V I S I O N
2020 Annual Report
VISION Dear Shareholders,
As we enter 2021, Tetra Tech is in the best
position ever in the history of the company.
We are leaders in our markets with #1 rankings in Water
for 17 consecutive years, Environment for 12 consecutive
years, and 8 additional categories as published by
Engineering News-Record. Our Leading with Science®
approach is valued by our clients and augmented by a suite
of proprietary technologies and analytical tools we call
the Tetra Tech Delta. Through our projects, Tetra Tech is
working to build a better future that is improving the lives of millions of people around
the world.
In 2020, a year marked by the world’s response to the global pandemic, Tetra Tech
demonstrated that our unwavering focus is on our clients and our work providing
essential services in water, environment, sustainable infrastructure, renewable energy,
and international development. In fiscal year 2020, our 20,000 associates worked on
more than 65,000 projects, in more than 100 countries on 7 continents, generating
$3 billion in revenue. As a result of our differentiated high-end services, Tetra Tech
achieved record results in 2020, including all-time highs for earnings per share, cash
flow, and backlog. Earnings per share in 2020 was up 11 percent from the prior year,
and the company generated $262 million of cash flow from operations, which was up 26
percent from last year. The demand for our high-end consulting services and resilience
of our business model resulted in new program wins that drove backlog to another all-
time high of more than $3.2 billion at year-end.
In 2020 we expanded our contract capacity to more than $20 billion, providing us
with access to some of the largest markets in the world. With new U.S. government
contracts, we are prepared to support a resurgence in research and programs
to support essential climate change, water, environment, and renewable energy
programs. We also advanced our strategic focus on cutting-edge technology solutions
with the acquisitions of Segue Technologies and BlueWater Federal Solutions, who
augment Tetra Tech’s consulting and data analytics resources with more than 550 high-
end technical experts in advanced analytics, cybersecurity, artificial intelligence, and
enterprise-wide software applications.
In 2020 we reiterated our commitment to diversity, equity, and inclusion, embracing
the breadth of experience of our 20,000 associates worldwide and our culture of
technical excellence, innovation, and entrepreneurship. We launched our global
Employee Resource Group Program, which broadens and enhances companywide
interaction opportunities through collaborative, employee-led teams where all voices
are heard, all employees feel safe, and each employee has the opportunity to thrive. As
a signatory of the United Nations Global Compact on human rights, labor, environment,
and anti-corruption, Tetra Tech embraces the Compact’s Ten Principles as part of our
strategy, culture, and daily operations.
EPS
$
$M
Cash from Operations
$M
Backlog
Technical excellence, entrepreneurial spirit, and fiscal discipline are the characteristics that make
Tetra Tech an exceptional company—and have remained unchanged since our founding in 1966.
Through both times of economic growth and disruption, Tetra Tech has maintained a consistent focus on the alignment of
our industry-leading expertise with the long-term priorities of our clients. Over the past decade Tetra Tech has expanded
from North America to include significant operations in Australia and the United Kingdom, and we now perform projects
in more than 100 countries around the world. While remaining focused on our core water and environment services, we
have strategically added complementary practices in disaster recovery and response, data analytics and information
technology, and sustainable high-performance building design. Through our projects, we have worked on the leading edge
of transformative programs such as offshore wind, the management of emerging contaminants such as PFAS and micro-
plastics, and the design of resilient infrastructure for extreme conditions. We have leveraged more than 50 years of research
and industry-leading applications that serve as the foundation for the solutions that represent the Tetra Tech Delta. Our Tetra
Tech Delta solutions include first-of-a-kind rapid inspection services for infrastructure and rail (Rail AI™), water management
optimization (CSoft®), and practical applications of artificial intelligence for asset management (Tetra Tech AI Vision™).
As we have shaped the company to prepare for the future, we have also provided value for our shareholders. Over the
past five years, total shareholder return has been an extraordinary 283 percent. We have returned over $157 million to
shareholders through 26 consecutive quarterly dividends since 2014. Tetra Tech’s capital allocation has resulted in 140
percent return on stock buybacks, funded by our operations, effectively reducing our share count even as the company
has grown. Tetra Tech’s market cap has quadrupled in 10 years, from $1.3 billion to over $5 billion at the end of the 2020
fiscal year. Our early investments in IT and financial infrastructure throughout the last decade have enabled us to increase
efficiency while reducing costs. Today we are 100 percent in the cloud with a global Enterprise Resource Planning System
and optimized network that facilitates remote working and interoffice collaboration. Our office space resources have been
designed to be flexible through the disciplined negotiation of shorter-term lease agreements, resulting in our ability to
reduce office space over the next several years by more than 20 percent with expected annual cost savings of $20 million, as
we adapt to hybrid in-office and remote working arrangements.
The consistency of our focus on water and environment, the inherent ingenuity of our world-class technical experts, and our
more than $20 billion in contract capacity—these are the elements that set the stage for us to address the challenges of the
future. The markets we serve are now at the center of emerging challenges such as adapting to climate change in coastal
areas, providing reliable water supplies in drought-stricken regions, identifying innovative sources of renewable energy, and
reducing carbon emissions.
We look forward to the opportunities of the next decade and to applying our global resources to provide the clear solutions
needed by our clients. On behalf of all of Tetra Tech, I thank you for your support and confidence in our company.
Sincerely,
Dan Batrack
Chairman and CEO
With our focus on Leading with Science®, Tetra Tech
is working to build a better future that is improving
the lives of millions of people around the world.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 27, 2020
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.
(Exact name of registrant as specified in its charter)
Delaware
95-4148514
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
3475 East Foothill Boulevard, Pasadena, California 91107
(Address of principal executive offices) (Zip Code)
(626) 351-4664
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
TTEK
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company,
or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company," and "emerging
growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting
company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant's common stock held by non-affiliates on March 29, 2020, was $3.6 billion (based upon the closing price
of a share of registrant's common stock as reported by the Nasdaq National Market on that date).
On November 12, 2020, 53,777,381 shares of the registrant's common stock were outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Portions of registrant's Proxy Statement for its 2021 Annual Meeting of Stockholders are incorporated by reference in Part III of this report where
indicated.
TABLE OF CONTENTS
PART I
Item 1
Business
General
Leading with Science
Reportable Segments
Government Services Group
Commercial/International Services Group
Remediation and Construction Management
Project Examples
Clients
Contracts
Growth Strategy
Sustainability Program
Acquisitions and Divestitures
Competition
Backlog
Regulations
Seasonality
Potential Liability and Insurance
Human Capital Management
Executive Officers of the Registrant
Available Information
Item 1A
Risk Factors
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Item 9B
Other Information
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Index to Exhibits
Signatures
PART IV
2
Page
3
3
4
4
5
6
7
7
7
8
9
9
10
10
11
11
11
12
12
14
18
18
33
33
33
33
34
36
37
55
57
98
98
98
98
99
99
99
99
99
101
103
This Annual Report on Form 10-K ("Report"), including the "Management's Discussion and Analysis of Financial
Condition and Results of Operations," contains forward-looking statements regarding future events and our future results that
are subject to the safe harbors created under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act
of 1934 (the "Exchange Act"). All statements other than statements of historical facts are statements that could be deemed
forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the
industries in which we operate and the beliefs and assumptions of our management. Words such as "expects," "anticipates,"
"targets," "goals," "projects," "intends," "plans," "believes," "estimates," "seeks," "continues," "may," variations of such words,
and similar expressions are intended to identify such forward-looking statements. In addition, statements that refer to
projections of our future financial performance, our anticipated growth and trends in our businesses, and other
characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-
looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict,
including those identified below under "Risk Factors," and elsewhere herein. Therefore, actual results may differ materially
and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly
any forward-looking statements for any reason.
PART I
Item 1. Business
General
Tetra Tech, Inc. ("Tetra Tech") is a leading global provider of consulting and engineering services that focuses on
water, environment, sustainable infrastructure, resource management, energy, and international development. We are a global
company that is Leading with Science® to provide innovative solutions for our public and private clients. We typically begin at
the earliest stage of a project by identifying technical solutions and developing execution plans tailored to our clients' needs and
resources.
Tetra Tech is Leading with Science® to provide sustainable and resilient solutions to our clients' most complex needs.
Engineering News-Record ("ENR"), the engineering industry's leading magazine, has ranked Tetra Tech #1 in Water for
17 years in a row. In 2020, we were also ranked #1 in dams and reservoirs, environmental management, environmental science,
hydro plants, solid waste, water treatment/desalination, water treatment/supply, and wind power. ENR also ranked Tetra Tech
in the top 10 in several categories, including chemical and soil remediation, green building design, hazardous waste, solar
power, and site assessment and compliance.
Our reputation for high-end consulting and engineering services and our ability to develop solutions for water and
environmental management has supported our growth for more than 50 years. Today, we are proud to be making a difference in
people’s lives worldwide through broad consulting, engineering, and technology service offerings. In fiscal 2020, we worked on
over 65,000 projects, in more than 100 countries on seven continents, with a talent force of 20,000 associates. We are Leading
with Science® throughout our operations, with domain experts across multiple disciplines supported by our advanced analytics,
artificial intelligence ("AI"), machine learning, and digital technology solutions. Our ability to provide innovation and first-of-
kind solutions is enhanced by partnerships with our forward-thinking clients. We are diverse and inclusive, embracing the
breadth of experience across our talented workforce worldwide with a culture of innovation and entrepreneurship. We are
disciplined in our business delivering value to customers and high performance to our shareholders. In supporting our clients,
we seek to add value and provide long-term sustainable consulting, engineering, and technology solutions.
By combining ingenuity and practical experience, we have helped to advance sustainable solutions for managing
water, protecting the environment, providing energy, and engineering the infrastructure for our cities and communities. Our
mission is to be the world's leading consulting and engineering firm solving global challenges in water and the environment that
make a positive difference in people's lives worldwide.
The following core principles form the underpinning of how we work together to serve our clients:
•
•
•
•
Service. We put our clients first. We listen closely to better understand our clients' needs and deliver smart, cost-
effective solutions that meet their needs.
Value. We solve our clients' problems as if they were our own. We develop and implement sustainable solutions
that are innovative, efficient and practical.
Excellence. We bring superior technical capability, disciplined project management, and excellence in safety and
quality to all of our services.
Opportunity. Our people are our number one asset. Opportunity means new technical challenges that provide
advancement within our company, encourage an inclusive and diverse workforce, and ensure a safe workplace.
3
We have a strong project management culture that enables us to deliver on more than 65,000 projects in a year. We
maintain a strong emphasis on project management at all levels of the organization. Our client-focused project management is
supported by strong fiscal management and financial tools. We use a disciplined approach to monitoring, managing, and
improving our return on investment in each of our business areas through our efforts to negotiate appropriate contract terms,
manage our contract performance to minimize schedule delays and cost overruns, and promptly bill and collect accounts
receivable.
We have a broad client and contract base built by proactively understanding our clients' priorities and demonstrating a
long track record of successful performance that results in repeat business and limits competition. We believe that proximity to
our clients is also instrumental to integrating global experience and resources with an understanding of our local clients' needs.
Over the past year, we worked in more than 100 countries, helping our clients address complex water, environment, energy and
related infrastructure needs.
Throughout our history, we have supported both public and private clients, many for multiple decades of continuous
contracts and repeat business. Long-term relationships provide us with institutional knowledge of our clients' programs, past
projects and internal resources. Institutional knowledge is often a significant factor in winning competitive proposals and
providing cost-effective solutions tailored to our clients' needs.
We are often at the leading edge of new challenges where we are delivering one-of-a-kind solutions. These might be a
new water treatment technology, a unique solution to addressing new regulatory requirements, a new system for automated
assessment of infrastructure assets or a digital twin for real time management of water treatment systems.
We combine interdisciplinary capabilities, technical resources, and institutional knowledge to implement complex
projects that are at the leading edge of policy and technology development.
Leading with Science®
At Tetra Tech, we provide value-generating solutions by combining operational expertise, science, and technology. By
Leading with Science® and leveraging our collective technology including advanced data analytics and digital technologies, we
create transformational solutions for our clients.
Tetra Tech's proprietary technologies and solutions, referred to collectively as the Tetra Tech Delta, differentiate us in
the market and provide us with a competitive advantage. We create customized solutions; from smart data collection and
advanced analytics that support decision making to AI enabled solutions for asset management. Our Tetra Tech Delta
technologies are drawn from our decades of operational experience and a reservoir of technical applications that are shared
throughout our company. Our high-end teams connect interdisciplinary experts from across our company's 20,000 staff
worldwide. Tetra Tech mobilizes teams that include analysts, statisticians, digital engineers, and industry experts who
effectively implement value-generating and pragmatic solutions for our clients.
These advanced analytical solutions enable us to provide clients with real-time reporting, automated and remote data
collection, and dashboards for tracking and communicating results. Tetra Tech Delta is continually expanding and includes
cutting-edge tools on interpretive analysis, modeling of physical systems, forecasting and scenario analysis, optimization and
operations research.
In implementing our Leading with Science® approach, we work with our clients to explore, incubate, and test
solutions in our Tetra Tech Innovation Hubs ("Tt I-Hub"). Tt I-Hub provides a collaborative platform for exploration, testing,
and formulation of new solutions in partnership with clients, academia and donor agencies.
Leading with Science® also means fully leveraging the collective expertise provided by our global talent force of
20,000 associates. We actively share information, ideas, and resources across our global operations through our network
structure, guided subject matter teams, and project team building. We also proactively share emerging technology and new
ideas through our knowledge transfer system, Tetra Tech Technology Transfer ("T4"). T4 facilitates our innovation culture
through webcasts, blogs, multi-media, and social media across our global operations.
Reportable Segments
In fiscal 2020, we managed our operations under two reportable segments. Our Government Services Group ("GSG")
reportable segment primarily includes activities with U.S. government clients (federal, state and local) and all activities with
development agencies worldwide. Our Commercial/International Services Group ("CIG") reportable segment primarily
includes activities with U.S. commercial clients and international clients other than development agencies. These reportable
segments allow us to capitalize on our growing market opportunities and enhance the development of high-end consulting and
technical solutions to meet our growing client demand. We continued to report the results of the wind-down of our non-core
construction activities in the Remediation and Construction Management ("RCM") reportable segment. The following table
presents the percentage of our revenue by reportable segment:
4
Reportable Segment
GSG
CIG
RCM
Inter-segment elimination
2020
59.4%
42.3
—
(1.7)
100.0%
Fiscal Year
2019
58.6%
43.1
—
(1.7)
100.0%
2018
57.2%
44.6
0.5
(2.3)
100.0%
For additional information regarding our reportable segments, see Note 18, "Reportable Segments" of the "Notes to
Consolidated Financial Statements" included in Item 8. For more information on risks related to our business, reportable
segments and geographic regions, including risks related to foreign operations, see Item 1A, “Risk Factors” of this report.
Government Services Group
GSG provides consulting and engineering services primarily to U.S. government clients (federal, state and local) and
development agencies worldwide. GSG supports U.S. government civilian and defense agencies with services in water,
environment, sustainable infrastructure, information technology, and disaster management. GSG also provides engineering
design services for U.S. municipal and commercial clients, especially in water infrastructure, solid waste, and high-end
sustainable infrastructure designs. GSG also leads our support for development agencies worldwide, especially in the United
States, United Kingdom, and Australia.
GSG provides consulting and engineering services for a broad range of water, environment, and infrastructure-related
needs primarily for U.S. government clients. The primary GSG markets include water resources analysis and water
management, environmental monitoring, data analytics, government consulting, waste management, and a broad range of civil
infrastructure master planning and engineering design for facilities, transportation, and local development projects. GSG's
services span from early data collection and monitoring, to data analysis and information management, to science and
engineering applied research, to engineering design, to construction management, and operations and maintenance.
GSG provides our clients with sustainable solutions that optimize their water management and environmental
programs to address regulatory requirements, improve operational efficiencies, and manage assets. Our services advance
sustainability and resiliency through the "greening" of infrastructure, design of energy efficiency and resource conservation
programs, innovation in the capture and sequestration of carbon, development of disaster preparedness and response plans, and
improvement in water and land resource management practices. We provide climate change and energy management
consulting, and greenhouse gas ("GHG") inventory assessment, certification, reduction, and management services.
Many government organizations face complex problems due to increased demand and competition for water and
natural resources, newly understood threats to human health and the environment, aging infrastructure, and demand for new and
more resilient infrastructure. Our integrated water management services support government agencies responsible for managing
water supplies, wastewater treatment, storm water management, and flood protection. We help our clients develop more
resilient water supplies and more sustainable management of water resources, while addressing a wide range of local and
national government requirements and policies. Fluctuations in weather patterns and extreme events, such as prolonged
droughts and more frequent flooding, are increasing concerns over the reliability of water supplies, the need to protect coastal
areas, and flood mitigation and adaptation in metropolitan areas. We provide smart water infrastructure solutions that integrate
water modeling, instrumentation and controls, and real-time controls to create flexible water systems that respond to changing
conditions, optimize use of existing infrastructure, and provide clients with the ability to more efficiently monitor and manage
their water infrastructure. We provide operational technology for secure management of water treatment and wastewater
systems, including cybersecurity assessment and digital twin solutions.
We also support government agencies in the full range of disaster response and community resilience services
including monitoring and environmental response, damage assessment and program management services, and resilient
engineering design and mitigation planning. We have a full suite of proprietary software tools and procedures that support our
disaster response, planning, and management support services. These tools and procedures address disaster management and
community resilience data management needs, including information technology systems, portals, dashboards, data
management, data analytics, and statistical analysis.
GSG provides planning, architectural, and sustainable engineering services for U.S. federal, state and local government
facilities and non-residential commercial buildings. We support the government agencies with related infrastructure needs
including military housing, and educational, institutional, and research facilities. Our high-performance buildings practice
provides sustainable energy, water, and GHG efficient solutions including civil, electrical, mechanical, structural, plumbing and
fire protection engineering and design services for buildings and surrounding developments. We provide high-end services in
addressing indoor health and associated assessment, consulting, and retrofits of buildings to address indoor air quality and
5
safety. We also provide engineering services for a wide range of clients with specialized needs, such as security systems,
training and audiovisual facilities, clean rooms, laboratories, medical facilities and disaster preparedness facilities.
GSG provides a wide range of consulting and engineering services for solid waste management, including landfill
design and management and recycling facility design, throughout the United States; providing design, construction
management, and maintenance services to manage solid and hazardous waste, for environmental, wastewater, energy,
containment, mining, utilities, aquaculture, and other industrial clients; designing and installing geosynthetic liners for large
lining and capping projects, as well as innovative renewable energy projects such as solar energy-generating landfill caps; and
providing full-service solutions for gas-to-energy facilities to efficiently use landfill methane gas.
We provide high-end advanced analytics and information technology ("IT") consulting and support to various federal
clients including AI applications, machine learning, modernization of IT systems, and cloud migration. We design solutions to
manage and analyze data for major federal agency programs including data related to health, security, environment, and water
programs. We use our e-lab to demonstrate and test technology solutions to facilitate rapid deployment by our clients. We
provide technical support for the Federal Aviation Administration ("FAA") to optimize the U.S. airspace system and support
related aviation systems integration for the U.S. and other countries' metropolitan airports. We provide specialized modeling
and data analytics for airspace acoustic analysis. Our aviation airspace services include data management, data processing,
communications and outreach, and systems development; and providing systems analysis and information management.
We support governments in implementing international development programs for developing nations to help them
address numerous challenges, including access to potable water and adapting to the threats of climate change. Our international
development services include supporting donor agencies to develop safe and reliable water supplies and sanitation services,
support the eradication of poverty, improve livelihoods, promote democracy and increase economic growth; planning,
designing, implementing, researching, and monitoring projects in the areas of climate change, agriculture and rural
development, governance and institutional development, natural resources and the environment, infrastructure, economic
growth, energy, rule of law and justice systems, land tenure and property rights, and training and consulting for public-private
partnerships; and building capacity and strengthening institutions in areas such as global health, energy sector reform, utility
management, education, food security, and local governance.
Commercial/International Services Group
CIG primarily provides consulting and engineering services to U.S. commercial clients, and international clients that
include both commercial and government sectors. CIG supports commercial clients across the Fortune 500, energy utilities,
industrial, manufacturing, aerospace, and resource management markets. CIG also provides infrastructure and related
environmental, engineering and project management services to commercial and local government clients across Canada, in
Asia Pacific (primarily Australia and New Zealand), the United Kingdom, as well as Brazil and Chile.
CIG provides consulting and engineering services worldwide for a broad range of water, environment, and sustainable
infrastructure-related needs in both developed and emerging economies. The primary markets for CIG's services include natural
resources, energy, and utilities, as well as civil infrastructure master planning and engineering design for facilities,
transportation, and local development projects. CIG's services span from early data collection and monitoring to data analysis
and information management, to feasibility studies and assessments, to science and engineering applied research, to engineering
design, to construction management, and operations and maintenance.
CIG's environmental services include cleanup and beneficial reuse of sites contaminated with hazardous materials,
toxic chemicals, and oil and petroleum products, which cover all phases of the remedial planning process, starting with disaster
response and initial site assessment through removal actions, remedial design and implementation oversight; and supporting
both commercial and government clients in planning and implementing remedial activities at numerous sites around the world,
and providing a broad range of environmental analysis and planning services.
CIG also supports U.S. commercial clients by providing design services to renovate, upgrade, and modernize industrial
water supplies, and address industrial water treatment and water reuse needs; and provides plant engineering, project execution,
and program management services for industrial water treatment projects throughout the world.
CIG's international services, especially in Canada and Asia-Pacific, include high-end analytical, engineering,
architecture, geotechnical, and construction management services for infrastructure projects, including rail and roadway
monitoring and asset management services, collection of condition data, optimization of upgrades and long-term planning for
expansion; multi-modal design services for commuter railway stations, airport expansions, bridges and major highways, and
ports and harbors; and designing resilient solutions to repair, replace, and upgrade older transportation infrastructure.
CIG provides infrastructure design services in extreme and remote areas by using specialized techniques that are
adapted to local resources, while minimizing environmental impacts, and considering potential climate change impacts. These
include providing consulting, geotechnical, and design services to owners of transportation, natural resources, energy and
community infrastructure in areas of permafrost or extreme climate regions.
6
CIG's energy services include support for electric power utilities and independent power producers worldwide, ranging
from macro-level planning and management advisory services to project-specific environmental, engineering, construction
management, and operational services, and advising on the design and implementation of smart grids, both domestically and
internationally, including increasing utility automation, information and operational technologies, and critical infrastructure
security. For utilities and governmental regulatory agencies, our services include policy and regulatory development, utility
management, performance improvement, asset management and evaluation, and transaction support services. For developers
and owners of renewable energy resources such as solar grid and off-grid, on-shore and off-shore wind, biogas and biomass,
tidal, and hydropower, and conventional power generation facilities, micro-grid and battery or alternative storage facilities, as
well as transmission and distribution assets, our services include environmental, engineering, procurement, operations and
maintenance, and regulatory support for all project phases.
CIG supports industrial and energy clients, primarily in North America, in the upstream, midstream and downstream
market sectors. Our services include environmental permitting support, siting studies, strategic planning and analyses; design of
well pads and surface impoundments for drilling sites; water management for exploration activities; design of midstream
pipelines and associated pumping stations and storage facilities; construction monitoring, design and construction management
for downstream sustaining capital projects; biological and cultural assessments, and site investigations; and hazardous waste
site remediation.
CIG also provides environmental remediation and reconstruction services to evaluate and restore lands to beneficial
use, including the identification, evaluation and destruction of unexploded ordnance, both domestically and internationally;
investigating, remediating, and restoring contaminated facilities at military locations in the U.S. and around the world;
managing large, complex sediment remediation programs that help restore rivers and coastal waters to beneficial use;
constructing state-of-the-art water treatment plants for U.S. commercial clients; and supporting utilities in the U.S. in
implementing infrastructure needs.
Remediation and Construction Management
We continued to report the results of the wind-down of our non-core construction activities in the RCM reportable
segment in fiscal 2020. As of September 27, 2020, there was no remaining backlog for RCM as the projects were complete.
Project Examples
Project examples are provided on our company website located at tetratech.com, including expert interviews, in-depth
articles, and project profiles that demonstrate our services across water, environment, sustainable infrastructure, energy,
resource management, and international development.
Clients
We provide services to a diverse base of U.S. state and local government, U.S. federal government, U.S. commercial,
and international clients. The following table presents the percentage of our revenue by client sector:
Client Sector
U.S. state and local government
U.S. federal government (1)
U.S. commercial
International (2)
2020
14.7%
33.2
22.5
29.6
100.0%
Fiscal Year
2019
18.9%
30.3
23.1
27.7
100.0%
2018
15.8%
32.9
26.6
24.7
100.0%
(1) Includes revenue generated under U.S. federal government contracts performed outside the United States.
(2) Includes revenue generated from foreign operations, primarily in Canada, Australia, the United Kingdom, and revenue generated from non-U.S. clients.
U.S. federal government agencies are significant clients. The U.S. Agency for International Development ("USAID")
accounted for 12.2%, 12.4% and 14.0% of our revenue in fiscal 2020, 2019 and 2018, respectively. The Department of Defense
("DoD") accounted for 9.2%, 7.9% and 10.0% of our revenue in fiscal 2020, 2019 and 2018, respectively. We typically support
multiple programs within a single U.S. federal government agency, both domestically and internationally. We also assist U.S.
state and local government clients in various jurisdictions across the United States. In Canada, we work for several provinces
and various local jurisdictions. Our U.S. commercial clients include companies in the chemical, energy, mining,
pharmaceutical, retail, aerospace, automotive, petroleum, and communications industries. No single client, except for U.S.
federal government clients, accounted for more than 10% of our revenue in fiscal 2020.
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Contracts
Our services are performed under three principal types of contracts with our clients: fixed-price, time-and-materials,
and cost-plus. The following table presents the percentage of our revenue by contract type:
Contract Type
Fixed-price
Time-and-materials
Cost-plus
2020
36.0%
46.5
17.5
100.0%
Fiscal Year
2019
33.7%
48.6
17.7
100.0%
2018
33.3%
47.1
19.6
100.0%
Under a fixed-price contract, clients agree to pay a specified price for our performance of the entire contract or a
specified portion of the contract. Some fixed-price contracts can include date-certain and/or performance obligations. Fixed-
price contracts carry certain inherent risks, including risks of losses from underestimating costs, delays in project completion,
problems with new technologies, price increases for materials, and economic and other changes that may occur over the
contract period. Consequently, the profitability of fixed-price contracts may vary substantially. Under time-and-materials
contracts, we are paid for labor at negotiated hourly billing rates and paid for other expenses. Profitability on these contracts is
driven by billable headcount and cost control. Many of our time-and-materials contracts are subject to maximum contract
values and, accordingly, revenue related to these contracts is recognized as if these contracts were fixed-price contracts. Under
our cost-plus contracts, some of which are subject to a contract ceiling amount, we are reimbursed for allowable costs and fees,
which may be fixed or performance-based. If our costs exceed the contract ceiling or are not allowable, we may not be able to
obtain full reimbursement. Further, the amount of the fee received for a cost-plus award fee contract partially depends upon the
client's discretionary periodic assessment of our performance on that contract.
Some contracts with the U.S. federal government are subject to annual funding approval. U.S. federal government
agencies may impose spending restrictions that limit the continued funding of our existing contracts and may limit our ability to
obtain additional contracts. These limitations, if significant, could have a material adverse effect on us. All contracts with the
U.S. federal government may be terminated by the government at any time, with or without cause.
U.S. 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 may prevent us from bidding for or
performing government contracts resulting from or related to certain work we have performed. In addition, services performed
for a commercial or government sector client may create conflicts of interest that preclude or limit our ability to obtain work for
a private organization. We attempt to identify actual or potential conflicts of interest and to minimize the possibility that such
conflicts could affect our work under current contracts or our ability to compete for future contracts. We have, on occasion,
declined to bid on a project because of an existing or potential conflict of interest.
Some of our operating units have contracts with the U.S. federal government that are subject to audit by the
government, primarily the Defense Contract Audit Agency ("DCAA"). The DCAA generally seeks to (i) identify and evaluate
all activities that contribute to, or have an impact on, proposed or incurred costs of government contracts; (ii) evaluate a
contractor's policies, procedures, controls, and performance; and (iii) prevent or avoid wasteful, careless, and inefficient
production or service. To accomplish this, the DCAA examines our internal control systems, management policies, and
financial capability; evaluates the accuracy, reliability, and reasonableness of our cost representations and records; and assesses
our compliance with Cost Accounting Standards ("CAS") and defective-pricing clauses found within the Federal Acquisition
Regulation ("FAR"). The DCAA also performs an annual review of our overhead rates and assists in the establishment of our
final rates. This review focuses on the allowability of cost items and the applicability of CAS. The DCAA also audits cost-
based contracts, including the close-out of those contracts.
The DCAA reviews all types of U.S. federal government proposals, including those of award, administration,
modification, and re-pricing. The DCAA considers our cost accounting system, estimating methods and procedures, and
specific proposal requirements. Operational audits are also performed by the DCAA. A review of our operations at every major
organizational level is conducted during the proposal review period. During the course of its audit, the U.S. federal government
may disallow certain costs if it determines that we accounted for such costs in a manner inconsistent with CAS. Under a
government contract, only those costs that are reasonable, allocable, and allowable are recoverable. A disallowance of costs by
the U.S. federal government could have a material adverse effect on our financial results.
In accordance with our corporate policies, we maintain controls to minimize any occurrence of fraud or other unlawful
activities that could result in severe legal remedies, including the payment of damages and/or penalties, criminal and civil
sanctions, and debarment. In addition, we maintain preventative audit programs and mitigation measures to ensure that
appropriate control systems are in place.
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We provide services under contracts, purchase orders, or retainer letters. Our policy requires that all contracts must be
in writing. We bill our clients in accordance with the contract terms and periodically based on costs incurred, on either an
hourly-fee basis or on a percentage-of-completion basis, as the project progresses. Most of our agreements permit our clients to
terminate the agreements without cause upon payment of fees and expenses through the date of the termination. Generally, our
contracts do not require that we provide performance bonds. If required, a performance bond, issued by a surety company,
guarantees a contractor's performance under the contract. If the contractor defaults under the contract, the surety will, at its
discretion, complete the job or pay the client the amount of the bond. If the contractor does not have a performance bond and
defaults in the performance of a contract, the contractor is responsible for all damages resulting from the breach of contract.
These damages include the cost of completion, together with possible consequential damages such as lost profits.
Growth Strategy
Our management team establishes Tetra Tech's overall business strategy. Our strategic plan defines and guides our
investment in marketing and business development to leverage our differentiators and target priority programs and growth
markets. We maintain centralized business development resources to develop our corporate branding and marketing materials,
support proposal preparation and planning, conduct market research, and manage promotional and professional activities,
including appearances at trade shows, direct mailings, advertising, and public relations.
We have established company-wide growth initiatives that reinforce internal coordination, track the development of
new programs, identify and coordinate collective resources for major bids, and help us build interdisciplinary teams and provide
innovative solutions for major pursuits. Our growth initiatives provide a forum for cross-sector collaboration, access to
technical solutions, and the development of interdisciplinary solutions. We continuously identify new markets that are
consistent with our strategic plan and service offerings, and we leverage our full-service capabilities and internal coordination
structure to develop and implement strategies to research, anticipate, and position us for future procurements and emerging
programs. Our Tetra Tech Delta program facilitates access and exchange of technology solutions across our company, through
the use of internal training, inventories, and facilitated virtual networking events.
Business development activities are implemented by our technical and professional management staff throughout Tetra
Tech with the support of company-wide resources and expertise. Our project managers and technical staff have the best
understanding of our clients' needs and the effect of local or client-specific issues, laws and regulations, and procurement
procedures. Our professional staff members hold frequent meetings with existing and potential clients; give presentations to
civic and professional organizations; and present seminars on research and technical applications. Essential to the effective
development of business is each staff member's access to all of our service offerings through our internal Tetra Tech Delta and
geographic networks. Our strong internal networking programs help our professional staff members to pursue new opportunities
for both existing and new clients. These networks also facilitate our ability to provide services throughout the project life cycle
from the early studies to operations and maintenance. Networking is further supported by our enterprise-wide knowledge
management systems which include skills search tools, business development tracking, and collaboration tools.
To support our growth plans, we actively attract, recruit and retain key hires. Our combination of high-end science and
consulting coupled with practical applications provides challenging and rewarding opportunities for our associates, thereby
enhancing our ability to recruit and retain top quality talent. Our internal networking programs, leadership training,
entrepreneurial environment, focus on Leading with Science®, and global project portfolio help to attract and retain highly
qualified individuals.
Our strategic growth plans are augmented by our selective investment in acquisitions aligned with our business.
Acquisitions enhance plans to add new technologies, broaden our service offerings, add contract capacity and extend our
geographic presence. Our long-established experience in identifying and integrating acquisitions strengthens our ability to
integrate and rapidly leverage the resources of the acquired companies post-acquisition.
Sustainability Program
Tetra Tech supports clients in more than 100 countries around the world, helping them to solve complex problems and
achieve solutions that are technically, socially, and economically resilient. Our high-end consulting and engineering services
focus on using innovative technologies and creative solutions to minimize environmental impacts and enhance social systems.
Our greatest contribution toward sustainability is through the projects we perform every day for our clients, including recycling
freshwater supplies, recycling waste products, and reducing greenhouse gas emissions. In developing countries, we also support
gender equality programs, strengthen land tenure, and increase climate resiliency and adaptation. As a signatory of the United
Nations Global Compact ("UNGC") on human rights, labor, environment, and anti-corruption, Tetra Tech embraces the UNGC
Ten Principles as part of the strategy, culture, and daily operations of our company.
Our Sustainability Program enhances our commitment by focusing on the environmental, social, and governance
impact of our business via four primary pillars: Projects – the solutions we provide for our clients; Procurement – our
procurement and subcontracting approaches; Processes – the internal policies and processes that promote sustainable practices,
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reduce costs, and minimize environmental impacts; and People – the 20,000 staff at Tetra Tech and our partners, clients, and
communities worldwide. In addition, our program is based on the Global Reporting Initiative ("GRI") Sustainability Report
Framework, the internationally accepted sustainability reporting protocol for corporate sustainability plans, which includes
three fundamental areas: environmental, economic, and governance.
Our Sustainability Program is led by our Chief Sustainability Officer, who has been appointed by executive
management and is supported by other key corporate and operations representatives via our Sustainability Council. We have
established a clear set of metrics to evaluate our progress toward our corporate sustainability goals. Each metric corresponds
with one or more performance indicators from GRI and include the following categories: environmental (greenhouse gas
emissions), economic, health and safety, information technology, human resources, and real estate. We continuously implement
sustainability-related policies and practices and assess the results of our efforts in order to improve upon them in the future. Our
executive management team reviews and approves the Sustainability Program and evaluates our progress in achieving the goals
and objectives outlined in our plan. As part of the UNGC, we fulfill the annual Communication on Progress via Tetra Tech's
Sustainability Report Card that is published on Earth Day. Tetra Tech also participates in the Dow Jones Sustainability Index
Corporate Sustainability Assessment.
Acquisitions and Divestitures
Acquisitions. We continuously evaluate the marketplace for acquisition opportunities to further our strategic growth
plans. Due to our reputation, size, financial resources, geographic presence and range of services, we have numerous
opportunities to acquire privately and publicly held companies or selected portions of such companies. We evaluate an
acquisition opportunity based on its ability to strengthen our leadership in the markets we serve, the technologies and solutions
they provide, and the additional new geographies and clients they bring. Also, during our evaluation, we examine an
acquisition's ability to drive organic growth, its accretive effect on long-term earnings, and its ability to generate return on
investment. Generally, we proceed with an acquisition if we believe that it will strategically expand our service offerings,
improve our long-term financial performance, and increase shareholder returns.
We view acquisitions as a key component in the execution of our growth strategy, and we intend to use cash, debt or
equity, as we deem appropriate, to fund acquisitions. We may acquire other businesses that we believe are synergistic and will
ultimately increase our revenue and net income, strengthen our ability to achieve our strategic goals, provide critical mass with
existing clients, and further expand our lines of service. We typically pay a purchase price that results in the recognition of
goodwill, generally representing the intangible value of a successful business with an assembled workforce specialized in our
areas of interest. Acquisitions are inherently risky, and no assurance can be given that our previous or future acquisitions will be
successful or will not have a material adverse effect on our financial position, results of operations, or cash flows. All
acquisitions require the approval of our Board of Directors.
Divestitures. We regularly review and evaluate our existing operations to determine whether our business model
should change through the divestiture of certain businesses. Accordingly, from time to time, we may divest or wind-down
certain non-core businesses and reallocate our resources to businesses that better align with our long-term strategic direction.
For detailed information regarding acquisitions, see Note 5, "Acquisitions and Divestitures" of the "Notes to
Consolidated Financial Statements" included in Item 8.
Competition
The market for our services is generally competitive. We often compete with many other firms ranging from small
regional firms to large international firms.
We perform a broad spectrum of consulting, engineering, and technical services across the water, environment,
sustainable infrastructure, resource management, energy, and international development markets. Our client base includes U.S.
federal government agencies such as the DoD, USAID, the U.S. Department of Energy ("DOE"), the U.S. Environmental
Protection Agency ("EPA"), and the FAA; U.S. state and local government agencies; government and commercial clients in
Canada, Australia, and the United Kingdom; the U.S. commercial sector, which consists primarily of large industrial
companies and utilities; and our international commercial clients. Our competition varies and is a function of the business areas
in which, and the client sectors for which, we perform our services. The number of competitors for any procurement can vary
widely, depending upon technical qualifications, the relative value of the project, geographic location, the financial terms and
risks associated with the work, and any restrictions placed upon competition by the client. Historically, clients have chosen
among competing firms by weighing the quality, innovation and timeliness of the firm's service versus its cost to determine
which firm offers the best value. When less work becomes available in certain markets, price could become an increasingly
important factor.
Our competitors vary depending on end markets and clients, and often we may only compete with a portion of a firm.
