TETRA TECH INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor provisions created under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “estimates,” “seeks,” “continues,” “may,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict, including those identified below under “Part II, Item 1A. Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. GENERAL OVERVIEW Tetra Tech, Inc. is a leading global provider of consulting and engineering services that focuses on water, environment, sustainable infrastructure, resource management, energy, and international development. We are a global company that is Leading with Science® to provide innovative solutions for our public and private clients. We typically begin at the earliest stage of a project by identifying technical solutions and developing execution plans tailored to our clients' needs and resources. Our reputation for high-end consulting and engineering services and our ability to develop solutions for water and environmental management has supported our growth for more than 55 years. Today, we are proud to be making a difference in people’s lives worldwide through broad consulting, engineering, and technology servic e offerings. In fiscal 2020, we worked on over 65,000 projects, in more than 100 countries on seven continents, with a talent force of 20,000 associates. We are Leading with Science® throughout our operations, with domain experts across multiple disciplines supported by our advanced analytics, artificial intelligence, machine learning, and digital technology solutions. Our ability to provide innovation and first-of-kind solutions is enhanced by partnerships with our forward-thinking clients. We are diverse and inclusive, embracing the breadth of experience across our talented workforce worldwide with a culture of innovation and entrepreneurship. We are disciplined in our business delivering value to customers and high performance to our shareholders. In supporting our clients, we seek to add value and provide long-term sustainable consulting, engineering, and technology solutions. By combining ingenuity and practical experience, we have helped to advance sustainable solutions for managing water, protecting the environment, providing energy, and engineering the infrastructure for our cities and communities. We derive income from fees for professional, technical, program management, and construction management services. As primarily a professional services company, we are labor-intensive rather than capital-intensive. Our revenue is driven by our ability to attract and retain qualified and productive employees, identify business opportunities, secure new and renew existing client contracts, provide outstanding services to our clients and execute projects successfully. We provide services to a diverse base of U.S. state and local government, U.S. federal government, U.S. commercial, and international clients. 21 The following table presents the percentage of our revenue by client sector: Three Months Ended December 27, 2020 December 29, 2019 Client Sector U.S. state and local government 16.3 % 15.5 % U.S. federal government (1) 34.8 30.8 U.S. commercial 20.6 22.7 International (2) 28.3 31.0 Total 100.0 % 100.0 % (1) Includes revenue generated under U.S. federal government contracts performed outside the United States. (2) Includes revenue generated from foreign operations, primarily in Canada, Australia, the United Kingdom, and revenue generated from non-U.S. clients. We manage our operations under two reportable segments. Our Government Services Group ("GSG") reportable segment primarily includes activities with U.S. government clients (federal, state and local) and all activities with development agencies worldwide. Our Commercial/International Services Group ("CIG") reportable segment primarily includes activities with U.S. commercial clients and international clients other than development agencies. Additionally , we continue to report the results of the wind-down of our non-core construction activities in the Remediation and Construction Management ("RCM") reportable segment. Substantially, there has been no remaining backlog for RCM since fiscal 2018 as the projects were complete. Government Services Group ( “ GSG ” ). GSG provides consulting and engineering services primarily to U.S. government clients (federal, state and local) and development agencies worldwide. GSG supports U.S. government civilian and defense agencies with services in water, environment, sustainable infrastructure, information technology, and disaster management. GSG also provides engineering design services for U.S. municipal and commercial clients, especially in water infrastructure, solid waste, and high-end sustainable infrastructure designs. GSG also leads our support for development agencies worldwide, especially in the United States, United Kingdom, and Australia. Commercial/International