What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-11-23 compared with 2019-11-29 · 360 added, 314 removed, 346 unchanged (66% of the section changed)

5 unchanged sentences

OVERVIEW OF RESULTS AND BUSINESS TRENDS

In fiscal 2019 , our revenue increased 4.8% compared to fiscal 2018.

The growth in our fiscal 2019 revenue was led by our U.S.

state and local government and international businesses.

The net contribution from acquisitions/divestitures and RCM did not significantly impact our overall revenue growth in fiscal 2019 compared to last year.

State and Local Government.

state and local government revenue increased 25.2% in fiscal 2019 compared to last year as we continue to experience an increase in revenue from disaster response and recovery planning activities.

Additionally, the increase includes broad-based growth in our U.S.

state and local government project-related infrastructure business, particularly with increased revenue from municipal water infrastructure work in the metropolitan areas of California, Texas, and Florida.

We expect our U.S.

state and local government business to continue to grow in fiscal 2020 excluding the disaster response activities.

As the COVID-19 spread globally, we responded quickly to ensure the health and safety of our employees, clients and the communities we support.

Our high-end consulting focus and the technologies we deployed have allowed our staff to support clients and projects remotely without interruption.

We remain focused on providing clients with the highest level of service and our 450 global offices are operational, supporting our programs and projects.

By Leading with Science® , we are responding to the challenges of COVID-19, with the commitment of our 20,000 staff supported by technological innovation.

We entered fiscal 2020 in the best position in our history, with record backlog from our government and commercial clients supporting their critical water and environmental programs.

For the first five months of fiscal 2020, we were on pace for another record year;

however, the unprecedented disruption of the global economy due to the COVID-19 pandemic has impacted all businesses.

Our government business, which represents approximately 60% of our revenue, has been stable, while our commercial business experienced relatively more impact.

Much of our commercial business has continued due to regulatory drivers, but we have seen project delays in the industrial sectors.

Our diversified end-markets have allowed us to redeploy staff to areas of uninterrupted or increased demand, and we have made decisions to align our cost structures with our clients' projects.

The actions we have taken to navigate through this worldwide pandemic, the strength of our balance sheet, and our technical leadership position us well to address the global challenges of providing clean water, environmental restoration, and the impacts of climate change.

In fiscal 2020, o ur revenue decreased 3.6% compared to fiscal 2019.

Our year-over-year revenue comparisons were impacted by the disposal of our Canadian turn-key pipeline activities in the fourth quarter of fiscal 2019 and a decrease in revenue from disaster response activities related to California wildfires.

Excluding the disposal and the decreased California wildfire activity, our revenue increased 3.5% in fiscal 2020 compared to last year.

This increase includes $210.5 million of revenue from acquisitions, which did not have comparable revenue in fiscal 2019.

Excluding the net impact of acquisitions/disposals and the California wildfire disaster response activities, our revenue in fiscal 2020 decreased 3.9% compared to fiscal 2019 primarily due to the adverse impact of the COVID-19 pandemic on our U.S.

commercial and international revenue.

Federal Government.

federal government revenue decreased 3.4% in fiscal 2019 compared to fiscal 2018.

The decline primarily reflects disrupted activity due to the thirty-day partial U.S.

government shutdown that commenced in late December 2018.

federal government revenue increased 5.6% in fiscal 2020 compared to fiscal 2019.

Excluding contributions from acquisitions, our revenue declined 1.5% in fiscal 2020 compared to last year.

The decrease was primarily due to reduced international development activities, partially offset by increased federal information technology consulting activity.

During periods of economic volatility, our U.S.

federal government clients have historically been the most stable and predictable.

We anticipate revenue growth in U.S.

federal government revenue in fiscal 2020;

however, if there is another prolonged U.S.

federal government shutdown, our U.S.

federal government business could be adversely impacted.

commercial revenue decreased 8.8% in fiscal 2019 compared to fiscal 2018.

Our prior year revenue included $53.2 million from our non-core utility field services that were divested in fiscal 2018.

Excluding the net impact of this divestiture, our U.S.

commercial business declined 2.2% compared to last year.

The decline reflects a higher level of subcontractor activity in fiscal 2018.

Also, excluding subcontractor activity, our revenue was approximately the same as fiscal 2018.

federal government business has historically been the most stable and predictable.

We expect our U.S.

commercial revenue to grow modestly in fiscal 2020, primarily due to increased activities for industrial water treatment, environmental programs, high-performance green buildings, and renewable energy.

federal government revenue to grow modestly in fiscal 2021 due to continued increased federal information technology consulting activity.

However, U.S.

federal spending amounts and priorities could change significantly from our current expectations, which could have a significant positive or negative impact on our fiscal 2021 revenue.

State and Local Government.

state and local government revenue decreased 25.3% in fiscal 2020 compared to last year as we experienced a decrease in revenue from the aforementioned California wildfire disaster response activities.

This decline was partially offset by continued broad-based growth in our U.S.

Most of our work for U.S.

state and local governments relates to critical water and environmental programs, which we expect to increase further next year.

However, further budgetary constraints to our clients could negatively impact our business.

Conversely, increased disaster response activity could cause our fiscal 2021 revenue to exceed our current expectations.

commercial revenue decreased 6.2% in fiscal 2020 compared to fiscal 2019.

This decline was primarily due to reduced industrial activity as a result of the COVID-19 pandemic.

We currently expect the adverse impact of the COVID-19 pandemic to our U.S.

commercial revenue to continue to be more significant than to our U.S.

government programs and projects throughout most of next year.

International.

Our international revenue increased 3.2% in fiscal 2020 compared to fiscal 2019.

Excluding contributions from acquisitions, our revenue grew 8.9% compared to prior year.

The revenue growth primarily reflects increased activity in Canada.

Additionally, we experienced an improvement in our infrastructure work in Australia, New Zealand, and Asia-Pacific.

We anticipate our total international revenue to continue to grow in fiscal 2020.

Excluding the impact of the aforementioned prior-year disposal of our Canadian turn-key pipeline activities, our international revenue increased 11.4% in fiscal 2020 compared to last year.

This increase includes $132.5 million of revenue from acquisitions, which did not have comparable revenue in fiscal 2019.

Excluding the net impact of acquisitions/disposals, our international revenue in fiscal

2020 decreased 5.5% compared to last year.

The revenue decline primarily reflects the adverse impact of the COVID-19 pandemic, partially offset by increased renewable energy activity in Canada.

In light of the COVID-19 pandemic, we currently expect our overall international government work to be stable in fiscal 2021;

however, our international commercial activities could have a significant adverse impact if the current economic conditions due to COVID-19 are prolonged.

RESULTS OF OPERATIONS

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($ in thousands)

Revenue $ 2,994,891 $ 3,107,348 $ (112,457) (3.6)%

Subcontractor costs (646,319) (717,711) 71,392 9.9

Revenue, net of subcontractor costs (1)

2,348,572 2,389,637 (41,065) (1.7)

Other costs of revenue (1,902,037) (1,981,454) 79,417 4.0

Gross profit 446,535 408,183 38,352 9.4

Selling, general and administrative expenses (204,615) (200,230) (4,385) (2.2)

Acquisition and integration expenses

Contingent consideration – fair value adjustments

Acquisition and integration expenses — (10,351) 10,351 NM

Contingent consideration – fair value adjustments 14,971 (1,085) 16,056 NM

Impairment of goodwill (15,800) (7,755) (8,045) (103.7)

3 unchanged sentences

Income tax expense (54,101) (16,375) (37,726) (230.4)

Net income 173,890 158,761 15,129 9.5

Net income attributable to noncontrolling interests (31) (93) 62 66.7

1 unchanged sentence

Diluted earnings per share $ 3.16 $ 2.84 $ 0.32 11.3

We believe that the presentation of "Revenue, net of subcontractor costs", which is a non-GAAP financial measure, enhances investors' ability to analyze our business trends and performance because it substantially measures the work performed by our employees.

(1) We believe that the presentation of "Revenue, net of subcontractor costs", which is a non-U.S.

GAAP financial measure, enhances investors' ability to analyze our business trends and performance because it substantially measures the work performed by our employees.

In the course of providing services, we routinely subcontract various services and, under certain USAID programs, issue grants.

Generally, these subcontractor costs and grants are passed through to our clients and, in accordance with GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage these activities.

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.

1 unchanged sentence

NM = not meaningful

The following table reconciles our reported results to non-GAAP adjusted results, which exclude the RCM results and certain non-operating accounting-related adjustments, such as acquisition and transaction costs, gains/losses from adjustments to contingent consideration, and non-recurring tax benefits.

Adjusted results also exclude charges from the disposal of our Canadian turn-key pipeline activities in fiscal 2019 and losses from the divestitures of our non-core utility field services operations and other non-core assets in fiscal 2018.

The disposal in fiscal 2019 also resulted in a $7.8 million goodwill impairment charge that is excluded from our adjusted results.

Our fiscal 2019 adjusted results exclude a reduction of revenue and a corresponding charge to operating income of $13.7 million from a claim that was resolved in the fourth quarter of fiscal 2019 for a remediation project, where the work was substantially performed in prior years.

