UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 4, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-19655
TETRA TECH, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-4148514
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
670 N. Rosemead Boulevard, Pasadena, California 91107
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(Address of principal executive offices)
(626) 351-4664
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of May 7, 1999, the total number of outstanding shares of the Registrant's
common stock was 30,103,440.
TETRA TECH, INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Risk Factors 18
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 25
Item 4. Submission of matters to a Vote of Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 30
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PART I. FINANCIAL INFORMATION
ITEM 1.
Tetra Tech, Inc.
Condensed Consolidated Balance Sheets
In thousands, except share data April 4, October 4,
1999 1998
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,072 $ 4,889
Accounts receivable - net 54,633 68,834
Unbilled receivables - net 67,137 59,888
Prepaid and other current assets 5,135 4,955
Deferred income taxes 3,766 3,766
---------- ----------
Total Current Assets 142,743 142,332
---------- ----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 2,007 1,348
Equipment, furniture and fixtures 27,956 25,616
---------- ----------
Total 29,963 26,964
Accumulated depreciation and amortization (15,641) (13,219)
---------- ----------
PROPERTY AND EQUIPMENT - NET 14,322 13,745
---------- ----------
INTANGIBLE ASSETS - NET 112,081 108,638
LOAN TO UNCONSOLIDATED AFFILIATE 3,000 --
OTHER ASSETS 2,636 1,895
---------- ----------
TOTAL ASSETS $ 274,782 $ 266,610
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 18,747 $ 24,027
Accrued compensation 13,652 15,614
Other current liabilities 9,574 8,283
Current portion of long-term obligations 25,077 14,065
Income taxes payable 1,909 3,294
---------- ----------
Total Current Liabilities 68,959 65,283
---------- ----------
LONG-TERM OBLIGATIONS 315 33,546
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - authorized, 2,000,000
shares of $.01 par value;issued and
outstanding 0 shares at April 4, 1999
and October 4, 1998, respectively -- --
Exchangeable stock of a subsidiary 13,569 15,411
Common stock - authorized, 50,000,000 shares
of $.01 par value; issued and outstanding
30,062,528 and 28,630,600 shares at April 4,
1999 and October 4, 1998, respectively 301 287
Additional paid-in capital 116,010 87,565
Cumulative translation gain (loss) (778) --
Retained earnings 76,406 64,518
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 205,508 167,781
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 274,782 $ 266,610
---------- ----------
---------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements.
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Tetra Tech, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
In thousands, except per Three Months Ended Six Months Ended
share data --------------------- ---------------------
April 4, March 29, April 4, March 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Gross Revenue $128,083 $ 92,727 $242,056 $159,165
Subcontractor costs 31,128 20,921 55,856 33,695
---------- ---------- ---------- ----------
Net Revenue 96,955 71,806 186,200 125,470
Cost of Net Revenue 74,402 54,786 144,589 95,125
---------- ---------- ---------- ----------
Gross Profit 22,553 17,020 41,611 30,345
Selling, General and
Administrative Expenses 9,646 7,465 17,522 12,969
Amortization of Intangibles 1,038 683 2,033 1,325
---------- ---------- ---------- ----------
Income from Operations 11,869 8,872 22,056 16,051
Interest Expense 656 671 1,494 809
Interest Income (124) (75) (263) (140)
---------- ---------- ---------- ----------
Income Before Income Tax Expense
and Minority Interest 11,337 8,276 20,825 15,382
Income to Minority Interest -- 203 -- 203
---------- ---------- ---------- ----------
Income Before Income Tax Expense 11,337 8,073 20,825 15,179
Income Tax Expense 4,875 3,552 8,936 6,608
---------- ---------- ---------- ----------
Net Income $ 6,462 $ 4,521 $ 11,889 $ 8,571
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic Earnings Per Share $ 0.22 $ 0.16 $ 0.41 $ 0.31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted Earnings Per Share $ 0.21 $ 0.16 $ 0.38 $ 0.30
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted Average Common Shares Outstanding:
Basic 29,435 27,905 29,045 27,561
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted 31,411 28,956 31,061 28,895
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements.
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Tetra Tech, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
In thousands Six Months Ended
------------------------
April 4, March 29,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,889 $ 8,571
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,456 3,220
Undistributed earnings to minority interest -- 203
Other (542) (662)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable 18,071 (8,724)
Unbilled receivables (7,148) (4,862)
Prepaid and other assets (672) (4,028)
Accounts payable (5,305) 3,806
Accrued compensation (2,473) (702)
Other current liabilities 927 23
Income taxes payable (2,638) (3,859)
---------- ----------
Net Cash Provided By (Used In)
Operating Activities 16,565 (7,014)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,355) (1,061)
Payments for business acquisitions,
net of cash acquired (4,033) (25,640)
Payments on loans to unconsolidated affiliate (3,000) --
---------- ----------
Net Cash Used In Investing Activities (9,388) (26,701)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (29,219) (15,002)
Proceeds from issuance of long-term debt 7,000 42,000
Net proceeds from issuance of common stock 23,003 914
---------- ----------
Net Cash (Used In) Provided By
Financing Activities 784 27,912
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EFFECT OF RATE CHANGES ON CASH (778) --
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,183 (5,803)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,889 12,262
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,072 $ 6,459
---------- ----------
---------- ----------
SUPPLIMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,347 $ 574
Income taxes $ 10,321 $ 10,080
(Continued)
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Tetra Tech, Inc.
Condensed Consolidated Statements of Cash Flow
(Unaudited)
In thousands Six Months Ended
------------------------
April 4, March 29,
1999 1998
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SUPPLEMENTAL NON-CASH INVESTING AND FINANCING
ACTIVITIES:
In February 1999, the Company purchased all of
the capital stock of McCulley, Frick & Gilman,
Inc. In conjunction with this acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 10,086
Cash paid (4,250)
Issuance of common stock (3,613)
Other acquisition costs (70)
----------
Liabilities assumed $ 2,153
----------
----------
In December 1997, the Company, through its
wholly-owned subsidiary Tetra Tech NUS, Inc.,
purchased the assets of certain environmental
services businesses of Brown & Root, Inc. and
Halliburton NUS Corporation, both of which were
subsidiaries of Halliburton Company. In
conjunction with this acquisition, liabilities
were assumed as follows:
Fair value of assets acquired $ 27,794
Cash paid (24,872)
Other acquisition costs (325)
----------
Liabilities assumed $ 2,597
----------
----------
In March 1998, the Company, through its
wholly-owned subsidiary Whalen Service Corps
Inc., purchased certain assets of TANCO LLC,
dba Integration Technologies from ANTEC
Corporation. This purchase was related to a
limited liability company agreement between
Whalen Service Corps Inc. and Sentrex Cen-Comm.
