their respective effective acquisition dates.
(5): We have included the results of operations and financial positions of Tetra Tech NUS, Inc. (acquired December 31, 1997), Whalen/Sentrex LLC (formed March 2, 1998), C.D.C. Engineering, Inc. (acquired March 26, 1998), McNamee, Porter & Seeley, Inc. (acquired July 8, 1998) and the Sentrex Group of Companies (acquired September 22, 1998) from their respective effective acquisition dates.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding future events and our future results that are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as "expects," "anticipates," "projects," "intends," "plans," "believes," "estimates," and similar expressions are intended to identify such forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are referred to risks and uncertainties identified below, as well as in any other documents filed by us with the Securities and Exchange Commission, specifically the most recent reports on Forms 10-K, 10-Q, and 8-K, each as it may be amended from time to time. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Overview

Tetra Tech, Inc. is a leading provider of consulting, engineering and technical services. As a consultant, we assist our clients in defining problems and developing innovative and cost-effective solutions. Our consulting services are complemented by our engineering and technical services. These services span the lifecycle of a project, and include research and development, applied science and technology, engineering design, construction management, and operations and maintenance. Our clients include a diverse base of public and private organizations located in the United States and internationally.

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

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

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

In the course of providing our services, we routinely subcontract services. These subcontractor costs are passed through to our clients and, in accordance with industry practice, are included in our gross revenue. Because subcontractor services can change significantly from project to project, changes in gross revenue may not be indicative of business trends. Accordingly, we report net revenue, which is gross revenue less the cost of subcontractor services. Contract revenue and contract costs on both cost-type and fixed-price-type contracts are recorded using the percentage-of-completion (cost-to-cost) method. Under this method, contract revenue on long-term contracts is recognized in the ratio that contract costs incurred bear to total estimated costs. Costs and income on long-term contracts are subject to revision throughout the lives of the contracts and any required adjustments are made in the period in which the revisions become known. Losses on contracts are recorded in full as they are indentified.

Our cost of net revenue includes professional compensation and certain direct and indirect overhead costs such as rents, utilities and travel. Professional compensation represents the majority of these costs. Our selling, general and administrative (SG&A) expenses are comprised primarily of our

corporate headquarters' costs related to the executive offices, corporate finance and accounting, information technology, marketing, and bid and proposal costs. These costs are generally unrelated to specific client projects and can vary as expenses are incurred supporting corporate activities and initiatives. We also include in SG&A expenses the charges to bad debt expense to provide reserves for account debtors and the amortization of certain intangible assets resulting from acquisitions.

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

	Percentage of Net Revenue
Client	Percentage of Net Revenue
Client	Fiscal 2002		Fiscal 2001		Fiscal 2000
Federal government	25.1	%	24.5	%	29.1	%
State and local governments	23.5		18.1		16.3
Commercial	49.1		54.2		51.4
International	2.3		3.2		3.2

Total	100.0	%	100.0	%	100.0	%

Through fiscal 2002, we managed our business in three operating segments: Resource Management, Infrastructure and Communications. The following table presents, for the periods indicated, the approximate percentage of net revenue attributable to the operating segments:

	Percentage of Net Revenue
Operating Segment	Percentage of Net Revenue
Operating Segment	Fiscal 2002		Fiscal 2001		Fiscal 2000
Resource Management	48.2	%	40.0	%	41.3	%
Infrastructure	36.1		34.0		31.8
Communications	14.9		25.3		25.6
Other revenue	0.8		0.7		1.3

Total	100.0	%	100.0	%	100.0	%

Our revenue and operating results fluctuate from quarter to quarter as a result of a number of factors, such as:

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

Variations in any of these factors can cause significant variations in operating results from quarter to quarter and could result in losses.

Recent Acquisitions

As a part of our growth strategy, we expect to pursue complementary acquisitions to expand our geographical reach and the breadth and depth of our service offerings. During fiscal 2002, we purchased four companies in the following three transactions:

The Thomas Group of Companies—In March 2002, we acquired Thomas Associates Architects, Engineers, Landscape Architects P.C. and America's Schoolhouse Consulting Services, Inc. (collectively, TGI). The purchase was valued at approximately $22.4 million. TGI, a New York-based architectural and engineering firm, provides a full range of architectural, engineering and planning services for educational buildings and school systems primarily in the eastern region of the United States.

Hartman & Associates, Inc.—In March 2002, we acquired Hartman & Associates, Inc. (HAI). The purchase was valued at approximately $10.8 million. HAI, a Florida-based engineering services firm, provides engineering, construction management and consulting services primarily in the southeastern region of the United States.

Ardaman & Associates, Inc.—In June 2002, we acquired Ardaman & Associates, Inc. (AAI). The purchase was valued at approximately $22.0 million. AAI, a Florida-based engineering services firm, provides geotechnical, geophysical and hydrogeological consulting and engineering services primarily in the southeastern region of the United States.

Results of Operations

The following table sets forth, for the periods indicated, certain operating information as a percentage of net revenue:

	Percentage of Net Revenue Fiscal Year Ended
	Sept. 29, 2002		Sept. 30, 2001		Oct. 1, 2000
Net revenue	100.0	%	100.0	%	100.0	%
Cost of net revenue	78.6		76.6		75.7

Gross profit	21.4		23.4		24.3
Selling, general and administrative expenses	13.2		16.7		11.9

Income from operations	8.2		6.7		12.4
Net interest expense	0.8		1.1		1.2

Income before income tax expense	7.4		5.6		11.2
Income tax expense	3.1		1.4		4.4

Net income	4.3	%	4.2	%	6.8	%

Fiscal 2002 Compared to Fiscal 2001

Net Revenue. Net revenue increased $10.7 million, or 1.5%, to $740.7 million in fiscal 2002 from $730.1 million in fiscal 2001.

Our Resource Management business area recognized growth in its net revenue of $64.6 million, or 22.1%, in fiscal 2002 from fiscal 2001. This growth was primarily due to an increase in our water resource management business, as well as our acquisition of AAI. Our Resource Management business experienced increases in net revenue from Federal, state and local government, and commercial clients.

These increases were attributable in part to the nation's focus on addressing nonpoint source surface water pollution.

Our Infrastructure business area recognized growth in its net revenue of $19.3 million, or 7.8%, in fiscal 2002 from fiscal 2001. This growth was primarily due to our acquisitions of TGI and HAI. Excluding the net revenue provided by these acquisitions, we realized a decline in our net revenue of $9.1 million in fiscal 2002 from fiscal 2001. This decrease was primarily attributable to economic conditions impacting our commercial clients in certain geographic regions.

Our Communications business area recognized a decrease in its net revenue of $74.1 million, or 40.1%, in fiscal 2002 from fiscal 2001. This decrease was primarily due to the economic decline of the communications industry, as well as turmoil among wireless and wired communications providers and an overall reduction in spending by information carriers. As a result of this reduction in spending, we experienced contract delays, and certain of our existing and potential clients either postponed entering into new contracts or requested price concessions.

Overall, net revenue provided by our Federal and state and local government clients increased by 4.1% and 32.0%, respectively, in fiscal 2002 from fiscal 2001, while net revenue from our commercial and international clients decreased by 8.2% and 27.9%, respectively, in fiscal 2002 from fiscal 2001. We segregate from our total revenue the revenue derived from companies acquired during the current fiscal year, as well as revenue recognized from acquired companies during the first 12 months following their respective effective dates of acquisition. Revenue recognized from acquired companies during such first 12 months is referred to as acquisitive revenue. Organic revenue is measured as total revenue less any acquisitive revenue. Net revenue provided by companies acquired during fiscal 2002 totaled $39.0 million. Excluding this net revenue, we realized a 3.9% decline in our net revenue in fiscal 2002 from fiscal 2001. Acquisitive net revenue for fiscal 2002 totaled $84.3 million. Excluding this net revenue, we realized a decline in our organic net revenue of 10.1%.

Gross revenue decreased $7.7 million, or 0.8%, to $966.2 million in fiscal 2002 from $973.9 million in fiscal 2001. As a percentage of gross revenue, subcontractor costs were 23.3% in fiscal 2002 compared to 25.0% in fiscal 2001.

Cost of Net Revenue. Cost of net revenue increased $22.7 million, or 4.1%, to $582.2 million in fiscal 2002 from $559.5 million in fiscal 2001. As a percentage of net revenue, cost of net revenue increased to 78.6% in fiscal 2002 from 76.6% in fiscal 2001. This increase is attributable to a reduction in direct costs that was not commensurate with the reduction in our net revenue, primarily in our Communications business.

Professional compensation, the largest component of our cost of net revenue, rose as the number of employees, measured as full-time equivalents, increased by 132, or 1.9%, to 6,952 in fiscal 2002 from 6,820 in fiscal 2001. Excluding the 853 employees employed by acquired companies, we experienced a reduction in the number of full-time equivalent employees.

Gross profit decreased $12.0 million, or 7.1%, to $158.6 million in fiscal 2002 from $170.6 million in fiscal 2001. As a percentage of net revenue, gross profit decreased to 21.4% in fiscal 2002 from 23.4% in fiscal 2001.

Selling, General and Administrative Expenses. SG&A expenses, exclusive of amortization expense, decreased $24.9 million, or 22.1%, to $87.3 million in fiscal 2002 from $112.2 million in fiscal 2001. As a percentage of net revenue, such SG&A expenses decreased to 11.8% in fiscal 2002 from 15.4% in fiscal 2001. The change from fiscal 2001 to fiscal 2002 resulted primarily from several significant factors. Fiscal 2001 included a $38.3 million charge taken in the third quarter to provide a reserve for an account debtor. Fiscal 2002 included a $9.3 million reduction of this charge due to the estimated ultimate recovery, of which $6.1 million was collected during the fourth quarter of fiscal 2002. Fiscal 2002 SG&A expenses also included a $4.1 million charge taken in the fourth quarter in connection with

a jury verdict handed down in December 2002. Excluding the factors mentioned above, SG&A expenses increased $18.6 million, or 25.1%, to $92.5 million in fiscal 2002 from $73.9 million in fiscal 2001. The increase includes costs incurred related to the recovery of the $9.3 million, additional bad debt expense to reserve for solvency issues of other communications clients, as well as SG&A expenses of acquired companies.

Our SG&A expenses vary as a result of corporate initiatives such as business development and the upgrade of our corporate business systems, as well as other discretionary spending. We experienced higher proportional costs in these areas in fiscal 2002. Our SG&A expenses will continue to vary due to the timing and magnitude of discretionary expenditures. The amortization expense related to acquisitions increased $1.6 million, or 17.6%, to $10.8 million in fiscal 2002 from $9.2 million in fiscal 2001.

Net Interest Expense. Net interest expense decreased $3.0 million, or 36.2%, to $5.5 million in fiscal 2002 from $8.5 million in fiscal 2001. This decrease was primarily attributable to lower variable interest rates on borrowings on our credit facility, lower actual borrowings and interest income receivable on income tax refunds for prior years. In fiscal 2002, borrowings under our credit facility and indebtedness outstanding from our senior secured notes averaged $126.4 million at a weighted average interest rate of 4.8%, compared to $130.9 million at a weighted average interest rate of 7.1% in fiscal 2001. In addition, in October 2001, we received notification from the Internal Revenue Service of its approval of our request for an accounting method change for certain entities. Accordingly, in fiscal 2002, we amended our Federal income tax returns for the periods and entities impacted by this change. This change has no impact on our effective income tax rate. However, $2.6 million was included in interest income in fiscal 2002 for the retroactive refunds of income tax payments.

Income Tax Expense. Income tax expense increased $13.2 million, or 133.5%, to $23.1 million in fiscal 2002 from $9.9 million in fiscal 2001. Our effective tax rate increased from 24.3% in fiscal 2001 to 41.9% in fiscal 2002. The increase in our effective income tax rate is primarily due to lower estimated income tax credits for fiscal 2002 and changes in our effective income tax rates in state and local jurisdictions. In addition, fiscal 2001 included $7.0 million in income tax credits related to prior years.

Fiscal 2001 Compared to Fiscal 2000

Net Revenue. Net revenue increased $131.9 million, or 22.1%, to $730.1 million in fiscal 2001 from $598.1 million in fiscal 2000. We recognized net revenue increases in actual dollars in all three business segments and all four client sectors. Our Resource Management business area recognized growth in its net revenue of 18.4% in fiscal 2001 from fiscal 2000 due primarily to an increase in our water and waste management business and certain fiscal 2001 acquisitions. Our Infrastructure business area recognized net revenue growth of 30.3% in fiscal 2001 from fiscal 2000 due primarily to the expansion of our infrastructure services throughout the United States and certain fiscal 2001 acquisitions. Although the net revenue growth in our Communications business area declined from growth levels we experienced in the past, we still achieved net revenue growth of 20.4% in this area in fiscal 2001 from fiscal 2000. Net revenue provided by our Federal government clients increased by 3.9%, while net revenue from our state and local government, commercial and international clients increased 35.8%, 28.8% and 20.4%, respectively, in fiscal 2001 from fiscal 2000.

We segregate from our total revenue the revenue derived from companies acquired during the current fiscal year, as well as revenue recognized from acquired companies during the first 12 months following their respective effective dates of acquisition. Revenue recognized from acquired companies during such first 12 months is referred to as acquisitive revenue. Organic revenue is measured as total revenue less any acquisitive revenue. Net revenue provided by companies acquired during fiscal 2001 totaled $51.8 million. Excluding this net revenue, we realized 13.8% growth in our net revenue from

fiscal 2000 to fiscal 2001. Acquisitive net revenue for fiscal 2001 totaled $84.2 million. Excluding this net revenue, we realized an increase in our organic net revenue of 8.4%.

Gross revenue increased $179.4 million, or 22.6%, to $973.9 million in fiscal 2001 from $794.6 million in fiscal 2000. As a percentage of gross revenue, subcontractor costs were 25.0% in fiscal 2001 as compared to 24.7% in fiscal 2000.

Cost of Net Revenue. Cost of net revenue increased $106.6 million, or 23.5%, to $559.5 million in fiscal 2001 from $452.9 million in fiscal 2000. As a percentage of net revenue, cost of net revenue increased to 76.6% in fiscal 2001 from 75.7% in fiscal 2000. Professional compensation, the largest component of our cost of net revenue, rose as the number of employees, measured as full-time equivalents, increased by 700, or 11.4%, to 6,820 in fiscal 2001 from 6,120 in fiscal 2000. Excluding the 938 employees employed by acquired companies, we experienced a reduction in the number of full-time equivalent employees. Gross profit increased $25.3 million, or 17.4%, to $170.6 million in fiscal 2001 from $145.2 million in fiscal 2000. As a percentage of net revenue, gross profit decreased to 23.4% in fiscal 2001 from 24.3% in fiscal 2000.

Selling, General and Administrative Expenses. SG&A expenses, exclusive of amortization expense, increased $47.6 million, or 73.8%, to $112.2 million in fiscal 2001 from $64.5 million in fiscal 2000. As a percentage of net revenue, such SG&A expenses increased to 15.4% in fiscal 2001 from 10.8% in fiscal 2000. This significant increase was primarily attributable to a $38.3 million charge taken in the third quarter of fiscal 2001 for an account debtor that had filed for bankruptcy protection. Excluding this charge, our SG&A expenses increased $9.3 million, or 14.4%, to $73.9 million in fiscal 2001 from $64.5 million in fiscal 2000. Our SG&A expenses vary as a result of corporate initiatives such as business development and the upgrade of corporate business systems, as well as other discretionary spending. Fiscal 2000 reflected higher proportional costs in these areas. Our SG&A expenses will continue to vary due to the timing and magnitude of discretionary expenditures. The amortization expense related to acquisitions increased $2.7 million, or 42.2%, to $9.2 million in fiscal 2001 from $6.5 million in fiscal 2000.

Net Interest Expense. Net interest expense increased $1.5 million, or 21.6%, to $8.5 million in fiscal 2001 from $7.0 million in fiscal 2000. This increase was primarily attributable to higher borrowings on our credit facility and our private placement of fixed-rate senior secured notes to fund working capital and investing needs of acquisitions, offset by decreases in interest rates. In fiscal 2001, borrowings on our credit facility and senior secured notes averaged $130.9 million at a weighted average interest rate of 7.1%, compared to $95.4 million at a weighted average interest rate of 7.4% in fiscal 2000. In addition, interest income increased $0.8 million, or 231.3%, to $1.1 million in fiscal 2001 from $0.3 million in fiscal 2000. This increase was primarily attributable to higher cash and cash equivalent balances and interest related to anticipated tax refunds.

Income Tax Expense. Income tax expense decreased $16.9 million, or 63.1%, to $9.9 million in fiscal 2001 from $26.8 million in fiscal 2000. This decrease was primarily due to the realization of certain tax credits. Beginning in fiscal 2000, we performed an extensive review of our effective tax rate and tax position. During the fourth quarter of fiscal 2000, based upon estimates of credits, primarily research and experimentation credits as provided under the Internal Revenue Code, we realized a reduction in our then current effective tax rate from 44.3% to 42.0%. These credits were also available for prior years. During fiscal 2001, we further refined our estimates and determined that our current effective tax rate was approximately 39.0%. Accordingly, we amended our fiscal 2000 Federal income tax return in fiscal 2001 to reflect these credits and amended income tax returns for fiscal years 1997, 1998 and 1999 in fiscal 2002. Fiscal 2001 includes $7.0 million in income tax credits related to prior years.

Unaudited Quarterly Operating Results

The following tables set forth certain unaudited quarterly operating results for each of our last three fiscal years ended September 29, 2002, September 30, 2001 and October 1, 2000. This data is also expressed as a percentage of net revenue for the respective quarters. The information has been derived from our unaudited consolidated financial statements that, in our opinion, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such quarterly information. The operating results for any quarter are not necessarily indicative of the results to be expected for any future period.

	Fiscal 2002 Quarter Ended												Fiscal 2001 Quarter Ended												Fiscal 2000 Quarter Ended
	Dec. 30, 2001			Mar. 31, 2002			Jun. 30, 2002			Sep. 29, 2002			Dec. 31, 2000			Apr. 1, 2001			Jul. 1, 2001			Sep. 30, 2001			Jan. 2, 2000			Apr. 2, 2000			Jul. 2, 2000			Oct. 1, 2000
	($ in thousands)
Net revenue	$	184,889		$	178,073		$	185,436		$	192,317		$	167,138		$	179,658		$	191,548		$	191,720		$	129,171		$	138,846		$	156,468		$	173,636
Cost of net revenue		139,977			142,851			148,607			150,718			128,405			138,254			147,022			145,793			100,417			109,562			116,266			126,627

Gross profit		44,912			35,222			36,829			41,599			38,733			41,404			44,526			45,927			28,754			29,284			40,202			47,009
Selling, general and administrative expenses		24,111			25,054			22,793			26,183			20,583			21,043			60,046			19,676			14,021			13,304			20,529			23,150

Income (loss) from operations		20,801			10,168			14,036			15,416			18,150			20,361			(15,520	)		26,251			14,733			15,980			19,673			23,859
Net interest expense (income)		2,205			1,477			2,235			(465	)		1,994			2,200			2,278			2,071			1,228			1,473			1,958			2,367

Income (loss) before income tax expense (benefit)		18,596			8,691			11,801			15,881			16,156			18,161			(17,798	)		24,180			13,505			14,507			17,715			21,492
Income tax expense (benefit)		7,253			3,389			3,701			8,716			6,786			7,627			(13,969	)		9,430			5,942			6,383			7,795			6,657

Net income (loss)	$	11,343		$	5,302		$	8,100		$	7,165		$	9,370		$	10,534		$	(3,829	)	$	14,750		$	7,563		$	8,124		$	9,920		$	14,835


	Fiscal 2002 Quarter Ended												Fiscal 2001 Quarter Ended												Fiscal 2000 Quarter Ended
	Dec. 30, 2001			Mar. 31, 2002			Jun. 30, 2002			Sep. 29, 2002			Dec. 31, 2000			Apr. 1, 2001			Jul. 1, 2001			Sep. 30, 2001			Jan. 2, 2000			Apr. 2, 2000			Jul. 2, 2000			Oct. 1, 2000
Net revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of net revenue		75.7			80.2			80.1			78.4			76.8			77.0			76.8			76.0			77.7			78.9			74.3			72.9

Gross profit		24.3			19.8			19.9			21.6			23.2			23.0			23.2			24.0			22.3			21.1			25.7			27.1
Selling, general and administrative expenses		13.0			14.1			12.3			13.6			12.3			11.7			31.3			10.3			10.9			9.6			13.1			13.4

Income (loss) from operations		11.3			5.7			7.6			8.0			10.9			11.3			(8.1	)		13.7			11.4			11.5			12.6			13.7
Net interest expense (income)		1.2			0.8			1.2			(0.3	)		1.2			1.2			1.2			1.1			0.9			1.1			1.3			1.3

Income (loss) before income tax expense (benefit)		10.1			4.9			6.4			8.3			9.7			10.1			(9.3	)		12.6			10.5			10.4			11.3			12.4
Income tax expense (benefit)		4.0			1.9			2.0			4.6			4.1			4.2			(7.3	)		4.9			4.6			4.5			5.0			3.9

Net income (loss)		6.1	%		3.0	%		4.4	%		3.7	%		5.6	%		5.9	%		(2.0	)%		7.7	%		5.9	%		5.9	%		6.3	%		8.5	%

Liquidity and Capital Resources

As of September 29, 2002, our working capital was $199.7 million, an increase of $6.7 million from $193.0 million as of September 30, 2001, of which cash and cash equivalents totaled $46.3 million and $16.2 million at September 29, 2002 and September 30, 2001, respectively. In fiscal 2002, net cash of $95.2 million was provided by operating activities and $52.2 million was used in investing activities, of which $45.1 million was related to business acquisitions. In fiscal 2001, net cash of $44.3 million was provided by operating activities and $51.2 million was used in investing activities, of which $40.2 million was related to business acquisitions.

In both fiscal 2002 and 2001, cash provided by operating activities was affected by the structure of certain transactions. In certain acquisitions, we assigned accounts receivable to the former owners of the acquired companies at the time of the transactions in lieu of cash consideration. This structure allowed us to reduce our cash used in investing activities. However, we needed to provide cash in future periods to finance the working capital requirements of the acquired companies. In fiscal 2002, in the AAI acquisition, accounts receivable in the aggregate amount of $7.4 million were assigned to the former owners. In fiscal 2001, in the Williams, Hatfield & Stoner, Inc. acquisition, accounts receivable in the aggregate amount of $3.8 million were assigned to the former owners. In fiscal 2000, in the eXpert Wireless Solutions, Inc. and Drake Contractors, Inc. acquisitions, accounts receivable in the aggregate amount of $3.9 million were assigned to the former owners. Collections on previously assigned receivables in fiscal years 2002, 2001 and 2000 totaled $6.0 million, $5.2 million and $10.7 million, respectively. If we had not assigned these receivables at the time of acquisition, cash provided by operating activities in fiscal years 2002 and 2001 could have been $101.2 million and $49.5 million, respectively, and cash used in operating activities for fiscal year 2000 could have been $1.5 million.

Our capital expenditures during fiscal years 2002 and 2001 were approximately $7.2 million and $11.0 million, respectively. Capital expenditures were primarily for the replacement of field equipment, the enhancement of computer equipment and office improvement.

We have a credit agreement with various financial institutions (the "Credit Agreement") that provides us with a revolving credit facility (the "Facility") of $140.0 million. The Facility matures on March 17, 2005 or earlier at our discretion upon payment in full of loans and other obligations. Throughout fiscal 2002, maximum borrowings under the Facility were $25.0 million. At September 29, 2002, there were no outstanding borrowings under the Facility and standby letters of credit totaled $3.6 million. On May 22, 2001, to provide additional debt capacity to fund working capital needs and acquisitions, we issued two series of senior secured notes in the aggregate amount of $110.0 million in a private placement: Series A Notes, totaling $92.0 million with an interest rate of 7.28%, and maturing on May 30, 2011; and Series B Notes, totaling $18.0 million with an interest rate of 7.08%, and maturing on May 30, 2008. At September 29, 2002, the outstanding principal balance on the senior secured notes was $110.0 million.

We expect that internally generated funds, our existing cash balances and availability under the Credit Agreement will be sufficient to meet our capital requirements through the end of fiscal 2003. However, should we pursue an acquisition or acquisitions in which the potential cash consideration exceeds the then current availability of cash, we may pursue additional financing.

In conjunction with our investment strategy, we continuously evaluate the marketplace for strategic acquisition opportunities. Once an opportunity is identified, we examine the effect an acquisition may have on the business environment, as well as on our results of operations. We proceed with an acquisition if we determine that the acquisition is anticipated to have an accretive effect on future operations or could expand our service offerings. As successful integration and implementation are essential to achieve favorable results, no assurances can be given that all acquisitions will provide accretive results. Our strategy is to position ourselves to address existing and emerging markets. We

view acquisitions as a key component of our growth strategy, and we intend to use both cash and our securities, as we deem appropriate, to fund such acquisitions.

We believe our operations have not been and, in the foreseeable future, are not expected to be materially adversely affected by inflation or changing prices. However, current general economic conditions may impact our client base, and as such, may impact their creditworthiness and our ability to collect cash to meet our operating needs.

The following sets forth (in thousands) our contractual obligations at September 29, 2002:

��	Payments due by period
	Total		Less than 1 year		2-3 years		4-5 years		More than 5 years
Long-term debt	$	111,600	$	1,600	$	20,343	$	33,486	$	56,171
Operating leases		143,615		31,229		45,378		27,022		39,986

Total	$	255,215	$	32,829	$	65,721	$	60,508	$	96,157

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The presentation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition: Contract revenue is recognized on the percentage-of-completion method based on contract costs incurred to date compared with total estimated contract costs. This method of revenue recognition requires us to prepare estimates of costs to complete for contracts in progress. In making such estimates, judgments are required to evaluate contingencies such as potential variances in schedule and the cost of material and labor, claims and disputes or achievement of contractual performance standards. Changes in total estimated contract costs and losses, if any, are recognized in the period they are determined.

Allowance for Doubtful Accounts: Allowances for doubtful accounts are maintained for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Legal Claims: From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We regularly evaluate our exposure to threatened or pending litigation and other business contingencies and accrue for estimated losses on such matters in accordance with Statement of Financial Accounting Standard (SFAS) No. 5, Accounting for Contingencies. Except as described below, we have not been affected by any litigation or other contingencies that have had, or are currently anticipated to have, a material impact on our results of operations or financial position. As additional information about current or future litigation or other

contingencies becomes available, management will assess whether such information warrants the recording of additional expense relating to those contingencies. Such additional expense could potentially have a material impact on our results of operations and financial position.

On December 2, 2002, a jury in Washington County Court in Bartlesville, Oklahoma handed down a $4.1 million verdict against us in our dispute with Horsehead Industries, Inc., doing business as Zinc Corporation of America. We are in the process of filing an appeal in this matter and are also pursuing other legal alternatives related to this case. However, because a verdict has been rendered, we have established a $4.1 million reserve for this matter in SG&A expenses in our consolidated statement of income for the year ended September 29, 2002.

Income Taxes: We have embarked on several tax initiatives in order to reduce our effective tax rate. As a result, we recognized the benefit of certain tax credits during fiscal 2002 and fiscal 2001. The amount of credits recognized for financial statement purposes represent the amount that we estimate will be ultimately realizable.

Recently Issued Financial Standards

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142,Goodwill and Other Intangible Assets, which supercedes APB Opinion No. 17,Intangible Assets. Under SFAS No. 142, goodwill and other indefinite-lived intangible assets are no longer amortized but are reviewed, at a minimum, annually for impairment. Separable intangible assets that have finite lives will continue to be amortized over their useful lives. For the fiscal year ended September 29, 2002, goodwill amortization expense was $10.8 million. The amortization provisions of this statement are effective for goodwill and intangible assets acquired after June 30, 2001. The remaining provisions of this statement are effective for fiscal years beginning after December 15, 2001. The adoption of this statement will result in our discontinuation of amortization of our goodwill. We are currently in the process of completing the two-step transitional impairment test required by SFAS No. 142 to determine whether there was a potential impairment to recorded goodwill as of September 30, 2002. Step one requires us to compare the fair value of each reporting unit with its respective carrying amount, including goodwill. If the carrying value exceeds its fair value, step two will be performed to measure the amount of impairment loss, if any. Step one of the transitional impairment test will be completed during the first six months of fiscal 2003. Step two of the transitional impairment test must be completed by September 28, 2003 and the resulting impairment loss, if any, will be recorded as a cumulative effect of accounting change in the consolidated statement of operations.

Although we are currently evaluating the impact of the adoption of SFAS No. 142, we believe that it is likely that a portion of our goodwill is impaired under SFAS No. 142, and the resulting impairment loss could have a material impact on our consolidated financial statements.

In October 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, which supercedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. SFAS No. 144 addresses financial accounting and reporting requirements for the impairment or disposal of long-lived assets. This statement also expands the scope of a discontinued operation to include a component of an entity, and eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. The provisions of this statement are effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years, although early adoption is permitted. We are currently analyzing the impact of this statement and we will adopt this statement in fiscal 2003.

compensation agreement. SFAS No. 146 requires liabilities associated with exit or disposal activities to be expensed as incurred and will impact the timing of recognition for exit or disposal activities that are initiated after December 31, 2002. We will apply the provisions of SFAS No. 146 to any exit or disposal activities that we initiate after December 31, 2002.

Market Risks

We do not currently utilize any material derivative financial instruments that expose us to significant market risk. We are exposed to cash flow risk due to interest rate fluctuations with respect to our long-term obligations. At our option, we borrow on our Facility (a) at a base rate (the greater of the federal funds rate plus 0.50% or the bank's reference rate) or (b) at a eurodollar rate plus a margin which ranges from 0.75% to 1.25%. Borrowings at the base rate have no designated term and may be repaid without penalty any time prior to the Facility's maturity date. Borrowings at a eurodollar rate have a term no less than 30 days and no greater than 90 days. Typically, at the end of such term, such borrowings may be rolled over at our discretion into either a borrowing at the base rate or a borrowing at a eurodollar rate with similar terms, not to exceed the maturity date of the Facility. The Facility matures on March 17, 2005 or earlier at our discretion upon payment in full of loans and other obligations. Accordingly, we classify total outstanding debt between current liabilities and long-term obligations based on anticipated payments within and beyond one year's period of time. We presently anticipate repaying $1.6 million of our long-term obligations in fiscal 2003. Assuming we pay our long-term obligations in the amount of $1.6 million ratably throughout the year, and our average interest rate on our long-term obligations increases or decreases by one percentage point, our interest expense could increase or decrease by less than $0.1 million. However, there can be no assurance that we will, or will be able to, repay our debt in the prescribed manner or obtain alternate financing. We could incur additional debt under our Facility or our operating results could be worse than we expect. In addition, we have outstanding senior secured notes which bear interest at a fixed rate. The Series A Notes bear interest at 7.28% with interest payments made semiannually. Principal payments on these notes will be paid annually at the rate of $13.1 million per year commencing fiscal 2005 through fiscal 2011. The Series B Notes bear interest at 7.08% with interest payments made semiannually. Principal payments on these notes will be paid annually at the rate of $3.6 million per year commencing fiscal 2004 through fiscal 2008. If interest rates increased by 1%, the fair value of the senior secured notes could decrease by $4.8 million. If interest rates decreased by 1%, the fair value could increase by $5.1 million. We presently have no material contracts under which the currency is not denominated in U.S. dollars. Accordingly, foreign exchange rate fluctuations would not have a material impact on our financial statements.