In addition, our fiscal 2018 adjusted results also exclude a reduction of revenue of $10.6 million and a related charge to operating income of $12.5 million from a claim settlement in the fourth quarter of fiscal 2018 for a fixed-price construction project that was completed in fiscal 2014.

The effective tax rates applied to the adjustments to earnings per share ("EPS") to arrive at adjusted EPS averaged 16% and 28% in fiscal 2019 and 2018, respectively.

The goodwill impairment charge and certain of the transaction charges in fiscal 2019 did not have a related tax benefit.

Excluding these items, the effective tax rate applied to adjustments in fiscal 2019 was 26%.

In fiscal 2020, revenue and revenue, net of subcontractor costs, decreased $112.5 million, or 3.6%, and $41.1 million, or 1.7%, compared to fiscal 2019.

These comparisons were impacted by the disposal of our Canadian turn-key pipeline activities in the fourth quarter of fiscal 2019 and a decrease in revenue from disaster response activities related to California wildfires.

In addition, our fiscal 2019 results included a reduction of revenue of $13.7 million from a claim that was resolved last year.

Excluding the disposal, the decreased California wildfire activity, and the 2019 claim resolution, our revenue increased 3.0% in fiscal 2020 compared to last year.

This increase includes $210.5 million of revenue from acquisitions, which did not have comparable revenue in fiscal 2019.

Also excluding the contribution from acquisitions, our revenue in fiscal 2020 decreased 4.4% compared to fiscal 2019 primarily due to the adverse impact of the COVID-19 pandemic on our U.S.

commercial and international revenue.

The following table reconciles our reported results to non-U.S.

GAAP adjusted results, which exclude the RCM results and certain non-operating accounting-related adjustments, such as acquisition and integration costs, gains/losses from adjustments to contingent considerations, goodwill impairment charges, non-recurring costs to address COVID-19, and non-recurring tax benefits.

Adjusted results also exclude charges resulting from the decision to dispose of our Canadian turn-key pipeline activities that commenced in the fourth quarter of fiscal 2019 and subsequent related gains from non-core equipment

disposals in fiscal 2020.

Our fiscal 2019 adjusted results exclude a charge to operating income of $13.7 million from a claim that was resolved in the fourth quarter of fiscal 2019 for a remediation project, where the work was substantially performed in prior years.

The effective tax rates applied to these adjustments to earnings per share ("EPS") to arrive at adjusted EPS averaged 155% and 16% in fiscal 2020 and 2019, respectively.

The goodwill impairment charges in both fiscal years and certain of the transaction charges in fiscal 2019 did not have related tax benefits.

Excluding these items, the effective tax rates applied to the adjustments in fiscal 2020 and 2019 were 24% and 26%, respectively.

We applied the relevant marginal statutory tax rate based on the nature of the adjustments and tax jurisdiction in which they occur.

Both EPS and adjusted EPS were calculated using diluted weighted-average common shares outstanding for the respective periods as reflected in our consolidated statements of income.

During the second quarter of fiscal 2020, we took actions in response to the COVID-19 pandemic to ensure the health and safety of our employees, clients, and communities.

These actions included activating our Business Continuity Plan globally, which enabled 95% of our workforce to work remotely and all 450 of our global offices to remain operational supporting our clients' programs and projects.

This required incremental costs for employee relocation, expansion of our virtual private network capabilities, enhanced security, and sanitizing our offices.

In addition, we incurred severance costs to right-size select operations where projects were cancelled specifically due to COVID-19 concerns and the resulting macroeconomic conditions.

These incremental costs totaled $8.2 million in the second quarter of fiscal 2020.

Substantially all of these costs were paid in cash in the second half of fiscal 2020.

Fiscal Year Ended

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2020 September 29,

Adjusted revenue

Subcontractor costs

Revenue, net of subcontractor costs

Adjusted revenue, net of subcontractor costs

Income from operations $ 241,091 $ 188,762 $ 52,329 27.7

Earn-out expense

Non-core dispositions

Acquisition/Integration

COVID-19 8,233 — 8,233 NM

Non-core dispositions (8,525) 10,946 (19,471) NM

RCM — 5,933 (5,933) NM

Claims — 13,700 (13,700) NM

Acquisition/Integration — 10,351 (10,351) NM

Earn-out adjustments (13,371) 3,085 (16,456) NM

Impairment of goodwill 15,800 7,755 8,045 NM

Adjusted income from operations (1)

Earn-out expense

Non-core dispositions

Acquisition/Integration

Non-recurring tax benefits

$ 243,228 $ 240,532 $ 2,696 1.1

EPS $ 3.16 $ 2.84 $ 0.32 11.3

COVID-19 0.11 — 0.11 NM

Non-core dispositions (0.12) 0.14 (0.26) NM

RCM — 0.08 (0.08) NM

Claims — 0.18 (0.18) NM

Acquisition/Integration — 0.19 (0.19) NM

Earn-out adjustments (0.18) 0.04 (0.22) NM

Impairment of goodwill 0.29 0.14 0.15 NM

Non-recurring tax benefits — (0.44) 0.44 NM

Adjusted EPS (1)

$ 3.26 $ 3.17 $ 0.09 2.8

NM = not meaningful

In fiscal 2019, revenue and revenue, net of subcontractor costs, increased $143.2 million, or 4.8%, and $188.9 million, or 8.6%, respectively, compared to fiscal 2018.

Our adjusted revenue and revenue, net of subcontractor costs, increased $162.1 million, or 5.5%, and $197.5 million, or 8.9%, respectively, compared to last year.

This growth includes contributions from the

fiscal 2019 acquisitions of eGlobalTech ("EGT") and WYG plc ("WYG"), partially offset by the impact of the divestiture of our non-core utility field services operations in fiscal 2018.

Excluding the net impact from these transactions, our adjusted revenue and revenue, net of subcontractor costs, grew $144.2 million, or 5.0%, and $180.5 million, or 8.3%, in fiscal 2019 compared to fiscal 2018.

This growth primarily reflects continued growth in our U.S.

state and local government water infrastructure revenue.

In addition, our revenue from disaster response and recovery planning projects increased compared to last year.

state and local government adjusted revenue and revenue, net of subcontractor costs, increased $132.3 million, or 28.8%, and $90.7 million, or 27.1%, respectively, in fiscal 2019 compared to last year.

Additionally, in fiscal 2019, our international adjusted revenue, net of subcontractor costs, increased $98.6 million, or 16.3%, primarily due to increased activity in Canada.

Our operating income decreased $1.3 million in fiscal 2019 compared to fiscal 2018.

Our operating income in fiscal 2019 was reduced by WYG-related acquisition and integration expenses of $10.4 million.

For further detailed information regarding these expenses, see “Fiscal 2019 Acquisition and Integration Expenses” below.

In addition, our operating income reflects losses of $1.1 million and $4.3 million related to changes in the estimated fair value of contingent earn-out liabilities and related compensation charges of $2.0 million and $1.5 million in fiscal 2019 and 2018, respectively.

These earn-out charges are described below under “Fiscal 2019 and 2018 Earn-Out Adjustments.” The loss from exited construction activities in our RCM segment was $5.9 million in fiscal 2019 compared to $4.6 million last year.

Our RCM results are described below under "Remediation and Construction Management." Additionally, our operating income for fiscal 2019 includes charges of $10.9 million related to the planned disposal of our turn-key pipeline activities in Western Canada.

This disposal also resulted in a non-cash goodwill impairment charge of $7.8 million in fiscal 2019.

Both of these charges are described below under “Fiscal 2019 Impairment of Goodwill.” Our operating income in fiscal 2018, also includes losses of $3.4 million related to the divestitures of our non-core utility field services operations and other non-core assets.

These losses are reported in selling, general and administrative expenses in our consolidated statements of income.

Excluding these items and the aforementioned claims in fiscal 2019 and 2018, adjusted operating income increased $24.2 million, or 11.2%, in fiscal 2019 compared to fiscal 2018.

The increase reflects improved results in both our GSG and CIG segments.

GSG's operating income increased $17.1 million in fiscal 2019 compared to last year.

These results are described below under "Government Services Group." CIG's operating income increased $5.2 million ($17.4 million on an adjusted basis) in fiscal 2019 compared to fiscal 2018.

These results are described below under "Commercial/International Services Group."

Interest expense, net of interest income, was $13.6 million in fiscal 2019, compared to $15.5 million last year.

The decreases reflect reduced borrowings, partially offset by higher interest rates (primarily LIBOR).

GAAP financial measure

Our operating income increased $52.3 million in fiscal 2020 compared to fiscal 2019.

Our operating income in fiscal 2020 was reduced by the previously described non-recurring charges of $8.2 million to address COVID-19.

In addition, our fiscal 2020 results include gains from the sales of non-core equipment of $8.5 million related to the disposal of our Canadian turn-key pipeline activities.

Our operating income in fiscal 2019 included charges of $10.9 million related to this disposal.

Our operating income in fiscal 2019 also included a $5.9 million loss from exited construction activities in our RCM segment.

Our RCM results are described below under "Remediation and Construction Management." Additionally, our operating income in fiscal 2019 included the aforementioned $13.7 million charge for a resolved claim and expenses of $10.4 million related to the acquisition and integration of WYG plc ("WYG").

For further detailed information regarding the WYG-related costs, see "Fiscal 2019 Acquisition and Integration Expenses" below.