In conjunction with this acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 1,572
Cash paid (623)
----------
Liabilities assumed $ 949
----------
----------
In March 1998, the Company purchased all of
the capital stock of C.D.C. Engineering, Inc.
In conjunction with this acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 2,299
Cash paid (323)
Issuance of common stock (1,294)
Other acquisition costs (70)
----------
Liabilities assumed $ 612
----------
----------
See accompanying Notes to Condensed Consolidated Financial Statements.
(Concluded)
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TETRA TECH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet as of April 4, 1999,
the condensed consolidated statements of income for the three-month and six-
month periods ended April 4, 1999 and March 29, 1998 and the condensed
consolidated statements of cash flows for the six months ended April 4, 1999 and
March 29, 1998 are unaudited, and in the opinion of management include all
adjustments, consisting of only normal and recurring adjustments, necessary for
a fair presentation of the financial position and the results of operations for
the periods presented.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
October 4, 1998.
The results of operations for the three and six months ended April 4, 1999
are not necessarily indicative of the results to be expected for the fiscal year
ending October 3, 1999.
2. EARNINGS PER SHARE
Due to the Company's complex capital structure, the Company presents both
basic and diluted Earnings Per Share (EPS). Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed by dividing net income by the weighted average number of common shares
outstanding and dilutive potential common shares. The Company includes as
potential common shares the weighted average number shares of exchangeable stock
of a subsidiary and the weighted average dilutive effects of outstanding stock
options. The exchangeable stock of a subsidiary is non-voting and is
exchangeable, share for share, for the Company's common stock. Basic and
diluted EPS reflect, on a retroactive basis, a 5-for-4 stock split effected in
the form of a 25.0% stock dividend, wherein one additional share of stock was
issued on September 15, 1998 for each four shares outstanding as of the record
date of July 27, 1998.
3. CURRENT ASSETS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Cash and cash
equivalents totaled $12.1 million and $4.9 million at April 4, 1999 and October
4, 1998, respectively.
4. MERGERS AND ACQUISITIONS
On December 31, 1997, the Company acquired, through its wholly-owned
subsidiary Tetra Tech NUS, Inc., the assets of certain environmental services
businesses of Brown &
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Root, Inc. and Halliburton Corporation, both of which are subsidiaries of
Halliburton Company (collectively, NUS). NUS provides consulting, engineering
and design services for the environmental remediation of contaminated air, water
and soil conditions. The purchase price was valued at approximately $25.2
million, as adjusted, and consisted of cash.
On March 2, 1998, Whalen Service Corps Inc. (WSC) agreed to participate in
a partnership with Sentrex Cen-Comm and ANTEC Corporation to provide design,
engineering, information management and construction services to support
advanced communication system upgrades to the broadband information transport
industries. The agreement required the purchase of certain assets of TANCO LLC
from ANTEC Corporation for a price in cash of approximately $0.6 million. WSC
initially held a 51.0% majority interest in Whalen/Sentrex LLC, a California
limited liability company, while LAL Corp. held the remaining 49.0% minority
interest.
On March 26, 1998, the Company acquired 100.0% of the capital stock of
C.D.C. Engineering, Inc. (CDE), a consulting and engineering firm specializing
in civil engineering, transportation engineering, structural engineering and
land surveying. The purchase has been valued at approximately $1.5 million,
consisting of cash and 71,060 shares of Company common stock.
On July 8, 1998, the Company acquired 100.0% of the capital stock of
McNamee, Porter & Seeley, Inc. (MPS), a provider of engineering services with
expertise in the areas of water, industrial wastewater and process controls.
The purchase was valued at approximately $14.2 million, consisting of cash and
274,888 shares of Company common stock. Simultaneously with the acquisition, MPS
distributed to its former shareholders accounts receivable having a net value of
$8.0 million.
On September 22, 1998, the Company acquired, through its subsidiary Tetra
Tech Canada Ltd. (TtC), 100.0% of the capital stock of 1056584 Ontario Limited,
1056585 Ontario Limited, Venture Cable Limited, Cen-Comm Communications, Inc.,
Sentrex Electronics Inc. and LAL Corp. (collectively, the Sentrex Group of
Companies (SGOC)), providers of engineering and technical services to the cable
television, telephony and data networking industries. The purchase has been
valued at approximately $19.2 million, consisting of cash and 920,354 shares of
TtC exchangeable stock. The TtC exchangeable stock is exchangeable, share for
share, for Company common stock as described in the related purchase agreement.
Upon completion of the SGOC acquisition, the Company beneficially owns 100.0% of
Whalen/Sentrex LLC.
On February 26, 1999, the Company acquired 100.0% of the capital stock of
McCulley, Frick & Gilman, Inc. (MFG), a provider of professional environmental
science and consulting services to private-sector clients. The purchase was
valued at approximately $7.9 million, consisting of cash and 185,192 shares of
Company common stock, and is subject to a purchase price and purchase allocation
adjustment based on the final determination of MFG's net asset value as of
February 26, 1999.
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All of the acquisitions above have been accounted for as purchases and,
accordingly, the purchase prices of the businesses acquired have been allocated
to the assets and liabilities acquired based upon their fair values. The excess
of the purchase cost of the acquisitions over the fair value of the net assets
acquired was recorded as goodwill and is included in Intangible Assets - Net in
the accompanying balance sheets. The Company values stock exchanged in
acquisitions based on extended restriction periods and economic factors specific
to the Company's circumstances. During fiscal 1998 and 1999, stock exchanged in
acquisitions was discounted by 15.0%. The results of operations of each of the
companies acquired have been included in the Company's financial statements from
their respective acquisition effective dates as set forth in the related
purchase agreements.
The effect of unaudited pro forma operating results of the MFG, SGOC and
CDE transactions, had they been acquired on September 29, 1997, is not material.
Pro forma operating results assuming the Company had acquired MPS and NUS
on September 29, 1997 is presented in Note 6. UNAUDITED PRO FORMA OPERATING
RESULTS.
5. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of a valuation allowance to provide
for doubtful accounts and for the potential disallowance of billed and unbilled
costs. The allowance for doubtful accounts as of April 4, 1999 and October 4,
1998 was $2.4 million and $2.9 million, respectively. The allowance for
disallowed costs as of both April 4, 1999 and October 4, 1998 was $9.8 million.