INDEPENDENT AUDITORS' REPORT

Tetra Tech, Inc.:

We have audited the accompanying consolidated balance sheets of Tetra Tech, Inc. and its subsidiaries as of September 29, 2002 and September 30, 2001, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 29, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Tetra Tech, Inc. and its subsidiaries as of September 29, 2002 and September 30, 2001, and the results of their operations and their cash flows for each of the three years in the period ended September 29, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California
December 20, 2002

TETRA TECH, INC.
CONSOLIDATED BALANCE SHEETS

			Sept. 29, 2002			Sept. 30, 2001
ASSETS
Current Assets:
	Cash and cash equivalents		$	46,345,000		$	16,240,000
	Accounts receivable—net			137,354,000			152,761,000
	Unbilled receivables—net			117,354,000			120,925,000
	Contract retentions			5,090,000			5,103,000
	Prepaid expenses and other current assets			18,588,000			13,927,000
	Income taxes receivable			20,683,000			3,608,000
	Deferred income taxes			—			3,723,000

		Total Current Assets		345,414,000			316,287,000

Property and Equipment:
	Equipment, furniture and fixtures			76,756,000			69,077,000
	Leasehold improvements			8,217,000			6,715,000

		Total		84,973,000			75,792,000
	Accumulated depreciation and amortization			(44,847,000	)		(35,856,000	)

Property and Equipment—Net				40,126,000			39,936,000

Intangible Assets—Net				279,934,000			245,019,000
Other Assets				6,506,000			5,979,000

Total Assets			$	671,980,000		$	607,221,000

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
	Accounts payable		$	60,038,000		$	53,977,000
	Accrued compensation			34,228,000			29,738,000
	Billings in excess of costs on uncompleted contracts			11,837,000			10,354,000
	Other current liabilities			19,377,000			14,899,000
	Deferred income taxes			18,638,000			—
	Current portion of long-term obligations			1,559,000			14,328,000

		Total Current Liabilities		145,677,000			123,296,000

Long-term Obligations				110,000,000			111,779,000

Commitments and Contingencies (Notes 8 and 10)
Stockholders' Equity:
	Preferred stock—authorized, 2,000,000 shares of $.01 par value; issued and outstanding 0 shares at September 29, 2002 and September 30, 2001			—			—
	Exchangeable stock of a subsidiary			13,239,000			13,239,000
	Common stock—authorized, 85,000,000 shares of $.01 par value; issued and outstanding 53,273,227 and 52,247,777 shares at September 29, 2002 and September 30, 2001, respectively			533,000			522,000
	Additional paid-in capital			207,505,000			195,126,000
	Accumulated other comprehensive loss			(1,784,000	)		(1,641,000	)
	Retained earnings			196,810,000			164,900,000

Total Stockholders' Equity				416,303,000			372,146,000

Total Liabilities and Stockholders' Equity			$	671,980,000		$	607,221,000

See accompanying Notes to Consolidated Financial Statements.

TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF INCOME

		Fiscal Year Ended
		Sept. 29, 2002		Sept 30, 2001		Oct. 1, 2000
Revenue:
	Gross revenue	$	966,223,000	$	973,944,000	$	794,578,000
	Subcontractor costs		225,508,000		243,880,000		196,457,000

Net Revenue			740,715,000		730,064,000		598,121,000
Cost of Net Revenue			582,153,000		559,474,000		452,872,000

Gross Profit			158,562,000		170,590,000		145,249,000
Selling, General and Administrative Expenses			98,141,000		121,348,000		71,004,000

Income From Operations			60,421,000		49,242,000		74,245,000
Interest Expense			9,340,000		9,633,000		7,355,000
Interest Income			3,888,000		1,090,000		329,000

Income Before Income Tax Expense			54,969,000		40,699,000		67,219,000
Income Tax Expense			23,059,000		9,874,000		26,777,000

Net Income		$	31,910,000	$	30,825,000	$	40,442,000

Basic Earnings Per Share		$	0.60	$	0.61	$	0.83

Diluted Earnings Per Share		$	0.58	$	0.57	$	0.78

Weighted Average Common Shares Outstanding:
	Basic		52,760,000		50,939,000		48,754,000

	Diluted		55,086,000		54,166,000		52,003,000

See accompanying Notes to Consolidated Financial Statements.

TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED OCTOBER 1, 2000, SEPTEMBER 30, 2001 AND SEPTEMBER 29, 2002

			Exchangeable Stock					Common Stock							Accumulated Other Comprehensive Loss
			Exchangeable Stock					Common Stock				Additional Paid-In Capital						Retained Earnings
			Shares		Amount			Shares		Amount		Additional Paid-In Capital						Retained Earnings		Total
BALANCE, OCTOBER 3, 1999			790,642		$	13,239,000		48,042,027		$	481,000	$	127,881,000		$	(802,000	)	$	93,633,000	$	234,432,000
	Comprehensive income:
		Net income																	40,442,000		40,442,000
		Foreign currency translation adjustment														(42,000	)				(42,000	)

	Comprehensive income																				40,400,000

	Shares issued in acquisitions		33,606			648,000		732,244			7,000		11,379,000								12,034,000
	Stock options exercised							806,382			8,000		5,692,000								5,700,000
	Shares issued in Employee Stock Purchase Plan							207,639			2,000		2,843,000								2,845,000
	Tax benefit for disqualifying dispositions of stock options												2,496,000								2,496,000

BALANCE, OCTOBER 1, 2000			824,248			13,887,000		49,788,292			498,000		150,291,000			(844,000	)		134,075,000		297,907,000
	Comprehensive income:
		Net income																	30,825,000		30,825,000
		Foreign currency translation adjustment														(797,000	)				(797,000	)

	Comprehensive income																				30,028,000

	Shares issued in acquisitions							1,578,575			16,000		33,043,000								33,059,000
	Stock options exercised							667,918			6,000		5,153,000								5,159,000
	Shares issued in Employee Stock Purchase Plan							170,985			2,000		3,068,000								3,070,000
	Exchangeable shares of a subsidiary exchanged for common shares		(33,606	)		(648,000	)	42,007			—		648,000								—
	Tax benefit for disqualifying dispositions of stock options												2,923,000								2,923,000

BALANCE, SEPTEMBER 30, 2001			790,642			13,239,000		52,247,777			522,000		195,126,000			(1,641,000	)		164,900,000		372,146,000
	Comprehensive income:
		Net income																	31,910,000		31,910,000
		Foreign currency translation adjustment														(143,000	)				(143,000	)

	Comprehensive income																				31,767,000

	Shares issued in acquisitions							423,996			5,000		5,529,000								5,534,000
	Stock options exercised							323,756			3,000		2,683,000								2,686,000
	Shares issued in Employee Stock Purchase Plan							278,152			3,000		3,418,000								3,421,000
	Tax benefit for disqualifying dispositions of stock options												789,000								789,000
	Payment for fractional shares							(454	)		—		(40,000	)							(40,000	)

BALANCE, SEPTEMBER 29, 2002			790,642		$	13,239,000		53,273,227		$	533,000	$	207,505,000		$	(1,784,000	)	$	196,810,000	$	416,303,000

See accompanying Notes to Consolidated Financial Statements.

TETRA TECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

				Fiscal Year Ended
				Sept. 29, 2002			Sept. 30, 2001			Oct. 1, 2000
Cash Flows From Operating Activities:
	Net income			$	31,910,000		$	30,825,000		$	40,442,000
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation and amortization			23,354,000			21,362,000			13,709,000
		Deferred income taxes			19,997,000			(1,172,000	)		723,000
		Provision for losses on receivables			3,479,000			44,025,000			3,056,000
	Changes in operating assets and liabilities, net of effects of acquisitions:
		Accounts receivable			22,020,000			(24,865,000	)		(57,177,000	)
		Unbilled receivables			5,770,000			6,571,000			(32,489,000	)
		Contract retentions			146,000			(771,000	)		1,050,000
		Prepaid expenses and other assets			(3,721,000	)		(3,974,000	)		(4,337,000	)
		Accounts payable			4,919,000			(6,400,000	)		12,746,000
		Accrued compensation			(795,000	)		472,000			3,053,000
		Billings in excess of costs on uncompleted contracts			1,483,000			(6,401,000	)		10,075,000
		Other current liabilities			2,935,000			(4,801,000	)		(2,185,000	)
		Income taxes receivable/payable			(16,286,000	)		(10,597,000	)		(854,000	)

			Net Cash Provided By (Used In) Operating Activities		95,211,000			44,274,000			(12,188,000	)

Cash Flows From Investing Activities:
	Capital expenditures				(7,165,000	)		(11,017,000	)		(14,745,000	)
	Payments for business acquisitions, net of cash acquired				(45,079,000	)		(40,165,000	)		(27,515,000	)

			Net Cash Used In Investing Activities		(52,244,000	)		(51,182,000	)		(42,260,000	)

Cash Flows From Financing Activities:
	Payments on long-term obligations				(74,927,000	)		(195,636,000	)		(67,763,000	)
	Proceeds from issuance of long-term obligations				56,000,000			204,000,000			112,000,000
	Proceeds from issuance of common stock				6,067,000			8,229,000			8,545,000
	Payment of deferred financing fees				—			(890,000	)		—

			Net Cash (Used In) Provided By Financing Activities		(12,860,000	)		15,703,000			52,782,000

Effect of Exchange Rate Changes on Cash					(2,000	)		(112,000	)		1,034,000

Net Increase (Decrease) in Cash and Cash Equivalents					30,105,000			8,683,000			(632,000	)
Cash and Cash Equivalents at Beginning of Year					16,240,000			7,557,000			8,189,000

Cash and Cash Equivalents at End of Year				$	46,345,000		$	16,240,000		$	7,557,000