Our fiscal 2020 operating income includes gains of $15.0 million related to changes in the estimated fair value of contingent earn-out liabilities partially offset by related compensation charges

of $1.6 million.

Our fiscal 2019 operating income reflects losses of $1.1 million related to changes in the estimated fair value of contingent earn-out liabilities and an additional $2.0 million of related compensation charges.

These earn-out related amounts are described below under "Fiscal 2020 and 2019 Earn-Out Adjustments." Further, our operating income reflects non-cash goodwill impairment charges of $15.8 million and $7.8 million in fiscal 2020 and 2019, respectively.

These charges are described below under "Fiscal 2020 and 2019 Impairment of Goodwill."

Excluding these items, our adjusted operating income increased $2.7 million, or 1.1%, in fiscal 2020 compared to fiscal 2019.

The increase reflects improved results in our CIG segment partially offset by lower operating income in our GSG segment.

GSG and CIG results are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

Our net interest expense was $13.1 million in fiscal 2020 compared to $13.6 million last year.

The decrease primarily reflects lower interest rates (primarily LIBOR), and to a lesser extent, lower average borrowings.

The effective tax rates for fiscal 2020 and 2019 were 23.7% and 9.3%, respectively.

Theses tax rates reflect the impact of the comprehensive tax legislation enacted by the U.S.

government on December 22, 2017, which is commonly referred to as the TCJA.

The TCJA significantly revised the U.S.

corporate income tax regime by, among other things, lowering the U.S.

corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, limiting the deductibility of certain executive compensation, and implementing a modified territorial tax system with the introduction of the Global Intangible Low-Taxed Income ("GILTI") tax rules.

The TCJA also imposed a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries.

In fiscal 2019, we finalized our fiscal 2018 U.S.

federal tax return and recorded a $2.4 million tax expense with respect to the one-time transition tax on foreign earnings.

As we have a September 30 fiscal year-end, our U.S.

federal corporate income tax rate was blended in fiscal 2018, resulting in a statutory federal rate of 24.5% (3 months at 35% and 9 months at 21%), and was 21% in fiscal 2019.

GAAP requires that the impact of tax legislation be recognized in the period in which the tax law was enacted.

As a result of the TCJA, we reduced our deferred tax liabilities and recorded a deferred tax benefit of $10.1 million in fiscal 2018 to reflect our estimate of temporary differences in the United States that were to be recovered or settled in fiscal 2018 based on the 24.5% blended corporate tax rate or based on the 21% tax rate in fiscal 2019 and beyond versus the previous enacted 35% corporate tax rate.

We finalized this analysis in the first quarter of fiscal 2019 and recorded an additional deferred tax benefit of $2.6 million.

Valuation allowances of $23.4 million in Australia were released due to sufficient positive evidence being obtained in fiscal 2019.

The valuation allowances were primarily related to net operating loss and Research and Development credit carry-forwards and other temporary differences.

Excluding the net deferred tax benefits from the TCJA and the release of the valuation allowance, our effective tax rate was 21.9% in fiscal 2019 compared to 25.1% in fiscal 2018;

the reduction is primarily due to the reduced U.S.

corporate income tax rate.

With respect to the GILTI provisions of the TCJA, we have analyzed our structure and global results of operations and expect to have a GILTI tax of $0.4 million for fiscal 2019, which was included in our fiscal 2019 income tax expense.

The goodwill impairment charges in fiscal 2020 and fiscal 2019 and certain of the transaction charges in fiscal 2019 did not have related tax benefits, which increased our effective tax rates by 1.5% and 1.1% in fiscal 2020 and 2019, respectively.

Conversely, income tax expense was reduced by $8.3 million and $6.4 million of excess tax benefits on share-based payments in fiscal 2020 and 2019, respectively.

Additionally, we finalized the analysis of our deferred tax liabilities for the Tax Cuts and Jobs Act's ("TCJA's") lower tax rates in the first quarter of fiscal 2019 and recorded a deferred tax benefit of $2.6 million.

Also, valuation allowances of $22.3 million in Australia were released due to sufficient positive evidence obtained during the second quarter of fiscal 2019.

The valuation allowances were primarily related to net operating loss and research and development credit carryforwards and other temporary differences.

We evaluated the positive evidence against any negative evidence and determined that it was more likely than not that the deferred tax assets would be realized.

The factors used to assess the likelihood of realization were the past performance of the related entities, our forecast of future taxable income, and available tax planning strategies that could be implemented to realize the deferred tax assets.

Excluding the impact of the non-deductible goodwill impairment charges and transaction costs, the excess tax benefits on share-based payments, the net deferred tax benefits from the TCJA, and the valuation allowance release, our effective tax rates in fiscal 2020 and 2019 were 25.6% and 24.6%, respectively.

Our EPS was $3.16 in fiscal 2020, compared to $2.84 in fiscal 2019.

On the same basis as our adjusted operating income and excluding non-recurring tax benefits, adjusted EPS was $3.17 in fiscal 2019, compared to $2.64 last year.

On the same basis as our adjusted operating income and excluding non-recurring tax benefits in fiscal 2019, EPS was $3.26 in fiscal 2020, compared to $3.17 last year.

Segment Results of Operations

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($ in thousands)

Revenue $ 1,778,922 $ 1,820,671 $ (41,749) (2.3)%

Subcontractor costs (478,839) (491,290) 12,451 2.5

1 unchanged sentence

Income from operations $ 168,669 $ 185,263 $ (16,594) (9.0)

Revenue and revenue, net of subcontractor costs, increased $125.8 million, or 7.4%, and $117.0 million, or 9.7%, respectively, in fiscal 2019 compared to fiscal 2018.

These increases include contributions from the aforementioned acquisitions in fiscal 2019.

Excluding these contributions, revenue and revenue, net of subcontractor costs, increased 4.8% and 6.9%, respectively, in fiscal 2019 compared to last year.

These increases reflect continued broad-based growth in our U.S.

state and local government project-related infrastructure revenue.

In addition, our revenue from disaster response and recovery planning projects increased compared to last year.

Overall, our U.S.

state and local government adjusted revenue, net of subcontractor costs, increased $136.7 million and $85.7 million, respectively in fiscal 2019 compared to last year.

Operating income increased $17.1 million in fiscal 2019 compared to fiscal 2018, primarily reflecting the higher U.S.

state and local revenue.

Our operating margin, based on revenue, net of subcontractor costs, was stable at 13.9% in both fiscal 2019 and 2018.

Revenue and revenue, net of subcontractor costs, decreased $41.7 million, or 2.3%, and $29.3 million, or 2.2%, respectively, in fiscal 2020 compared to fiscal 2019.

These declines primarily reflect the previously described decrease in revenue from disaster response activities related to California wildfires offset by revenue from acquisitions, which did not have comparable revenue in fiscal 2019.

Excluding the contributions from acquisitions and the California wildfire disaster response activities, our revenue in fiscal 2020 was substantially the same as fiscal 2019 as increases in federal information technology activity were offset by lower international development revenue.

Operating income decreased $16.6 million in fiscal 2020 compared to fiscal 2019 primarily reflecting the lower disaster response revenue.

Also, we incurred $1.6 million of incremental costs for actions to respond to the COVID-19 pandemic in the second quarter of fiscal 2020.

Our operating margin, based on revenue, net of subcontractor costs, was 13.0% in fiscal 2020 compared to 13.9% last year.

Excluding the COVID-19 charges, our operating margin was 13.1% in fiscal 2020.

Commercial/International Services Group ("CIG")

3 unchanged sentences

($ in thousands)

Revenue $ 1,266,059 $ 1,342,509 $ (76,450) (5.7)%

Subcontractor costs (217,547) (279,468) 61,921 22.2

1 unchanged sentence

Income from operations $ 114,022 $ 79,633 $ 34,389 43.2

Revenue and revenue, net of subcontractor costs, increased $19.4 million, or 1.5%, and $77.3 million, or 7.8%, respectively, in fiscal 2019 compared to fiscal 2018.

Our fiscal 2019 results included a reduction of revenue and a corresponding non-cash charge to operating income of $13.7 million from a claim that was resolved in the fourth quarter of fiscal 2019 for a remediation project, where the work was substantially performed in prior years.

Excluding this claim and the net impact of the aforementioned acquisitions/divestiture, revenue and revenue, net of subcontractor costs, increased 4.0% and 10.3%, respectively, in fiscal 2019 compared to last year.

These increases primarily reflect increased international revenue, particularly for broad-based activities in Canada and renewable energy projects globally.

Operating income increased $5.2 million in fiscal 2019 compared to fiscal 2018 reflecting the higher revenue.

In addition to the aforementioned claim resolution, operating income in fiscal 2019 included the previously described charges of $10.9 million related to the planned disposal of our Canadian turn-key pipeline operations.

Operating income in fiscal 2018 included a $12.5 million charge for a claim settlement for a fixed-price construction project that was completed in fiscal 2014.

Excluding these charges, our operating income increased $17.4 million in fiscal 2019 compared to last year, and our operating margin, based on revenue, net of subcontractor costs, improved to 9.8% in fiscal 2019 from 8.8% last year.

