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Sour Deal Behind It, Tetra Tech Gets in Position for Turnaround

Tetra Tech Inc.’s decision last week to name Albert Smith, a former Lockheed Martin Corp. executive, to the newly created post of vice chairman comes at a crucial time for the Pasadena-based engineering and consulting firm.

Smith’s arrival eases questions about Tetra Tech’s future management, just as Chairman and Chief Executive Li-San Hwang is about to turn 70 next month.

After putting together compounded growth of 27 percent in both earnings and revenues for its first decade as a public company, Tetra Tech hit a wall in 2001 with the telecommunications meltdown.

The stock peaked above $37 in December 2000 and hasn’t climbed above $27.60 since early 2004. After that, Tetra Tech’s shares bounced along mostly between $12 and $18. Last week they were around $15.

By adding the position of vice chairman, Tetra Tech wants to close a difficult chapter in which it was forced to abandon its business building wireless antenna infrastructure after a soured contract with Nextel Communications Inc.

Smith has a long history of overseeing sophisticated workforces, as well as dealing with government agencies. That’s an important skill set, since Tetra Tech derives 50 percent of its revenues from the federal government. At Lockheed, he was credited with reviving the troubled space systems division after the Columbia shuttle disaster in 2003. He also served as president of Lockheed’s Integrated Systems & Solutions business, overseeing 11,000 employees.

“Al Smith will augment the talents of the company and strengthen its operational management,” said J. Christopher Lewis, a Tetra Tech board member and general partner at private equity firm Riordan Lewis & Haden. Lewis helped finance Tetra Tech’s management-led buyout from the former Honeywell Corp. in 1988.

The company was founded 30 years ago by Hwang, an expert in water systems. Tetra Tech serves as the water infrastructure arm for the Environmental Protection Agency, and it has long-term relationships with the U.S. Army Corps of Engineers, the Department of Defense and the Department of Energy.

Last week, a Tetra Tech joint venture was awarded a two-year, $6 million contract to create a tsunami warning system in the Indian Ocean. The company, with 7,400 employees in 300 offices, currently is working on the restoration of the Florida Everglades.

In Los Angeles, it helped design Pier 400, a cargo extension at Los Angeles Harbor, and it was recommended last month to lead the project to revitalize a 32-mile stretch of the Los Angeles River.

“The company has been called to action on oil spills, train derailments, chemical explosions, natural disasters, and suspected terrorist events,” said James Ragan, an analyst at Crowell Weedon & Co., who initiated coverage of Tetra Tech last month with a “buy” rating and a $17.50 price target.

But Tetra Tech has had its share of setbacks as well. The contract to design and build a wireless network for Nextel dragged earnings due to cost overruns, design changes and high capital requirements. “It was an onerous contract and was one that in hindsight the company shouldn’t have signed,” said Michael Bieber, Tetra Tech’s vice president of investor relations and corporate development. “We sat down with Nextel and agreed to hand back the California sites, which were the most expensive to build, and we are completing work on the sites in four other Western states.”

After negotiating an end to the contract, Tetra Tech took a nearly $40 million charge against second-quarter earnings. It also took $115 million in charges for a non-cash writedown of goodwill in its civil infrastructure segment, which led to a $123.8 million second-quarter loss. Yet plenty of investors still have hopes of a turnaround. In July, shares rallied after Tetra Tech announced that it would exit the wireless segment entirely.

Shareholders include T. Rowe Price Associates Inc. with 7.7 percent of outstanding shares, and hedge fund manager Jeffrey Gendell of Tontine Capital Partners in Greenwich, Conn. Gendell has amassed a stake higher than 10 percent held through various funds, according to Securities and Exchange Commission filings.

*Staff reporter Kate Berry can be reached at (323) 549-5225, ext. 228, or by e-mail at



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