Services Group ( “ CIG ” ). CIG primarily provides consulting and engineering services to U.S. commercial clients, and international clients that include both commercial and government sectors. CIG supports commercial clients across the Fortune 500, energy utilities, industrial, manufacturing, aerospace, and resource management markets. CIG also provides infrastructure and related environmental, engineering and project management services to commercial and local government clients across Canada, in Asia Pacific (primarily Australia and New Zealand), the United Kingdom, as well as Brazil and Chile. The following table presents the percentage of our revenue by reportable segment: Three Months Ended December 27, 2020 December 29, 2019 Reportable Segment GSG 61.2 % 57.3 % CIG 40.7 44.0 Inter-segment elimination (1.9) (1.3) Total 100.0 % 100.0 % Our services are performed under three principal types of contracts with our clients: fixed-price, time-and-materials, and cost-plus. The following table presents the percentage of our revenue by contract type: 22 Three Months Ended December 27, 2020 December 29, 2019 Contract Type Fixed-price 35.9 % 34.0 % Time-and-materials 46.4 48.7 Cost-plus 17.7 17.3 Total 100.0 % 100.0 % Under fixed-price contracts, clients agree to pay a specified price for our performance of the entire contract or a specified portion of the contract. Under time-and-materials contracts, we are paid for labor at negotiated hourly billing rates and paid for other expenses. Under cost-plus contracts, some of which are subject to a contract ceiling amount, we are reimbursed for allowable costs and fees, which may be fixed or performance-based. Profitability on these contracts is driven by billable headcount and our cost control. We recognize revenue from contracts using the cost-to-cost measure of progress method to estimate the progress towards completion to determine the amount of revenue and profit to recognize. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. On a quarterly basis, we review and assess our revenue and cost estimates for each significant contract. Changes in revenue and cost estimates could also result in a projected loss that would be recorded immediately in earnings. Other contract costs include professional compensation and related benefits, together with certain direct and indirect overhead costs such as rents, utilities, and travel. Professional compensation represents a large portion of these costs. Our "Selling, general and administrative expenses" ("SG&A") are comprised primarily of marketing and bid and proposal costs, and our corporate headquarters’ costs related to the executive offices, finance, accounting, administration, and information technology. Our SG&A expenses also include a portion of stock-based compensation and depreciation of property and equipment related to our corporate headquarters, and the amortization of identifiable intangible assets. Most of these costs are unrelated to specific clients or projects, and can vary as expenses are incurred to support company-wide activities and initiatives. We experience seasonal trends in our business. Our revenue and operating income are typically lower in the first half of our fiscal year, primarily due to the Thanksgiving (in the U.S.), Christmas, and New Year’s holidays. Many of our clients’ employees, as well as our own employees, take vacations during these holiday periods. Further, seasonal inclement weather conditions occasionally cause some of our offices to close temporarily or may hamper our project field work in the northern hemisphere's temperate and arctic regions. These occurrences result in fewer billable hours worked on projects and, correspondingly, less revenue recognized. ACQUISITIONS AND DIVESTITURES Acquisitions. We continuously evaluate the marketplace for acquisition opportunities to further our strategic growth plans. Due to our reputation, size, financial resources, geographic presence and range of services, we have numerous opportunities to acquire privately and publicly held companies or selected portions of such companies. We evaluate an acquisition opportunity based on its ability to strengthen our leadership in the markets we serve, the technologies and solutions they provide, and the additional new geographies and clients they bring. Also, during our evaluation, we examine an acquisition's ability to drive organic growth, its accretive effect on long-term earnings, and its ability to generate return on investment. Generally, we proceed with an acquisition if we believe that it will strategically expand our service offerings, improve our long-term financial performance, and increase shareholder returns. We view acquisitions as a key component in the execution of our growth strategy, and we intend to use cash, debt or equity, as we deem appropriate, to fund acquisitions. We may acquire other