Disallowance of billed and unbilled costs is primarily associated with contracts
with the Federal government which contain clauses that subject contractors to
several levels of audit. The Company establishes reserves on those contract
receivables, especially those acquired in acquisitions, where collectibility is
not assured. Management believes that resolution of these matters will not have
a material adverse impact on the Company's financial position or results of
operations.
6. UNAUDTED PRO FORMA OPERATING RESULTS
The table below presents summarized unaudited pro forma operating results
assuming that the Company had acquired MPS and NUS on September 29, 1997. These
amounts are based on historical results and assumptions and estimates in which
the Company believes to be reasonable. The pro forma results do not reflect
anticipated cost savings and do not necessarily represent results which would
have occurred if the MPS and NUS acquisitions had actually taken place on
September 29, 1997.
Pro Forma Six Months Ended
--------------------------
March 29, 1998
--------------
Gross revenue $ 196,897,000
Income from operations 17,071,000
Net income 8,835,000
Basic earnings per share 0.32
Diluted earnings per share 0.30
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Weighted average shares outstanding:
Basic 27,698,000
Diluted 29,032,000
7. SUBSEQUENT EVENTS
On April 19, 1999, the Company's board of directors approved a 5-for-4
stock split, to be effected in the form of a 25.0% stock dividend, wherein one
additional share of stock will be issued for each four shares outstanding. The
record date for the stock split is May 14, 1999, and the distribution date is
June 15, 1999. On a pro forma basis, the following table presents basic and
diluted earnings per share for the periods presented giving effect to this
stock split:
Three Months Ended Six Months Ended
--------------------- ---------------------
April 4, March 29, April 4, March 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Basic earnings per share $0.18 $0.13 $0.33 $0.25
Diluted earnings per share $0.16 $0.12 $0.31 $0.24
8. COMPREHENSIVE INCOME
Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non
owner sources. These sources include net income and other revenues, expenses,
gains and losses incurred. The Company includes as other comprehensive income
translation gains and losses from subsidiaries with functional currencies
different than that of the Company. For the three and six months ended April 4,
1999, the Company incurred net translation losses of $0.8 million. The Company
incurred no translation gains or losses for the three and six months ended March
29, 1998.
9. LOAN TO UNCONSOLIDATED AFFILIATE
During the six months ended April 4, 1999, the Company loaned to TANCO LLC,
a 50% owned affiliate, $3.0 million for working capital needs.
10. SECONDARY OFFERING OF COMMON STOCK
In February 1998, the Company, along with certain selling stockholders,
offered 3,175,000 shares of its Common Stock through a public offering. The
Company offered 1,000,000 shares and received $22.0 million in net proceeds from
the offering of these shares. These proceeds were used for the partial repayment
of outstanding indebtedness under the Company's revolving credit facility.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED BELOW, THE MATTERS
DISCUSSED IN THIS SECTION ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER
OF RISKS AND UNCERTAINTIES. OUR ACTUAL LIQUIDITY NEEDS, CAPITAL RECOURCES AND
OPERATING RESULTS MAY DIFFER MATERIALLY FROM THE DISCUSSION SET FORTH BELOW IN
THESE FORWARD-LOOKING STATEMENTS. FOR ADDITIONAL INFORMATION, REFER TO THE
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS
FILING.
OVERVIEW
Tetra Tech, Inc. is a leading provider of specialized management consulting
and technical services in three principal business areas: resource management,
infrastructure and communications. As a specialized management consultant, we
assist our clients in defining problems and developing innovative and
cost-effective solutions. Our management consulting services are complemented by
our technical services. These technical services, which implement solutions,
include research and development, applied science, engineering and architectural
design, construction management, and operations and maintenance. Our clients
include a diverse base of public and private organizations located in the United
States and internationally.
Since our initial public offering in December 1991, we have increased the
size and scope of our business and have expanded our service offerings through a
series of strategic acquisitions and internal growth.
We derive our gross revenues from fees from professional services. Our
services are billed under various types of contracts with our clients,
including:
- Fixed-price;
- Fixed-rate time and materials;
- Cost-reimbursement plus fixed fee; and
- Cost-reimbursement plus fixed and award fee.
In the course of providing our services, we routinely subcontract services.
These subcontractor costs are passed through to clients and, in accordance with
industry practice, are included in gross revenue. Because subcontractor
services can change significantly from project to project, we believe net
revenue, which is gross revenue less the cost of subcontractor services, is a
more appropriate measure of our performance.
Our cost of net revenue includes professional compensation and certain
direct and indirect overhead costs such as rents, utilities and travel.
Professional compensation represents the majority of these costs. Our selling,
general and administrative (SG&A) expenses are comprised primarily of our
corporate headquarters' costs related to the executive offices, corporate
accounting, information technology, marketing, and bid and proposal costs.
These
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costs are generally unrelated to specific client projects. In addition, we
include amortization of certain intangible assets resulting from acquisitions in
SG&A expenses.
We provide our services to a diverse base of Federal, state and local
government agencies, and private and international clients. The following table
presents, for the periods indicated, the approximate percentage of net revenue
attributable to these client sectors:
Percentage of Net Revenue
--------------------------------------------
Three Months Ended Six Months Ended
--------------------- ---------------------
April 4, March 29, April 4, March 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
CLIENT SECTOR
Federal government 41.9% 51.3% 41.7% 48.8%
State & local government 14.3 11.8 14.5 12.5
Commercial 39.4 34.7 39.0 36.4
International 4.4 2.2 4.8 2.3
RECENT ACQUISITIONS
As a part of our growth strategy, we expect to pursue complementary
acquisitions to expand our geographical reach and the breadth and depth of our
service offerings. During the second quarter of fiscal 1999, we made the
following acquisition:
McCulley, Frick & Gilman, Inc. -- In February 1999, we acquired McCulley,
Frick & Gilman, Inc. (MFG). The purchase was valued at approximately $7.9
million. MFG, a Colorado-based consulting and engineering firm, provides
professional environmental science and consulting services to private-sector
clients throughout the United States.
RESULTS OF OPERATIONS
The following table presents the percentage relationship of selected items
to net revenue in our condensed consolidated statements of income:
% Relationship to Net Revenue
--------------------------------------------
Three Months Ended Six Months Ended
--------------------- ---------------------
April 4, March 29, April 4, March 29,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of net revenue 76.7 76.3 77.7 75.8
---------- ---------- ---------- ----------
Gross profit 23.3 23.7 22.3 24.2
Selling, general and
administrative expenses 11.1 11.3 10.5 11.4
---------- ---------- ---------- ----------
Income from operations 12.2 12.4 11.8 12.8
Net interest (expense) income (0.5) (0.9) (0.6) (0.5)
---------- ---------- ---------- ----------
Income before income taxes
and minority interest 11.7 11.5 11.2 12.3
Income to minority interest -- (0.3) -- (0.2)
---------- ---------- ---------- ----------
Income before income taxes 11.7 11.2 11.2 12.1
Income tax expense 5.0 4.9 4.8 5.3
---------- ---------- ---------- ----------
Net income 6.7% 6.3% 6.4% 6.8%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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NET REVENUE. Net revenue increased $25.1 million, or 35.0%, to $97.0
million for the three months ended April 4, 1999 from $71.8 million for the
comparable period last year. For the six months ended April 4, 1999, net
revenue increased $60.7 million, or 48.4%, to $186.2 million from $125.4 million
for the comparable period last year. All sectors continued to show net revenue
increases in actual dollars. As a percentage of net revenue, decreases were
realized in the Federal government sector due to growth in the revenue from
private sector clients and revenue contributed by the fourth quarter fiscal 1998
acquisitions. These acquisitions provided increases in our revenue from state
and local governments and generated international revenue. For the three months
ended April 4, 1999, net revenue provided by companies acquired in the past year
totaled $14.8 million. Excluding this net revenue, we realized 14.5% growth in
our net revenue. For the six months ended April 4, 1999, net revenue provided
by companies acquired in the past year totaled $25.7 million. Excluding this
net revenue, we realized 28.0% growth in our net revenue. Gross revenue
increased $35.4 million, or 38.1%, to $128.1 million for the three months ended
April 4, 1999 from $92.7 million for the comparable period last year. For the
six months ended April 4, 1999, gross revenue increased $82.9 million, or 52.1%,
to $242.1 million from $159.2 million for the comparable period last year.
COST OF NET REVENUE. Cost of net revenue increased $19.6 million, or
35.8%, to $74.4 million for the three months ended April 4, 1999 from $54.8
million for the comparable period last year. As a percentage of net revenue,
cost of net revenue for the three months ended April 4, 1999 was 76.7% compared
to 76.3% for the comparable period last year. For the six months ended April 4,
1999, cost of net revenue increased $49.5 million, or 52.0%, to $144.6 million
from $95.1 million for the comparable period last year. As a percentage of net
revenue, cost of net revenue for the six months ended April 4, 1999 was 77.7%
compared to 75.8 % for the comparable period last year. These increases were
primarily due to the volume increases in cost-reimbursable type work in our
resource management business area.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $2.5
million, or 31.1%, to $10.7 million for the three months ended April 4, 1999
from $8.1 million for the comparable period last year. As a percent of net
revenue, SG&A expenses decreased to 11.1% for the three months ended April 4,
1999 from 11.3% for the comparable period last year. For the six months ended
April 4, 1999, SG&A expenses increased $5.3 million, or 36.8%, to $19.6 million
from $14.3 million for the comparable period last year. As a percentage of net
revenue, SG&A expenses decreased to 10.5% for the six months ended April 4, 1999
from 11.4% for the comparable period last year. Amortization expense relating
to acquisitions remained relatively flat at 1.1% of net revenue for both the
three months and six months ended April 4, 1999. As our net revenue has
increased, we have not commensurately increased our headquarters' costs.
Additionally, we have realized cost reductions by centralizing certain corporate
functions.
NET INTEREST EXPENSE. Net interest expense decreased 10.7% to less than
$0.6 million for the three months ended April 4, 1999. This decrease was
primarily attributable to the collection of receivables and the receipt of
approximately $22.2 million in net proceeds from our secondary offering of
common stock in February, 1999. For the six months ended April 4, 1999, net
interest expense increased $0.6 million, or 84.0%, to $1.2 million from $0.6
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million for the comparable period last year. This increase was primarily
attributable to borrowings on our line of credit to facilitate acquisitions.
INCOME TAX EXPENSE. Income tax expense increased $1.3 million, or 37.2%,
to $4.9 million for the three months ended April 4, 1999 from $3.6 million for
the comparable period last year. For the six months ended April 4, 1999, income
tax expense increased $2.3 million, or 35.2%, to $8.9 million from $6.6 million
for the comparable period last year. Our effective tax rate varies as we
acquire companies. Certain amortization expenses relating to acquisitions are
not tax deductible. Our current effective tax rate is 43.0% compared to 43.6%
in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of April 4, 1999, our working capital was $73.8 million, a decrease $3.2
million from October 4, 1998, of which cash and cash equivalents totaled $12.1
million. In addition, we have a credit agreement (the "Credit Agreement") with
a bank which provides for a revolving credit facility (the "Facility") of $65.0
million. Under our Credit Agreement, we may also request standby letters of
credit up to the aggregate sum of $20.0 million outstanding at any given time.
Our Credit Agreement provides for a mandatory reduction of $5.0 million on
December 15, 1999. Our Facility matures on December 15, 2000 or earlier at our
discretion upon payment in full of loans and other obligations. As of April 4,
1999, borrowings and standby letters of credit totaled $25.0 million and $1.4
million, respectively.
In the six months ended April 4, 1999, we generated $15.8 million from
operating activities compared to the usage of $7.0 million for the comparable
period last year. This increase was primarily attributable to our efforts to
increase our efficiency in the timing of our billings and the collection of our
receivables. In the six months ended April 4, 1999, cash used in investing
activities was $6.4 million compared to $26.7 million for the comparable period
last year. This decrease primarily was the result of fewer business
acquisitions. In the six months ended April 4, 1999, cash used in financing
activities was $2.2 million compared to cash generation of $27.9 million for the
comparable period last year. During the six months ended April 4, 1999, cash
generated from operating activities and the proceeds of our secondary offering
allowed us to reduce the outstanding borrowings on our Facility.
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 1999. However, we may seek to expand our
borrowing capabilities to accommodate acquisition opportunities.
We continuously evaluate the marketplace for strategic opportunities. Once
an opportunity is identified, we examine the effect an acquisition may have on
the business environment, as well as on our results of operations. We proceed
with an acquisition if we determine that the acquisition is anticipated to have
an accretive effect on future operations. However, as successful integration and
implementation are essential to achieve favorable results, no assurances can be
given that all acquisitions will provide accretive results. Our strategy is to
position ourselves to address existing and emerging markets. We view
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acquisitions as a key component of our growth strategy, and we intend to use
both cash and our securities, as we deem appropriate, to fund such acquisitions.
