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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

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 offices)  (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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ý   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ý   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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Yes  o   No  ý

As of August 1, 2011, 62,481,732 shares of the registrant’s common stock were outstanding.

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TETRA TECH, INC.

INDEX

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Tetra Tech, Inc.

Condensed Consolidated Balance Sheets

(unaudited - in thousands, except par value)

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 share data)

See accompanying Notes to Condensed Consolidated Financial Statements.

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Tetra Tech, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

See accompanying Notes to Condensed Consolidated Financial Statements.

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TETRA TECH, INC.

Notes to Condensed Consolidated Financial Statements

1.                                      Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes of Tetra Tech, Inc. (“we,” “us” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  They do not include all of the information and footnotes required by GAAP for complete financial statements and, therefore, should be read in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended October 3, 2010.

Our condensed consolidated financial statements reflect all normal recurring adjustments that are considered necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented.  The results of operations and cash flows for any interim period are not necessarily indicative of results for the full year or for future years.

Our condensed consolidated financial statements include the accounts of our wholly-owned subsidiaries, and joint ventures of which we are the primary beneficiary.  For the joint ventures in which we do not have a controlling interest, but exert a significant influence, we apply the equity method of accounting (see Note 12 “Joint Ventures” for further discussion).  All significant intercompany balances and transactions have been eliminated in consolidation.  Certain prior year amounts have been reclassified to conform to the current year presentation.  For the three and nine months ended July 3, 2011, “Interest expense – net” on the condensed consolidated statements of income reflects $0.2 million and $0.5 million in interest income compared to $0.2 million and $0.6 million for the same periods last year, respectively.

2.             Accounts Receivable – Net

Net accounts receivable and billings in excess of costs on uncompleted contracts 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 July 3, 2011 are expected to be billed and collected within twelve months.  Unbilled accounts receivable include amounts related to requests for equitable adjustment to contracts that provide for price redetermination primarily with the U.S. federal government.  These amounts are recorded only when they can be reliably estimated and realization is probable.  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 is determined based on a review of client-specific accounts, and contract issues resulting from current events and economic circumstances.  Billings in excess of costs on uncompleted contracts represent the amount of cash collected from clients and billings to clients on contracts in advance of

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revenue recognized.  The majority of billings in excess of costs on uncompleted contracts will be earned within twelve months.

Billed accounts receivable related to U.S. federal government contracts were $96.0 million and $86.3 million as of July 3, 2011 and October 3, 2010, respectively.  U.S. federal government unbilled receivables, net of progress payments, were $97.6 million and $102.0 million as of July 3, 2011 and October 3, 2010, respectively.  The non-current billings in excess of costs on uncompleted contracts are reported as part of our “Other long-term liabilities” on our condensed consolidated balance sheets.  Other than the U.S. federal government, no single client accounted for more than 10% of our accounts receivable as of July 3, 2011 and October 3, 2010.

3.             Mergers and Acquisitions

On October 4, 2010, we acquired all of the outstanding capital stock of BPR, Inc. (“BPR”), a Canadian scientific and engineering services firm that provides multidisciplinary consulting and engineering support for water, energy, industrial plants, buildings and infrastructure projects. This acquisition further expands our geographic presence in eastern Canada, and enables us to provide clients with additional services throughout Canada. BPR is part of our Engineering and Consulting Services (“ECS”) segment. The estimated fair value of the purchase price was approximately $186 million, of which the initial payment of $157 million was financed with borrowings under our revolving credit facility and available cash resources. In addition, the former owners may receive over a two-year period from the acquisition date contingent earn-out payments up to an aggregate maximum of Canadian dollars (“CAD”) $40 million (equivalent to U.S. $41.7 million as of July 3, 2011) upon achievement of specified financial objectives. The estimated fair value of the contingent earn-out payments resulted in a discounted liability of $31.2 million, of which $15.5 million is reflected in “Contingent earn-out liabilities” and $15.7 million is included in “Other long-term liabilities” on our condensed consolidated balance sheet as of July 3, 2011. The contingent earn-out consideration is based on future operating income, and its fair value is estimated by management assessing the probability of the results being achieved in the future. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:

BPR was acquired at the beginning of fiscal 2011 and its results are included in our consolidated results of operations for all of fiscal 2011.  No pro forma results are presented for fiscal 2010 as the effect of the BPR acquisition was not considered material to our consolidated results of operations.

In the second quarter of fiscal 2011, we acquired substantially all of the assets of a Canadian firm that enhances our service offerings in water treatment and tailings management for oil sand producers, which are included in our ECS segment.  During the first nine months of fiscal 2010, we acquired three companies that enhanced our service offerings and expanded our geographic presence in the ECS and Remediation and Construction Management segments.  The purchase price for two of these acquisitions consisted of cash payments.  The purchase price for the remaining two acquisitions consisted of an initial cash payment and contingent earn-out payments based upon achievement of specified financial objectives.  The estimated fair values of the contingent considerations were recorded as liabilities on our condensed consolidated balance sheets.  No pro forma results are presented for the respective interim periods as the effect of these acquisitions was not considered material, individually or in aggregate, to our consolidated financial statements.

Subsequent Event.  In the fourth quarter of fiscal 2011, we acquired substantially all of the assets of a mining engineering company located in Western Australia, using available cash resources.  This acquisition enhances our technical expertise in the mining and minerals processing sector, expands our service offerings in Australia and serves as a gateway to new markets across Asia and Africa.

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4.             Goodwill and Intangibles

The changes in the carrying value of goodwill by segment for the nine months ended July 3, 2011 were as follows:

The goodwill additions are attributable to fiscal 2011 acquisitions described in Note 3, “Mergers and Acquisitions” and represent the value paid for the assembled workforce, the international geographic presence, and engineering and consulting expertise.  Substantially all of the goodwill additions are not deductible for income tax purposes.  The foreign currency translation adjustments relate to our Canadian operations.  The goodwill adjustments reflect earn-out payments and accruals associated with acquisitions consummated prior to fiscal 2010, which are accounted for as goodwill adjustments under previous accounting rules.  The purchase price allocations related to the fiscal 2011 acquisitions are preliminary, and subject to adjustment based on the valuation and final determination of net assets acquired.  We do not believe that any adjustment will have a material effect on our consolidated results of operations.

The gross amount and accumulated amortization of our acquired identifiable intangible assets with finite useful lives included in “Intangible assets - net” on our condensed consolidated balance sheets, were as follows:

For the nine months ended July 3, 2011, the increases in gross amounts are attributable to fiscal 2011 acquisitions described in Note 3, “Mergers and Acquisitions” and, to a lesser extent, foreign currency translation adjustments. For the three and nine months ended July 3, 2011, amortization expense for these intangible assets was $7.0 million and $20.7 million, compared to $2.9 million and $8.9 million for the same periods last year, respectively. Estimated amortization expense for the remainder of fiscal 2011 and the succeeding years is as follows:

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5.             Stockholders’ Equity and Stock Compensation Plans

We recognize the fair value of our stock-based compensation awards as compensation expense on a straight-line basis over the requisite service period in which the award vests.  For the three and nine months ended July 3, 2011, stock-based compensation expense was $2.5 million and $7.8 million, compared to $2.3 million and $7.7 million for the same periods last year, respectively. The majority of these amounts was included in “Selling, general and administrative (“SG&A”) expenses” in our condensed consolidated statements of income.

No stock options were granted in the third quarter of fiscal 2011.  For the nine months ended July 3, 2011, we granted 1,060,849 stock options with exercise prices of $22.81 – $23.48 per share and an estimated weighted-average fair value of $9.11 per share.  In addition, we awarded 84,606 shares of restricted stock in the first quarter of fiscal 2011 to our directors and executive officers at the fair value of $23.48 per share on the award date.  All of these shares are performance-based and vest over a three-year period.  The number of shares that ultimately vest is based on the growth in our diluted earnings per share.

6.             Earnings Per Share (“EPS”)

Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding, less unvested restricted stock 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 for the period.  Potential common shares include the weighted-average dilutive effects of outstanding stock options and unvested restricted stock 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 July 3, 2011, 2.9 million and 2.7 million options were excluded from the calculation of dilutive potential common shares, compared to 2.1 million and 2.3 million options for the same periods last year, respectively.  These options were not included in the computation of dilutive potential common shares because the assumed proceeds per share exceeded the average market price per share for that period.  Therefore, their inclusion would have been anti-dilutive.

7.             Income Taxes

For the first nine months of fiscal 2011, our effective tax rate was 33.4% compared to 37.9% for the same period last year. The lower effective tax rate was primarily the result of the extension of the research and experimentation credits (“R&E credits”) and the continued expansion of our foreign operations.  In the first quarter of fiscal 2011, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law.  The Act included a retroactive extension of R&E credits for amounts incurred from January 1, 2010 through December 31, 2011.  As a result of this extension, a $1.2 million benefit from R&E credits for the last nine months of fiscal 2010 was included in the first quarter of fiscal 2011 tax expense.  We completed R&E credit studies

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for fiscal 2008 and fiscal 2009 during the second quarter of fiscal 2011.  The results of these studies did not have a material impact on the benefit previously recognized for the R&E credits.

8.             Reportable Segments

Our reportable segments are as follows:

Engineering and Consulting Services (“ECS”).  ECS provides front-end science and consulting services and project management in the areas of surface water management, groundwater, waste management, mining and geotechnical sciences, and information technology and modeling.

Technical Support Services (“TSS”).  TSS advises clients through the study, design and implementation of projects.  TSS provides management consulting and strategic direction in the areas of environmental remedial planning, disaster management, climate change, international development, and technical government staffing services.

Engineering and Architecture Services (“EAS”).  EAS provides engineering and architecture design services, including Leadership in Energy and Environmental Design (“LEED”) services, together with technical and program administration services for projects related to water infrastructure, buildings and facilities, and transportation and land development.

Remediation and Construction Management (“RCM”).  RCM provides a wide array of services, including program management, engineering, procurement and construction, construction management, and operations and maintenance.  RCM is focused on construction management for U.S. federal and state and local government, and commercial clients; environmental remediation including unexploded ordinance (“UXO”); wetland restoration; energy projects including wind, solar, nuclear and other alternative energies; and communications development.

Management evaluates the performance of these reportable segments based upon their respective segment operating income before the effect of amortization expense related to acquisitions and other unallocated corporate expenses.  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 costs of the services performed.  All significant intercompany balances and transactions are eliminated in consolidation.

The following tables set forth summarized financial information concerning our reportable segments:

Reportable Segments