businesses that we believe are synergistic and will ultimately increase our revenue and net income, strengthen our ability to achieve our strategic goals, provide critical mass with existing clients, and further expand our lines of service. We typically pay a purchase price that results in the recognition of goodwill, generally representing the intangible value of a successful business with an assembled workforce specialized in our areas of interest. Acquisitions are inherently risky, and no assurance can be given that our previous or future acquisitions will be successful or will not have a material adverse effect on our financial position, results of operations, or cash flows. All acquisitions require the approval of our Board of Directors. For detailed information regarding acquisitions, see Note 4, “Acquisitions” of the “Notes to Consolidated Financial Statements”. 23 Divestitures. We regularly review and evaluate our existing operations to determine whether our business model should change through the divestiture of certain businesses. Accordingly, from time to time, we may divest or wind-down certain non-core businesses and reallocate our resources to businesses that better align with our long-term strategic direction. OVERVIEW OF RESULTS AND BUSINESS TRENDS General. As the coronavirus disease 2019 ("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. 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 first quarter of fiscal 2021, our revenue decreased 4.1% compared to the prior-year period. Our revenue includes contributions from acquisitions that did not contribute to our revenue in the first quarter of fiscal 2020. Our year-over-year revenue comparisons were also impacted by the decision to dispose of our Canadian turn-key pipeline activities in the fourth quarter of fiscal 2019 and the subsequent wind-down of those activities in fiscal 2020, which included the disposal of related equipment. U.S. State and Local Government. Our U.S. state and local government revenue increased 0.9% in the first quarter of fiscal 2021 compared to the same period last year. This comparison was impacted by a reduction in subcontractor activity. Our U.S. state and local revenue, net of subcontractor costs, increased 11.0% in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. This increase reflects continued broad-based growth in our U.S. state and local government project-related infrastructure business, particularly with increased revenue from municipal water infrastructure work in the metropolitan areas of California, Texas, and Florida. Most of our work for U.S. state and local governments relates to critical water and environmental programs, which we expect to increase further next year. However, further budgetary constraints to our clients could negatively impact our business. Conversely, increased disaster response activity could cause our fiscal 2021 revenue to exceed our current expectations. U.S. Federal Government. Our U.S. federal government revenue increased 8.4% in the first quarter of fiscal 2021 compared to the prior-year period. This increase includes the contributions from acquisitions completed in fiscal 2020. These contributions were partially offset by reduced international development activities as COVID-19 travel restrictions have caused some project delays. During periods of economic volatility, our U.S. federal government business has historically been the most stable and predictable. We expect our U.S. federal government revenue to grow modestly in fiscal 2021 due to continued increased federal advanced analytics activity. However, U.S. federal spending amounts and priorities could change significantly from our current expectations, which could have a significant positive or negative impact on our fiscal 2021 revenue. U.S. Commercial. Our U.S. commercial revenue decreased 13.1% in the first quarter of fiscal 2021 compared to the same period last year. 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 this fiscal year. International. Our international revenue decreased 12.4% in the first quarter of fiscal 2021 compared to the prior-year period. Excluding the impact of the aforementioned prior-year disposal of our Canadian turn-key pipeline activities, our international revenue decreased 10.2% in the first quarter of fiscal 2021 compared to the same period 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 for fiscal 2021; however, our international commercial activities could have a significant adverse impact if the current economic conditions due to COVID-19 are prolonged. 24 RESULTS OF OPERATIONS Consolidated Results of Operations Three Months Ended December 27, 2020 December 29, 2019 Change $ % ($ in thousands) Revenue $ 765,104 $ 797,623 $ (32,519) (4.1)% Subcontractor costs (159,933) (183,600) 23,667 12.9 Revenue, net of subcontractor costs (1) 605,171 614,023 (8,852) (1.4) Other costs of revenue (488,861) (504,286) 15,425 3.1 Gross profit 116,310 109,737 6,573 6.0 Selling, general and administrative expenses (50,058) (46,435) (3,623) (7.8) Income from operations 66,252 63,302 2,950 4.7 Interest expense (3,026) (3,349) 323 9.6 Income before income tax expense 63,226 59,953 3,273 5.5 Income tax expense (10,778) (12,636) 1,858 14.7 Net income 52,448 47,317 5,131 10.8 Net income attributable to noncontrolling interests (12) (7) (5) (71.4) Net income attributable to Tetra Tech $ 52,436 $ 47,310 $ 5,126 10.8 Diluted earnings per share $ 0.96 $ 0.85 $ 0.11 12.9% (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. While providing services, we routinely subcontract various services and, under certain U.S. Agency for International Development programs, issue grants. Generally, these subcontractor costs and grants are passed through to our clients and, in accordance with U.S. GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage these activities. The grants are included as part of our subcontractor costs. Because subcontractor services can vary significantly from project to project and period to period, changes in revenue may not necessarily be indicative of our business trends. Accordingly, we segregate subcontractor costs from revenue to promote a better understanding of our business by evaluating revenue exclusive of costs associated with external service providers. In the first quarter of fiscal 2021, revenue and revenue, net of subcontractor costs, decreased $32.5 million, or 4.1%, and $8.9 million, or 1.4%, respectively, compared to the same period last year. Excluding the net contributions from the aforementioned acquisitions/disposal, our revenue decreased 7.5% in the first quarter of fiscal 2021 compared to the prior-year quarter. The decline was primarily due to the adverse impact of the COVID-19 pandemic, particularly on our U.S. and international commercial revenue. The following table reconciles our reported results to non-U.S. GAAP adjusted results, which exclude the gains on non-core equipment disposals in the first quarter of fiscal 2020 related to the disposal of our Canadian turn-key pipeline activities. For the first quarter of fiscal 2020, the effective tax rate applied to the adjustment to earnings per share ("EPS") to arrive at adjusted EPS was 28.0%. We applied the relevant marginal statutory tax rate based on the nature of the adjustment and tax jurisdiction in which it occurred. Both EPS and adjusted EPS were calculated using diluted weighted-average common shares outstanding for the respective periods as reflected in our consolidated statements of income. 25 Three Months Ended December 27, 2020 December 29, 2019 Change $ % ($ in thousands) Income from operations $ 66,252 $ 63,302 $ 2,950 4.7% RCM — (1) 1 NM Non-core equipment disposal — (800) 800 NM Adjusted income from operations (1) $ 66,252 $ 62,501 $ 3,751 6.0% EPS $ 0.96 $ 0.85 $ 0.11 12.9% Non-core equipment disposal — (0.01) 0.01 NM Adjusted EPS (1) $ 0.96 $ 0.84 $ 0.12 14.3% NM = not meaningful (1) Non-GAAP financial measure Our operating income increased $3.0 million in the first quarter of fiscal 2021 compared to the same period last year. Our GSG segment's operating income increased $5.7 million in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. These results are described below under "Government Services Group." Our CIG segment's operating income decreased $2.1 million in the first quarter of fiscal 2021 compared to the year-ago quarter. These results are described below under "Commercial/International Services Group." Our net interest expense was $3.0 million in the first quarter of fiscal 2021 compared to $3.3 million in the prior-year period. The decrease primarily reflects lower interest rates (primarily LIBOR). The effective tax rates for the first quarters of fiscal 2021 and 2020 were 17.0% and 21.1%, respectively. Income tax expense was reduced by $6.1 million and $3.6 million of excess tax benefits on share-based payments in the first quarters of fiscal 2021 and 2020, respectively. Excluding the impact of the excess tax benefits on share-based payments, our effective tax rates for the first quarters of fiscal 2021 and 2020 were 26.8% and 27.1%, respectively. Our EPS was $0.96 in the first quarter of fiscal 2021 compared to $0.85 in the year-ago quarter. On the same basis as our adjusted operating income, EPS was $0.96 in the first quarter of fiscal 2021 compared to $0.84 in the first quarter of fiscal 2020. Segment Results of Operations Government Services Group Three Months Ended December 27, 2020 December 29, 2019 Change $ % ($ in thousands) Revenue $ 468,623 $ 457,404 $ 11,219 2.5% Subcontractor costs (123,705) (127,697) 3,992 3.1 Revenue, net of subcontractor costs $ 344,918 $ 329,707 $ 15,211 4.6 Income from operations $ 47,700 $ 42,048 $ 5,652 13.4% Revenue and revenue, net of subcontractor costs, increased $11.2 million, or 2.5%, and $15.2 million, or 4.6%, respectively, in the first quarter of fiscal 2021 compared to the year-ago quarter. These increases reflect higher U.S. state and 26 local government activity for water and environmental programs and contributions from the aforementioned acquisitions. These increases were partially offset by lower internatio nal development revenue due to project delays caused by COVID-19. Operating income increased $5.7 million in the first quarter of fiscal 2021 compared to the year-ago quarter, reflecting the higher revenue and an improved operating margin. Our operating margin, based on revenue, net of subcontractor costs, improved to 13.8% in the first quarter of fiscal 2021 compared to 12.8% in the same period last year primarily due to improved labor utilization. Commercial/International Services Group Three Months Ended December 27, 2020 December 29, 2019 Change $ % ($ in thousands) Revenue $ 311,024 $ 351,164 $ (40,140) (11.4)% Subcontractor costs (50,771) (66,885) 16,114 24.1 Revenue, net of subcontractor costs $ 260,253 $ 284,279 $ (24,026) (8.5) Income from operations $ 29,559 $ 31,632 $ (2,073) (6.6)% Revenue and revenue, net of subcontractor costs, decreased $40.1 million, or 11.4%, and $24.0 million, or 8.5%, respectively, in the first quarter of fiscal 2021 compared to the year-ago quarter. Excluding the impact of the disposal of our Canadian turn-key pipeline activities, revenue and revenue, net of subcontractor costs, decreased 9.9% and 6.5%, respectively, in the first quarter of fiscal 2021 compared to the prior-year quarter. The declines primarily reflect the adverse impact of the COVID-19 pandemic. Operating income decreased $2.1 million in the first quarter of fiscal 2021 compared to the same period last year, reflecting the lower revenue partially offset by an improved operating margin. Additionally, operating income in the first quarter of fiscal 2020 included gains of $0.8 million from the disposition of non-core equipment. Our operating margin, based on revenue, net of subcontractor costs, improved to 11.4% in the first quarter of fiscal 2021 compared to 11.1% (10.8% adjusted for the non-core gain) in the same period last year. This improvement was primarily due to our increased focus on high-end consulting services. Remediation and Construction Management RCM's projects were substantially complete at the end of fiscal 2018. There were no significant activities in RCM for the first quarters of fiscal 2021 and 2020. Backlog The following table provides a reconciliation between remaining unsatisfied performance obligations ("RUPOs") and backlog: Balance at December 27, 2020 September 27, 2020 (in thousands) RUPOs $ 3,164,153 $ 3,218,973 Items impacting comparability: Contract term 23,908 20,312 Backlog $ 3,188,061 $3,239,285 Backlog generally represents the dollar amount of revenues we expect to realize in the future when we perform the work. The 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 27 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). Financial Condition, Liquidity and Capital Resources Capital Requirements. As of December 27, 2020, we had $163.4 million of c ash and cash equivalents and access to an additional $686 million of borrowings available under our credit facility. During the first quarter of fiscal 2021, we generated $33.2 million of cash from operations. To date, we have not experienced any significant deterioration in our financial condition or liquidity due to the COVID-19 pandemic and our credit facilities remain available. Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities. Our primary uses of cash are to fund working capital, capital expenditures, stock repurchases, cash dividends and repayment of debt, as well as to fund acquisitions and earn-out obligations from prior acquisitions. We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement, as described below, will be sufficient to meet our capital requirements for at least the next 12 months including any additional resources needed to address the COVID-19 pandemic. We use a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where they are needed. We have no need or plans to repatriate foreign earnings at this time. On January 27, 2020, the Board of Directors authorized a new $200 million stock repurchase program, which was included in our remaining balance of $207.8 million as of fiscal 2020 year-end. In the first quarter of fiscal 2021, we repurchased and settled 135,413 shares with an average price of $110.77 per share for a total cost of $15 million in the open market. At December 27, 2020, we had a remaining balance of $192.8 million under our stock repurchase program. 