We believe that our principal competitors include the following firms, in alphabetical order: AECOM; Arcadis NV; Black &
Veatch Corporation; Booz Allen Hamilton; Brown & Caldwell; CDM Smith Inc.; Chemonics International, Inc.;
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Exponent, Inc.; GHD; ICF International, Inc.; Jacobs Engineering Group Inc.; Leidos, Inc.; SAIC; SNC-Lavalin Group Inc.;
Stantec Inc.; TRC Companies, Inc.; Weston Solutions, Inc.; and WSP Global Inc.
Backlog
We include in our backlog only those contracts for which funding has been provided and work authorization has been
received. We estimate that approximately 58% of our backlog at the end of fiscal 2020 will be recognized as revenue in fiscal
2021, as work is being performed. However, we cannot guarantee that the revenue projected in our backlog will be realized or,
if realized, will result in profits. In addition, project cancellations or scope adjustments may occur with respect to contracts
reflected in our backlog. For example, certain of our contracts with the U.S. federal government and other clients are terminable
at the discretion of the client, with or without cause. These types of backlog reductions could adversely affect our revenue and
margins. Accordingly, our backlog as of any particular date is an uncertain indicator of our future earnings.
At fiscal 2020 year-end, our backlog was $3.2 billion, an increase of $147.4 million, or 4.8%, compared to fiscal
2019 year-end. Approximately $2.2 billion and $1.0 billion of our backlog at fiscal 2020 year-end related to GSG and CIG,
respectively.
Regulations
We engage in various service activities that are subject to government oversight, including environmental laws and
regulations, general government procurement laws and regulations, and other regulations and requirements imposed by the
specific government agencies with which we conduct business.
Environmental. A significant portion of our business involves the planning, design, program management and
construction management of pollution control facilities, as well as the assessment and management of remediation activities at
hazardous waste sites, U.S. Superfund sites, and military bases. In addition, we contract with U.S. federal government entities
to destroy hazardous materials. These activities require us to manage, handle, remove, treat, transport, and dispose of toxic or
hazardous substances.
Some environmental laws, such as the U.S. Superfund law and similar state, provincial and local statutes, can impose
liability for the entire cost of clean-up for contaminated facilities or sites upon present and former owners and operators, as well
as generators, transporters, and persons arranging for the treatment or disposal of such substances. In addition, while we strive
to handle hazardous and toxic substances with care and in accordance with safe methods, the possibility of accidents, leaks,
spills, and events of force majeure always exist. Humans exposed to these materials, including workers or subcontractors
engaged in the transportation and disposal of hazardous materials and persons in affected areas, may be injured or become ill.
This could result in lawsuits that expose us to liability and substantial damage awards. Liabilities for contamination or human
exposure to hazardous or toxic materials, or a failure to comply with applicable regulations, could result in substantial costs,
including clean-up costs, fines, civil or criminal sanctions, third party claims for property damage or personal injury, or the
cessation of remediation activities.
Certain of our business operations are covered by U.S. Public Law 85-804, which provides for government
indemnification against claims and damages arising out of unusually hazardous activities performed at the request of the
government. Due to changes in public policies and law, however, government indemnification may not be available in the case
of any future claims or liabilities relating to other hazardous activities that we perform.
Government Procurement. The services we provide to the U.S. federal government are subject to the FAR and other
rules and regulations applicable to government contracts. These rules and regulations:
•
•
•
require certification and disclosure of all cost and pricing data in connection with the contract negotiations under
certain contract types;
impose accounting rules that define allowable and unallowable costs and otherwise govern our right to
reimbursement under certain cost-based government contracts; and
restrict the use and dissemination of information classified for national security purposes and the exportation of
certain products and technical data.
In addition, services provided to the DoD are monitored by the Defense Contract Management Agency and audited by
the DCAA. Our government clients can also terminate any of their contracts, and many of our government contracts are subject
to renewal or extension annually. Further, the services we provide to state and local government clients are subject to various
government rules and regulations.
Seasonality
We experience seasonal trends in our business. Our revenue and operating income are typically lower in the first half
of our fiscal year, primarily due to the Thanksgiving (in the U.S.), Christmas and New Year's holidays. Many of our clients'
11
employees, as well as our own employees, take vacations during these holiday periods. Further, seasonal inclement weather
conditions occasionally cause some of our offices to close temporarily or may hamper our project field work in the northern
hemisphere's temperate and arctic regions. These occurrences result in fewer billable hours worked on projects and,
correspondingly, less revenue recognized.
Potential Liability and Insurance
Our business activities could expose us to potential liability under various laws and under workplace health and safety
regulations. In addition, we occasionally assume liability by contract under indemnification agreements. We cannot predict the
magnitude of such potential liabilities.
We maintain a comprehensive general liability insurance policy with an umbrella policy that covers losses beyond the
general liability limits. We also maintain professional errors and omissions liability and contractor's pollution liability insurance
policies. We believe that both policies provide adequate coverage for our business. When we perform higher-risk work, we
obtain, if available, the necessary types of insurance coverage for such activities, as is typically required by our clients.
We obtain insurance coverage through a broker that is experienced in our industry. The broker and our risk manager
regularly review the adequacy of our insurance coverage. Because there are various exclusions and retentions under our
policies, or an insurance carrier may become insolvent, there can be no assurance that all potential liabilities will be covered by
our insurance policies or paid by our carrier.
We evaluate the risk associated with insurance claims. If we determine that a loss is probable and reasonably
estimable, we establish an appropriate reserve. A reserve is not established if we determine that a claim has no merit or is not
probable or reasonably estimable. Our historic levels of insurance coverage and reserves have been adequate. However,
partially or completely uninsured claims, if successful and of significant magnitude, could have a material adverse effect on our
business.
Human Capital Management
Employees. At fiscal 2020 year-end, we had approximately 20,000 staff worldwide. A large percentage of our
employees have technical and professional backgrounds and undergraduate and/or advanced degrees, including the employees
of recently acquired companies. Our professional staff includes archaeologists, architects, biologists, chemical engineers,
chemists, civil engineers, data scientists, computer scientists, economists, electrical engineers, environmental engineers,
environmental scientists, geologists, hydrogeologists, mechanical engineers, oceanographers, project managers and
toxicologists. We consider the current relationships with our employees to be favorable. We are not aware of any employment
circumstances that are likely to disrupt work at any of our facilities. See Part I, Item 1A, "Risk Factors" for a discussion of the
risks related to the loss of key personnel or our inability to attract and retain qualified personnel.
Diversity and Inclusion. Tetra Tech brings together engineers and technical specialists from all backgrounds to solve
our clients' most challenging problems. Our Diversity and Inclusion Policy guides the Board of Directors, management,
associates, subcontractors, and partners in developing an inclusive culture. Our Diversity and Inclusion Council monitors Tetra
Tech's diversity and inclusion practices and makes recommendations to the Board of Directors and Chief Executive Officer for
any changes or improvements to our program.
Tetra Tech values diversity and inclusion and undertakes various efforts throughout its operations to promote these
initiatives. Our current efforts are focused on three primary areas:
•
•
•
Safe work environment. We provide training to all associates to improve their understanding of behaviors that can
be perceived as discriminatory, exclusionary, and/or harassing, and provide safe avenues for associates to report
such behaviors.
Equal employment opportunity. Tetra Tech ensures that our practices and processes attract a diverse range of
candidate, and that candidates are recruited, hired, assigned, developed, and promoted based on merit and their
alignment to our values.
Learning and development opportunities. To support our associates in reaching their full potential, Tetra Tech
offers a wide range of internal and external learning and development opportunities. Education assistance is
offered to financially support associates who seek to expand their knowledge and skill base.
As part of Tetra Tech's commitment to a culture of inclusion, in fiscal 2020 we launched our Global Resource Group
("ERG") Program, which broadens and enhances company-wide interaction opportunities for our employees. Our ERG's are
open to all and involve activities for both employees whose background is the focus of the ERG and those who are supportive
of the group (also known as allies). These global networks build on and coordinate with the many local networks that are
already active throughout our operations and include groups focused on the experiences of Black, Latino, Women, Veterans,
and LGBTQ employees.
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Professional Development. Tetra Tech invests in the professional development of our associates. They are provided
with training in leadership development, project management skills, and interpersonal skills development. Our focused
programs are designed, taught, and facilitated by Tetra Tech leadership, consistent with our commitment to talent development.
These programs include the following:
•
•
•
•
Tetra Tech Leadership Academy. Tetra Tech Leadership Academy develops our high-potential associates from
around the world into outstanding business leaders. Instructors for this intensive, year-long program are executive
management and operational leaders. Participants are immersed in all aspects of the operations of Tetra Tech and
complete challenging, real-world assignments designed to hone their leadership and management skills.
Project Excellence Program. Tetra Tech develops Project Managers who are world class in their abilities and
performance. The program is led by our Chief Engineer and involves extensive training on how to effectively
manage all components of a project.
Fearless Entrepreneur Program. Tetra Tech develops into client-oriented, business-minded professionals who are
driven to understand and meet the needs of our clients. Developing professionals are challenged and mentored
through a process of building client relationships. Participants take part in group discussions in a classroom setting
and then are required to implement learned strategies with actual and potential clients.
Tetra Tech Technology Transfer (T4) and ToolTalk Webcast Series. Tetra Tech holds webcasts to help associates
around the world share technical resources and enhance their use of available internal tools and to provide better
service to clients. Through the T4 and ToolTalk Webcast Series, Tetra Tech experts present and lead discussions
about new technologies and programs, best practices, and opportunities for growth across our company.
By offering our associates meaningful work and career development, Tetra Tech is well positioned to continue its
growth through recruitment, development, and retention of the best talent in the industry.
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Executive Officers of the Registrant
The following table shows the name, age and position of each of our executive officers at November 20, 2020:
Name
Dan L. Batrack
Age
62 Chairman and Chief Executive Officer
Position
Mr. Batrack joined our predecessor in 1980 and was named Chairman in January
2008. He has served as our Chief Executive Officer and a director since
November 2005, and as our President from October 2008 to September 2019.
Mr. Batrack has served in numerous capacities over the last 40 years, including
arctic research scientist, deep water oceanographic hydrographer, coastal
hydrodynamic modeler, environmental data analyst, project and program
manager, President of the Engineering Division, and in 2004 he was appointed
Chief Operating Officer. He has managed complex programs for many small and
Fortune 500 clients, both in the United States and internationally. Mr. Batrack
holds a B.A. degree in Business Administration from the University of
Washington.
Leslie L. Shoemaker
63 President
Dr. Shoemaker was appointed President in September 2019, having previously
served as President of WEI Business Group from April 2015 to November 2017,
and CIG from November 2017 to September 2019. Dr. Shoemaker joined us in
1991, and has served in various management capacities, including project and
program manager, water resources manager and infrastructure group president.
From 2005 to 2015, she led our strategic planning, business development and
company-wide collaboration programs. Her technical expertise is in the
management of large-scale watershed and master planning studies, development
of modeling tools and application of optimization tools for decision making.
Additionally, she is our Chief Sustainability Officer who leads our Sustainability
Council to implement sustainability-related policies and practices company-
wide. Dr. Shoemaker holds a B.A. degree in Mathematics from Hamilton
College, a Master of Engineering from Cornell University and a Ph.D. in
Agricultural Engineering from the University of Maryland.
Steven M. Burdick
56 Executive Vice President, Chief Financial Officer
Mr. Burdick has served as our Executive Vice President, Chief Financial Officer
since April 2011. He served as our Senior Vice President and Corporate
Controller from January 2004 to March 2011. Mr. Burdick joined us in April
2003 as Vice President, Management Audit. Previously, Mr. Burdick served in
senior financial and executive positions with Aura Systems, Inc., TRW
Ventures, and Ernst & Young LLP. Mr. Burdick holds a B.S. degree in Business
Administration from Santa Clara University and is a Certified Public
Accountant.
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Name
Derek G. Amidon
Age
53 Senior Vice President, President of CIG and the Client Account Management
Position
Division of CIG
Mr. Amidon was appointed President of CIG in September 2019, in addition to
his role as President of CIG's Client Account Management Division. Mr.
Amidon has served as a project manager, key account manager, operations
manager, and regional manager since joining us in 2012. He has managed a
variety of complex, high profile programs for key clients, including Fortune 100
companies. His focus has been on leading high value consulting services that
deliver scientific, engineering and regulatory solutions for challenging
environmental, engineering, permitting and public relations problems for energy,
industrial, institutional and custodial trust clients. He has managed projects in
the U.S., Africa, Australia, Europe, and the Caribbean. In addition to experience
in both public and private consulting and engineering firms over his 24-year
career, Mr. Amidon also served in a variety of business leadership and project
development roles at Hess Corporation, a leading independent oil and gas
company. Mr. Amidon is a registered Professional Engineer. He holds B.S. and
M.S. degrees in Civil Engineering from Brigham Young University and a M.S.
in Management from Rensselaer Polytechnic Institute.
Roger R. Argus
59 Senior Vice President, President of GSG and the U.S. Government Division of
GSG
Mr. Argus is a chemical engineer with 35 years of experience, including 27
years with us in operational leadership, program and project management, and
quality assurance for projects encompassing a broad spectrum of environmental,
engineering, information technology, and disaster management services. Mr.
Argus has also been responsible for managing multidisciplinary contracts and
projects in support of the U.S. federal government (i.e., Navy, the U.S. Army
Corps of Engineers ("USACE"), and the EPA), state and municipal agencies,
and private clients nationwide. The scope of his technical experience includes
planning and directing environmental programs, developing data acquisition,
management and analytics solutions, fund research and development support for
innovative environmental technologies and waste treatment systems, municipal
resiliency, and sustainability programs. Mr. Argus holds a B.S. in Chemical
Engineering from California State University, Long Beach.
William R. Brownlie
67 Senior Vice President, Chief Engineer and Corporate Risk Management Officer
Dr. Brownlie was named Senior Vice President and Chief Engineer in
September 2009, and Corporate Risk Management Officer in November 2013.
From December 2005 to September 2009, he served as a Group President.
Dr. Brownlie joined our predecessor in 1981 and was named a Senior Vice
President in December 1993. Dr. Brownlie has managed various operating units
and programs focusing on water resources and environmental services, including
work with USACE, the U.S. Air Force, the U.S. Bureau of Reclamation and
DOE. He is a registered professional engineer and has a strong technical
background in water resources. Dr. Brownlie holds B.S. and M.S. degrees in
Civil Engineering from the State University of New York at Buffalo and a Ph.D.
in Civil Engineering from the California Institute of Technology.
15
Name
Brian N. Carter
Age
53 Senior Vice President, Corporate Controller and Chief Accounting Officer
Position
Mr. Carter joined us as Vice President, Corporate Controller and Chief
Accounting Officer in June 2011 and was appointed Senior Vice President in
October 2012. Previously, Mr. Carter served in finance and auditing positions in
private industry and with Ernst & Young LLP. Mr. Carter holds a B.S. in
Business Administration from Miami University and is a Certified Public
Accountant.
Craig L. Christensen
67 Senior Vice President, Chief Information Officer
Mr. Christensen joined us in 1998 through the acquisition of our Tetra Tech
NUS, Inc. ("NUS") subsidiary. He is responsible for our information services
and technologies, including the implementation of our enterprise resource
planning system. Previously, Mr. Christensen held positions at NUS, Brown and
Root Services, and Landmark Graphics subsidiaries of Halliburton Company
where his responsibilities included contracts administration, finance, and system
development. Prior to his service at Halliburton, Mr. Christensen held positions
at Burroughs Corporation and Apple Computer. Mr. Christensen holds B.A. and
M.B.A. degrees from Brigham Young University.
Preston Hopson
44 Senior Vice President, General Counsel and Secretary
Mr. Hopson was appointed Senior Vice President, General Counsel and
Secretary to the Board of Directors in January 2018. He also serves as the Chief
Compliance Officer. For the prior 10 years, Mr. Hopson served as Vice
President, Assistant General Counsel and Assistant Corporate Secretary at the
engineering and infrastructure firm AECOM. Prior to this, he was a Senior
Associate at the law firm O’Melveny & Myers LLP. Mr. Hopson began his
career as a judicial clerk on the U.S. Court of Appeals for the Ninth Circuit. Mr.
Hopson holds B.A. and J.D. degrees from Yale University.
Richard A. Lemmon
61 Senior Vice President, Corporate Administration
Mr. Lemmon joined our predecessor in 1981 in a technical capacity and became
a member of its corporate staff in a management position in 1985. In 1988, at the
time of our predecessor's divestiture from Honeywell, Inc., Mr. Lemmon
structured and managed many of our corporate functions. He is currently
responsible for insurance, health and safety and facilities.
Brendan M. O'Rourke
47 Senior Vice President, Enterprise Risk Management
Mr. O'Rourke joined us in January 2018 as Vice President, Enterprise Risk
Management and was appointed Senior Vice President, Enterprise Risk
Management in November 2018. For the prior 10 years, Mr. O'Rourke served as
Assistant Vice President of Professional Liability Claims at AIG. Prior to this, he
was a Senior Associate at the law firm of Seyfarth Shaw in Boston,
Massachusetts. Mr. O'Rourke has more than twenty years of experience in risk
management, contract negotiation, claim resolution and litigation within the
construction industry. Mr. O'Rourke holds a J.D. from Suffolk Law School and a
B.A. from Worcester State University.
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Name
Mark A. Rynning
Age
59 Senior Vice President, President of the Resilient and Sustainable Infrastructure
Position
Division of GSG
Mr. Rynning has more than 30 years of engineering consulting experience with
us. He is a registered professional engineer and has served us in numerous
capacities including project manager, operations manager, and operating unit
leader. He has managed large water infrastructure programs for state and local
agencies throughout the United States. Mr. Rynning has broad experience in
planning and design of water and wastewater infrastructure, utility master
planning, and design of water and wastewater transmission and collection
systems. In addition, Mr. Rynning has planned and designed reverse osmosis
water treatment plants and advanced wastewater treatment systems. He has
provided expert advisory services to numerous municipal clients for utility
system acquisitions. He holds a B.S. in Civil Engineering and a Master of
Business Administration, both from the University of Florida.
Bernard Teufele
55 Senior Vice President, President of the Canada and South America Division of
CIG
Mr. Teufele joined us through an acquisition in 2010. He has over 22 years of
consulting engineering experience as a leader of a highly diversified, high-end
infrastructure practice and as a technical expert in the field of infrastructure
monitoring and asset management. Prior to his current role, Mr. Teufele has
managed operating units of increasing size and complexity with a primary focus
on infrastructure, environmental sciences, civil transportation, and mining-
related services doing work for municipal, provincial, and federal government
clients in Canada. He has managed key provincial infrastructure programs in
Canada with a particular focus on the monitoring and assessment of roadway
infrastructure and the development of asset management programs. Mr. Teufele
has a B.Sc. in Applied Science from the University of British Columbia.
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Available Information
Our website address is www.tetratech.com. We made available, free electronic copies of our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports through the “Investor
Relations” portion of our website, under the heading “SEC Filings” filed under “Financial Information.” These reports are
available on our website as soon as reasonably practicable after we electronically file them with the Securities and Exchange
Commission ("SEC"). These reports, and any amendments to them, are also available at the Internet website of the SEC, http://
www.sec.gov. Also available on our website are our Corporate Governance Policies, Board Committees, Corporate Code of
Conduct and Finance Code of Professional Conduct.
Item 1A. Risk Factors
We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could
materially adversely affect our operations. Set forth below and elsewhere in this report and in other documents we file with the
SEC are descriptions of the risks and uncertainties that could cause our actual results to differ materially from the results
contemplated by the forward-looking statements contained in this report. Additional risks we do not yet know of or that we
currently think are immaterial may also affect our business operations. If any of the events or circumstances described in the
following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected.
Business and Operations Risk Factors
Our results of operations could be adversely affected by the coronavirus disease 2019 ("COVID-19") pandemic.
The global spread of the COVID-19 pandemic has created significant volatility, uncertainty and economic disruption.
The extent to which the COVID-19 pandemic continues to impact our business, operations and financial results will depend on
numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic;
governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the
impact of the pandemic on economic activity and actions taken in response; the effect on our clients’ demand for our services;
our ability to provide our services, including as a result of more severe or prolonged travel restrictions and people working from
home; the ability of our clients to pay for our services or their need to seek reductions of our fees; any closures of our and our
clients’ offices and facilities; and the need for enhanced health and hygiene requirements or social distancing or other measures
in attempts to counteract future outbreaks in our offices and facilities. Clients may also slow down decision-making, delay
planned work or seek to terminate existing agreements. In addition, while governments around the world have enacted
emergency relief programs designed to combat the economic impact of the pandemic, the long-term effect of such spending is
uncertain and could result in future budgetary restrictions for our government clients. Any of these events could adversely
affect our business, financial condition and results of operations.
Continuing worldwide political, social and economic uncertainties may adversely affect our revenue and profitability.
The last several years have been periodically marked by political, social and economic concerns, including decreased
consumer confidence, the lingering effects of international conflicts, energy costs and inflation. Although certain indices and
economic data have shown signs of stabilization in the United States and certain global markets, there can be no assurance that
these improvements will be broad-based or sustainable. This instability can make it extremely difficult for our clients, our
vendors and us to accurately forecast and plan future business activities, and could cause constrained spending on our services,
delays and a lengthening of our business development efforts, the demand for more favorable pricing or other terms, and/or
difficulty in collection of our accounts receivable. Our government clients may face budget deficits that prohibit them from
funding proposed and existing projects. Further, ongoing economic instability in the global markets could limit our ability to
access the capital markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to
react to changing business conditions or new opportunities. If economic conditions remain uncertain or weaken, or government
spending is reduced, our revenue and profitability could be adversely affected.
Changes in tax laws could increase our tax rate and materially affect our results of operations.
We are subject to tax laws in the United States and numerous foreign jurisdictions. The incoming U.S. presidential
administration has called for changes to fiscal and tax policies, which may include comprehensive tax reform. In addition, many
international legislative and regulatory bodies have proposed and/or enacted legislation that could significantly impact how U.S.
multinational corporations are taxed on foreign earnings. Many of these proposed and enacted changes to the taxation of our
activities could increase our effective tax rate and harm our results of operations.
Demand for our services is cyclical and vulnerable to economic downturns. If economic growth slows, government fiscal
conditions worsen, or client spending declines further, then our revenue, profits and financial condition may deteriorate.
Demand for our services is cyclical, and vulnerable to economic downturns and reductions in government and private
industry spending. Such downturns or reductions may result in clients delaying, curtailing or canceling proposed and existing
projects. Our business traditionally lags the overall recovery in the economy; therefore, our business may not recover
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immediately when the economy improves. If economic growth slows, government fiscal conditions worsen, or client spending
declines, then our revenue, profits and overall financial condition may deteriorate. Our government clients may face budget
deficits that prohibit them from funding new or existing projects. In addition, our existing and potential clients may either
postpone entering into new contracts or request price concessions. Difficult financing and economic conditions may cause some
of our clients to demand better pricing terms or delay payments for services we perform, thereby increasing the average number
of days our receivables are outstanding, and the potential of increased credit losses of uncollectible invoices. Further, these
conditions may result in the inability of some of our clients to pay us for services that we have already performed. If we are not
able to reduce our costs quickly enough to respond to the revenue decline from these clients, our operating results may be
adversely affected. Accordingly, these factors affect our ability to forecast our future revenue and earnings from business areas
that may be adversely impacted by market conditions.
Our international operations expose us to legal, political, and economic risks in different countries as well as currency
exchange rate fluctuations that could harm our business and financial results.
In fiscal 2020, we generated 29.6% of our revenue from our international operations, primarily in Canada, Australia,
the United Kingdom and from international clients for work that is performed by our domestic operations. International
business is subject to a variety of risks, including:
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imposition of governmental controls and changes in laws, regulations, or policies;
lack of developed legal systems to enforce contractual rights;
greater risk of uncollectible accounts and longer collection cycles;
currency exchange rate fluctuations, devaluations, and other conversion restrictions;
uncertain and changing tax rules, regulations, and rates;
the potential for civil unrest, acts of terrorism, force majeure, war or other armed conflict, and greater physical
security risks, which may cause us to have to leave a country quickly;
logistical and communication challenges;
changes in regulatory practices, including tariffs and taxes;
changes in labor conditions;
general economic, political, and financial conditions in foreign markets; and
exposure to civil or criminal liability under the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery
Act, the Canadian Corruption of Foreign Public Officials Act, the Brazilian Clean Companies Act, the anti-
boycott rules, trade and export control regulations, as well as other international regulations.
For example, the Province of Quebec has adopted legislation that requires businesses and individuals seeking contracts
with governmental bodies be certified by a Quebec regulatory authority for contracts over a specified size. Our failure to
maintain certification could adversely affect our business.
International risks and violations of international regulations may significantly reduce our revenue and profits, and
subject us to criminal or civil enforcement actions, including fines, suspensions, or disqualification from future U.S. federal
procurement contracting. Although we have policies and procedures to monitor legal and regulatory compliance, our
employees, subcontractors, and agents could take actions that violate these requirements. As a result, our international risk
exposure may be more or less than the percentage of revenue attributed to our international operations.
The United Kingdom's withdrawal from the European Union could have an adverse effect on our business and financial
results.
In March 2017, the United Kingdom government initiated a process to withdraw from the European Union ("Brexit")
and began negotiating the terms of the separation. Brexit has created substantial economic and political uncertainty and
volatility in currency exchange rates, and the terms of the United Kingdom's withdrawal from the European Union remain
uncertain. The uncertainty created by Brexit may cause our customers to closely monitor their costs and reduce demand for our
services and may ultimately result in new legal regulatory and cost challenges for our United Kingdom and global operations.
Any of these events could adversely affect our United Kingdom, European and overall business and financial results.
We derive a substantial amount of our revenue from U.S. federal, state and local government agencies, and any
disruption in government funding or in our relationship with those agencies could adversely affect our business.
In fiscal 2020, we generated 47.9% of our revenue from contracts with U.S. federal, and state and local government
agencies. A significant amount of this revenue is derived under multi-year contracts, many of which are appropriated on an
annual basis. As a result, at the beginning of a project, the related contract may be only partially funded, and additional funding
is normally committed only as appropriations are made in each subsequent year. These appropriations, and the timing of
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payment of appropriated amounts, may be influenced by numerous factors as noted below. Our backlog includes only the
projects that have funding appropriated.
The demand for our U.S. government-related services is generally driven by the level of government program funding.
Accordingly, the success and further development of our business depends, in large part, upon the continued funding of these
U.S. government programs, and upon our ability to obtain contracts and perform well under these programs. Under the Budget
Control Act of 2011, an automatic sequestration process, or across-the-board budget cuts (a large portion of which was defense-
related), was triggered. The sequestration began on March 1, 2013. Although the Bipartisan Budget Act of 2013 provided some
sequester relief through the end of fiscal year 2015, the sequestration requires reduced U.S. federal government spending
through fiscal year 2021. A significant reduction in federal government spending, the absence of a bipartisan agreement on the
federal government budget, a partial or full federal government shutdown, or a change in budgetary priorities could reduce
demand for our services, cancel or delay federal projects, result in the closure of federal facilities and significant personnel
reductions, and have a material and adverse impact on our business, financial condition, results of operations and cash flows.
There are several additional factors that could materially affect our U.S. government contracting business, which could
cause U.S. government agencies to delay or cancel programs, to reduce their orders under existing contracts, to exercise their
rights to terminate contracts or not to exercise contract options for renewals or extensions. Such factors, which include the
following, could have a material adverse effect on our revenue or the timing of contract payments from U.S. government
agencies:
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the failure of the U.S. government to complete its budget and appropriations process before its fiscal year-end;
changes in and delays or cancellations of government programs, procurements, requirements or appropriations;
budget constraints or policy changes resulting in delay or curtailment of expenditures related to the services we
provide;
re-competes of government contracts;
the timing and amount of tax revenue received by federal, state and local governments, and the overall level of
government expenditures;
curtailment in the use of government contracting firms;
delays associated with insufficient numbers of government staff to oversee contracts;
the increasing preference by government agencies for contracting with small and disadvantaged businesses;
competing political priorities and changes in the political climate regarding the funding or operation of the
services we provide;
the adoption of new laws or regulations affecting our contracting relationships with the federal, state or local
governments;
unsatisfactory performance on government contracts by us or one of our subcontractors, negative government
audits or other events that may impair our relationship with federal, state or local governments;
a dispute with or improper activity by any of our subcontractors; and
general economic or political conditions.
Our inability to win or renew U.S. government contracts during regulated procurement processes could harm our
operations and significantly reduce or eliminate our profits.
U.S. government contracts are awarded through a regulated procurement process. The U.S. federal government has
increasingly relied upon multi-year contracts with pre-established terms and conditions, such as indefinite delivery/indefinite
quantity (“IDIQ”) contracts, which generally require those contractors who have previously been awarded the IDIQ to engage
in an additional competitive bidding process before a task order is issued. As a result, new work awards tend to be smaller and
of shorter duration, since the orders represent individual tasks rather than large, programmatic assignments. In addition, we
believe that there has been an increase in the award of federal contracts based on a low-price, technically acceptable criteria
emphasizing price over qualitative factors, such as past performance. As a result, pricing pressure may reduce our profit
margins on future federal contracts. The increased competition and pricing pressure, in turn, may require us to make sustained
efforts to reduce costs in order to realize revenue, and profits under government contracts. If we are not successful in reducing
the amount of costs we incur, our profitability on government contracts will be negatively impacted. Moreover, even if we are
qualified to work on a government contract, we may not be awarded the contract because of existing government policies
designed to protect small businesses and under-represented minority contractors. Our inability to win or renew government
contracts during regulated procurement processes could harm our operations and significantly reduce or eliminate our profits.
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Each year, client funding for some of our U.S. government contracts may rely on government appropriations or public-
supported financing. If adequate public funding is delayed or is not available, then our profits and revenue could
decline.
Each year, client funding for some of our U.S. government contracts may directly or indirectly rely on government
appropriations or public-supported financing. Legislatures may appropriate funds for a given project on a year-by-year basis,
even though the project may take more than one year to perform. In addition, public-supported financing such as U.S. state and
local municipal bonds may be only partially raised to support existing projects. Similarly, an economic downturn may make it
more difficult for U.S. state and local governments to fund projects. In addition to the state of the economy and competing
political priorities, public funds and the timing of payment of these funds may be influenced by, among other things,
curtailments in the use of government contracting firms, increases in raw material costs, delays associated with insufficient
numbers of government staff to oversee contracts, budget constraints, the timing and amount of tax receipts, and the overall
level of government expenditures. If adequate public funding is not available or is delayed, then our profits and revenue could
decline.
Our U.S. federal government contracts may give government agencies the right to modify, delay, curtail, renegotiate, or
terminate existing contracts at their convenience at any time prior to their completion, which may result in a decline in
our profits and revenue.
U.S. federal government projects in which we participate as a contractor or subcontractor may extend for several years.
Generally, government contracts include the right to modify, delay, curtail, renegotiate, or terminate contracts and subcontracts
at the government’s convenience any time prior to their completion. Any decision by a U.S. federal government client to
modify, delay, curtail, renegotiate, or terminate our contracts at their convenience may result in a decline in our profits and
revenue.
As a U.S. government contractor, we must comply with various procurement laws and regulations and are subject to
regular government audits; a violation of any of these laws and regulations or the failure to pass a government audit
could result in sanctions, contract termination, forfeiture of profit, harm to our reputation or loss of our status as an
eligible government contractor and could reduce our profits and revenue.
We must comply with and are affected by U.S. federal, state, local, and foreign laws and regulations relating to the
formation, administration and performance of government contracts. For example, we must comply with FAR, the Truth in
Negotiations Act, CAS, the American Recovery and Reinvestment Act of 2009, the Services Contract Act, and the DoD
security regulations, as well as many other rules and regulations. In addition, we must comply with other government
regulations related to employment practices, environmental protection, health and safety, tax, accounting, and anti-fraud
measures, as well as many other regulations in order to maintain our government contractor status. These laws and regulations
affect how we do business with our clients and, in some instances, impose additional costs on our business operations. Although
we take precautions to prevent and deter fraud, misconduct, and non-compliance, we face the risk that our employees or outside
partners may engage in misconduct, fraud, or other improper activities. U.S. government agencies, such as the DCAA, routinely
audit and investigate government contractors. These government agencies review and audit a government contractor’s
performance under its contracts and cost structure, and evaluate compliance with applicable laws, regulations, and standards. In
addition, during the course of its audits, the DCAA may question our incurred project costs. If the DCAA believes we have
accounted for such costs in a manner inconsistent with the requirements for FAR or CAS, the DCAA auditor may recommend
to our U.S. government corporate administrative contracting officer that such costs be disallowed. Historically, we have not
experienced significant disallowed costs as a result of government audits. However, we can provide no assurance that the
DCAA or other government audits will not result in material disallowances for incurred costs in the future. In addition, U.S.
government contracts are subject to various other requirements relating to the formation, administration, performance, and
accounting for these contracts. We may also be subject to qui tam litigation brought by private individuals on behalf of the U.S.
government under the Federal Civil False Claims Act, which could include claims for treble damages. For example, as
discussed elsewhere in this report, on January 14, 2019, the Civil Division of the United States Attorney's Office filed
complaints in intervention in three qui tam actions filed against our subsidiary, Tetra Tech EC, Inc., in the U.S. District Court
for the Northern District of California. U.S. government contract violations could result in the imposition of civil and criminal
penalties or sanctions, contract termination, forfeiture of profit, and/or suspension of payment, any of which could make us lose
our status as an eligible government contractor. We could also suffer serious harm to our reputation. Any interruption or
termination of our U.S. government contractor status could reduce our profits and revenue significantly.
If we extend a significant portion of our credit to clients in a specific geographic area or industry, we may experience
disproportionately high levels of collection risk and nonpayment if those clients are adversely affected by factors
particular to their geographic area or industry.
Our clients include public and private entities that have been, and may continue to be, negatively impacted by the
changing landscape in the global economy. While outside of the U.S. federal government no one client accounted for over 10%
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of our revenue for fiscal 2020, we face collection risk as a normal part of our business where we perform services and
subsequently bill our clients for such services. In the event that we have concentrated credit risk from clients in a specific
geographic area or industry, continuing negative trends or a worsening in the financial condition of that specific geographic area
or industry could make us susceptible to disproportionately high levels of default by those clients. Such defaults could
materially adversely impact our revenues and our results of operations.
We have made and expect to continue to make acquisitions. Acquisitions could disrupt our operations and adversely
impact our business and operating results. Our failure to conduct due diligence effectively, or our inability to
successfully integrate acquisitions, could impede us from realizing all of the benefits of the acquisitions, which could
weaken our results of operations.
A key part of our growth strategy is to acquire other companies that complement our lines of business or that broaden
our technical capabilities and geographic presence. However, our ability to make acquisitions is restricted under our credit
agreement. Acquisitions involve certain known and unknown risks that could cause our actual growth or operating results to
differ from our expectations or the expectations of securities analysts. For example:
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we may not be able to identify suitable acquisition candidates or to acquire additional companies on acceptable
terms;
we are pursuing international acquisitions, which inherently pose more risk than domestic acquisitions;
we compete with others to acquire companies, which may result in decreased availability of, 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 of our potential
acquisitions;
we may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a company; and
acquired companies may not perform as we expect, and we may fail to realize anticipated revenue and profits.
If we fail to conduct due diligence on our potential targets effectively, we may, for example, not identify problems at
target companies, or fail to recognize incompatibilities or other obstacles to successful integration. The integration process may
disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could
harm our results of operations. In addition, the overall integration of the combining companies may result in unanticipated
problems, expenses, liabilities, and competitive responses, and may cause our stock price to decline. The difficulties of
integrating an acquisition include, among others:
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issues in integrating information, communications, and other systems;
incompatibility of logistics, marketing, and administration methods;
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integrating the business cultures of both companies;
preserving important strategic client relationships;
consolidating corporate and administrative infrastructures, and eliminating duplicative operations; and
coordinating and integrating geographically separate organizations.
In addition, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the
acquisition, including the synergies, cost savings or growth opportunities that we expect. These benefits may not be achieved
within the anticipated time frame, or at all.
Further, acquisitions may cause us to:
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issue common stock that would dilute our current stockholders’ ownership percentage;
use a substantial portion of our cash resources;
increase our interest expense, leverage, and debt service requirements (if we incur additional debt to fund an
acquisition);
assume liabilities, including undisclosed, contingent or environmental liabilities, for which we do not have
indemnification from the former owners. Further, indemnification obligations may be subject to dispute or
concerns regarding the creditworthiness of the former owners;
record goodwill and non-amortizable intangible assets that are subject to impairment testing and potential
impairment charges;
experience volatility in earnings due to changes in contingent consideration related to acquisition earn-out liability
estimates;
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incur amortization expenses related to certain intangible assets;
lose existing or potential contracts as a result of conflict of interest issues;
incur large and immediate write-offs; or
become subject to litigation.
Finally, acquired companies that derive a significant portion of their revenue from the U.S. federal government and do
not follow the same cost accounting policies and billing practices that we follow 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 do not establish
appropriate reserves at acquisition, we may be exposed to material unanticipated liabilities, which could have a material adverse
effect on our business.
If our goodwill or intangible assets become impaired, then our profits may be significantly reduced.
Because we have historically acquired a significant number of companies, goodwill and intangible assets represent a
substantial portion of our assets. As of September 27, 2020, our goodwill was $993.5 million and other intangible assets were
$13.9 million. We are required to perform a goodwill impairment test for potential impairment at least on an annual basis. We
also assess the recoverability of the unamortized balance of our intangible assets when indications of impairment are present
based on expected future profitability and undiscounted expected cash flows and their contribution to our overall operations.
The goodwill impairment test requires us to determine the fair value of our reporting units, which are the components one level
below our reportable segments. In determining fair value, we make significant judgments and estimates, including assumptions
about our strategic plans with regard to our operations. We also analyze current economic indicators and market valuations to
help determine fair value. To the extent economic conditions that would impact the future operations of our reporting units
change, our goodwill may be deemed to be impaired, and we would be required to record a non-cash charge that could result in
a material adverse effect on our financial position or results of operations. For example, we had goodwill impairment of $15.8
million and $7.8 million in fiscal 2020 and 2019, respectively. We had no goodwill impairment in fiscal 2018.