Revenue and revenue, net of subcontractor costs, decreased $76.5 million, or 5.7%, and $14.5 million, or 1.4%, respectively, in fiscal 2020 compared to fiscal 2019.

Our year-over-year revenue comparisons were impacted by the disposal of our Canadian turn-key pipeline activities in the fourth quarter of fiscal 2019, and a reduction in revenue and a corresponding charge to operating income of $13.7 million in fiscal 2019 for a remediation project where the work was substantially performed in prior years.

Excluding the disposal and t he fiscal 2019 claim resolution, our revenue decreased 2.2% due to lower subcontractor activity and the adverse impact of the COVID-19 pandemic on our U.S.

and international commercial revenue.

Operating income increased $34.4 million in fiscal 2020 compared to last year.

This comparison was also impacted by the disposal of our Canadian turn-key pipeline activities.

Our fiscal 2020 operating income includes gains of $8.5 million from the disposition of non-core equipment and our fiscal 2019 operating income includes charges of $10.9 million related to these activities.

In addition, we incurred $6.6 million of incremental costs for actions to respond to the COVID-19 pandemic in the second quarter of fiscal 2020.

Excluding the Canadian turn-key pipeline activities, the COVID-19 charges, and the aforementioned $13.7 million claim in fiscal 2019, our operating income increased $7.9 million, or 7.5%, in fiscal 2020 compared to fiscal 2019.

On the same basis, our operating margin, based on revenue, net of subcontractor costs, improved to 10.7% in fiscal 2020 from 9.7% last year.

Remediation and Construction Management ("RCM")

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($ in thousands)

Subcontractor costs

Revenue, net of subcontractor costs

Loss from operations

Revenue $ 198 $ (1,542) $ 1,740 NM

Subcontractor costs (221) (1,243) 1,022 NM

Revenue, net of subcontractor costs $ (23) $ (2,785) $ 2,762 NM

Loss from operations $ — $ (5,933) $ 5,933 NM

RCM's projects were substantially complete at the end of fiscal 2018.

The operating loss of $5.9 million in fiscal 2019 reflects reductions of revenue and related operating losses based on updated evaluations of unsettled claim amounts for two construction projects that were completed in prior years.

The operating loss in fiscal 2018 primarily reflects legal costs related to outstanding claims.

We recorded no material gains or losses related to claims in fiscal 2018.

Fiscal 2019 Acquisition and Integration Expenses

In fiscal 2019, we incurred acquisition and integration expenses of $10.4 million related to the WYG acquisition.

These expenses included $3.3 million of acquisition expenses that were primarily for professional services, such as legal and investment banking, to support the transaction and were all paid in the fourth quarter of fiscal 2019.

Subsequent to the acquisition date, we also recorded charges of $7.1 million for integration activities, including the elimination of redundant general and administrative costs, real estate consolidation, and conversion of information technology platforms, substantially all of which will be paid next year.

Fiscal 2020 and 2019 Earn-Out Adjustments

We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates.

We recorded adjustments to our contingent earn-out liabilities and reported losses of $1.1 million and $4.3 million in fiscal 2019 and 2018, respectively.

The fiscal 2018 losses resulted from updated valuations of the contingent consideration liabilities for Norman, Disney and Young ("NDY"), Eco Logical Australia ("ELA") and Cornerstone Environmental Group ("CEG").

These valuations included updated projections of NDY's, ELA's, and CEG's financial performance during the earn-out periods, which exceeded our original estimates at their respective acquisition dates.

In addition, we recognized charges of $2.0 million and $1.5 million in fiscal 2019 and 2018, respectively, that related to the earn-out for Glumac but was 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.

We recorded adjustments to our contingent earn-out liabilities and reported net gains of $15.0 million and losses of $1.1 million in fiscal 2020 and 2019, respectively.

The fiscal 2020 net gains primarily resulted from updated valuations of the contingent consideration liabilities for eGlobalTech ("EGT"), Norman, Disney and Young ("NDY"), and Segue Technologies, Inc.

These valuations included updated projections of EGT's, NDY's, and SEG's financial performance during the earn-out periods, which were below our original estimates at their respective acquisition dates.

In addition, we recognized charges of $1.6 million and $2.0 million in fiscal 2020 and 2019, respectively, that related to the earn-out for Glumac.

These charges were treated as compensation in selling, general and administrative expenses due to the terms of the arrangement, which included an on-going service requirement for a portion of the earn-out.

At September 27, 2020, there was a total maximum of $70.9 million of outstanding contingent consideration related to acquisitions.

Of this amount, $32.6 million was estimated as the fair value and accrued on our consolidated balance sheet.

Fiscal 2019 Impairment of Goodwill

During the fourth quarter of fiscal 2019, we performed as strategic review of all of our operations.

As a result, we decided to dispose of our turn-key pipeline activities in Western Canada in our Remediation and Field Services ("RFS") reporting unit, which is in our CIG segment.

Fiscal 2020 and 2019 Impairment of Goodwill

On September 2, 2020, Australia announced that it had fallen into economic recession, defined as two consecutive quarters of negative growth, for the first time since 1991 including 7% negative growth in the quarter ending in June 2020.

This prompted a strategic review of our Asia/Pacific ("ASP") reporting unit, which is in our CIG reportable segment.

As a result of the economic recession in Australia, our revenue growth and profit margin forecasts for the ASP reporting unit declined from the previous forecast used for our annual goodwill impairment review as of June 29, 2020.

We also performed an interim goodwill impairment review of our ASP reporting unit in September 2020 and recorded a $15.8 million goodwill impairment charge.

The impaired goodwill related to our acquisitions of Coffey and NDY.

As a result of the impairment charge, the estimated fair value of our ASP reporting unit equals its carrying value of $144.9 million, including $95.5 million of goodwill, at September 27, 2020.

If the financial performance of the operations in our ASP reporting unit were to deteriorate or fall below our forecasts, the related goodwill may become further impaired.

During the fourth quarter of fiscal 2019, we performed a strategic review of all operations.

As a result, we decided to dispose of our turn-key pipeline activities in Western Canada in our Remediation and Field Services ("RFS") reporting unit, which is in our CIG reportable segment.

As a result, we incurred severance and project-related charges related to the disposition of $10.9 million, which were reported in the CIG segment's operating income.

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The impaired goodwill related to our acquisition of Parkland Pipeline Contractors Ltd.

As a result of the impairment charge, the estimated fair value of our RFS reporting unit equals its carrying value at September 29, 2019.

As a result of the impairment charge, the estimated fair value of the RFS reporting unit equaled its carrying value at September 29, 2019.

If the financial performance of the remaining operations in our RFS reporting unit were to deteriorate or fall below our forecasts, the related goodwill may become further impaired.

Prior to the adoption of Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" ("ASC 606") and the related disclosures of remaining unsatisfied performance obligations ("RUPOs"), we had reported backlog on a quarterly basis.

Backlog is not a term recognized under United States generally accepted accounting principles;

however, it is a common measurement used in our industry.

Backlog generally represents the dollar amount of revenues we expect to realize in the future when we perform the work.

RUPOs differ from our backlog.

The following table provides a reconciliation between RUPOs and backlog as of September 29, 2019 :

(in thousands)

Items impacting comparability:

Contract term

The most significant difference between RUPOs and backlog relates to contract terms.

Specifically, our backlog does not consider the impact of termination for convenience clauses within the contracts.

The contract term and thus remaining performance obligation on certain of our operations and maintenance contracts, are limited to the notice period required for contract termination (usually 30, 60, or 90 days).

Fiscal 2019 Compared to Fiscal 2018

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September 29,

2019 September 30, 2018 Change

($ in thousands)

Revenue $ 3,107,348 $ 2,964,148 $ 143,200 4.8%

Subcontractor costs (717,711) (763,414) 45,703 6.0

Revenue, net of subcontractor costs (1)

2,389,637 2,200,734 188,903 8.6

Other costs of revenue (1,981,454) (1,816,276) (165,178) (9.1)

Gross profit 408,183 384,458 23,725 6.2

Selling, general and administrative expenses (200,230) (190,120) (10,110) (5.3)

Acquisition and integration expenses (10,351) — (10,351) NM

Contingent consideration – fair value adjustments (1,085) (4,252) 3,167 74.5

Impairment of goodwill (7,755) — (7,755) NM

Income from operations 188,762 190,086 (1,324) (0.7)

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Income tax expense (16,375) (37,605) 21,230 56.5

Net income 158,761 136,957 21,804 15.9

Net income attributable to noncontrolling interests (93) (74) (19) (25.7)

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Diluted earnings per share $ 2.84 $ 2.42 $ 0.42 17.4

(1) We believe that the presentation of "Revenue, net of subcontractor costs", which is a non-U.S.

GAAP financial measure, enhances investors' ability to analyze our business trends and performance because it substantially measures the work performed by our employees.

In the course of providing services, we routinely subcontract various services and, under certain USAID programs, issue grants.

Generally, these subcontractor costs and grants are passed through to our clients and, in accordance with U.S.

GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage these activities.

Because subcontractor services can vary significantly from project to project and period to period, changes in revenue may not necessarily be indicative of our business trends.

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NM = not meaningful

The following table reconciles our reported results to non-GAAP adjusted results, which exclude the RCM results and certain non-operating accounting-related adjustments.