Supplemental Cash Flow Information:
	Cash paid during the year for:
		Interest		$	9,370,000		$	7,184,000		$	6,734,000

		Income taxes, net of refunds received		$	17,667,000		$	19,107,000		$	27,844,000

Supplemental Non-Cash Investing and Financing Activities:
In fiscal 2002, the Company purchased all of the capital stock of Thomas Associates Architects, Engineers, Landscape Architects P.C.; America's Schoolhouse Consulting Services, Inc., Hartman & Associates, Inc. and Ardaman & Associates, Inc. In conjunction with these acquisitions, liabilities were assumed as follows:
	Fair value of assets acquired		$	69,371,000
	Cash paid			(50,552,000	)
	Issuance of common stock			(5,018,000	)
	Purchase price receivable			445,000
	Other acquisition costs			(130,000	)

		Liabilities assumed	$	14,116,000

In fiscal 2001, the Company purchased all of the capital stock of Rocky Mountain Consultants, Inc., Wahco Construction, Inc., Williams, Hatfield & Stoner, Inc., Vertex Engineering Services, Inc., Maxim Technologies, Inc., The Design Exchange Architects, Inc., Western Utility Contractors, Inc., Western Utility Cable, Inc. and Sciences International, Inc. The Company also purchased certain assets of Commonwealth Technology, Inc. and Shepherd Miller, Inc. In conjunction with these acquisitions, liabilities were assumed as follows:
	Fair value of assets acquired					$	104,877,000
	Cash paid						(44,779,000	)
	Issuance of common stock						(32,968,000	)
	Purchase price receivable						653,000
	Other acquisition costs						(607,000	)

		Liabilities assumed				$	27,176,000

In fiscal 2000, the Company purchased all of the capital stock of LC of Illinois, Inc., HFC Technologies, Inc., eXpert Wireless Solutions, Inc., 1261248 Ontario, Inc., FHC, Inc., Rizzo Associates, Inc., Drake Contractors, Inc. and Wm. Bethlehem Trenching Ltd. The Company also purchased certain assets of Edward A. Sears Associates. In conjunction with these acquisitions, liabilities were assumed as follows:
	Fair value of assets acquired								$	59,653,000
	Cash paid									(29,466,000	)
	Issuance of common stock and exchangeable stock									(11,903,000	)
	Purchase price payable									(1,500,000	)
	Other acquisition costs									(730,000	)

		Liabilities assumed							$	16,054,000

See accompanying Notes to Consolidated Financial Statements.

TETRA TECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED SEPTEMBER 29, 2002, SEPTEMBER 30, 2001 AND
OCTOBER 1, 2000

1. SIGNIFICANT ACCOUNTING POLICIES

Business—Tetra Tech, Inc. (the "Company") is a provider of consulting, engineering and technical services. Through fiscal 2002, the Company supported its commercial and government clients in the areas of resource management, infrastructure and communications. The Company's services include research and development, applied science and technology, engineering design, construction management, and operations and maintenance.

Principles of Consolidation—The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned subsidiary, Tetra Tech Canada Ltd. All significant intercompany balances and transactions have been eliminated in consolidation.

Fiscal Year—The Company reports results of operations based on 52- or 53-week periods ending near September 30. Fiscal years 2002, 2001 and 2000 each contained 52 weeks.

Contract Revenue and Costs—In the course of providing its services, the Company routinely subcontracts for services. These costs are passed through to clients and, in accordance with industry practice, are included in the Company's gross revenue. Because subcontractor services can change significantly from project to project, changes in gross revenue may not be indicative of business trends. Accordingly, the Company also reports net revenue, which is gross revenue less the cost of subcontractor services. Contract revenue and contract costs on both cost-type and fixed-price-type contracts are recorded using the percentage-of-completion (cost-to-cost) method. Under this method, contract revenue on long-term contracts is recognized in the ratio that contract costs incurred bear to total estimated costs. Costs and income on long-term contracts are subject to revision throughout the lives of the contracts and any required adjustments are made in the period in which the revisions become known. Losses on contracts are recorded in full as they are identified.

Selling, general and administrative expenses are expensed in the period incurred.

Net revenue under Federal government contracts and subcontracts accounted for approximately 25.1%, 24.5% and 29.1% of net revenue for the fiscal years ended September 29, 2002, September 30, 2001 and October 1, 2000, respectively.

Cash and Cash Equivalents—Cash equivalents include all investments with initial maturities of 90 days or less.

Property and Equipment—Property and equipment are recorded at cost and are depreciated over their estimated useful lives using the straight-line method. Expenditures for maintenance and repairs are expensed as incurred.

Generally, estimated useful lives range from three to ten years for equipment, furniture and fixtures. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining terms of the leases.

Long-Lived Assets—The Company's policy regarding long-lived assets is to evaluate the recoverability of its assets when the facts and circumstances suggest that the assets may be impaired. This assessment is performed based on the estimated undiscounted cash flows compared with the carrying value of the assets. If the future cash flows (undiscounted and without interest charges) are

less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

Intangible assets as of September 29, 2002 and September 30, 2001 consist principally of goodwill resulting from business acquisitions that is being amortized over periods ranging from 15 to 30 years. Additionally, value was ascribed to other intangible assets, including backlog, in business acquisitions. The accumulated amortization of intangible assets as of September 29, 2002 and September 30, 2001 was $37.8 million and $27.0 million, respectively.

Income Taxes—The Company files a consolidated Federal income tax return and combined California franchise tax return, as well as other returns that are required in the states and jurisdictions in which the Company does business, which include the Company and its subsidiaries. Income taxes are recognized for (a) the amount of taxes payable or refundable for the current period, and (b) deferred income tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or income tax returns. The effects of income taxes are measured based on enacted tax laws and rates.

Earnings Per Share—Basic Earnings Per Share (EPS) excludes dilution and is computed by dividing the income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding and dilutive potential common shares. The Company includes as potential common shares the weighted average number of shares of exchangeable stock of a subsidiary and the weighted average dilutive effects of outstanding stock options. The exchangeable stock of a subsidiary is non-voting and is exchangeable on a one-to-one basis, as adjusted for stock splits and stock dividends subsequent to the original issuance, for the Company's common stock.

Fair Value of Financial Instruments—The carrying amounts of cash and cash equivalents, accounts receivable, unbilled receivables and accounts payable approximate fair value because of the short maturities of these instruments. The carrying amount of the revolving credit facility approximates fair value because the interest rates are based upon variable reference rates. The fair value of the senior secured notes at September 29, 2002 was approximately $118,000,000.

Concentration of Credit Risk—Financial instruments which subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable and unbilled receivables. The Company places its temporary cash investments with high credit quality financial institutions and, by policy, limits the amount of investment exposure to any one financial institution. As of September 29, 2002, approximately 12.3% of accounts receivable was due from various agencies of the Federal government. The remaining accounts receivable are generally diversified due to the large number of organizations comprising the Company's client base and their geographic dispersion. The Company performs ongoing credit evaluations of its clients and maintains an allowance for potential credit losses.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounting Pronouncements—In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142,Goodwill and Other Intangible Assets, which supercedes APB Opinion No. 17,Intangible Assets. Under SFAS No. 142, goodwill and other indefinite-lived intangible assets are no longer amortized but are reviewed, at a minimum, annually for impairment. Separable intangible assets that have finite lives will continue to be amortized over their useful lives. The amortization provisions of this statement are effective for goodwill and intangible assets acquired after June 30, 2001. The remaining provisions of this statement are effective for fiscal years beginning after December 15, 2001. The adoption of this statement will result in the discontinuation of amortization of the Company's goodwill. The Company is currently in the process of completing the two-step transitional impairment test required by SFAS No. 142 to determine whether there was a potential impairment to recorded goodwill as of September 30, 2002. Step one requires the Company to compare the fair value of each reporting unit with its respective carrying amount, including goodwill. If the carrying value exceeds its fair value, step two will be performed to measure the amount of impairment loss, if any. Step one of the transitional impairment test will be completed during the first six months of fiscal 2003. Step two of the transitional impairment test must be completed by September 28, 2003 and the resulting impairment loss, if any, will be recorded as a cumulative effect of accounting change in the consolidated statement of operations.

Although the Company is currently evaluating the impact of the adoption of SFAS No. 142, the Company believes that it is likely that a portion of its goodwill is impaired under SFAS No. 142, and the resulting impairment loss could have a material impact on the Company's consolidated financial statements.

SFAS No. 142 also requires disclosure of the after-tax impact to reported net income and earnings per share of the adoption of the statement for all periods presented. The following table recognizes the after-tax impact of the Company's operational results of the adoption of SFAS No. 142 as if the statement had been in effect for all periods presented:

	Fiscal Year Ended
	September 29, 2002		September 30, 2001		October 1, 2000
Reported net income	$	31,910,000	$	30,825,000	$	40,442,000
Add back: Goodwill amortization		10,811,000		9,192,000		6,463,000

Adjusted net income	$	42,721,000	$	40,017,000	$	46,905,000

Basic earnings per share
Reported basic earnings per share	$	0.60	$	0.61	$	0.83
Add back: Goodwill amortization per basic share		0.21		0.18		0.13

Adjusted basic earnings per share	$	0.81	$	0.79	$	0.96

Diluted earnings per share
Reported diluted earnings per share	$	0.58	$	0.57	$	0.78
Add back: Goodwill amortization per diluted share		0.20		0.17		0.12

Adjusted diluted earnings per share	$	0.78	$	0.74	$	0.90

In October 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, which supercedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets

and for Long-Lived Assets To Be Disposed Of. SFAS No. 144 addresses financial accounting and reporting requirements for the impairment or disposal of long-lived assets. This statement also expands the scope of a discontinued operation to include a component of an entity, and eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. The provisions of this statement are effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years, although early adoption is permitted. The Company is currently analyzing the impact of this statement and will adopt it in fiscal 2003.

In July 2002, the FASB issued SFAS No. 146,Accounting for Exit or Disposal Activities. SFAS No. 146 addresses the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including certain lease termination costs and severance-type costs under a one-time benefit arrangement rather than an ongoing benefit arrangement or an individual deferred compensation agreement. SFAS No. 146 requires liabilities associated with exit or disposal activities to be expensed as incurred and will impact the timing of recognition for exit or disposal activities that are initiated after December 31, 2002. The Company will apply the provisions of SFAS No. 146 to any exit or disposal activities initiated after December 31, 2002.