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. Subsequent Event. On January 25, 2021, the Board of Directors declared a quarterly cash dividend of $0.17 pe r share payable on February 26, 2021 to stockholders of record as of the close of business on February 10, 2021. Cash Equivalents and Restricted Cash. As of December 27, 2020, cash equivalents and restricted cash w ere $163.4 million, an increase of $5.9 million compared to the fiscal 2020 year-end. The increase was due to net cash provided by operating activities, net proceeds from borrowings, stock options exercised and the effect of exchange rate chang es on cash, partially offset by stock repurchases, taxes paid on vested restricted stock, dividends and contingent earn-out payments. Operating Activities . For the first quarter of fiscal 2021, net cash provided by operating activities was $33.2 million, an increase of $51.2 million compared to the prior-year qua rter. The increase was primarily due to strong collections on our accounts receivable. Investing Activities . For the first quarter of fiscal 2021, net c ash used in investing activities was $1.8 million, a decrease of $1.1 million compared to the year-ago quarter, due to reduced capital expenditures compared to the same quarter last year. Financing Activities . For the first quarter of fiscal 2021, net cash used in financing activities was $32.8 million, compared to net cash provided by financing activities of $8.8 million in the prior-year qua rte r. The change was primarily due to a reduced net borrowing. Debt Financing. On July 30, 2018, we entered into a Second Amended and Restated Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $1 billion that will mature in July 2023. The Amended Credit Agreement is a $700 million senior secured, five-year facility that provides for a $250 million term loan facility (the “Amended Term Loan Facility”), a $450 million revolving credit facility (the “Amended Revolving Credit Facility”), and a $300 million accordion feature that allows us to increase the Amended Credit Agreement to $1 billion subject to lender approval. The Amended Credit Agreement allows us to, among other things, (i) refinance indebtedness under our Credit Agreement dated as of May 7, 2013; (ii) finance certain permitted open market repurchases of our common stock, permitted acquisitions, and cash dividends and distributions; and (iii) utilize the proceeds for working capital, capital expenditures and other general corporate purposes. The Amended Revolving Credit Facility includes a $100 million sublimit for the issuance of standby letters of credit, a $20 million sublimit for swingline loans, and a $200 million sublimit for multicurrency borrowings and letters of credit. 28 The entire Amended Term Loan Facility was drawn on July 30, 2018. The Amended Term Loan Facility is subject to quarterly amortization of principal at 5% annually beginning December 31, 2018. We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a Eurocurrency rate plus a margin that ranges from 1.00% to 1.75% per annum, or (b) a base rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50% per annum, the bank’s prime rate or the Eurocurrency rate plus 1.00%) plus a margin that ranges from 0% to 0.75% per annum. In each case, the applicable margin is based on our Consolidated Leverage Ratio, calculated quarterly. The Amended Term Loan Facility is subject to the same interest rate provisions. The Amended Credit Agreement expires on July 30, 2023, or earlier at our discretion upon payment in full of loans and other obligations. As of December 27, 2020, we had $288.5 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $225.0 million under the Term Loan Facility and $63.5 million outstanding under the Amended Revolving Credit Facility at a year-to-date weighted-average interest rate of 1.34% 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 three months ended December 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”, was 3.28%. At December 27, 2020, we had $386.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt covenants. The Amended Credit Agreement contains certain affirmative and restrictive covenants, and customary events of default. The financial covenants provide for a maximum Consolidated Leverage Ratio of 3.00 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 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 December 27, 2020, we were in compliance with these covenants with a consolidated leverage ratio of 1.18x and a consolidated interest coverage ratio of 20.51x. 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 December 27, 2020, there were no borrowings outstanding under these facilities and the aggregate amount of standby letters of credit outstanding was $69.3 million. As of December 27, 2020, we had bank overdrafts of $13.5 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" on our consolidated balance sheet as of December 27, 2020. The change in bank overdraft balance is classified as cash flows from financing activities on 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 overdraft protection on the bank accounts or our other credit facilities if needed. Inflation. We believe our operations have not been, and, in the foreseeable future, are not expected to be, materially adversely affected by inflation or changing prices due to the average duration of our projects and our ability to negotiate prices as contracts end and new contracts begin. Dividends. Our Board of Directors has authorized the following dividends in fiscal 2021: Dividend Per Share Record Date Total Maximum Payment (in thousands) Payment Date November 9, 2020 $ 0.17 November 30, 2020 $ 9,198 December 11, 2020 January 25, 2021 $ 0.17 February 10, 2021 N/A February 26, 2021 Income Taxes We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and adjust the allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The ability or failure to achieve the forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets. Based on future operating results in certain jurisdictions, it is possible that the current valuation allowance positions of those jurisdictions could be adjusted in the next 12 months, particularly in the United Kingdom where we have a valuation allowance of approximately $12.5 million primarily related to the realizability of net operating loss carry-forwards. 29 As of December 27, 2020 and September 27, 2020, the liability for income taxes associated with uncertain tax positions was $10.7 million and $9.7 million, respectively. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions may significantly decrease within the next 12 months. These liabilities represent our current estimates of the additional tax liabilities that we may be assessed when the related audits are concluded. If these audits are resolved in a manner more unfavorable than our current expectations, our additional tax liabilities could be materially higher than the amounts currently recorded resulting in additional tax expense. Off-Balance Sheet Arrangements In the ordinary course of business, we may use off-balance sheet arrangements if we believe that such arrangements would be an efficient way to lower our cost of capital or help us manage the overall risks of our business operations. We do not believe that such arrangements have had a material adverse effect on our financial position or our results of operations. The following is a summary of our off-balance sheet arrangements: • Letters of credit and bank guarantees are used primarily to support project performance and insurance programs. We are required to reimburse the issuers of letters of credit and bank guarantees for any payments they make under the outstanding letters of credit or bank guarantees. Our Amended Credit Agreement and additional letter of credit facilities cover the issuance of our standby letters of credit and bank guarantees and are critical for our normal operations. If we default on the Amended Credit Agreement or additional credit facilities, our inability to issue or renew standby letters of credit and bank guarantees would impair our ability to maintain normal operations. At December 27, 2020, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $69.3 million in standby lett ers of credit outstanding under our additional letter of credit facilities. • From time to time, we provide guarantees and indemnifications related to our services. If our services under a guaranteed or indemnified project are later determined to have resulted in a material defect or other material deficiency, then we may be responsible for monetary damages or other legal remedies. When sufficient information about claims on guaranteed or indemnified projects is available and monetary damages or other costs or losses are determined to be probable, we recognize such guaranteed losses. • In the ordinary course of business, we enter into various agreements as part of certain unconsolidated subsidiaries, joint ventures, and other jointly executed contracts where we are jointly and severally liable. We enter into these agreements primarily to support the project execution commitments of these entities. The potential payment amount of an outstanding performance guarantee is typically the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts. However, we are not able to estimate other amounts that may be required to be paid in excess of estimated costs to complete contracts and, accordingly, the total potential payment amount under our outstanding performance guarantees cannot be estimated. For cost-plus contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For lump sum or fixed-price contracts, this amount is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete. In those cases where costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, co-venturers, subcontractors or vendors, for claims. • In the ordinary course of business, our clients may request that we obtain surety bonds in connection with contract performance obligations that are not required to be recorded in our consolidated balance sheets. We are obligated to reimburse the issuer of our surety bonds for any payments made thereunder. Each of our commitments under performance bonds generally ends concurrently with the expiration of our related contractual obligation. Critical Accounting Policies Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the fiscal year ended September 27, 2020. To date, there have been no material changes in our critical accounting policies as reported in our 2020 Annual Report on Form 10-K. New Accounting Pronouncements 30 For information regarding recent accounting pronouncements, see “Notes to Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report. Financial Market Risks We do not enter into derivative financial instruments for trading or speculation purposes. In the normal course of business, we have exposure to both interest rate risk and foreign currency transaction and translation risk, primarily related to the Canadian and Australian dollar, and British Pound. We are exposed to interest rate risk under our Amended Credit Agreement. We can borrow, at our option, under both the Amended Term Loan Facility and Amended Revolving Credit Facility. We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a Eurocurrency rate plus a margin that ranges from 1.00% to 1.75% per annum, or (b) a base rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50% per annum, the bank’s prime rate or the Eurocurrency rate plus 1.00%) plus a margin that ranges from 0% to 0.75% per annum. Borrowings at the base rate have no designated term and may be repaid without penalty any time prior to the Facility’s maturity date. Borrowings at a Eurodollar rate have a term no less than 30 days and no greater than 180 days and may be prepaid without penalty. Typically, at the end of such term, such borrowings may be rolled over at our discretion into either a borrowing at the base rate or a borrowing at a Eurodollar rate with similar terms, not to exceed the maturity date of the Facility. The Facility matures on July 30, 2023. At December 27, 2020, we had borrowings outstanding under the Credit Agreement of $288.5 million at a year-to-date weighted-average interest rate of 1.34% per annum. In August 2018, we entered into five interest rate swap agreements with five banks to fix the variable interest rate on $250 million of our Amended Term Loan Facility. The objective of these interest rate swaps was to eliminate the variability of our cash flows on the amount of interest expense we pay under our Credit Agreement. As of December 27, 2020, the notional principal of our outstanding interest swap agreements was $225.0 million ($45.0 million each.) Our year-to-date average effective interest rate on borrowings outstanding under the Credit Agreement, including the effec ts of interest rate swap agreements, at December 27, 2020, was 3.28%. For more information, see Note 14, “Derivative Financial Instruments” of the “Notes to Consolidated Financial Statements”. Most of our transactions are in U.S. dollars; however, some of our subsidiaries conduct business in foreign currencies, primarily the Canadian and Australian dollar, and British Pound. Therefore, we are subject to currency exposure and volatility because of currency fluctuations. We attempt to minimize our exposure to these fluctuations by matching revenue and expenses in the same currency for our contracts . For the first quarters of fiscal 2021 and 2020, we reported $1.3 million and $0.5 million of foreign currency losses, respectively, in “Selling, general and administrative expenses” on our consolidated statements of income. We have foreign currency exchange rate exposure in our results of operations and equity primarily because of the currency translation related to our foreign subsidiaries where the local currency is the functional currency. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in reduced revenue, operating expenses, assets and liabilities. Similarly, our revenue, operating expenses, assets and liabilities will increase if the U.S. dollar weakens against foreign currencies. For the first quarters of fiscal 2021 a nd 2020, 28.3% and 31.0% of our consolidated revenue, respectively, was generated by our international business. T he effect of foreign exchange rate translation on the consolidated balance sheets was an increase in our equity by $32.4 million and $13.9 million for the first quarters of fiscal 2021 and 2020, respectively. These amounts were recognized as adjustments to equity through other comprehensive income. Item 3. Quantitative and Qualitative Disclosures about Market Risk Please refer to the information we have included under the heading “Financial Market Risks” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 2 of this Form 10-Q which is incorporated herein by reference. 31