Adjusted results also exclude losses from the divestitures of our non-core utility field services operations and other non-core assets in fiscal 2018.

In addition, our adjusted results also exclude a reduction of revenue of $10.6 million and a related charge to operating income of $12.5 million from a claim settlement in the fourth quarter of fiscal 2018 for a fixed-price construction project that was completed in fiscal 2014.

The following table reconciles our reported results to non-U.S.

GAAP adjusted results, which exclude RCM results and certain non-operating accounting-related adjustments, such as acquisition and integration costs, gains/losses from adjustments to contingent consideration, and non-recurring tax benefits.

The disposal in fiscal 2019 also resulted in a $7.8 million goodwill impairment charge that is excluded from our adjusted results.

The effective tax rates applied to the adjustments to EPS to arrive at adjusted EPS averaged 16% and 28% in fiscal 2019 and 2018, respectively.

We apply the relevant marginal statutory tax rate based on the nature of the adjustments and tax jurisdiction in which they occur.

The goodwill impairment charge and certain of the transaction charges in fiscal 2019 did not have a related tax benefit.

Excluding these items, the effective tax rate applied to adjustments in fiscal 2019 was 26%.

We applied the relevant marginal statutory tax rate based on the nature of the adjustments and tax jurisdiction in which they occur.

Both EPS and adjusted EPS were calculated using diluted weighted-average common shares outstanding for the respective periods as reflected in our consolidated statements of income.

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September 29,

Claim settlement

2019 September 30, 2018 Change

Revenue $ 3,107,348 $ 2,964,148 $ 143,200 4.8%

RCM 1,542 (14,199) 15,741 NM

Claims 13,700 10,576 3,124 NM

Adjusted revenue (1)

Subcontractor costs

$ 3,122,590 $ 2,960,525 $ 162,065 5.5

Revenue $ 3,107,348 $ 2,964,148 $ 143,200 4.8

Subcontractor costs (717,711) (763,414) 45,703 NM

Revenue, net of subcontractor costs $ 2,389,637 $ 2,200,734 $ 188,903 8.6

Claim settlement

RCM 2,785 (2,648) 5,433 NM

Claims 13,700 10,576 3,124 NM

Adjusted revenue, net of subcontractor costs (1)

$ 2,406,122 $ 2,208,662 $ 197,460 8.9

Income from operations $ 188,762 $ 190,086 $ (1,324) (0.7)

Contingent consideration – fair value adjustments

Non-core divestitures

Claim settlement

Contingent consideration - compensation

Earn-out expense 3,085 5,753 (2,668) NM

RCM 5,933 4,573 1,360 NM

Claims 13,700 12,457 1,243 NM

Non-core divestitures 18,701 3,434 15,267 NM

Acquisition/Integration 10,351 — 10,351 NM

Adjusted income from operations (1)

Contingent consideration – fair value adjustments

Contingent consideration - compensation

Revaluation of deferred taxes

Non-core divestitures

Claim settlement

$ 240,532 $ 216,303 $ 24,229 11.2

EPS $ 2.84 $ 2.42 $ 0.42 17.4

Earn-out expense 0.04 0.08 (0.04) NM

RCM 0.08 0.06 0.02 NM

Claims 0.18 0.16 0.02 NM

Non-core divestitures 0.28 0.11 0.17 NM

Acquisition/Integration 0.19 — 0.19 NM

Non-recurring tax benefits (0.44) (0.19) (0.25) NM

Adjusted EPS (1)

$ 3.17 $ 2.64 $ 0.53 20.1

NM = not meaningful

GAAP financial measure

In fiscal 2019, revenue and revenue, net of subcontractor costs, increased $143.2 million, or 4.8%, and $188.9 million, or 8.6%, respectively, compared to fiscal 2018.

Our adjusted revenue and revenue, net of subcontractor costs, increased $225.4 million, or 8.2%, and $174.6 million, or 8.6%, respectively, compared to fiscal 2017.

This growth includes contributions from the acquisitions of Glumac and NDY, partially offset by the divestiture of our non-core utility field services operations.

Excluding the net impact from these transactions, our revenue grew $102.6 million, or 3.8%, in fiscal 2018 compared to fiscal 2017.

The growth was due to increased state and local government activity led by our disaster response projects, as well as our U.S.

federal government

and international government business primarily in our GSG segment.

These increases were partially offset by a decline in our international oil and gas activities in Western Canada in our CIG segment.

Our operating income increased $6.7 million in fiscal 2018 compared to fiscal 2017.

The loss from exited construction activities in our RCM segment was $4.6 million in fiscal 2018 compared to $14.7 million last year.

Our RCM results are described below under "Remediation and Construction Management." Additionally, our operating income for fiscal 2018 reflects losses of $4.3 million related to changes in the estimated fair value of contingent earn-out liabilities and a related compensation charge of $1.5 million.

Conversely, our operating income for fiscal 2017 reflects gains of $6.9 million related to changes in the estimated fair value of contingent earn-out liabilities.

These gains and losses/charges are described below under “Fiscal 2018 and 2017 Earn-Out Adjustments.” Our operating income for fiscal 2018 also includes losses of $3.4 million related to the divestitures of our non-core utility field services operations and other non-core assets.

Our adjusted revenue and revenue, net of subcontractor costs, increased $162.1

million, or 5.5%, and $197.5 million, or 8.9%, respectively, compared to fiscal 2018.

This growth includes contributions from the fiscal 2019 acquisitions of EGT and WYG, partially offset by the impact of the divestiture of our non-core utility field services operations in fiscal 2018.

This growth primarily reflects continued growth in our U.S.

state and local government water infrastructure revenue.

In addition, our revenue from disaster response and recovery planning projects increased compared to fiscal 2018.

Additionally, in fiscal 2019, our international adjusted revenue, net of subcontractor costs, increased $98.6 million, or 16.3%, primarily due to increased activity in Canada.

Our operating income decreased $1.3 million in fiscal 2019 compared to fiscal 2018.

Our operating income in fiscal 2019 was reduced by WYG-related acquisition and integration expenses of $10.4 million.

For further detailed information regarding these expenses, see “Fiscal 2019 Acquisition and Integration Expenses” below.

This disposal also resulted in a non-cash goodwill impairment charge of $7.8 million in fiscal 2019.

Both of these charges are described above under “Fiscal 2020 and 2019 Impairment of Goodwill.” Our operating income in fiscal 2018, also includes losses of $3.4 million related to the divestitures of our non-core utility field services operations and other non-core assets.

These losses are reported in selling, general and administrative expenses in our consolidated statements of income.

Our fiscal 2018 results also include a reduction of revenue of $10.6 million and a related charge to operating income of $12.5 million related to the settlement of a claim in our CIG reportable segment for a fixed-price construction project that was completed in fiscal 2014 prior to our decision to exit similar activities in our RCM segment.

Although this settlement resulted in a charge to operating income in the fourth quarter of fiscal 2018, we received cash proceeds of $16.1 million for the related accounts receivable in the first quarter of fiscal 2019.

Excluding these items, adjusted operating income increased $25.2 million, or 13.2%, in fiscal 2018 compared to fiscal 2017.

The increase in our operating income reflects improved results in our GSG segment.

GSG's operating income increased $30.0 million in fiscal 2018 compared to last year.

These results are described below under "Government Services Group."

Interest expense, net was $15.5 million in fiscal 2018 compared to $11.6 million in fiscal 2017.

This increase reflects higher interest rates (primarily LIBOR) and additional borrowings to fund business growth, including the fiscal 2018 acquisitions, and other working capital needs.

Excluding these items and the aforementioned claims in fiscal 2019 and 2018, adjusted operating income increased $24.2 million, or 11.2%, in fiscal 2019 compared to fiscal 2018.

The increase reflects improved results in both our GSG and CIG segments.

GSG's operating income increased $17.1 million in fiscal 2019 compared to fiscal 2018.

These results are described below under "Government Services Group." CIG's operating income increased $5.2 million ($17.4 million on an adjusted basis) in fiscal 2019 compared to fiscal 2018.

These results are described below under "Commercial/International Services Group."

Interest expense, net of interest income, was $13.6 million in fiscal 2019, compared to $15.5 million in fiscal 2018.

The decreases reflect reduced borrowings, partially offset by higher interest rates (primarily LIBOR).

The effective tax rates for fiscal 2019 and 2018 were 9.3% and 21.5%, respectively.

The fiscal 2018 tax rate reflects the impact of the comprehensive tax legislation enacted by the U.S.

These tax rates reflect the impact of the comprehensive tax legislation enacted by the U.S.

government on December 22, 2017, which is commonly referred to as the TCJA.

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corporate income tax regime by, among other things, lowering the U.S.

The TCJA also imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries.

We analyzed this provision of the TCJA and our related foreign earnings accumulated under legacy tax laws during fiscal 2018.

Based on our analysis of tax earnings and profits and tax deficits at the prescribed measurement dates, we have a cumulative net tax deficit and do not believe we have any tax liability related to this tax.

The TCJA also imposed a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries.

In fiscal 2019, we finalized our fiscal 2018 U.S.

federal tax return and recorded a $2.4 million tax expense with respect to the one-time transition tax on foreign earnings.