2. MERGERS AND ACQUISITIONS

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

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

On April 3, 2000, the Company acquired 100% of the capital stock of eXpert Wireless Solutions, Inc. (EWS), a provider of radio-frequency engineering and consulting services to the wireless communications industry throughout the United States. The purchase was valued at approximately $18.8 million and consisted of cash (of which $500,000 was dependent on operational performance) and 509,846 shares of Company common stock. Simultaneously with the acquisition, EWS distributed to its former owners accounts receivable valued at approximately $1.8 million.

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

On May 17, 2000, the Company acquired 100% of the capital stock of FHC, Inc. (FHC), a provider of engineering consulting services primarily to the state and local governments in Oklahoma. The purchase was valued at approximately $5.2 million and consisted of cash and 70,417 shares of Company common stock.

On May 24, 2000, the Company acquired 100% of the capital stock of Rizzo Associates, Inc. (RAI), a provider of engineering consulting services to state and local governments and commercial clients in the upper northeast region of the United States. This purchase was valued at approximately $10.3 million and consisted of cash and 140,545 shares of Company common stock.

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

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

On December 21, 2000, the Company acquired 100% of the capital stock of Rocky Mountain Consultants, Inc. (RMC), a provider of water-related engineering and facility development services to state and local governments and private clients primarily in the western and midwestern regions of the United States. The purchase was valued at approximately $15.2 million and consisted of cash and 370,833 shares of Company common stock.

On March 2, 2001, the Company acquired 100% of the capital stock of Wahco Construction, Inc. (WCI), a provider of network and field services to the utility and communications industries primarily in the northwestern region of the United States. The purchase was valued at approximately $1.4 million and consisted of cash and 64,977 shares of Company common stock.

On March 30, 2001, the Company acquired 100% of the capital stock of Williams, Hatfield & Stoner, Inc. (WHS), a provider of civil engineering, planning and environmental services primarily in the southeastern region of the United States. The purchase was valued at approximately $9.1 million and consisted of cash and 181,173 shares of Company common stock. Simultaneously with the acquisition, WHS distributed to its former owners accounts receivable valued at approximately $3.8 million.

On May 21, 2001, the Company acquired 100% of the capital stock of Vertex Engineering Services, Inc. (VES), a provider of environmental engineering, consulting and surety and insurance construction management services throughout the United States. The purchase was valued at approximately $10.4 million and consisted of cash and 386,437 shares of Company common stock.

On May 25, 2001, the Company acquired 100% of the capital stock of Maxim Technologies, Inc. (MTI), a provider of environmental and engineering consulting services throughout the United States. The purchase was valued at approximately $14.0 million and consisted of cash and 296,995 shares of Company common stock.

On June 1, 2001, the Company acquired certain assets of Commonwealth Technology, Inc. (CTI), a provider of environmental and infrastructure engineering and consulting services primarily in the southeastern region of the United States. The purchase was valued at approximately $3.6 million and consisted of cash and 103,715 shares of Company common stock.

On June 27, 2001, the Company acquired 100% of the capital stock of The Design Exchange Architects, Inc. (DXA), a provider of architectural, planning and interior design services primarily in the eastern region of the United States. The purchase was valued at approximately $1.4 million and consisted of cash.

On June 29, 2001, the Company acquired 100% of the capital stock of Western Utility Contractors, Inc. and Western Utility Cable, Inc. (collectively, WUC), providers of engineering, design and construction services primarily in the midwestern region of the United States. The purchase was valued at approximately $16.0 million and consisted of cash.

On September 26, 2001, the Company acquired, through its wholly-owned subsidiary, MFG, Inc., certain assets of Shepherd Miller, Inc. (SMI), a provider of environmental and engineering consulting services to the mining industry throughout the United States. The purchase was valued at approximately $2.8 million and consisted of cash and 53,005 shares of Company common stock.

On September 26, 2001, the Company acquired Sciences International, Inc. (SII), a provider of health and environmental risk assessment services to private industries, governments and law firms throughout the United States. The purchase was valued at approximately $5.1 million and consisted of cash and 140,040 shares of Company common stock.

On March 25, 2002, the Company acquired, through its wholly-owned subsidiary, The Thomas Group of Companies, Inc., 100% of the capital stock of Thomas Associates Architects, Engineers, Landscape Architects P.C. and America's Schoolhouse Consulting Services, Inc. (collectively, TGI), a provider of architectural, engineering and planning services for educational buildings and school systems primarily in the eastern region of the United States. The purchase was valued at approximately $22.4 million and consisted of cash and 392,126 shares of Company common stock and is subject to a purchase price and purchase allocation adjustment based upon the final determination of TGI's net asset value as of March 25, 2002.

On March 29, 2002, the Company acquired 100% of the capital stock of Hartman & Associates, Inc. (HAI), a provider of engineering, construction management and consulting services in the southeastern region of the United States. The purchase was valued at approximately $10.8 million, consisted of cash and is subject to a purchase price and purchase allocation adjustment based upon the final determination of HAI's net asset value as of March 29, 2002.

On June 28, 2002, the Company acquired 100% of the capital stock of Ardaman & Associates, Inc. (AAI), a provider of geotechnical, geophysical and hydrogeological consulting and engineering services in the southeastern region of the United States. The purchase was valued at approximately $22.0 million, consisted of cash and is subject to a purchase price and purchase allocation adjustment based upon the final determination of AAI's net asset value as of June 28, 2002.

All of the acquisitions above were accounted for as purchases and, accordingly, the purchase prices of the businesses acquired were allocated to the assets and liabilities acquired based upon their fair values. The excess of the purchase cost of the acquisitions over the fair value of the net assets acquired was recorded as goodwill and is included in Intangible Assets—Net in the accompanying consolidated balance sheets. The results of operations of each of the companies acquired have been included in the Company's financial statements from the effective acquisition dates.

Goodwill and other identifiable intangible assets recognized in the acquisitions of TGI, HAI and AAI totaled $43.7 million, which is not deductible for tax purposes. Goodwill was assigned to the

Resource Management and Infrastructure segments in the amounts of $14.6 million and $27.3 million, respectively. Other identifiable assets were assigned to the Resource Management and Infrastructure segments in the amounts of $0.2 million and $1.6 million, respectively.

The effect of unaudited pro forma operating results of the WCI, DXA, SMI, SII and HAI acquisitions, had they been acquired on October 2, 2000, is not material.

The following table presents summarized unaudited pro forma operating results assuming that the Company had acquired RMC, WHS, VES, MTI, CTI, WUC, TGI and AAI on October 2, 2000:

		Fiscal Year Ended
		Sept. 29, 2002		Sept. 30, 2001
Gross revenue		$	1,002,553,000	$	1,095,436,000
Net reveune			774,102,000		829,490,000
Income before income tax expense			55,710,000		49,136,000
Net income			32,340,000		35,971,000
Basic earnings per share			0.61		0.69
Diluted earnings per share			0.59		0.65
Weighted average common shares outstanding:
	Basic		52,923,000		51,921,000
	Diluted		55,249,000		55,148,000

3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at September 29, 2002 and September 30, 2001:

		Sept. 29, 2002			Sept. 30, 2001
Billed accounts receivable		$	150,188,000		$	197,859,000

Unbilled accounts receivable:
	Billable amounts not invoiced, amounts billable at stipulated stages of completion of contract work, and unbilled amounts pending negotiation or receipt of contract modifications		118,741,000			121,724,000
	Costs and fee retention billable upon audit of total contract costs total contract costs		5,090,000			5,103,000

Total unbilled accounts receivable			123,831,000			126,827,000

Billings in excess of costs on uncompleted contracts			(11,837,000	)		(10,354,000	)

Allowance for uncollectible accounts:
	Allowance for doubtful accounts		(12,834,000	)		(45,098,000	)
	Allowance for disallowed costs total contract costs		(1,387,000	)		(799,000	)

Total allowance for uncollectible accounts			(14,221,000	)		(45,897,000	)

Total		$	247,961,000		$	268,435,000

The accounts receivable valuation allowance includes amounts to provide for doubtful accounts and for the potential disallowance of billed and unbilled costs. Included in the allowance for doubtful

accounts at September 30, 2001 was a $38.3 million reserve for an account debtor that filed for Chapter 11 protection under the U.S. Bankruptcy Code. The related charge is included in selling, general and administrative expenses in the accompanying consolidated statement of income for the year ended September 30, 2001. Also included in fiscal 2002 selling, general and administrative expenses is an estimated ultimate recovery of $9.3 million from the $38.3 million charge, of which $6.1 million was collected in the fourth quarter of fiscal 2002. The allowance for disallowed costs relates primarily to contracts with the Federal government. These contracts are subject to audit by the government, primarily the Defense Contract Audit Agency (DCAA), which reviews the Company's overhead rates, operating systems and cost proposals. During the course of its audits, the DCAA may disallow costs if it determines that the Company improperly accounted for such costs in a manner inconsistent with Cost Accounting Standards. Historically, the Company has not had any material cost disallowances by the DCAA as a result of audit. There can be no assurance that DCAA audits will not result in material cost disallowances in the future.

Allowances to provide for doubtful accounts have been determined through reviews of specific amounts determined to be uncollectible, potential write-offs as a result of debtors who have filed for bankruptcy protection, plus an allowance for other amounts for which some potential loss is determined to be probable based on current events and circumstances. Given the above, management believes that the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations.

4. INCOME TAXES

Income tax expense for the fiscal years ended September 29, 2002, September 30, 2001 and October 1, 2000 consisted of the following:

		Fiscal Year Ended
		Sept. 29, 2002			Sept. 30, 2001			Oct. 1, 2000
Current:
	Federal	$	25,385,000		$	6,963,000		$	20,845,000
	State		6,170,000			4,083,000			5,224,000
Deferred			(8,496,000	)		(1,172,000	)		708,000

Total income tax expense		$	23,059,000		$	9,874,000		$	26,777,000

Temporary differences comprising the net deferred income tax (liability) asset shown on the accompanying consolidated balance sheets were as follows:

	Sept. 29, 2002			Sept. 30, 2001
Allowance for doubtful accounts	$	5,198,000		$	2,925,000
Accrued vacation		4,648,000			3,632,000
Depreciation		(4,319,000	)		(3,489,000	)
Prepaid expense		(1,438,000	)		(1,540,000	)
State taxes		3,212,000			1,176,000
Other		1,329,000			1,041,000
Cash to accrual		(3,482,000	)		(22,000	)
Unearned revenue		(23,786,000	)		—

Net deferred income tax (liability) asset	$	(18,638,000	)	$	3,723,000

During fiscal 2002, the Company received notification from the Internal Revenue Service of its approval of the Company's request to change its accounting method for recognizing revenue for tax purposes for certain entities. The tax effect of unearned revenue for tax purposes is presented as a deferred income tax liability in the above table.