We believe our operations have not been and, in the foreseeable future, do
not expect to be materially adversely affected by inflation or changing prices.
MARKET RISKS
We currently utilize no material derivative financial instruments which
expose us to significant market risk. We are exposed to cash flow risk due to
interest rate fluctuations with respect to our long-term debt. At our option,
we borrow on our Facility (a) at a base rate (the greater of the federal funds
rate plus 0.50% or the bank's reference rate) or (b) at a eurodollar rate plus a
margin which ranges from 0.75% to 1.25%. Borrowings at the base rate have no
designated term and may be repaid without penalty anytime prior to the
Facility's maturity date. Borrowings at a eurodollar rate have a term no less
than 30 days and no greater than 90 days. Typically, at the end of such term,
such borrowings may be rolled over at our discretion upon payment in full of
loans and other obligations. Accordingly, we classify total outstanding debt
between current liabilities and long-term debt based on anticipated payments
within and beyond one year's period of time. We currently anticipate repaying
all of our $25.0 outstanding indebtedness under the Facility by the end of this
fiscal year. However there can be no assurance that we will, or will be able
to, repay our long-term debt in the manner described. We could incur additional
debt under the Facility or our operating results could be worse than currently
anticipated.
YEAR 2000
We are working to resolve the potential impact of the year 2000 (Y2K) on
our business operations and the ability of our computerized information systems
to accurately process information that may be date-sensitive. Any of our
programs that recognize a date using "00" as the year 1900 rather than the Y2K
could result in errors or system failures.
We utilize a number of computer programs across our entire operation. The
primary information technology (IT) systems we utilize are (1) the accounting
and financial systems which include general ledger, accounts payable, accounts
receivable, billing and collection, fixed assets, job cost accounting and
payroll, and (2) human resource information management systems. We do not
believe we have a material amount of non-IT systems upon which we rely.
We have established both a Y2K review committee and a Y2K action team. The
purpose of the review committee is to develop and communicate our Y2K plan to
achieve our Y2K compliance mission. The purpose of the action team is to
identify, remediate and implement plans to resolve Y2K related issues. Through
the review committee and the action team, we are in the process of completing
our full assessment of all issues relating to the Y2K. We have developed
questionnaires regarding Y2K readiness to be used internally and externally. We
have completed our internal assessment and are in the process of assessing the
Y2K issues of our clients and vendors. We rely on certain software vendors who
are the makers of Y2K compliance statements as they apply to our specific
software. Our references to the Y2K compliance status
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of these systems are republications of their statements. Based on the
information collected to date, we do not believe that the cost of addressing our
Y2K issues will have a material adverse impact on our financial position. We
plan to devote all resources required to resolve any significant Y2K issues in a
timely manner.
STATE OF READINESS
We began our risk assessment in 1995. Since that time we have procured and
implemented certain accounting and financial reporting systems as well as
contract administration and billing systems that have been certified as Y2K
compliant by our vendors. Currently, 11 of our 14 operating units are accounted
for, or 85.3% of our gross revenue is recognized on, these Y2K compliant
systems. We are in the process of converting an additional operating unit and
plan to either convert the two remaining units or upgrade them to a Y2K
compliant version of their existing applications. In all cases, we believe that
our financial and accounting systems will be Y2K compliant in a timely manner
and will not be materially impacted by Y2K.
We have installed a Y2K compliant human resource information management
system. We have converted six of our operating units to date. We are currently
in the process of converting our non-Y2K compliant units by July 1999 In all
cases, we believe that our human resource management information systems will be
Y2K compliant in a timely manner and will not be materially impacted by the Y2K.
We have expended or obligated approximately $2.6 million on the procurement
of these systems, the conversion of data from legacy systems to these systems,
and on the implementation and testing of these systems.
We have extensive business with the Federal government. Should the Federal
government, specifically the Department of Defense, experience significant
business interruptions relating to non-Y2K compliance, we could be materially
impacted. To the extent that other third parties upon which we rely, such as
banking institutions, clients and vendors, are unable to address their Y2K
issues in a timely manner, we could be materially impacted. We believe the
worst case scenario relating to Y2K would be an extensive period of time in
which the Federal government and other third parties could not process payments
promptly.
RISKS
We believe the risks associated with non-Y2K compliance include:
- our inability to invoice and process payments;
- our inability to produce accurate and timely financials;
- the impact on our cash flow and working capital needs;
- the impact on our profitability; and
- our potential liability to third parties for not meeting contracted
deliverables.
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CONTINGENCY PLANS
We currently do not have formal contingency plans for the failure of our
financial and accounting systems. We have substantial experience in the
conversion process from multiple legacy systems to our vendor certified Y2K
systems. We have an experienced and dedicated staff to perform the functions
identified and are reasonably confident that the projected conversions will be
accomplished as projected.
We currently do not have formal contingency plans for the failure of our
human resource information management system. Our implementation strategy has
been to install the system as simply as possible, with little customization.
Our vendor supports this implementation strategy and has agreed to a financial
penalty if the implementation is not achieved within three months. If conversion
is not achieved by August 1999, we believe there will still be sufficient time
to meet the Y2K deadline.
We maintain, as a matter of policy and practice, mitigation plans in the
event of systems failure, which include regular backup of historical
information.
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RISK FACTORS
SOME OF THE INFORMATION IN THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
YOU CAN IDENTIFY THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY,"
"WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE" and "CONTINUE" OR SIMILAR
WORDS. YOU SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY BECAUSE
THEY: (1) DISCUSS OUR FUTURE EXPECTATIONS; (2) CONTAIN PROJECTIONS OF OUR FUTURE
OPERATING RESULTS OR OF OUR FUTURE FINANCIAL CONDITION; OR (3) STATE OTHER
"FORWARD-LOOKING" INFORMATION. WE BELIEVE IT IS IMPORTANT TO COMMUNICATE OUR
EXPECTATIONS TO OUR INVESTORS. THERE MAY BE EVENTS IN THE FUTURE, HOWEVER, THAT
WE ARE NOT ACCURATELY ABLE TO PREDICT OR OVER WHICH WE HAVE NO CONTROL. THE
RISK FACTORS LISTED IN THIS SECTION, AS WELL AS ANY CAUTIONARY LANGUAGE IN THIS
QUARTERLY REPORT ON FORM 10-Q, PROVIDE EXAMPLES OF RISKS, UNCERTAINTIES AND
EVENTS THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTATIONS
DESCRIBED IN FORWARD-LOOKING STATEMENTS. THE OCCURRENCE OF ANY OF THE EVENTS
DESCRIBED IN THESE RISK FACTORS AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM
10-Q COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION
AND OPERATING RESULTS. UPON THE OCCURRENCE OF ANY OF THESE EVENTS, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE.
RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY
A significant part of our growth strategy is to acquire other companies
that complement our lines of business or that broaden our geographic presence.
During fiscal 1998, we purchased ten companies in five separate transactions.
During the six months ended April 4, 1999, we purchased one company. We expect
to continue to acquire companies as an element of our growth strategy.
Acquisitions involve certain risks that could cause our actual growth or
operating results to differ from our expectations or the expectations of
security analysts. For example:
- We may not be able to identify suitable acquisition candidates or to
acquire additional companies on favorable terms;
- We compete with others to acquire companies. Competition may increase
and may result in decreased availability or increased price for
suitable acquisition candidates;
- We may not be able to obtain the necessary financing, on favorable
terms or at all, to finance any potential acquisitions;
- We may ultimately fail to consummate an acquisition even if announced
that we plan to acquire a company;
- We may fail to successfully integrate or manage these acquired
companies due to differences in business backgrounds or corporate
cultures;
- These acquired companies may not perform as we expect;
- We may find it difficult to provide a consistent quality of service
across our geographically diverse operations; and
- If we fail to successfully integrate any acquired company, our
reputation could be damaged. This could make it more difficult to
market our services or to acquire additional companies in the future.
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In addition, our acquisition strategy may divert management's attention away
from our primary service offerings, result in the loss of key clients or
personnel and expose us to unanticipated liabilities.
Finally, acquired companies that derive a significant portion of their
revenues from the Federal government and that do not follow the same cost
accounting policies and billing procedures as we do may be subject to larger
cost disallowances for greater periods than we typically encounter. If we fail
to determine the existence of unallowable costs and establish appropriate
reserves in advance of an acquisition we may be exposed to material
unanticipated liabilities, which could have a material adverse effect on our
business.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS
Our quarterly revenues, expenses and operating results may fluctuate
significantly because of a number of factors, including:
- The seasonality of the spending cycle of public sector clients,
notably the Federal government;
- Employee hiring and utilization rates;
- The number and significance of client engagements commenced and
completed during a quarter;
- Delays incurred in connection with an engagement;
- The ability of clients to terminate engagements without penalties;
- The size and scope of engagements;
- The timing and size of the return on investment capital; and
- General economic and political conditions.
Variations in any of these factors could cause significant fluctuations in our
operating results from quarter to quarter and could result in net losses.
POTENTIAL VOLATILITY OF OUR STOCK PRICE
The trading price of our Common Stock has fluctuated widely. In addition,
in recent years the stock market has experienced extreme price and volume
fluctuations. The overall market and the price of our Common Stock may continue
to fluctuate greatly. The trading price of our Common Stock may be significantly
affected by various factors, including:
- Quarter to quarter variations in our operating results;
- Changes in environmental legislation;
- Changes in investors' and analysts' perception of the business risks
and conditions of our business;
- Broader market fluctuations; and
- General economic or political conditions.
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MANAGEMENT OF GROWTH
We are growing rapidly. Our growth presents numerous managerial,
administrative, operational and other challenges. Our ability to manage the
growth of our operations will require us to continue to improve our operational,
financial and human resource management information systems and our other
internal systems and controls. In addition, our growth will increase our need to
attract, develop, motivate and retain both our management and professional
employees. The inability of our management to manage our growth effectively or
the inability of our employees to achieve anticipated performance or utilization
levels, could have a material adverse effect on our business.
RELIANCE ON KEY PERSONNEL AND QUALIFIED PROFESSIONALS
We depend upon the efforts and skills of our executive officers, senior
managers and consultants. With limited exceptions, we do not have employment
agreements with any of these individuals. The loss of the services of any of
these key personnel could adversely affect our business. Although we have
obtained non-compete agreements from certain principals and stockholders of
companies we have acquired, we generally do not have non-compete or employment
agreements with key employees who were not once equity shareholders of these
companies. We do not maintain key-man life insurance policies on any of our
executive officers or senior managers.
Our future growth and success depends on our ability to attract and retain
qualified scientists and engineers. The market for these professionals is
competitive and we may not be able to attract and retain such professionals.
DEPENDENCE UPON EXISTING LAWS AND REGULATIONS
A significant amount of our resource management business is generated
either directly or indirectly as a result of existing Federal and state
governmental laws, regulations and programs. Any changes in these laws or
regulations that reduce funding or affect the sponsorship of these programs
could reduce the demand for our services and could have a material adverse
effect on our business.
CONCENTRATION OF REVENUES
Agencies of the Federal government are among our most significant clients.
During the six months ended April 4, 1999, approximately 41.7% of our net
revenue was derived from federal agencies, of which 27.2% was derived from the
Department of Defense (DOD), 16.2% from the Environmental Protection Agency
(EPA), and 2.7% from the Department of Energy (DOE). Some contracts with
Federal government agencies require annual funding approval and may be
terminated at their discretion. A reduction in spending by Federal government
agencies could limit the continued funding of existing contracts with them and
could limit our ability to obtain additional contracts. These limitations, if
significant, could have a material adverse effect on our business.
Additionally, the failure of clients to pay significant amounts due us for
our services could adversely affect our business. For example, we recently
received notification from a Federal government agency that we are entitled to
payments in excess of our billings. However, the agency involved must obtain
specific funding approval for amounts owed to us and there can be no assurance
this funding approval will be obtained.
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RISKS ASSOCIATED WITH GOVERNMENTAL AUDITS
Contracts with the Federal government and other governmental agencies are
subject to audit. Most of these audits are conducted by the Defense Contract
Audit Agency (DCAA), which reviews our overhead rates, operating systems and
cost proposals. The DCAA may disallow costs if it determines that we accounted
for these costs incorrectly or in a manner inconsistent with Cost Accounting
Standards. A disallowance of costs by the DCAA, or other governmental auditors,
could have a material adverse effect on our business.
In September 1995, we acquired PRC Environmental Management, Inc. (EMI).
EMI also contracts with Federal government agencies and such contracts are also
subject to the same governmental audits. The DCAA has completed audits of EMI's
contracts for the fiscal years 1987 through 1996. As a result of these audits
and negotiations with the DCAA, the DCAA disallowed approximately $3.1 million
in costs.