As we have a September 30 fiscal year-end, our U.S.

federal corporate income tax rate was blended in fiscal 2018, resulting in a statutory federal rate of approximately 24.5% (3 months at 35% and 9 months at 21%), and will be 21% for subsequent fiscal years.

federal corporate income tax rate was blended in fiscal 2018, resulting in a statutory federal rate of 24.5% (3 months at 35% and 9 months at 21%), and was 21% in fiscal 2019.

GAAP requires that the impact of tax legislation be recognized in the period in which the tax law was enacted.

As a result of the TCJA, we reduced our deferred tax liabilities and recorded a one-time deferred tax benefit of approximately $14.7 million in fiscal 2018 to reflect our estimate of temporary differences in the United States that will be recovered or settled in fiscal 2018 based on the 24.5% blended corporate tax rate or based on the 21% tax rate in fiscal 2019 and beyond versus the previous enacted 35% corporate tax rate.

In fiscal 2018, we recognized other non-recurring adjustments to our deferred tax assets and liabilities that resulted in a net deferred tax expense of $3.6 million.

Excluding these net deferred tax benefits, our effective tax rate in fiscal 2018 was 27.9%.

The fiscal 2018 divestitures of our non-core utility field services operations and other non-core assets resulted in a pre-tax loss of $3.4 million and incremental tax expense of $2.6 million due to a book/tax basis difference primarily related to the $12.2 million of associated goodwill.

In fiscal 2018 and fiscal 2017, the Internal Revenue Service concluded their examinations through fiscal 2016 and other state and international examinations were also completed.

As a result, we recognized a net $1.6 million tax expense in fiscal 2018 and a $1.1 million tax expense in fiscal 2017.

Excluding these discrete amounts from both periods and the one-time impacts of the TCJA, the effective tax rates for fiscal 2018 and 2017 were 25.1% and 30.7%, respectively.

We finalized this analysis in the first quarter of fiscal 2019 and recorded an additional deferred tax benefit of $2.6 million.

Valuation allowances of $22.3 million in Australia were released due to sufficient positive evidence being obtained in fiscal 2019.

The valuation allowances were primarily related to net operating loss and Research and Development credit carry-forwards and other temporary differences.

Excluding the net deferred tax benefits from the TCJA and the release of the valuation allowance, our effective tax rate was 21.9% in fiscal 2019 compared to 25.1% in fiscal 2018;

the reduction is primarily due to the reduced U.S.

corporate income tax rate.

With respect to the GILTI provisions of the TCJA, we had analyzed our structure and global results of operations and expected a GILTI tax of $0.4 million for fiscal 2019, which was included in our fiscal 2019 income tax expense.

Our EPS was $2.84 in fiscal 2019, compared to $2.42 in fiscal 2018.

On the same basis as our adjusted operating income, EPS was $2.64 in fiscal 2018, compared to $2.13 in fiscal 2017.

On the same basis as our adjusted operating income and excluding non-recurring tax benefits, adjusted EPS was $3.17 in fiscal 2019, compared to $2.64 in fiscal 2018.

Segment Results of Operations

Beginning in fiscal 2018, we aligned our operations to better serve our clients and markets, resulting in two renamed reportable segments.

Our GSG reportable segment primarily includes activities with U.S.

government clients (federal, state and

local) and activities with development agencies worldwide.

Our CIG reportable segment primarily includes activities with U.S.

commercial clients and international activities other than work for development agencies.

This alignment allows us to capitalize on our growing market opportunities and enhance the development of high-end consulting and technical solutions to meet our growing client demand.

We continue to report the results of the wind-down of our non-core construction activities in the RCM segment.

Government Services Group ("GSG")

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September 29,

2019 September 30, 2018 Change

($ in thousands)

Revenue $ 1,820,671 $ 1,694,871 $ 125,800 7.4%

Subcontractor costs (491,290) (482,537) (8,753) (1.8)

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Income from operations $ 185,263 $ 168,211 $ 17,052 10.1

Revenue and revenue, net of subcontractor costs, increased $207.3 million, or 13.9%, and $145.2 million, or 13.6%, respectively, compared to fiscal 2017.

These increases include the aforementioned contribution from our Glumac acquisition.

Excluding this contribution, our revenue increased 9.8% in fiscal 2018 compared to fiscal 2017.

This increase reflects broad-based revenue growth in our U.S.

state and local government project-related infrastructure revenue with particularly increased revenue from municipal water infrastructure work in the metropolitan areas of California, Texas, and Florida.

The increase also includes higher revenue from disaster response activities in fiscal 2018 compared to last year due to the unprecedented number of natural disasters in the United States during 2017.

The level of our activities was particularly increased by the hurricanes in Florida and Texas, and the fires in California.

state and local government revenue and revenue, net of subcontractor costs, increased $114.9 million and $68.7 million, respectively, in fiscal 2018 compared to last year.

To a lesser extent, our U.S.

federal business also improved compared to fiscal 2017, primarily due to an increase in environmental work for the DoD and DOS.

Operating income increased $30.0 million in fiscal 2018 compared to fiscal 2017, reflecting the higher revenue.

In addition, our operating margin, based on revenue, net of subcontractor costs, improved to 13.9% in fiscal 2018 from 13.0% in fiscal 2017.

This increase in profitability primarily reflects increasing revenue and improved utilization of resources.

Revenue and revenue, net of subcontractor costs, increased $125.8 million, or 7.4%, and $117.0 million, or 9.7%, respectively, in fiscal 2019 compared to fiscal 2018.

These increases include contributions from the aforementioned acquisitions in fiscal 2019.

Excluding these contributions, revenue and revenue, net of subcontractor costs, increased 4.8% and 6.9%, respectively, in fiscal 2019 compared to fiscal 2018.

These increases reflect continued broad-based growth in our U.S.

state and local government project-related infrastructure revenue.

In addition, our revenue from disaster response and recovery planning projects increased compared to fiscal 2018.

Overall, our U.S.

state and local government adjusted revenue, net of subcontractor costs, increased $136.7 million and $85.7 million, respectively in fiscal 2019 compared to fiscal 2018.

Operating income increased $17.1 million in fiscal 2019 compared to fiscal 2018, primarily reflecting the higher U.S.

state and local revenue.

Our operating margin, based on revenue, net of subcontractor costs, was stable at 13.9% in both fiscal 2019 and 2018.

Commercial/International Services Group ("CIG")

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September 29,

2019 September 30, 2018 Change

($ in thousands)

Revenue $ 1,342,509 $ 1,323,142 $ 19,367 1.5%

Subcontractor costs (279,468) (337,390) 57,922 17.2

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Income from operations $ 79,633 $ 74,451 $ 5,182 7.0

Revenue and revenue, net of subcontractor costs, decreased $2.9 million, or 0.2%, and increased $18.8 million, or 1.9%, respectively, in fiscal 2018 compared to fiscal 2017.

These amounts include the aforementioned contribution from our NDY acquisition.

In addition, these year-over-year comparisons were impacted by the divestiture of our non-core utility field services operations in fiscal 2018 and the reduction of revenue of $10.6 million from the settlement of the claim in the fourth quarter of fiscal 2018 for a fixed-price construction project that was completed in fiscal 2014.

Excluding the net impact of the acquisition/divestiture and the claim adjustment, revenue and revenue, net of subcontractor costs decreased 3.1% and 2.4%, respectively, in fiscal 2018 compared to fiscal 2017.

These results primarily reflect lower oil and gas revenue in Western Canada, which declined $75.6 million in fiscal 2018 compared to fiscal 2017.

Operating income decreased $16.4 million, or, 18.0%, in fiscal 2018 compared to fiscal 2017 primarily due to the $12.5 million charge for the claim settlement in the fourth quarter of fiscal 2018 for the fixed-price construction project that was completed in fiscal 2014.

Excluding this charge, operating income declined 4.3% in fiscal 2018 compared to fiscal 2017 reflecting the lower revenue.

In addition, our operating margin, based on revenue, net of subcontractor costs, declined to 7.6% in fiscal 2018 from 9.4% in fiscal 2017 reflecting the claim settlement in the fourth quarter of fiscal 2018.

Revenue and revenue, net of subcontractor costs, increased $19.4 million, or 1.5%, and $77.3 million, or 7.8%, respectively, in fiscal 2019 compared to fiscal 2018.

These increases primarily reflect increased international revenue, particularly for broad-based activities in Canada and renewable energy projects globally.

Operating income increased $5.2 million in fiscal 2019 compared to fiscal 2018 reflecting the higher revenue.

Operating income in fiscal 2018 included a $12.5 million charge for a claim settlement for a fixed-price construction project that was completed in fiscal 2014.

Excluding these charges, our operating income increased $17.4 million in fiscal 2019 compared to fiscal 2018, and our operating margin, based on revenue, net of subcontractor costs, improved to 9.8% in fiscal 2019 from 8.8% in fiscal 2018.

Remediation and Construction Management ("RCM")

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September 29,

2019 September 30, 2018 Change

($ in thousands)

Revenue $ (1,542) $ 14,199 $ (15,741) NM

Subcontractor costs (1,243) (11,551) 10,308 89.2

Revenue, net of subcontractor costs

Revenue, net of subcontractor costs $ (2,785) $ 2,648 $ (5,433) NM

Loss from operations $ (5,933) $ (4,573) $ (1,360) (29.7)

NM = not meaningful

Revenue decreased $4.0 million and revenue, net of subcontractor costs, increased $2.7 million in fiscal 2018 compared to fiscal 2017.