Total income tax expense was different than the amount computed by applying the Federal statutory rate as follows:

	Fiscal Year Ended
	Sept. 29, 2002					Sept. 30, 2001					Oct. 1, 2000
	Amount			%		Amount			%		Amount			%
Tax at Federal statutory rate	$	19,239,000		35.0	%	$	14,245,000		35.0	%	$	23,527,000		35.0	%
Tax credits		(2,257,000	)	(4.1	)%		(9,428,000	)	(23.2	)%		(2,800,000	)	(4.2	)%
Goodwill		3,324,000		6.0	%		3,159,000		7.8	%		2,053,000		3.1	%
State taxes, net of Federal benefit		2,645,000		4.8	%		2,116,000		5.2	%		3,495,000		5.2	%
Other		108,000		0.2	%		(218,000	)	(0.5	)%		502,000		0.7	%

Total income tax expense	$	23,059,000		41.9	%	$	9,874,000		24.3	%	$	26,777,000		39.8	%

5. LONG-TERM OBLIGATIONS

The Company has a credit agreement with various financial institutions (the "Credit Agreement") to support its working capital and acquisition needs. The Credit Agreement, as amended, provides a revolving credit facility of $140.0 million and matures on March 17, 2005 or earlier at the discretion of the Company upon payment in full of loans and other obligations.

Interest on borrowings under the Credit Agreement is payable at the Company's option (a) at a base rate (the greater of the federal funds rate plus 0.50% or the bank's reference rate) as defined in the Credit Agreement or (b) at a eurodollar rate plus a margin which ranges from 0.75% to 1.25%.

Borrowings under the Credit Agreement are secured by the Company's accounts receivable and the stock of certain of the Company's subsidiaries.

On May 22, 2001, the Company issued two series of senior secured notes (the "Senior Secured Notes") in the aggregate amount of $110.0 million. Series A, totaling $92.0 million, carries an interest rate of 7.28%. Series B, totaling $18.0 million, carries an interest rate of 7.08%. Interest on both Series A and Series B is payable semi-annually and commenced November 2001. Commencing May 30, 2005, principal payments of $13.1 million are payable on the Series A Notes each May 30 to and including May 30, 2011. Commencing May 30, 2004, principal payments of $3.6 million are payable on the Series B Notes each May 30 to and including May 30, 2008.

The Credit Agreement and Senior Secured Notes contain various covenants including, but not limited to, restrictions related to tangible net worth, net income, additional indebtedness, asset sales, mergers and acquisitions, creation of liens, and dividends on capital stock (other than stock dividends).

As of September 29, 2002, there were no outstanding borrowings under the Credit Agreement and standby letters of credit totaled $3.6 million. Outstanding borrowings on the Senior Secured Notes totaled $110.0 million at September 29, 2002.

At September 29, 2002, approximately $1.6 million of additional debt existed from acquired companies. This debt is primarily related to pre-acquisition borrowings to facilitate equipment purchases. The Company intends to repay these amounts prior to the end of their term and terminate all such agreements.

6. STOCKHOLDERS' EQUITY

In connection with the fiscal 2000 acquisition of ENG and the fiscal 1998 acquisition of the Sentrex Group of Companies, the Company issued an aggregate of 920,354 shares of exchangeable stock of its subsidiary, Tetra Tech Canada Ltd. (the "Exchangeable Shares"), a corporation existing under the laws of the Province of Ontario, Canada. The Exchangeable Shares are non-voting but carry exchange rights under which a holder of Exchangeable Shares is entitled, at any time after five months from the date of issue of the Exchangeable Shares, to require the Company to redeem all or any part of the Exchangeable Shares for an amount per share equal to (a) the current market price of a share of the Company's common stock, which shall be satisfied in full by the Company's delivery to such holder of one share of its common stock for each Exchangeable Share presented and surrendered, plus (b) a dividend amount or dividend shares, if any. The Exchangeable Shares cannot be put back to the Company for cash.

Pursuant to the Company's 1989 Stock Option Plan, key employees could be granted options to purchase an aggregate of 1,490,112 shares of the Company's common stock at prices ranging from 85% to 100% of the market value on the date of grant. The 1989 Stock Option Plan terminated, except as to outstanding options and all options granted to date by the Company have been at 100% of the market value at the date of grant. These options become exercisable beginning one year from date of grant, become fully vested in four years and terminate ten years from the date of grant.

Pursuant to the Company's 1992 Incentive Stock Plan, key employees could be granted options to purchase an aggregate of 7,202,147 shares of the Company's common stock at prices not less than 100% of the market value on the date of grant. The 1992 Incentive Stock Plan terminates in December 2002, except as to the outstanding options, and all options granted to date by the Company have been at 100% of the market value at the date of grant. These options become exercisable after one year, become fully vested no later than five years after grant and terminate no later than ten years after grant.

Pursuant to the Company's 2002 Stock Option Plan, key employees may be granted options to purchase an aggregate of 4,000,000 shares of the Company's common stock at prices not less than 100% of the market value on the date of grant. From such date of grant, these options become exercisable after one year, become fully vested no later than four years after grant and terminate no later than ten years after grant.

Pursuant to the Company's 1992 Stock Option Plan for Nonemployee Directors, nonemployee directors could be granted options to purchase an aggregate of 178,808 shares of the Company's common stock at prices not less than 100% of the market value on the date of grant. The 1992 Stock Option Plan for Nonemployee Directors terminates in December 2002, except as to the outstanding options, and all options granted to date by the Company have been at 100% of the market value at the date of grant. These options vest and become exercisable when, and only if, the optionee continues to serve as a director until the Annual Meeting following the year in which the options were granted and terminate no later than ten years after grant.

The Company also has an Employee Stock Purchase Plan (the "Purchase Plan") which provides for the granting of purchase rights to purchase common stock to regular full and part-time employees or officers of the Company and its subsidiaries. Under the Purchase Plan, shares of common stock will be issued upon exercise of the purchase rights. An aggregate of 1,373,290 shares may be issued pursuant to the exercise of purchase rights. The maximum amount that an employee can contribute during a purchase right period is $4,000, and the minimum contribution per payroll period is $25.

Under the Purchase Plan, the exercise price of a purchase right will be the lesser of 100% of the fair market value of such shares on the first day of the purchase right period or 85% of the fair market value on the last day of the purchase right period. For this purpose, the fair market value of the stock is its closing price as reported on the Nasdaq National Market on the day in question.

During the three years in the period ended September 29, 2002, option activity was as follows:

		Number of Options		Weighted Average Exercise Price
Balance, October 3, 1999		4,225,641		$	9.02
	Granted	887,153			10.30
	Exercised	(806,383	)		7.07
	Cancelled	(133,530	)		12.02

Balance, October 1, 2000		4,172,881			9.57
	Granted	1,195,960			21.50
	Exercised	(667,918	)		7.72
	Cancelled	(266,892	)		15.62

Balance, September 30, 2001		4,434,031			12.70
	Granted	1,026,355			19.10
	Exercised	(323,756	)		8.33
	Cancelled	(309,171	)		16.19

Outstanding at September 29, 2002		4,827,459		$	14.13

Exercisable at September 29, 2002		2,613,040		$	10.62

Exercisable at September 30, 2001		2,178,656		$	8.76

The following table summarizes information concerning outstanding and exercisable options as of September 29, 2002:

		Options Outstanding				Options Exercisable
Range of Exercise Prices		Number Outstanding	Weighted Average Remaining Contractual Life (Yrs.)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$	2.79-$4.09	259,476	1.07	$	3.47	259,476	$	3.47
$	4.46-$6.60	264,600	3.05		5.21	264,600		5.21
$	6.64-$9.01	1,072,177	5.42		8.23	795,889		8.06
$	10.05-$15.05	931,478	6.32		12.25	737,714		11.81
$	15.15-$22.43	2,170,034	8.39		19.59	522,731		18.24
$	23.08-$28.00	129,694	8.51		24.64	32,630		24.65

$	2.79-$28.00	4,827,459	6.65	$	14.13	2,613,040	$	10.62

The Company applies APB Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock option plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Pro forma net income and earnings per share had the Company accounted for stock options issued to employees in accordance with the fair value method of SFAS No. 123,Accounting for Stock-Based Compensation, are as follows:

	Fiscal Year Ended
	Sept. 29, 2002		Sept. 30, 2001		Oct. 1, 2000
Net income—as reported	$	31,910,000	$	30,825,000	$	40,442,000
Net income—pro forma		28,042,000		27,316,000		36,324,000
Basic earnings per share—as reported	$	0.60	$	0.61	$	0.83
Diluted earnings per share—as reported		0.58		0.57		0.78
Basic earnings per share—pro forma		0.53		0.54		0.75
Diluted earnings per share—pro forma		0.51		0.50		0.70

The fair value of the Company's stock options used to compute pro forma net income and pro forma earnings per share disclosures is the estimated value using the Black-Scholes option-pricing model. The weighted average fair values per share of options granted in fiscal 2002, 2001 and 2000 are $9.56, $8.77 and $4.38, respectively. The following assumptions were used in completing the model:

	Fiscal Year Ended
	Sept. 29, 2002		Sept. 30, 2001		Oct. 1, 2000
Dividend yield	0.0	%	0.0	%	0.0	%
Expected volatility	64.0	%	48.6	%	46.5	%
Risk-free rate of return, annual	2.3	%	3.4	%	7.7	%
Expected life	3.98 yrs.		3.85 yrs.		3.51 yrs.

7. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

				Fiscal Year Ended
				Sept. 29, 2002		Sept. 30, 2001		Oct. 1, 2000
Numerator—
	Net income			$	31,910,000	$	30,825,000	$	40,442,000

Denominator for basic earnings per share—
	Weighted average shares				52,760,000		50,939,000		48,754,000

Denominator for diluted earnings per share—
	Denominator for basic earnings per share				52,760,000		50,939,000		48,754,000
		Potential common shares:
			Stock options		1,091,000		1,971,000		2,001,000
			Exchangeable stock of a subsidiary		1,235,000		1,256,000		1,248,000

		Potential common shares			2,326,000		3,227,000		3,249,000

Denominator for diluted earnings per share					55,086,000		54,166,000		52,003,000

Basic earnings per share				$	0.60	$	0.61	$	0.83

Diluted earnings per share				$	0.58	$	0.57	$	0.78

For the fiscal years ended September 29, 2002, September 30, 2001 and October 1, 2000, 2.3 million, 0.9 million and 0.5 million options, respectively, were excluded from the calculation of potential common shares because the exercise price of the excluded options exceeded the average market price for the respective periods.