CONTRACTS
We contract with Federal and state governments as well as with the private
sector. These contracts are often subject to termination at the discretion of
the client. Additionally, we enter into various types of contracts with our
clients, including fixed-price contracts. In the six months ended April 4, 1999,
approximately 31.4% of our net revenue was derived from fixed-price contracts.
Fixed-price contracts protect clients and expose us to a number of risks. These
risks include underestimation of costs, problems with new technologies,
unforeseen costs or difficulties, delays beyond our control and economic and
other changes that may occur during the contract period. Losses under
fixed-price contracts or termination of contracts at the discretion of the
client could have a material adverse effect on our business.
DEPENDENCE ON SUBCONTRACTORS
Under some of our contracts, we depend on the efforts and skills of
subcontractors for the performance of certain tasks. Reliance on subcontractors
varies from project to project. In the six months ended April 4, 1999,
subcontractor costs comprised 23.1% of our gross revenue. The absence of
qualified subcontractors with whom we have a satisfactory relationship could
adversely affect the quality of our service and our ability to perform under
some of our contracts.
SIGNIFICANT COMPETITION
We provide specialized management consulting and technical services to a
broad range of public and private sector clients. The market for our services
is highly competitive and we
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compete with many other firms. These firms range from small regional firms to
large national firms which may have greater financial and marketing resources
than ours.
We focus primarily on the resource management, infrastructure and
communications business areas. We provide services to our clients which include
Federal, state and local agencies, and organizations in the private sector.
We compete for projects and engagements with a number of competitors which
can vary from 10 to 100 firms. Historically, clients have chosen among competing
firms based on the quality and timeliness of the firm's service. We believe,
however, that price has become an increasingly important factor.
We believe that our principal competitors include, in alphabetical order,
Black & Veatch LLP; Brown & Caldwell; Castle Tower Corporation; Camp, Dresser &
McKee; CH2M Hill Companies Ltd.; Dames & Moore Group; EA Engineering, Science &
Technology, Inc.; Earth Tech, Inc.; ICF Kaiser International, Inc.; IT Group
Inc.; Mastec, Inc.; Montgomery Watson; OSP Consultants, Inc.; Roy F. Weston,
Inc.; and URS Greiner Corporation.
POTENTIAL LIABILITY AND INSURANCE
Our services involve significant risks of professional and other
liabilities which may substantially exceed the fees we derive from our services.
Our business activities could expose us to potential liability under various
environmental laws such as the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA). In addition, we sometimes
contractually assume liability under indemnification agreements. We cannot
predict the magnitude of such potential liabilities.
We currently maintain comprehensive general liability, umbrella and
professional liability insurance policies. We believe that our insurance
policies are adequate for our business operations. Professional liability
policies are "claims made" policies; thus, only claims made during the term of
the policy are covered. Should we terminate our professional liability policy
and not obtain retroactive coverage, we would be uninsured for claims made after
termination even if these claims are based on events or acts that occurred
during the term of the policy. Additionally, our insurance policies may not
protect us against potential liability due to various exclusions and retentions.
Should we expand into new markets, we may not be able to obtain insurance
coverage for such activities or, if insurance is obtained, the dollar amount of
any liabilities incurred could exceed our insurance coverage. Partially or
completely uninsured claims, if successful and of significant magnitude, could
have a material adverse affect on our business.
CONFLICTS OF INTEREST
Many of our clients are concerned about potential or actual conflicts of
interest in retaining management consultants. Federal government agencies have
formal policies against continuing or awarding contracts that would create
actual or potential conflicts of interest with other activities of a contractor.
These policies, among other things, may prevent us from bidding
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for or performing contracts resulting from or relating to certain work we have
performed for the government. In addition, services performed for a private
client may create a conflict of interest that precludes or limits our ability to
obtain work from other public or private organizations. We have, on occasion,
declined to bid on projects because of these conflicts of interest issues.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
In the six months ended April 4, 1999, approximately 4.8% of our net
revenue was derived from the international marketplace. Some contracts with our
international clients are denominated in foreign currencies. As such, these
contracts contain inherent risks including foreign currency exchange risk and
the risk associated with expatriating funds from foreign countries. If our
international revenue increases, our exposure to foreign currency fluctuations
will also increase. We have entered into forward exchange contracts to address
foreign currency fluctuations.
YEAR 2000
We are working to resolve the potential impact of the year 2000 (Y2K) on
its business operations and the ability of its computerized information systems
to accurately process information that may be date-sensitive. Any of its
programs that recognize a date using "00" as the year 1900 rather than the Y2K
could result in errors or system failures.
We utilize a number of computer programs across our entire operation. The
primary information technology systems we utilize are the accounting and
financial and human resource information management systems. We began our risk
assessment in 1995. Since that time we have procured and implemented certain
accounting and financial reporting systems as well as contract administration
and billing systems that have been certified as Y2K compliant by our vendors.
Currently, 11 of our 14 operating units are accounted for, or 85.3% of our gross
revenue is recognized on, these Y2K compliant systems. We are in the process of
converting an additional operating unit and plan to either convert the two
remaining units or upgrade them to a Y2K compliant version of their existing
applications. In all cases, we believe that our financial and accounting
systems will be Y2K compliant in a timely manner and will not be materially
impacted by Y2K.
We have extensive business with the Federal government. Should the Federal
government, especially the Department of Defense, experience significant
business interruptions relating to non-Y2K compliance, we could be materially
impacted. To the extent that other third parties upon which we rely, such as
banking institutions, clients and vendors, are unable to address their Y2K
issues in a timely manner, we could be materially impacted. We believe that
the worst case scenario relating to Y2K would be an extensive period of time in
which the Federal government and other third parties could not process payments
promptly, in addition to the Company's financial institutions not being able to
supply the Company with its working capital needs.
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Additional risks associated with non-Y2K compliance include:
- our inability to invoice and process payments;
- our inability to produce accurate and timely financials;
- the impact on our cash flow and working capital needs;
- the impact on our profitability; and
- our potential liability to third parties for not meeting contracted
deliverables.
IMPACT OF ANTI-TAKEOVER PROVISIONS ON OUR STOCK PRICE
Our certificate of incorporation and by-laws and the Delaware General
Corporation Law include provisions that may be deemed to have anti-takeover
effects. These anti-takeover effects could delay or prevent a takeover attempt
that our stockholders might consider in their best interests.
