Sustainable Solutions
for Water, Environment,
and Infrastructure
2022 ANNUAL REPORT
Dear Shareholders,
Today, Tetra Tech’s high-end consulting and engineering services
are more in demand than ever before to address our clients’ rapidly
expanding needs associated with climate change—including water
management, environmental protection, design of sustainable and
resilient infrastructure, and support the transition to renewable
energy. In 2022 we used our Leading with Science® approach to
provide solutions for our clients for more than 80,000 projects in
125 countries. Our projects protected and restored biodiversity,
created sustainable water supplies, restored the environment, and decarbonized buildings,
infrastructure, and power supplies.
The significant global demand for our services has resulted in Tetra Tech achieving new
all-time-high records in fiscal year 2022 for revenue, net revenue, earnings per share, and
backlog. In fiscal year 2022, gross revenue was $3.5 billion and net revenue increased to
$2.8 billion, up 9 percent and 11 percent, respectively from 2021. Our differentiated high-end
services generated all-time-high operating income of $340 million resulting in an Earnings
Per Share of $4.86, up 14 percent from last year. As a result of our consistent and disciplined
capital allocation, we returned $246 million to our shareholders through dividends and stock
buybacks and generated a 54 percent shareholder return over the past 3 years.
We ended the year with an all-time-high backlog of $3.74 billion, up 8 percent from the
same time last year. While it was an exceptional year for orders, we finished the year with
the highest bookings of orders in the history of the Company, exceeding $1.3 billion just
in the fourth quarter. During the year, we won significant programs with government and
commercial clients, adding more than $5 billion in new contract capacity worldwide to
address flood risk management, water and sanitation, dam safety, carbon mitigation,
biodiversity, renewable energy, and a wide range of environmental data analytics solutions.
Our strong, broad-based backlog provides us with extraordinary visibility and momentum as
we begin fiscal year 2023.
In alignment with our strategic plan, in 2022 we acquired four companies that are leaders in
digital transformation, advanced data analytics, and sustainability consulting. The addition
of two digital water companies—Enterprise Automation, Inc. and TIGA, Inc.—brought us
industry-leading software engineers and consultant expertise to address complex challenges
related to water and big data. Also in 2022, the addition of Axiom
Data Science provided Tetra Tech with unique expertise in
technology for the analysis of massive ocean and coastal
data sets, while Piteau Associates brought us global
leadership in hydraulic modeling and sustainable
water management for commercial clients. In
September 2022, we announced our offer
to acquire the RPS Group, which, when
completed in January 2023, will bring
5,000 staff with high-end expertise
6
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Cash from
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0
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in energy transformation, water, program management, and data analytics. The addition of RPS will increase our global reach
with an established presence in Europe, add significant technical resources to expand our market-leading position in renewable
energy, and expand our suite of differentiated technologies.
As we enter fiscal year 2023, we see strong demand from our
long-term clients for our differentiated Leading with Science
approach to solve water, environmental, and sustainable
infrastructure priorities. While we expect to see continued
growth internationally, led by our operations in Canada, the
United Kingdom and Australia; we expect the fastest growth to
be in the United States. In the United States, an unprecedented sequence of three major legislative actions over the past year
have set the stage for future spending increases directly aligned with Tetra Tech’s strengths: water management, environmental
restoration, sustainability consulting, and renewable energy services. Tetra Tech is recognized as an industry leader in these
markets as demonstrated by our #1 rankings with Engineering News-Record in water, environmental management, hydro plants,
water treatment/desalination, and water treatment/supply, and numerous top 10 rankings, including wind power, solar power,
and green building design.
• $1.2 trillion Infrastructure Investment and Jobs Act
• $280 billion CHIPs Act
• $369 billion Inflation Reduction Act
We are ready to address this extraordinary federal growth opportunity by leveraging our more than 50 years of experience and
$25 billion in contract capacity with U.S. government agencies. With new funding incentives for renewable energy, we also see
opportunities to further expand our work with energy utilities and commercial clients and build on experience gained through
performing more than 1,000 high-end siting and permitting projects across the United States.
As we look to the future, we are committed to serving our clients by Leading with Science and benefiting the world through our
work. We will continue to advance Tetra Tech’s 2030 goal to improve the lives of one billion people around the world through the
projects we perform, from our baseline of 411 million people set in 2022. We also have committed to an additional 50 percent
reduction of greenhouse gas (Scope 1, 2, and 3 CO2e) emissions from our operations, furthering the 70 percent reduction in
greenhouse gas achieved since the inception of our sustainability program in 2010.
Across our operations, we are committed to advancing diversity, equity, and inclusion. We believe that our diverse, high
performing individuals and teams bring a wide range of perspectives and experiences to their engagement with coworkers and
their understanding of our clients’ needs and project objectives. As part of Tetra Tech’s commitment to a culture of inclusion,
our Employee Resource Groups bring together communities focused on the experiences of Black, Latino/Hispanic, Pan-Asian,
Women, Veterans, Disabled, and LGBTQIA+ employees and Emerging Professionals that broaden and enhance companywide
interaction and support for our employees. As a high-end consultancy, we also actively encourage continuous learning through
our project teams and the Tetra Tech Academy, with global access to training, networking, and technology exchange programs.
With today’s challenges associated with climate change, the need for reliable water supplies, and risks to coastal regions, there
has never been more demand for the services we provide. Our clients are committing funding and resources and launching new
multiyear programs to address these rising concerns that transcend political affiliations. With the addition of the RPS Group,
in 2023 we will increase our global resources and expand our suite of differentiated technologies. By leveraging the alignment
of client needs and Tetra Tech’s high-end expertise, we will advance our goal to be the global industry leader in sustainable
solutions for water, environment, and sustainable infrastructure.
On behalf of Tetra Tech, I thank you for your continued confidence and support.
Sincerely,
Dan Batrack, Chairman and CEO
[This page intentionally left blank]
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
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 2, 2022
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 April 3, 2022, was $8.9 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 9, 2022, 52,981,143 shares of the registrant's common stock were outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Portions of registrant's Proxy Statement for its 2023 Annual Meeting of Stockholders are incorporated by reference in Part III of this report where
indicated.
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Item 16
TABLE OF CONTENTS
PART I
Business
General
Leading with Science
Reportable Segments
Government Services Group
Commercial/International Services Group
Remediation and Construction Management
Project Examples
Fiscal 2022 Reportable Segments
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
Risk Factors
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
[Reserved]
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
Other Information
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
PART IV
Exhibits, Financial Statement Schedules
Index to Exhibits
Form 10-K Summary
Signatures
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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 high-end consulting and engineering services that
focuses on water, environment, sustainable infrastructure, renewable 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
19 years in a row. In 2022, we were also ranked #1 in environmental management, hydro plants, water treatment/desalination
and water treatment/supply. ENR also ranked Tetra Tech in the top 10 in numerous categories, including dams and reservoirs,
marine and port facilities, wind power, solar power, solid waste, environmental science, chemical and soil remediation, green
building design, hazardous waste 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 our high-end consulting, engineering and technology service offerings. In fiscal 2022, we
worked on over 80,000 projects, in more than 100 countries on all seven continents, with a talent force of 21,000 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, equitable
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, and focused on delivering value to customers and high performance for
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 sustainability by managing water,
protecting the environment, providing renewable energy, restoring ecosystems and engineering green solutions 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 80,000 projects in a fiscal 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 built a broad client and contract base 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, renewable
energy and related sustainable 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 21,000 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.
Leading with Science® also means fully leveraging the collective expertise provided by our global talent force of
21,000 associates. We actively share information, ideas and resources across our global operations through our network
structure, guided subject matter teams and project team building. Our Tech 1000 event engages Tetra Tech experts world-wide
to solve client challenges and identify the best ideas for further development. 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. Our Project Management Training
Program provides comprehensive training in high-end project leadership skills through online training, virtual workshops and
in-person events.
Reportable Segments
We manage 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 continue to report the historical results of the wind-down of our non-core construction
activities in the Remediation and Construction Management ("RCM") reportable segment. There has been no remaining
backlog for RCM since fiscal 2018 as the projects were complete.
4
Beginning of fiscal 2022, we aligned our operations to better serve our clients and markets, and created a new High
Performance Buildings ("HPB") division in the CIG reportable segment. As a result, we transferred some related operations in
the GSG reportable segment to the CIG reportable segment. Prior year amounts for reportable segments have been reclassified
to conform to the current year presentation.
The following table presents the percentage of our revenue by reportable segment:
Reportable Segment
GSG
CIG
Inter-segment elimination
2022
52.0%
49.6
(1.6)
100.0%
Fiscal Year
2021
55.2%
46.7
(1.9)
100.0%
2020
52.7%
49.1
(1.8)
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 high-end 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. based federal and municipal clients, especially in water infrastructure, flood protection and
solid waste. GSG also leads our support for development agencies worldwide, especially in the United States, the 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 resilient 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 project 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. GSG also
provides planning, architectural and sustainable engineering services for U.S. federal, state and local government facilities. We
support government agencies with related sustainable infrastructure needs, asset management for military housing and
educational, institutional and research facilities.
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 monitor and manage their water infrastructure
more efficiently. We provide operational technology for secure management of water treatment and wastewater systems,
including cybersecurity assessments 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
5
community resilience data management needs, including information technology systems, portals, dashboards, data
management, data analytics and statistical analysis.
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, project management and
maintenance services to manage solid and hazardous waste, for environmental, wastewater, energy, containment, mining,
utilities, aquaculture and other industrial clients; 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 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. Our programs span
planning, designing, implementing, researching and monitoring projects and leverage advanced technology to collect, manage
and provide analytics for our clients. Key areas of focus include 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. Our projects also
include 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 high-end consulting and engineering services to U.S. commercial clients, and international
clients inclusive of the commercial and government sectors. CIG supports commercial clients across the Fortune 500,
renewable energy, industrial, high-performance buildings and aerospace markets. CIG also provides sustainable 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 sustainable 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 project 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 provides planning, architectural and sustainable engineering services for commercial and government facilities.
We provide high-end design of sustainable energy, water and GHG decarbonization solutions including civil, electrical,
mechanical, structural and hydraulic engineering 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
safety. We also provide engineering services for a wide range of clients with specialized needs, such as data centers, security
systems, training and audiovisual facilities, clean rooms, laboratories, medical facilities and disaster preparedness facilities.
CIG's international services, especially in Canada, the United Kingdom, and Asia Pacific, include high-end analytical,
engineering, architecture, geotechnical and project 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
6
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.
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, project
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 and asset management and evaluation. 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, hydropower, conventional
power generation facilities, micro-grid and battery or alternative storage facilities, as well as transmission and distribution
assets, our services include environmental, electrical, mechanical and civil engineering, procurement, operations and
maintenance and regulatory support for all project phases.
CIG supports industrial clients globally. Our services include environmental permitting support, siting studies,
strategic planning and analyses; design of site civil works; water management; 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, remediating, and restoring contaminated facilities in the U.S. and around the world; managing large, complex sediment
remediation programs that help restore rivers and coastal waters to beneficial use; and supporting utilities in the U.S. in
implementing restoration and environmental management programs.
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 2022. There has been no remaining backlog for RCM since fiscal 2018 as the projects were complete. In May
2022, we received a cash settlement for the last $11 million RCM claim receivable in dispute resolution. This settlement
resulted in an immaterial gain in the third quarter of fiscal 2022. There were no significant operating activities in RCM for
fiscal 2022, 2021 and 2020.
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, renewable
energy and international development.
Clients
We provide services to a diverse base of U.S. federal government, U.S. state and local government, U.S. commercial
and international clients. The following table presents the percentage of our revenue by client sector:
Client Sector
U.S. federal government (1)
U.S. state and local government
U.S. commercial
International (2)
2022
30.4%
17.2
21.4
31.0
100.0%
Fiscal Year
2021
33.6%
16.7
19.9
29.8
100.0%
2020
33.2%
14.7
22.5
29.6
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.
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U.S. federal government agencies are significant clients. The U.S. Agency for International Development ("USAID")
accounted for 11.0%, 11.7% and 12.2% of our revenue in fiscal 2022, 2021 and 2020, respectively. The Department of Defense
("DoD") accounted for 9.7%, 11.2% and 9.2% of our revenue in fiscal 2022, 2021 and 2020, 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. Our international clients are primarily
focused in Canada, Australia, and the United Kingdom, and consist of a relatively equal sized mix of government and
commercial clients. 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 the U.S. federal government
clients, accounted for more than 10% of our revenue in fiscal 2022.
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
2022
37.6%
46.7
15.7
100.0%
Fiscal Year
2021
37.1%
46.4
16.5
100.0%
2020
36.0%
46.5
17.5
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
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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.
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, 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 client-specific issues, local 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. Effective development of
business is facilitated by 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 advance plans to add new technologies, broaden our service offerings, add contract capacity and expand 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
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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,
reduce costs and minimize environmental impacts; and People – the 21,000 staff at Tetra Tech and our partners, clients and
communities worldwide. Our overarching goal is to improve the lives of one billion people by 2030. Because our biggest
impact on the world is through the projects we perform for our clients, we are tracking the total number of lives improved from
our projects. We align our project impact analysis with the Global Reporting Initiative ("GRI") standards and the United
Nations Sustainable Development Goals ("SDG's"), which measure social benefit and aim to reduce poverty in communities
around the world. In addition to our 1 Billion People Challenge, we report on our operational greenhouse gas emissions
associated with Scope 1, 2 and 3 CO2e emissions. We also report on human capital metrics that align with our commitment to
developing a thriving employee community, including gender balance, racial and ethnic diversity in our workforce, employee
engagement and professional development.
Our Sustainability Program is led by our Chief Sustainability Officer, who has been appointed by our Board of
Directors and is supported by other key corporate and operations representatives via our Sustainability Council. We
continuously implement sustainability-related policies and practices and assess the results of our efforts in order to improve
upon them in the future. Tetra Tech's Board of Directors Strategic Planning and Enterprise Risk Management Committee
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. For detailed information regarding acquisitions, see Note 5,
"Acquisitions" of the "Notes to Consolidated Financial Statements" included in Item 8.
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.
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, renewable energy and international development markets. Our client base includes U.S. federal
government agencies such as USAID, the DoD, the U.S. Department of State, 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
10
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.;
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 two-thirds of our backlog at the end of fiscal 2022 will be recognized as revenue in
fiscal 2023, 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.
Our backlog at fiscal 2022 year-end was $3.7 billion, an increase of $264 million, or 7.6%, compared to fiscal
2021 year-end. Of this amount, GSG and CIG reported $2.3 billion and $1.5 billion of backlog, respectively, at fiscal 2022
year-end.
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 and program 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
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•
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 and U.S. federal civil agencies 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. and Canada), Christmas and New Year's holidays. Many of our
clients' 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 2022 year-end, we had approximately 21,000 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, software 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.
Health and Safety. Tetra Tech is committed to providing and maintaining a healthy and safe work environment for our
associates. 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.
Diversity, Equity and Inclusion. Tetra Tech brings together engineers and technical specialists from all backgrounds to
solve our clients' most challenging problems. Our Diversity, Equity and Inclusion Policy guides the Board of Directors,
management, associates, subcontractors and partners in developing an inclusive culture. Our Diversity, Equity and Inclusion
Council monitors Tetra Tech's diversity, equity 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, equity and inclusion and undertakes various efforts throughout its operations to promote
these initiatives. Our current efforts are focused on these primary areas:
•
Equal employment opportunity. Tetra Tech ensures that our practices and processes attract a diverse range of
candidates, and those candidates are recruited, hired, assigned, developed and promoted based on merit and their
alignment to our values.