8. LEASES

The Company leases office and field equipment, vehicles, land and buildings under various operating leases. Rent expense under all operating leases was approximately $43.1 million, $38.0 million and $28.3 million for the fiscal years ended September 29, 2002, September 30, 2001 and October 1, 2000, respectively. Amounts payable under noncancelable operating lease commitments are as follows during the fiscal years ending in:

2003	$	31,229,000
2004		26,064,000
2005		19,314,000
2006		14,907,000
2007		12,115,000
Thereafter		39,986,000

Total	$	143,615,000

9. RETIREMENT PLANS

The Company and its subsidiaries have established defined contribution plans and 401(k) plans. Generally, employees are eligible to participate in the defined contribution plans upon completion of one year of service and in the 401(k) plans upon commencement of employment. For the fiscal years ended September 29, 2002, September 30, 2001 and October 1, 2000, employer contributions relating to the plans were approximately $8.7 million, $10.0 million and $7.2 million, respectively.

10. CONTINGENCIES

The Company is subject to certain claims and lawsuits typically filed against the engineering and consulting professions, primarily alleging professional errors or omissions. The Company carries professional liability insurance, subject to certain deductibles and policy limits against such claims. Management is of the opinion that the resolution of these claims, except as described below, will not have a material adverse effect on the Company's financial position and results of operations.

On December 2, 2002, a jury in Washington County Court in Bartlesville, Oklahoma handed down a $4.1 million verdict against the Company in its dispute with Horsehead Industries, Inc., doing business as Zinc Corporation of America. The Company is in the process of filing an appeal in this matter and is also pursuing other legal alternatives related to this case. However, because a verdict has been rendered, the Company established a $4.1 million reserve for this matter in selling, general and administrative expenses in the accompanying consolidated statement of income for the year ended September 29, 2002.

11. OPERATING SEGMENTS

During fiscal 2002, 2001 and 2000, the Company's management organized its operations into three operating segments: Resource Management, Infrastructure and Communications. The Resource Management operating segment provides environmental engineering and consulting services primarily relating to water quality and water availability to both public and private organizations. The Infrastructure operating segment provides engineering services to provide additional development, as well as upgrading and replacement of existing infrastructure, to both public and private organizations. The Communications operating segment provides a comprehensive set of services, including network planning, engineering, site acquisition, construction and construction management, and operations and maintenance services, to telecommunications companies, wireless service providers and cable operators. Management established these operating segments based upon the services provided, the different marketing strategies associated with the services, and the specialized needs of their respective clients.

The Company accounts for inter-segment sales and transfers as if the sales and transfers were to third parties; that is, by applying a negotiated fee onto the cost of the services performed. Management evaluates the performance of these operating segments based upon their respective income from operations before the effect of any acquisition-related amortization and any fee from inter-segment sales and transfers.

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

Reportable Segments:

Fiscal year ended September 29, 2002	Resource Management		Infrastructure		Communications		Total
Gross Revenue	$	516,443	$	317,908	$	161,882	$	996,233
Net Revenue		356,983		267,254		110,634		734,871
Income from Operations		44,902		29,740		1,637		76,279
Depreciation Expense		2,946		4,758		4,343		12,047
Segment Assets		263,847		115,154		79,460		458,461

Fiscal year ended September 30, 2001	Resource Management		Infrastructure		Communications			Total
Gross Revenue	$	425,296	$	304,236	$	278,237		$	1,007,769
Net Revenue		292,299		247,944		184,698			724,941
Income (Loss) from Operations		35,034		32,202		(9,082	)		58,154
Depreciation Expense		2,357		4,850		4,450			11,657
Segment Assets		231,162		90,451		48,583			370,196

Fiscal year ended October 1, 2000	Resource Management		Infrastructure		Communications		Total
Gross Revenue	$	374,875	$	236,922	$	207,936	$	819,733
Net Revenue		246,851		190,269		153,360		590,480
Income from Operations		32,901		20,866		28,020		81,787
Depreciation Expense		1,670		2,514		2,806		6,990
Segment Assets		175,571		75,043		86,702		337,316

Reconciliations:

			Fiscal Year Ended
			Sept. 29, 2002			Sept. 30, 2001			Oct. 1, 2000
Gross Revenue
	Gross revenue from reportable segments		$	996,233		$	1,007,769		$	819,733
	Elimination of inter-segment revenue			(35,854	)		(38,948	)		(32,796	)
	Other revenue			5,844			5,123			7,641

		Total consolidated gross revenue	$	966,223		$	973,944		$	794,578

Net Revenue
	Net revenue from reportable segments		$	734,871		$	724,941		$	590,480
	Other revenue			5,844			5,123			7,641

		Total consolidated net revenue		740,715		$	730,064		$	598,121

Income from Operations
	Income from operations of reportable segments		$	76,279		$	58,154		$	81,787
	Other (expense) income			(5,047	)		280			(1,079	)
	Amortization of intangibles			(10,811	)		(9,192	)		(6,463	)

		Total consolidated income from operations	$	60,421		$	49,242		$	74,245

Total Assets
	Total assets from reportable segments		$	458,461		$	370,196		$	337,316
	Intangible assets not allocated to segments			279,946			245,019			190,452
	Elimination of inter-segment assets			(66,427	)		(7,994	)		(1,730	)

		Total consolidated total assets	$	671,980		$	607,221		$	526,038

Geographic Information:

	Fiscal Year Ended
	Sept. 29, 2002				Sept. 30, 2001				Oct. 1, 2000
	Net Revenue(a)		Long-Lived Assets(b)		Net Revenue(a)		Long-Lived Assets(b)		Net Revenue(a)		Long-Lived Assets(b)
United States	$	723,983	$	324,194	$	706,862	$	288,220	$	579,593	$	226,731
Foreign countries		16,732		2,372		23,202		2,714		18,528		2,367

(a): Net revenue is attributed to countries based on the location of work performed.
(b): Long-lived assets include non-current assets of the Company.

Major Clients

The Company's net revenue attributable to the U.S. government clients was approximately $186.4 million, $179.0 million and $174.2 million for fiscal years ended September 29, 2002, September 30, 2001 and October 1, 2000, respectively. Both the Resource Management and Infrastructure operating segments report revenue from the U.S. government.

12. QUARTERLY FINANCIAL INFORMATION—UNAUDITED

In the opinion of management, the following unaudited quarterly data for the fiscal years ended September 29, 2002 and September 30, 2001 reflect all adjustments necessary for a fair statement of the results of operations. All such adjustments are of a normal recurring nature.

(In thousands, except per share data)

Fiscal Year 2002		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Gross revenue		$	253,028	$	226,128	$	238,171	$	248,896
Net revenue			184,889		178,073		185,436		192,317
Gross profit			44,912		35,222		36,829		41,599
Income from operations(1)			20,801		10,168		14,036		15,416
Net income(2)			11,343		5,302		8,100		7,165
Basic earnings per share		$	0.22	$	0.10	$	0.15	$	0.13
Diluted earnings per share			0.21		0.10		0.15		0.13
Weighted average common shares outstanding:
	Basic		52,351		52,440		52,976		53,271
	Diluted		55,233		54,945		55,201		54,964

Fiscal Year 2001		First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Gross revenue		$	229,330	$	234,315	$	250,124		$	260,175
Net revenue			167,138		179,658		191,548			191,720
Gross profit			38,733		41,404		44,526			45,927
Income (loss) from operations			18,150		20,361		(15,520	)		26,251
Net income (loss)			9,370		10,534		(3,829	)		14,750
Basic earnings (loss) per share		$	0.19	$	0.21	$	(0.07	)	$	0.28
Diluted earnings (loss) per share			0.17		0.20		(0.07	)		0.27
Weighted average common shares outstanding:
	Basic		50,017		50,453		51,233			52,048
	Diluted		53,855		53,505		51,233			54,866

(1): During the fourth quarter of fiscal 2002, the Company recorded certain changes in estimates to allowance for doubtful accounts, contingent liabilities and discretionary compensation accruals based upon changes in facts and circumstances in these respective areas. The allowance for doubtful accounts was adjusted to reflect the actual and estimated recovery of $9.3 million in the case of the bankrupt account debtor, as described in Note 3, of which $6.1 million was collected in the fourth quarter of fiscal 2002. The reserve for contingent liabilities was increased by $4.1 million to provide for a jury verdict that was handed down against the Company in December 2002. Discretionary compensation accruals were reduced by approximately $2.6 million.
(2): During the fourth quarter of fiscal 2002, income tax expense was increased by $2.8 million to reflect changes in estimates of income tax credits and the state and local effective tax rate.

SECURITIES INFORMATION

Tetra Tech's common stock is traded on the Nasdaq National Market under the symbol TTEK. There were 2,760 stockholders of record as of December 13, 2002. Tetra Tech has not paid any cash dividends since its inception and does not intend to pay any cash dividends on its common stock in the foreseeable future. The high and low sales prices per share for the common stock for the last two fiscal years, as reported by the Nasdaq National Market, are set forth in the following tables.

Fiscal Year 2002	High		Low
First Quarter	$	23.78	$	17.16
Second Quarter		21.40		11.46
Third Quarter		15.16		12.66
Fourth Quarter		14.52		7.71

Fiscal Year 2001	High		Low
First Quarter	$	30.05	$	19.80
Second Quarter		25.50		13.60
Third Quarter		25.06		14.40
Fourth Quarter		21.72		15.92

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Exhibit 13

SELECTED CONSOLIDATED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INDEPENDENT AUDITORS' REPORT
TETRA TECH, INC. CONSOLIDATED BALANCE SHEETS
TETRA TECH, INC. CONSOLIDATED STATEMENTS OF INCOME
TETRA TECH, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FISCAL YEARS ENDED OCTOBER 1, 2000, SEPTEMBER 30, 2001 AND SEPTEMBER 29, 2002
TETRA TECH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
TETRA TECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED SEPTEMBER 29, 2002, SEPTEMBER 30, 2001 AND OCTOBER 1, 2000
SECURITIES INFORMATION

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Tetra Tech (TTEK) 10-K2002 FY Annual report

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