RCM's projects were substantially complete at the end of fiscal 2018.

The operating loss in fiscal 2018 primarily reflects legal costs related to outstanding claims.

In fiscal 2017, we updated our evaluation of unsettled claims and recognized a reduction in revenue of $4.9 million and a related loss in operating income of $3.6 million.

We also recognized unfavorable operating income adjustments of $5.7 million related to our updated estimate of the costs to complete fixed-price construction projects in fiscal 2017.

The remaining loss in fiscal 2017 primarily reflect legal costs related to outstanding claims.

We recorded no material gains or losses related to claims in fiscal 2018.

Fiscal 2019 Acquisition and Integration Expenses

In fiscal 2019, we incurred acquisition and integration expenses of $10.4 million related to the WYG acquisition.

Fiscal 2019 and 2018 Earn-Out Adjustments

We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates.

In fiscal 2018, we recorded adjustments to our contingent earn-out liabilities and reported related losses in operating income of $4.3 million.

In addition, in fiscal 2018 we recognized a charge of $1.5 million that related to the earn-out for Glumac but was 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.

During fiscal 2017, we recorded updated valuations to our contingent earn-out liabilities and reported net gains in operating income totaling $6.9 million.

The fiscal 2017 gains primarily resulted from updated valuations of the contingent consideration liabilities for INDUS Corporation ("INDUS") and CEG, which are both part of our GSG segment.

At September 30, 2018, there was a total potential maximum of $50.6 million of outstanding contingent consideration related to acquisitions.

We recorded adjustments to our contingent earn-out liabilities and reported losses of $1.1 million and $4.3 million in fiscal 2019 and 2018, respectively.

The fiscal 2018 losses resulted from updated valuations of the contingent consideration liabilities for NDY, Eco Logical Australia ("ELA") and Cornerstone Environmental Group ("CEG").

In addition, we recognized charges of $2.0 million and $1.5 million in fiscal 2019 and 2018, respectively, that related to the earn-out for Glumac.

At September 29, 2019, there was a total maximum of $72.4 million of outstanding contingent consideration related to acquisitions.

Of this amount, $53.0 million was estimated as the fair value and accrued on our consolidated balance sheet.

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Capital Requirements.

As of September 27, 2020, we had $157.5 million of cash and cash equivalents and access to an addition al $722 million of borrowings available under our credit facility.

During fiscal 2020, we generated $262 million of cash from operations.

To date, w e have not experienced any significant deterioration in our financial condition or liquidity due to the COVID-19 pandemic and our credit facilities remain available.

Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities.

Our primary uses of cash are to fund working capital, capital expenditures, stock repurchases, cash dividends and repayment of debt, as well as to fund acquisitions and earn-out obligations from prior acquisitions.

We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement, as described below, will be sufficient to meet our capital requirements for at least the next 12 months.

On November 5, 2018, the Board of Directors authorized a new stock repurchase program under which we could repurchase up to $200 million of our common stock in addition to the $25 million under the previous stock purchase program.

In fiscal 2019, we expended the $25 million under the previous stock purchase program and an additional $75 million under the new program.

We declared and paid common stock dividends totaling $29.7 million, or $0.54 per share, in fiscal 2019 compared to $24.5 million, or $0.44 per share, in fiscal 2018.

Subsequent Event.

On November 11, 2019, the Board of Directors declared a quarterly cash dividend of $0.15 per share payable on December 13, 2019 to stockholders of record as of the close of business on December 2, 2019.

We use a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where they are needed.

Historically, we indefinitely reinvested our foreign earnings, and did not need to repatriate these earnings.

However, in fiscal 2018, we evaluated our global tax planning and financing strategies as a result of the recent changes in U.S.

As a result, we completed a one-time repatriation of a portion of our foreign earnings totaling approximately $117 million in fiscal 2018.

We paid down debt in the U.S.

with most of these funds during the fourth quarter of fiscal 2018.

This transaction resulted in a $2.4 million net repatriation tax on a global basis.

At September 29, 2019, undistributed earnings of our foreign subsidiaries, primarily in Canada, amounting to approximately $44.0 million, which are expected to be permanently reinvested.

At September 27, 2020, undistributed earnings of our foreign subsidiaries, primarily in Canada, amounting to approximately $66.9 million are expected to be permanently reinvested in these foreign countries.

Accordingly, no provision for foreign withholding taxes has been made.

Upon distribution of those earnings, we would be subject to foreign withholding taxes.

Assuming the permanently reinvested foreign earnings were repatriated under the laws and rates applicable at September 29, 2019, the incremental foreign withholding taxes applicable to those earnings would be approximately $1.1 million.

We have no need or plans to repatriate additional foreign earnings in the foreseeable future.

Cash Equivalents and Restricted Cash.

As of September 29, 2019 , cash equivalents and restricted cash were $ 120.9 million , a decrease of $28.0 million compared to the fiscal 2018 year-end.

The decrease was primarily due to payments for acquisitions, stock repurchases and dividends.

Assuming the permanently reinvested foreign earnings were repatriated under the laws and rates applicable

at September 27, 2020, the incremental foreign withholding taxes applicable to those earnings would be approximately $2.0 million.

We currently have no need or plans to repatriate undistributed foreign earnings in the foreseeable future;

however, this could change due to varied economic circumstances or modifications in tax law.

On November 5, 2018, the Board of Directors authorized a stock repurchase program ("2019 Program") under which we could repurchase up to $200 million of our common stock.

This was in addition to the $25 million remaining as of fiscal 2018 year-end under the previous stock repurchase program ("2018 Program").

On January 27, 2020, the Board of Directors authorized a new $200 million stock repurchase program ("2020 Program").

In fiscal 2019, we expended $100 million to repurchase our stock under these programs.

In fiscal 2020, we paid an additional $117.2 million for share repurchases.

As a result, we had a remaining balance of $207.8 million available under the 2019 and 2020 programs.

We declared and paid common stock dividends totaling $34.7 million, or $0.64 per share, in fiscal 2020 compared to $29.7 million, or $0.54 per share, in fiscal 2019.

Subsequent Event.

On November 9 , 2020, the Board of Directors declared a quarterly cash dividend of $0.17 per share payable on December 11 , 2020 to stockholders of record as of the close of business on November 30, 2020.

Cash and Cash Equivalents.

As of September 27, 2020, cash and cash equivalents were $157.5 million, an increase of $36.6 million compared to the fiscal 2019 year-end.

The increase was due to net cash provided by operating activities, primarily due to shorter collection periods for accounts receivable, and increased proceeds from sale of equipment.

These increases were partially offset by stock repurchases, dividends, acquisitions and contingent earn-out payments.

Operating Activities.

For fiscal 2020, net cash provided by operating activities was $262.5 million compared to $208.5 million in fiscal 2019.

The increase primarily resulted from additional cash collections from accounts receivable and improved management of our working capital.

The increase was primarily due to strong cash collections on our accounts receivable.

Investing Activities.

Net cash used in investing activities was $99.7 million in fiscal 2019 , an increase of $57.1 million compared to last year.

The increase was primarily the result of proceeds from the divestiture of our non-core utility field services operations in fiscal 2018 that did not recur this year.

Net cash used in investing activities was $63.0 million in fiscal 2020, a decrease of $36.7 million compared to last year.

The change resulted from lower payments for acquisitions in fiscal 2020 compared to last year and the proceeds from sales of equipment related to the disposal of our Canadian turn-key pipeline activities.

Financing Activities.

For fiscal 2019 , net cash used in financing activities was $135.1 million , a decrease of $46.9 million compared to fiscal 2018.

The decrease in net cash used was due to lower net borrowings of long-term debt, partially offset by $25 million more in stock repurchases in fiscal 2019 compared to last year.

For fiscal 2020, net cash used in financing activities was $163.0 million, an increase of $28.0 million compared to fiscal 2019.

The change was primarily due to increased stock repurchases and contingent earn-out payments.

Debt Financing.

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The Amended Credit Agreement expires on July 30, 2023, or earlier at our discretion upon payment in full of loans and other obligations.

At September 29, 2019 , we had $276.4 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $240.6 million under the Term Loan Facility and $35.8 million outstanding under the Amended Revolving Credit Facility at a year-to-date weighted-average interest rate of 3.37% per annum.

At September 27, 2020, we had $254.9 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $228.1 million under the Amended Term Loan Facility and $26.8 million outstanding under the Amended Revolving Credit Facility at a year-to-date weighted-average interest rate of 2.31% per annum.

In addition, we had $0.7 million in standby letters of credit under the Amended Credit Agreement.

Our average effective weighted-average interest rate on borrowings outstanding during the year-to-date period ending September 29, 2019 under the Amended Credit Agreement, including the effects of interest rate swap agreements was 3.65% .

Our average effective weighted-average interest rate on borrowings outstanding during the year-to-date period ended September 27, 2020 under the Amended Credit Agreement, including the effects of interest rate swap agreements described in Note 14, “Derivative Financial Instruments” of the "Notes to Consolidated Financial Statements" included in Item 8, was 3.52%.