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•
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, our Employee Resource Group ("ERG") Program
broadens and enhances company-wide interaction opportunities for our employees. Tetra Tech's ERG is open to all associates
and involves 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, Pan-Asian, Women, Veterans,
Disabled and LGBTQIA+ employees and emerging professionals.
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.
Tech 1000 Challenge. The Tech 1000 Challenge is a competition to create the most innovative, technology
focused solution to a real client challenge. The event brings together employees from around the world to team up
and vie for the technology solutions that address our clients' needs. Participants from across our markets form
teams to focus on client needs, receive briefings on our Tetra Tech Delta technologies from their peers, and hone
their skills in designing strategies and pitching client solutions.
Project Management Training Program. Tetra Tech develops Project Managers who are world class in their
abilities and performance. Tetra Tech's Project Excellence Steering Committee sponsors the development and
implementation of our comprehensive Project Management Training Program. The training program has been
designed to address all areas of the project life cycle. Tetra Tech's Project Management Training Program is
available to all employees and is focused on professional development, techniques for managing high-end projects
and how to employ enterprise systems and dashboards. Our Project Management Training Program provides
comprehensive training in high-end project leadership skills through online training, virtual workshops and in-
person events.
Fearless Entrepreneur Program. Through this program, Tetra Tech develops 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.
13
Executive Officers of the Registrant
The following table shows the name, age and position of each of our executive officers at November 22, 2022:
Name
Dan L. Batrack
Age
64 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.
Jill Hudkins
51 President
Ms. Hudkins was appointed President in October 2022. Ms. Hudkins has been
with us for over 24 years in increasingly responsible positions. She served as
President of the Resilient & Sustainable Infrastructure Division from October
2021 to October 2022, President of the IEW Operating Unit from April 2021 to
October 2022 and Vice President and Growth Initiatives Program Leader from
October 2019 to October 2022. Prior to this, Ms. Hudkins served as Vice
President and One Water Leader from May 2015 to October 2019. She is a
registered Professional Engineer and is a nationally recognized expert in high-
end innovative water treatment solutions. Ms. Hudkins holds a master's degree
in Civil and Environmental Engineering from the Massachusetts Institute of
Technology, and a bachelor's degree in Civil and Environmental Engineering
from Duke University.
Steven M. Burdick
58 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, Corporate Controller
and Chief Accounting Officer 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.
14
Name
Leslie Shoemaker
Age
Position
65 Executive Vice President, Chief Sustainability and Leadership Development
Officer
Dr. Shoemaker was appointed Executive Vice President, Chief Sustainability and
Leadership Development Officer in October 2022 after serving as Tetra Tech's
President since September 2019. Dr. Shoemaker joined us in 1991, and has
served in various management capacities, including project and program
manager, water resources manager and business 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. Since the inception of our
sustainability program in 2010, she has served as Chief Sustainability Officer
leading the formation and evolution of the program. Dr. Shoemaker has
facilitated leadership development for Tetra Tech's Leadership Academy
program. Dr. Shoemaker holds a B.A. in Mathematics from Hamilton College, a
Master of Engineering from Cornell University and a Ph.D. in Agricultural
Engineering from the University of Maryland. She was inducted into the United
States' National Academy of Engineers in 2022.
Derek G. Amidon
55 Senior Vice President, President of CIG and the Client Account Management
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 25-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
61 Senior Vice President, President of GSG and the U.S. Government Division of
GSG
Mr. Argus is a chemical engineer with 37 years of experience, including 29 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., U.S. 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.
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Name
Brian N. Carter
Age
Position
55 Senior Vice President, Corporate Controller and Chief Accounting Officer
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.
Preston Hopson
46 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 and is responsible for the global Human Resources function.
For the prior 10 years, Mr. Hopson served as Vice President, Assistant General
Counsel and Assistant Corporate Secretary at AECOM. Prior to this, he was with
O’Melveny & Myers LLP and the U.S. Court of Appeals. Mr. Hopson holds
B.A. and J.D. degrees from Yale University.
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Available Information
Our internet 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, https://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
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. Ongoing instability and current
conflicts in global markets, including Eastern Europe, the Middle East and Asia, and the potential for other conflicts and future
terrorist activities and other recent geopolitical events throughout the world, including Russia's invasion of Ukraine, have
created and may continue to create economic and political uncertainties and impacts. 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 current 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
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.
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In fiscal 2022, we generated 31.0% 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 trade policies, 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.
Our results of operations could be adversely affected by health outbreaks such as the coronavirus disease 2019
("COVID-19") pandemic.
A significant outbreak, epidemic or pandemic of contagious diseases in any geographic area in which we operate could
result in a health crisis adversely affecting the economies, financial markets and overall demand for our services in such areas.
In addition, any preventative or protective actions that governments implement or that we take in response to a health crisis,
such as travel restrictions, quarantines or site closures, may interfere with the ability of our employees and vendors to perform
their responsibilities. Such results could have a material adverse effect on our results of operations.
The recent global COVID-19 pandemic has created significant volatility, uncertainty and economic disruption. The
extent to which future health outbreaks could impact our business, operations and financial results would depend on numerous
evolving factors that we may not be able to accurately predict, including: the duration and scope of the outbreak; governmental,
business and individuals’ actions, including vaccination requirements, taken in response to the outbreak; the impact of the
outbreak on economic activity and actions taken in response; the effect on our clients’ demand for our services; our ability to
provide our services; 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 could also slow down decision-
making, delay planned work or seek to terminate existing agreements. Any of these events could adversely affect our business,
financial condition and results of 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.
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In fiscal 2022, we generated 47.6% 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
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. 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, 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, 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 single client accounted for over
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10% of our revenue for fiscal 2022, 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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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;
incur amortization expenses related to certain intangible assets;
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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 October 2, 2022, our goodwill was $1.1 billion and other intangible assets were $29.2
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 in fiscal 2020. We had no goodwill impairment in fiscal 2021 and 2022.
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
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,
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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.
Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.
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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 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
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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.
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 October 2, 2022 was $3.7 billion, an increase of $263.9 million, or 7.6%, compared to the end of fiscal
2021. 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")
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
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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
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.
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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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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.
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.
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We engage in consulting, engineering, program management 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 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.
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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. 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 Conservation 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
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.
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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, 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;
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;
30
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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.
Item 1B Unresolved Staff Comments
None.
31
Item 2. Properties
At fiscal 2022 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
Description
Corporate Headquarters
Reportable Segment
Corporate
Pasadena, CA
Arlington, VA
Boston, MA
Irvine, CA
London, United Kingdom
New York, NY
Orlando, FL
Pittsburgh, PA
San Diego, CA
Vancouver, BC, Canada
Item 3. Legal Proceedings
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
GSG
GSG / CIG
GSG / CIG
GSG / CIG
GSG /CIG
GSG / CIG
GSG / CIG
GSG / CIG
CIG
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.
32
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 1,114 stockholders of record at October 2, 2022.
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 October 1, 2017, and that all
dividends have been reinvested. Dividends declared and paid in fiscal 2022 totaled $0.86 per share. We declared and paid
dividends in the first and second quarters totaling $0.40 per share ($0.20 each quarter) on our common stock and paid dividends
in the third and fourth quarters totaling $0.46 per share ($0.23 each quarter) on our common stock. We declared and paid
dividends totaling $0.74, $0.64, $0.54 and $0.44 per share in fiscal 2021, 2020, 2019 and 2018, 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 OCTOBER 1, 2017
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDED OCTOBER 2, 2022
Tetra Tech, Inc.
NASDAQ Market Index
S&P 1000 Index
2017
2018
2019
2020
2021
2022
$ 100.00 $ 147.92 $ 185.48 $ 200.81 $ 336.07 $ 286.12
100.00
100.00
125.17
115.70
124.88
109.74
173.32
103.37
232.92
159.12
170.37
130.84
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.
33
Stock Repurchase Program
On October 5, 2021, our Board of Directors authorized a new stock repurchase program under which we could
repurchase up to $400 million of our common stock in addition to the $147.8 million remaining under the previous stock
repurchase program at October 3, 2021. In fiscal 2022, we repurchased and settled 1,341,679 shares with an average price of
$149.07 per share for a total cost of $200.0 million in the open market. At October 2, 2022, we had a remaining balance of
$347.8 million under our stock repurchase program.
Below is a summary of the stock repurchases that were traded and settled during the 12 months ended October 2,
2022:
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)
97,020 $
91,216
101,960
96,908
110,858
120,274
95,121
131,962
140,961
103,723
115,677
135,999
532,244
515,811
497,813
483,279
467,036
447,813
433,279
416,181
397,813
383,280
366,182
347,813
Period
Total Number
of Shares
Purchased
Average Price
Paid per Share
160.47
180.16
176.52
149.98
146.53
159.82
152.79
129.57
130.30
140.12
147.81
135.06
October 4, 2021 - October 31, 2021
97,020 $
November 1, 2021 - November 28, 2021
November 29, 2021 - January 2, 2022
January 3, 2022 - January 30, 2022
January 31, 2022 - February 27, 2022
February 28, 2022 - April 3, 2022
April 4, 2022 - May 1, 2022
May 2, 2022 - May 29, 2022
May 30, 2022 - July 3, 2022
July 4, 2022 - July 31, 2022
August 1, 2022 - August 28, 2022
August 29, 2022 - October 2, 2022
Item 6. [Reserved]
91,216
101,960
96,908
110,858
120,274
95,121
131,962
140,961
103,723
115,677
135,999
34
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. In fiscal 2022, our revenue increased 9.0% compared to fiscal 2021. This year-over-year growth reflects
increased activity in our U.S. state and local, U.S. commercial and international client sectors. Our revenue also includes
contributions from acquisitions that did not have comparable revenue in fiscal 2021. We report results of operations based on a
52 or 53-week period ending on the Sunday nearest September 30. Fiscal years 2022, 2021 and 2020 contained 52, 53 and 52
weeks, respectively. We estimate that our revenue increased approximately 11.0% in fiscal 2022 compared to last fiscal year
adjusting for the extra week in fiscal 2021.
U.S. Federal Government. Our U.S. federal government revenue decreased 1.6% in fiscal 2022 compared to fiscal
2021. This decrease primarily reflects the wind-down of our international development activities in Afghanistan that ceased in
the fourth quarter of last fiscal year. Excluding Afghanistan, our U.S. federal government revenue grew approximately 3% in
fiscal 2022 compared to fiscal 2021, primarily due to increased environmental activities for civilian agencies. Our revenue also
includes contributions from acquisitions that did not have comparable revenue in the prior year. 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 in fiscal 2023. Approximately $1 trillion in new U.S. federal funding passed in 2021
through the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and the CHIPS and Science Act. Each of these
programs include substantial planned investments in our key end markets including water, environment and sustainable
infrastructure over the next five to ten years.
U.S. State and Local Government. Our U.S. state and local government revenue increased 12.5% in fiscal 2022
compared to fiscal 2021. The increase reflects continued broad-based growth in our U.S. state and local government
infrastructure business, particularly with increased revenue from municipal water infrastructure work, including digital water
projects, in the metropolitan areas of California, Texas and Florida. Our disaster response activities also increased compared to
fiscal 2021. Most of our work for the U.S. state and local governments relates to critical water and environmental programs,
which we expect to continue to grow in fiscal 2023.
U.S. Commercial. Our U.S. commercial revenue increased 17.4% in fiscal 2022 compared to fiscal 2021. This
increase was primarily due to more activity on environmental programs, including meeting net zero carbon goals and designing
high performance buildings. In addition, industrial activity was reduced in fiscal 2021 as a result of the COVID-19 pandemic.
We expect growth in our U.S. commercial work to continue in fiscal 2023.
International. Our international revenue increased 13.6% in fiscal 2022 compared to fiscal 2021. Our revenue includes
contributions from acquisitions that did not have comparable revenue in fiscal 2021. Additionally, the revenue growth reflects
government stimulus spending on infrastructure and commercial activities related to an increased focus on sustainability. We
expect growth in our international work to continue in fiscal 2023. If the global economy were to experience a recession, as
some forecasts predict, our international growth in fiscal 2023 could be adversely impacted.
Pending Acquisition. On September 23, 2022, we made an all cash offer to acquire all the outstanding shares of RPS
Group plc ("RPS"), a publicly traded company on the London Stock Exchange for 222 pence per share, which was unanimously
recommended by RPS's Board of Directors. RPS employs approximately 5,000 associates in the United Kingdom, Europe, Asia
Pacific and North America, delivering high-end solutions especially in energy transformation, water and program management
for government and commercial clients. The transaction is to be affected using a court sanctioned scheme of arrangement
between RPS and its shareholders, and is subject to certain regulatory approvals and approval by RPS shareholders.
On November 3, 2022, RPS's shareholders approved the scheme of arrangement, with the acquisition expected to be
closed and effective in January 2023 after regulatory and court approval with an all cash purchase price for 100% of the
outstanding shares of approximately GBP 636 million.
35
RESULTS OF OPERATIONS
Fiscal 2022 Compared to Fiscal 2021
Consolidated Results of Operations
Revenue
Subcontractor costs
Revenue, net of subcontractor costs (1)
Other costs of revenue
Gross profit
Selling, general and administrative expenses
Contingent consideration – fair value adjustments
Income from operations
Interest expense – net
Other income
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
Fiscal Year Ended
October 2,
2022
October 3,
2021
Change
$
%
($ in thousands)
$
3,504,048 $
3,213,513 $ 290,535
(668,468)
2,835,580
(661,341)
(7,127)
2,552,172
283,408
9.0%
(1.1)
11.1
(2,260,021)
(2,053,772)
(206,249)
(10.0)
575,559
(234,784)
(329)
340,446
(11,584)
19,904
348,766
(85,602)
263,164
(39)
498,400
(222,972)
3,273
278,701
(11,831)
—
266,870
(34,039)
232,831
(21)
77,159
(11,812)
(3,602)
61,745
247
19,904
81,896
15.5
(5.3)
(110.1)
22.2
2.1
NM
30.7
(51,563)
(151.5)
30,333
(18)
13.0
(85.7)
13.0
14.1
$
$
263,125 $
232,810 $
30,315
4.86 $
4.26 $
0.60
(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 international development 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 2022, revenue and revenue, net of subcontractor costs, increased $290.5 million, or 9.0%, and $283.4 million,
or 11.1%, respectively, compared to fiscal 2021. Excluding the contributions from acquisitions, which did not have comparable
revenue in fiscal 2021, our revenue increased 4.1% in fiscal 2022 compared to last fiscal year. Our GSG segment's revenue and
revenue, net of subcontractor costs, increased $48.0 million, or 2.7%, and $70.7 million, or 5.6%, respectively, in fiscal 2022
compared to the prior year. Our CIG segment's revenue increased $238.4 million, or 15.9%, and revenue, net of subcontractor
costs, increased $213.3 million, or 16.6% in fiscal 2022 compared to fiscal 2021. The fiscal 2022 results for GSG and CIG
segments are described below under "Government Services Group" and "Commercial/International Services Group",
respectively.
The following table reconciles our reported results to non-U.S. GAAP adjusted results, which exclude a non-operating
benefit from Employee Retention Credits ("ERC's") received in fiscal 2022 and gains from adjustments to contingent
consideration liabilities in fiscal 2021. Our adjusted earnings per share ("EPS") for fiscal 2022 also excludes a non-operating
$19.9 million unrealized gain on a foreign exchange contract that serves as an economic hedge related to our planned
acquisition of RPS. This gain is reported as "Other income" in our Consolidated Statement of Income for fiscal 2022. Our
adjusted EPS for fiscal 2021 also excludes non-recurring tax items. The effective tax rates applied to the adjustments to EPS to
arrive at adjusted EPS average 26% and 25% for fiscal 2022 and 2021, respectively. We applied the relevant marginal statutory
tax rate based on the nature of the adjustments and the tax jurisdiction in which it occurred. 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.
36
Income from operations
Earn-out adjustments
Employee Retention Credits
Adjusted income from operations (1)
EPS
Earn-out adjustments
Employee Retention Credits
Other income
Non-recurring tax items
Adjusted EPS (1)
NM = not meaningful
(1) Non-U.S. GAAP financial measure
Fiscal Year Ended
October 2,
2022
October 3,
2021
$
340,446 $
278,701 $
—
(6,486)
(3,273)
—
Change
$
61,745
3,273
(6,486)
333,960 $
275,428 $
58,532
$
$
4.86 $
—
(0.08)
(0.28)
—
4.26 $
(0.04)
—
—
(0.43)
0.60
0.04
(0.08)
(0.28)
0.43
0.71
$
4.50 $
3.79 $
%
22.2
NM
NM
21.3
14.1
NM
NM
NM
NM
18.7
Operating income increased $61.7 million, or 22.2%, in fiscal 2022 compared to fiscal 2021. The fiscal 2022 results
included the benefit of ERC's totaling $6.5 million, which represents reimbursement from the U.S. federal government under
the Coronavirus Aid, Relief and Economic Security Act for the costs that we incurred during the second quarter of fiscal 2020
to address the COVID-19 pandemic. The amounts were recognized in fiscal 2022 when the funds were received due to the
uncertainty related to the computation of qualifying amounts and delayed processing times for our application. These amounts
were primarily reflected as a reduction to "Other costs of revenue" in our Consolidated Statement of Income and an increase to
"Net cash provided by operating activities" in our Consolidated Statement of Cash Flows for fiscal 2022, consistent with the
presentation of the related costs recognized in the second quarter of fiscal 2020. Excluding the ERC's and the contributions
from acquisitions, which did not have comparable results in fiscal 2021, our adjusted operating income increased $31.5 million,
or 11.5% in fiscal 2022 compared to fiscal 2021. These increases reflect improved results in both GSG and CIG segments,
which are described below under "Government Services Group" and "Commercial/International Services Group", respectively.
Our net interest expense was $11.6 million and $11.8 million in fiscal 2022 and 2021, respectively. The decrease
primarily reflects lower average year-over-year borrowings, partially offset by higher borrowing rates.
The effective tax rates for fiscal 2022 and 2021 were 24.5% and 12.8%, respectively. The fiscal 2021 effective tax rate
reflects a non-recurring net tax benefit of $21.6 million, primarily consisting of a valuation allowance in the United Kingdom
that was released due to sufficient sustainable profitability being achieved in fiscal 2021. The valuation allowance was
primarily related to net operating loss carry-forwards. In fiscal 2021, we repatriated approximately $80 million from Canada
and recognized a related tax expense of $5.6 million. Also, income tax expense was reduced by $10.3 million and $12.9 million
of excess tax benefits on share-based payments in fiscal 2022 and 2021, respectively. Excluding the impact of the fiscal 2021
valuation allowance benefit, the fiscal 2021 Canadian repatriation and the excess tax benefits on share-based payments in both
fiscal years, our effective tax rates for fiscal 2022 and 2021 were 27.5% and 25.7%, respectively.
Our EPS was $4.86 in fiscal 2022, compared to $4.26 in fiscal 2021. Excluding the aforementioned non-operating and
non-recurring items, our adjusted EPS was $4.50 in fiscal 2022, compared to $3.79 last fiscal year, an increase of 18.7%.
37
Segment Results of Operations
Government Services Group ("GSG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
Fiscal Year Ended
October 2,
2022
October 3,
2021
Change
$
%
($ in thousands)
$
$
$
1,820,868 $
1,772,905 $
47,963
2.7%
(484,412)
(507,132)
22,720
1,336,456 $
1,265,773 $
70,683
4.5
5.6
198,448 $
174,755 $
23,693
13.6%
Revenue and revenue, net of subcontractor costs, increased $48.0 million, or 2.7%, and increased $70.7 million, or
5.6%, respectively, in fiscal 2022 compared to fiscal 2021. The increases primarily reflect higher U.S. state and local
government activities related to water and environmental programs and disaster response projects.
Operating income increased $23.7 million in fiscal 2022 compared to fiscal 2021. The fiscal 2022 results included $4.4
million of the aforementioned ERC's. Excluding this benefit, operating income increased 11.0% in fiscal 2022 compared to last
fiscal year. Our operating margin, based on revenue, net of subcontractor costs, improved to 14.8% in fiscal 2022 compared to
13.8% in fiscal 2021. Excluding the ERC's, our operating margin was 14.5% in fiscal 2022. The improved operating margin in
fiscal 2022 was primarily due to our increased focus on high-end consulting services, including digital water, and improved
labor utilization.
Commercial/International Services Group ("CIG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
Fiscal Year Ended
October 2,
2022
October 3,
2021
Change
$
%
($ in thousands)
$
$
$
1,738,436 $
1,500,074 $ 238,362
(239,312)
(214,263)
(25,049)
1,499,124 $
1,285,811 $ 213,313
194,142 $
152,262 $
41,880
15.9%
(11.7)
16.6
27.5
Revenue and revenue, net of subcontractor costs, increased $238.4 million, or 15.9%, and increased $213.3 million, or
16.6%, respectively, in fiscal 2022 compared to fiscal 2021. The revenue growth primarily reflects increased activity on
commercial environmental programs, including meeting net zero carbon goals and high performance buildings. These increases
were also due to the international government stimulus spending on infrastructure. Additionally, the fiscal 2022 revenue
included contributions from acquisitions, which did not have comparable revenue in fiscal 2021.
Operating income increased $41.9 million in fiscal 2022 compared to fiscal 2021. The fiscal 2022 operating income
included $1.9 million of the aforementioned ERC's. Excluding this benefit, operating income increased 26.2% in fiscal 2022
compared to last fiscal year. Our operating margin, based on revenue, net of subcontractor costs, improved to 13.0% in fiscal
2022 compared to 11.8% in fiscal 2021. Excluding the ERC's, our operating margin was 12.8% for fiscal 2022. The improved
operating margin was primarily due to our increased focus on high-end consulting services, project execution and labor
utilization.
Remediation and Construction Management ("RCM")
RCM's projects were substantially complete at the end of fiscal 2018. In May 2022, we received a cash settlement for
the last $11 million RCM claim. This settlement resulted in an immaterial gain in the third quarter of fiscal 2022. There were no
significant operating activities in RCM for fiscal 2022 and 2021.
38
Fiscal 2021 Compared to Fiscal 2020
Consolidated Results of Operations
Revenue
Subcontractor costs
Revenue, net of subcontractor costs (1)
Other costs of revenue
Gross profit
Selling, general and administrative 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
Fiscal Year Ended
October 3,
2021
September 27,
2020
Change
$
%
($ in thousands)
$
3,213,513 $
2,994,891 $ 218,622
(661,341)
2,552,172
(646,319)
2,348,572
(15,022)
203,600
(2,053,772)
(1,902,037)
(151,735)
498,400
(222,972)
3,273
—
278,701
(11,831)
266,870
(34,039)
232,831
446,535
(204,615)
14,971
(15,800)
241,091
(13,100)
227,991
(54,101)
173,890
(21)
232,810 $
(31)
173,859 $
51,865
(18,357)
(11,698)
15,800
37,610
1,269
38,879
20,062
58,941
10
58,951
4.26 $
3.16 $
1.10
7.3%
(2.3)
8.7
(8.0)
11.6
(9.0)
(78.1)
NM
15.6
9.7
17.1
37.1
33.9
32.3
33.9
34.8
Net income attributable to noncontrolling interests
Net income attributable to Tetra Tech
Diluted earnings per share
$
$
(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 international development 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 2021, revenue and revenue, net of subcontractor costs, increased $218.6 million, or 7.3%, and $203.6 million,
or 8.7%, respectively, compared to fiscal 2020. Excluding the net contributions from acquisitions and the impact of the disposal
of our Canadian turn-key pipeline activities, our revenue increased 3.2% in fiscal 2021 compared to fiscal 2020. Our GSG
segment's revenue and revenue, net of subcontractor costs, increased $194.6 million, or 12.3%, and $148.3 million, or 13.3%,
respectively, in fiscal 2021 compared to fiscal 2020. Our CIG segment's revenue increased $29.0 million, or 2.0%, and revenue,
net of subcontractor costs, increased $54.7 million, or 4.4% in fiscal 2021 compared to fiscal 2020. Our fiscal 2021 results for
our GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Services
Group", respectively.
The following table reconciles our reported results to non-U.S. GAAP adjusted results, which exclude certain non-
operating accounting-related adjustments, such as gains on non-core dispositions, gains from adjustments to contingent
considerations, goodwill impairment charges, non-recurring costs to address COVID-19, and non-recurring tax items. The gains
on non-core dispositions in fiscal 2020 relate to the disposal of our Canadian turn-key pipeline activities that commenced in the
fourth quarter of fiscal 2019. The goodwill impairment charge in fiscal 2020 did not have related tax benefits. Excluding this
charge, the effective tax rates applied to the adjustments to earnings per share ("EPS") to arrive at adjusted EPS averaged 25%
and 24% for fiscal 2021 and 2020, 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.
39
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 of our global offices to remain operational supporting our
programs and projects. This required incremental costs for employee relocation, expansion of our virtual private network
capabilities, enhanced security and sanitizing of 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. Although the charges were recognized in the
second quarter of fiscal 2020, substantially all of these costs were paid in cash in the third quarter of fiscal 2020. Some of these
costs were related to the $6.5 million benefit of ERC's, which were applied for in fiscal 2020 and subsequently received and
recognized in fiscal 2022.
Income from operations
Earn-out adjustments
COVID-19
Non-core dispositions
Impairment of goodwill
Adjusted income from operations (1)
EPS
Earn-out adjustments
COVID-19
Non-core dispositions
Impairment of goodwill
Non-recurring tax benefits
Adjusted EPS (1)
NM = not meaningful
(1) Non-U.S. GAAP financial measure
Fiscal Year Ended
October 3,
2021
September 27,
2020
$
278,701 $
241,091 $
(3,273)
—
—
—
(13,371)
8,233
(8,525)
15,800
Change
$
37,610
10,098
(8,233)
8,525
(15,800)
275,428 $
243,228 $
32,200
$
$
4.26 $
(0.04)
—
—
—
(0.43)
3.16 $
(0.18)
0.11
(0.12)
0.29
—
1.10
0.14
(0.11)
0.12
(0.29)
(0.43)
0.53
$
3.79 $
3.26 $
%
15.6
NM
NM
NM
NM
13.2
34.8
NM
NM
NM
NM
NM
16.3
Operating income increased $37.6 million in fiscal 2021 compared to fiscal 2020. Our operating income reflects net
gains of $3.3 million and $15.0 million related to changes in the estimated fair value of contingent earn-out liabilities in fiscal
2021 and 2020, respectively. The net gain in fiscal 2020 was partially offset by the related compensation charges of $1.6
million. These gains are described below under "Fiscal 2021 and 2020 Earn-Out Adjustments." 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. Further, our fiscal 2020 operating income reflects a non-cash goodwill impairment charge of $15.8
million, which is described below under "Fiscal 2020 Impairment of Goodwill."
Excluding these items, our adjusted operating income increased $32.2 million, or 13.2%, in fiscal 2021 compared to
fiscal 2020. The increase reflects improved results in our GSG and CIG segments, which are described below under
"Government Services Group" and "Commercial/International Services Group", respectively.
Our net interest expense was $11.8 million and $13.1 million in fiscal 2021 and 2020, respectively. The decrease
primarily reflects lower average borrowings.
The effective tax rates for fiscal 2021 and 2020 were 12.8% and 23.7%, respectively. Our fiscal 2021 effective tax rate
reflects the aforementioned non-recurring net tax benefit of $21.6 million primarily consisting of a valuation allowance in the
United Kingdom. The goodwill impairment charge in fiscal 2020 did not have related tax benefits, which increased our
effective tax rate by 1.5% in fiscal 2020. Conversely, income tax expense was reduced by $12.9 million and $8.3 million of
excess tax benefits on share-based payments in fiscal 2021 and 2020, respectively. Excluding the impact of the fiscal 2021 non-
recurring tax items, the non-deductible goodwill impairment charge and the excess tax benefits on share-based payments, our
effective tax rates in fiscal 2021 and 2020 were 25.7% and 25.6%, respectively.
Our EPS was $4.26 in fiscal 2021, compared to $3.16 in fiscal 2020. On the same basis as our adjusted operating
income and excluding non-recurring tax benefits in fiscal 2021, EPS was $3.79 in fiscal 2021, compared to $3.26 fiscal 2020,
an increase of 16.3%.
40
Segment Results of Operations
Government Services Group ("GSG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
Fiscal Year Ended
October 3,
2021
September 27,
2020
Change
$
%
($ in thousands)
$
$
$
1,772,905 $
1,578,332 $ 194,573
(507,132)
(460,868)
(46,264)
1,265,773 $
1,117,464 $ 148,309
174,755 $
146,273 $
28,482
12.3%
(10.0)
13.3
19.5
Revenue and revenue, net of subcontractor costs, increased $194.6 million, or 12.3%, and $148.3 million, or 13.3%,
respectively, in fiscal 2021 compared to fiscal 2020. These increases primarily reflect higher U.S. state and local government
activities related to water and environmental programs and disaster response. The increases also reflect contributions from
acquisitions, which did not have comparable revenue in fiscal 2020.
Operating income increased $28.5 million in fiscal 2021 compared to fiscal 2020 primarily reflecting the revenue
growth. In addition, 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, improved to 13.8% in fiscal
2021 compared to 13.1% fiscal 2020. Excluding the COVID-19 charges, our operating margin was 13.2% in fiscal 2020. The
improved operating margin was primarily due to our increased focus on high-end consulting services and improved labor
utilization.
Commercial/International Services Group ("CIG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
Fiscal Year Ended
October 3,
2021
September 27,
2020
Change
$
%
($ in thousands)
$
$
$
1,500,074 $
1,471,097 $
28,977
(214,263)
(239,966)
25,703
1,285,811 $
1,231,131 $
54,680
2.0%
10.7
4.4
152,262 $
136,418 $
15,844
11.6
Revenue and revenue, net of subcontractor costs, increased $29.0 million, or 2.0%, and $54.7 million, or 4.4%,
respectively, in fiscal 2021 compared to fiscal 2020. The revenue growth in fiscal 2021 primarily reflects increased
infrastructure activity in Canada and fewer restrictions related to the COVID-19 pandemic in the second half of fiscal 2021. The
increases also reflect contributions from acquisitions, which did not have comparable revenue in fiscal 2020, partially offset by
the disposal of our Canadian turn-key pipeline activities.
Operating income increased $15.8 million in fiscal 2021 compared to fiscal 2020 primarily due to revenue growth.
Additionally, we realized gains of $8.5 million from the disposition of non-core equipment related to our Canadian turn-key
pipeline activities, partially offset by $6.6 million of incremental costs for actions to respond to the COVID-19 pandemic in
fiscal 2020. Excluding these disposition gains and the COVID-19 charges, operating income increased $17.7 million in fiscal
2021 compared to fiscal 2020. Our operating margin, based on revenue, net of subcontractor costs, improved to 11.8% in fiscal
2021 compared to 11.1% fiscal 2020. Excluding the disposition gains and COVID-19 charges, our operating margin was 10.9%
in fiscal 2020. The improved operating margin was primarily due to our increased focus on high-end consulting services and
improved labor utilization.
41
Remediation and Construction Management ("RCM")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Loss from operations
NM = not meaningful
Fiscal Year Ended
October 3,
2021
September 27,
2020
Change
$
%
($ in thousands)
$
$
$
613 $
(25)
588 $
198 $
(221)
(23) $
— $
— $
415
196
611
—
NM
NM
NM
NM
RCM's projects were substantially complete at the end of fiscal 2018. There were no significant operating activities in
RCM in fiscal 2021 and 2020.
Fiscal 2021 and 2020 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 $3.3 million and $15.0 million in fiscal 2021 and 2020, respectively. Fiscal 2021 adjustments resulted
from the updated valuations of several contingent consideration liabilities, which reflect updated projections of acquired
companies' financial performance during their respective earn-out periods. None of these valuation changes were individually
material. In fiscal 2020, the 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 in fiscal 2020 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 October 3, 2021, there was a total maximum of $105.4 million of outstanding contingent consideration related to
our acquisitions. Of this amount, $59.3 million was estimated as the fair value and accrued on our consolidated balance sheet at
October 3, 2021.
Fiscal 2020 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. That
trend prompted a strategic review of our Asia/Pacific ("ASP") reporting unit, which was 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 International Limited ("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. On September 28, 2020 (the first day of our fiscal 2021),
we merged our former ASP reporting unit into our Client Account Management reporting unit.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Capital Requirements. As of October 2, 2022, we had $185.1 million of cash and cash equivalents and access to an
additional $784.3 million of borrowing available under our credit facility. We generated $336.2 million of cash from operations
in fiscal 2022. 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, stock repurchases, cash dividends, capital expenditures 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 amended in the anticipation of our
planned acquisition of RPS in the second quarter of fiscal 2023, as described below, will be sufficient to meet our capital
requirements for at least the next 12 months.
We use a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations
where they are needed. In the fourth quarter of fiscal 2021, we repatriated approximately $80 million from Canada and
recognized a related tax expense of $5.6 million. At that time, we also determined that our remaining undistributed earnings in
Canada of approximately $20.1 million were no longer being indefinitely reinvested and recorded an additional deferred tax
42
liability/expense of $3.1 million. Prospectively, from the date of the repatriation, our earnings in Canada are not considered
indefinitely reinvested and any potential tax liability that would be incurred upon repatriation is recognized currently with the
related income. At October 2, 2022, undistributed earnings of our other foreign subsidiaries, primarily in Australia and the U.K.
of approximately $81.7 million are expected to be indefinitely reinvested in these foreign countries. Accordingly, no provision
for foreign withholding taxes has been made. Assuming the indefinitely reinvested foreign earnings were repatriated under the
laws and rates applicable at October 3, 2022, the incremental taxes applicable to those earnings would not be material.
On October 5, 2021, our Board of Directors authorized a new stock repurchase program under which we could
repurchase up to $400 million of our common stock in addition to the $147.8 million remaining under the previous stock
repurchase program at October 3, 2021. In fiscal 2022, we repurchased and settled 1,341,679 shares with an average price of
$149.07 per share for a total cost of $200.0 million in the open market. At October 2, 2022, we had a remaining balance of
$347.8 million under our stock repurchase program. We declared and paid common stock dividends totaling $46.1 million, or
$0.86 per share, in fiscal 2022 compared to $40.0 million, or $0.74 per share, in fiscal 2021.
Subsequent Events. On November 7, 2022, our Board of Directors declared a quarterly cash dividend of $0.23 per
share payable on December 9, 2022 to stockholders of record as of the close of business on November 21, 2022.
Cash and Cash Equivalents. As of October 2, 2022, cash and cash equivalents were $185.1 million, an increase of
$18.5 million compared to the fiscal 2021 year-end. The increase was primarily due to net cash provided by operating activities,
partially offset by stock repurchases, dividends, as well as payments for business acquisitions, contingent earn-outs and taxes
on vested restricted stock.
Operating Activities. Cash provided by operating activities increased 10.5% from $304.4 million in fiscal 2021 to
$336.2 million in fiscal 2022. The increase primarily reflects higher earnings and improved working capital from faster
collections of our receivables in fiscal 2022 compared to fiscal 2021.
Investing Activities. Net cash used in investing activities was $55.7 million in fiscal 2022, a decrease of $37.3 million
compared to fiscal 2021. The decrease was primarily due to lower payments for business acquisitions completed in fiscal 2022
compared to last fiscal year.
Financing Activities. In fiscal 2022, net cash used in financing activities was $249.6 million, an increase of $39.5
million compared to fiscal 2021. The increase was primarily due to higher stock repurchases.
Debt Financing. On February 18, 2022, we entered into Amendment No. 2 to our Second Amended and Restated
Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $1.05 billion that will mature in February
2027. The Amended Credit Agreement is a $750 million senior secured, five-year facility that provides for a $250 million term
loan facility (the “Amended Term Loan Facility”) and a $500 million revolving credit facility (the “Amended Revolving Credit
Facility”). In addition, the Amended Credit Agreement includes a $300 million accordion feature that allows us to increase the
Amended Credit Agreement to $1.05 billion subject to lender approval. The Amended Credit Agreement provides for, among
other things, (i) refinance indebtedness under our Credit Agreement dated as of July 30, 2018; (ii) finance open market
repurchases of common stock, acquisitions and cash dividends and distributions; and (iii) utilize the proceeds for working
capital, capital expenditures and other general corporate purposes. The Amended Credit Agreement provides for a reduction in
the interest grid for meeting certain sustainability targets related to the (i) reduction of greenhouse gas emissions through the
Company’s projects and operational sustainability initiatives and (ii) improvement of peoples’ lives as a result of the
Company’s projects that provide environmental, social and governance benefits. 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
$300 million sublimit for multicurrency borrowings and letters of credit.
The entire Amended Term Loan Facility was drawn on February 18, 2022. The Amended Term Loan Facility is subject
to quarterly amortization of principal at 5% annually commencing June 30, 2022. We may borrow on the Amended Revolving
Credit Facility, at our option, at either (a) a benchmark rate plus a margin that ranges from 1.000% to 1.875% 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 Secured Overnight Financing Rate ("SOFR") rate plus 1.00%, plus a margin that ranges from 0% to 0.875% 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 February 18, 2027, or earlier
at our discretion upon payment in full of loans and other obligations.
At October 2, 2022, we had $258.8 million in outstanding borrowings under the Amended Credit Agreement, which
was comprised of $243.8 million under the Amended Term Loan Facility and $15.0 million under the Amended Revolving
Credit Facility. The year-to-date weighted-average interest rate of the outstanding borrowings during fiscal 2022 was 1.97%. In
addition, we had $0.7 million in standby letters of credit under the Amended Credit Agreement. Our year-to-date weighted-
average interest rate on borrowings outstanding during fiscal 2022 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
43
Financial Statements" included in Item 8, was 3.60%. At October 2, 2022, we had $484.3 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 each year for fiscal 2022, 2021 and 2020, respectively.
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 3.25 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 October 2, 2022, we were in compliance with these covenants with a
consolidated leverage ratio of 0.76x and a consolidated interest coverage ratio of 29.52x.
In addition to the Amended Credit Agreement, we maintain other credit facilities, which may be used for short-term
cash advances and bank guarantees. At October 2, 2022, there were no outstanding borrowings under these facilities, and the
aggregate amount of standby letters of credit outstanding was $44.4 million. As of October 2, 2022, we had no bank overdrafts
related to our disbursement bank accounts.
Subsequent Event. On October 26, 2022, we entered into a Third Amended and Restated Credit Agreement that
provides for an additional $500 million senior secured term loan facility (the "New Term Loan Facility") increasing our total
borrowing capacity to $1.55 billion. We expect to draw the entire amount of the New Term Loan Facility to partially finance the
planned acquisition of RPS. The remaining purchase price is expected to be financed with existing cash on hand and
borrowings under the existing Amended Revolving Credit Facility. The New Term Loan Facility is not subject to any
amortization payments of principal and matures on the third anniversary of the RPS acquisition closing date.
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:
November 15, 2021
January 31, 2022
May 2, 2022
August 1, 2022
November 7, 2022
Income Taxes
$
$
$
$
$
Dividend
Per Share
Record Date
December 2, 2021
February 11, 2022
May 13, 2022
August 12, 2022
0.20
0.20
0.23
0.23
0.23 November 21, 2022
Total Maximum
Payment
(in thousands)
Payment Date
$
$
$
$
10,793 December 20, 2021
10,769
February 25, 2022
12,311
12,226
May 27, 2022
August 26, 2022
N/A December 9, 2022
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 unlikely that the current valuation allowance positions of those
jurisdictions could be adjusted in the next 12 months.
As of October 2, 2022 and October 3, 2021, the liability for income taxes associated with uncertain tax positions was
$10.6 million and $14.1 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 liabilities represent our current estimates of the
additional tax liabilities that we may be assessed when the related audits are concluded. If these audits are resolved in a manner
more unfavorable than our current expectations, our additional tax liabilities could be materially higher than the amounts
currently recorded resulting in additional tax expense.
44
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 October 2, 2022, we had $0.7 million in standby letters of credit outstanding under our Amended
Credit Agreement and $44.4 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.
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
45
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 “units 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
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-
46
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.
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
47
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
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 July 4, 2022 (i.e. the first day of our fourth quarter in fiscal
2022), 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. We had no reporting units that had estimated fair values that exceeded their
carrying values by less than 165%.
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. That
trend prompted a strategic review of our Asia/Pacific ("ASP") reporting unit, which was 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 equaled its carrying value of $144.9 million, including $95.5 million of
goodwill, at September 27, 2020. On September 28, 2020 (the first day of our fiscal 2021), we merged our former ASP
reporting unit into our Client Account Management reporting unit.
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.
48
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
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 October 2, 2022, primarily loss
carryforwards, will not be realized, and we have reserved accordingly.
In fiscal 2022, the Inflation Reduction Act and the CHIPS and Science Act were signed into law. These Acts both
contain new U.S. income tax provisions; however, we do not expect them to have a material impact on our consolidated
financial statements.
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 the British Pound.
49
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 1.000% to 1.875% 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
SOFR rate plus 1.00%) plus a margin that ranges from 0% to 0.875% 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. 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 SOFR 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 SOFR rate with similar terms, not to exceed the maturity date of the Facility. The
Facility matures on February 18, 2027. At October 2, 2022, we had $258.8 million in outstanding borrowings under the
Amended Credit Agreement, which was comprised of $243.8 million under the Amended Term Loan Facility and $15.0 million
under the Amended Revolving Credit Facility. The year-to-date weighted-average interest rate of the outstanding borrowings
during fiscal 2022 was 1.97%.
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 October 2, 2022, the notional
principal of our outstanding interest swap agreements was $200.0 million ($40.0 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 October 2, 2022, was 3.60%. 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 the 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 $0.2 million and $1.4 million of foreign currency losses in fiscal
2022 and 2021, respectively, in “Selling, general and administrative expenses” on our consolidated statements of income.
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 2022 and 2021, 31.0% and 29.8% of our
consolidated revenue, respectively, was generated by our international business. For fiscal 2022, the effect of foreign exchange
rate translation on the consolidated balance sheets was a decrease in equity of $94.9 million compared to an increase in equity
of $30.6 million in fiscal 2021. These amounts were recognized as an adjustment to equity through other comprehensive
income.
In the anticipation of the planned acquisition of RPS, we entered into a forward contract during the fourth quarter of
fiscal 2022 to acquire GBP 714.0 million at a rate of 1.0852 for a total of USD 774.8 million. The contract matures on
December 30, 2022. Although an effective economic hedge of our foreign exchange risk related to this transaction, the forward
contract did not qualify for hedge accounting. As a result, the forward contract is marked-to-market with changes in fair value
recognized in earnings each period. The intrinsic value of the forward contract was immaterial at inception as the GBP/USD
spot and forward exchange rates were essentially the same. The fair value of the forward contract at October 2, 2022 was $19.9
million, which resulted in an unrealized gain of the same amount in the fourth quarter fiscal 2022 and is reflected in “Other
income" on the consolidated income statement for fiscal 2022. The related $19.9 million asset is reported in "Prepaid expenses
and other current assets" on the consolidated balance sheet at October 2, 2022.
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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 October 2, 2022 and October 3, 2021
Consolidated Statements of Income for the fiscal years ended October 2, 2022, October 3, 2021 and September 27,
2020
Consolidated Statements of Comprehensive Income for the fiscal years ended October 2, 2022, October 3, 2021 and
September 27, 2020
Consolidated Statements of Cash Flows for the fiscal years ended October 2, 2022, October 3, 2021 and September
27, 2020
Consolidated Statements of Equity for the fiscal years ended October 2, 2022, October 3, 2021 and September 27,
2020
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts and Reserves for the fiscal years ended October 2, 2022, October
3, 2021 and September 27, 2020
Page
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55
56
57
58
60
92
51
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 October 2, 2022 and October 3, 2021, and the related consolidated statements of income, of comprehensive
income, of equity and of cash flows for each of the three years in the period ended October 2, 2022, including the related notes
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over
financial reporting as of October 2, 2022, 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 October 2, 2022 and October 3, 2021, and the results of its operations and its cash
flows for each of the three years in the period ended October 2, 2022 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 October 2, 2022, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
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.
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 matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i) relates 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
52
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Determination of Total Estimated Contract Cost for Fixed-price Contracts
As described in Note 3 to the consolidated financial statements, $1.32 billion of the Company’s total revenues for the
year ended October 2, 2022 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 management's
judgment 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
immaterial operating income adjustments for the year ended October 2, 2022. 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 $10.0 million and approximately $80 million, respectively, as of
October 2, 2022. Claims are amounts in excess of agreed contract prices that the Company seeks to collect from clients or other
third parties. The Company had no claims as of October 2, 2022.
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 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.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
November 23, 2022
We have served as the Company’s auditor since 2004.
53
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
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 October 2, 2022 and October 3, 2021
Common stock – Authorized, 150,000 shares of $0.01 par value; issued and outstanding,
52,981 and 53,981 shares at October 2, 2022 and October 3, 2021, respectively
Accumulated other comprehensive loss
Retained earnings
Tetra Tech stockholders' equity
Noncontrolling interests
Total stockholders' equity
Total liabilities and stockholders' equity
October 2,
2022
October 3,
2021
185,094 $
755,112
92,405
115,400
10,205
1,158,216
32,316
182,319
4,570
1,110,412
29,163
47,804
57,976
2,622,776 $
166,568
668,998
103,784
112,338
14,260
1,065,948
37,733
215,422
3,282
1,108,578
37,990
54,413
53,196
2,576,562
147,436 $
237,669
241,340
57,865
12,504
28,797
190,406
916,017
15,161
246,250
146,285
36,769
79,157
128,767
206,322
190,403
67,452
12,504
19,520
223,515
848,483
10,563
200,000
174,285
39,777
69,163
—
530
(208,144)
1,390,701
1,183,087
50
1,183,137
2,622,776 $
—
540
(125,028)
1,358,726
1,234,238
53
1,234,291
2,576,562
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
54
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
Contingent consideration – fair value adjustments
Impairment of goodwill
Income from operations
Interest income
Interest expense
Other income
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
$
$
$
$
October 2,
2022
3,504,048 $
Fiscal Year Ended
October 3,
2021
3,213,513 $
September 27,
2020
2,994,891
(668,468)
(661,341)
(646,319)
(2,260,021)
(2,053,772)
(1,902,037)
575,559
(234,784)
(329)
—
340,446
1,780
(13,364)
19,904
348,766
(85,602)
263,164
(39)
498,400
(222,972)
3,273
—
278,701
917
(12,748)
—
266,870
(34,039)
232,831
(21)
446,535
(204,615)
14,971
(15,800)
241,091
1,375
(14,475)
—
227,991
(54,101)
173,890
(31)
263,125 $
232,810 $
173,859
4.91 $
4.86 $
4.31 $
4.26 $
53,620
54,163
54,078
54,675
3.21
3.16
54,235
55,022
See accompanying Notes to Consolidated Financial Statements.
55
Tetra Tech, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
Other comprehensive income, net of tax
Foreign currency translation adjustments, net of tax
Gain (loss) on cash flow hedge valuations, net of tax
Other comprehensive income (loss), net of tax
October 2,
2022
Fiscal Year Ended
October 3,
2021
September 27,
2020
$
263,164 $
232,831 $
173,890
(94,933)
11,806
(83,127)
30,644
6,117
36,761
3,435
(4,638)
(1,203)
Comprehensive income, net of tax
Comprehensive income attributable to noncontrolling interests, net
of tax
Comprehensive income attributable to Tetra Tech, net of tax
$
$
180,037 $
269,592 $
172,687
28
24
30
180,009 $
269,568 $
172,657
See accompanying Notes to Consolidated Financial Statements.
56
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
Impairment of goodwill
Fair value adjustments to contingent consideration
Loss (gain) on sale of assets
Fair value adjustment to foreign currency forward contract
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
Net cash provided by operating activities
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired
Capital expenditures
Proceeds from sales of assets
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
Stock options exercised
Bank overdrafts
Dividends paid
Principal payments on finance leases
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental information:
Cash paid during the year for:
October 2,
2022
Fiscal Year Ended
October 3,
2021
September 27,
2020
$
263,164 $
232,831 $
173,890
27,033
(7,525)
6,177
26,227
2,175
—
329
103
(19,904)
(89,781)
69,697
17,099
27,458
55,915
(56,606)
14,627
336,188
(49,124)
(10,582)
3,966
(55,740)
161,456
(117,080)
(200,000)
(25,223)
(20,124)
1,806
—
(46,099)
(4,344)
(249,608)
(12,314)
18,526
166,568
23,805
(4,990)
4,604
23,067
(38,494)
—
(3,273)
(110)
—
13,301
(582)
13,551
5,425
13,407
8,740
13,090
304,372
(84,911)
(8,573)
492
(92,992)
370,222
(414,308)
(60,000)
(17,630)
(20,251)
11,250
(36,627)
(40,041)
(2,714)
(210,099)
7,772
9,053
157,515
$
185,094 $
166,568 $
24,611
(6,605)
6,310
19,424
565
15,800
(14,971)
(11,066)
—
156,015
(11,321)
(102,162)
(8,173)
5,894
19,460
(5,192)
262,479
(68,488)
(12,245)
17,710
(63,023)
308,364
(331,066)
(117,188)
(11,166)
(22,900)
10,334
36,627
(34,743)
(1,311)
(163,049)
207
36,614
120,901
157,515
Interest
Income taxes, net of refunds received of $4.8 million, $2.1 million and $1.4 million
$
$
13,378 $
70,799 $
10,330 $
$
59,111
13,256
55,039
See accompanying Notes to Consolidated Financial Statements.
57
Tetra Tech, Inc.
Consolidated Statements of Equity
Fiscal Years Ended September 27, 2020, October 3, 2021, and October 2, 2022
(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
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
2
4
1
(34,743)
(34,743)
19,424
(11,166)
10,334
8,715
(15)
(105,432)
$
(11,741)
(117,188)
212
361
168
(1,509)
(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
232,810
232,810
21
232,831
30,641
6,117
30,641
6,117
269,568
(40,041)
(40,041)
23,067
(17,630)
11,250
10,705
(60,000)
(32,610)
3
30,644
24
(25)
6,117
269,592
(25)
(40,041)
23,067
(17,630)
11,250
10,705
(60,000)
215
324
124
(479)
3
3
1
(5)
23,067
(17,633)
11,247
10,704
(27,385)
53,981
540
—
(125,028)
1,358,726
1,234,238
53
1,234,291
263,125
263,125
39
263,164
58
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
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 $0.74
per common share
Stock-based
compensation
Restricted &
performance shares
released
Stock options exercised
Shares issued for
Employee Stock
Purchase Plan
Stock repurchases
BALANCE AT
OCTOBER 3, 2021
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 $0.86
per common share
Stock-based
compensation
Restricted &
performance shares
released
Stock options exercised
Shares issued for
Employee Stock
Purchase Plan
Stock repurchases
BALANCE AT
OCTOBER 2, 2022
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Tetra Tech
Equity
Non-Controlling
Interests
Total
Equity
(94,922)
11,806
(94,922)
11,806
180,009
(46,099)
(46,099)
26,227
(25,223)
1,806
12,129
(200,000)
(185,051)
(11)
(94,933)
28
(31)
11,806
180,037
(31)
(46,099)
26,227
(25,223)
1,806
12,129
(200,000)
190
46
106
(1,342)
2
—
1
(13)
26,227
(25,225)
1,806
12,128
(14,936)
52,981
$
530
$
— $
(208,144) $ 1,390,701
$
1,183,087
$
50
$ 1,183,137
See accompanying Notes to Consolidated Financial Statements.
59
Tetra Tech, Inc.
Notes to Consolidated Financial Statements
1. Description of Business
We are a leading global provider of high-end consulting and engineering services that focuses on water, environment,
sustainable infrastructure, renewable 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 high-end consulting and engineering projects and include applied science, data analysis,
research, engineering, design, project 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. Beginning in fiscal 2022, we aligned
our operations to better serve our clients and markets, and created a new High Performance Buildings ("HPB") division in our
CIG reportable segment. As a result, we transferred some related operations in our GSG reportable segment to our CIG
reportable segment. Prior year amounts for reportable segments have been reclassified 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 2022, 2021 and 2020 contained 52, 53 and 52 weeks, respectively.
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. Occasionally, we have bank overdrafts, which occur when a bank honors disbursements in excess of funds on
deposit in our bank accounts. We classify 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 October 2, 2022 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 that may affect our clients' ability to pay.
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.
60
Prepaid and other current assets. Prepaid assets consist primarily of payments for insurance and software costs and
are amortized over the estimated period of benefit. Other current assets include primarily sales/services and use tax receivables
from our U.S and foreign operations.
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. We 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 the
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 at the commencement date also includes any lease
payments made to the lessor at or before the commencement date and initial direct costs less lease incentives received. 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.
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.
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.
61
We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our last annual
review was performed at July 4, 2022 (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 three or five 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
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.
Other current liabilities. Other current liabilities consists primarily of accrued insurance, contingent liabilities,
sales/services and use taxes due to our U.S. and foreign operations, other tax accruals and accrued professional fees.
62
Fair Value of Financial Instruments. We determine the fair values of our financial instruments, including short-
term investments, debt instruments, derivative instruments and pension plan assets 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 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.
Pension Plan. We assumed a defined benefit pension plan from a fiscal 2021 acquisition. We calculate the market-
related value of assets, which is used to determine the return-on-assets component of annual pension expense and the
cumulative net unrecognized gain or loss subject to amortization. This calculation reflects our anticipated long-term rate of
return and amortization of the difference between the actual return (including capital, dividends, and interest) and the expected
return. Cumulative net unrecognized gains or losses that exceed 10% of the greater of the projected benefit obligation or the fair
market related value of plan assets are subject to amortization.
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
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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.
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 23% of accounts receivable were due from various agencies of the U.S. federal government at fiscal 2022 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%, 21% and 31% of our fiscal 2022 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. Gains or losses from foreign currency transactions are included in income from operations.
Reclassifications. Certain reclassifications were made to the prior fiscal years to conform to the current-year
presentation.
Recently Issued Accounting Pronouncements Adopted in Fiscal 2022.
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
("ASU") 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to general principles in
Topic 740 and amending certain existing guidance for clarity. We adopted this guidance in the first quarter of fiscal 2022, and
the adoption did not 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. We adopted this guidance in the first quarter of fiscal 2022, and the adoption did not have an impact on our
consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, which requires the recognition and measurement of contract assets
and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606,
"Revenue from Contracts with Customers" ("ASC 606"). Considerations to determine the amount of contract assets and
contract liabilities to record at the acquisition date include the terms of the acquired contract, such as timing of payment,
identification of each performance obligation in the contract and allocation of the contract transaction price to each identified
performance obligation on a relative standalone selling price basis as of contract inception. ASU 2021-08 is effective for us
beginning in the first quarter of fiscal 2023. ASU 2021-08 should be applied prospectively for acquisitions occurring on or after
the effective date of the amendments. Early adoption of the proposed amendments would be permitted, including adoption in an
interim period. We adopted this guidance in the first quarter of fiscal 2022, and the adoption did not have an impact on our
consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires disclosures
for transactions with a government authority that are accounted for by applying a grant or contribution model by analogy,
including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an
entity's financial statements. ASU 2021-10 is effective for us beginning in the first quarter of fiscal 2023, with early adoption
permitted. This guidance should be applied prospectively to all transactions that are reflected in the financial statements at the
date of initial application and to new transactions that are entered into after that date, or retrospectively.
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In fiscal 2020, the Canadian federal government implemented the Canadian Emergency Wage Subsidy ("CEWS")
program in response to the negative impact of the coronavirus disease 2019 ("COVID-19") pandemic on businesses operating
in Canada. Our Canadian legal entities qualified for and applied for these CEWS cash benefits to partially offset the impacts of
revenue reductions and on-going staffing costs. The $26.0 million total received was initially recorded in "Other current
liabilities" until all potential amendments to the qualification criteria, including some that were proposed with retroactive
application, were finalized in fiscal 2022. As there are no further contingencies, beginning in fiscal 2023, the amounts received
will be distributed to all Canadian employees. We expect to distribute approximately $9 million in the next twelve months.
Accordingly, this amount was reclassified from "Other current liabilities" to "Accrued compensation" on our consolidated
balance sheet as of October 2, 2022. The remaining $17.0 million, which we expect to distribute beyond one year, was
reclassified to "Other long-term liabilities". We do not expect there will be any related impact to our operating income, and we
have no outstanding applications for further government assistance.
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. federal government (1)
U.S. state and local government
U.S. commercial
International (2)
Total
Contract Type:
Fixed-price
Time-and-materials
Cost-plus
Total
October 2,
2022
Fiscal Year Ended
October 3,
2021
(in thousands)
September 27,
2020
$
1,064,347 $
1,081,608 $
603,286
748,953
1,087,462
536,309
638,169
957,427
993,835
439,019
674,605
887,432
$
3,504,048 $
3,213,513 $
2,994,891
$
1,317,993 $
1,191,244 $
1,078,432
1,637,019
549,036
1,492,813
529,456
1,391,592
524,867
$
3,504,048 $
3,213,513 $
2,994,891
(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 fiscal 2022
and 2021.
65
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 liabilities
consisted of the following:
Contract assets (1)
Contract liabilities
Net contract liabilities
Balance at
October 2,
2022
October 3,
2021
(in thousands)
$
$
92,405 $
241,340
(148,935) $
103,784
190,403
(86,619)
(1) Includes $23.3 million and $12.2 million of contract retentions as of October 2, 2022 and October 3, 2021, respectively.
In fiscal 2022, we recognized revenue of approximately $125 million from amounts included in the contract liability
balance at the end of fiscal 2021, compared to approximately $119 million in fiscal 2021.
We recognize revenue primarily using the cost-to-cost measure of progress method to estimate 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. The corresponding net revenue and
operating income adjustments were immaterial for fiscal 2022 and 2021.
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 October 2, 2022 and October 3, 2021, our consolidated balance sheets
included liabilities for anticipated losses of $10.0 million and $12.7 million, respectively. The estimated cost to complete these
related contracts as of October 2, 2022 and October 3, 2021 was approximately $80 million and $104 million, respectively.
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
October 2,
2022
October 3,
2021
(in thousands)
$
491,700 $
267,161
758,861
(3,749)
$
755,112 $
432,814
240,536
673,350
(4,352)
668,998
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.
Substantially all of our unbilled receivables at October 2, 2022 are expected to be billed and collected within 12 months. The
allowance for doubtful accounts represents amounts that are expected to become uncollectible or unrealizable in the future. We
66
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.
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. Total accounts receivable
at October 3, 2021 included approximately $11 million related to claims, including requests for equitable adjustment, on
contracts that provide for price redetermination. This amount related to a single claim in our RCM reportable segment. In May
2022, we received a cash settlement for the claim, which resulted in an immaterial gain in the third quarter of fiscal 2022. There
were no claims included in our total accounts receivable at October 2, 2022.
We regularly evaluate all unsettled claim amounts and record appropriate adjustments to revenue when it is probable
that the claim will result in a different contract value than the amount previously estimated. In fiscal 2022, we recorded no gains
or losses related to claims other than the aforementioned immaterial gain on the settled RCM claim. In fiscal 2021 (all in the
second quarter), we recognized increases to revenue and related gains of $2.8 million in our CIG reportable segment.
No single client accounted for more than 10% of our accounts receivable at October 2, 2022 and October 3, 2021.
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 $3.7 billion of RUPOs as of October 2, 2022. 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 October 2, 2022 over the following periods:
Within 12 months
Beyond
Total
Amount
(in thousands)
$
$
2,394,090
1,327,544
3,721,634
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 October 5, 2021, our Board of Directors authorized a new stock repurchase program under which we could
repurchase up to $400 million of our common stock in addition to the $147.8 million under the previous stock repurchase
program at October 3, 2021. In fiscal 2022, we repurchased and settled 1,341,679 shares with an average price of $149.07 per
share for a total cost of $200.0 million in the open market. As of October 2, 2022, we had a remaining balance of $347.8 million
under our repurchase program.
67
The following table presents dividends declared and paid in fiscal 2022 and 2021:
Declare Date
November 15, 2021
January 31, 2022
May 2, 2022
August 1, 2022
$
$
$
$
Dividend Paid Per
Share
0.20
0.20
0.23
0.23
Total dividends paid as of October 2, 2022
Record Date
Payment Date
December 2, 2021
December 20, 2021
$
February 11, 2022
February 25, 2022
May 13, 2022
May 27, 2022
August 12, 2022
August 26, 2022
November 9, 2020
January 25, 2021
April 26, 2021
July 26, 2021
$
$
$
$
0.17
0.17
0.20
0.20
November 30, 2020
December 11, 2020
February 10, 2021
February 26, 2021
May 12, 2021
May 28, 2021
August 20, 2021
September 3, 2021
Total dividends paid as of October 3, 2021
Dividends Paid
(in thousands)
10,793
10,769
12,311
12,226
46,099
9,198
9,212
10,831
10,800
40,041
$
$
$
Subsequent Events. On November 7, 2022, our Board of Directors declared a quarterly cash dividend of $0.23 per
share payable on December 9, 2022 to stockholders of record as of the close of business on November 21, 2022.
5. Acquisitions
On September 23, 2022, we made an all cash offer to acquire all the outstanding shares of RPS Group plc ("RPS"), a
publicly traded company on the London Stock Exchange for 222 pence per share, which was unanimously recommended by
RPS's Board of Directors. RPS employs approximately 5,000 associates in the United Kingdom, Europe, Asia Pacific and North
America, delivering high-end solutions especially in energy transformation, water and program management for government
and commercial clients. The transaction is to be affected using a court sanctioned scheme of arrangement between RPS and its
shareholders and is subject to certain regulatory approvals and approval by RPS shareholders.
Subsequent Event. On November 3, 2022, RPS's shareholders approved the scheme of arrangement, with the
acquisition expected to be closed and effective in January 2023 after regulatory and court approval with an all cash purchase
price for 100% of the outstanding shares of approximately GBP 636 million.
In fiscal 2022, we acquired The Integration Group of America ("TIGA"), Piteau Associates (“PAE”) and two other
immaterial acquisitions. TIGA is based in Spring, Texas and is an industry leader in process automation and system integration
solutions, including customized software and platform (SaaS/PaaS) applications, advanced data analytics, cloud data integration
and platform virtualization. PAE is based in Vancouver, British Columbia and is a global leader in sustainable natural resource
analytics including hydrologic numerical modeling and dewatering system design. PAE is part of our CIG segment, and TIGA
and other immaterial acquisitions are part of our GSG segment. The total fair value of the purchase price for all four
acquisitions was $88.3 million. This amount is comprised of $44.0 million in initial cash payments made to the sellers,
$2.5 million of receivables (net) related to estimated post-closing adjustments for the net assets acquired, $15.5 million payable
in a promissory note issued to the sellers along with related transaction expenses of the sellers (which were subsequently paid in
July 2022) and $31.3 million for the estimated fair value of contingent earn-out obligations, with a maximum of $47.0 million,
based upon the achievement of specified operating income targets in each of the three to five years following the acquisitions.
In fiscal 2021, we acquired Coanda Research and Development Corporation ("CRD"), The Kaizen Company (“KZN”),
IBRA-RMAC Automation Solutions (“IRM”) and Hoare Lea, LLP and Subsidiaries ("HLE"). CRD is based in Burnaby, British
Columbia and provides world-class expertise in computational fluid dynamics and utilizes industry-leading capabilities to solve
complex engineering science problems for commercial customers, across a broad range of industries. KZN is based in
Washington, D.C. and provides international development advisory and management consulting services offering a suite of
innovative tools that support advanced solutions in health, education, governance, peace and stability and sustainable economic
growth. IRM is based in San Diego, California and provides digital water transformation consulting services and an innovative
suite of tools to address complex water system modernization challenges. HLE is a leader in sustainable engineering design
based in Bristol, United Kingdom. It was established in 1862 and is an award-winning high-end consultancy firm in the United
Kingdom, with more than 900 employees, providing innovative solutions to complex engineering and design challenges for
sustainable infrastructure and high performance buildings. CRD and HLE are part of our CIG segment, and KZN and IRM are
part of our GSG segment. The total fair value of the purchase price for these acquisitions was $151.7 million. This amount was
comprised of $101.4 million in initial cash payments made to the sellers and $50.3 million for the estimated fair value of
contingent earn-out obligations, with a maximum of $74.0 million, based upon the achievement of specified operating income
targets in each of the three to four years following the acquisitions.
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In fiscal 2020, we acquired Segue Technologies, Inc. ("SEG"), a leading information technology management
consulting firm based in Arlington, Virginia, and BlueWater Federal Solutions, Inc. ("BWF"), a leading information technology
management consulting firm based in Chantilly, Virginia. Both of these acquisitions are part of our GSG segment. The total fair
value of the purchase price for these two acquisitions was $88.6 million. This amount was comprised of $71.4 million in initial
cash payments made to the sellers, $0.7 million of payables related to estimated post-closing adjustments for net assets acquired
and $16.5 million for the estimated fair value of contingent earn-out obligations, with a maximum of $28.0 million, based upon
the achievement of specified operating income targets in each of the three years following the acquisitions.
Goodwill additions resulting from fiscal 2022 business combinations are primarily attributable to the significant
technical expertise residing in embedded workforces that are sought out by clients, long-term management experience, the
industry reputations and the synergies expected to arise after the acquisitions in the areas of data management, digitization,
modeling, water and natural resources. The fiscal 2021 goodwill additions represent the significant technical expertise residing
in embedded workforces that are sought out by clients and the long-standing reputation of HLE. 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, individually or in the aggregate, to our consolidated financial statements. As a result, no pro forma
information has been provided.
Backlog and client relations 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 intangible assets have 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 three or five 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
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 2022,
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 fiscal 2022, total adjustments to our contingent earn-out liabilities in operating income were immaterial.
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In fiscal 2021, we recorded adjustments to our contingent earn-out liabilities and reported a net gain in operating
income of $3.3 million, substantially all in the fourth quarter. 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 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 Norman, Disney and Young ("NDY"), eGlobalTech ("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 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, 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.
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
70
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.
At October 2, 2022, there was a total potential maximum of $120.9 million of outstanding contingent consideration
related to acquisitions. Of this amount, $65.6 million was estimated as the fair value and accrued on our consolidated balance
sheet.
The following table summarizes the changes in the carrying value of estimated contingent earn-out liabilities:
October 2,
2022
Fiscal Year Ended
October 3,
2021
(in thousands)
September 27,
2020
Beginning balance
$
59,297
$
32,617 $
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
6. Goodwill and Intangible Assets
31,341
2,184
329
(7,152)
(310)
(20,123)
50,235
992
(3,273)
(596)
(427)
(20,251)
$
65,566
$
59,297 $
52,992
16,581
1,162
(14,971)
(247)
—
(22,900)
32,617
The following table summarizes the changes in the carrying value of goodwill:
Balance at September 27, 2020
Acquisitions
Translation and other
Balance at October 3, 2021
Goodwill reallocation
Acquisitions
Translation and other
Balance at October 2, 2022
GSG
CIG
(in thousands)
Total
$
516,315 $
15,112
477,183 $
75,479
7,006
538,433
(51,497)
42,365
(10,199)
17,483
570,145
51,497
26,318
(56,650)
993,498
90,591
24,489
1,108,578
—
68,683
(66,849)
$
519,102 $
591,310 $
1,110,412
Our goodwill balances reflect the goodwill reallocation related to the creation of our new HPB division on the first day
of fiscal 2022, which included a transfer of some related operations in our GSG reportable segment to our CIG reportable
71
segment. The foreign currency translation adjustments resulted from our foreign subsidiaries with functional currencies that are
different than our reporting currency. The goodwill additions relate to our fiscal 2022 acquisitions. The purchase price
allocations for our fiscal 2022 acquisitions are preliminary and subject to adjustment based upon the final determinations of the
net assets acquired and information to perform the final valuations.
We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our last review at
July 4, 2022 (i.e. the first day of our fourth quarter in fiscal 2022) 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. As of July 4, 2022,
and after the reallocation of goodwill on the first day of fiscal 2022, we had no reporting units that had estimated fair values
that exceeded their carrying values by less than 165%.
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.
The gross amounts of goodwill for GSG were $536.8 million and $556.1 million at fiscal 2022 and 2021 year-ends,
respectively, excluding accumulated impairment of $17.7 million for each period. The gross amounts of goodwill for CIG were
$712.8 million and $691.6 million at fiscal 2022 and 2021 year-ends, respectively, excluding accumulated impairment of
$121.5 million for each period.
The following table presents the gross amount and accumulated amortization of our acquired identifiable intangible
assets with finite useful lives included in "Intangible assets, net" on the consolidated balance sheets:
Fiscal Year Ended
October 2, 2022
October 3, 2021
Weighted-
Average
Remaining
Life
(in years)
Gross
Amount
Accumulated
Amortization
Net
Amount
Gross
Amount
Accumulated
Amortization
Net
Amount
($ in thousands)
Client relations
Backlog
Technology and trade
names
Total
5.5
0.6
3.7
$
41,676 $
(21,092)
$ 20,584 $
69,455 $
(43,984) $ 25,471
33,286
(29,990)
3,296
34,577
(30,670)
3,907
12,711
(7,428)
5,283
14,939
(6,327)
8,612
$
87,673 $
(58,510)
$ 29,163 $
118,971 $
(80,981) $ 37,990
Amortization expense for the identifiable intangible assets for fiscal 2022, 2021 and 2020 was $13.2 million, $11.5
million and $11.6 million, respectively. Foreign currency translation adjustments reduced net identifiable intangible assets by
$5.3 million in fiscal 2022 and were immaterial for fiscal 2021.
Estimated amortization expense for the succeeding five fiscal years and beyond is as follows:
2023
2024
2025
2026
2027
Beyond
Total
72
Amount
(in thousands)
$
9,788
5,244
4,411
3,590
2,168
3,962
$
29,163
7. Property and Equipment
Property and equipment consisted of the following:
Equipment, furniture and fixtures
Leasehold improvements
Total property and equipment
Accumulated depreciation
Property and equipment, net
Fiscal Year Ended
October 2,
2022
October 3,
2021
(in thousands)
$
96,710 $
32,428
129,138
(96,822)
94,780
36,462
131,242
(93,509)
$
32,316 $
37,733
The depreciation expense related to property and equipment was $13.9 million, $12.3 million and $13.0 million for
fiscal 2022, 2021 and 2020, respectively.
8. Income Taxes
Income before income taxes, by geographic area, was as follows:
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 (benefit)
October 2,
2022
Fiscal Year Ended
October 3,
2021
(in thousands)
September 27,
2020
$
$
262,428 $
211,222 $
209,443
86,338
55,648
18,548
348,766 $
266,870 $
227,991
October 2,
2022
Fiscal Year Ended
October 3,
2021
(in thousands)
September 27,
2020
$
47,447 $
41,056 $
9,613
26,332
83,392
(424)
(382)
3,016
2,210
9,893
18,887
69,836
(6,034)
(2,060)
(27,703)
(35,797)
24,102
6,872
20,398
51,372
2,187
870
(328)
2,729
Total income tax expense
$
85,602 $
34,039 $
54,101
73
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
Tax differential on foreign earnings
Non-taxable foreign interest income
Goodwill
Stock compensation
Valuation allowance
Change in uncertain tax positions
Return to provision
Disallowed officer compensation
Cash repatriation
Unremitted earnings
Deferred tax adjustments
Other
Total income tax expense
October 2,
2022
21.0%
Fiscal Year Ended
October 3,
2021
21.0%
September 27,
2020
21.0%
2.1
(1.0)
1.0
—
—
(2.0)
0.2
(1.1)
1.4
1.9
0.1
(0.2)
0.1
1.0
2.3
(2.6)
0.9
(1.0)
—
(3.3)
(9.3)
1.7
(3.7)
2.0
2.1
1.0
0.8
0.9
24.5%
12.8%
2.7
(2.2)
0.7
(1.1)
1.5
(2.2)
1.6
0.4
0.8
0.2
—
—
(1.3)
1.6
23.7%
The effective tax rates for fiscal 2022, 2021 and 2020 were 24.5%, 12.8% and 23.7%, respectively. The fiscal 2021
effective tax rate reflects a non-recurring net tax benefit of $21.6 million, consisting of a valuation allowance in the United
Kingdom that was released due to sufficient positive evidence being obtained in fiscal 2021. The valuation allowance was
primarily related to net operating loss carry-forwards. 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 primary factors used to assess the
likelihood of realization were the past performance of the related entity and our forecast of future taxable income. In fiscal
2021, we repatriated approximately $80 million from Canada and recognized a related tax expense of $5.6 million. At that time,
we also determined that our remaining undistributed earnings in Canada of approximately $20.1 million were no longer being
indefinitely reinvested and recorded an additional deferred tax liability/expense of $3.1 million. The goodwill impairment
charge in fiscal 2020 did not have related tax benefits. Also, income tax expense was reduced by $10.3 million, $12.9 million
and $8.3 million of excess tax benefits on share-based payments in fiscal 2022, 2021 and 2020, respectively.
Excluding the impact of the valuation allowance release, the non-deductible goodwill impairment charge, the Canadian
repatriation and the excess tax benefits on share-based payments our effective tax rates in fiscal 2022, 2021 and 2020 were
27.5%, 25.7% and 25.6% respectively.
In fiscal 2022, the Inflation Reduction Act and the CHIPS and Science Act were signed into law. These Acts both
contain new U.S. income tax provisions; however, we do not expect them to have a material impact on our consolidated
financial statements.
We are currently under examination by the Internal Revenue Service for fiscal years 2018 and 2019, and the Canada
Revenue Agency for fiscal years 2011 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:
74
Deferred Tax Assets:
State taxes
Reserves and contingent liabilities
Accounts receivable including the allowance for doubtful accounts
Accrued liabilities
Lease liabilities, operating leases
Stock-based compensation
Unbilled revenue
Loss carry-forwards
Valuation allowance
Total deferred tax assets
Deferred Tax Liabilities:
Unbilled revenue
Prepaid expense
Right-of-use assets, operating leases
Intangibles
Undistributed earnings
Property and equipment
Total deferred tax liabilities
Net deferred tax assets
Fiscal Year Ended
October 2,
2022
October 3,
2021
(in thousands)
$
1,238 $
5,023
4,986
35,973
49,618
2,925
4,885
41,648
(12,286)
134,010
—
(6,065)
(49,618)
(42,863)
(2,200)
(621)
1,342
6,662
5,917
41,657
60,181
3,560
—
54,825
(13,040)
161,104
(5,595)
(8,136)
(60,181)
(40,121)
(3,136)
(85)
(101,367)
(117,254)
$
32,643 $
43,850
Prospectively, from the date of the aforementioned repatriation, our earnings in Canada are not considered indefinitely
reinvested and any potential tax liability that would be incurred upon repatriation is recognized currently with the related
income. At October 2, 2022, undistributed earnings of our other foreign subsidiaries, primarily in Australia and the United
Kingdom of approximately $81.7 million are expected to be indefinitely reinvested in these foreign countries. Accordingly, no
provision for foreign withholding taxes has been made. Assuming the indefinitely reinvested foreign earnings were repatriated
under the laws and rates applicable at October 2, 2022, the incremental taxes applicable to those earnings would not be
material.
At October 2, 2022, we had available unused state net operating loss ("NOL") carry forwards of $43.7 million that
expire at various dates from 2026 to 2037; and available foreign NOL carry forwards of $119.1 million, of which $17.9 million
expire at various dates from 2023 to 2042, and $101.2 million have no expiration date. In addition, we had foreign capital loss
carryforwards of $18.4 million and foreign research and development credits of $3.9 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
deferred tax assets related to the loss carry-forwards for which a valuation allowance of $12.3 million has been provided.
At October 2, 2022, we had $8.9 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:
75
Beginning balance
Additions for current fiscal year tax positions
Additions for prior fiscal year tax positions
Reductions for prior fiscal year tax positions
Settlements
Ending balance
October 2,
2022
Fiscal Year Ended
October 3,
2021
(in thousands)
September 27,
2020
$
12,899 $
9,228 $
9,169
—
—
(3,014)
(977)
2,171
1,500
—
—
700
—
(641)
—
$
8,908 $
12,899 $
9,228
We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal
years 2022, 2021 and 2020, we accrued additional interest and penalties of $0.5 million, $0.8 million and $0.8 million,
respectively, and recorded reductions in accrued interest and penalties of $0.4 million, $0 and $0, respectively, as a result of
audit settlements and other prior-year adjustments. The amount of interest and penalties accrued at October 2, 2022, October 3,
2021 and September 27, 2020 was $5.3 million, $5.2 million and $4.4 million, respectively.
9. Long-Term Debt
Long-term debt consisted of the following:
Credit facilities
Less: Current portion of long-term debt
Long-term debt
Fiscal Year Ended
October 2,
2022
October 3,
2021
(in thousands)
$
$
258,754 $
(12,504)
246,250 $
212,500
(12,500)
200,000
On February 18, 2022, we entered into Amendment No. 2 to our Second Amended and Restated Credit Agreement
(“Amended Credit Agreement”) with a total borrowing capacity of $1.05 billion that will mature in February 2027. The
Amended Credit Agreement is a $750 million senior secured, five-year facility that provides for a $250 million term loan
facility (the “Amended Term Loan Facility”) and a $500 million revolving credit facility (the “Amended Revolving Credit
Facility”). In addition, the Amended Credit Agreement includes a $300 million accordion feature that allows us to increase the
Amended Credit Agreement to $1.05 billion subject to lender approval. The Amended Credit Agreement provides for, among
other things, (i) refinance indebtedness under our Credit Agreement dated as of July 30, 2018; (ii) finance open market
repurchases of common stock, acquisitions and cash dividends and distributions; and (iii) utilize the proceeds for working
capital, capital expenditures and other general corporate purposes. The Amended Credit Agreement provides for a reduction in
the interest grid for meeting certain sustainability targets related to the (i) reduction of greenhouse gas emissions through the
Company’s projects and operational sustainability initiatives and (ii) improvement of peoples’ lives as a result of the
Company’s projects that provide environmental, social and governance benefits. 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
$300 million sublimit for multicurrency borrowings and letters of credit.
The entire Amended Term Loan Facility was drawn on February 18, 2022. The Amended Term Loan Facility is subject
to quarterly amortization of principal at 5% annually commencing June 30, 2022. We may borrow on the Amended Revolving
Credit Facility, at our option, at either (a) a benchmark rate plus a margin that ranges from 1.000% to 1.875% 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 Secured Overnight Financing Rate ("SOFR") rate plus 1.00%, plus a margin that ranges from 0% to 0.875% 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 February 18, 2027, or earlier
at our discretion upon payment in full of loans and other obligations.
At October 2, 2022, we had $258.8 million in outstanding borrowings under the Amended Credit Agreement, which
was comprised of $243.8 million under the Amended Term Loan Facility and $15.0 million under the Amended Revolving
Credit Facility. The year-to-date weighted-average interest rate of the outstanding borrowings during fiscal 2022 was 1.97%. In
addition, we had $0.7 million in standby letters of credit under the Amended Credit Agreement. Our year-to-date weighted-
76
average interest rate on borrowings outstanding during fiscal 2021 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 3.60%. At October 2, 2022, we had $484.3 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 3.25 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 October 2, 2022, we were in compliance with these covenants with a
consolidated leverage ratio of 0.76x and a consolidated interest coverage ratio of 29.52x.
In addition to the Amended Credit Agreement, we maintain other credit facilities, which may be used for short-term
cash advances and bank guarantees. At October 2, 2022, there were no outstanding borrowings under these facilities and the
aggregate amount of standby letters of credit outstanding was $44.4 million. As of October 2, 2022 we had no bank overdrafts
related to our disbursement bank accounts.
The following table presents scheduled maturities of our long-term debt:
2023
2024
2025
2026
2027
Total
Amount
(in thousands)
12,504
12,500
12,500
12,500
208,750
258,754
$
Subsequent Event: On October 26, 2022, we entered into a Third Amended and Restated Credit Agreement that
provides for an additional $500 million senior secured term loan facility (the "New Term Loan Facility") increasing our total
borrowing capacity to $1.55 billion. We expect to draw the entire amount of the New Term Loan Facility to partially finance the
acquisition of RPS. The remaining purchase price is expected to be financed with existing cash on hand and borrowings under
the Amended Revolving Credit Facility. The New Term Loan Facility is not subject to any amortization payments of principal
and matures on the third anniversary of the RPS acquisition closing date.
10. Leases
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 ten years, some of which
may include options to extend the leases for up to five years.
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. Our finance leases are primarily for
certain IT equipment. The related ROU assets and lease liabilities were immaterial.
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 at the commencement date also includes any lease
payments made to the lessor at or before the commencement date and initial direct costs less lease incentives received. 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.
77
The components of lease costs are as follows:
Operating lease cost
Sublease income
Total lease cost
Supplemental cash flow information related to leases is as follows:
Operating cash flows for operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Supplemental balance sheet and other information related to leases 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
Fiscal Year Ended
October 2,
2022
October 3,
2021
(in thousands)
$
$
86,725 $
91,076
(150)
(106)
86,575 $
90,970
Fiscal Year Ended
October 2,
2022
October 3,
2021
(in thousands)
$
$
71,365 $
44,096 $
81,943
72,076
Fiscal Year Ended
October 2,
2022
October 3,
2021
(in thousands)
$
182,319
$
215,422
$
57,865
$
67,452
146,285
174,285
$
204,150
$
241,737
5 years
5 years
2.2 %
2.2 %
78
As of October 2, 2022, we do not have any material additional operating leases that have not yet commenced.
A maturity analysis of the future undiscounted cash flows associated with our operating lease liabilities as of
October 2, 2022 is as follows:
2023
2024
2025
2026
2027
Beyond
Total lease payments
Less: imputed interest
Amount
(in thousands)
$
61,703
47,520
35,466
23,481
16,961
31,927
217,058
(12,908)
Total present value of lease liabilities
$
204,150
11. Stockholders' Equity and Stock Compensation Plans
At October 2, 2022, we had the following stock-based compensation plans:
•
•
•
•
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 vest at 25% on each anniversary of the
grant date and 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 October 2, 2022, there
were 2.2 million shares available for future awards pursuant to the 2018 EIP.
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 380,784 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).
The following table presents our stock-based compensation and related income tax benefits:
October 2,
2022
Fiscal Year Ended
October 3,
2021
(in thousands)
September 27,
2020
Total stock-based compensation
Income tax benefit related to stock-based compensation
Stock-based compensation, net of tax benefit
$
$
26,227 $
23,067 $
(5,377)
(4,910)
20,850 $
18,157 $
19,424
(4,318)
15,106
79
We recognize the fair value of our stock-based awards as compensation expense on a straight-line basis over the
requisite service period in which the award vests. Most of these amounts were included in selling, general and administrative
expenses on our consolidated statements of income.
Stock Options
The following table presents our stock option activity for fiscal year ended October 2, 2022:
Number of
Options
(in thousands)
Weighted-
Average
Exercise Price
per Share
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding on October 3, 2021
Exercised
Forfeited
Outstanding at October 2, 2022
Vested or expected to vest at October 2, 2022
Exercisable on October 2, 2022
214 $
(46)
—
168 $
168 $
168 $
38.80
39.44
—
38.62
38.62
38.62
4.04
4.04
4.04
$
$
$
15,086
15,086
15,086
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 2022 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 October 2, 2022. This amount will change
based on the fair market value of our stock.
No stock options were granted in fiscal 2022, 2021 and 2020. The aggregate intrinsic value of options exercised during
fiscal 2022, 2021 and 2020 was $5.7 million, $29.4 million and $22.4 million, respectively.
Net cash proceeds from the exercise of stock options were $1.8 million, $11.3 million and $10.3 million for fiscal
2022, 2021 and 2020, 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 for fiscal 2022, 2021 and 2020 was $1.3
million, $6.7 million and $4.9 million, respectively.
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
50% on 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.
80
A summary of the RSU and PSU activity under our stock plans is as follows:
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
Nonvested balance at September 29, 2019
Granted
Vested
Adjustment (1)
Forfeited
Nonvested balance at September 27, 2020
Granted
Vested
Adjustment (1)
Forfeited
Nonvested balance at October 3, 2021
Granted
Vested
Adjustment (1)
Forfeited
470 $
168
(178)
—
(16)
444
118
(167)
—
(14)
381
78
(147)
—
(13)
Nonvested balance at October 2, 2022
299 $
50.42
83.92
46.87
—
65.43
63.93
122.02
59.64
—
77.74
83.30
184.61
77.47
—
109.01
111.40
$
384
74
(162)
64
(5)
355
58
(193)
99
(1)
318
42
(176)
88
—
53.67
99.85
47.28
48.36
83.98
64.83
153.03
57.40
57.40
74.05
82.96
247.16
80.17
80.63
—
272
$
109.23
(1) 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. Fiscal 2021 includes a payout adjustment of 99,214 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2018 that vested
during fiscal 2021. Fiscal 2022 includes a payout adjustment of 88,198 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2019 that
vested during fiscal 2022.
During fiscal 2022, 2021 and 2020, we awarded 77,844, 117,934 and 167,525 shares of RSUs, respectively, to our key
employees and non-employee directors. The weighted-average grant-date fair value of RSUs granted during fiscal 2022, 2021
and 2020 was $184.61, $122.02 and $83.92, respectively. At October 2, 2022, there were 299,055 RSUs outstanding. RSU
forfeitures result from employment terminations prior to vesting. Forfeited shares return to the pool of authorized shares
available for award. We use historical data as a basis to estimate the probability of forfeitures related to RSUs and the ESPP
Plan.
During fiscal 2022, 2021 and 2020, we awarded 41,734, 57,542 and 74,011 shares of PSUs, respectively, to our
executive officers and non-employee directors. The weighted-average grant-date fair value of PSUs granted during fiscal 2022,
2021 and 2020 was $247.16, $153.03 and $99.85, respectively.
The stock-based compensation expense related to RSUs and PSUs for fiscal 2022, 2021 and 2020 was $23.9 million,
$20.9 million and $17.7 million, respectively, and was included in total stock-based compensation expense. The actual income
tax benefit realized from RSUs and PSUs for fiscal 2022, 2021 and 2020 was $9.1 million, $6.2 million and $3.4 million,
respectively. At October 2, 2022, there was $35.9 million of unrecognized stock-based compensation costs related to nonvested
RSUs and PSUs that will be substantially recognized by the end of fiscal 2025.
81
ESPP
The following table summarizes shares purchased, weighted-average purchase price, and cash received for shares
purchased under the ESPP:
October 2,
2022
Fiscal Year Ended
October 3,
2021
(in thousands, except for purchase price)
September 27,
2020
Shares purchased
Weighted-average purchase price per share
Cash received from exercise of purchase rights
106
114.17 $
12,129 $
124
86.16 $
10,705 $
$
$
168
51.77
8,715
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)
October 2,
2022
1.0%
32.2%
0.4%
1
Fiscal Year Ended
October 3,
2021
1.0%
September 27,
2020
1.0%
47.9%
0.1%
1
26.5%
1.6%
1
For fiscal 2022, 2021 and 2020, 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 2022, 2021 and 2020 included $2.3 million, $2.0 million and $1.2
million, respectively, related to the ESPP. The unrecognized stock-based compensation costs for awards granted under the ESPP
at fiscal 2022 and 2021 year-ends were $0.6 million and $0.5 million, respectively. At October 2, 2022, ESPP participants had
accumulated $11 million to purchase our common stock.
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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 2022, 2021 and 2020, employer contributions to the U.S. plans were $29.3 million, $26.9
million and $25.0 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
October 2, 2022 and October 3, 2021, the consolidated balance sheets reflect assets of $36.7 million and $41.4 million,
respectively, related to the deferred compensation plan in "Other long-term assets," and liabilities of $36.3 million and $41.1
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 2022, 2021 and 2020.
In connection with the acquisition of HLE in fiscal 2021, we assumed a defined benefit pension plan (the “Plan”),
which HLE operates for all qualifying employees. The assets of the Plan are held in a separate trustee administered fund. The
Plan was closed to new entrants in August 2003, except for current employees who had not attained the age of 24 at that date.
The Plan was closed to future accrual on December 31, 2009. Under the agreed schedule of contributions, HLE will make no
further contributions, and is to pay the expenses of administering the plan.
The change in the defined benefit obligation, the change in fair value of plan assets and the amounts recognized in the
Consolidated Statement of Income, the Consolidated Statement of Comprehensive Income and the Consolidated Statements of
Shareholders’ Equity for fiscal 2022 and fiscal 2021 were immaterial.
The Plan's funded status was as follows:
Fair value of plan assets
Benefit obligation
Net surplus
Fiscal Year Ended
October 2,
2022
October 3,
2021
(in thousands)
$
$
36,250
$
(33,006)
3,244
$
65,836
(64,830)
1,006
The net surplus is reflected in other long-term assets on our consolidated balance sheets at October 2, 2022 and
October 3, 2021. As the plan is closed to new participants and to future benefit accrual, the reduction in the fair value of plan
assets and the benefit obligation were primarily due to actual losses on plan assets and an increased discount rate, respectively.
Benefits paid during fiscal 2022 were $1.0 million.
The fair values of the plan assets are substantially categorized within Level 2 of the fair value hierarchy. The fair
values of the plan assets by major asset categories were as follows:
Equities
Mutual funds
Liability driven investment funds
Cash/other
Fair value of plan assets
Fiscal Year Ended
October 2,
2022
October 3,
2021
(in thousands)
$
8,390
$
20,886
6,484
490
13,646
33,826
17,653
711
$
36,250
$
65,836
We seek a competitive rate of return relative to an appropriate level of risk depending on the funded status and
obligations of each plan and typically employ both active and passive investment management strategies. The risk in our
83
practices include diversification across asset classes and investment styles and periodic rebalancing toward asset allocation
targets. The target asset allocation selected for each plan reflects a risk/return profile that we believe is appropriate relative to
each plan’s liability structure and return goals.
Principal assumptions used for the benefit obligation in the valuation are as follows:
Discount rate
Rate of inflation
13. Earnings per Share
Fiscal Year Ended
October 2,
2022
4.75%
2.95% to 3.55%
October 3,
2021
2.00%
2.85% to 3.50%
The following table sets forth the number of weighted-average shares used to compute basic and diluted EPS:
Fiscal Year Ended
September 27,
October 3,
October 2,
2022
2020
2021
(in thousands, except per share data)
Net income attributable to Tetra Tech
$
263,125 $
232,810 $
173,859
Weighted-average common shares outstanding – basic
Effect of diluted stock options and unvested restricted stock
Weighted-average common stock outstanding – diluted
53,620
543
54,163
54,078
597
54,675
54,235
787
55,022
Earnings per share attributable to Tetra Tech:
Basic
Diluted
$
$
4.91 $
4.86
$
4.31 $
4.26
$
3.21
3.16
For fiscal 2022, 2021 and 2020, no options were excluded from the calculation of dilutive potential common shares.
14. Derivative Financial Instruments
We use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt. Also, we
may enter in 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. Our derivative contracts are categorized within Level 2 of the fair
value hierarchy.
In the anticipation of the planned acquisition of RPS, we entered into a forward contract during the fourth quarter of
fiscal 2022 to acquire GBP 714.0 million at a rate of 1.0852 for a total of USD 774.8 million. The contract matures on
December 30, 2022. Although an effective economic hedge of our foreign exchange risk related to this transaction, the forward
contract did not qualify for hedge accounting. As a result, the forward contract is marked-to-market with changes in fair value
recognized in earnings each period. The intrinsic value of the forward contract was immaterial at inception as the GBP/USD
spot and forward exchange rates were essentially the same. The fair value of the forward contract at October 2, 2022 was
$19.9 million, which resulted in an unrealized gain of the same amount in the fourth quarter fiscal 2022, which is reflected in
“Other income" on the consolidated income statement for fiscal 2022. The related $19.9 million asset is reported in "Prepaid
expenses and other current assets" on the consolidated balance sheet at October 2, 2022.
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 October 2, 2022, the notional principal of our outstanding
interest swap agreements was $200.0 million ($40.0 million each.) The interest rate swaps have a fixed interest rate of 2.79%
and expire in July 2023 for all five agreements. At October 2, 2022 and October 3, 2021, the fair value of the effective portion
of our interest rate swap agreements designated as cash flow hedges before tax effect was an unrealized gain of $2.4 million and
84
an unrealized loss of $9.4 million, which were reported in "Other long-term assets" and "Other current liabilities" on our
consolidated balance sheets, respectively. Additionally, the related gain of $11.8 million, a gain of $6.1 million and a loss of
$4.6 million for fiscal year ended 2022, 2021 and 2020, respectively, were recognized and reported on our consolidated
statements of comprehensive income. We expect to reclassify a credit of $3.1 million from accumulated other comprehensive
loss to interest expense within the next 12 months. There were no other derivative instruments that were not designated as
hedging instruments for fiscal 2022, 2021 and 2020.
15. Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
The accumulated balances and reporting period activities for fiscal 2022, 2021 and 2020 related to reclassifications out
of accumulated other comprehensive income are summarized as follows:
Foreign
Currency
Translation
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Gain (Loss)
on Derivative
Instruments
(in thousands)
Balances at September 29, 2019
$
(149,711) $
(10,873) $
(160,584)
Other comprehensive income (loss) 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)
Other comprehensive income before reclassifications
30,641
12,175
42,816
Amounts reclassified from accumulated other comprehensive income
Interest rate contracts, net of tax (1)
Net current-period other comprehensive income
—
30,641
(6,058)
6,117
Balances at October 3, 2021
Other comprehensive income before reclassifications
$
(115,634) $
(94,922)
(9,394) $
15,937
Amounts reclassified from accumulated other comprehensive income
Interest rate contracts, net of tax (1)
Net current-period other comprehensive income
—
(94,922)
(4,131)
11,806
(6,058)
36,758
(125,028)
(78,985)
(4,131)
(83,116)
Balances at October 2, 2022
$
(210,556) $
2,412 $
(208,144)
(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.
85
16. Fair Value Measurements
Derivative Instruments. Our derivative instruments are categorized within Level 2 of the fair value hierarchy. 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 using
significant unobservable inputs classified within Level 3 of the fair value hierarchy. (see Note 2, "Basis of Presentation and
Preparation" and Note 5, "Acquisitions" 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 October 2, 2022 and October 3, 2021. At October 2, 2022, we had borrowings of
$258.8 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.
Defined Benefit Pension Plan. The fair values of the plan assets are primarily categorized within Level 2 of the fair
value hierarchy. For additional information about our defined benefit pension plan (see Note 12, "Retirement Plans").
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.
86
18. Reportable Segments
We manage 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. There has been no remaining backlog for RCM since fiscal 2018 as the projects were complete.
Our reportable segments are described as follows:
GSG: GSG provides high-end 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, the United Kingdom and Australia.
CIG: CIG primarily provides high-end 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, renewable energy, industrial, high performance buildings and aerospace markets. CIG also provides sustainable
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 in fiscal 2022. There has been no remaining backlog for RCM since fiscal 2018 as the projects were
complete. In May 2022, we received a cash settlement for the last $11 million RCM claim outstanding. This settlement resulted
in an immaterial gain in the third quarter of fiscal 2022. There were no significant operating activities in RCM for fiscal 2022,
2021 and 2020.
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
Corporate (1)
Total income from operations
October 2,
2022
Fiscal Year Ended
October 3,
2021
(in thousands)
September 27,
2020
$
1,820,868 $
1,772,905 $
1,578,332
1,738,436
1,500,074
1,471,097
—
(55,256)
613
(60,079)
198
(54,736)
$
3,504,048 $
3,213,513 $
2,994,891
$
198,448 $
194,142
174,755 $
152,262
(52,144)
(48,316)
$
340,446 $
278,701 $
146,273
136,418
(41,600)
241,091
(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 2022, 2021 and 2020 was $13.2 million, $11.5 million and $11.6 million, respectively. Additionally, Corporate
results included income (loss) for fair value adjustments to contingent consideration liabilities of $(0.3) million, $3.3 million and $15.0 million for fiscal 2022,
2021 and 2020, respectively. Corporate results in fiscal 2020 also included $15.8 million goodwill impairment charges. See Note 6 - "Goodwill and Intangible
Assets" for more information.
87
Total Assets
GSG
CIG
RCM
Corporate (1)
Total assets
Balance at
October 2,
2022
October 3,
2021
(in thousands)
$
558,764 $
688,640
2
545,533
698,916
11,360
1,375,370
1,320,753
$
2,622,776 $
2,576,562
(1) 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
Revenue:
United States
Foreign countries (1)
Total
Long-lived assets (2):
United States
Foreign countries (1)
Total
October 2,
2022
Fiscal Year Ended
October 3,
2021
(in thousands)
September 27,
2020
$
$
2,416,586 $
2,256,086 $
2,107,459
1,087,462
957,427
887,432
3,504,048 $
3,213,513 $
2,994,891
Balance at
October 2,
2022
October 3,
2021
(in thousands)
$
$
199,875 $
215,689
77,305
87,771
277,180 $
303,460
(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.
88
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 2022, 2021 and 2020 was $96.0 million, $95.5 million and $88.2 million, respectively.
Our related reimbursable costs for fiscal 2022, 2021 and 2020 were $91.7 million, $92.4 million and $86.4 million,
respectively. Our consolidated balance sheets also included the following amounts related to these services:
Accounts receivable, net
Contract assets
Contract liabilities
Balance at
October 2,
2022
October 3,
2021
(in thousands)
$
16,818 $
19,082
2,935
3,464
5,092
3,026
20. Quarterly Financial Information – Unaudited
In the opinion of management, the following unaudited quarterly data for the fiscal years ended October 2, 2022 and
October 3, 2021 reflect all adjustments necessary for a fair statement of the results of operations.
In the fourth quarter of fiscal 2022, we recognized a $19.9 million unrealized gain on a foreign currency forward
contract related to the planned acquisition of RPS.
In the fourth quarter of fiscal 2021, we recognized a non-recurring net tax benefit of $21.6 million primarily consisting
of valuation allowances in the United Kingdom that were released due to sufficient positive evidence being obtained.
Fiscal Year 2022
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 2021
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)
$
858,510 $
852,744 $
890,231 $
902,562
87,220
68,489
74,520
53,040
83,905
58,650
94,802
82,947
$
$
1.27 $
1.25 $
0.99 $
0.98 $
1.10 $
1.09 $
1.56
1.55
53,937
54,577
53,834
54,346
53,507
54,006
53,148
53,667
$
765,104 $
754,764 $
801,633 $
892,012
66,252
52,436
60,807
45,517
69,807
51,903
81,836
82,954
$
$
0.97 $
0.96 $
0.84 $
0.83 $
0.96 $
0.95 $
1.54
1.52
53,927
54,637
54,187
54,736
54,117
54,666
54,019
54,597
89
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 October 2, 2022, 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 October 2, 2022, 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 October 2, 2022.
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, 2022, appears on pages 52-53 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 October 2, 2022
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 2023 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.
90
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 2023 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 2023 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 2023 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 2023 Annual Meeting of Stockholders and is
incorporated by reference.
Item 15. Exhibits, Financial Statement Schedules
(a)
Documents filed as part of this report
1 Consolidated financial statements
PART IV
Consolidated Balance Sheets at October 2, 2022 and October 3, 2021
Consolidated Statements of Income for the fiscal years ended October 2, 2022, October 3, 2021 and
September 27, 2020
Consolidated Statements of Comprehensive Income for the fiscal years ended October 2, 2022,
October 3, 2021 and September 27, 2020
Consolidated Statements of Cash Flows for the fiscal years ended October 2, 2022, October 3, 2021
and September 27, 2020
Consolidated Statements of Equity for the fiscal years ended October 2, 2022, October 3, 2021 and
September 27, 2020
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
2 Consolidated financial statement Schedule
Schedule II – Valuation and Qualifying Accounts and Reserves for the fiscal years ended October 2,
2022, October 3, 2021 and September 27, 2020
All other schedules are omitted because they are neither applicable nor required
3 Exhibits
The exhibit list in the Index to Exhibits is incorporated by reference as the list of exhibits required as
part of this Report.
Page
54
55
56
57
58
60
92
93
91
Tetra Tech, Inc.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Fiscal Years Ended
September 27, 2020, October 3, 2021 and October 2, 2022
(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 2020
Fiscal 2021
Fiscal 2022
Income tax valuation allowance:
Fiscal 2020
Fiscal 2021
Fiscal 2022
$
$
$
10,562
7,147
4,352
1,472 $
(4,130)
(73)
(4,887)
195
(400)
— $
1,140
(130)
20,543
24,395
13,040
$
3,852 $
— $
— $
13,698
—
(26,059)
(162)
1,006
(592)
7,147
4,352
3,749
24,395
13,040
12,286
(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 a valuation allowance in the United Kingdom in fiscal 2021.
(3) Includes loss in foreign jurisdictions, currency adjustments and valuation allowance adjustments related to net operating loss carry-forwards.
92
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).
INDEX TO EXHIBITS
3.2 Bylaws of the Company (amended and restated as of November 7, 2022) (incorporated by reference to Exhibit 3.1 to
the Company's Current Report on Form 8-K dated November 10, 2022).
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 Amendment No. 2 to Second Amended and Restated Credit Agreement dated as of February 18, 2022 among Tetra
Tech, Inc., Tetra Tech Canada Holding Corporation, Tetra Tech UK Holdings Limited, Tetra Tech Coffey Pty., Ltd.,
the subsidiary guarantors and 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 February 22, 2022)
10.3 Bridge Credit Agreement dated as of September 23, 2022 among Tetra Tech, Inc., the lenders party thereto and BofA
Securities, Inc., as sole leader arranger and sole bookrunner (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated September 26, 2022)
10.4 Amendment No. 3 to Second Amended and Restated Credit Agreement dated as of October 7, 2022 among Tetra Tech,
Inc., Tetra Tech Canada Holding Corporation, Tetra Tech UK Holdings Limited, Tetra Tech Coffey Pty., Ltd., the
subsidiary guarantors and 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 October 11, 2022)
10.51 Third Amended and Restated Credit Agreement dated as of October 26, 2022 among Tetra Tech, Inc., Tetra Tech
Canada Holding Corporation, Tetra Tech UK Holdings Limited, Tetra Tech Coffey Pty., Ltd., the subsidiary
guarantors and 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 October 28, 2022).
10.6 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).
10.7 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).*
10.8 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).*
10.9 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).*
10.1 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).*
10.11 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).*
10.12 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).*
10.13 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).*
93
10.14 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 96 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. 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 The following financial information from our Company's Annual Report on Form 10-K, for the period ended October
2, 2022, 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.
Item 16. Form 10-K Summary
None.
94
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 22, 2022
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
Dan L. Batrack
Chairman and Chief Executive Officer
(Principal Executive Officer)
November 22, 2022
/s/ STEVEN M. BURDICK
Steven M. Burdick
/s/ BRIAN N. CARTER
Brian N. Carter
/s/ GARY R. BIRKENBEUEL
Gary R. Birkenbeuel
/s/ PRASHANT GANDHI
Prashant Gandhi
/s/ J. CHRISTOPHER LEWIS
J. Christopher Lewis
/s/ JOANNE M. MAGUIRE
Joanne M. Maguire
/s/ KIMBERLY E. RITRIEVI
Kimberly E. Ritrievi
/s/ J. KENNETH THOMPSON
J. Kenneth Thompson
/s/ KIRSTEN M. VOLPI
Kirsten M. Volpi
Executive Vice President, Chief Financial Officer
November 22, 2022
(Principal Financial Officer)
Senior Vice President, Corporate Controller
November 22, 2022
(Principal Accounting Officer)
November 22, 2022
November 22, 2022
November 22, 2022
November 22, 2022
November 22, 2022
November 22, 2022
November 22, 2022
Director
Director
Director
Director
Director
Director
Director
95
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 Assurance
Managing Partner, Ernst & Young LLP
Prashant Gandhi
Chief Business Officer, Melio Payments
J. Christopher Lewis
Managing Director,
RLH Equity Partners
Joanne M. Maguire
Retired Executive Vice President,
Lockheed Martin Space
Christiana Obiaya
Chief Financial Officer, Heliogen
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
Jill M. Hudkins
President
Leslie L. Shoemaker
Executive Vice President, Chief
Sustainability and Leadership
Development Officer
Steven M. Burdick
Executive Vice President,
Chief Financial Officer
William R. Brownlie
Senior Vice President,
Chief Engineer
Brian N. Carter
Senior Vice President, Corporate
Controller and Chief Accounting Officer
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
Derek G. Amidon
President, Commercial/International
Services Group and President,
Energy Engineering
Roger R. Argus
President, Government
Services Group and President,
U.S. Government Division and U.S.
Infrastructure Division
Keith Brown
President, Global Development
Services Division
Stuart W. Fowler
President, High Performance
Buildings Division
Olivier H. Jeannot
President, Federal Information
Technology Division
Bernard Teufele
President, Environment/Geotech
Division
CHAIRMAN EMERITUS
Li-San Hwang
Former Chairman and
Chief Executive Officer, Tetra Tech, Inc.
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
SHAREHOLDER INQUIRIES
Telephone: +1 (626) 470-2844
Email: investor.relations@tetratech.com
TRANSFER AGENT AND
REGISTRAR
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, Kentucky 40233-5000
Telephone: +1 (800) 962-4284
STOCK LISTING
The Company’s common stock is
traded on the NASDAQ Global Select
Market (Symbol: TTEK)