In addition, our board of directors is authorized to issue, without
obtaining stockholder approval, up to 2.0 million shares of preferred stock and
to determine the price, rights, preferences and privileges of such shares
without any further stockholder action. The existence of this "blank-check"
preferred stock could make more difficult or discourage an attempt to obtain
control of us by means of a tender offer, merger, proxy contest or otherwise.
In the future, we may adopt other measures that may have the effect of
delaying, deferring or preventing an unsolicited takeover, even if such a change
in control were at a premium price or favored by a majority of unaffiliated
stockholders. Certain of these measures may be adopted without any further vote
or action by the stockholders.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On February 26, 1999, we acquired 100.0% of the capital stock of McCulley,
Frick & Gilman, Inc., a Texas corporation (MFG), through stock purchases from
the former shareholders of MFG (the "Stock Purchase"). In connection with the
Stock Purchase, we issued an aggregate of 185,192 shares of our common stock,
$.01 par value ("Common Stock"), to the former shareholders of MFG. For
purposes of the Stock Purchase, each share of Common Stock was valued at $22.95.
The issuances of Common Stock were made by private placement in reliance on the
exemption from the registration provisions of the Securities Act of 1933, as
amended (the "Act"), provided for in Section 4(2) of the Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 17, 1999, we held our annual meeting of stockholders for the
sole purpose of re-electing the following five directors to our Board of
Directors: Li-San Hwang, Daniel A. Whalen, J. Christopher Lewis, Patrick C.
Haden and James J. Shelton. The votes cast in the election were as follows:
BROKER
DIRECTOR FOR WITHHOLD AUTHORITY ABSTENTIONS NON-VOTES
- -------- ---------- ------------------ ----------- ---------
Li-San Hwang 25,065,507 202,647 0 0
Daniel A. Whalen 24,925,742 342,412 0 0
J. Christopher Lewis 25,066,169 201,985 0 0
Patrick C. Haden 25,027,163 240,991 0 0
James J. Shelton 25,064,415 203,739 0 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 1, 1995).
3.2 Bylaws of the Company as amended to date (incorporated herein
by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1, No. 33-43723).
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3.3 Certificate of Amendment of Certificate of Incorporation of
the Company (incorporated herein by reference to Exhibit 3.4
to the Company's Annual Report on Form 10-K for the fiscal
year ended October 4, 1998).
10.1 Credit Agreement dated as of September 15, 1995 between the
Company and Bank of America Illinois, as amended by the First
Amendment to Credit Agreement dated as of November 27, 1995
(incorporated herein by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 1, 1995).
10.2 Second Amendment dated as of June 20, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company
and Bank of America Illinois (incorporated herein by
reference to Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 29, 1997).
10.3 Third Amendment dated as of December 15, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company
and Bank of America National Trust and Savings Association
(incorporated herein by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 28, 1997).
10.4 Fourth Amendment dated as of January 30, 1997 to the Credit
Agreement dated as of September 15, 1995 between the Company
and Bank of America National Trust and Savings Association
(incorporated herein by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 28, 1997).
10.5 Fifth Amendment dated as of July 6, 1998 to the Credit
Agreement dated as of September 15, 1995 between the Company
and Bank of America National Trust and Savings Association
(incorporated herein by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended).
10.6 Security Agreement dated as of September 15, 1995 among the
Company, GeoTrans, Inc., Simons Li & Associates, Inc., Hydro-
Search, Inc., PRC Environmental Management, Inc. and Bank of
America Illinois (incorporated herein by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 1, 1995).
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10.7 Pledge Agreement dated as of September 15, 1995 between the
Company and Bank of America Illinois (incorporated herein by
reference to Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 1, 1995).
10.8 Guaranty dated as of September 15, 1995, executed by the
Company in favor of Bank of America Illinois (incorporated
herein by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 1,
1995).
10.9 1989 Stock Option Plan dated as of February 1, 1989
(incorporated herein by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1, No. 33-43723).
10.10 Form of Incentive Stock Option Agreement executed by the
Company and certain individuals in connection with the
Company's 1989 Stock Option Plan (incorporated herein by
reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1, No. 33-43723).
10.11 Executive Medical Reimbursement Plan (incorporated herein by
reference to Exhibit 10.16 to the Company's Registration
Statement on Form S-1, No. 33-43723).
10.12 1992 Incentive Stock Plan (incorporated herein by reference
to Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 3, 1993).
10.13 Form of Incentive Stock Option Agreement used by the Company
in connection with the Company's 1992 Incentive Stock Plan
(incorporated herein by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 3, 1993).
10.14 1992 Stock Option Plan for Nonemployee Directors
(incorporated herein by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 3, 1993).
10.15 Form of Nonqualified Stock Option Agreement used by the
Company in connection with the Company's 1992 Stock Option
Plan for Nonemployee Directors (incorporated herein by
reference to Exhibit 10.21 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 3, 1993).
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10.16 1994 Employee Stock Purchase Plan (incorporated herein by
reference to Exhibit 10.22 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 2, 1994).
10.17 Form of Stock Purchase Agreement used by the Company in
connection with the Company's 1994 Employee Stock Purchase
Plan (incorporated herein by reference to Exhibit 10.23 to
the Company's Annual Report on Form 10-K for the fiscal year
ended October 2, 1994).
10.18 Employment Agreement dated as of June 11, 1997 between the
Company and Daniel A. Whalen (incorporated herein by
reference to Exhibit 10.16 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 29, 1997).
10.19 Registration Rights Agreement dated as of June 11, 1997 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.17 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 29, 1997).
10.20 Registration Rights Agreement dated as of July 11, 1997 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.18 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 28, 1997).
10.21 Registration Rights Agreement dated as of March 26, 1998
among the Company and the parties listed on Schedule A
attached thereto (incorporated herein by reference to Exhibit
10.20 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 29, 1998).
10.22 Registration Rights Agreement dated as of July 9, 1998 among
the Company and the parties listed on Schedule A attached
thereto (incorporated herein by reference to Exhibit 10.22 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 28, 1998).
10.23 Registration Rights Agreement dated as of September 22, 1998
among the Company and the parties listed on Schedule A
attached thereto (incorporated herein by reference to Exhibit
10.23 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 4, 1998).
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10.24 Registration Rights Agreement dated as of February 26, 1999
among the Company and the parties listed on Schedule A
attached hereto.
11 Computation of Net Income Per Common Share.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 19, 1999 TETRA TECH, INC.
By: /s/ Li-San Hwang
-------------------------------------------
Li-San Hwang
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ James M. Jaska
-------------------------------------------
James M. Jaska
Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
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