We could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws.
The FCPA and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper
payments to foreign government officials for the purpose of obtaining or retaining business. The U.K. Bribery Act of 2010
prohibits both domestic and international bribery, as well as bribery across both private and public sectors. In addition, an
organization that “fails to prevent bribery” by anyone associated with the organization can be charged under the U.K. Bribery
Act unless the organization can establish the defense of having implemented “adequate procedures” to prevent bribery.
Improper payments are also prohibited under the Canadian Corruption of Foreign Public Officials Act and the Brazilian Clean
Companies Act. Local business practices in many countries outside the United States create a greater risk of government
corruption than that found in the United States and other more developed countries. Our policies mandate compliance with anti-
bribery laws, and we have established policies and procedures designed to monitor compliance with anti-bribery law
requirements; however, we cannot ensure that our policies and procedures will protect us from potential reckless or criminal
acts committed by individual employees or agents. If we are found to be liable for anti-bribery law violations, we could suffer
from criminal or civil penalties or other sanctions that could have a material adverse effect on our business.
We could be adversely impacted if we fail to comply with domestic and international export laws.
To the extent we export technical services, data and products outside of the United States, we are subject to U.S. and
international laws and regulations governing international trade and exports, including but not limited to the International
Traffic in Arms Regulations, the Export Administration Regulations, and trade sanctions against embargoed countries. A failure
to comply with these laws and regulations could result in civil or criminal sanctions, including the imposition of fines, the
denial of export privileges, and suspension or debarment from participation in U.S. government contracts, which could have a
material adverse effect on our business.
If we fail to complete a project in a timely manner, miss a required performance standard, or otherwise fail to
adequately perform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall
profitability.
Our engagements often involve large-scale, complex projects. The quality of our performance on such projects
depends in large part upon our ability to manage the relationship with our clients and our ability to effectively manage the
project and deploy appropriate resources, including third-party contractors and our own personnel, in a timely manner. We may
commit to a client that we will complete a project by a scheduled date. We may also commit that a project, when completed,
will achieve specified performance standards. If the project is not completed by the scheduled date or fails to meet required
performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the
client to rectify damages due to late completion or failure to achieve the required performance standards. The uncertainty of the
timing of a project can present difficulties in planning the amount of personnel needed for the project. If the project is delayed
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or canceled, we may bear the cost of an underutilized workforce that was dedicated to fulfilling the project. In addition,
performance of projects can be affected by a number of factors beyond our control, including unavoidable delays from
government inaction, public opposition, inability to obtain financing, weather conditions, unavailability of vendor materials,
changes in the project scope of services requested by our clients, industrial accidents, environmental hazards, and labor
disruptions. To the extent these events occur, the total costs of the project could exceed our estimates, and we could experience
reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminate our overall profitability. Further, any
defects or errors, or failures to meet our clients’ expectations, could result in claims for damages against us. Failure to meet
performance standards or complete performance on a timely basis could also adversely affect our reputation.
The loss of key personnel or our inability to attract and retain qualified personnel could impair our ability to provide
services to our clients and otherwise conduct our business effectively.
As primarily a professional and technical services company, we are labor-intensive and, therefore, our ability to attract,
retain, and expand our senior management and our professional and technical staff is an important factor in determining our
future success. The market for qualified scientists and engineers is competitive and, from time to time, it may be difficult to
attract and retain qualified individuals with the required expertise within the timeframe demanded by our clients. For example,
some of our U.S. government contracts may require us to employ only individuals who have particular government security
clearance levels. In addition, if we are unable to retain executives and other key personnel, the roles and responsibilities of those
employees will need to be filled, which may require that we devote time and resources to identify, hire, and integrate new
employees. The loss of the services of any of these key personnel could adversely affect our business. Our failure to attract and
retain key individuals could impair our ability to provide services to our clients and conduct our business effectively.
Our revenue and growth prospects may be harmed if we or our employees are unable to obtain government granted
eligibility or other qualifications we and they need to perform services for our customers.
A number of government programs require contractors to have certain kinds of government granted eligibility, such as
security clearance credentials. Depending on the project, eligibility can be difficult and time-consuming to obtain. If we or our
employees are unable to obtain or retain the necessary eligibility, we may not be able to win new business, and our existing
customers could terminate their contracts with us or decide not to renew them. To the extent we cannot obtain or maintain the
required security clearances for our employees working on a particular contract, we may not derive the revenue or profit
anticipated from such contract.
Our actual business and financial results could differ from the estimates and assumptions that we use to prepare our
consolidated financial statements, which may significantly reduce or eliminate our profits.
To prepare consolidated financial statements in conformity with generally accepted accounting principles in the U.S.
("U.S. GAAP"), management is required to make estimates and assumptions as of the date of the consolidated financial
statements. These estimates and assumptions affect the reported values of assets, liabilities, revenue and expenses, as well as
disclosures of contingent assets and liabilities. For example, we typically recognize revenue over the life of a contract based on
the proportion of costs incurred to date compared to the total costs estimated to be incurred for the entire project. Areas
requiring significant estimates by our management include:
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the application of the percentage-of-completion method of accounting and revenue recognition on contracts,
change orders, and contract claims, including related unbilled accounts receivable;
unbilled accounts receivable, including 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;
provisions for uncollectible receivables, client claims, and recoveries of costs from subcontractors, vendors, and
others;
provisions for income taxes, research and development tax credits, valuation allowances, and unrecognized tax
benefits;
value of goodwill and recoverability of intangible assets;
valuations of assets acquired and liabilities assumed in connection with business combinations;
valuation of contingent earn-out liabilities recorded in connection with business combinations;
valuation of employee benefit plans;
valuation of stock-based compensation expense; and
accruals for estimated liabilities, including litigation and insurance reserves.
Our actual business and financial results could differ from those estimates, which may significantly reduce or eliminate
our profits.
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Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.
The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability.
The rate at which we utilize our workforce is affected by a number of factors, including:
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our ability to transition employees from completed projects to new assignments and to hire and assimilate new
employees;
our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our
geographies and operating units;
our ability to engage employees in assignments during natural disasters or pandemics;
our ability to manage attrition;
our need to devote time and resources to training, business development, professional development, and other
non-chargeable activities; and
our ability to match the skill sets of our employees to the needs of the marketplace.
If we over-utilize our workforce, our employees may become disengaged, which could impact employee attrition. If
we under-utilize our workforce, our profit margin and profitability could suffer.
Our use of the percentage-of-completion method of revenue recognition could result in a reduction or reversal of
previously recorded revenue and profits.
We account for most of our contracts on the percentage-of-completion method of revenue recognition. Generally, our
use of this method results in recognition of revenue and profit ratably over the life of the contract, based on the proportion of
costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions to estimated revenue
and costs, including the achievement of award fees and the impact of change orders and claims, are recorded when the amounts
are known and can be reasonably estimated. Such revisions could occur in any period and their effects could be material.
Although we have historically made reasonably reliable estimates of the progress towards completion of long-term contracts,
the uncertainties inherent in the estimating process make it possible for actual costs to vary materially from estimates, including
reductions or reversals of previously recorded revenue and profit.
If we are unable to accurately estimate and control our contract costs, then we may incur losses on our contracts, which
could decrease our operating margins and reduce our profits. Specifically, our fixed-price contracts could increase the
unpredictability of our earnings.
It is important for us to accurately estimate and control our contract costs so that we can maintain positive operating
margins and profitability. We generally enter into three principal types of contracts with our clients: fixed-price, time-and-
materials and cost-plus.
The U.S. federal government and certain other clients have increased the use of fixed-priced contracts. Under fixed-
price contracts, we receive a fixed price irrespective of the actual costs we incur and, consequently, we are exposed to a number
of risks. We realize a profit on fixed-price contracts only if we can control our costs and prevent cost over-runs on our
contracts. Fixed-price contracts require cost and scheduling estimates that are based on a number of assumptions, including
those about future economic conditions, costs, and availability of labor, equipment and materials, and other exigencies. We
could experience cost over-runs if these estimates are originally inaccurate as a result of errors or ambiguities in the contract
specifications, or become inaccurate as a result of a change in circumstances following the submission of the estimate due to,
among other things, unanticipated technical problems, difficulties in obtaining permits or approvals, changes in local laws or
labor conditions, weather delays, changes in the costs of raw materials, or the inability of our vendors or subcontractors to
perform. If cost overruns occur, we could experience reduced profits or, in some cases, a loss for that project. If a project is
significant, or if there are one or more common issues that impact multiple projects, costs overruns could increase the
unpredictability of our earnings, as well as have a material adverse impact on our business and earnings.
Under our time-and-materials contracts, we are paid for labor at negotiated hourly billing rates and paid for other
expenses. Profitability on these contracts is driven by billable headcount and cost control. Many of our time-and-materials
contracts are subject to maximum contract values and, accordingly, revenue relating to these contracts is recognized as if these
contracts were fixed-price contracts. Under our cost-plus contracts, some of which are subject to contract ceiling amounts, we
are reimbursed for allowable costs and fees, which may be fixed or performance-based. If our costs exceed the contract ceiling
or are not allowable under the provisions of the contract or any applicable regulations, we may not be able to obtain
reimbursement for all of the costs we incur.
Profitability on our contracts is driven by billable headcount and our ability to manage our subcontractors, vendors,
and material suppliers. If we are unable to accurately estimate and manage our costs, we may incur losses on our contracts,
which could decrease our operating margins and significantly reduce or eliminate our profits. Certain of our contracts require us
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to satisfy specific design, engineering, procurement, or construction milestones in order to receive payment for the work
completed or equipment or supplies procured prior to achievement of the applicable milestone. As a result, under these types of
arrangements, we may incur significant costs or perform significant amounts of services prior to receipt of payment. If a client
determines not to proceed with the completion of the project or if the client defaults on its payment obligations, we may face
difficulties in collecting payment of amounts due to us for the costs previously incurred or for the amounts previously expended
to purchase equipment or supplies.
Accounting for a contract requires judgments relative to assessing the contract’s estimated risks, revenue, costs, and
other technical issues. Due to the size and nature of many of our contracts, the estimation of overall risk, revenue, and cost at
completion is complicated and subject to many variables. Changes in underlying assumptions, circumstances, or estimates may
also adversely affect future period financial performance. If we are unable to accurately estimate the overall revenue or costs on
a contract, then we may experience a lower profit or incur a loss on the contract.
Our failure to adequately recover on claims brought by us against clients for additional contract costs could have a
negative impact on our liquidity and profitability.
We have brought claims against clients for additional costs exceeding the contract price or for amounts not included in
the original contract price. These types of claims occur due to matters such as client-caused delays or changes from the initial
project scope, both of which may result in additional cost. Often, these claims can be the subject of lengthy arbitration or
litigation proceedings, and it is difficult to accurately predict when these claims will be fully resolved. When these types of
events occur and unresolved claims are pending, we have used working capital in projects to cover cost overruns pending the
resolution of the relevant claims. A failure to promptly recover on these types of claims could have a negative impact on our
liquidity and profitability. Total accounts receivable at September 27, 2020 included approximately $14 million related to such
claims.
Our failure to win new contracts and renew existing contracts with private and public sector clients could adversely
affect our profitability.
Our business depends on our ability to win new contracts and renew existing contracts with private and public sector
clients. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which
is affected by a number of factors. These factors include market conditions, financing arrangements, and required governmental
approvals. If negative market conditions arise, or if we fail to secure adequate financial arrangements or the required
government approval, we may not be able to pursue certain projects, which could adversely affect our profitability.
If we are not able to successfully manage our growth strategy, our business and results of operations may be adversely
affected.
Our expected future 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 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 to effectively manage our growth or the inability of our
employees to achieve anticipated performance could have a material adverse effect on our business.
Our backlog is subject to cancellation, unexpected adjustments and changing economic conditions, and is an uncertain
indicator of future operating results.
Our backlog at September 27, 2020 was $3.2 billion, an increase of $147.4 million, or 4.8%, compared to the end of
fiscal 2019. We include in backlog only those contracts for which funding has been provided and work authorizations have
been received. We cannot guarantee that the revenue projected in our backlog will be realized or, if realized, will result in
profits. In addition, project cancellations or scope adjustments may occur, from time to time, with respect to contracts reflected
in our backlog. For example, certain of our contracts with the U.S. federal government and other clients are terminable at the
discretion of the client, with or without cause. These types of backlog reductions could adversely affect our revenue and
margins. As a result of these factors, our backlog as of any particular date is an uncertain indicator of our future earnings.
Cyber security breaches of our systems and information technology could adversely impact our ability to operate.
We develop, install and maintain information technology systems for ourselves, as well as for customers. Client
contracts for the performance of information technology services, as well as various privacy and securities laws, require us to
manage and protect sensitive and confidential information, including federal and other government information, from
disclosure. We also need to protect our own internal trade secrets and other business confidential information, as well as
personal data of our employees and contractors, from disclosure. For example, the European Union's General Data Protection
Regulation ("GDPR") extends the scope of the European Union data protection laws to all companies processing data of
European Union residents, regardless of the company's location. In addition, the California Consumer Privacy Act ("CCPA"),
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which became effective in January 2020, increases the penalties for data privacy incidents. The GDPR and CCPA are just
examples of privacy regulations that are emerging in locations where we work.
We face the threat to our computer systems of unauthorized access, computer hackers, computer viruses, malicious
code, organized cyber-attacks and other security problems and system disruptions, including possible unauthorized access to
our and our clients' proprietary or classified information. We rely on industry-accepted security measures and technology to
securely maintain all confidential and proprietary information on our information systems. In addition, we rely on the security
of third-party service providers, vendors, and cloud services providers to protect confidential data. In the ordinary course of
business, we have been targeted by malicious cyber-attacks. A user who circumvents security measures could misappropriate
confidential or proprietary information, including information regarding us, our personnel and/or our clients, or cause
interruptions or malfunctions in operations. As a result, we may be required to expend significant resources to protect against
the threat of these system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches.
We also rely in part on third-party software and information technology vendors to run our critical accounting, project
management and financial information systems. We depend on our software and information technology vendors to provide
long-term software and hardware support for our information systems. Our software and information technology vendors may
decide to discontinue further development, integration or long-term software and hardware support for our information systems,
in which case we may need to abandon one or more of our current information systems and migrate some or all of our
accounting, project management and financial information to other systems, thus increasing our operational expense, as well as
disrupting the management of our business operations. Any of these events could damage our reputation and have a material
adverse effect on our business, financial condition, results of operations and cash flows.
If our business partners fail to perform their contractual obligations on a project, we could be exposed to legal liability,
loss of reputation and profit reduction or loss on the project.
We routinely enter into subcontracts and, occasionally, joint ventures, teaming arrangements, and other contractual
arrangements so that we can jointly bid and perform on a particular project. Success under these arrangements depends in large
part on whether our business partners fulfill their contractual obligations satisfactorily. In addition, when we operate through a
joint venture in which we are a minority holder, we have limited control over many project decisions, including decisions
related to the joint venture’s internal controls, which may not be subject to the same internal control procedures that we employ.
If these unaffiliated third parties do not fulfill their contract obligations, the partnerships or joint ventures may be unable to
adequately perform and deliver their contracted services. Under these circumstances, we may be obligated to pay financial
penalties, provide additional services to ensure the adequate performance and delivery of the contracted services, and may be
jointly and severally liable for the other’s actions or contract performance. These additional obligations could result in reduced
profits and revenues or, in some cases, significant losses for us with respect to the joint venture, which could also affect our
reputation in the industries we serve.
If our contractors and subcontractors fail to satisfy their obligations to us or other parties, or if we are unable to
maintain these relationships, our revenue, profitability, and growth prospects could be adversely affected.
We depend on contractors and subcontractors in conducting our business. There is a risk that we may have disputes
with our subcontractors arising from, among other things, the quality and timeliness of work performed by the subcontractor,
client concerns about the subcontractor, or our failure to extend existing task orders or issue new task orders under a
subcontract. In addition, if a subcontractor fails to deliver on a timely basis the agreed-upon supplies, fails to perform the
agreed-upon services, or goes out of business, then we may be required to purchase the services or supplies from another source
at a higher price, and our ability to fulfill our obligations as a prime contractor may be jeopardized. This may reduce the profit
to be realized or result in a loss on a project for which the services or supplies are needed.
We also rely on relationships with other contractors when we act as their subcontractor or joint venture partner. The
absence of qualified subcontractors with which we have a satisfactory relationship could adversely affect the quality of our
service and our ability to perform under some of our contracts. Our future revenue and growth prospects could be adversely
affected if other contractors eliminate or reduce their subcontracts or teaming arrangement relationships with us, or if a
government agency terminates or reduces these other contractors’ programs, does not award them new contracts, or refuses to
pay under a contract.
Our failure to meet contractual schedule or performance requirements that we have guaranteed could adversely affect
our operating results.
In certain circumstances, we can incur liquidated or other damages if we do not achieve project completion by a
scheduled date. If we or an entity for which we have provided a guarantee subsequently fails to complete the project as
scheduled and the matter cannot be satisfactorily resolved with the client, we may be responsible for cost impacts to the client
resulting from any delay or the cost to complete the project. Our costs generally increase from schedule delays and/or could
exceed our projections for a particular project. In addition, project performance can be affected by a number of factors beyond
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our control, including unavoidable delays from governmental inaction, public opposition, inability to obtain financing, weather
conditions, unavailability of vendor materials, changes in the project scope of services requested by our clients, industrial
accidents, environmental hazards, labor disruptions and other factors. As a result, material performance problems for existing
and future contracts could cause actual results of operations to differ from those anticipated by us and could cause us to suffer
damage to our reputation within our industry and client base.
New legal requirements could adversely affect our operating results.
Our business and results of operations could be adversely affected by the passage of climate change, defense,
environmental, infrastructure and other legislation, policies and regulations. Growing concerns about climate change may result
in the imposition of additional environmental regulations. For example, legislation, international protocols, regulation or other
restrictions on emissions could increase the costs of projects for our clients or, in some cases, prevent a project from going
forward, thereby potentially reducing the need for our services. In addition, relaxation or repeal of laws and regulations, or
changes in governmental policies regarding environmental, defense, infrastructure or other industries we serve could result in a
decline in demand for our services, which could in turn negatively impact our revenues. We cannot predict when or whether
any of these various proposals may be enacted or what their effect will be on us or on our customers.
Changes in resource management, environmental, or infrastructure industry laws, regulations, and programs could
directly or indirectly reduce the demand for our services, which could in turn negatively impact our revenue.
Some of our services are directly or indirectly impacted by changes in U.S. federal, state, local or foreign laws and
regulations pertaining to the resource management, environmental, and infrastructure industries. Accordingly, a relaxation or
repeal of these laws and regulations, or changes in governmental policies regarding the funding, implementation or enforcement
of these programs, could result in a decline in demand for our services, which could in turn negatively impact our revenue.
Changes in capital markets could adversely affect our access to capital and negatively impact our business.
Our results could be adversely affected by an inability to access the revolving credit facility under our credit
agreement. Unfavorable financial or economic conditions could impact certain lenders' willingness or ability to fund our
revolving credit facility. In addition, increases in interest rates or credit spreads, volatility in financial markets or the interest
rate environment, significant political or economic events, defaults of significant issuers, and other market and economic
factors, may negatively impact the general level of debt issuance, the debt issuance plans of certain categories of borrowers, the
types of credit-sensitive products being offered, and/or a sustained period of market decline or weakness could have a material
adverse effect on us.
Restrictive covenants in our credit agreement may restrict our ability to pursue certain business strategies.
Our credit agreement limits or restricts our ability to, among other things:
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incur additional indebtedness;
create liens securing debt or other encumbrances on our assets;
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pay dividends or make distributions to our stockholders;
purchase or redeem our stock;
repay indebtedness that is junior to indebtedness under our credit agreement;
acquire the assets of, or merge or consolidate with, other companies; and
sell, lease, or otherwise dispose of assets.
Our credit agreement also requires that we maintain certain financial ratios, which we may not be able to achieve. The
covenants may impair our ability to finance future operations or capital needs or to engage in other favorable business activities.
Our industry is highly competitive, and we may be unable to compete effectively, which could result in reduced revenue,
profitability and market share.
We are engaged in a highly competitive business. The markets we serve are highly fragmented and we compete with
many regional, national and international companies. Certain of these competitors have greater financial and other resources
than we do. Others are smaller and more specialized and concentrate their resources in particular areas of expertise. The extent
of our competition varies according to certain markets and geographic area. In addition, the technical and professional aspects
of some of our services generally do not require large upfront capital expenditures and provide limited barriers against new
competitors. Our clients make competitive determinations based upon qualifications, experience, performance, reputation,
technology, customer relationships and ability to provide the relevant services in a timely, safe and cost-efficient manner. This
competitive environment could force us to make price concessions or otherwise reduce prices for our services. If we are unable
to maintain our competitiveness and win bids for future projects, our market share, revenue, and profits will decline.
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Legal proceedings, investigations, and disputes could result in substantial monetary penalties and damages, especially if
such penalties and damages exceed or are excluded from existing insurance coverage.
We engage in consulting, engineering, program management, construction management, construction, and technical
services that can result in substantial injury or damages that may expose us to legal proceedings, investigations, and disputes.
For example, in the ordinary course of our business, we may be involved in legal disputes regarding personal injury claims,
employee or labor disputes, professional liability claims, and general commercial disputes involving project cost overruns and
liquidated damages, as well as other claims. In addition, in the ordinary course of our business, we frequently make professional
judgments and recommendations about environmental and engineering conditions of project sites for our clients, and we may be
deemed to be responsible for these judgments and recommendations if they are later determined to be inaccurate. Any
unfavorable legal ruling against us could result in substantial monetary damages or even criminal violations. We maintain
insurance coverage as part of our overall legal and risk management strategy to minimize our potential liabilities; however,
insurance coverage contains exclusions and other limitations that may not cover our potential liabilities. Generally, our
insurance program covers workers’ compensation and employer’s liability, general liability, automobile liability, professional
errors and omissions liability, property, and contractor’s pollution liability (in addition to other policies for specific projects).
Our insurance program includes deductibles or self-insured retentions for each covered claim that may increase over time. In
addition, our insurance policies contain exclusions that insurance providers may use to deny or restrict coverage. Excess
liability and professional liability insurance policies provide for coverage on a “claims-made” basis, covering only claims
actually made and reported during the policy period currently in effect. If we sustain liabilities that exceed or that are excluded
from our insurance coverage, or for which we are not insured, it could have a material adverse impact on our financial
condition, results of operations and cash flows.
Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well as
disrupt the management of our business operations.
We maintain insurance coverage from third-party insurers as part of our overall risk management strategy and because
some of our contracts require us to maintain specific insurance coverage limits. If any of our third-party insurers fail, suddenly
cancel our coverage, or otherwise are unable to provide us with adequate insurance coverage, then our overall risk exposure and
our operational expenses would increase, and the management of our business operations would be disrupted. In addition, there
can be no assurance that any of our existing insurance coverage will be renewable upon the expiration of the coverage period or
that future coverage will be affordable at the required limits.
Our inability to obtain adequate bonding could have a material adverse effect on our future revenue and business
prospects.
Certain clients require bid bonds, and performance and payment bonds. These bonds indemnify the client should we
fail to perform our obligations under a contract. If a bond is required for a certain project and we are unable to obtain an
appropriate bond, we cannot pursue that project. In some instances, we are required to co-venture with a small or disadvantaged
business to pursue certain government contracts. In connection with these ventures, we are sometimes required to utilize our
bonding capacity to cover all of the obligations under the contract with the client. We have a bonding facility but, as is typically
the case, the issuance of bonds under that facility is at the surety’s sole discretion. Moreover, bonding may be more difficult to
obtain or may only be available at significant additional cost. There can be no assurance that bonds will continue to be available
to us on reasonable terms. Our inability to obtain adequate bonding and, as a result, to bid on new work could have a material
adverse effect on our future revenue and business prospects.
Employee, agent, or partner misconduct, or our failure to comply with anti-bribery and other laws or regulations, could
harm our reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.
Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of our
employees, agents, or partners could have a significant negative impact on our business and reputation. Such misconduct could
include the failure to comply with government procurement regulations, regulations regarding the protection of classified
information, regulations prohibiting bribery and other foreign corrupt practices, regulations regarding the pricing of labor and
other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls
over financial reporting, environmental laws, and any other applicable laws or regulations. For example, as previously noted,
the FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from
making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate
compliance with these regulations and laws, and we take precautions to prevent and detect misconduct. However, since our
internal controls are subject to inherent limitations, including human error, it is possible that these controls could be
intentionally circumvented or become inadequate because of changed conditions. As a result, we cannot assure that our controls
will protect us from reckless or criminal acts committed by our employees or agents. Our failure to comply with applicable laws
or regulations, or acts of misconduct could subject us to fines and penalties, loss of security clearances, and suspension or
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debarment from contracting, any or all of which could harm our reputation, reduce our revenue and profits, and subject us to
criminal and civil enforcement actions.
Our business activities may require our employees to travel to and work in countries where there are high security risks,
which may result in employee death or injury, repatriation costs or other unforeseen costs.
Certain of our contracts may require our employees travel to and work in high-risk countries that are undergoing
political, social, and economic upheavals resulting from war, civil unrest, criminal activity, acts of terrorism, or public health
crises. For example, we currently have employees working in high security risk countries such as Afghanistan and Iraq. As a
result, we risk loss of or injury to our employees and may be subject to costs related to employee death or injury, repatriation, or
other unforeseen circumstances. We may choose or be forced to leave a country with little or no warning due to physical
security risks.
Our failure to implement and comply with our safety program could adversely affect our operating results or financial
condition.
Our project sites often put our employees and others in close proximity with mechanized equipment, moving vehicles,
chemical and manufacturing processes, and highly regulated materials. On some project sites, we may be responsible for safety,
and, accordingly, we have an obligation to implement effective safety procedures. Our safety program is a fundamental element
of our overall approach to risk management, and the implementation of the safety program is a significant issue in our dealings
with our clients. We maintain an enterprise-wide group of health and safety professionals to help ensure that the services we
provide are delivered safely and in accordance with standard work processes. Unsafe job sites and office environments have the
potential to increase employee turnover, increase the cost of a project to our clients, expose us to types and levels of risk that are
fundamentally unacceptable, and raise our operating costs. The implementation of our safety processes and procedures are
monitored by various agencies, including the U.S. Mine Safety and Health Administration (“MSHA”), and rating bureaus, and
may be evaluated by certain clients in cases in which safety requirements have been established in our contracts. Our failure to
meet these requirements or our failure to properly implement and comply with our safety program could result in reduced
profitability, the loss of projects or clients, or potential litigation, and could have a material adverse effect on our business,
operating results, or financial condition.
We may be precluded from providing certain services due to conflict of interest issues.
Many of our clients are concerned about potential or actual conflicts of interest in retaining management consultants.
U.S. 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 may prevent us from bidding for or performing
government contracts resulting from or relating to certain work we have performed. In addition, services performed for a
commercial or government 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 due to conflict of interest issues.
If our reports and opinions are not in compliance with professional standards and other regulations, we could be subject
to monetary damages and penalties.
We issue reports and opinions to clients based on our professional engineering expertise, as well as our other
professional credentials. Our reports and opinions may need to comply with professional standards, licensing requirements,
securities regulations, and other laws and rules governing the performance of professional services in the jurisdiction in which
the services are performed. In addition, we could be liable to third parties who use or rely upon our reports or opinions even if
we are not contractually bound to those third parties. For example, if we deliver an inaccurate report or one that is not in
compliance with the relevant standards, and that report is made available to a third party, we could be subject to third-party
liability, resulting in monetary damages and penalties.
We may be subject to liabilities under environmental laws and regulations.
Our services are subject to numerous U.S. and international environmental protection laws and regulations that are
complex and stringent. For example, we must comply with a number of U.S. federal government laws that strictly regulate the
handling, removal, treatment, transportation, and disposal of toxic and hazardous substances. Under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended (“CERCLA”), and comparable state laws, we
may be required to investigate and remediate regulated hazardous materials. CERCLA and comparable state laws typically
impose strict, joint and several liabilities without regard to whether a company knew of or caused the release of hazardous
substances. The liability for the entire cost of clean-up could be imposed upon any responsible party. Other principal U.S.
federal environmental, health, and safety laws affecting us include, but are not limited to, the Resource Conversation and
Recovery Act, National Environmental Policy Act, the Clean Air Act, the Occupational Safety and Health Act, the Federal
Mine Safety and Health Act of 1977 (the “Mine Act”), the Toxic Substances Control Act, and the Superfund Amendments and
Reauthorization Act. Our business operations may also be subject to similar state and international laws relating to
environmental protection. Further, past business practices at companies that we have acquired may also expose us to future
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unknown environmental liabilities. Liabilities related to environmental contamination or human exposure to hazardous
substances, or a failure to comply with applicable regulations, could result in substantial costs to us, including clean-up costs,
fines, civil or criminal sanctions, and third-party claims for property damage or personal injury or cessation of remediation
activities. Our continuing work in the areas governed by these laws and regulations exposes us to the risk of substantial liability.
Force majeure events, including natural disasters, pandemics and terrorist actions, could negatively impact the
economies in which we operate or disrupt our operations, which may affect our financial condition, results of
operations, or cash flows.
Force majeure or extraordinary events beyond the control of the contracting parties, such as natural and man-made
disasters, as well as pandemics and terrorist actions, could negatively impact the economies in which we operate by causing the
closure of offices, interrupting projects, and forcing the relocation of employees. We typically remain obligated to perform our
services after a terrorist action or natural disaster unless the contract contains a force majeure clause that relieves us of our
contractual obligations in such an extraordinary event. If we are not able to react quickly to force majeure, our operations may
be affected significantly, which would have a negative impact on our financial condition, results of operations, or cash flows.
We have only a limited ability to protect our intellectual property rights, and our failure to protect our intellectual
property rights could adversely affect our competitive position.
We rely upon a combination of nondisclosure agreements and other contractual arrangements, as well as copyright,
trademark, patent and trade secret laws to protect our proprietary information. We also enter into proprietary information and
intellectual property agreements with employees, which require them to disclose any inventions created during employment, to
convey such rights to inventions to us, and to restrict any disclosure of proprietary information. Trade secrets are generally
difficult to protect. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter
or prevent misappropriation of our confidential information and/or the infringement of our patents and copyrights. Further, we
may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights.
Failure to adequately protect, maintain, or enforce our intellectual property rights may adversely limit our competitive position.
Assertions by third parties of infringement, misappropriation or other violations by us of their intellectual property
rights could result in significant costs and substantially harm our business, financial condition and operating results.
In recent years, there has been significant litigation involving intellectual property rights in technology industries. We
may face from time to time, allegations that we or a supplier or customer have violated the rights of third parties, including
patent, trademark, and other intellectual property rights. If, with respect to any claim against us for violation of third-party
intellectual property rights, we are unable to prevail in the litigation or retain or obtain sufficient rights or develop non-
infringing intellectual property or otherwise alter our business practices on a timely or cost-efficient basis, our business,
financial condition or results of operations may be adversely affected.
Any infringement, misappropriation or related claims, whether or not meritorious, are time consuming, divert technical
and management personnel, and are costly to resolve. As a result of any such dispute, we may have to develop non-infringing
technology, pay damages, enter into royalty or licensing agreements, cease utilizing products or services, or take other actions
to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable to us.
General Risk Factors
Our stock price could become more volatile and stockholders’ investments could lose value.
In addition to the macroeconomic factors that have affected the prices of many securities generally, all of the factors
discussed in this section could affect our stock price. Our common stock has previously experienced substantial price volatility.
In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of
many companies, and that have often been unrelated to the operating performance of these companies. The trading price of our
common stock may be significantly affected by various factors, including quarter-to-quarter variations in our financial results,
such as revenue, profits, days sales outstanding, backlog, and other measures of financial performance or financial condition
(which factors may, themselves, be affected by the factors described below):
•
•
•
•
•
•
loss of key employees;
the number and significance of client contracts commenced and completed during a quarter;
creditworthiness and solvency of clients;
the ability of our clients to terminate contracts without penalties;
general economic or political conditions;
unanticipated changes in contract performance that may affect profitability, particularly with contracts that are
fixed-price or have funding limits;
31
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
contract negotiations on change orders, requests for equitable adjustment, and collections of related billed and
unbilled accounts receivable;
seasonality of the spending cycle of our public sector clients, notably the U.S. federal government, the spending
patterns of our commercial sector clients, and weather conditions;
budget constraints experienced by our U.S. federal, and state and local government clients;
integration of acquired companies;
changes in contingent consideration related to acquisition earn-outs;
divestiture or discontinuance of operating units;
employee hiring, utilization and turnover rates;
delays incurred in connection with a contract;
the size, scope and payment terms of contracts;
the timing of expenses incurred for corporate initiatives;
reductions in the prices of services offered by our competitors;
threatened or pending litigation;
legislative and regulatory enforcement policy changes that may affect demand for our services;
the impairment of goodwill or identifiable intangible assets;
the fluctuation of a foreign currency exchange rate;
stock-based compensation expense;
actual events, circumstances, outcomes, and amounts differing from judgments, assumptions, and estimates used
in determining the value of certain assets (including the amounts of related valuation allowances), liabilities, and
other items reflected in our consolidated financial statements;
success in executing our strategy and operating plans;
changes in tax laws or regulations or accounting rules;
results of income tax examinations;
the timing of announcements in the public markets regarding new services or potential problems with the
performance of services by us or our competitors, or any other material announcements;
speculation in the media and analyst community, changes in recommendations or earnings estimates by financial
analysts, changes in investors’ or analysts’ valuation measures for our stock, and market trends unrelated to our
stock;
our announcements concerning the payment of dividends or the repurchase of our shares;
resolution of threatened or pending litigation;
changes in investors’ and analysts’ perceptions of our business or any of our competitors’ businesses;
changes in environmental legislation;
broader market fluctuations; and
general economic or political conditions.
A significant drop in the price of our stock could expose us to the risk of securities class action lawsuits, which could
result in substantial costs and divert management’s attention and resources, which could adversely affect our business.
Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key
employees, many of whom are awarded equity securities, the value of which is dependent on the performance of our stock
price.
Delaware law and our charter documents may impede or discourage a merger, takeover, or other business combination
even if the business combination would have been in the short-term best interests of our stockholders.
We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the
ability of a third party to acquire control of us, even if a change in control would be beneficial to our stockholders. In addition,
our Board of Directors has the power, without stockholder approval, to designate the terms of one or more series of preferred
stock and issue shares of preferred stock, which could be used defensively if a takeover is threatened. These features, as well as
provisions in our certificate of incorporation and bylaws, such as those relating to advance notice of certain stockholder
proposals and nominations, could impede a merger, takeover, or other business combination involving us, or discourage a
potential acquirer from making a tender offer for our common stock, even if the business combination would have been in the
best interests of our current stockholders.
32
Item 1B Unresolved Staff Comments
None.
Item 2. Properties
At fiscal 2020 year-end, we leased approximately 450 operating facilities in domestic and foreign locations. Our
significant lease agreements expire at various dates through 2032. We believe that our current facilities are adequate for the
operation of our business, and that suitable additional space in various local markets is available to accommodate any needs that
may arise.
The following table summarizes our ten most significant leased properties by location based on annual rental expenses
(listed alphabetically, except for our corporate headquarters):
Location
Pasadena, CA
Adelaide, South Australia, Australia
Arlington, VA
Irvine, CA
London, United Kingdom
Montreal, QC, Canada
New York, NY
Perth, Western Australia, Australia
Pittsburgh, PA
San Francisco, CA
Item 3. Legal Proceedings
Description
Corporate Headquarters
Reportable Segment
Corporate
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
GSG / CIG
GSG / CIG
GSG / CIG
GSG / CIG
CIG
GSG / CIG
CIG
GSG / CIG
GSG
For a description of our material pending legal and regulatory proceedings and settlements, see Note 17,
"Commitments and Contingencies" of the "Notes to Consolidated Financial Statements" included in Item 8.
Item 4. Mine Safety Disclosures
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") requires
domestic mine operators to disclose violations and orders issued under the Mine Act by MSHA. We do not act as the owner of
any mines, but we may act as a mining operator as defined under the Mine Act where we may be an independent contractor
performing services or construction at such mine. Information concerning mine safety violations or other regulatory matters
required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95.
33
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is traded on the NASDAQ Global Select Market under the symbol TTEK. There were
approximately 1,200 stockholders of record at September 27, 2020.
Stock-Based Compensation
For information regarding our stock-based compensation, see Note 11, "Stockholders' Equity and Stock Compensation
Plans" of the "Notes to Consolidated Financial Statements" included in Item 8.
Performance Graph
The following graph shows a comparison of our cumulative total returns with those of the NASDAQ Market Index and
the Standard & Poor's ("S&P") 1000 Index. At this time, we do not have a comparable peer group due to the combination of our
differentiated high-end consulting services and our end-markets. Thus, we have selected the S&P 1000 Index. The graph
assumes that the value of an investment in our common stock and in each such index was $100 on September 27, 2015, and that
all dividends have been reinvested. During fiscal 2020, we declared and paid dividends in the first and second quarters totaling
$0.30 per share ($0.15 each quarter) on our common stock and paid dividends in the third and fourth quarters totaling $0.34 per
share ($0.17 each quarter) on our common stock. We declared and paid dividends totaling $0.54, $0.44, $0.38 and $0.34 per
share in fiscal 2019, 2018, 2017 and 2016, respectively. The comparison in the graph below is based on historical data and is
not intended to forecast the possible future performance of our common stock.
ASSUMES $100 INVESTED ON SEPTEMBER 27, 2015
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDED SEPTEMBER 27, 2020
Tetra Tech, Inc.
NASDAQ Market Index
S&P 1000 Index
2015
2016
2017
2018
2019
2020
$ 100.00 $ 144.01 $ 190.68 $ 282.06 $ 353.67 $ 382.89
100.00
100.00
114.80
114.43
141.98
135.72
177.72
157.02
177.31
148.93
246.08
140.29
The performance graph above and related text are being furnished solely to accompany this annual report on Form 10-
K pursuant to Item 201(e) of Regulation S-K, and are not being filed for purposes of Section 18 of the Exchange Act, and are
not to be incorporated by reference into any of our filings with the SEC, whether made before or after the date hereof,
regardless of any general incorporation language in such filing.
34
Tetra Tech, Inc.NASDAQ Market IndexS&P 1000 Index201520162017201820192020$0$50$100$150$200$250$300$350$400
Stock Repurchase Program
On November 5, 2018, the Board of Directors authorized a stock repurchase program ("2019 Program") under which
we could repurchase up to $200 million of our common stock. This was in addition to the $25 million remaining as of fiscal
2018 year-end under the previous stock repurchase program ("2018 Program"). On January 27, 2020, the Board of Directors
authorized a new $200 million stock repurchase program ("2020 Program"). As of September 27, 2020, we had a remaining
balance of $207.8 million available under the 2019 and 2020 programs. The following table summarizes stock repurchases in
the open market and settled in fiscal 2019 and fiscal 2020:
Fiscal Year
2019
2019
2019 Total
Stock Repurchase
Program
2018 Program
2019 Program
Shares Repurchased
Average Price Paid
per Share
Total Cost
(in thousands)
430,559 $
1,131,962
1,562,521 $
58.06 $
66.26
64.00 $
25,000
75,000
100,000
2020
2019 Program
1,508,747 $
77.67 $
117,188
Below is a summary of the stock repurchases that were traded and settled during the 12 months ended September 27,
2020 under the 2019 Program:
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Maximum
Dollar Value
that May Yet
be Purchased
Under the
Plans or
Programs (in
thousands)
87,614 $
88,030
68,794
53,485
53,677
709,250
130,436
71,320
75,239
55,466
42,881
72,555
117,532
109,803
103,824
99,145
94,206
43,341
33,920
28,714
22,813
18,394
14,514
7,813
Period
Total Number
of Shares
Purchased
Average Price
Paid per Share
85.25
87.80
86.91
87.48
92.00
71.72
72.23
72.99
78.44
79.68
90.47
92.36
September 30, 2019 - October 27, 2019
87,614 $
October 28, 2019 - November 24, 2019
November 25, 2019 - December 29, 2019
December 30, 2019 - January 26, 2020
January 27, 2020 - February 23, 2020
February 24, 2020 - March 29, 2020
March 30, 2020 - April 26, 2020
April 27, 2020 - May 24, 2020
May 25, 2020 - June 28, 2020
June 29, 2020 - July 26, 2020
July 27, 2020 - August 23, 2020
August 24, 2020 - September 27, 2020
88,030
68,794
53,485
53,677
709,250
130,436
71,320
75,239
55,466
42,881
72,555
35
Item 6. Selected Financial Data
The following selected financial data was derived from our audited consolidated financial statements. The selected
financial data presented below should be read in conjunction with the information contained in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and the
notes thereto contained in Item 8, "Financial Statements and Supplementary Data," of this report.
September 27,
2020
Fiscal Year Ended
October 1,
September 30,
September 29,
2019
2017
2018
(in thousands, except per share data)
October 2,
2016
$
2,994,891 $
3,107,348 $
2,964,148 $
2,753,360 $
2,583,469
241,091
173,859
3.16
0.64
188,762
158,668
2.84
0.54
190,086
136,883
2.42
0.44
183,342
117,874
2.04
0.38
135,855
83,783
1.42
0.34
Statements of Operations Data
Revenue
Income from operations
Net income attributable to Tetra Tech
Earnings per share
Cash dividends paid per share
Balance Sheets Data
Total assets
$
2,378,558 $
2,147,408 $
1,959,421 $
1,902,745 $
1,800,779
Long-term debt, net of current portion
242,395
Tetra Tech stockholders' equity
1,037,319
263,934
989,286
264,627
966,971
341,072
928,453
331,437
869,259
36
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following analysis of our financial condition and results of operations should be read in conjunction with Part I of
this report, as well as our consolidated financial statements and accompanying notes in Item 8. The following analysis contains
forward-looking statements about our future results of operations and expectations. Our actual results and the timing of events
could differ materially from those described herein. See Part 1, Item 1A, "Risk Factors" for a discussion of the risks,
assumptions, and uncertainties affecting these statements.
OVERVIEW OF RESULTS AND BUSINESS TRENDS
General. As the COVID-19 spread globally, we responded quickly to ensure the health and safety of our employees,
clients and the communities we support. Our high-end consulting focus and the technologies we deployed have allowed our
staff to support clients and projects remotely without interruption. We remain focused on providing clients with the highest
level of service and our 450 global offices are operational, supporting our programs and projects. By Leading with Science®,
we are responding to the challenges of COVID-19, with the commitment of our 20,000 staff supported by technological
innovation.
We entered fiscal 2020 in the best position in our history, with record backlog from our government and commercial
clients supporting their critical water and environmental programs. For the first five months of fiscal 2020, we were on pace for
another record year; however, the unprecedented disruption of the global economy due to the COVID-19 pandemic has
impacted all businesses. Our government business, which represents approximately 60% of our revenue, has been stable, while
our commercial business experienced relatively more impact. Much of our commercial business has continued due to regulatory
drivers, but we have seen project delays in the industrial sectors. Our diversified end-markets have allowed us to redeploy staff
to areas of uninterrupted or increased demand, and we have made decisions to align our cost structures with our clients'
projects. The actions we have taken to navigate through this worldwide pandemic, the strength of our balance sheet, and our
technical leadership position us well to address the global challenges of providing clean water, environmental restoration, and
the impacts of climate change.
In fiscal 2020, our revenue decreased 3.6% compared to fiscal 2019. Our year-over-year revenue comparisons were
impacted by the disposal of our Canadian turn-key pipeline activities in the fourth quarter of fiscal 2019 and a decrease in
revenue from disaster response activities related to California wildfires. Excluding the disposal and the decreased California
wildfire activity, our revenue increased 3.5% in fiscal 2020 compared to last year. This increase includes $210.5 million of
revenue from acquisitions, which did not have comparable revenue in fiscal 2019. Excluding the net impact of acquisitions/
disposals and the California wildfire disaster response activities, our revenue in fiscal 2020 decreased 3.9% compared to fiscal
2019 primarily due to the adverse impact of the COVID-19 pandemic on our U.S. commercial and international revenue.
U.S. Federal Government. Our U.S. federal government revenue increased 5.6% in fiscal 2020 compared to fiscal
2019. Excluding contributions from acquisitions, our revenue declined 1.5% in fiscal 2020 compared to last year. The decrease
was primarily due to reduced international development activities, partially offset by increased federal information technology
consulting activity. During periods of economic volatility, our U.S. federal government business has historically been the most
stable and predictable. We expect our U.S. federal government revenue to grow modestly in fiscal 2021 due to continued
increased federal information technology consulting activity. However, U.S. federal spending amounts and priorities could
change significantly from our current expectations, which could have a significant positive or negative impact on our fiscal
2021 revenue.
U.S. State and Local Government. Our U.S. state and local government revenue decreased 25.3% in fiscal 2020
compared to last year as we experienced a decrease in revenue from the aforementioned California wildfire disaster response
activities. This decline was partially offset by continued broad-based growth in our U.S. state and local government project-
related infrastructure business, particularly with increased revenue from municipal water infrastructure work in the metropolitan
areas of California, Texas, and Florida. Most of our work for U.S. state and local governments relates to critical water and
environmental programs, which we expect to increase further next year. However, further budgetary constraints to our clients
could negatively impact our business. Conversely, increased disaster response activity could cause our fiscal 2021 revenue to
exceed our current expectations.
U.S. Commercial. Our U.S. commercial revenue decreased 6.2% in fiscal 2020 compared to fiscal 2019. This decline
was primarily due to reduced industrial activity as a result of the COVID-19 pandemic. We currently expect the adverse impact
of the COVID-19 pandemic to our U.S. commercial revenue to continue to be more significant than to our U.S. government
programs and projects throughout most of next year.
International. Our international revenue increased 3.2% in fiscal 2020 compared to fiscal 2019. Excluding the impact
of the aforementioned prior-year disposal of our Canadian turn-key pipeline activities, our international revenue increased
11.4% in fiscal 2020 compared to last year. This increase includes $132.5 million of revenue from acquisitions, which did not
have comparable revenue in fiscal 2019. Excluding the net impact of acquisitions/disposals, our international revenue in fiscal
37
2020 decreased 5.5% compared to last year. The revenue decline primarily reflects the adverse impact of the COVID-19
pandemic, partially offset by increased renewable energy activity in Canada. In light of the COVID-19 pandemic, we currently
expect our overall international government work to be stable in fiscal 2021; however, our international commercial activities
could have a significant adverse impact if the current economic conditions due to COVID-19 are prolonged.
Selling, general and administrative expenses
(204,615)
(200,230)
(4,385)
RESULTS OF OPERATIONS
Fiscal 2020 Compared to Fiscal 2019
Consolidated Results of Operations
Revenue
Subcontractor costs
Revenue, net of subcontractor costs (1)
Other costs of revenue
Gross profit
Acquisition and integration expenses
Contingent consideration – fair value adjustments
Impairment of goodwill
Income from operations
Interest expense – net
Income before income tax expense
Income tax expense
Net income
September 27,
2020
Fiscal Year Ended
September 29,
2019
($ in thousands)
$
Change
%
$
2,994,891 $
3,107,348 $ (112,457)
(3.6)%
(646,319)
(717,711)
71,392
2,348,572
2,389,637
(41,065)
(1,902,037)
(1,981,454)
446,535
408,183
79,417
38,352
—
14,971
(15,800)
241,091
(10,351)
(1,085)
(7,755)
188,762
(13,100)
(13,626)
227,991
175,136
10,351
16,056
(8,045)
(103.7)
52,329
526
52,855
27.7
3.9
30.2
(54,101)
(16,375)
(37,726)
(230.4)
173,890
158,761
15,129
9.9
(1.7)
4.0
9.4
(2.2)
NM
NM
9.5
66.7
9.6
11.3
Net income attributable to noncontrolling interests
(31)
(93)
62
Net income attributable to Tetra Tech
Diluted earnings per share
$
$
173,859 $
158,668 $
15,191
3.16 $
2.84 $
0.32
(1) We believe that the presentation of "Revenue, net of subcontractor costs", which is a non-U.S. GAAP financial measure, enhances investors' ability to
analyze our business trends and performance because it substantially measures the work performed by our employees. In the course of providing services, we
routinely subcontract various services and, under certain USAID programs, issue grants. Generally, these subcontractor costs and grants are passed through to
our clients and, in accordance with U.S. GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage
these activities. Because subcontractor services can vary significantly from project to project and period to period, changes in revenue may not necessarily be
indicative of our business trends. Accordingly, we segregate subcontractor costs from revenue to promote a better understanding of our business by evaluating
revenue exclusive of costs associated with external service providers.
NM = not meaningful
In fiscal 2020, revenue and revenue, net of subcontractor costs, decreased $112.5 million, or 3.6%, and $41.1 million,
or 1.7%, compared to fiscal 2019. These comparisons were impacted by the disposal of our Canadian turn-key pipeline
activities in the fourth quarter of fiscal 2019 and a decrease in revenue from disaster response activities related to California
wildfires. In addition, our fiscal 2019 results included a reduction of revenue of $13.7 million from a claim that was resolved
last year. Excluding the disposal, the decreased California wildfire activity, and the 2019 claim resolution, our revenue
increased 3.0% in fiscal 2020 compared to last year. This increase includes $210.5 million of revenue from acquisitions, which
did not have comparable revenue in fiscal 2019. Also excluding the contribution from acquisitions, our revenue in fiscal 2020
decreased 4.4% compared to fiscal 2019 primarily due to the adverse impact of the COVID-19 pandemic on our U.S.
commercial and international revenue.
The following table reconciles our reported results to non-U.S. GAAP adjusted results, which exclude the RCM results
and certain non-operating accounting-related adjustments, such as acquisition and integration costs, gains/losses from
adjustments to contingent considerations, goodwill impairment charges, non-recurring costs to address COVID-19, and non-
recurring tax benefits. Adjusted results also exclude charges resulting from the decision to dispose of our Canadian turn-key
pipeline activities that commenced in the fourth quarter of fiscal 2019 and subsequent related gains from non-core equipment
38
disposals in fiscal 2020. Our fiscal 2019 adjusted results exclude a charge to operating income of $13.7 million from a claim
that was resolved in the fourth quarter of fiscal 2019 for a remediation project, where the work was substantially performed in
prior years. The effective tax rates applied to these adjustments to earnings per share ("EPS") to arrive at adjusted EPS averaged
155% and 16% in fiscal 2020 and 2019, respectively. The goodwill impairment charges in both fiscal years and certain of the
transaction charges in fiscal 2019 did not have related tax benefits. Excluding these items, the effective tax rates applied to the
adjustments in fiscal 2020 and 2019 were 24% and 26%, respectively. We applied the relevant marginal statutory tax rate based
on the nature of the adjustments and tax jurisdiction in which they occur. Both EPS and adjusted EPS were calculated using
diluted weighted-average common shares outstanding for the respective periods as reflected in our consolidated statements of
income.
During the second quarter of fiscal 2020, we took actions in response to the COVID-19 pandemic to ensure the health
and safety of our employees, clients, and communities. These actions included activating our Business Continuity Plan globally,
which enabled 95% of our workforce to work remotely and all 450 of our global offices to remain operational supporting our
clients' programs and projects. This required incremental costs for employee relocation, expansion of our virtual private
network capabilities, enhanced security, and sanitizing our offices. In addition, we incurred severance costs to right-size select
operations where projects were cancelled specifically due to COVID-19 concerns and the resulting macroeconomic conditions.
These incremental costs totaled $8.2 million in the second quarter of fiscal 2020. Substantially all of these costs were paid in
cash in the second half of fiscal 2020.
Income from operations
COVID-19
Non-core dispositions
RCM
Claims
Acquisition/Integration
Earn-out adjustments
Impairment of goodwill
Adjusted income from operations (1)
EPS
COVID-19
Non-core dispositions
RCM
Claims
Acquisition/Integration
Earn-out adjustments
Impairment of goodwill
Non-recurring tax benefits
Adjusted EPS (1)
NM = not meaningful
(1) Non-U.S. GAAP financial measure
Fiscal Year Ended
September 27,
2020
September 29,
2019
$
Change
$
241,091 $
188,762 $
52,329
$
$
8,233
(8,525)
—
—
—
(13,371)
15,800
—
10,946
5,933
13,700
10,351
3,085
7,755
243,228 $
240,532 $
3.16 $
0.11
(0.12)
—
—
—
(0.18)
0.29
—
2.84 $
—
0.14
0.08
0.18
0.19
0.04
0.14
(0.44)
3.17 $
8,233
(19,471)
(5,933)
(13,700)
(10,351)
(16,456)
8,045
2,696
0.32
0.11
(0.26)
(0.08)
(0.18)
(0.19)
(0.22)
0.15
0.44
0.09
$
3.26 $
%
27.7
NM
NM
NM
NM
NM
NM
NM
1.1
11.3
NM
NM
NM
NM
NM
NM
NM
NM
2.8
Our operating income increased $52.3 million in fiscal 2020 compared to fiscal 2019. Our operating income in fiscal
2020 was reduced by the previously described non-recurring charges of $8.2 million to address COVID-19. In addition, our
fiscal 2020 results include gains from the sales of non-core equipment of $8.5 million related to the disposal of our Canadian
turn-key pipeline activities. Our operating income in fiscal 2019 included charges of $10.9 million related to this disposal. Our
operating income in fiscal 2019 also included a $5.9 million loss from exited construction activities in our RCM segment. Our
RCM results are described below under "Remediation and Construction Management." Additionally, our operating income in
fiscal 2019 included the aforementioned $13.7 million charge for a resolved claim and expenses of $10.4 million related to the
acquisition and integration of WYG plc ("WYG"). For further detailed information regarding the WYG-related costs, see
"Fiscal 2019 Acquisition and Integration Expenses" below. Our fiscal 2020 operating income includes gains of $15.0 million
related to changes in the estimated fair value of contingent earn-out liabilities partially offset by related compensation charges
39
of $1.6 million. Our fiscal 2019 operating income reflects losses of $1.1 million related to changes in the estimated fair value of
contingent earn-out liabilities and an additional $2.0 million of related compensation charges. These earn-out related amounts
are described below under "Fiscal 2020 and 2019 Earn-Out Adjustments." Further, our operating income reflects non-cash
goodwill impairment charges of $15.8 million and $7.8 million in fiscal 2020 and 2019, respectively. These charges are
described below under "Fiscal 2020 and 2019 Impairment of Goodwill."
Excluding these items, our adjusted operating income increased $2.7 million, or 1.1%, in fiscal 2020 compared to
fiscal 2019. The increase reflects improved results in our CIG segment partially offset by lower operating income in our GSG
segment. GSG and CIG results are described below under "Government Services Group" and "Commercial/International
Services Group", respectively.
Our net interest expense was $13.1 million in fiscal 2020 compared to $13.6 million last year. The decrease primarily
reflects lower interest rates (primarily LIBOR), and to a lesser extent, lower average borrowings.
The effective tax rates for fiscal 2020 and 2019 were 23.7% and 9.3%, respectively. The goodwill impairment charges
in fiscal 2020 and fiscal 2019 and certain of the transaction charges in fiscal 2019 did not have related tax benefits, which
increased our effective tax rates by 1.5% and 1.1% in fiscal 2020 and 2019, respectively. Conversely, income tax expense was
reduced by $8.3 million and $6.4 million of excess tax benefits on share-based payments in fiscal 2020 and 2019, respectively.
Additionally, we finalized the analysis of our deferred tax liabilities for the Tax Cuts and Jobs Act's ("TCJA's") lower tax rates
in the first quarter of fiscal 2019 and recorded a deferred tax benefit of $2.6 million. Also, valuation allowances of $22.3
million in Australia were released due to sufficient positive evidence obtained during the second quarter of fiscal 2019. The
valuation allowances were primarily related to net operating loss and research and development credit carryforwards and other
temporary differences. We evaluated the positive evidence against any negative evidence and determined that it was more likely
than not that the deferred tax assets would be realized. The factors used to assess the likelihood of realization were the past
performance of the related entities, our forecast of future taxable income, and available tax planning strategies that could be
implemented to realize the deferred tax assets.
Excluding the impact of the non-deductible goodwill impairment charges and transaction costs, the excess tax benefits
on share-based payments, the net deferred tax benefits from the TCJA, and the valuation allowance release, our effective tax
rates in fiscal 2020 and 2019 were 25.6% and 24.6%, respectively.
Our EPS was $3.16 in fiscal 2020, compared to $2.84 in fiscal 2019. On the same basis as our adjusted operating
income and excluding non-recurring tax benefits in fiscal 2019, EPS was $3.26 in fiscal 2020, compared to $3.17 last year.
Segment Results of Operations
Government Services Group ("GSG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
September 27,
2020
Fiscal Year Ended
September 29,
2019
($ in thousands)
$
Change
%
$
$
$
1,778,922 $
(478,839)
1,820,671 $
(491,290)
(41,749)
12,451
(2.3)%
2.5
1,300,083 $
1,329,381 $
(29,298)
(2.2)
168,669 $
185,263 $
(16,594)
(9.0)
Revenue and revenue, net of subcontractor costs, decreased $41.7 million, or 2.3%, and $29.3 million, or 2.2%,
respectively, in fiscal 2020 compared to fiscal 2019. These declines primarily reflect the previously described decrease in
revenue from disaster response activities related to California wildfires offset by revenue from acquisitions, which did not have
comparable revenue in fiscal 2019. Excluding the contributions from acquisitions and the California wildfire disaster response
activities, our revenue in fiscal 2020 was substantially the same as fiscal 2019 as increases in federal information technology
activity were offset by lower international development revenue.
Operating income decreased $16.6 million in fiscal 2020 compared to fiscal 2019 primarily reflecting the lower
disaster response revenue. Also, we incurred $1.6 million of incremental costs for actions to respond to the COVID-19
pandemic in the second quarter of fiscal 2020. Our operating margin, based on revenue, net of subcontractor costs, was 13.0%
in fiscal 2020 compared to 13.9% last year. Excluding the COVID-19 charges, our operating margin was 13.1% in fiscal 2020.
40
Commercial/International Services Group ("CIG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
September 27,
2020
Fiscal Year Ended
September 29,
2019
($ in thousands)
$
Change
%
$
$
$
1,266,059 $
1,342,509 $
(76,450)
(5.7)%
(217,547)
(279,468)
61,921
1,048,512 $
1,063,041 $
(14,529)
114,022 $
79,633 $
34,389
22.2
(1.4)
43.2
Revenue and revenue, net of subcontractor costs, decreased $76.5 million, or 5.7%, and $14.5 million, or 1.4%,
respectively, in fiscal 2020 compared to fiscal 2019. Our year-over-year revenue comparisons were impacted by the disposal of
our Canadian turn-key pipeline activities in the fourth quarter of fiscal 2019, and a reduction in revenue and a corresponding
charge to operating income of $13.7 million in fiscal 2019 for a remediation project where the work was substantially
performed in prior years. Excluding the disposal and the fiscal 2019 claim resolution, our revenue decreased 2.2% due to lower
subcontractor activity and the adverse impact of the COVID-19 pandemic on our U.S. and international commercial revenue.
Operating income increased $34.4 million in fiscal 2020 compared to last year. This comparison was also impacted by
the disposal of our Canadian turn-key pipeline activities. Our fiscal 2020 operating income includes gains of $8.5 million from
the disposition of non-core equipment and our fiscal 2019 operating income includes charges of $10.9 million related to these
activities. In addition, we incurred $6.6 million of incremental costs for actions to respond to the COVID-19 pandemic in the
second quarter of fiscal 2020. Excluding the Canadian turn-key pipeline activities, the COVID-19 charges, and the
aforementioned $13.7 million claim in fiscal 2019, our operating income increased $7.9 million, or 7.5%, in fiscal 2020
compared to fiscal 2019. On the same basis, our operating margin, based on revenue, net of subcontractor costs, improved to
10.7% in fiscal 2020 from 9.7% last year.
Remediation and Construction Management ("RCM")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Loss from operations
September 27,
2020
Fiscal Year Ended
September 29,
2019
($ in thousands)
$
Change
$
$
$
198 $
(221)
(23) $
(1,542) $
(1,243)
(2,785) $
1,740
1,022
2,762
— $
(5,933) $
5,933
%
NM
NM
NM
NM
RCM's projects were substantially complete at the end of fiscal 2018. The operating loss of $5.9 million in fiscal 2019
reflects reductions of revenue and related operating losses based on updated evaluations of unsettled claim amounts for two
construction projects that were completed in prior years.
Fiscal 2020 and 2019 Earn-Out Adjustments
We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair
value could differ materially from the initial estimates. We recorded adjustments to our contingent earn-out liabilities and
reported net gains of $15.0 million and losses of $1.1 million in fiscal 2020 and 2019, respectively. The fiscal 2020 net gains
primarily resulted from updated valuations of the contingent consideration liabilities for eGlobalTech ("EGT"), Norman,
Disney and Young ("NDY"), and Segue Technologies, Inc. ("SEG"). These valuations included updated projections of EGT's,
NDY's, and SEG's financial performance during the earn-out periods, which were below our original estimates at their
respective acquisition dates. In addition, we recognized charges of $1.6 million and $2.0 million in fiscal 2020 and 2019,
respectively, that related to the earn-out for Glumac. These charges were treated as compensation in selling, general and
administrative expenses due to the terms of the arrangement, which included an on-going service requirement for a portion of
the earn-out.
41
At September 27, 2020, there was a total maximum of $70.9 million of outstanding contingent consideration related to
acquisitions. Of this amount, $32.6 million was estimated as the fair value and accrued on our consolidated balance sheet.
Fiscal 2020 and 2019 Impairment of Goodwill
On September 2, 2020, Australia announced that it had fallen into economic recession, defined as two consecutive
quarters of negative growth, for the first time since 1991 including 7% negative growth in the quarter ending in June 2020. This
prompted a strategic review of our Asia/Pacific ("ASP") reporting unit, which is in our CIG reportable segment. As a result of
the economic recession in Australia, our revenue growth and profit margin forecasts for the ASP reporting unit declined from
the previous forecast used for our annual goodwill impairment review as of June 29, 2020. We also performed an interim
goodwill impairment review of our ASP reporting unit in September 2020 and recorded a $15.8 million goodwill impairment
charge. The impaired goodwill related to our acquisitions of Coffey and NDY. As a result of the impairment charge, the
estimated fair value of our ASP reporting unit equals its carrying value of $144.9 million, including $95.5 million of goodwill,
at September 27, 2020. If the financial performance of the operations in our ASP reporting unit were to deteriorate or fall below
our forecasts, the related goodwill may become further impaired.
During the fourth quarter of fiscal 2019, we performed a strategic review of all operations. As a result, we decided to
dispose of our turn-key pipeline activities in Western Canada in our Remediation and Field Services ("RFS") reporting unit,
which is in our CIG reportable segment. As a result, we incurred severance and project-related charges related to the disposition
of $10.9 million, which were reported in the CIG segment's operating income. We also performed an interim goodwill
impairment review of our RFS reporting unit and recorded a $7.8 million goodwill impairment charge. The impaired goodwill
related to our acquisition of Parkland Pipeline Contractors Ltd. As a result of the impairment charge, the estimated fair value of
the RFS reporting unit equaled its carrying value at September 29, 2019. If the financial performance of the remaining
operations in our RFS reporting unit were to deteriorate or fall below our forecasts, the related goodwill may become further
impaired.
42
Fiscal 2019 Compared to Fiscal 2018
Consolidated Results of Operations
Revenue
Subcontractor costs
Revenue, net of subcontractor costs (1)
Other costs of revenue
Gross profit
Selling, general and administrative expenses
Acquisition and integration expenses
Contingent consideration – fair value adjustments
Impairment of goodwill
Income from operations
Interest expense – net
Income before income tax expense
Income tax expense
Net income
Net income attributable to noncontrolling interests
Net income attributable to Tetra Tech
Diluted earnings per share
September 29,
2019
Fiscal Year Ended
September 30,
2018
($ in thousands)
$
Change
%
$
3,107,348 $
2,964,148 $ 143,200
4.8%
(717,711)
(763,414)
45,703
2,389,637
2,200,734
188,903
(1,981,454)
(1,816,276)
(165,178)
408,183
384,458
23,725
(200,230)
(190,120)
(10,110)
(10,351)
(1,085)
(7,755)
—
(10,351)
(4,252)
—
188,762
190,086
(13,626)
(15,524)
175,136
174,562
3,167
(7,755)
(1,324)
1,898
574
(16,375)
(37,605)
21,230
158,761
136,957
(93)
(74)
21,804
(19)
158,668 $
136,883 $
21,785
2.84 $
2.42 $
0.42
$
$
6.0
8.6
(9.1)
6.2
(5.3)
NM
74.5
NM
(0.7)
12.2
0.3
56.5
15.9
(25.7)
15.9
17.4
(1) We believe that the presentation of "Revenue, net of subcontractor costs", which is a non-U.S. GAAP financial measure, enhances investors' ability to
analyze our business trends and performance because it substantially measures the work performed by our employees. In the course of providing services, we
routinely subcontract various services and, under certain USAID programs, issue grants. Generally, these subcontractor costs and grants are passed through to
our clients and, in accordance with U.S. GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage
these activities. Because subcontractor services can vary significantly from project to project and period to period, changes in revenue may not necessarily be
indicative of our business trends. Accordingly, we segregate subcontractor costs from revenue to promote a better understanding of our business by evaluating
revenue exclusive of costs associated with external service providers.
NM = not meaningful
43
The following table reconciles our reported results to non-U.S. GAAP adjusted results, which exclude RCM results
and certain non-operating accounting-related adjustments, such as acquisition and integration costs, gains/losses from
adjustments to contingent consideration, and non-recurring tax benefits. Adjusted results also exclude charges from the disposal
of our Canadian turn-key pipeline activities in fiscal 2019 and losses from the divestitures of our non-core utility field services
operations and other non-core assets in fiscal 2018. The disposal in fiscal 2019 also resulted in a $7.8 million goodwill
impairment charge that is excluded from our adjusted results. Our fiscal 2019 adjusted results exclude a reduction of revenue
and a corresponding charge to operating income of $13.7 million from a claim that was resolved in the fourth quarter of fiscal
2019 for a remediation project, where the work was substantially performed in prior years. In addition, our fiscal 2018 adjusted
results also exclude a reduction of revenue of $10.6 million and a related charge to operating income of $12.5 million from a
claim settlement in the fourth quarter of fiscal 2018 for a fixed-price construction project that was completed in fiscal 2014. The
effective tax rates applied to the adjustments to EPS to arrive at adjusted EPS averaged 16% and 28% in fiscal 2019 and 2018,
respectively. The goodwill impairment charge and certain of the transaction charges in fiscal 2019 did not have a related tax
benefit. Excluding these items, the effective tax rate applied to adjustments in fiscal 2019 was 26%. We applied the relevant
marginal statutory tax rate based on the nature of the adjustments and tax jurisdiction in which they occur. Both EPS and
adjusted EPS were calculated using diluted weighted-average common shares outstanding for the respective periods as reflected
in our consolidated statements of income.
Revenue
RCM
Claims
Adjusted revenue (1)
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
RCM
Claims
Adjusted revenue, net of subcontractor costs (1)
Income from operations
Earn-out expense
RCM
Claims
Non-core divestitures
Acquisition/Integration
Adjusted income from operations (1)
EPS
Earn-out expense
RCM
Claims
Non-core divestitures
Acquisition/Integration
Non-recurring tax benefits
Adjusted EPS (1)
NM = not meaningful
(1) Non-U.S. GAAP financial measure
Fiscal Year Ended
September 29,
2019
September 30,
2018
$
Change
$
3,107,348 $
2,964,148 $ 143,200
1,542
13,700
(14,199)
15,741
10,576
3,124
3,122,590 $
2,960,525 $ 162,065
3,107,348 $
2,964,148 $ 143,200
(717,711)
(763,414)
45,703
2,389,637 $
2,200,734 $ 188,903
2,785
13,700
(2,648)
10,576
5,433
3,124
2,406,122 $
2,208,662 $ 197,460
188,762 $
190,086 $
3,085
5,933
13,700
18,701
10,351
5,753
4,573
12,457
3,434
—
(1,324)
(2,668)
1,360
1,243
15,267
10,351
240,532 $
216,303 $
24,229
2.84 $
2.42 $
0.04
0.08
0.18
0.28
0.19
0.08
0.06
0.16
0.11
—
0.42
(0.04)
0.02
0.02
0.17
0.19
(0.44)
3.17 $
(0.19)
(0.25)
2.64 $
0.53
$
$
$
$
$
$
$
$
%
4.8%
NM
NM
5.5
4.8
NM
8.6
NM
NM
8.9
(0.7)
NM
NM
NM
NM
NM
11.2
17.4
NM
NM
NM
NM
NM
NM
20.1
In fiscal 2019, revenue and revenue, net of subcontractor costs, increased $143.2 million, or 4.8%, and $188.9 million,
or 8.6%, respectively, compared to fiscal 2018. Our adjusted revenue and revenue, net of subcontractor costs, increased $162.1
44
million, or 5.5%, and $197.5 million, or 8.9%, respectively, compared to fiscal 2018. This growth includes contributions from
the fiscal 2019 acquisitions of EGT and WYG, partially offset by the impact of the divestiture of our non-core utility field
services operations in fiscal 2018. Excluding the net impact from these transactions, our adjusted revenue and revenue, net of
subcontractor costs, grew $144.2 million, or 5.0%, and $180.5 million, or 8.3%, in fiscal 2019 compared to fiscal 2018. This
growth primarily reflects continued growth in our U.S. state and local government water infrastructure revenue. In addition, our
revenue from disaster response and recovery planning projects increased compared to fiscal 2018. Our U.S. state and local
government adjusted revenue and revenue, net of subcontractor costs, increased $132.3 million, or 28.8%, and $90.7 million, or
27.1%, respectively, in fiscal 2019 compared to fiscal 2018. Additionally, in fiscal 2019, our international adjusted revenue, net
of subcontractor costs, increased $98.6 million, or 16.3%, primarily due to increased activity in Canada.
Our operating income decreased $1.3 million in fiscal 2019 compared to fiscal 2018. Our operating income in fiscal
2019 was reduced by WYG-related acquisition and integration expenses of $10.4 million. For further detailed information
regarding these expenses, see “Fiscal 2019 Acquisition and Integration Expenses” below. In addition, our operating income
reflects losses of $1.1 million and $4.3 million related to changes in the estimated fair value of contingent earn-out liabilities
and related compensation charges of $2.0 million and $1.5 million in fiscal 2019 and 2018, respectively. These earn-out charges
are described below under “Fiscal 2019 and 2018 Earn-Out Adjustments.” The loss from exited construction activities in our
RCM segment was $5.9 million in fiscal 2019 compared to $4.6 million in fiscal 2018. Our RCM results are described below
under "Remediation and Construction Management." Additionally, our operating income for fiscal 2019 includes charges of
$10.9 million related to the planned disposal of our turn-key pipeline activities in Western Canada. This disposal also resulted
in a non-cash goodwill impairment charge of $7.8 million in fiscal 2019. Both of these charges are described above under
“Fiscal 2020 and 2019 Impairment of Goodwill.” Our operating income in fiscal 2018, also includes losses of $3.4 million
related to the divestitures of our non-core utility field services operations and other non-core assets. These losses are reported in
selling, general and administrative expenses in our consolidated statements of income.
Excluding these items and the aforementioned claims in fiscal 2019 and 2018, adjusted operating income increased
$24.2 million, or 11.2%, in fiscal 2019 compared to fiscal 2018. The increase reflects improved results in both our GSG and
CIG segments. GSG's operating income increased $17.1 million in fiscal 2019 compared to fiscal 2018. These results are
described below under "Government Services Group." CIG's operating income increased $5.2 million ($17.4 million on an
adjusted basis) in fiscal 2019 compared to fiscal 2018. These results are described below under "Commercial/International
Services Group."
Interest expense, net of interest income, was $13.6 million in fiscal 2019, compared to $15.5 million in fiscal 2018.
The decreases reflect reduced borrowings, partially offset by higher interest rates (primarily LIBOR).
The effective tax rates for fiscal 2019 and 2018 were 9.3% and 21.5%, respectively. These tax rates reflect the impact
of the comprehensive tax legislation enacted by the U.S. government on December 22, 2017, which is commonly referred to as
the TCJA. The TCJA significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S.
corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production
activities, limiting the deductibility of certain executive compensation, and implementing a modified territorial tax system with
the introduction of the Global Intangible Low-Taxed Income ("GILTI") tax rules. The TCJA also imposed a one-time transition
tax on deemed repatriation of historical earnings of foreign subsidiaries. In fiscal 2019, we finalized our fiscal 2018 U.S. federal
tax return and recorded a $2.4 million tax expense with respect to the one-time transition tax on foreign earnings. As we have a
September 30 fiscal year-end, our U.S. federal corporate income tax rate was blended in fiscal 2018, resulting in a statutory
federal rate of 24.5% (3 months at 35% and 9 months at 21%), and was 21% in fiscal 2019.
U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the tax law was enacted.
As a result of the TCJA, we reduced our deferred tax liabilities and recorded a deferred tax benefit of $10.1 million in fiscal
2018 to reflect our estimate of temporary differences in the United States that were to be recovered or settled in fiscal 2018
based on the 24.5% blended corporate tax rate or based on the 21% tax rate in fiscal 2019 and beyond versus the previous
enacted 35% corporate tax rate. We finalized this analysis in the first quarter of fiscal 2019 and recorded an additional deferred
tax benefit of $2.6 million.
Valuation allowances of $22.3 million in Australia were released due to sufficient positive evidence being obtained in
fiscal 2019. The valuation allowances were primarily related to net operating loss and Research and Development credit carry-
forwards and other temporary differences. Excluding the net deferred tax benefits from the TCJA and the release of the
valuation allowance, our effective tax rate was 21.9% in fiscal 2019 compared to 25.1% in fiscal 2018; the reduction is
primarily due to the reduced U.S. corporate income tax rate.
With respect to the GILTI provisions of the TCJA, we had analyzed our structure and global results of operations and
expected a GILTI tax of $0.4 million for fiscal 2019, which was included in our fiscal 2019 income tax expense.
45
Our EPS was $2.84 in fiscal 2019, compared to $2.42 in fiscal 2018. On the same basis as our adjusted operating
income and excluding non-recurring tax benefits, adjusted EPS was $3.17 in fiscal 2019, compared to $2.64 in fiscal 2018.
Segment Results of Operations
Government Services Group ("GSG")
September 29,
2019
Fiscal Year Ended
September 30,
2018
($ in thousands)
$
Change
%
7.4%
(1.8)
9.7
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
$
$
$
1,820,671 $
1,694,871 $ 125,800
(491,290)
(482,537)
(8,753)
1,329,381 $
1,212,334 $ 117,047
185,263 $
168,211 $
17,052
10.1
Revenue and revenue, net of subcontractor costs, increased $125.8 million, or 7.4%, and $117.0 million, or 9.7%,
respectively, in fiscal 2019 compared to fiscal 2018. These increases include contributions from the aforementioned
acquisitions in fiscal 2019. Excluding these contributions, revenue and revenue, net of subcontractor costs, increased 4.8% and
6.9%, respectively, in fiscal 2019 compared to fiscal 2018. These increases reflect continued broad-based growth in our U.S.
state and local government project-related infrastructure revenue. In addition, our revenue from disaster response and recovery
planning projects increased compared to fiscal 2018. Overall, our U.S. state and local government adjusted revenue, net of
subcontractor costs, increased $136.7 million and $85.7 million, respectively in fiscal 2019 compared to fiscal 2018. Operating
income increased $17.1 million in fiscal 2019 compared to fiscal 2018, primarily reflecting the higher U.S. state and local
revenue. Our operating margin, based on revenue, net of subcontractor costs, was stable at 13.9% in both fiscal 2019 and 2018.
Commercial/International Services Group ("CIG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
September 29,
2019
Fiscal Year Ended
September 30,
2018
($ in thousands)
$
Change
$
$
$
1,342,509 $
1,323,142 $
19,367
(279,468)
(337,390)
57,922
1,063,041 $
985,752 $
77,289
79,633 $
74,451 $
5,182
%
1.5%
17.2
7.8
7.0
Revenue and revenue, net of subcontractor costs, increased $19.4 million, or 1.5%, and $77.3 million, or 7.8%,
respectively, in fiscal 2019 compared to fiscal 2018. Our fiscal 2019 results included a reduction of revenue and a
corresponding non-cash charge to operating income of $13.7 million from a claim that was resolved in the fourth quarter of
fiscal 2019 for a remediation project, where the work was substantially performed in prior years. Excluding this claim and the
net impact of the aforementioned acquisitions/divestiture, revenue and revenue, net of subcontractor costs, increased 4.0% and
10.3%, respectively, in fiscal 2019 compared to fiscal 2018. These increases primarily reflect increased international revenue,
particularly for broad-based activities in Canada and renewable energy projects globally. Operating income increased $5.2
million in fiscal 2019 compared to fiscal 2018 reflecting the higher revenue. In addition to the aforementioned claim resolution,
operating income in fiscal 2019 included the previously described charges of $10.9 million related to the planned disposal of
our Canadian turn-key pipeline operations. Operating income in fiscal 2018 included a $12.5 million charge for a claim
settlement for a fixed-price construction project that was completed in fiscal 2014. Excluding these charges, our operating
income increased $17.4 million in fiscal 2019 compared to fiscal 2018, and our operating margin, based on revenue, net of
subcontractor costs, improved to 9.8% in fiscal 2019 from 8.8% in fiscal 2018.
46
%
NM
89.2
NM
Remediation and Construction Management ("RCM")
September 29,
2019
Fiscal Year Ended
September 30,
2018
($ in thousands)
$
Change
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Loss from operations
NM = not meaningful
$
$
$
(1,542) $
(1,243)
(2,785) $
14,199 $
(15,741)
(11,551)
10,308
2,648 $
(5,433)
(5,933) $
(4,573) $
(1,360)
(29.7)
RCM's projects were substantially complete at the end of fiscal 2018. The operating loss of $5.9 million in fiscal 2019
reflects reductions of revenue and related operating losses based on updated evaluations of unsettled claim amounts for two
construction projects that were completed in prior years. The operating loss in fiscal 2018 primarily reflects legal costs related
to outstanding claims. We recorded no material gains or losses related to claims in fiscal 2018.
Fiscal 2019 Acquisition and Integration Expenses
In fiscal 2019, we incurred acquisition and integration expenses of $10.4 million related to the WYG acquisition.
These expenses included $3.3 million of acquisition expenses that were primarily for professional services, such as legal and
investment banking, to support the transaction and were all paid in the fourth quarter of fiscal 2019. Subsequent to the
acquisition date, we also recorded charges of $7.1 million for integration activities, including the elimination of redundant
general and administrative costs, real estate consolidation, and conversion of information technology platforms, substantially all
of which were paid in fiscal 2020.
Fiscal 2019 and 2018 Earn-Out Adjustments
We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair
value could differ materially from the initial estimates. We recorded adjustments to our contingent earn-out liabilities and
reported losses of $1.1 million and $4.3 million in fiscal 2019 and 2018, respectively. The fiscal 2018 losses resulted from
updated valuations of the contingent consideration liabilities for NDY, Eco Logical Australia ("ELA") and Cornerstone
Environmental Group ("CEG"). These valuations included updated projections of NDY's, ELA's, and CEG's financial
performance during the earn-out periods, which exceeded our original estimates at their respective acquisition dates. In
addition, we recognized charges of $2.0 million and $1.5 million in fiscal 2019 and 2018, respectively, that related to the earn-
out for Glumac. These charges were treated as compensation in selling, general and administrative expenses due to the terms of
the arrangement, which included an on-going service requirement for a portion of the earn-out.
At September 29, 2019, there was a total maximum of $72.4 million of outstanding contingent consideration related to
acquisitions. Of this amount, $53.0 million was estimated as the fair value and accrued on our consolidated balance sheet.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Capital Requirements. As of September 27, 2020, we had $157.5 million of cash and cash equivalents and access to an
additional $722 million of borrowings available under our credit facility. During fiscal 2020, we generated $262 million of cash
from operations. To date, we have not experienced any significant deterioration in our financial condition or liquidity due to the
COVID-19 pandemic and our credit facilities remain available.
Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities. Our
primary uses of cash are to fund working capital, capital expenditures, stock repurchases, cash dividends and repayment of debt,
as well as to fund acquisitions and earn-out obligations from prior acquisitions. We believe that our existing cash and cash
equivalents, operating cash flows and borrowing capacity under our credit agreement, as described below, will be sufficient to
meet our capital requirements for at least the next 12 months including any additional resources needed to address the
COVID-19 pandemic.
We use a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations
where they are needed. At September 27, 2020, undistributed earnings of our foreign subsidiaries, primarily in Canada,
amounting to approximately $66.9 million are expected to be permanently reinvested in these foreign countries. Accordingly,
no provision for foreign withholding taxes has been made. Upon distribution of those earnings, we would be subject to foreign
withholding taxes. Assuming the permanently reinvested foreign earnings were repatriated under the laws and rates applicable
47
at September 27, 2020, the incremental foreign withholding taxes applicable to those earnings would be approximately $2.0
million. We currently have no need or plans to repatriate undistributed foreign earnings in the foreseeable future; however, this
could change due to varied economic circumstances or modifications in tax law.
On November 5, 2018, the Board of Directors authorized a stock repurchase program ("2019 Program") under which
we could repurchase up to $200 million of our common stock. This was in addition to the $25 million remaining as of fiscal
2018 year-end under the previous stock repurchase program ("2018 Program"). On January 27, 2020, the Board of Directors
authorized a new $200 million stock repurchase program ("2020 Program"). In fiscal 2019, we expended $100 million to
repurchase our stock under these programs. In fiscal 2020, we paid an additional $117.2 million for share repurchases. As a
result, we had a remaining balance of $207.8 million available under the 2019 and 2020 programs. We declared and paid
common stock dividends totaling $34.7 million, or $0.64 per share, in fiscal 2020 compared to $29.7 million, or $0.54 per
share, in fiscal 2019.
Subsequent Event. On November 9, 2020, the Board of Directors declared a quarterly cash dividend of $0.17 per share
payable on December 11, 2020 to stockholders of record as of the close of business on November 30, 2020.
Cash and Cash Equivalents. As of September 27, 2020, cash and cash equivalents were $157.5 million, an increase of
$36.6 million compared to the fiscal 2019 year-end. The increase was due to net cash provided by operating activities, primarily
due to shorter collection periods for accounts receivable, and increased proceeds from sale of equipment. These increases were
partially offset by stock repurchases, dividends, acquisitions and contingent earn-out payments.
Operating Activities. For fiscal 2020, net cash provided by operating activities was $262.5 million compared to
$208.5 million in fiscal 2019. The increase was primarily due to strong cash collections on our accounts receivable.
Investing Activities. Net cash used in investing activities was $63.0 million in fiscal 2020, a decrease of $36.7 million
compared to last year. The change resulted from lower payments for acquisitions in fiscal 2020 compared to last year and the
proceeds from sales of equipment related to the disposal of our Canadian turn-key pipeline activities.
Financing Activities. For fiscal 2020, net cash used in financing activities was $163.0 million, an increase of $28.0
million compared to fiscal 2019. The change was primarily due to increased stock repurchases and contingent earn-out
payments.
Debt Financing. On July 30, 2018, we entered into a Second Amended and Restated Credit Agreement (“Amended
Credit Agreement”) with a total borrowing capacity of $1 billion that will mature in July 2023. The Amended Credit Agreement
is a $700 million senior secured, five-year facility that provides for a $250 million term loan facility (the “Amended Term Loan
Facility”), a $450 million revolving credit facility (the “Amended Revolving Credit Facility”), and a $300 million accordion
feature that allows us to increase the Amended Credit Agreement to $1 billion subject to lender approval. The Amended Credit
Agreement allows us to, among other things, (i) refinance indebtedness under our Credit Agreement dated as of May 7, 2013;
(ii) finance certain permitted open market repurchases of our common stock, permitted acquisitions, and cash dividends and
distributions; and (iii) utilize the proceeds for working capital, capital expenditures and other general corporate purposes. The
Amended Revolving Credit Facility includes a $100 million sublimit for the issuance of standby letters of credit, a $20 million
sublimit for swingline loans, and a $200 million sublimit for multicurrency borrowings and letters of credit.
The entire Amended Term Loan Facility was drawn on July 30, 2018. The Amended Term Loan Facility is subject to
quarterly amortization of principal at 5% annually beginning December 31, 2018. We may borrow on the Amended Revolving
Credit Facility, at our option, at either (a) a Eurocurrency rate plus a margin that ranges from 1.00% to 1.75% per annum, or (b)
a base rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50% per annum, the bank’s prime rate or
the Eurocurrency rate plus 1.00%) plus a margin that ranges from 0% to 0.75% per annum. In each case, the applicable margin
is based on our Consolidated Leverage Ratio, calculated quarterly. The Amended Term Loan Facility is subject to the same
interest rate provisions. The Amended Credit Agreement expires on July 30, 2023, or earlier at our discretion upon payment in
full of loans and other obligations.
At September 27, 2020, we had $254.9 million in outstanding borrowings under the Amended Credit Agreement,
which was comprised of $228.1 million under the Amended Term Loan Facility and $26.8 million outstanding under the
Amended Revolving Credit Facility at a year-to-date weighted-average interest rate of 2.31% per annum. In addition, we had
$0.7 million in standby letters of credit under the Amended Credit Agreement. Our average effective weighted-average interest
rate on borrowings outstanding during the year-to-date period ended September 27, 2020 under the Amended Credit
Agreement, including the effects of interest rate swap agreements described in Note 14, “Derivative Financial Instruments” of
the "Notes to Consolidated Financial Statements" included in Item 8, was 3.52%. At September 27, 2020, we had $422.4
million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of
our debt covenants. Commitment fees related to our revolving credit facilities were $0.7 million, $0.7 million, and $0.6 million
for fiscal 2020, 2019 and 2018, respectively.
48
The Amended Credit Agreement contains certain affirmative and restrictive covenants, and customary events of
default. The financial covenants provide for a maximum Consolidated Leverage Ratio of 3.00 to 1.00 (total funded debt/
EBITDA, as defined in the Amended Credit Agreement) and a minimum Consolidated Interest Coverage Ratio of 3.00 to 1.00
(EBITDA/Consolidated Interest Charges, as defined in the Amended Credit Agreement). Our obligations under the Amended
Credit Agreement are guaranteed by certain of our domestic subsidiaries and are secured by first priority liens on (i) the equity
interests of certain of our subsidiaries, including those subsidiaries that are guarantors or borrowers under the Amended Credit
Agreement, and (ii) the accounts receivable, general intangibles and intercompany loans, and those of our subsidiaries that are
guarantors or borrowers. At September 27, 2020, we were in compliance with these covenants with a consolidated leverage
ratio of 1.10x and a consolidated interest coverage ratio of 19.76x.
In addition to the Amended Credit Agreement, we maintain other credit facilities, which may be used for bank
overdrafts, short-term cash advances and bank guarantees. At September 27, 2020, there was $36.6 million outstanding under
these facilities and the aggregate amount of standby letters of credit outstanding was $69.7 million. As of September 27, 2020,
we had bank overdrafts of $33.6 million related to our U.S. disbursement bank accounts. This balance is reported in the
"Current portion of long-term debt and other short-term borrowings" within our fiscal 2020 year-end consolidated balance
sheet. The change in bank overdraft balance is classified as cash flows from financing activities within our consolidated
statements of cash flows as we believe these overdrafts to be a form of short-term financing from the bank due to our ability to
fund the overdraft with the $50.0 million overdraft protection on the bank accounts or our other credit facilities if needed.
Inflation. We believe our operations have not been, and, in the foreseeable future, are not expected to be, materially
adversely affected by inflation or changing prices due to the average duration of our projects and our ability to negotiate prices
as contracts end and new contracts begin.
Dividends. Our Board of Directors has authorized the following dividends:
Total Maximum
Payment
(in thousands)
Payment Date
$
$
$
$
8,190 December 13, 2019
8,225
9,175
9,153
February 28, 2020
May 27, 2020
September 4, 2020
N/A December 11, 2020
Dividend
Per Share
November 11, 2019
January 27, 2020
April 27, 2020
July 27, 2020
November 9, 2020
$
$
$
$
$
Record Date
December 2, 2019
February 12, 2020
May 13, 2020
August 21, 2020
0.15
0.15
0.17
0.17
0.17 November 30, 2020
49
Contractual Obligations. The following sets forth our contractual obligations at September 27, 2020:
Debt:
Credit facility
Other debt
Interest (1)
Operating leases (2)
Contingent earn-outs (3)
Other long-term obligations (4)
Unrecognized tax benefits (5)
Total
Total
Year 1
Years 2 - 3
(in thousands)
Years 4 - 5
Beyond
$
291,522 $
49,127 $
242,395 $
— $
137
9,326
333,810
32,617
39,599
9,650
137
3,439
88,069
16,142
1,841
7,633
—
5,887
141,736
16,475
2,561
1,694
—
—
56,513
—
245
323
—
—
—
47,492
—
34,952
—
$
716,661 $
166,388 $
410,748 $
57,081 $
82,444
(1) Interest primarily related to the Term Loan Facility is based on a weighted-average interest rate at September 27, 2020, on borrowings that are presently
outstanding.
(2) Predominantly represents leases for our Corporate and project office spaces.
(3) Represents the estimated fair value recorded for contingent earn-out obligations for acquisitions. The remaining maximum contingent earn-out obligations
for these acquisitions total $70.9 million.
(4) Predominantly represents deferred compensation liability.
(5) Represents liabilities for unrecognized tax benefits related to uncertain tax positions, excluding amounts related primarily to outstanding refund claims. For
more information, see Note 8, "Income Taxes" of the "Notes to Consolidated Financial Statements" included in Item 8.
Income Taxes
We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and adjust the allowance,
if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax
planning strategies that could be implemented to realize the net deferred tax assets. The ability or failure to achieve the
forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets.
Based on future operating results in certain jurisdictions, it is possible that the current valuation allowance positions of those
jurisdictions could be adjusted in the next 12 months, particularly in the United Kingdom where we have a valuation allowance
of approximately $14 million primarily related to the realizability of net operating loss carry-forwards.
As of September 27, 2020 and September 29, 2019, the liability for income taxes associated with uncertain tax
positions was $9.7 million and $8.8 million, respectively.
It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax
positions may significantly decrease within the next 12 months. These changes would be the result of ongoing examinations.
Off-Balance Sheet Arrangements
In the ordinary course of business, we may use off-balance sheet arrangements if we believe that such arrangements
would be an efficient way to lower our cost of capital or help us manage the overall risks of our business operations. We do not
believe that such arrangements have had a material adverse effect on our financial position or our results of operations.
The following is a summary of our off-balance sheet arrangements:
•
•
Letters of credit and bank guarantees are used primarily to support project performance and insurance programs.
We are required to reimburse the issuers of letters of credit and bank guarantees for any payments they make
under the outstanding letters of credit or bank guarantees. Our Amended Credit Agreement and additional letter of
credit facilities cover the issuance of our standby letters of credit and bank guarantees and are critical for our
normal operations. If we default on the Amended Credit Agreement or additional credit facilities, our inability to
issue or renew standby letters of credit and bank guarantees would impair our ability to maintain normal
operations. At September 27, 2020, we had $0.7 million in standby letters of credit outstanding under our
Amended Credit Agreement and $69.7 million in standby letters of credit outstanding under our additional letter
of credit facilities.
From time to time, we provide guarantees and indemnifications related to our services. If our services under a
guaranteed or indemnified project are later determined to have resulted in a material defect or other material
deficiency, then we may be responsible for monetary damages or other legal remedies. When sufficient
information about claims on guaranteed or indemnified projects is available and monetary damages or other costs
or losses are determined to be probable, we recognize such guaranteed losses.
50
•
•
In the ordinary course of business, we enter into various agreements as part of certain unconsolidated subsidiaries,
joint ventures, and other jointly executed contracts where we are jointly and severally liable. We enter into these
agreements primarily to support the project execution commitments of these entities. The potential payment
amount of an outstanding performance guarantee is typically the remaining cost of work to be performed by or on
behalf of third parties under engineering and construction contracts. However, we are not able to estimate other
amounts that may be required to be paid in excess of estimated costs to complete contracts and, accordingly, the
total potential payment amount under our outstanding performance guarantees cannot be estimated. For cost-plus
contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the
client for work performed under the contract. For lump sum or fixed-price contracts, this amount is the cost to
complete the contracted work less amounts remaining to be billed to the client under the contract. Remaining
billable amounts could be greater or less than the cost to complete. In those cases where costs exceed the
remaining amounts payable under the contract, we may have recourse to third parties, such as owners, co-
venturers, subcontractors or vendors, for claims.
In the ordinary course of business, our clients may request that we obtain surety bonds in connection with contract
performance obligations that are not required to be recorded in our consolidated balance sheets. We are obligated
to reimburse the issuer of our surety bonds for any payments made thereunder. Each of our commitments under
performance bonds generally ends concurrently with the expiration of our related contractual obligation.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates and
assumptions in the application of certain accounting policies that affect amounts reported in our consolidated financial
statements and accompanying footnotes included in Item 8 of this report. In order to understand better the changes that may
occur to our financial condition, results of operations and cash flows, readers should be aware of the critical accounting policies
we apply and estimates we use in preparing our consolidated financial statements. Although such estimates and assumptions are
based on management's best knowledge of current events and actions we may undertake in the future, actual results could differ
materially from those estimates.
Our significant accounting policies are described in the "Notes to Consolidated Financial Statements" included in
Item 8. Highlighted below are the accounting policies that management considers most critical to investors' understanding of
our financial results and condition, and that require complex judgments by management.
Revenue Recognition and Contract Costs
To determine the proper revenue recognition method for contracts under ASC 606, we evaluate whether multiple
contracts should be combined and accounted for as a single contract and whether the combined or single contract should be
accounted for as having more than one performance obligation. The decision to combine a group of contracts or separate a
combined or single contract into multiple performance obligations may impact the amount of revenue recorded in a given
period. Contracts are considered to have a single performance obligation if the promises are not separately identifiable from
other promises in the contracts.
At contract inception, we assess the goods or services promised in a contract and identify, as a separate performance
obligation, each distinct promise to transfer goods or services to the customer. The identified performance obligations represent
the “unit of account” for purposes of determining revenue recognition. In order to properly identify separate performance
obligations, we apply judgment in determining whether each good or service provided is: (a) capable of being distinct, whereby
the customer can benefit from the good or service either on its own or together with other resources that are readily available to
the customer, and (b) distinct within the context of the contract, whereby the transfer of the good or service to the customer is
separately identifiable from other promises in the contract.
Contracts are often modified to account for changes in contract specifications and requirements. We consider contract
modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most
of our contract modifications are for goods or services that are not distinct from existing contracts due to the significant
integration provided or significant interdependencies in the context of the contract and are accounted for as if they were part of
the original contract. The effect of a contract modification on the transaction price and our measure of progress for the
performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of
revenue) on a cumulative catch-up basis.
We account for contract modifications as a separate contract when the modification results in the promise to deliver
additional goods or services that are distinct and the increase in price of the contract is for the same amount as the stand-alone
selling price of the additional goods or services included in the modification.
The transaction price represents the amount of consideration to which we expect to be entitled in exchange for
transferring promised goods or services to our customers. The consideration promised within a contract may include fixed
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amounts, variable amounts, or both. The nature of our contracts gives rise to several types of variable consideration, including
claims, award fee incentives, fiscal funding clauses, and liquidated damages. We recognize revenue for variable consideration
when it is probable that a significant reversal in the amount of cumulative revenue recognized for the contract will not occur.
We estimate the amount of revenue to be recognized on variable consideration using either the expected value or the most likely
amount method, whichever is expected to better predict the amount of consideration to be received. Project mobilization costs
are generally charged to project costs as incurred when they are an integrated part of the performance obligation being
transferred to the client.
Claims are amounts in excess of agreed contract prices that we seek to collect from our clients or other third parties for
delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and
price, or other causes of unanticipated additional costs. Factors considered in determining whether revenue associated with
claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be
recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs
were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in our performance, (c)
claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the
claim is objective and verifiable. This can lead to a situation in which costs are recognized in one period and revenue is
recognized in a subsequent period when a client agreement is obtained, or a claims resolution occurs. In some cases, contract
retentions are withheld by clients until certain conditions are met or the project is completed, which may be several months or
years. In these cases, we have not identified a significant financing component under ASC 606 as the timing difference in
payment compared to delivery of obligations under the contract is not for purposes of financing.
For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation
using a best estimate of the standalone selling price of each distinct good or service in the contract. The standalone selling price
is typically determined using the estimated cost of the contract plus a margin approach. For contracts containing variable
consideration, we allocate the variability to a specific performance obligation within the contract if such variability relates
specifically to our efforts to satisfy the performance obligation or transfer the distinct good or service, and the allocation depicts
the amount of consideration to which we expect to be entitled.
We recognize revenue over time as the related performance obligation is satisfied by transferring control of a promised
good or service to our customers. Progress toward complete satisfaction of the performance obligation is primarily measured
using a cost-to-cost measure of progress method. The cost input is based primarily on contract cost incurred to date compared to
total estimated contract cost. This measure includes forecasts based on the best information available and reflects our judgment
to faithfully depict the value of the services transferred to the customer. For certain on-call engineering or consulting and
similar contracts, we recognize revenue in the amount which we have the right to invoice the customer if that amount
corresponds directly with the value of our performance completed to date.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance
obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-
cost measure of progress method, changes in total estimated costs, and related progress towards complete satisfaction of the
performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are
made. When the current estimate of total costs indicates a loss, a provision for the entire estimated loss on the contract is made
in the period in which the loss becomes evident.
Contract Types
Our services are performed under three principal types of contracts: fixed-price, time-and-materials and cost-plus.
Customer payments on contracts are typically due within 60 days of billing, depending on the contract.
Fixed-Price. Under fixed-price contracts, clients pay us an agreed fixed-amount negotiated in advance for a specified
scope of work.
Time-and-Materials. Under time-and-materials contracts, we negotiate hourly billing rates and charge our clients based
on the actual time that we spend on a project. In addition, clients reimburse us for our actual out-of-pocket costs for materials
and other direct incidental expenditures that we incur in connection with our performance under the contract. Most of our time-
and-material contracts are subject to maximum contract values, and also may include annual billing rate adjustment provisions.
Cost-Plus. Under cost-plus contracts, we are reimbursed for allowed or otherwise defined costs incurred plus a
negotiated fee. The contracts may also include incentives for various performance criteria, including quality, timeliness,
ingenuity, safety and cost-effectiveness. In addition, our costs are generally subject to review by our clients and regulatory audit
agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract.
52
Insurance Matters, Litigation and Contingencies
In the normal course of business, we are subject to certain contractual guarantees and litigation. Generally, such
guarantees relate to project schedules and performance. Most of the litigation involves us as a defendant in contractual
disagreements, workers' compensation, personal injury and other similar lawsuits. We maintain insurance coverage for various
aspects of our business and operations. However, we have elected to retain a portion of losses that may occur through the use of
various deductibles, limits and retentions under our insurance programs. This practice may subject us to some future liability for
which we are only partially insured or are completely uninsured.
We record in our consolidated balance sheets amounts representing our estimated liability for self-insurance claims.
We utilize actuarial analyses to assist in determining the level of accrued liabilities to establish for our employee medical and
workers' compensation self-insurance claims that are known and have been asserted against us, as well as for self-insurance
claims that are believed to have been incurred based on actuarial analyses but have not yet been reported to our claims
administrators at the balance sheet date. We include any adjustments to such insurance reserves in our consolidated statements
of income.
Except as described in Note 17, "Commitments and Contingencies" of the "Notes to Consolidated Financial
Statements" included in Item 8, we do not have any litigation or other contingencies that have had, or are currently anticipated
to have, a material impact on our results of operations or financial position. As additional information about current or future
litigation or other contingencies becomes available, management will assess whether such information warrants the recording of
additional expenses relating to those contingencies. Such additional expenses could potentially have a material impact on our
results of operations and financial position.
Goodwill and Intangibles
The cost of an acquired company is assigned to the tangible and intangible assets purchased and the liabilities assumed
on the basis of their fair values at the date of acquisition. The determination of fair values of assets and liabilities acquired
requires us to make estimates and use valuation techniques when a market value is not readily available. Any excess of
purchase price over the fair value of net tangible and intangible assets acquired is allocated to goodwill. Goodwill typically
represents the value paid for the assembled workforce and enhancement of our service offerings.
Identifiable intangible assets include backlog, non-compete agreements, client relations, trade names, patents and other
assets. The costs of these intangible assets are amortized over their contractual or economic lives, which range from one to ten
years. We assess the recoverability of the unamortized balance of our intangible assets when indicators of impairment are
present based on expected future profitability and undiscounted expected cash flows and their contribution to our overall
operations. Should the review indicate that the carrying value is not fully recoverable, the excess of the carrying value over the
fair value of the intangible assets would be recognized as an impairment loss.
We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. In addition, we
regularly evaluate whether events and circumstances have occurred that may indicate a potential change in recoverability of
goodwill. We perform interim goodwill impairment reviews between our annual reviews if certain events and circumstances
have occurred, including a deterioration in general economic conditions, an increased competitive environment, a change in
management, key personnel, strategy or customers, negative or declining cash flows, or a decline in actual or planned revenue
or earnings compared with actual and projected results of relevant prior periods (see Note 6, "Goodwill and Intangible Assets"
of the "Notes to Consolidated Financial Statements" in Item 8 for further discussion).
We believe the methodology that we use to review impairment of goodwill, which includes a significant amount of
judgment and estimates, provides us with a reasonable basis to determine whether impairment has occurred. However, many of
the factors employed in determining whether our goodwill is impaired are outside of our control and it is reasonably likely that
assumptions and estimates will change in future periods. These changes could result in future impairments.
The goodwill impairment review involves the determination of the fair value of our reporting units, which for us are
the components one level below our reportable segments. This process requires us to make significant judgments and estimates,
including assumptions about our strategic plans with regard to our operations as well as the interpretation of current economic
indicators and market valuations. Furthermore, the development of the present value of future cash flow projections includes
assumptions and estimates derived from a review of our expected revenue growth rates, operating profit margins, business
plans, discount rates, and terminal growth rates. We also make certain assumptions about future market conditions, market
prices, interest rates and changes in business strategies. Changes in assumptions or estimates could materially affect the
determination of the fair value of a reporting unit. This could eliminate the excess of fair value over carrying value of a
reporting unit entirely and, in some cases, result in impairment. Such changes in assumptions could be caused by a loss of one
or more significant contracts, reductions in government or commercial client spending, or a decline in the demand for our
services due to changing economic conditions. In the event that we determine that our goodwill is impaired, we would be
53
required to record a non-cash charge that could result in a material adverse effect on our results of operations or financial
position.
We use two methods to determine the fair value of our reporting units: (i) the Income Approach and (ii) the Market
Approach. While each of these approaches is initially considered in the valuation of the business enterprises, the nature and
characteristics of the reporting units indicate which approach is most applicable. The Income Approach utilizes the discounted
cash flow method, which focuses on the expected cash flow of the reporting unit. In applying this approach, the cash flow
available for distribution is calculated for a finite period of years. Cash flow available for distribution is defined, for purposes of
this analysis, as the amount of cash that could be distributed as a dividend without impairing the future profitability or
operations of the reporting unit. The cash flow available for distribution and the terminal value (the value of the reporting unit
at the end of the estimation period) are then discounted to present value to derive an indication of the value of the business
enterprise. The Market Approach is comprised of the guideline company method and the similar transactions method. The
guideline company method focuses on comparing the reporting unit to select reasonably similar (or "guideline") publicly traded
companies. Under this method, valuation multiples are (i) derived from the operating data of selected guideline companies;
(ii) evaluated and adjusted based on the strengths and weaknesses of the reporting units relative to the selected guideline
companies; and (iii) applied to the operating data of the reporting unit to arrive at an indication of value. In the similar
transactions method, consideration is given to prices paid in recent transactions that have occurred in the reporting unit's
industry or in related industries. For our annual impairment analysis, we weighted the Income Approach and the Market
Approach at 70% and 30%, respectively. The Income Approach was given a higher weight because it has the most direct
correlation to the specific economics of the reporting unit, as compared to the Market Approach, which is based on multiples of
broad-based (i.e., less comparable) companies. Our last review at June 29, 2020 (i.e. the first day of our fourth quarter in fiscal
2020), indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in
excess of their carrying values, including goodwill. Our ASP reporting unit was the only reporting unit that had an estimated
fair value that exceeded its carrying value by less than 20%.
On September 2, 2020, Australia announced that it had fallen into economic recession, defined as two consecutive
quarters of negative growth, for the first time since 1991 including 7% negative growth in the quarter ending in June 2020. This
prompted a strategic review of our ASP reporting unit, which is in our CIG reportable segment. As a result of the economic
recession in Australia, our revenue growth and profit margin forecasts for the ASP reporting unit declined from the previous
forecast used for our annual goodwill impairment review as of June 29, 2020. We also performed an interim goodwill
impairment review of our ASP reporting unit in September 2020 and recorded a $15.8 million goodwill impairment charge. The
impaired goodwill related to our acquisitions of Coffey and NDY. As a result of the impairment charge, the estimated fair value
of our ASP reporting unit equals its carrying value of $144.9 million, including $95.5 million of goodwill, at September 27,
2020.
Contingent Consideration
Certain of our acquisition agreements include contingent earn-out arrangements, which are generally based on the
achievement of future operating income thresholds. The contingent earn-out arrangements are based upon our valuations of the
acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved.
The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on
their respective acquisition dates. For each transaction, we estimate the fair value of contingent earn-out payments as part of the
initial purchase price and record the estimated fair value of contingent consideration as a liability in "Estimated contingent earn-
out liabilities" and "Long-term estimated contingent earn-out liabilities" on the consolidated balance sheets. We consider
several factors when determining that contingent earn-out liabilities are part of the purchase price, including the following:
(1) the valuation of our acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out
formula is a critical and material component of the valuation approach to determining the purchase price; and (2) the former
shareholders of acquired companies that remain as key employees receive compensation other than contingent earn-out
payments at a reasonable level compared with the compensation of our other key employees. The contingent earn-out payments
are not affected by employment termination.
We measure our contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs
classified within Level 3 of the fair value hierarchy (See Note 2, "Basis of Presentation and Preparation – Fair Value of
Financial Instruments" of the "Notes to Consolidated Financial Statements" included in Item 8). We use a probability weighted
discounted income approach as a valuation technique to convert future estimated cash flows to a single present value amount.
The significant unobservable inputs used in the fair value measurements are operating income projections over the earn-out
period (generally two or three years), and the probability outcome percentages we assign to each scenario. Significant increases
or decreases to either of these inputs in isolation would result in a significantly higher or lower liability with a higher liability
capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the
amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid
that is less than or equal to the liability on the acquisition date is reflected as cash used in financing activities in our
54
consolidated statements of cash flows. Any amount paid in excess of the liability on the acquisition date is reflected as cash
used in operating activities in our consolidated statements of cash flows.
We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair
value could differ materially from the initial estimates. Changes in the estimated fair value of our contingent earn-out liabilities
related to the time component of the present value calculation are reported in interest expense. Adjustments to the estimated fair
value related to changes in all other unobservable inputs are reported in operating income.
Income Taxes
We file a consolidated U.S. federal income tax return. In addition, we file other returns that are required in the states,
foreign jurisdictions and other jurisdictions in which we do business. We account for certain income and expense items
differently for financial reporting and income tax purposes. Deferred tax assets and liabilities are computed for the differences
between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in which the differences are expected to reverse. In
determining the need for a valuation allowance on deferred tax assets, management reviews both positive and negative
evidence, including current and historical results of operations, future income projections and potential tax planning strategies.
Based on our assessment, we have concluded that a portion of the deferred tax assets at September 27, 2020, primarily loss
carryforwards, will not be realized, and we have reserved accordingly.
According to the authoritative guidance on accounting for uncertainty in income taxes, 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 50% likelihood of being realized upon
ultimate settlement. For more information related to our unrecognized tax benefits, see Note 8, "Income Taxes" of the "Notes to
Consolidated Financial Statements" included in Item 8.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of recent accounting standards and the effect they could have on the consolidated financial statements,
see Note 2, "Basis of Presentation and Preparation" of the "Notes to Consolidated Financial Statements" included in Item 8.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We do not enter into derivative financial instruments for trading or speculation purposes. In the normal course of
business, we have exposure to both interest rate risk and foreign currency transaction and translation risk, primarily related to
the Canadian and Australian dollar, and British Pound.
We are exposed to interest rate risk under our Amended Credit Agreement. We can borrow, at our option, under both
the Amended Term Loan Facility and Amended Revolving Credit Facility. We may borrow on the Amended Revolving Credit
Facility, at our option, at either (a) a Eurocurrency rate plus a margin that ranges from 1.00% to 1.75% per annum, or (b) a base
rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50% per annum, the bank’s prime rate or the
Eurocurrency rate plus 1.00%) plus a margin that ranges from 0% to 0.75% per annum. Borrowings at the base rate have no
designated term and may be repaid without penalty any time prior to the Facility’s maturity date. Borrowings at a Eurodollar
rate have a term no less than 30 days and no greater than 180 days and may be prepaid without penalty. Typically, at the end of
such term, such borrowings may be rolled over at our discretion into either a borrowing at the base rate or a borrowing at a
Eurodollar rate with similar terms, not to exceed the maturity date of the Facility. The Facility matures on July 30, 2023. At
September 27, 2020, we had borrowings outstanding under the Credit Agreement of $254.9 million at a weighted-average
interest rate of 2.31% per annum.
In August 2018, we entered into five interest rate swap agreements with five banks to fix the variable interest rate on
$250 million of our Amended Term Loan Facility. The objective of these interest rate swaps was to eliminate the variability of
our cash flows on the amount of interest expense we pay under our Credit Agreement. As of September 27, 2020, the notional
principal of our outstanding interest swap agreements was $228.1 million ($45.6 million each.) Our year-to-date average
effective interest rate on borrowings outstanding under the Credit Agreement, including the effects of interest rate swap
agreements, at September 27, 2020, was 3.52%. For more information, see Note 14, “Derivative Financial Instruments” of the
“Notes to Consolidated Financial Statements” in Item 8.
Most of our transactions are in U.S. dollars; however, some of our subsidiaries conduct business in foreign currencies,
primarily the Canadian and Australian dollar, and British Pound. Therefore, we are subject to currency exposure and volatility
because of currency fluctuations. We attempt to minimize our exposure to these fluctuations by matching revenue and expenses
in the same currency for our contracts. We reported $1.3 million of foreign currency losses in fiscal 2020 and $0.5 million of
foreign currency gains in fiscal 2019 in “Selling, general and administrative expenses” on our consolidated statements of
income.
55
We have foreign currency exchange rate exposure in our results of operations and equity primarily because of the
currency translation related to our foreign subsidiaries where the local currency is the functional currency. To the extent the
U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result
in reduced revenue, operating expenses, assets and liabilities. Similarly, our revenue, operating expenses, assets and liabilities
will increase if the U.S. dollar weakens against foreign currencies. For fiscal 2020 and 2019, 29.6% and 27.7% of our
consolidated revenue, respectively, was generated by our international business. For fiscal 2020, the effect of foreign exchange
rate translation on the consolidated balance sheets was an increase in equity of $3.4 million compared to a decrease in equity of
$21.1 million in fiscal 2019. These amounts were recognized as an adjustment to equity through other comprehensive income.
56
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at September 27, 2020 and September 29, 2019
Consolidated Statements of Income for the fiscal years ended September 27, 2020, September 29, 2019 and
September 30, 2018
Consolidated Statements of Comprehensive Income for the fiscal years ended September 27, 2020, September 29,
2019 and September 30, 2018
Consolidated Statements of Cash Flows for the fiscal years ended September 27, 2020, September 29, 2019 and
September 30, 2018
Consolidated Statements of Equity for the fiscal years ended September 27, 2020, September 29, 2019 and
September 30, 2018
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts and Reserves for the fiscal years ended September 27, 2020,
September 29, 2019, and September 30, 2018
Page
58
61
62
63
64
65
67
100
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Tetra Tech, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Tetra Tech, Inc. and its subsidiaries (the
“Company”) as of September 27, 2020 and September 29, 2019, and the related consolidated statements of income,
comprehensive income, equity and cash flows for each of the three years in the period ended September 27, 2020, including the
related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated
financial statements”). We also have audited the Company's internal control over financial reporting as of September 27, 2020,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of September 27, 2020 and September 29, 2019, and the results of its operations and its
cash flows for each of the three years in the period ended September 27, 2020 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of September 27, 2020, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts
for leases in fiscal 2020.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is
to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
58
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to
accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition - Determination of Total Estimated Contract Cost for Fixed-price Contracts
As described in Note 3 to the consolidated financial statements, $1.1 billion of the Company’s total revenues for the
year ended September 27, 2020 was generated from fixed-price contracts. As disclosed by management, under fixed-price
contracts, the Company's clients pay an agreed fixed-amount negotiated in advance for a specified scope of work. Revenue is
recognized over time as the related performance obligation is satisfied by transferring control of a promised good or service to
the Company's customers. Progress toward complete satisfaction of the performance obligation is primarily measured using a
cost-to-cost measure of progress method. The cost input is based primarily on contract cost incurred to date compared to total
estimated contract cost. This measure includes forecasts based on the best information available and reflects the judgement to
faithfully depict the value of the services transferred to the customer. Due to uncertainties inherent in the estimation process, it
is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance
obligations for which revenue is recognized using a cost-to-cost measure of progress method, changes in total estimated costs,
and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis
in the period in which the revisions to the estimates are made. As a result, the Company recognized net favorable operating
income adjustments of $0.8 million as of September 27, 2020, exclusive of the amounts related to claims described below.
Changes in revenue and cost estimates could also result in a projected loss, determined at the contract level, which would be
recorded immediately in earnings. The anticipated losses and estimated cost to complete the related contracts was $13.2 million
and $118 million as of September 27, 2020. Claims are amounts in excess of agreed contract prices that the Company seeks to
collect from clients or other third parties. Claims were approximately $14 million as of September 27, 2020.
The principal considerations for our determination that performing procedures relating to revenue recognition -
determination of total estimated contract cost for fixed-price contracts is a critical audit matter are the significant amount of
judgment required by management in determining the total estimated contract cost for fixed-price contracts which, in turn, led
to a high degree of auditor judgment, subjectivity and audit effort in performing procedures and in evaluating the audit evidence
obtained related to the total estimated contract costs for fixed-price contracts with cumulative catch-up adjustments, anticipated
losses or claims.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating
to the revenue recognition process, including controls over the determination of total estimated contract cost for fixed-price
contracts. These procedures also included, among others, (i) evaluating and testing management’s process for determining the
total estimated contract cost for a sample of contracts with cumulative catch-up adjustments, anticipated losses or claims, which
included evaluating the contract terms and other documents that support those estimates, and testing of underlying contract
costs; (ii) assessing management's ability to reasonably estimate total contract costs by performing a comparison of the actual
total estimated contract cost as compared with prior period estimates, including evaluating the timely identification of
circumstances that may warrant a modification to the total estimated contract cost; and (iii) evaluating, for certain contracts,
management’s methodologies and assessing the consistency of management’s approach over the life of the contract.
Goodwill Impairment Assessment - Asia/Pacific Reporting Unit
As described in Notes 2 and 6 to the consolidated financial statements, the Company's consolidated goodwill balance
was $993.5 million as of September 27, 2020, and the goodwill associated with the Asia/Pacific (ASP) reporting unit was $95.5
million. Management performs an annual goodwill impairment review at the beginning of the fiscal fourth quarter, June 29,
2020, or more frequently when an event occurs or circumstances indicate that the carrying value of the asset may not be
recoverable. On September 2, 2020, Australia announced that it had fallen into economic recession in the quarter ending in June
2020. Management performed an interim goodwill impairment review of the ASP reporting unit and recorded a $15.8 million
goodwill impairment charge. The impairment test for goodwill involves the comparison of the estimated fair value of each
reporting unit to the reporting unit's carrying value, including goodwill. Management estimates the fair value of reporting units
based on a comparison and weighting of the income approach, specifically the discounted cash flow method and the market
59
approach. The development of the present value of future cash flow projections include assumptions and estimates derived from
expected revenue growth rates, operating profit margins, discount rates and the terminal growth rates.
The principal considerations for our determination that performing procedures relating to the goodwill impairment
assessment of the ASP reporting unit is a critical audit matter are (i) the significant judgment by management when developing
the fair value measurement of the reporting unit ; (ii) a high degree of auditor judgment, subjectivity, and effort in performing
procedures to evaluate management's significant assumptions related to revenue growth rates, operating profit margins, discount
rates and terminal growth rates: and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating
to management's goodwill impairment assessment, including controls over the valuation of the ASP reporting unit. These
procedures also included, among others, (i) testing management's process for developing the fair value estimate; (ii) evaluating
the appropriateness of the discounted cash flow method; and the market approach; (iii) testing the completeness and accuracy of
underlying data used in the valuation approaches; and (iv) evaluating the significant assumptions used by management related
to the expected revenue growth rates, operating margins, discount rates and the terminal growth rates. Evaluating management's
assumptions related to expected revenue growth rates and operating profit margins involved evaluating whether the
assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit; (ii)
the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence
obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of
the Company's discounted cash flow method and market approach and management's assumptions related to the discount rates
and terminal growth rates.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
November 23, 2020
We have served as the Company’s auditor since 2004.
60
Tetra Tech, Inc.
Consolidated Balance Sheets
(in thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Contract assets
Prepaid expenses and other current assets
Income taxes receivable
Total current assets
Property and equipment, net
Right-of-use assets, operating leases
Investments in unconsolidated joint ventures
Goodwill
Intangible assets, net
Deferred tax assets
Other long-term assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued compensation
Contract liabilities
Short-term lease liabilities, operating leases
Current portion of long-term debt and other short-term borrowings
Current contingent earn-out liabilities
Other current liabilities
Total current liabilities
Deferred tax liabilities
Long-term debt
Long-term lease liabilities, operating leases
Long-term contingent earn-out liabilities
Other long-term liabilities
Commitments and contingencies (Note 17)
Equity:
Preferred stock – Authorized, 2,000 shares of $0.01 par value; no shares issued and
outstanding at September 27, 2020 and September 29, 2019
Common stock – Authorized, 150,000 shares of $0.01 par value; issued and outstanding,
53,797 and 54,565 shares at September 27, 2020 and September 29, 2019, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Tetra Tech stockholders' equity
Noncontrolling interests
Total stockholders' equity
Total liabilities and stockholders' equity
September 27,
2020
September 29,
2019
$
$
$
157,515 $
649,035
92,632
81,094
19,509
999,785
35,507
239,396
7,332
993,498
13,943
32,052
57,045
2,378,558 $
120,732
768,720
114,324
62,196
13,820
1,079,792
39,441
—
6,873
924,820
16,440
28,385
51,657
2,147,408
111,804 $
199,801
171,905
69,650
49,264
16,142
174,890
793,456
16,316
242,395
191,955
16,475
80,588
206,609
203,384
165,611
—
12,500
24,977
156,873
769,954
12,971
263,934
—
28,015
83,070
—
538
—
(161,786)
1,198,567
1,037,319
54
1,037,373
2,378,558 $
$
—
546
78,132
(160,584)
1,071,192
989,286
178
989,464
2,147,408
See accompanying Notes to Consolidated Financial Statements.
61
Tetra Tech, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
Revenue
Subcontractor costs
Other costs of revenue
Gross profit
Selling, general and administrative expenses
Acquisition and integration expenses
Contingent consideration – fair value adjustments
Impairment of goodwill
Income from operations
Interest income
Interest expense
Income before income tax expense
Income tax expense
Net income
Net income attributable to noncontrolling interests
Net income attributable to Tetra Tech
Earnings per share attributable to Tetra Tech:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
September 27,
2020
Fiscal Year Ended
September 29,
2019
September 30,
2018
$
2,994,891 $
3,107,348 $
2,964,148
(646,319)
(717,711)
(763,414)
(1,902,037)
(1,981,454)
(1,816,276)
446,535
408,183
384,458
(204,615)
(200,230)
(190,120)
—
14,971
(15,800)
241,091
1,375
(10,351)
(1,085)
(7,755)
188,762
1,732
(14,475)
(15,358)
227,991
175,136
(54,101)
(16,375)
173,890
158,761
(31)
(93)
—
(4,252)
—
190,086
1,824
(17,348)
174,562
(37,605)
136,957
(74)
173,859 $
158,668 $
136,883
3.21 $
3.16 $
2.89 $
2.84 $
54,235
55,022
54,986
55,936
2.46
2.42
55,670
56,598
$
$
$
See accompanying Notes to Consolidated Financial Statements.
62
Tetra Tech, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
September 27,
2020
Fiscal Year Ended
September 29,
2019
September 30,
2018
$
173,890 $
158,761 $
136,957
Other comprehensive income, net of tax
Foreign currency translation adjustments, net of tax
(Loss) gain on cash flow hedge valuations, net of tax
Other comprehensive loss attributable to Tetra Tech, net of tax
Other comprehensive income (loss) attributable to noncontrolling
interests, net of tax
Comprehensive income, net of tax
Comprehensive income attributable to Tetra Tech, net of tax
Comprehensive income attributable to noncontrolling interests, net
of tax
Comprehensive income, net of tax
3,436
(4,638)
(1,202)
(21,109)
(12,125)
(33,234)
(29,656)
806
(28,850)
(1)
243
(64)
172,687 $
125,770 $
108,043
172,657 $
125,434 $
108,033
30
336
10
172,687 $
125,770 $
108,043
$
$
$
See accompanying Notes to Consolidated Financial Statements.
63
Tetra Tech, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Equity in income of unconsolidated joint ventures
Distributions of earnings from unconsolidated joint ventures
Amortization of stock-based awards
Deferred income taxes
Provision for doubtful accounts
Impairment of goodwill
Fair value adjustments to contingent consideration
(Gain) loss on sale of assets and divested business
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable and contract assets
Prepaid expenses and other assets
Accounts payable
Accrued compensation
Contract liabilities
Other liabilities
Income taxes receivable/payable
Cash settled contingent earn-out liability
Net cash provided by operating activities
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired
Capital expenditures
Proceeds from sale of assets and divested business, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowings
Repayments on long-term debt
Repurchases of common stock
Taxes paid on vested restricted stock
Payments of contingent earn-out liabilities
Debt pre-payment costs
Stock options exercised
Dividends paid
Principal payments on finance leases
Net cash used in financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Fiscal Year Ended
September 27,
2020
September 29,
2019
September 30,
2018
$
173,890 $
158,761 $
136,957
24,611
(6,605)
6,310
19,424
565
1,267
15,800
(14,971)
(11,066)
154,748
(11,321)
(102,162)
(8,173)
5,894
19,460
(5,192)
—
262,479
(68,488)
(12,245)
17,710
(63,023)
344,991
(331,066)
(117,188)
(11,166)
(22,900)
—
10,334
(34,743)
(1,311)
(163,049)
207
36,614
120,901
28,844
(4,073)
4,048
17,618
(37,615)
16,964
7,755
1,085
(232)
(10,226)
2,568
39,011
18,359
(6,039)
(16,929)
(11,386)
—
208,513
(84,159)
(16,198)
651
(99,706)
417,262
(415,491)
(100,000)
(6,893)
(12,018)
—
11,751
(29,674)
—
(135,063)
(1,727)
(27,983)
148,884
38,636
(4,008)
3,440
19,582
(29,360)
7,167
—
4,252
1,045
(46,273)
(12,638)
(16,032)
27,492
15,228
24,998
17,596
(2,349)
185,733
(68,256)
(9,726)
35,348
(42,634)
401,965
(485,946)
(75,000)
(8,871)
(1,412)
(1,737)
13,520
(24,477)
—
(181,958)
(4,947)
(43,806)
192,690
148,884
Cash, cash equivalents and restricted cash at end of year
$
157,515 $
120,901 $
Supplemental information:
Cash paid during the year for:
Interest
Income taxes, net of refunds received of $1.4 million, $5.2 million and $2.5 million
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
Restricted cash included in other current assets
Total cash, cash equivalents and restricted cash
$
$
$
$
13,256 $
55,039 $
12,310 $
66,038 $
15,570
49,842
157,515 $
120,732 $
146,185
—
169
2,699
157,515 $
120,901 $
148,884
See accompanying Notes to Consolidated Financial Statements.
64
Tetra Tech, Inc.
Consolidated Statements of Equity
Fiscal Years Ended September 30, 2018, September 29, 2019, and September 27, 2020
(in thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Tetra Tech
Equity
Non-Controlling
Interests
Total
Equity
55,873 $
559 $
193,835 $
(98,500) $
832,559 $
928,453 $
171 $
928,624
136,883
136,883
74
136,957
(29,656)
806
(29,656)
(64)
(29,720)
806
108,033
806
10
108,043
(52)
(52)
(24,477)
(24,477)
19,582
13,511
(8,871)
5,740
(75,000)
(24,477)
19,582
13,511
(8,871)
5,740
(75,000)
549
277
142
5
3
1
19,582
13,506
(8,874)
5,739
(1,492)
(15)
(74,985)
55,349
553
148,803
(127,350)
944,965
966,971
129
967,100
158,668
158,668
93
158,761
(21,109)
(12,125)
(21,109)
(12,125)
243
(20,866)
(12,125)
125,434
336
125,770
(287)
(287)
(29,674)
(29,674)
17,618
(6,893)
11,751
6,846
(100,000)
(2,767)
(2,767)
65
(29,674)
17,618
(6,893)
11,751
6,846
(100,000)
(2,767)
183
448
148
2
5
2
17,618
(6,895)
11,746
6,844
Stock repurchases
(1,563)
(16)
(99,984)
Cumulative effect of
accounting changes
BALANCE AT
OCTOBER 1, 2017
Comprehensive
income, net of tax:
Net income
Foreign currency
translation
adjustments
Gain on cash flow
hedge valuations
Comprehensive
income, net of tax
Distributions paid to
noncontrolling
interests
Cash dividends of
$0.44 per common
share
Stock-based
compensation
Stock options
exercised
Restricted &
performance shares
released
Shares issued for
Employee Stock
Purchase Plan
Stock repurchases
BALANCE AT
SEPTEMBER 30,
2018
Comprehensive
income, net of tax:
Net income
Foreign currency
translation
adjustments
Gain on cash flow
hedge valuations
Comprehensive
income, net of tax
Distributions paid to
noncontrolling
interests
Cash dividends of
$0.54 per common
share
Stock-based
compensation
Restricted &
performance shares
released
Stock options
exercised
Shares issued for
Employee Stock
Purchase Plan
BALANCE AT
SEPTEMBER 29,
2019
Comprehensive
income, net of tax:
Net income
Foreign currency
translation
adjustments
Loss on cash flow
hedge valuations
Comprehensive
income, net of tax
Distributions paid to
noncontrolling
interests
Cash dividends of
$0.64 per common
share
Stock-based
compensation
Restricted &
performance shares
released
Stock options
exercised
Shares issued for
Employee Stock
Purchase Plan
Stock repurchases
BALANCE AT
SEPTEMBER 27,
2020
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Tetra Tech
Equity
Non-Controlling
Interests
Total
Equity
54,565
546
78,132
(160,584)
1,071,192
989,286
178
989,464
173,859
173,859
31
173,890
3,436
(4,638)
3,436
(4,638)
(1)
3,435
(4,638)
172,657
30
172,687
(154)
(154)
19,424
(11,168)
10,330
8,714
212
361
168
2
4
1
(34,743)
(34,743)
19,424
(11,166)
10,334
8,715
(1,509)
(15)
(105,432)
(11,741)
(117,188)
(34,743)
19,424
(11,166)
10,334
8,715
(117,188)
53,797 $
538 $
— $
(161,786) $ 1,198,567 $
1,037,319 $
54 $ 1,037,373
See accompanying Notes to Consolidated Financial Statements.
66
Tetra Tech, Inc.
Notes to Consolidated Financial Statements
1. Description of Business
We are a leading global provider of consulting and engineering services that focuses on water, environment,
sustainable infrastructure, resource management, energy, and international development. We are a global company that is
Leading with Science® to provide innovative solutions for our public and private clients. We typically begin at the earliest stage
of a project by identifying technical solutions and developing execution plans tailored to our clients’ needs and resources. Our
solutions may span the entire life cycle of consulting and engineering projects and include applied science, data analysis,
research, engineering, design, construction management, and operations and maintenance.
We manage our business under two reportable segments. Our Government Services Group (“GSG”) reportable
segment primarily includes activities with U.S. government clients (federal, state and local) and all activities with development
agencies worldwide. Our Commercial/International Services Group (“CIG”) reportable segment primarily includes activities
with U.S. commercial clients and international clients other than development agencies. This alignment allows us to capitalize
on our growing market opportunities and enhance the development of high-end consulting and technical solutions to meet our
growing client demand. We continue to report the results of the wind-down of our non-core construction activities in the
Remediation and Construction Management (“RCM”) reportable segment. Certain reclassifications were made to the prior
years to conform to the current-year presentation.
2. Basis of Presentation and Preparation
Principles of Consolidation and Presentation. The consolidated financial statements include our accounts and those
of joint ventures of which we are the primary beneficiary. All significant intercompany balances and transactions have been
eliminated in consolidation.
Fiscal Year. We report results of operations based on 52 or 53-week periods ending on the Sunday nearest
September 30. Fiscal years 2020, 2019 and 2018 each contained 52 weeks.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America ("U.S. GAAP") requires us to make estimates and assumptions. These estimates and
assumptions affect the amounts reported in our consolidated financial statements and accompanying notes. Although such
estimates and assumptions are based on management's best knowledge of current events and actions we may take in the future,
actual results could differ materially from those estimates.
Cash and Cash Equivalents. Cash and cash equivalents include highly liquid investments with original maturities of
90 days or less. We classify cash and cash equivalents as restricted when we are unable to freely use such cash and cash
equivalents for our general operating purposes. Restricted cash balances are reported within our "Prepaid expenses and other
current assets" on the consolidated balance sheets. Occasionally, we have book overdrafts which represent checks issued in
excess of funds on deposit in our bank accounts that have not yet been paid by the applicable bank at the balance sheet date.
Bank overdrafts occur when a bank honors disbursements in excess of funds on deposit in our bank accounts. We classify book
and bank overdrafts as short-term borrowings on our consolidated balance sheets, and report the change in overdrafts as a
financing activity in our consolidated statements of cash flows.
Insurance Matters, Litigation and Contingencies. In the normal course of business, we are subject to certain
contractual guarantees and litigation. In addition, we maintain insurance coverage for various aspects of our business and
operations. We record in our consolidated balance sheets amounts representing our estimated liability for these legal and
insurance obligations. Any adjustments to these liabilities are recorded in our consolidated statements of income.
Accounts Receivable – Net. Net accounts receivable consists of billed and unbilled accounts receivable, and
allowances for doubtful accounts. Billed accounts receivable represent amounts billed to clients that have not been collected.
Unbilled accounts receivable, which represent an unconditional right to payment subject only to the passage of time, include
unbilled amounts typically resulting from revenue recognized but not yet billed pursuant to contract terms or billed after the
period end date. Most of our unbilled receivables at September 27, 2020 are expected to be billed and collected within 12
months. Unbilled accounts receivable also include amounts related to requests for equitable adjustment to contracts that provide
for price redetermination. These amounts are recorded only when they can be reliably estimated and realization is probable. The
allowance for doubtful accounts represents amounts that are expected to become uncollectible or unrealizable in the future. We
determine an estimated allowance for uncollectible accounts based on management's consideration of trends in the actual and
forecasted credit quality of our clients, including delinquency and payment history; type of client, such as a government agency
or a commercial sector client; and general economic and industry conditions, including the potential impacts of the coronavirus
disease 2019 ("COVID-19") pandemic, that may affect our clients' ability to pay.
67
Contract Assets and Contract Liabilities. Contract assets represent revenue recognized in excess of the amounts for
which we have the contractual right to bill our customers. Contract retentions, included in contract assets, represent amounts
withheld by clients until certain conditions are met or the project is completed, which may extend beyond one year. Contract
liabilities represent the amount of cash collected from clients and billings to clients on contracts in advance of work performed
and revenue recognized. The majority of these amounts are expected be earned within 12 months and are classified as current
liabilities.
Property and Equipment. Property and equipment are recorded at cost and depreciated over their estimated useful
lives using the straight-line method. When property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from our consolidated balance sheets and any resulting gain or loss is reflected in our
consolidated statements of income. Expenditures for maintenance and repairs are expensed as incurred. Generally, estimated
useful lives range from three to seven years for equipment, furniture and fixtures. Leasehold improvements are amortized on a
straight-line basis over the shorter of their estimated useful lives or the lease term. Assets held for sale are measured at the
lower of carrying amount (i.e., net book value) and fair value less cost to sell, and are reported within "Prepaid expenses and
other current assets" on our consolidated balance sheets. Once assets are classified as held for sale, they are no longer
depreciated.
Long-Lived Assets. Our policy is to evaluate the recoverability of our long-lived assets when the facts and
circumstances suggest that the assets may be impaired. This assessment is performed based on the estimated undiscounted cash
flows compared to the carrying value of the assets. If the future cash flows (undiscounted and without interest charges) are less
than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.
Leases. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease
right-of-use ("ROU") assets, and current and long-term operating lease liabilities in the consolidated balance sheets. Our
finance leases are reported in "Other long-term assets", "Other current liabilities", and "Other long-term liabilities" on our
consolidated balance sheet.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an
implicit rate, incremental borrowing rates are used based on the information available at commencement date in determining the
present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease
incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise
that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
Our operating leases are primarily for corporate and project office spaces. To a much lesser extent, we have operating
leases for vehicles and equipment. Our operating leases have remaining lease terms of one month to twelve years, some of
which may include options to extend the leases for up to five years. We also have finance leases which are primarily related to
IT equipment.
We recognize a liability for contract termination costs associated with an exit activity for costs that will continue to be
incurred under a lease for its remaining term without economic benefit to us, initially measured at its fair value at the cease-use
date. The fair value is determined based on the remaining lease rentals, adjusted for the effects of any prepaid or deferred items
recognized under the lease, and reduced by estimated sublease rentals.
Business Combinations. The cost of an acquired company is assigned to the tangible and intangible assets purchased
and the liabilities assumed based on their fair values at the date of acquisition. The determination of fair values of these assets
and liabilities requires us to make estimates and use valuation techniques when a market value is not readily available. Any
excess of purchase price over the fair value of net tangible and intangible assets acquired is allocated to goodwill. Goodwill
typically represents the value paid for the assembled workforce and enhancement of our service offerings. Transaction costs
associated with business combinations are expensed as incurred.
Goodwill and Intangible Assets. Goodwill represents the excess of the aggregate purchase price over the fair value
of the net assets acquired in a business acquisition. Following an acquisition, we perform an analysis to value the acquired
company's tangible and identifiable intangible assets and liabilities. With respect to identifiable intangible assets, we consider
backlog, non-compete agreements, client relations, trade names, patents and other assets. We amortize our intangible assets
based on the period over which the contractual or economic benefits of the intangible assets are expected to be realized. We
assess the recoverability of the unamortized balance of our intangible assets when indicators of impairment are present based on
expected future profitability and undiscounted expected cash flows and their contribution to our overall operations. Should the
review indicate that the carrying value is not fully recoverable, the excess of the carrying value over the fair value of the
intangible assets would be recognized as an impairment loss.
68
We test our goodwill for impairment on an annual basis, and more frequently when an event occurs, or circumstances
indicate that the carrying value of the asset may not be recoverable. We believe the methodology that we use to review
impairment of goodwill, which includes a significant amount of judgment and estimates, provides us with a reasonable basis to
determine whether impairment has occurred. However, many of the factors employed in determining whether our goodwill is
impaired are outside of our control and it is reasonably likely that assumptions and estimates will change in future periods.
These changes could result in future impairments.
We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our last annual
review was performed at June 29, 2020 (i.e., the first day of our fiscal fourth quarter). In addition, we regularly evaluate
whether events and circumstances have occurred that may indicate a potential change in recoverability of goodwill. We perform
interim goodwill impairment reviews between our annual reviews if certain events and circumstances have occurred, including
a deterioration in general economic conditions, an increased competitive environment, a change in management, key personnel,
strategy or customers, negative or declining cash flows, or a decline in actual or planned revenue or earnings compared with
actual and projected results of relevant prior periods. We assess goodwill for impairment at the reporting unit level, which is
defined as an operating segment or one level below an operating segment, referred to as a component. Our operating segments
are the same as our reportable segments and our reporting units for goodwill impairment testing are the components one level
below our reportable segments. These components constitute a business for which discrete financial information is available
and where segment management regularly reviews the operating results of that component. We aggregate components within an
operating segment that have similar economic characteristics.
The impairment test for goodwill involves the comparison of the estimated fair value of each reporting unit to the
reporting unit's carrying value, including goodwill. We estimate the fair value of reporting units based on a comparison and
weighting of the income approach, specifically the discounted cash flow method and the market approach, which estimates the
fair value of our reporting units based upon comparable market prices and recent transactions and also validates the
reasonableness of the multiples from the income approach. The development of the present value of future cash flow
projections includes assumptions and estimates derived from a review of our expected revenue growth rates, operating profit
margins, discount rates, and the terminal growth rate. If the fair value of a reporting unit exceeds its carrying amount, the
goodwill of that reporting unit is not considered impaired. However, if its carrying value exceeds its fair value, our goodwill is
impaired, and we are required to record a non-cash charge that could have a material adverse effect on our consolidated
financial statements. An impairment loss recognized, if any, should not exceed the total amount of goodwill allocated to the
reporting unit.
Contingent Consideration. Most of our acquisition agreements include contingent earn-out arrangements, which are
generally based on the achievement of future operating income thresholds. The contingent earn-out arrangements are based
upon our valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial
results are not achieved.
The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on
their respective acquisition dates. For each transaction, we estimate the fair value of contingent earn-out payments as part of the
initial purchase price and record the estimated fair value of contingent consideration as a liability in "Current contingent earn-
out liabilities" and "Long-term contingent earn-out liabilities" on the consolidated balance sheets. We consider several factors
when determining that contingent earn-out liabilities are part of the purchase price, including the following: (1) the valuation of
our acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and
material component of the valuation approach to determining the purchase price; and (2) the former owners of acquired
companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level
compared with the compensation of our other key employees. The contingent earn-out payments are not affected by
employment termination.
We measure our contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs
classified within Level 3 of the fair value hierarchy. We use a probability weighted discounted income approach as a valuation
technique to convert future estimated cash flows to a single present value amount. The significant unobservable inputs used in
the fair value measurements are operating income projections over the earn-out period (generally two or three years), and the
probability outcome percentages we assign to each scenario. Significant increases or decreases to either of these inputs in
isolation would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of
the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the
fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the contingent
earn-out liability on the acquisition date is reflected as cash used in financing activities in our consolidated statements of cash
flows. Any amount paid in excess of the contingent earn-out liability on the acquisition date is reflected as cash used in
operating activities in our consolidated statements of cash flows.
We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair
value could differ materially from the initial estimates. Changes in the estimated fair value of our contingent earn-out liabilities
69
related to the time component of the present value calculation are reported in interest expense. Adjustments to the estimated fair
value related to changes in all other unobservable inputs are reported in operating income.
Fair Value of Financial Instruments. We determine the fair values of our financial instruments, including short-
term investments, debt instruments and derivative instruments based on inputs or assumptions that market participants would
use in pricing an asset or a liability. We categorize our instruments using a valuation hierarchy for disclosure of the inputs used
to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities
in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market
corroboration, for substantially the full term of the financial instrument; and Level 3 inputs are unobservable inputs based on
our own assumptions used to measure assets and liabilities at fair value. The classification of a financial asset or liability within
the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair values
based on their short-term nature. The carrying amounts of our revolving credit facility approximates fair value because the
interest rates are based upon variable reference rates. Certain other assets and liabilities, such as contingent earn-out liabilities
and amounts related to cash-flow hedges, are required to be carried in our consolidated financial statements at fair value.
Our fair value measurement methods may produce a fair value calculation that may not be indicative of net realizable
value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with those
used by other market participants, the use of different methodologies or assumptions to determine fair value could result in a
different fair value measurement at the reporting date.
Derivative Financial Instruments. We account for our derivative instruments as either assets or liabilities and carry
them at fair value. For derivative instruments that hedge the exposure to variability in expected future cash flows that are
designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component
of accumulated other comprehensive income (loss) in stockholders' equity and reclassified into income in the same period or
periods during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative
instrument, if any, is recognized in current income. To receive hedge accounting treatment, cash flow hedges must be highly
effective in offsetting changes to expected future cash flows on hedged transactions.
The net gain or loss on the effective portion of a derivative instrument that is designated as an economic hedge of the
foreign currency translation exposure generated by the re-measurement of certain assets and liabilities denominated in a non-
functional currency in a foreign operation is reported in the same manner as a foreign currency translation adjustment.
Accordingly, any gains or losses related to these derivative instruments are recognized in current income. Derivatives that do
not qualify as hedges are adjusted to fair value through current income.
Deferred Compensation. We maintain a non-qualified defined contribution supplemental retirement plan for certain
key employees and non-employee directors that is accounted for in accordance with applicable authoritative guidance on
accounting for deferred compensation arrangements where amounts earned are held in a rabbi trust and invested. Employee
deferrals are deposited into a rabbi trust, and the funds are generally invested in individual variable life insurance contracts that
we own and are specifically designed to informally fund savings plans of this nature. Our consolidated balance sheets reflect
our investment in variable life insurance contracts in "Other long-term assets." Our obligation to participating employees is
reflected in "Other long-term liabilities." The net gains and losses related to the deferred compensation plan are reported as part
of “Selling, general and administrative expenses” in our consolidated statements of income.
Income Taxes. We file a consolidated U.S. federal income tax return. In addition, we file other returns that are
required in the states, foreign jurisdictions and other jurisdictions in which we do business. We account for certain income and
expense items differently for financial reporting and income tax purposes. Deferred tax assets and liabilities are computed for
the difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to
reverse. In determining the need for a valuation allowance, management reviews both positive and negative evidence, including
current and historical results of operations, future income projections, scheduled reversals of deferred tax amounts, availability
of carrybacks, and potential tax planning strategies. Based on our assessment, we have concluded that a portion of the deferred
tax assets will not be realized.
According to the authoritative guidance on accounting for uncertainty in income taxes, 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 50% likelihood of being realized upon
ultimate settlement. This guidance also addresses de-recognition, classification, interest and penalties on income taxes,
accounting in interim periods and disclosure requirements for uncertain tax positions.
70
Concentration of Credit Risk. Financial instruments that subject us to credit risk consist primarily of cash and cash
equivalents and net accounts receivable. In the event that we have surplus cash, we place our temporary cash investments with
lower risk financial institutions and, by policy, limit the amount of investment exposure to any one financial institution.
Approximately 28% of accounts receivable were due from various agencies of the U.S. federal government at fiscal 2020 year-
end. The remaining accounts receivable are generally diversified due to the large number of organizations comprising our client
base and their geographic dispersion. We perform ongoing credit evaluations of our clients and maintain an allowance for
potential credit losses. Approximately 48%, 22% and 30% of our fiscal 2020 revenue was generated from our U.S. government,
U.S. commercial and international clients, respectively.
Foreign Currency Translation. We determine the functional currency of our foreign operating units based upon the
primary currency in which they operate. These operating units maintain their accounting records in their local currency,
primarily Canadian and Australian dollars, and British pounds. Where the functional currency is not the U.S. dollar, translation
of assets and liabilities to U.S. dollars is based on exchange rates at the balance sheet date. Translation of revenue and expenses
to U.S. dollars is based on the average rate during the period. Translation gains or losses are reported as a component of other
comprehensive income (loss). Gains or losses from foreign currency transactions are included in income from operations.
Recently Issued Accounting Pronouncements Adopted in Fiscal 2020.
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02 “Leases (Topic 842)”,
which is a new standard related to leases to increase transparency and comparability among organizations by requiring the
recognition of ROU assets obtained in exchange for lease liabilities on the balance sheet. Most prominent among the changes in
the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases.
Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount,
timing, and uncertainty of cash flows arising from leases. In the first quarter of fiscal 2020, we adopted the standard using the
modified retrospective method. The standard was applied to leases that existed or were entered into on or after September 30,
2019. Our fiscal 2020 financial statements have been presented under this standard. However, the prior-year financial
statements have not been adjusted and continue to be reported in accordance with previous guidance. See Note 10, "Leases" for
further discussion of the adoption and the impact on our consolidated financial statements.
In August 2017, the FASB issued accounting guidance on hedging activities. The amendment better aligns an entity’s
risk management activities and financial reporting for hedging relationships through changes to both the designation and
measurement guidance for qualifying hedging relationships and the presentation of hedge results. The guidance was effective
for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018 (first quarter of fiscal 2020 for
us). The adoption of this guidance had no impact on our consolidated financial statements.
In February 2018, the FASB issued guidance on reclassification of certain tax effects from accumulated
comprehensive income, which allows for a reclassification of stranded tax effects from the Tax Cuts and Jobs Act ("TCJA")
from accumulated other comprehensive income to retained earnings. The guidance was effective for fiscal years beginning after
December 15, 2018 (first quarter of fiscal 2020 for us). We did not reclassify our stranded effects from the TCJA, which were
immaterial.
Recently Issued Accounting Pronouncements Not Yet Adopted.
In June 2016, the FASB issued updated guidance, Accounting Standards Update ("ASU") 2016-13, related to the
measurement of credit losses for certain financial assets. This guidance replaces the current incurred loss methodology with an
expected credit loss methodology. It requires us to recognize an allowance equal to our current estimate of all contractual cash
flows that we do not expect to collect. Our estimate would consider relevant information about past events, current conditions,
and reasonable and supportable forecasts impacting the collectability of the reported amounts. The guidance is effective for
fiscal years and interim periods within those fiscal years, beginning after December 15, 2019 (first quarter of fiscal 2021 for
us). In anticipation of our adoption of ASU 2016-13, we have updated our presentation of gross receivables and the allowance
for doubtful accounts to reflect only expected credit losses in the allowance. We do not expect the adoption in the first quarter
of fiscal 2021 to have a material impact on our consolidated financial statements.
In August 2018, the FASB issued updated guidance modifying certain fair value measurement disclosures. The
guidance contains additional disclosures to enable users of the financial statements to better understand the entity’s assumption
used to develop significant unobservable inputs for Level 3 fair value measurements, but also eliminates the requirement for
entities to disclose the amount of and reasons for transfers between Level 1 and Level 2 investments within the fair value
hierarchy. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15,
2019 (first quarter of fiscal 2021 for us). Early adoption is permitted. We do not expect the adoption of this guidance to have a
significant impact on our consolidated financial statements.
71
In December 2019, the FASB issued guidance simplifying the accounting for income taxes by removing certain
exceptions to general principles in Topic 740 and amending certain existing guidance for clarity. This guidance is effective for
fiscal years and interim periods within those fiscal years, beginning after December 15, 2020 (first quarter of fiscal 2022 for
us). Early adoption is permitted. We do not expect the adoption of this guidance to have an impact on our consolidated financial
statements.
In May 2020, the Securities and Exchange Commission issued guidance amending certain financial disclosures about
acquired and disposed businesses. The amendments are designed to assist registrants in making more meaningful
determinations of whether a subsidiary or an acquired or disposed business is significant, and to improve the related disclosure
requirements. The guidance is effective for fiscal years beginning after December 31, 2020 (first quarter of fiscal 2022 for us).
We do not expect the adoption of this guidance to have an impact on our consolidated financial statements.
3. Revenue and Contract Balances
We recognize revenue over time as the related performance obligation is satisfied by transferring control of a promised
good or service to our customers. Progress toward complete satisfaction of the performance obligation is primarily measured
using a cost-to-cost measure of progress method. The cost input is based primarily on contract cost incurred to date compared to
total estimated contract cost. This measure includes forecasts based on the best information available and reflects our judgement
to faithfully depict the value of the services transferred to the customer. For certain on-call engineering or consulting and
similar contracts, we recognize revenue in the amount which we have the right to invoice the customer if that amount
corresponds directly with the value of our performance completed to date.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance
obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-
cost measure of progress method, changes in total estimated costs, and related progress towards complete satisfaction of the
performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are
made. When the current estimate of total costs indicates a loss, a provision for the entire estimated loss on the contract is made
in the period in which the loss becomes evident.
Disaggregation of Revenue
We disaggregate revenue by client sector and contract type, as we believe it best depicts how the nature, timing, and
uncertainty of revenue and cash flows are affected by economic factors. The following tables present revenue disaggregated by
client sector and contract type:
Client Sector:
U.S. state and local government
U.S. federal government (1)
U.S. commercial
International (2)
Total
Contract Type:
Fixed-price
Time-and-materials
Cost-plus
Total
September 27,
2020
Fiscal Year Ended
September 29,
2019
(in thousands)
September 30,
2018
$
439,019 $
587,364 $
993,835
674,605
887,432
941,102
719,314
859,568
469,231
974,384
788,398
732,135
$
2,994,891 $
3,107,348 $
2,964,148
$
1,078,432 $
1,048,157 $
986,910
1,391,592
524,867
1,509,901
549,290
1,395,148
582,090
$
2,994,891 $
3,107,348 $
2,964,148
(1) Includes revenue generated under U.S. federal government contracts performed outside the United States.
(2) Includes revenue generated from foreign operations, primarily in Canada, Australia, the United Kingdom, and revenue generated from non-U.S. clients.
Other than the U.S. federal government, no single client accounted for more than 10% of our revenue for the twelve
months ended months ended September 27, 2020 and September 29, 2019.
72
Contract Assets and Contract Liabilities
We invoice customers based on the contractual terms of each contract. However, the timing of revenue recognition
may differ from the timing of invoice issuance.
Contract assets represent revenue recognized in excess of the amounts for which we have the contractual right to bill
our customers. Such amounts are recoverable from customers based upon various measures of performance, including
achievement of certain milestones or completion of a contract. In addition, many of our time and materials arrangements are
billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled
receivables being recorded, as revenue is recognized in advance of billings. Contract retentions, included in contract assets,
represent amounts withheld by clients until certain conditions are met or the project is completed, which may extend beyond
one year.
Contract liabilities consist of billings in excess of revenue recognized. Contract liabilities decrease as we recognize
revenue from the satisfaction of the related performance obligation and increase as billings in advance of revenue recognition
occur. Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting
period. There were no substantial non-current contract assets or liabilities for the periods presented. Net contract assets/
liabilities consisted of the following:
Contract assets (1)
Contract liabilities
Net contract liabilities
Balance at
September 27,
2020
September 29,
2019
(in thousands)
$
$
92,632
171,905
114,324
165,611
(79,273) $
(51,287)
(1) Includes $12.3 million and $26.5 million of contract retentions as of September 27, 2020 and September 29, 2019, respectively.
In fiscal 2020, we recognized revenue of approximately $118 million from amounts included in the contract liability
balance at the end of fiscal 2019, compared to approximately $90 million for the comparative prior-year period.
We recognize revenue primarily using the cost-to-cost measure of progress method, which involves the estimates of
progress towards completion. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to
the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. As a result, we
recognized net favorable operating income adjustments of $0.8 million for both fiscal 2020 and fiscal 2019, exclusive of the
amounts related to claims described below. Changes in revenue and cost estimates could also result in a projected loss,
determined at the contract level, which would be recorded immediately in earnings. As of September 27, 2020 and
September 29, 2019, our consolidated balance sheets included liabilities for anticipated losses of $13.2 million and $11.5
million, respectively. The estimated cost to complete the related contracts as of September 27, 2020 was approximately $118
million.
Accounts Receivable, Net
Net accounts receivable consisted of the following:
Billed
Unbilled
Total accounts receivable
Allowance for doubtful accounts
Total accounts receivable, net
Balance at
September 27,
2020
September 29,
2019
(in thousands)
$
402,818 $
253,364
656,182
(7,147)
649,035 $
$
496,985
282,297
779,282
(10,562)
768,720
Billed accounts receivable represent amounts billed to clients that have not been collected. Unbilled accounts
receivable, which represent an unconditional right to payment subject only to the passage of time, include unbilled amounts
typically resulting from revenue recognized but not yet billed pursuant to contract terms or billed after the period end date. Most
of our unbilled receivables at September 27, 2020 are expected to be billed and collected within 12 months. The allowance for
73
doubtful accounts represents amounts that are expected to become uncollectible or unrealizable in the future. We determine an
estimated allowance for uncollectible accounts based on management's consideration of trends in the actual and forecasted
credit quality of our clients, including delinquency and payment history; type of client, such as a government agency or a
commercial sector client; and general economic and industry conditions, including the potential impacts of the COVID-19
pandemic, that may affect our clients' ability to pay.
Total accounts receivable at September 27, 2020 and September 29, 2019 included approximately $14 million and $15
million, respectively, related to claims, including requests for equitable adjustment, on contracts that provide for price
redetermination. Claims are amounts in excess of agreed contract prices that we seek to collect from our clients or other third
parties for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both
scope and price, or other causes of unanticipated additional costs. Factors considered in determining whether revenue associated
with claims (including change orders in dispute and unapproved change orders in regards to both scope and price) should be
recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs
were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in our performance, (c)
claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the
claim is objective and verifiable. This can lead to a situation in which costs are recognized in one period and revenue is
recognized in a subsequent period when a client agreement is obtained, or a claims resolution occurs.
We regularly evaluate all unsettled claim amounts and record appropriate adjustments to operating earnings when it is
probable that the claim will result in a different contract value than the amount previously estimated. In fiscal 2020, we
recorded net losses in operating income related to claims of $4.4 million in our CIG segment. In fiscal 2019, we recognized
reductions of revenue of $26.7 million and $4.6 million, and related losses in operating income of $28.2 million and
$5.7 million in our CIG and RCM segments, respectively, primarily due to the resolution of several claims in fiscal 2019 for
amounts lower than we previously expected.
No single client accounted for more than 10% of our accounts receivable at September 27, 2020 and September 29,
2019.
Remaining Unsatisfied Performance Obligations (“RUPOs”)
Our RUPOs represent a measure of the total dollar value of work to be performed on contracts awarded and in
progress. We had $3.2 billion of RUPOs as of September 27, 2020. RUPOs increase with awards from new contracts or
additions on existing contracts and decrease as work is performed and revenue is recognized on existing contracts. RUPOs may
also decrease when projects are canceled or modified in scope. We include a contract within our RUPOs when the contract is
awarded and an agreement on contract terms has been reached.
We expect to satisfy our RUPOs as of September 27, 2020 over the following periods:
Within 12 months
Beyond
Total
Amount
(in thousands)
$
$
1,846,527
1,372,446
3,218,973
Although RUPOs reflect business that is considered to be firm, cancellations, deferrals or scope adjustments may
occur. RUPOs are adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency
exchange fluctuations and project deferrals, as appropriate. Our operations and maintenance contracts can generally be
terminated by the clients without a substantive financial penalty. Therefore, the remaining performance obligations on such
contracts are limited to the notice period required for the termination (usually 30, 60, or 90 days).
4. Stock Repurchase and Dividends
On November 5, 2018, the Board of Directors authorized a stock repurchase program ("2019 Program") under which
we could repurchase up to $200 million of our common stock. This was in addition to the $25 million remaining as of fiscal
2018 year-end under the previous stock repurchase program ("2018 Program"). On January 27, 2020, the Board of Directors
authorized a new $200 million stock repurchase program ("2020 Program"). As of September 27, 2020, we had a remaining
balance of $207.8 million available under the 2019 and 2020 programs. The following table summarizes stock repurchases in
the open market and settled in fiscal 2019 and fiscal 2020:
74
Fiscal Year
2019
2019
2019 Total
Stock Repurchase
Program
2018 Program
2019 Program
Shares Repurchased
Average Price Paid
per Share
Total Cost
(in thousands)
430,559 $
1,131,962 $
1,562,521 $
58.06 $
66.26
64.00 $
25,000
75,000
100,000
2020
2019 Program
1,508,747 $
77.67 $
117,188
The following table presents dividends declared and paid in fiscal 2020 and 2019:
Declare Date
November 11, 2019
January 27, 2020
April 27, 2020
July 27, 2020
Dividend Paid Per
Share
$
$
$
$
0.15
0.15
0.17
0.17
Total dividends paid as of September 27, 2020
Record Date
Payment Date
December 2, 2019
December 13, 2019
$
February 12, 2020
February 28, 2020
May 13, 2020
May 29, 2020
August 21, 2020
September 4, 2020
November 5, 2018
January 28, 2019
April 29, 2019
July 29, 2019
$
$
$
$
0.12
0.12
0.15
0.15
November 30, 2018
December 14, 2018
February 13, 2019
February 28, 2019
May 15, 2019
May 31, 2019
August 14, 2019
August 30, 2019
Total dividends paid as of September 29, 2019
Dividends Paid
(in thousands)
8,190
8,225
9,175
9,153
34,743
6,654
6,616
8,219
8,185
29,674
$
$
$
Subsequent Event. On November 9, 2020, the Board of Directors declared a quarterly cash dividend of $0.17 per
share payable on December 11, 2020 to stockholders of record as of the close of business on November 30, 2020.
5. Acquisitions and Divestitures
In fiscal 2018, we acquired Glumac, headquartered in Portland, Oregon. Glumac is a leader in sustainable
infrastructure design with more than 300 employees and is part of our GSG segment. The fair value of the purchase price for
Glumac was $38.4 million. This amount is comprised of $20.0 million of initial cash payments made to the sellers and $18.4
million for the estimated fair value of contingent earn-out obligations, with a maximum of $20.0 million payable, based upon
the achievement of specified operating income targets in each of the three years following the acquisition.
In fiscal 2018, we acquired Norman Disney & Young (“NDY”), a leader in sustainable infrastructure engineering
design. NDY is an Australian-based global engineering design firm with more than 700 professionals operating in offices
throughout Australia, the Asia-Pacific region, the United Kingdom, and Canada and is part of our CIG segment. The fair value
of the purchase price for NDY was $56.1 million. This amount is comprised of $46.9 million of initial cash payments made to
the sellers, $1.6 million held in escrow, and $7.6 million for the estimated fair value of contingent earn-out obligations, with a
maximum amount of $20.2 million, based upon the achievement of specified operating income targets in each of the three years
following the acquisition.
In fiscal 2018, we divested our non-core utility field services operations in the CIG segment for net proceeds after
transaction costs of $30.2 million. This operation generated approximately $70 million in annual revenue primarily from our
U.S. commercial clients. We also divested non-core assets during the third quarter of fiscal 2018 resulting in a pre-tax loss of
$3.4 million, which is included in selling, general and administrative expenses for fiscal 2018.
In fiscal 2019, we acquired eGlobalTech ("EGT"), a high-end information technology solutions, cloud migration,
cybersecurity, and management consulting firm based in Arlington, Virginia. EGT is part of our GSG segment. The fair value
of the purchase price was $49.1 million. This amount was comprised of a $24.7 million promissory note issued to the sellers
(which was subsequently paid in full in the third quarter of fiscal 2019), $3.3 million of payables related to estimated post-
closing adjustments for net assets acquired, and $21.1 million for the estimated fair value of contingent earn-out obligations,
with a maximum of $25.0 million, based upon the achievement of specified operating income targets in each of the three years
following the acquisition.
In fiscal 2019, we acquired WYG plc (“WYG”), which employs approximately 1,600 staff primarily in the United
Kingdom and Europe, delivering consulting and engineering solutions for complex projects across key service areas including
planning, water and environment, transport, infrastructure, the built environment, architecture, urban design, surveying, asset
75
management, program management, and international development. WYG’s United Kingdom based consulting and engineering
business is part of our CIG segment, while its international development business is part of our GSG segment. The fair value of
the purchase price was $54.2 million, entirely paid in cash. In addition, we assumed net debt of $11.5 million, which was
subsequently paid in full in the fourth quarter of fiscal 2019. We also incurred $10.4 million in acquisition and integration costs
related to the WYG acquisition in the fourth quarter of fiscal 2019.
In fiscal 2020, we acquired Segue Technologies, Inc. ("SEG"), a leading information technology management
consulting firm based in Arlington, Virginia. SEG is part of our GSG segment. The fair value of the purchase price was
$40.9 million. This amount was comprised of $29.6 million in initial cash payments made to the sellers and $11.3 million for
the estimated fair value of contingent earn-out obligations, with a maximum of $20.0 million, based upon the achievement of
specified operating income targets in each of the three years following the acquisition.
In fiscal 2020, we acquired BlueWater Federal Solutions, Inc. ("BWF"), a leading information technology
management consulting firm based in Chantilly, Virginia. BWF is part of our GSG segment. The fair value of the purchase
price was $48.5 million. This amount was comprised of $41.8 million in initial cash payments made to the sellers, $1.5 million
of payables related to estimated post-closing adjustments for net assets acquired, and $5.2 million for the estimated fair value of
contingent earn-out obligations, with a maximum of $8.0 million, based upon the achievement of specified operating income
targets in each of the three years following the acquisition.
Goodwill additions resulting from the above business combinations are primarily attributable to the existing workforce
of the acquired companies and the synergies expected to arise after the acquisitions. The goodwill additions related to our fiscal
2019 acquisitions represent the value of a workforce with emerging technology and new techniques that incorporate artificial
intelligence, data analytics and advanced cybersecurity solutions for government and commercial clients, and expanding our
geographic presence in the United Kingdom with a strong platform for growth in the United Kingdom and Europe. The fiscal
2020 goodwill additions represent the value of a workforce with distinct expertise in the high-end information technology field,
in the areas of data analytics, modeling and simulation, cloud, and agile software development. In addition, these acquired
capabilities, when combined with our existing global consulting and engineering business, result in opportunities that allow us
to provide services under contracts that could not have been pursued individually by either us or the acquired companies. The
results of these acquisitions were included in our consolidated financial statements from their respective closing dates. These
acquisitions were not considered material to our consolidated financial statements. As a result, no pro forma information has
been provided.
Backlog, client relations and trade name intangible assets include the fair value of existing contracts and the
underlying customer relationships with lives ranging from one to ten years, and trade names with lives ranging from three to
five years.
Most of our acquisition agreements include contingent earn-out agreements, which are generally based on the
achievement of future operating income thresholds. The contingent earn-out arrangements are based on our valuations of the
acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved. The
fair values of any earn-out arrangements are included as part of the purchase price of the acquired companies on their respective
acquisition dates. For each transaction, we estimate the fair value of contingent earn-out payments as part of the initial purchase
price and record the estimated fair value of contingent consideration as a liability in “Current contingent earn-out liabilities”
and “Long-term contingent earn-out liabilities” on the consolidated balance sheets. We consider several factors when
determining that contingent earn-out liabilities are part of the purchase price, including the following: (1) the valuation of our
acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and
material component of the valuation approach to determining the purchase price; and (2) the former owners of acquired
companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level
compared with the compensation of our other key employees. The contingent earn-out payments are not affected by
employment termination.
We measure our contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs
classified within Level 3 of the fair value hierarchy. We use a probability-weighted discounted income approach as a valuation
technique to convert future estimated cash flows to a single present value amount. The significant unobservable inputs used in
the fair value measurements are operating income projections over the earn-out period (generally two or three years), and the
probability outcome percentages we assign to each scenario. Significant increases or decreases to either of these inputs in
isolation would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of
the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the
fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the contingent
earn-out liability on the acquisition date is reflected as cash used in financing activities in our consolidated statements of cash
flows. Any amount paid in excess of the contingent earn-out liability on the acquisition date is reflected as cash used in
operating activities in our consolidated statements of cash flows.
76
We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair
value could differ materially from the initial estimates. Changes in the estimated fair value of our contingent earn-out liabilities
related to the time component of the present value calculation are reported in interest expense. Adjustments to the estimated fair
value related to changes in all other unobservable inputs are reported in operating income. In each quarter during fiscal 2020,
we evaluated our estimates for contingent consideration liabilities for the remaining earn-out periods for each individual
acquisition, which included a review of their financial results to-date, the status of ongoing projects in their RUPOs, and the
inventory of prospective new contract awards. In addition, we considered the potential impact of the global economic disruption
due to the COVID-19 pandemic on our operating income projections over the various earn-out periods.
During fiscal 2020, we recorded adjustments to our contingent earn-out liabilities and reported related net gains in
operating income of $15.0 million, substantially all in the fourth quarter. These gains primarily resulted from updated
valuations of the contingent consideration liabilities for NDY, EGT, and SEG.
The acquisition agreement for NDY included a contingent earn-out agreement based on the achievement of operating
income thresholds (in Australian dollars) in each of the first three years beginning on the acquisition date, which was in the
second quarter of fiscal 2018. The maximum earn-out obligation over the three-year earn-out period was A$25 million
(A$7.4 million in year one, and A$8.8 million each in years two and three). These amounts could be earned primarily on a pro-
rata basis for operating income within a predetermined range in each year. NDY was required to meet a minimum operating
income threshold in each year to earn any contingent consideration.
The determination of the fair value of the purchase price for NDY on the acquisition date included our estimate of the
fair value of the related contingent earn-out obligation. The initial valuation was primarily based on probability-weighted
internal estimates of NDY's operating income during each earn-out period. Based on these estimates, we calculated an initial
fair value at the acquisition date of A$9.4 million for NDY's contingent earn-out liability in the second quarter of fiscal 2018. In
determining that NDY would earn 38% of the maximum potential earn-out, we considered several factors including NDY's
recent historical revenue and operating income levels and growth rates. We also considered the recent trend in NDY's backlog
level.
NDY's actual financial performance in the first two earn-out periods exceeded our original estimates at the acquisition
date. As a result, we increased the related contingent consideration liability and recognized losses of $2.1 million
(A$3.0 million) and $5.4 million (A$7.9 million) in fiscal 2018 and fiscal 2019, respectively. In the fourth quarter of fiscal
2020, we evaluated our estimate of NDY’s contingent consideration liability for the third and final earn-out period. This
assessment included a review of NDY’s actual and forecasted results for the third earn-out period, which included an evaluation
of the status of ongoing projects in NDY’s backlog, and the inventory of prospective new contract awards and the impact of the
COVID-19 pandemic on the Australian economy and NDY's operations. As a result of this assessment, we concluded that
NDY’s operating income in the third earn-out period would be lower than previously estimated, and we reduced NDY’s
contingent earn-out liability to $1.8 million (A$2.6 million), which resulted in a gain of $3.7 million (A$5.2 million).
The acquisition agreement for EGT included a contingent earn-out agreement based on the achievement of operating
income thresholds in each of the first three years beginning on the acquisition date, which was in the second quarter of fiscal
2019. The maximum earn-out obligation over the three-year earn-out period was $25 million ($8.5 million in year one,
$9.0 million in year two, and $7.5 million in year three). In each of the first two earn-out years, EGT was to receive a portion of
the contingent consideration if EGT achieved a minimum operating income threshold. The remaining contingent consideration
could be earned primarily on a pro-rata basis for operating income within a predetermined range in each year. EGT was
required to meet a minimum operating income threshold in each year to earn any of this contingent consideration.
The determination of the fair value of the purchase price for EGT on the acquisition date included our estimate of the
fair value of the related contingent earn-out obligation. The initial valuation was primarily based on probability-weighted
internal estimates of EGT's operating income during each earn-out period. Based on these estimates, we calculated an initial fair
value at the acquisition date of $21.1 million for EGT's contingent earn-out liability in the second quarter of fiscal 2019. In
determining that EGT would earn 84% of the maximum potential earn-out, we considered several factors including EGT's
recent historical revenue and operating income levels and growth rates. We also considered the recent trend in EGT's backlog
level and the prospects for the U.S. federal information technology market.
In the third quarter of fiscal 2020, EGT achieved and was paid the maximum earn-out obligation for the first earn-out
period. Subsequently, we evaluated our estimate of EGT’s contingent consideration liability for the second and third earn-out
periods. This assessment included a review of EGT’s actual and forecasted results for the second and third earn-out periods,
which included an evaluation of the status of ongoing projects in EGT’s backlog, and the inventory of prospective new contract
awards. As a result of this assessment, we concluded that EGT's operating income in the second and third earn-out period would
be lower than previously estimated. Accordingly, in the fourth quarter of fiscal 2020, we reduced EGT’s contingent earn-out
liability to $7.5 million, which resulted in a gain of $4.7 million.
77
The acquisition agreement for SEG included a contingent earn-out agreement based on the achievement of operating
income thresholds in each of the first three years beginning on the acquisition date, which was in the second quarter of fiscal
2020. The maximum earn-out obligation over the three-year earn-out period was $20 million ($5.0 million, $7.0 million and
$8.0 million for years one, two and three, respectively). SEG was to receive a portion of the contingent consideration if SEG
achieved a minimum operating income threshold in each year of the earn-out period. The remaining contingent consideration
could be earned primarily on a pro-rata basis for operating income within a predetermined range in each year. SEG was
required to meet a minimum operating income threshold in each year to earn any of this contingent consideration.
The determination of the fair value of the purchase price for SEG on the acquisition date included our estimate of the
fair value of the related contingent earn-out obligation. The initial valuation was primarily based on probability-weighted
internal estimates of SEG's operating income during each earn-out period. Based on these estimates, we calculated an initial fair
value at the acquisition date of $11.3 million for SEG's contingent earn-out liability in the second quarter of fiscal 2020. In
determining that SEG would earn 57% of the maximum potential earn-out, we considered several factors including SEG's
recent historical revenue and operating income levels and growth rates. We also considered the recent trend in SEG's backlog
level and the prospects for the U.S. federal information technology market.
SEG’s actual financial performance in the first earn-out period on a year to date basis was below our original
expectation at the acquisition date. As a result, in the fourth quarter of fiscal 2020, we evaluated our estimate of SEG’s
contingent consideration liability for all earn-out periods. This assessment included a review of SEG’s financial results in the
first earn-out period, the status of ongoing projects in SEG’s backlog, the inventory of prospective new contract awards, and
future synergies with other Tetra Tech operating units. As a result of this assessment, we concluded that SEG’s operating
income in all earn-out periods would be lower than originally anticipated. Accordingly, in the fourth quarter of fiscal 2020, we
reduced the SEG contingent earn-out liability to $8.1 million, which resulted in a gain of $3.4 million.
In fiscal 2019, we recorded adjustments to our contingent earn-out liabilities and reported a related net loss of $1.1
million in operating income. These adjustments resulted from the updated valuations of the contingent consideration liabilities,
which reflect updated projections of acquired companies' financial performance during their respective earn-out periods.
In fiscal 2018, we recorded adjustments to our contingent earn-out liabilities and reported related losses in operating
income of $4.3 million. These losses resulted from updated valuations of the contingent consideration liabilities for NDY, Eco
Logical Australia and Cornerstone Environmental Group, as the actual and expected financial performance during the earn-out
periods exceeded our original estimates at the acquisition dates.
At September 27, 2020, there was a total potential maximum of $70.9 million of outstanding contingent consideration
related to acquisitions. Of this amount, $32.6 million was estimated as the fair value and accrued on our consolidated balance
sheet. If the global economic disruption due to the COVID-19 pandemic is prolonged, we could have more significant
reductions in our contingent earn-out liabilities and related gains in operating income in future periods.
The following table summarizes the changes in the carrying value of estimated contingent earn-out liabilities:
September 27,
2020
Fiscal Year Ended
September 29,
2019
(in thousands)
September 30,
2018
Beginning balance
$
52,992
$
35,290 $
Acquisition date fair value of contingent earn-out liabilities
Change in fair value of contingent earn-out liabilities
Re-measurement of contingent earn-out liabilities
Foreign exchange impact
Earn-out payments:
Reported as cash used in operating activities
Reported as cash used in financing activities
Ending balance
16,581
1,162
(14,971)
(247)
27,704
1,489
1,085
(558)
—
—
(22,900)
(12,018)
$
32,617
$
52,992 $
2,438
32,210
1,005
4,252
(854)
(2,349)
(1,412)
35,290
78
6. Goodwill and Intangible Assets
The following table summarizes the changes in the carrying value of goodwill:
GSG
CIG
(in thousands)
Total
Balance at September 30, 2018
$
389,741 $
409,079 $
Acquisitions
Impairment
Translation and other
Balance at September 29, 2019
Acquisitions
Impairment
Translation and other
Balance at September 27, 2020
53,098
—
93,601
(7,755)
(1,037)
(11,907)
441,802
74,882
483,018
5,294
798,820
146,699
(7,755)
(12,944)
924,820
80,176
—
(15,800)
(15,800)
(369)
4,671
4,302
$
516,315 $
477,183 $
993,498
The goodwill additions related to our fiscal 2020 acquisitions of SEG and BWF and adjustments of the final valuations
for our fiscal 2019 acquisitions. The purchase price allocations for the SEG and BWF acquisitions are preliminary and subject
to adjustment based upon the final determinations of the net assets acquired and information to perform the final valuations.
Our goodwill was also impacted by foreign currency translation related to the goodwill balances of our foreign subsidiaries with
functional currencies that are different than our reporting currency.
We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our last review at
June 29, 2020 (i.e. the first day of our fourth quarter in fiscal 2020), indicated that we had no impairment of goodwill, and all of
our reporting units had estimated fair values that were in excess of their carrying values, including goodwill. All of our
reporting units had estimated fair values that exceeded their carrying values by more than 80%, with the exception of our Asia/
Pacific ("ASP") reporting unit, which is in our CIG reportable segment. Our ASP reporting unit had an estimated fair value that
exceeded its carrying value by less than 20%.
We also regularly evaluate whether events and circumstances have occurred that may indicate a potential change in
the recoverability of goodwill. We perform interim goodwill impairment reviews between our annual reviews if certain events
and circumstances have occurred, such as a deterioration in general economic conditions; an increase in the competitive
environment; a change in management, key personnel, strategy or customers; negative or declining cash flows; or a decline in
actual or planned revenue or earnings compared with actual and projected results of relevant prior periods. Although we believe
that our estimates of fair value for these reporting units are reasonable, if financial performance for these reporting units falls
significantly below our expectations or market prices for similar business decline, the goodwill for these reporting units could
become impaired.
On September 2, 2020, Australia announced that it had fallen into economic recession, defined as two consecutive
quarters of negative growth, for the first time since 1991 including 7% negative growth in the quarter ending in June 2020. This
prompted a strategic review of our ASP reporting unit. As a result of the economic recession in Australia, our revenue growth
and profit margin forecasts for the ASP reporting unit declined from the previous forecast used for our annual goodwill
impairment review as of June 29, 2020. We also performed an interim goodwill impairment review of our ASP reporting unit in
September 2020 and recorded a $15.8 million goodwill impairment charge. The impaired goodwill related to our acquisitions of
Coffey and NDY. As a result of the impairment charge, the estimated fair value of our ASP reporting unit equaled its carrying
value of $144.9 million, including $95.5 million of goodwill, at September 27, 2020.
During the fourth quarter of fiscal 2019, we performed an interim goodwill impairment review of our RFS reporting
unit and recorded a $7.8 million goodwill impairment charge. As a result of the impairment charge, the estimated fair value of
the RFS reporting unit equaled its carrying value of $61 million at September 29, 2019, including the remaining $48.8 million
of goodwill.
The gross amounts of goodwill for GSG were $534.0 million and $459.5 million at fiscal 2020 and 2019 year-ends,
respectively, excluding accumulated impairment of $17.7 million for each period. The gross amounts of goodwill for CIG were
$598.7 million and $588.7 million at fiscal 2020 and 2019 year-ends, respectively, excluding accumulated impairment of
$121.5 million and $105.7 million, respectively.
79
The following table presents the gross amount and accumulated amortization of our acquired identifiable intangible
assets with finite useful lives included in "Intangible assets, net" on the consolidated balance sheets:
Fiscal Year Ended
September 27, 2020
September 29, 2019
Weighted-
Average
Remaining
Life
(in years)
Gross
Amount
Accumulated
Amortization
($ in thousands)
Gross
Amount
Accumulated
Amortization
Client relations
Backlog
Technology and trade names
Total
2.9
0.7
1.8
$
60,775
$
(53,392) $
56,779
$
37,682
7,964
(32,761)
(6,325)
32,229
7,714
(50,455)
(24,968)
(4,859)
$
106,421
$
(92,478) $
96,722
$
(80,282)
Foreign currency translation adjustments reduced net identifiable intangible assets by $0.4 million and $0.3 million in
fiscal 2020 and 2019, respectively. Amortization expense for the identifiable intangible assets for fiscal 2020, 2019 and 2018
was $11.6 million, $11.6 million and $18.2 million, respectively.
Estimated amortization expense for the succeeding four fiscal years is as follows:
2021
2022
2023
2024
Total
7. Property and Equipment
Property and equipment consisted of the following:
Equipment, furniture and fixtures
Leasehold improvements
Land and buildings
Total property and equipment
Accumulated depreciation
Property and equipment, net
Amount
(in thousands)
$
8,786
2,652
1,915
590
$
13,943
Fiscal Year Ended
September 27,
2020
September 29,
2019
(in thousands)
$
90,942 $
114,652
34,382
187
125,511
34,881
371
149,904
(90,004)
(110,463)
$
35,507 $
39,441
The depreciation expense related to property and equipment was $13.0 million, $17.3 million and $19.6 million for
fiscal 2020, 2019 and 2018, respectively. As of September 29, 2019, we classified $5.4 million of net assets related to the
disposal of our Canadian turn-key pipeline activities as held-for-sale, and reported them as "Prepaid expenses and other current
assets" on our consolidated balance sheet. These assets were sold during fiscal 2020 resulting in a net gain of $8.5 million,
which is reported in "Other costs of revenue" on the consolidated statement of income.
8. Income Taxes
Income before income taxes, by geographic area, was as follows:
80
Income before income taxes:
United States
Foreign
Total income before income taxes
Income tax expense consisted of the following:
Current:
Federal
State
Foreign
Total current income tax expense
Deferred:
Federal
State
Foreign
Total deferred income tax expense
September 27,
2020
Fiscal Year Ended
September 29,
2019
(in thousands)
September 30,
2018
$
$
209,443 $
185,535 $
180,034
18,548
(10,399)
(5,472)
227,991 $
175,136 $
174,562
September 27,
2020
Fiscal Year Ended
September 29,
2019
(in thousands)
September 30,
2018
$
24,102 $
30,051 $
6,872
20,398
51,372
8,923
15,016
53,990
2,187
870
(328)
2,729
(9,108)
(1,195)
(27,312)
(37,615)
46,840
9,228
10,897
66,965
(22,072)
(1,471)
(5,817)
(29,360)
Total income tax expense
$
54,101 $
16,375 $
37,605
Total income tax expense was different from the amount computed by applying the U.S. federal statutory rate to pre-
tax income as follows:
Tax at federal statutory rate
State taxes, net of federal benefit
Research and Development ("R&D") credits
Domestic production deduction
Tax differential on foreign earnings
Non-taxable foreign interest income
Goodwill
Stock compensation
Valuation allowance
Change in uncertain tax positions
Revaluation of deferred taxes
Deferred tax adjustments
Transition tax on foreign earnings
Other
Total income tax expense
September 27,
2020
Fiscal Year Ended
September 29,
2019
September 30,
2018
21.0%
21.0%
24.5%
2.7
(2.2)
—
0.7
(1.1)
1.5
(2.2)
1.6
0.4
—
(1.3)
—
2.6
23.7%
3.4
(4.7)
—
1.0
(1.7)
0.9
(2.4)
(13.5)
2.4
(1.4)
(0.4)
1.4
3.3
9.3%
4.2
(1.4)
(0.2)
0.5
(2.0)
1.7
(2.7)
(0.5)
1.9
(8.4)
2.1
—
1.8
21.5%
81
The effective tax rates for fiscal 2020, 2019 and 2018 were 23.7%, 9.3% and 21.5%, respectively. The goodwill
impairment charges in fiscal 2020 and fiscal 2019 and certain of the transaction charges in fiscal 2019 did not have related tax
benefits. Income tax expense was reduced by $8.3 million, $6.4 million, $5.1 million of excess tax benefits on share-based
payments in fiscal 2020, 2019, and 2018, respectively. Additionally, we analyzed our deferred tax liabilities for the Tax Cuts
and Jobs Act's ("TCJA's") lower tax rates and recorded a deferred tax benefit of $2.6 million and $10.1 million in fiscal 2019
and fiscal 2018, respectively. Also, valuation allowances of $22.3 million in Australia were released due to sufficient positive
evidence obtained during the second quarter of fiscal 2019. The valuation allowances were primarily related to net operating
loss and research and development credit carryforwards and other temporary differences. We evaluated the positive evidence
against any negative evidence and determined that it was more likely than not that the deferred tax assets would be realized.
The factors used to assess the likelihood of realization were the past performance of the related entities, our forecast of future
taxable income, and available tax planning strategies that could be implemented to realize the deferred tax assets.
Excluding the impact of the non-deductible goodwill impairment charges and transaction costs, the excess tax benefits
on share-based payments, the net deferred tax benefits from the TCJA, and the valuation allowance release, our effective tax
rates in fiscal 2020, 2019, and 2018 were 25.6%, 24.6%, and 30.3% respectively.
We are currently under examination by the Internal Revenue Service for fiscal year 2018, the Canada Revenue Agency
for fiscal years 2011 through 2016, and the California Franchise Tax Board for fiscal years 2014 through 2016. We are also
subject to various other state audits.
Temporary differences comprising the net deferred income tax asset shown on the accompanying consolidated balance
sheets were as follows:
Deferred Tax Assets:
State taxes
Reserves and contingent liabilities
Allowance for doubtful accounts
Accrued liabilities
Lease liabilities, operating leases
Stock-based compensation
Loss carry-forwards
Valuation allowance
Total deferred tax assets
Deferred Tax Liabilities:
Unbilled revenue
Prepaid expense
Right-of-use assets, operating leases
Intangibles
Property and equipment
Total deferred tax liabilities
Net deferred tax assets
Fiscal Year Ended
September 27,
2020
September 29,
2019
(in thousands)
$
1,146 $
6,262
6,283
28,223
66,941
5,905
43,475
764
5,500
7,506
28,232
—
6,700
39,782
(24,395)
133,840
(20,543)
67,941
(14,451)
(5,967)
(66,941)
(29,130)
(1,615)
(118,104)
(21,886)
(3,026)
—
(26,482)
(1,133)
(52,527)
$
15,736 $
15,414
At September 27, 2020, undistributed earnings of our foreign subsidiaries, primarily in Canada, amounting to
approximately $66.9 million are expected to be permanently reinvested. Accordingly, no provision for foreign withholding
taxes has been made. Upon distribution of those earnings, we would be subject to foreign withholding taxes. Assuming the
permanently reinvested foreign earnings were repatriated under the laws and rates applicable at September 27, 2020, the
incremental foreign withholding taxes applicable to those earnings would be approximately $2.0 million.
At September 27, 2020, we had available unused state net operating loss ("NOL") carry forwards of $43.7 million that
expire at various dates from 2024 to 2037; and available foreign NOL carry forwards of $138.4 million, of which $31.6 million
expire at various dates from 2024 to 2040, and $106.8 million have no expiration date. In addition, we had foreign capital loss
82
carryforwards of $13.8 million and foreign research and development credits of $4.3 million that do not have expiration dates.
We have performed an assessment of positive and negative evidence regarding the realization of the deferred tax assets. This
assessment included the evaluation of scheduled reversals of deferred tax liabilities, availability of carrybacks, cumulative
losses in recent years, estimates of projected future taxable income, and tax planning strategies. Although realization is not
assured, based on our assessment, we have concluded that it is more likely than not that the assets will be realized except for the
assets related to the loss carry-forwards and certain foreign intangibles for which a valuation allowance of $24.4 million has
been provided.
At September 27, 2020, we had $9.2 million of unrecognized tax benefits, all of which, if recognized, would affect our
effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of our
unrecognized tax positions may significantly decrease in the next 12 months. These changes would be the result of ongoing
examinations. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Beginning balance
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Settlements
Ending balance
September 27,
2020
Fiscal Year Ended
September 29,
2019
(in thousands)
September 30,
2018
$
9,169 $
8,328 $
700
—
(641)
—
1,342
356
(100)
(757)
$
9,228 $
9,169 $
9,337
1,928
1,116
—
(4,053)
8,328
We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal
years 2020, 2019 and 2018, we accrued additional interest and penalties of $0.8 million, $2.6 million and $0.6 million,
respectively, and recorded reductions in accrued interest and penalties of $0, $0.2 million and $0.3 million, respectively, as a
result of audit settlements and other prior-year adjustments. The amount of interest and penalties accrued at September 27,
2020, September 29, 2019 and September 30, 2018 was $4.4 million, $3.6 million and $1.2 million, respectively.
9. Long-Term Debt
Long-term debt consisted of the following:
Credit facilities
Less: Current portion of long-term debt and other short-term borrowings
Long-term debt, less current portion and other short-term borrowings
Fiscal Year Ended
September 27,
2020
September 29,
2019
(in thousands)
$
$
291,659 $
276,434
(49,264)
(12,500)
242,395 $
263,934
On July 30, 2018, we entered into a Second Amended and Restated Credit Agreement (“Amended Credit Agreement”)
with a total borrowing capacity of $1 billion that will mature in July 2023. The Amended Credit Agreement is a $700 million
senior secured, five-year facility that provides for a $250 million term loan facility (the “Amended Term Loan Facility”), a
$450 million revolving credit facility (the “Amended Revolving Credit Facility”), and a $300 million accordion feature that
allows us to increase the Amended Credit Agreement to $1 billion subject to lender approval. The Amended Credit Agreement
allows us to, among other things, (i) refinance indebtedness under our Credit Agreement dated as of May 7, 2013; (ii) finance
certain permitted open market repurchases of our common stock, permitted acquisitions, and cash dividends and distributions;
and (iii) utilize the proceeds for working capital, capital expenditures and other general corporate purposes. The Amended
Revolving Credit Facility includes a $100 million sublimit for the issuance of standby letters of credit, a $20 million sublimit
for swingline loans, and a $200 million sublimit for multicurrency borrowings and letters of credit.
The entire Amended Term Loan Facility was drawn on July 30, 2018. The Amended Term Loan Facility is subject to
quarterly amortization of principal at 5% annually beginning December 31, 2018. We may borrow on the Amended Revolving
Credit Facility, at our option, at either (a) a Eurocurrency rate plus a margin that ranges from 1.00% to 1.75% per annum, or (b)
a base rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50% per annum, the bank’s prime rate or
83
the Eurocurrency rate plus 1.00%) plus a margin that ranges from 0% to 0.75% per annum. In each case, the applicable margin
is based on our Consolidated Leverage Ratio, calculated quarterly. The Amended Term Loan Facility is subject to the same
interest rate provisions. The Amended Credit Agreement expires on July 30, 2023, or earlier at our discretion upon payment in
full of loans and other obligations.
At September 27, 2020, we had $254.9 million in outstanding borrowings under the Amended Credit Agreement,
which was comprised of $228.1 million under the Amended Term Loan Facility and $26.8 million outstanding under the
Amended Revolving Credit Facility at a year-to-date weighted-average interest rate of 2.31% per annum. In addition, we had
$0.7 million in standby letters of credit under the Amended Credit Agreement. Our average effective weighted-average interest
rate on borrowings outstanding during the year-to-date period ended September 27, 2020 under the Amended Credit
Agreement, including the effects of interest rate swap agreements described in Note 14, "Derivative Financial Instruments", was
3.52%. At September 27, 2020, we had $422.4 million of available credit under the Amended Revolving Credit Facility, all of
which could be borrowed without a violation of our debt covenants.
The Amended Credit Agreement contains certain affirmative and restrictive covenants, and customary events of
default. The financial covenants provide for a maximum Consolidated Leverage Ratio of 3.00 to 1.00 (total funded debt/
EBITDA, as defined in the Amended Credit Agreement) and a minimum Consolidated Interest Coverage Ratio of 3.00 to 1.00
(EBITDA/Consolidated Interest Charges, as defined in the Amended Credit Agreement). Our obligations under the Amended
Credit Agreement are guaranteed by certain of our domestic subsidiaries and are secured by first priority liens on (i) the equity
interests of certain of our subsidiaries, including those subsidiaries that are guarantors or borrowers under the Amended Credit
Agreement, and (ii) the accounts receivable, general intangibles and intercompany loans, and those of our subsidiaries that are
guarantors or borrowers. At September 27, 2020, we were in compliance with these covenants with a consolidated leverage
ratio of 1.10x and a consolidated interest coverage ratio of 19.76x.
In addition to the Amended Credit Agreement, we maintain other credit facilities, which may be used for bank
overdrafts, short-term cash advances and bank guarantees. At September 27, 2020, there was $36.6 million outstanding under
these facilities and the aggregate amount of standby letters of credit outstanding was $69.7 million. As of September 27, 2020,
we had bank overdrafts of $33.6 million related to our U.S. disbursement bank accounts. This balance is reported in the
"Current portion of long-term debt and other short-term borrowings" within our fiscal 2020 year-end consolidated balance
sheet. The change in bank overdraft balance is classified as cash flows from financing activities within our consolidated
statements of cash flows as we believe these overdrafts to be a form of short-term financing from the bank due to our ability to
fund the overdraft with the $50.0 million overdraft protection on the bank accounts or our other credit facilities if needed.
The following table presents scheduled maturities of our long-term debt:
2021
2022
2023
Total
10. Leases
Amount
(in thousands)
49,264
15,625
226,770
291,659
$
In February 2016, the FASB issued Leases (Topic 842), which is a new standard related to leases to increase
transparency and comparability among organizations by requiring the recognition of ROU assets obtained in exchange for lease
liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease
liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the
objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from
leases.
We elected to adopt the standard, and available practical expedients, effective September 30, 2019 (the first day of our
fiscal 2020). These practical expedients allowed us to keep the lease classification assessed under the previous lease accounting
standard (ASC 840) without reassessment under the new standard, and allowed all separate lease components, including non-
lease components, to be accounted for as a single lease component for all existing leases prior to adoption of the new standard.
We adopted this new standard under the modified retrospective transition approach without adjusting comparative
periods in the financial statements, as allowed under Leases (Topic 842), and implemented internal controls and key system
functionality to enable the preparation of financial information on adoption. The standard had a material impact on our
consolidated balance sheets but did not have an impact on the consolidated income statements. The most significant impact was
84
the recognition of ROU assets and lease liabilities for operating leases, while accounting for finance leases remained
substantially unchanged. Our finance leases are primarily for certain IT equipment and the related ROU and lease liabilities
were immaterial, and included in "Other current liabilities" and "Other long-term liabilities" accordingly in the consolidated
balance sheet at September 27, 2020 .
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets
and current and long-term operating lease liabilities in the consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an
implicit rate, incremental borrowing rates are used based on the information available at commencement date in determining the
present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease
incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise
that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
Our operating leases are primarily for corporate and project office spaces. To a much lesser extent, we have operating
leases for vehicles and equipment. Our operating leases have remaining lease terms of one month to twelve years, some of
which may include options to extend the leases for up to five years.
The components of lease costs for the fiscal year ended September 27, 2020 are as follows:
Operating lease cost
Sublease income
Other
Total lease cost
Supplemental cash flow information related to leases for fiscal 2020 is as follows:
Operating cash flows for operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Fiscal Year Ended
(in thousands)
87,348
(2,216)
72
85,204
Amount
(in thousands)
80,289
317,587
$
$
$
$
Supplemental balance sheet and other information related to leases as of September 27, 2020 are as follows:
Operating leases:
Right-of-use assets
Lease liabilities:
Current
Long-term
Total operating lease liabilities
Weighted-average remaining lease term:
Operating leases
Weighted-average discount rate:
Operating leases
Amount
(in thousands)
$
$
$
239,396
69,650
191,955
261,605
5 years
2.5 %
As of September 27, 2020, we have no material additional operating leases that have not yet commenced.
85
A maturity analysis of the future undiscounted cash flows associated with our operating lease liabilities as of
September 27, 2020 is as follows:
2021
2022
2023
2024
2025
Beyond
Total lease payments
Less: imputed interest
Total present value of lease liabilities
Amount
(in thousands)
$
$
75,074
64,972
44,733
30,991
21,466
44,169
281,405
(19,800)
261,605
As of September 29, 2019, $343.5 million of minimum rental commitments on operating leases was payable as
follows: $108.8 million in fiscal 2020, $66.4 million in fiscal 2021, $51.4 million in fiscal 2022, $36.5 million in fiscal 2023,
$25.8 million in fiscal 2024, and $54.6 million thereafter. Rental expense for fiscal 2019 was $79.3 million.
11. Stockholders' Equity and Stock Compensation Plans
At September 27, 2020, we had the following stock-based compensation plans:
•
•
•
•
Employee Stock Purchase Plan ("ESPP"). Purchase rights to purchase common stock are granted to our eligible
full and part-time employees, and shares of common stock are issued upon exercise of the purchase rights. An
aggregate of 611,265 shares may be issued pursuant to such exercise. The maximum amount that an employee can
contribute during a purchase right period is $5,000. The exercise price of a purchase right is the lesser of 100% of
the fair market value of a share of common stock on the first day of the purchase right period (the business day
preceding January 1) or 85% of the fair market value on the last day of the purchase right period (December 15, or
the business day preceding December 15 if December 15 is not a business day).
2005 Equity Incentive Plan. Key employees and non-employee directors may be granted equity awards, including
stock options, restricted stock and restricted stock units ("RSUs"). Options granted before March 6, 2006 vested at
25% on the first anniversary of the grant date, and the balance vests monthly thereafter, such that these options
become fully vested no later than four years from the date of grant. These options expire no later than ten years
from the date of grant. Options granted on and after March 6, 2006 vest at 25% on each anniversary of the grant
date. These options expire no later than eight years from the grant date. RSUs granted to date vest at 25% on each
anniversary of the grant date.
2015 Equity Incentive Plan ("2015 EIP"). Key employees and non-employee directors may be granted equity
awards, including stock options, performance share units ("PSUs") and RSUs. Shares issued with respect to
awards granted under the 2015 EIP other than stock options or stock appreciation rights, which are referred to as
"full value awards", are counted against the 2015 EIP's aggregate share limit as three shares for every share or unit
actually issued. No awards have been made under the 2015 Equity Incentive Plan since the adoption of the 2018
Equity Incentive Plan on March 8, 2018 described below.
2018 Equity Incentive Plan ("2018 EIP"). Key employees and non-employee directors may be granted equity
awards, including stock options, PSUs and RSUs. Shares issued with respect to awards granted under the 2018
EIP other than stock options or stock appreciation rights, which are referred to as "full value awards", are counted
against the 2018 EIP's aggregate share limit as one share for every share or unit issued. At September 27, 2020,
there were 2.5 million shares available for future awards pursuant to the 2018 EIP.
86
The following table presents our stock-based compensation and related income tax benefits:
Total stock-based compensation
Income tax benefit related to stock-based compensation
Stock-based compensation, net of tax benefit
Stock Options
September 27,
2020
Fiscal Year Ended
September 29,
2019
(in thousands)
September 30,
2018
$
$
19,424 $
17,618 $
(4,318)
(4,016)
15,106 $
13,602 $
19,582
(5,288)
14,294
The following table presents our stock option activity for fiscal year ended September 27, 2020:
Outstanding on September 29, 2019
Exercised
Forfeited
Outstanding at September 27, 2020
Vested or expected to vest at September 27,
2020
Exercisable on September 27, 2020
Number of
Options
(in thousands)
Weighted-
Average
Exercise Price
per Share
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
894 $
(355)
—
539
539
437
33.28
28.63
—
36.34
36.34
34.17
5.04
$
29,623
5.04
4.62
29,623
24,932
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing
stock price on the last trading day of fiscal 2020 and the exercise price, times the number of shares) that would have been
received by the in-the-money option holders if they had exercised their options on September 27, 2020. This amount will
change based on the fair market value of our stock. At September 27, 2020, we expect to recognize $0.7 million of
unrecognized compensation cost related to stock option grants over a weighted-average period of one year.
No stock options were granted in fiscal 2019 and fiscal 2020. The weighted-average fair value of stock options
granted during fiscal 2018 was $14.82. The aggregate intrinsic value of options exercised during fiscal 2020, 2019 and 2018
was $22.4 million, $20.4 million and $14.4 million, respectively.
The fair value of our stock options was estimated on the date of grant using the Black-Scholes option pricing model.
There were no options granted in fiscal 2020 and 2019. The following assumptions were used in the calculation for fiscal 2018:
Dividend yield
Expected stock price volatility
Risk-free rate of return, annual
Fiscal Year Ended
September 30,
2018
1.0%
36.1% - 38.8%
1.7% - 2.9%
For purposes of the Black-Scholes model, forfeitures were estimated based on historical experience. For the fiscal
2018 year-end, we based our expected stock price volatility on historical volatility behavior and current implied volatility
behavior. Our risk-free rate of return was based on constant maturity rates provided by the U.S. Treasury. The expected life was
based on historical experience.
Net cash proceeds from the exercise of stock options were $10.3 million, $11.8 million and $13.5 million for fiscal
2020, 2019 and 2018, respectively. Our policy is to issue shares from our authorized shares upon the exercise of stock options.
The actual income tax benefit realized from exercises of nonqualified stock options and disqualifying dispositions of qualified
options for fiscal 2020, 2019 and 2018 was $8.3 million, $6.4 million and $5.1 million, respectively.
87
RSU and PSU
RSU awards are granted to our key employee and non-employee directors. The fair value of the RSU was determined
at the date of grant using the market price of the underlying common stock as of the date of grant. All of the RSUs have time-
based vesting over a four-year period, except that RSUs awarded to directors vest after one year. The total compensation cost of
the awards is then amortized over their applicable vesting period on a straight-line basis.
PSU awards are granted to our executive officers and non-employee directors. All of the PSUs are performance-based
and vest, if at all, after the conclusion of the three-year performance period. The number of PSUs that ultimately vest is based
on 50% growth in our EPS and 50% on our relative total shareholder return over the vesting period. For these performance-
based awards, our expected performance is reviewed to estimate the percentage of shares that will vest. The total compensation
cost of the awards is then amortized over their applicable vesting period on a straight-line basis.
A summary of the RSU and PSU activity under our stock plans is as follows:
Nonvested balance at October 1, 2017
Granted
Vested
Adjustment (1)
Forfeited
Nonvested balance at September 30, 2018
Granted
Vested
Adjustment (1)
Forfeited
Nonvested balance at September 29, 2019
Granted
Vested
Adjustment (1)
Forfeited
Nonvested balance at September 27, 2020
RSU
PSU
Number of
Shares
(in thousands)
Weighted-
Average
Grant Date
Fair Value
per Share
Number of
Shares
(in thousands)
Weighted-
Average
Grant Date
Fair Value
per Share
511 $
199
(184)
—
(38)
488
179
(180)
—
(17)
470
168
(178)
—
(16)
444
33.19
48.16
31.85
—
36.39
39.56
66.26
36.95
—
48.56
50.42
83.92
46.87
—
65.43
63.93
376 $
99
(270)
131
(13)
323
90
(108)
79
—
384
74
(162)
64
(5)
355
36.05
57.40
31.66
31.66
41.80
44.27
80.41
31.63
31.63
—
53.67
99.85
47.28
48.36
83.98
64.83
(1) For fiscal 2018, includes a payout adjustment of 130,730 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2015 that vested
fiscal 2018. For fiscal 2019, includes a payout adjustment of 79,465 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2016 that
vested during fiscal 2019. For fiscal 2020 includes a payout adjustment of 63,643 PSUs due to the actual performance level achieved for PSUs granted in fiscal
2017 that vested during fiscal 2020.
During fiscal 2020, 2019 and 2018, we awarded 167,525, 179,478 and 198,960 shares of RSUs, respectively, to our
key employees and non-employee directors. The weighted-average grant-date fair value of RSUs granted during fiscal 2020,
2019 and 2018 was $83.92, $66.26 and $48.16, respectively. At September 27, 2020, there were 443,504 RSUs outstanding.
RSU forfeitures result from employment terminations prior to vesting. Forfeited shares return to the pool of authorized shares
available for award.
During fiscal 2020, 2019 and 2018, we awarded 74,011, 89,816 and 99,217 shares of PSUs, respectively, to our
executive officers and non-employee directors. The weighted-average grant-date fair value of PSUs granted during fiscal 2020,
2019 and 2018 was $99.85, $80.41 and $57.40, respectively.
The stock-based compensation expense related to RSUs and PSUs for fiscal 2020, 2019 and 2018 was $17.7 million,
$15.4 million and $15.5 million, respectively, and was included in total stock-based compensation expense. At September 27,
2020, there was $27.7 million of unrecognized stock-based compensation costs related to nonvested RSUs and PSUs that will
be substantially recognized by the end of fiscal 2022.
88
ESPP
The following table summarizes shares purchased, weighted-average purchase price, and cash received for shares
purchased under the ESPP:
September 27,
2020
Fiscal Year Ended
September 29,
2019
(in thousands, except for purchase price)
September 30,
2018
Shares purchased
Weighted-average purchase price per share
Cash received from exercise of purchase rights
168
51.77 $
8,715 $
148
46.38 $
6,844 $
141
40.38
5,727
$
$
The grant date fair value of each award granted under the ESPP was estimated using the Black-Scholes option pricing
model with the following assumptions:
Dividend yield
Expected stock price volatility
Risk-free rate of return, annual
Expected life (in years)
September 27,
2020
Fiscal Year Ended
September 29,
2019
September 30,
2018
1.0%
26.5%
1.6%
1
1.0%
26.7%
2.6%
1
1.0%
24.0%
1.8%
1
For fiscal 2020, 2019 and 2018, we based our expected stock price volatility on historical volatility behavior and
current implied volatility behavior. The risk-free rate of return was based on constant maturity rates provided by the U.S.
Treasury. The expected life was based on the ESPP terms and conditions.
Stock-based compensation expense for fiscal 2020, 2019 and 2018 included $1.2 million, $0.9 million and $0.6
million, respectively, related to the ESPP. The unrecognized stock-based compensation costs for awards granted under the
ESPP at fiscal 2020 and 2019 year-ends were $0.3 million and $0.2 million, respectively. At September 27, 2020, ESPP
participants had accumulated $8.5 million to purchase our common stock.
89
12. Retirement Plans
We have defined contribution plans in various countries where we have employees. This primarily includes 401(k)
plans in the United States. For fiscal 2020, 2019 and 2018, employer contributions to the U.S. plans were $25.0 million, $23.3
million and $22.4 million, respectively.
Additionally, we have established a non-qualified deferred compensation plan for certain key employees and non-
employee directors. These eligible employees and non-employee directors may elect to defer the receipt of salary, incentive
payments, restricted stock, PSU and RSU awards, and non-employee director fees. The plan is accounted for in accordance with
applicable authoritative guidance on accounting for deferred compensation arrangements where amounts earned are held in a
rabbi trust and invested. Employee deferrals are deposited into a rabbi trust, and the funds are generally invested in individual
variable life insurance contracts that we own and are specifically designed to informally fund savings plans of this nature. At
September 27, 2020 and September 29, 2019, the consolidated balance sheets reflect assets of $35.1 million and $30.4 million,
respectively, related to the deferred compensation plan in "Other long-term assets," and liabilities of $35.0 million and $29.5
million, respectively, related to the deferred compensation plan in "Other long-term liabilities." The net gains and losses related
to the deferred compensation plan are reported as part of “Selling, general and administrative expenses” in our consolidated
statements of income. These related net gains and losses were immaterial for fiscal 2020, 2019 and 2018.
13. Earnings per Share
The following table sets forth the number of weighted-average shares used to compute basic and diluted EPS:
Fiscal Year Ended
September 30,
September 29,
September 27,
2020
2018
2019
(in thousands, except per share data)
Net income attributable to Tetra Tech
$
173,859 $
158,668 $
136,883
Weighted-average common shares outstanding – basic
Effect of diluted stock options and unvested restricted stock
Weighted-average common stock outstanding – diluted
54,235
787
55,022
54,986
950
55,936
55,670
928
56,598
Earnings per share attributable to Tetra Tech:
Basic
Diluted
$
$
3.21 $
3.16 $
2.89 $
2.84 $
2.46
2.42
For fiscal 2020 and 2019, no options were excluded from the calculation of dilutive potential common shares. For
fiscal 2018, 0.1 million options were excluded from the calculation of dilutive potential common shares. 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.
14. Derivative Financial Instruments
We often use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt. Also,
we may enter into foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and
earnings could adversely be affected by foreign currency exchange rate fluctuations. Our hedging program is not designated for
trading or speculative purposes.
We recognize derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at
fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as cash flow
hedges in our consolidated balance sheets as accumulated other comprehensive income, and in our consolidated statements of
income for those derivatives designated as fair value hedges.
In fiscal 2018, we entered into five interest rate swap agreements that we designated as cash flow hedges to fix the
interest rates on the borrowings under our term loan facility. As of September 27, 2020, the notional principal of our
outstanding interest swap agreements was $228.1 million ($45.6 million each.) The interest rate swaps have a fixed interest rate
of 2.79% and expire in July 2023 for all five agreements. At September 27, 2020 and September 29, 2019, the fair value of the
effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was $(15.5) million and
$(10.9) million, respectively, of which we expect to reclassify $5.8 million from accumulated other comprehensive loss to
interest expense within the next 12 months.
90
The fair values of our outstanding derivatives designated as hedging instruments were as follows:
Balance Sheet Location
Fair Value of Derivative
Instruments as of
September 27,
2020
September 29,
2019
(in thousands)
Interest rate swap agreements
Other current liabilities
$
15,512 $
11,009
Changes in the fair value of the interest rate swap agreements are presented on the consolidated statements of
comprehensive income as follows:
September 27,
2020
September 30,
2018
Fiscal Year Ended
September 29,
2019
(in thousands)
(Loss) gain recognized in other comprehensive income, net of tax
Interest rate swap agreements
(4,638)
(12,125)
806
There were no ineffective portions of derivative instruments. Accordingly, no amounts were excluded from
effectiveness testing for our interest rate swap agreements. We had no other derivative instruments that were not designated as
hedging instruments for fiscal 2020, 2019 and 2018.
91
15. Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
The accumulated balances and reporting period activities for fiscal 2020 and 2019 related to reclassifications out of
accumulated other comprehensive income are summarized as follows:
Foreign
Currency
Translation
Adjustments
Gain (Loss)
on Derivative
Instruments
(in thousands)
Accumulated
Other
Comprehensive
Income (Loss)
Balances at September 30, 2018
$
(128,602) $
1,252 $
(127,350)
Other comprehensive loss before reclassifications
(21,109)
(11,247)
(32,356)
Amounts reclassified from accumulated other comprehensive income
Interest rate contracts, net of tax (1)
Net current-period other comprehensive loss
Balances at September 29, 2019
—
(878)
(21,109)
(12,125)
(878)
(33,234)
$
(149,711) $
(10,873) $
(160,584)
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive income
Interest rate contracts, net of tax (1)
Net current-period other comprehensive income (loss)
3,436
—
3,436
(599)
2,837
(4,039)
(4,638)
(4,039)
(1,202)
Balances at September 27, 2020
$
(146,275) $
(15,511) $
(161,786)
(1) This accumulated other comprehensive component is reclassified to "Interest expense" in our consolidated statements of income. See Note 14, "Derivative
Financial Instruments", for more information.
92
16. Fair Value Measurements
Derivative Instruments. For additional information about our derivative financial instruments (see Note 2, "Basis of
Presentation and Preparation" and Note 14, "Derivative Financial Instruments").
Contingent Consideration. We measure our contingent earn-out liabilities at fair value on a recurring basis (see
Note 2, "Basis of Presentation and Preparation" and Note 5, "Acquisitions and Divestitures" for further information).
Debt. The fair value of long-term debt was determined using the present value of future cash flows based on the
borrowing rates currently available for debt with similar terms and maturities (Level 2 measurement). The carrying value of our
long-term debt approximated fair value at September 27, 2020 and September 29, 2019. At September 27, 2020, we had
borrowings of $254.9 million outstanding under our Amended Credit Agreement, which were used to fund our business
acquisitions, working capital needs, stock repurchases, dividends, capital expenditures and contingent earn-outs.
17. Commitments and Contingencies
We are subject to certain claims and lawsuits typically filed against the consulting and engineering profession, alleging
primarily professional errors or omissions. We carry professional liability insurance, subject to certain deductibles and policy
limits, against such claims. However, in some actions, parties are seeking damages that exceed our insurance coverage or for
which we are not insured. While management does not believe that the resolution of these claims will have a material adverse
effect, individually or in aggregate, on our financial position, results of operations or cash flows, management acknowledges
the uncertainty surrounding the ultimate resolution of these matters.
On July 15, 2019, following an initial January 14, 2019 filing, the Civil Division of the United States Attorney's Office
filed an amended complaint in intervention in three qui tam actions filed against our subsidiary, Tetra Tech EC, Inc. ("TtEC"),
in the U.S. District Court for the Northern District of California. The complaint alleges False Claims Act violations and breach
of contract related to TtEC's contracts to perform environmental remediation services at the former Hunters Point Naval
Shipyard in San Francisco, California. TtEC disputes the claims and will defend this matter vigorously. We are currently unable
to determine the probability of the outcome of this matter or the range of reasonably possible loss, if any.
93
18. Reportable Segments
We managed our operations under two reportable segments. Our GSG reportable segment primarily includes activities
with U.S. government clients (federal, state and local) and all activities with development agencies worldwide. Our CIG
reportable segment primarily includes activities with U.S. commercial clients and international clients other than development
agencies. Additionally, we continue to report the results of the wind-down of our non-core construction activities in the RCM
reportable segment.
Our reportable segments are described as follows:
GSG: GSG provides consulting and engineering services primarily to U.S. government clients (federal, state and
local) and development agencies worldwide. GSG supports U.S. government civilian and defense agencies with services in
water, environment, sustainable infrastructure, information technology, and disaster management. GSG also provides
engineering design services for U.S. municipal and commercial clients, especially in water infrastructure, solid waste, and high-
end sustainable infrastructure designs. GSG also leads our support for development agencies worldwide, especially in the
United States, United Kingdom, and Australia.
CIG: CIG primarily provides consulting and engineering services to U.S. commercial clients, and international
clients that include both commercial and government sectors. CIG supports commercial clients across the Fortune 500, energy
utilities, industrial, manufacturing, aerospace, and resource management markets. CIG also provides infrastructure and related
environmental, engineering and project management services to commercial and local government clients across Canada, in
Asia Pacific (primarily Australia and New Zealand), the United Kingdom, as well as Brazil and Chile.
RCM: We continued to report the results of the wind-down of our non-core construction activities in the RCM
reportable segment for fiscal 2020. As of September 27, 2020, there was no remaining backlog for RCM as the projects were
complete.
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 revenues and transfers as if they 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 present summarized financial information of our reportable segments:
Reportable Segments
Revenue
GSG
CIG
RCM
Elimination of inter-segment revenue
Total revenue
Income from operations
GSG
CIG
RCM
Corporate (1)
September 27,
2020
Fiscal Year Ended
September 29,
2019
(in thousands)
September 30,
2018
$
1,778,922 $
1,820,671 $
1,694,871
1,266,059
1,342,509
1,323,142
198
(1,542)
(50,288)
(54,290)
14,199
(68,064)
$
2,994,891 $
3,107,348 $
2,964,148
$
168,669 $
185,263 $
168,211
114,022
—
79,633
(5,933)
(41,600)
(70,201)
74,451
(4,573)
(48,003)
Total income from operations
$
241,091 $
188,762 $
190,086
(1) Includes goodwill and intangible assets impairment charges, amortization of intangibles, other costs and other income not allocable to segments. The
intangible asset amortization expense for fiscal 2020, 2019 and 2018 was $11.6 million, $11.6 million and $18.2 million, respectively. Additionally, Corporate
results included income (loss) for fair value adjustments to contingent consideration liabilities of $15.0 million, $(1.1) million and $(4.3) million for fiscal
2020, 2019 and 2018, respectively. Corporate results in fiscal 2020 and 2019 also included $15.8 million and $7.8 million goodwill impairment charges,
respectively. See Note 6 - "Goodwill and Intangible Assets" for more information.
94
Total Assets
GSG
CIG
RCM
Corporate (2)
Total assets
Balance at
September 27
2020 (1)
September 29,
2019
(in thousands)
$
649,417 $
479,238
14,258
587,040
450,276
15,608
1,235,645
1,094,484
$
2,378,558 $
2,147,408
(1) Fiscal 2020 includes recognition of ROU assets for leases (substantially all operating leases) upon the adoption of ASU 2016-02 in the first quarter of fiscal
2020.
(2) Corporate assets consist of intercompany eliminations and assets not allocated to our reportable segments including goodwill, intangible assets, deferred
income taxes and certain other assets.
Geographic Information
September 27, 2020
Long-
Lived
Assets (2,3)
Revenue
Fiscal Year Ended
September 29, 2019
Long-
Lived
Assets (2)
Revenue
September 30, 2018
Long-
Lived
Assets (2)
Revenue
United States
Foreign countries (1)
$ 2,107,457 $ 230,933 $ 2,247,780 $
51,859 $ 2,232,013 $
57,256
887,434
108,348
859,568
46,113
732,135
28,235
(1) Includes revenue and long-lived assets from our foreign operations, primarily in Canada, Australia and the United Kingdom, and revenue generated from
non-U.S. clients.
(2) Excludes goodwill, intangible assets and deferred income taxes.
(3) Includes recognition of ROU assets for leases (substantially all operating leases) upon the adoption of ASU 2016-02 in the first quarter of fiscal 2020.
95
19. Related Party Transactions
We often provide services to unconsolidated joint ventures. Our revenue related to services we provided to
unconsolidated joint ventures for fiscal 2020, 2019 and 2018 was $88.2 million, $99.1 million and $75.0 million, respectively.
Our related reimbursable costs for fiscal 2020, 2019 and 2018 were approximately $86.4 million, $98.5 million and $76.6
million, respectively. Our consolidated balance sheets also included the following amounts related to these services:
Accounts receivable, net
Contract assets
Contract liabilities
Balance at
September 27,
2020
September 29,
2019
(in thousands)
$
20,884 $
3,261
478
19,351
9,681
111
20. Quarterly Financial Information – Unaudited
In the opinion of management, the following unaudited quarterly data for the fiscal years ended September 27, 2020
and September 29, 2019 reflect all adjustments necessary for a fair statement of the results of operations.
In the second quarter of fiscal 2020, we incurred incremental costs totaling $8.2 million to address the COVID-19
pandemic. In the fourth quarter of fiscal 2020, we recorded adjustments to our contingent earn-out liabilities and reported
related net gains in operating income of $13.5 million. Additionally, we recorded a $15.8 million goodwill impairment charge
related to the ASP reporting unit, which is in our CIG segment. We sold non-core equipment related to the disposal of our
Canadian turn-key pipeline activities throughout fiscal 2020 which resulted in gains of $0.8 million, $2.2 million, $4.5 million,
and $1.0 million in the first, second, third, and fourth quarters of fiscal 2020, respectively.
In the second quarter of fiscal 2019, deferred tax valuation allowances of $22.3 million in Australia were released due
to sufficient positive evidence obtained. During the fourth quarter of fiscal 2019, we decided to dispose of the Canadian turn-
key pipeline activities in our CIG segment. As a result, we recorded a $7.8 million goodwill impairment charge and other
charges for severance and other disposition costs totaling $10.9 million. Also in the fourth quarter of fiscal 2019, we incurred
acquisition and transaction charges of $10.4 million related to the acquisition of WYG.
96
Fiscal Year 2020
Revenue
Income from operations
Net income attributable to Tetra Tech
Earnings per share attributable to Tetra Tech:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Fiscal Year 2019
Revenue
Income from operations
Net income attributable to Tetra Tech
Earnings per share attributable to Tetra Tech:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(in thousands, except per share data)
$
797,623 $
734,133 $
709,771 $
753,364
63,302
47,310
47,530
36,397
63,525
45,497
66,735
44,654
$
$
0.87 $
0.85 $
0.67 $
0.66 $
0.84 $
0.83 $
0.83
0.82
54,560
55,438
54,699
55,463
53,985
54,692
53,841
54,603
$
717,431 $
722,621 $
825,793 $
841,502
55,711
41,997
47,545
55,911
64,841
49,233
20,665
11,527
$
$
0.76 $
0.75 $
1.01 $
1.00 $
0.90 $
0.88 $
0.21
0.21
55,390
56,366
55,143
55,985
54,819
55,768
54,617
55,618
97
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures and changes in internal control over financial reporting
At September 27, 2020, we carried out an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on our management's evaluation (with the participation of our principal executive officer and
principal financial officer), our principal executive officer and principal financial officer have concluded that, as of the end of
the period covered by this report, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act), were effective.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As
defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the
supervision of, our principal executive and principal financial officer and effected by our Board of Directors, management and
other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with U.S. GAAP. Internal controls include those policies
and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. GAAP and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on
our consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable
assurance of achieving their control objectives.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we assessed the effectiveness of our internal control over financial reporting at September 27, 2020, based on
the criteria in Internal Control – Integrated Framework (2013) issued by the COSO. Based upon this assessment, management
has concluded that our internal control over financial reporting was effective at September 27, 2020.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the consolidated
financial statements included in this Form 10-K, has issued a report on our internal control over financial reporting. This report,
dated November 23, 2020, appears on pages 58-60 of this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended September 27,
2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item relating to our directors and nominees, regarding compliance with Section 16(a)
of the Exchange Act, and regarding our Audit Committee is included under the captions "Item No. 1 – Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in our Proxy Statement related to the 2021 Annual Meeting of
Stockholders and is incorporated by reference.
Pursuant to General Instruction G(3) of Form 10-K, the information required by this item relating to our executive
officers is included under the caption "Executive Officers of the Registrant" in Part I of this Report.
We have adopted a code of ethics that applies to our principal executive officer and all members of our finance
department, including our principal financial officer and principal accounting officer. This code of ethics, entitled "Finance
Code of Professional Conduct," is posted on our website. The Internet address for our website is www.tetratech.com, and the
code of ethics may be found through a link to the Investor Relations section of our website.
98
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K for any amendment to, or waiver from, a
provision of this code of ethics by posting any such information on our website, at the address and location specified above.
Item 11. Executive Compensation
The information required by this item is included under the captions "Item No. 1 – Election of Directors" and
"Executive Compensation Tables" in our Proxy Statement related to the 2021 Annual Meeting of Stockholders and is
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item relating to security ownership of certain beneficial owners and management, and
securities authorized for issuance under equity compensation plans, is included under the caption "Security Ownership of
Management and Significant Stockholders" in our Proxy Statement related to the 2021 Annual Meeting of Stockholders and is
incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item relating to review, approval or ratification of transactions with related persons is
included under the caption "Related Person Transactions," and the information required by this item relating to director
independence is included under the caption "Item No. 1 – Election of Directors," in each case in our Proxy Statement related to
the 2021 Annual Meeting of Stockholders and is incorporated by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item is included under the caption "Item No. 4 – Ratification of Independent
Registered Public Accounting Firm" in our Proxy Statement related to the 2021 Annual Meeting of Stockholders and is
incorporated by reference.
Item 15. Exhibits, Financial Statement Schedules
(a.)
1 Financial Statements
PART IV
The Index to Financial Statements and Financial Statement Schedule on page 57 is incorporated by reference as the
list of financial statements required as part of this Report.
2 Financial Statement Schedule
The Index to Financial Statements and Financial Statement Schedule on page 57 is incorporated by reference as the
list of financial statement schedules required as part of this Report.
3 Exhibits
The exhibit list in the Index to Exhibits on pages 101 is incorporated by reference as the list of exhibits required as
part of this Report.
99
Tetra Tech, Inc.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Fiscal Years Ended
September 30, 2018, September 29, 2019 and September 27, 2020
(in thousands)
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Deductions (2) Other (3)
Balance at
End of Period
Allowance for doubtful accounts (1):
Fiscal 2018
Fiscal 2019
Fiscal 2020
$
3,987 $
1,496 $
(295)
— $
5,188
10,562
7,242
1,472
(1,868)
(4,887)
—
—
Income tax valuation allowance:
Fiscal 2018
Fiscal 2019
Fiscal 2020
$
25,326 $
900 $
— $ (4,747) $
21,479
20,543
255
3,852
(23,714) 22,523
—
—
5,188
10,562
7,147
21,479
20,543
24,395
(1) Reflects updated presentation of allowance for doubtful accounts to include expected credit losses in anticipation of our adoption of ASU 2016-13 in the
first quarter of fiscal 2021.
(2) Primarily represents write-offs of uncollectible amounts, net of recoveries for the allowance for doubtful accounts. The income tax valuation amount
represents the release of valuation allowances in Australia.
(3) Includes loss in foreign jurisdictions, currency adjustments, and valuation allowance adjustments related to net operating loss carry-forwards.
100
INDEX TO EXHIBITS
3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K dated February 26, 2009).
3.2 Bylaws of the Company (amended and restated as of April 2009) (incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K dated April 24, 2009), and amended as of November 7, 2016 (incorporated
by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated November 9, 2016).
10.1 Second Amended and Restated Credit Agreement dated as of July 30, 2018 among Tetra Tech, Inc., Tetra Tech
Canada Holding Corporation, Coffey UK Limited, Coffey Services Australia Pty. Ltd., the lenders party thereto and
Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated August 1, 2018).
10.2 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 2012).
10.3 2005 Equity Incentive Plan (as amended through November 7, 2011) (incorporated by reference to the Company's
Proxy Statement for its 2012 Annual Meeting of Stockholders held on February 28, 2012).*
10.4 First Amendment to the 2005 Equity Incentive Plan (as amended through November 7, 2011) (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended September 29,
2013).*
10.5 2015 Equity Incentive Plan (incorporated by reference to the Company's Proxy Statement for its 2015 Annual Meeting
of Stockholders held on March 5, 2015).*
10.6 2018 Equity Incentive Plan (incorporated by reference to the Company's Proxy Statement for its 2018 Annual Meeting
of Stockholders held on March 8, 2018).*
10.7 Form of Indemnity Agreement entered into between the Company and each of its directors and executive officers
(incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended
October 3, 2004).*
10.8 Amended and Restated Deferred Compensation Plan (incorporated by reference to Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2020).*
10.9 Change of Control Severance Plan effective March 26, 2018 (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated March 9, 2018).*
10.10 Executive Compensation Plan (as amended and restated November 14, 2013) (incorporated by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 2013).*
21. Subsidiaries of the Company.+
23 Consent of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP).+
24. Power of Attorney (included on page 103 of this Annual Report on Form 10-K).
31.1 Chief Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a). Executive Officer Certification pursuant
to Rule 13a-14(a)/15d-14(a).+
31.2 Chief Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a).+
32.1 Certification of Chief Executive Officer pursuant to Section 1350.+
32.2 Certification of Chief Financial Officer pursuant to Section 1350.+
95. Mine Safety Disclosures.+
101
101 The following financial information from our Company's Annual Report on Form 10-K, for the period ended
September 27, 2020 , formatted in Inline eXtensible Business Reporting Language: (i) Consolidated Balance Sheets,
(ii) Consolidated Statements of Income, (iii) Consolidated Statement of Comprehensive Income, (iv) Consolidated
Statements of Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements.
+(1)
_______________________________________________________________________________
* Indicates a management contract or compensatory arrangement.
+ Filed herewith.
(1) Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on
Form 10-K shall not be deemed to be "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to
the liability of the section, and shall not be deemed part of a registration statement, prospectus or other document filed
under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such
filings.
102
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: November 20, 2020
TETRA TECH, INC.
By:
/s/ DAN L. BATRACK
Dan L. Batrack
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dan L. Batrack and
Steven M. Burdick, jointly and severally, his attorney-in-fact, each with the full power of substitution, for such person, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might do or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ DAN L. BATRACK
Chairman and Chief Executive Officer
November 20, 2020
Dan L. Batrack
(Principal Executive Officer)
/s/ STEVEN M. BURDICK
Executive Vice President, Chief Financial Officer
November 20, 2020
Steven M. Burdick
(Principal Financial Officer)
/s/ BRIAN N. CARTER
Senior Vice President, Corporate Controller
November 20, 2020
Brian N. Carter
(Principal Accounting Officer)
/s/ GARY R. BIRKENBEUEL
Director
Gary R. Birkenbeuel
/s/ PATRICK C. HADEN
Director
Patrick C. Haden
/s/ J. CHRISTOPHER LEWIS
Director
J. Christopher Lewis
/s/ JOANNE M. MAGUIRE
Director
Joanne M. Maguire
/s/ KIMBERLY E. RITRIEVI
Director
Kimberly E. Ritrievi
/s/ J. KENNETH THOMPSON
Director
J. Kenneth Thompson
/s/ KIRSTEN M. VOLPI
Director
Kirsten M. Volpi
November 20, 2020
November 20, 2020
November 20, 2020
November 20, 2020
November 20, 2020
November 20, 2020
November 20, 2020
103
COMPANY INFORMATION
BOARD OF DIRECTORS
CORPORATE LEADERSHIP
OPERATIONAL LEADERSHIP
Dan L. Batrack
Chairman and Chief Executive Officer,
Tetra Tech, Inc.
Gary R. Birkenbeuel
Retired Regional Managing Partner,
Ernst & Young LLP
Patrick C. Haden
President, Wilson Avenue Consulting
J. Christopher Lewis
Managing Director,
Riordan, Lewis & Haden
Joanne M. Maguire
Retired Executive Vice President,
Lockheed Martin Space Systems
Company
Kimberly E. Ritrievi
President, The Ritrievi Group LLC
J. Kenneth Thompson
President and Chief Executive Officer,
Pacific Star Energy, LLC
Kirsten M. Volpi
Executive Vice President, COO,
CFO, and Treasurer, Colorado
School of Mines
Dan L. Batrack
Chairman and Chief Executive Officer
Leslie L. Shoemaker
President
Steven M. Burdick
Executive Vice President,
Chief Financial Officer
William R. Brownlie
Senior Vice President,
Chief Engineer
Derek G. Amidon
President, Commercial/International
Services Group and President,
Client Account Management Division
Roger R. Argus
President, Government
Services Group and President,
U.S. Government Division
Keith Brown
President, Global Development
Services Division
Brian N. Carter
Senior Vice President, Corporate
Controller and Chief Accounting Officer
Mark A. Rynning
President, Resilient and
Sustainable Infrastructure Division
Bernard Teufele
President, Canada and
South America Division
CHAIRMAN EMERITUS
Li-San Hwang
Former Chairman and
Chief Executive Officer, Tetra Tech, Inc.
Craig L. Christensen
Senior Vice President,
Chief Information Officer
Preston Hopson
Senior Vice President,
General Counsel and Secretary
Richard A. Lemmon
Senior Vice President,
Corporate Administration
Brendan M. O’Rourke
Senior Vice President,
Enterprise Risk Management
CORPORATE HEADQUARTERS
Tetra Tech, Inc.
3475 East Foothill Boulevard
Pasadena, California 91107-6024 USA
Telephone: +1 (626) 351-4664
Fax: +1 (626) 351-5291
tetratech.com
TRANSFER AGENT AND
REGISTRAR
Computershare Trust Company, N.A.
250 Royall Street
Canton, Massachusetts 02021-1011 USA
Telephone: +1 (800) 962-4284
SHAREHOLDER INQUIRIES
Telephone: +1 (626) 470-2844
Email: investor.relations@tetratech.com
STOCK LISTING
The Company’s common stock is
traded on the NASDAQ Global Select
Market (Symbol: TTEK)