At September 27, 2020, we had $422.4 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt covenants.

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The financial covenants provide for a maximum Consolidated Leverage Ratio of 3.00 to 1.00 (total funded debt/EBITDA, as defined in the Amended Credit Agreement) and a minimum Consolidated Interest Coverage Ratio of 3.00 to 1.00 (EBITDA/Consolidated Interest Charges, as defined in the Amended Credit Agreement).

Our obligations under the Amended Credit Agreement are guaranteed by certain of our domestic subsidiaries and are secured by first priority liens on (i) the equity interests of certain of our subsidiaries, including those subsidiaries that are guarantors or borrowers under the Amended Credit Agreement, and (ii) the accounts receivable, general intangibles and intercompany loans, and those of our subsidiaries that are guarantors or borrowers.

Our obligations under the Amended Credit Agreement are guarant eed by certain of our domestic subsidiaries and are secured by first priority liens on (i) the equity interests of certain of our subsidiaries, including those subsidiaries that are guarantors or borrowers under the Amended Credit Agreement, and (ii) the accounts receivable, general intangibles and intercompany loans, and those of our subsidiaries that are guarantors or borrowers.

At September 27, 2020, we were in compliance with these covenants with a consolidated leverage ratio of 1.10x and a consolidated interest coverage ratio of 19.76x.

Our obligations under the Amended Credit Agreement are guaranteed by certain of our 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) our accounts receivable, general intangibles and intercompany loans, and those of our subsidiaries that are guarantors or borrowers.

In addition to the credit facility, we entered into agreements to issue standby letters of credit.

The aggregate amount of standby letters of credit outstanding under these additional agreements and other bank guarantees was $41.4 million , of which $10.2 million was issued in currencies other than the U.S.

We maintain at our Australian subsidiary an AUD$30 million credit facility, which may be used for bank overdrafts, short-term cash advances and bank guarantees.

This facility expires in March 2020 and is secured by a parent guarantee.

At September 29, 2019, there were no borrowings outstanding under this facility and bank guarantees outstanding of USD $6.1 million , which were issued in currencies other than the U.S.

We maintain at our United Kingdom subsidiary a GBP£35 million credit facility, which may be used for bank overdrafts, short-term cash advances and bank guarantees.

This facility expires in July 2020 and is secured by a parent guarantee.

At September 29, 2019, there were no borrowings outstanding under this facility and bank guarantees outstanding of USD$17.4 million, which were issued in currencies other than the U.S.

In addition to the Amended Credit Agreement, we maintain other credit facilities, which may be used for bank overdrafts, short-term cash advances and bank guarantees.

At September 27, 2020, there was $36.6 million outstanding under these facilities and the aggregate amount of standby letters of credit outstanding was $69.7 million.

As of September 27, 2020, we had bank overdrafts of $33.6 million related to our U.S.

disbursement bank accounts.

This balance is reported in the "Current portion of long-term debt and other short-term borrowings" within our fiscal 2020 year-end consolidated balance sheet.

The change in bank overdraft balance is classified as cash flows from financing activities within our consolidated statements of cash flows as we believe these overdrafts to be a form of short-term financing from the bank due to our ability to fund the overdraft with the $50.0 million overdraft protection on the bank accounts or our other credit facilities if needed.

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.

Our Board of Directors has authorized the following dividends:

Declaration Date

Dividend Per Share

Total Maximum

(in thousands, except per share data)

November 5, 2018

November 30, 2018

December 14, 2018

January 28, 2019

February 13, 2019

February 28, 2019

April 29, 2019

July 29, 2019

August 14, 2019

August 30, 2019

November 11, 2019

December 2, 2019

December 13, 2019

Dividend Per Share Record Date Total Maximum

(in thousands) Payment Date

November 11, 2019 $ 0.15 December 2, 2019 $ 8,190 December 13, 2019

January 27, 2020 $ 0.15 February 12, 2020 $ 8,225 February 28, 2020

April 27, 2020 $ 0.17 May 13, 2020 $ 9,175 May 27, 2020

July 27, 2020 $ 0.17 August 21, 2020 $ 9,153 September 4, 2020

November 9, 2020 $ 0.17 November 30, 2020 N/A December 11, 2020

Contractual Obligations.

The following sets forth our contractual obligations at September 27, 2020:

Total Year 1 Years 2 - 3 Years 4 - 5 Beyond

(in thousands)

Credit facility $ 291,522 $ 49,127 $ 242,395 $ — $ —

Capital leases

Other debt 137 137 — — —

9,326 3,439 5,887 — —

Operating leases (2)

333,810 88,069 141,736 56,513 47,492

Contingent earn-outs (3)

Deferred compensation liability

32,617 16,142 16,475 — —

Other long-term obligations (4)

39,599 1,841 2,561 245 34,952

Unrecognized tax benefits (5)

9,650 7,633 1,694 323 —

Total $ 716,661 $ 166,388 $ 410,748 $ 57,081 $ 82,444

(1) Interest primarily related to the Term Loan Facility is based on a weighted-average interest rate at September 27, 2020, on borrowings that are presently outstanding.

Predominantly represents real estate leases.

(2) Predominantly represents leases for our Corporate and project office spaces.

(3) Represents the estimated fair value recorded for contingent earn-out obligations for acquisitions.

The remaining maximum contingent earn-out obligations for these acquisitions total $70.9 million.

(4) Predominantly represents deferred compensation liability.

(5) Represents liabilities for unrecognized tax benefits related to uncertain tax positions, excluding amounts related primarily to outstanding refund claims.

We are unable to reasonably predict the timing of tax settlements, as tax audits can involve complex issues and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation.

For more information, see Note 8, " Income Taxes" of the "Notes to Consolidated Financial Statements" included in Item 8.

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The ability or failure to achieve the forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets.

Based on future operating results in certain jurisdictions, it is possible that the current valuation allowance positions of those jurisdictions could be adjusted in the next 12 months.

Based on future operating results in certain jurisdictions, it is possible that the current valuation allowance positions of those jurisdictions could be adjusted in the next 12 months, particularly in the United Kingdom where we have a valuation allowance of approximately $14 million primarily related to the realizability of net operating loss carry-forwards.

As of September 27, 2020 and September 29, 2019, the liability for income taxes associated with uncertain tax positions was $9.7 million and $8.8 million, respectively.

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If we default on the Amended Credit Agreement or additional credit facilities, our inability to issue or renew standby letters of credit and bank guarantees would impair our ability to maintain normal operations.

At September 29, 2019 , we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement, $41.4 million in standby letters of credit outstanding under our additional letter of credit facilities and $6.1 million of bank guarantees under our Australian facility, and $17.4 million under our United Kingdom facility.

At September 27, 2020, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $69.7 million in standby letters of credit outstanding under our additional letter of credit facilities.

• From time to time, we provide guarantees and indemnifications related to our services.

If our services under a guaranteed or indemnified project are later determined to have resulted in a material defect or other material

deficiency, then we may be responsible for monetary damages or other legal remedies.

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.

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Revenue Recognition and Contract Costs

On October 1, 2018, we adopted ASC 606, which supersedes most current revenue recognition guidance, including industry-specific guidance.

We adopted the standard on a modified retrospective basis which results in no restatement of the comparative periods presented and a cumulative effect adjustment to retained earnings as of the date of adoption.

As part of our adoption, the new standard was applied only to those contracts that were not substantially completed as of the date of adoption.

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.

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We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations.

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.

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.

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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 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.

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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.

Revenue on claims is recognized only to the extent that contract costs related to the claims have been incurred and when it is probable that any significant revenue recognized related to the claim will not be reversed.

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:

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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.

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.

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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 tax rates.

We also make certain assumptions about future market conditions, market prices, interest rates and changes in business strategies.

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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.

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:

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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 1, 2019 (i.e.

Our last review at June 29, 2020 (i.e.

the first day of our fourth quarter in fiscal 2020), indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their carrying values, including goodwill.

We had no reporting units that had estimated fair values that exceeded their carrying values by less than 25%.

Our ASP reporting unit was the only reporting unit that had an estimated fair value that exceeded its carrying value by less than 20%.

This prompted a strategic review of our ASP reporting unit, which is in our CIG reportable segment.

We also performed an interim goodwill impairment review of our ASP reporting unit in September 2020 and recorded a $15.8 million goodwill impairment charge.

The impaired goodwill related to our acquisitions of Coffey and NDY.

As a result of the impairment charge, the estimated fair value of our ASP reporting unit equals its carrying value of $144.9 million, including $95.5 million of goodwill, at September 27, 2020.

Contingent Consideration

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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.

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.

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In determining the need for a valuation allowance on deferred tax assets, management reviews both positive and negative evidence, including current and historical results of operations, future income projections and potential tax planning strategies.

Based on our assessment, we have concluded that a portion of the deferred tax assets at September 29, 2019, primarily net operating losses and certain foreign intangibles, will not be realized, and we have reserved accordingly.

Based on our assessment, we have concluded that a portion of the deferred tax assets at September 27, 2020, primarily loss carryforwards, will not be realized, and we have reserved accordingly.

According to the authoritative guidance on accounting for uncertainty in income taxes, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis