Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

Commission File Number 0-19655

TETRA TECH, INC.

(Exact name of registrant as specified in its charter)

3475 East Foothill Boulevard, Pasadena, California  91107

(Address of principal executive office and zip code)

(626) 351-4664

(Registrant’s telephone number, including area code)

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  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o   No  x

As of July 28, 2008, 59,444,147 shares of the registrant’s common stock were outstanding.

Table of Contents

TETRA TECH, INC.

INDEX

2

Table of Contents

PART I.                 FINANCIAL INFORMATION

Item 1.                    Financial Statements

Tetra Tech, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value)

See accompanying Notes to Condensed Consolidated Financial Statements.

3

Table of Contents

Tetra Tech, Inc.

Condensed Consolidated Statements of Income

(unaudited – in thousands, except per share data)

See accompanying Notes to Condensed Consolidated Financial Statements.

4

Table of Contents

Tetra Tech, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

See accompanying Notes to Condensed Consolidated Financial Statements.

5

Table of Contents

TETRA TECH, INC.

Notes To Condensed Consolidated Financial Statements

1.                                      Basis of Presentation

The accompanying condensed consolidated balance sheet as of June 29, 2008, the condensed consolidated statements of income for the three and nine months ended June 29, 2008 and July 1, 2007, and the condensed consolidated statements of cash flows for the nine months ended June 29, 2008 and July 1, 2007 of Tetra Tech, Inc. (“we,” “us” or “our”) are unaudited, and, in the opinion of management, include all adjustments necessary for a fair statement of the financial position, the results of operations and cash flows for the periods presented.  The condensed consolidated balance sheet as of September 30, 2007 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007.  Certain prior year amounts have been reclassified to conform to the current year presentation.  The results of operations for the three and nine months ended June 29, 2008 are not necessarily indicative of the results to be expected for the fiscal year ending September 28, 2008.

2.                                      Accounts Receivable – Net

Net accounts receivable consisted of the following:

Billed accounts receivable represent amounts billed to clients that have not been collected.  Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to contract terms or billed after the period end date.  Substantially all unbilled receivables as of June 29, 2008 are expected to be billed and collected within 12 months.  Contract retentions represent amounts withheld by clients until certain conditions are met or the project is completed, which may be several months or years.  The allowance for doubtful accounts was determined based on a review of customer-specific accounts, bankruptcy filings by clients, and contract issues due to current events and circumstances.

Billed accounts receivable related to federal government contracts were $113.9 million and $95.5 million as of June 29, 2008 and September 30, 2007, respectively.  The federal government unbilled receivables, net of progress payments, were $106.6 million and $88.5 million as of June 29, 2008 and September 30, 2007, respectively.  Other than the federal government, no single client accounted for more than 10% of our accounts receivable as of June 29, 2008 and September 30, 2007.

3.                                      Mergers and Acquisitions

All of the following acquisitions were accounted for as business combinations.  Accordingly, the purchase prices were allocated to the assets acquired and liabilities assumed based on their fair values.  The purchase price allocations for fiscal 2008 acquisitions, except for ARD, Inc. (“ARD”), are preliminary and subject to adjustments based upon their respective valuations and final determinations of the net assets acquired.  None of the fiscal 2007

6

Table of Contents

and 2008 acquisitions, except for ARD, were considered material, individually or in the aggregate, as they did not have a material impact on our financial position, results of operations or cash flows for the respective reporting periods and, as such, no pro forma results are presented.

In the third quarter of fiscal 2007, we acquired (i) all of the outstanding shares of Delaney Construction Corporation, Delaney Crushed Stone Products, Inc. and Delaney Leasing Company, Inc.; and (ii) all of the limited liability company interests of Delaney Properties, LLC (collectively, “DGI”), which provides planning, development and construction services for wind energy programs, Base Realignment and Closure (“BRAC”) projects, and water and wastewater treatment and conveyance facilities to its broad-based clients.  The purchase price consisted of cash payments of $32.5 million.  In addition, the former shareholders will receive, over a four-year period from the acquisition date, guaranteed deferred cash payments in the aggregate amount of $9.0 million and contingent earn-out payments up to an aggregate maximum of $12.0 million upon achievement of certain financial objectives.  In the third quarter of fiscal 2008, we paid $2.3 million as a portion of the guaranteed deferred cash payment and $1.2 million as a contingent earn-out payment to the former shareholders.  DGI is part of our resource management segment.

In fiscal 2007, we also acquired the following businesses to enhance our service offerings and expand our geographic presence:

The total purchase price for the above acquisitions consisted of initial cash payments of $8.1 million and contingent earn-out payments upon achievement of certain financial objectives over a three or four-year period from their respective acquisition dates.

In the first quarter of fiscal 2008, we acquired all of the outstanding shares of capital stock of ARD, which provides applied research, planning, design and implementation services focused on a range of water, energy, environmental and governance issues.  ARD manages large, complex international development projects for its clients, predominantly the U.S. Agency for International Development (“USAID”).  This acquisition continues our international expansion as it increases our professional workforce in new geographic areas and technical specialties around the world.  ARD is part of our resource management segment.  The purchase price consisted of $41.5 million in cash payments.  The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:

No pro forma information is presented for fiscal 2008 as the ARD acquisition closed on the first day of our fiscal year.  The table below presents summarized unaudited consolidated pro forma operating results, assuming we had purchased ARD at the beginning of fiscal 2007:

7

Table of Contents

In the second and third quarters of fiscal 2008, we acquired certain assets of two civil engineering firms, Daylor Consulting Group, Inc. (“Daylor”) and WJA P.L.L.C. (“WJA”).  These acquisitions, which were integrated into our infrastructure segment, offer complementary technical expertise and enable us to enhance our infrastructure service offerings.  We also acquired all of the outstanding shares of capital stock of INCA Engineers, Inc. (“INCA”) and certain assets of Quattro Associates, Inc. (“Quattro”).  INCA provides consulting and civil/mechanical engineering services for water infrastructure and transportation projects, including locks, levees and dams projects for the U.S. Army Corps of Engineers (“USACE”).  Quattro provides process design and environmental consulting services to the steel and coke industries.  INCA and Quattro are part of our resource management segment.  The total initial purchase price for these acquisitions was $12.0 million in cash and resulted in goodwill of $5.3 million.  In addition, the sellers have certain earn-out rights that allow them to receive additional cash payments over a three or four-year period upon achievement of certain financial objectives.

Subsequent Event.  In the fourth quarter of fiscal 2008, we acquired three consulting and engineering firms: (1) Institute for Public-Private Partnerships, Inc., which advises government and private sector clients including USAID, on public-private partnership structures for infrastructure development; (2) Rothberg, Tamburini & Winsor, Inc., which provides water and wastewater design services to municipalities, mining companies, utilities and industrial clients, and (3) Highlander Environmental Corp., which offers environmental capabilities for oil and gas industry clients.  These acquisitions enhance our service offerings and expand our geographic reach.  The total initial purchase price for these acquisitions was $19.4 million in cash.  In addition, the sellers have certain earn-out rights that allow them to receive additional cash payments over a two or four-year period upon the achievement of certain financial objectives.

4.                                      Goodwill and Intangibles

For the first nine months of fiscal 2008, we recorded $17.9 million, $4.0 million, $0.6 million and $0.6 million of goodwill on our condensed consolidated balance sheet as of June 29, 2008 for the ARD, INCA, WJA and Quattro acquisitions, respectively.  These amounts resulted from the excess of the purchase price for each respective acquisition over the fair value of its net tangible and identifiable intangible assets acquired.  In addition, we adjusted goodwill for purchase price allocation adjustments related to certain fiscal 2007 acquisitions, and a $1.5 million payment related to the DGI acquisition for an Internal Revenue Code Section 338(h)(10) election to treat the stock purchase as an asset purchase for tax purposes.  The changes in the carrying value of goodwill by segment for the nine months ended June 29, 2008 were as follows:

8

Table of Contents

The gross amount and accumulated amortization of our acquired identifiable intangible assets with finite useful lives as of June 29, 2008 and September 30, 2007, included in intangible assets – net on the condensed consolidated balance sheets, were as follows:

For the nine months ended June 29, 2008, $0.6 million, $2.8 million and $8.5 million were assigned to non-compete agreements, customer relations and backlog, respectively.  These amounts were related to the preliminary purchase price allocations for ARD, INCA, WJA, Daylor and Quattro, and, to a lesser extent, adjustments for certain fiscal 2007 acquisitions.  For the three months ended June 29, 2008 and July 1, 2007, amortization expense for acquired identifiable intangible assets with finite useful lives was $1.4 million and $0.5 million, respectively.  For the nine months ended June 29, 2008 and July 1, 2007, the amortization expense was $3.9 million and $1.3 million, respectively.  Estimated amortization expense for the remainder of fiscal 2008 and the succeeding years is as follows:

5.                                      Discontinued Operation

In fiscal 2006, we sold Vertex Engineering Services, Inc., and this operating unit was accounted for as a discontinued operation in the condensed consolidated financial statements for all reporting periods.  For the three and nine months ended July 1, 2007, we reported a gain from discontinued operation, net of tax, of approximately $26,000 and $52,000, respectively.

6.                                      Debt

In December 2006, we retired our senior secured notes and paid off the remaining principal balance of $72.9 million.  In connection with this early debt retirement, we incurred pre-payment premiums of $3.1 million and expensed the remaining unamortized deferred financing costs of $1.1 million in the first quarter of fiscal 2007.  In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 145, Rescission of Financial Accounting Standards Board (“FASB”) Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, we reported a $4.2 million loss on retirement of debt as part of our income from operations in the first quarter of fiscal 2007.

In May 2008, we entered into an amendment to our Second Amended and Restated Credit Agreement (“Credit Agreement”) solely to provide additional flexibility with respect to potential future acquisitions.  There was no change in the overall size of the revolving credit facility.

7.                                      Stockholders’ Equity and Stock Compensation Plans

We account for stock-based compensation in accordance with SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”).  Under the fair value recognition provisions of this statement, stock-based compensation

9

Table of Contents

cost is measured at the grant date based on the value of the award granted and recognized over the period in which the award vests.  For the three and nine months ended June 29, 2008, stock-based compensation expense was $2.2 million and $6.1 million, compared to $1.7 million and $4.2 million for the same periods last year, respectively.  These amounts are included in selling, general and administrative (“SG&A”) expenses and to a lesser extent, other contract costs in our condensed consolidated statements of income.  Stock-based compensation expense for the three and nine months ended June 29, 2008 may not be indicative of the total expense to be expected for fiscal year 2008.

8.                                      Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding.  Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding and dilutive potential common shares for the period.  Potential common shares include the weighted average dilutive effects of outstanding stock options using the treasury stock method.

The following table sets forth the number of weighted average shares used to compute basic and diluted EPS:

For the three and nine months ended June 29, 2008, 1.5 million and 2.6 million common stock options were anti-dilutive, compared to 2.7 million and 3.9 million options for the same periods last year, respectively.  These options were excluded from the calculation of dilutive potential common shares because the exercise prices were above the average market prices for the reporting periods.

9.                                      Income Taxes

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN 48”). Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.  FIN 48 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and disclosure requirements for uncertain tax positions.

10

Table of Contents

We adopted the provisions of FIN 48 on October 1, 2007 and did not record any cumulative effect adjustment to retained earnings as a result of this adoption.  As of October 1, 2007 and June 29, 2008, the amounts of unrecognized tax benefits were $32.1 million and $37.2 million, respectively, of which $15.4 million would impact our effective tax rate if recognized for both periods.  We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense.  The amount of interest income accrued as of October 1, 2007 was $8.4 million.  The amount of interest income accrued as of June 29, 2008 was $9.4 million and is included in the non-current income taxes receivable.

While the adoption of FIN 48 did not have a cumulative effect on retained earnings, we recorded certain reclassifications that affected the presentation on our condensed consolidated balance sheet as of June 29, 2008. We recorded a reclassification from deferred tax liability to non-current income taxes payable to reflect the amount of expected tax payments related to temporary differences.  Our net deferred tax asset balances reflect the expected future net tax deductions. While unrelated to the adoption of FIN 48, the increase in our current income taxes receivable reflects estimated tax payments in excess of our current provision.

We are currently under examination by the Internal Revenue Service (“IRS”) for fiscal years 1997 through 2004 and the California Franchise Tax Board (“FTB”) for fiscal years 2001 through 2003 related to research and experimentation credits (“R&E Credits”).  In addition, during fiscal 2002, the IRS approved our request to change the accounting method for revenue recognition for income tax purposes for some of our businesses.  In 2002, we filed amended tax returns for fiscal years 1997 through 2000 to claim R&E Credits and to claim refunds due under the newly approved accounting method.  At the time the refund claims were filed, we were under examination by the IRS for those years.  The claimed refunds are being held pending completion of the IRS examination.  The estimated realizable refunds have been classified as non-current income taxes receivable on our condensed consolidated balance sheets.

During the third quarter of fiscal 2008, we received a 30-day letter from the IRS related to the R&E Credits and the accounting method for revenue recognition for fiscal years 2002 through 2004.  We are protesting the positions in the letter.  We are currently in the IRS appeals process for these same matters for fiscal years 1997 through 2001.  During the third quarter of fiscal year 2008, we received a Notice of Proposed Assessment (“NOPA”) from the FTB related to R&E Credits for fiscal 2001 through 2003.  We have protested the position in the NOPA.  Management believes that it is reasonably possible we will reach a resolution of the issues for fiscal years 1997 through 2001 under appeal with the IRS in the next twelve months.  If the resolution is favorable, the change in unrecognized tax benefits could be significant and we could receive a significant cash refund.  However, if the resolution is unfavorable, there may be a material adverse effect on our financial results as a result of an increase in income tax expense, but no material impact on our cash flow in future periods.  At this time, an estimate of the outcome cannot be reliably made.   With a few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for fiscal years before 1997.

10.                               Reportable Segments

We currently manage our business in three reportable segments: resource management, infrastructure and communications.  Management established these segments based upon the services provided, the different marketing strategies associated with these services and the specialized needs of their respective clients.  Our resource management segment provides engineering, consulting and construction services primarily addressing water quality and availability, environmental restoration, productive reuse of defense facilities, strategic environmental resource planning and alternative energy.  Our infrastructure segment provides engineering, systems integration, program management, and construction management services for the development, upgrading, replacement and maintenance of civil infrastructure.  Our communications segment provides engineering, permitting, site acquisition and construction management services for utility and telecommunication infrastructure projects.

During the first quarter of fiscal 2006, we developed and started implementing the initial phase of a plan to combine operating units and re-align our management structure.  Throughout fiscal 2007 and to date, we consolidated some of our reporting units under common management structure, information systems and back-office functions.  These changes have had no impact on our operating segment structure to date.  As a result of our exit from the wireless communications business in fiscal 2006, the remaining portion of the communication business, known as the wired business, represents a small part of our overall business.  In addition, the wired business operating units increasingly perform services and serve clients that are similar in nature to those of the infrastructure business.  The wired business operating units provide engineering, permitting, site acquisition and construction

11

Table of Contents

management to state and local governments, telecommunications and cable operators, utility companies and other commercial clients.  We continue to assess our operating and management structure, including the alignment of our wired business operating units.  Should further changes be effected, we will evaluate the impact on our segment reporting as appropriate.

Management evaluates the performance of these reportable segments based upon their respective income from operations before the effect of amortization expense related to acquisitions.  We account 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.  All inter-company balances and transactions are eliminated in consolidation.

The following tables set forth summarized financial information concerning our reportable segments (as of and for the periods noted below):

Reportable Segments:

12

Table of Contents

Reconciliations: