What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-11-24 compared with 2020-11-23 · 232 added, 309 removed, 397 unchanged (58% of the section changed)

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OVERVIEW OF RESULTS AND BUSINESS TRENDS

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

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.

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.

By Leading with Science® , we are responding to the challenges of COVID-19, with the commitment of our 21,000 associates supported by technological innovation.

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

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

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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 increased 5.6% in fiscal 2020 compared to fiscal 2019.

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

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

During periods of economic volatility, our U.S.

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

We expect our U.S.

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

However, U.S.

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

In fiscal 2021, o ur revenue increased 7.3% compared to fiscal 2020.

This year-over-year growth primarily reflects increased activity with government clients, both U.S.

and international, as federal and local government agency spending has been a source of economic stability and stimulus during the COVID-19 pandemic.

However, this growth was partially offset by lower commercial activity, which has been slower to recover to pre-pandemic levels.

Our revenue also includes contributions from acquisitions that did not contribute to our revenue in fiscal 2020.

Our year-over-year revenue comparisons were also impacted by the decision to dispose of our Canadian turn-key pipeline activities in fiscal 2019 and the subsequent wind-down of those activities in fiscal 2020.

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.

state and local government revenue increased 22.2% i n fiscal 2021 compared to last fiscal year.

The 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.

Our disaster response activities also increased compared to fiscal 2020.

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.

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

The risk of budgetary constraints to our clients is mitigated with the passage of the American Rescue Plan Act of 2021, signed into law on March 11, 2021, which provides financial support for state and local governments.

Federal Government.

federal government revenue increased 8.8% in f iscal 2021 compared to fiscal 2020.

This increase includes contributions from acquisitions, which did not have comparable revenue in last fiscal year.

During periods of economic volatility, including during the COVID-19 pandemic, our U.S.

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

We expect our U.S.

federal government revenue to grow in fiscal 2022 due to continued increased advanced analytics activity, and the current administration's focus on long-term infrastructure and climate change.

commercial revenue decreased 5.4% in fiscal 2021 compared to fiscal 2020.

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.

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

We currently expect our U.S.

commercial revenue to grow in fiscal 2022 primarily with clients focused on environmental programs, including meeting net zero carbon goals, and from higher demand for renewable energy;

however, if conditions due to the COVID-19 pandemic worsen or are prolonged, it could have a negative impact on our revenue for fiscal 2022.

International.

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

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

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

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

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.

Our international revenue increased 7.9% in f iscal 2021 compared to fiscal 2020.

The revenue growth primarily reflects government stimulus spending on infrastructure, increased commercial activity related to new regulatory requirements for sustainability, and fewer restrictions related to the COVID-19 pandemic .

Our revenue also includes contributions from acquisitions that did not contribute to our revenue in fiscal 2020.

We expect these trends and the related growth in our international work to continue in fiscal 2022.

RESULTS OF OPERATIONS

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2021 September 27,

2020 September 29,

($ in thousands)

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Selling, general and administrative expenses (222,972) (204,615) (18,357) (9.0)

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)

Contingent consideration – fair value adjustments 3,273 14,971 (11,698) (78.1)

Impairment of goodwill — (15,800) 15,800 NM

Income from operations 278,701 241,091 37,610 15.6

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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.

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

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

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NM = not meaningful

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

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

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

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

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

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

commercial and international revenue.

In fiscal 2021 , revenue and revenue, net of subcontractor costs, increased $218.6 million, or 7.3%, and $203.6 million, or 8.7%, respectively, compared to fiscal 2020.

Excluding the net contributions from acquisitions and the impact of the disposal of our Canadian turn-key pipeline activities, our revenue increased 3.2% in fiscal 2021 compared to last fiscal year.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $164.0 million, or 9.2%, and $120.3 million, or 9.3%, respectively, in fiscal 2021 compared to the prior fiscal year.

Our CIG segment's revenue increased $59.6 million, or 4.7%, and revenue, net of subcontractor costs, increased $82.7 million, or 7.9% in fiscal 2021 compared to fiscal 2020.

Our fiscal 2021 results for our GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

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

GAAP adjusted results, which exclude 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.

GAAP adjusted results, which exclude certain non-operating accounting-related adjustments, such as gains on non-core dispositions, gains from adjustments to contingent considerations, goodwill impairment charges, non-recurring costs to address COVID-19, and non-recurring tax items.

The gains on non-core dispositions in fiscal 2020 relate to the disposal of our Canadian turn-key pipeline activities that commenced in the fourth quarter of fiscal 2019.

The goodwill impairment charge in fiscal 2020 did not have related tax benefits.

Excluding this charge, the effective tax rates applied to the adjustments to earnings per share ("EPS") to arrive at adjusted EPS averaged 25% and 24% for fiscal 2021 and 2020, respectively.

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

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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.

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

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

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

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

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

Although the charges were recognized in the second quarter of fiscal 2020, substantially all of these costs were paid in cash in the third quarter of fiscal 2020.

Fiscal Year Ended

2021 September 27,

2020 September 29,

Income from operations $ 278,701 $ 241,091 $ 37,610 15.6

Earn-out adjustments (3,273) (13,371) 10,098 NM

COVID-19 — 8,233 (8,233) NM

Non-core dispositions — (8,525) 8,525 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 (15,800) NM

2 unchanged sentences

EPS $ 4.26 $ 3.16 $ 1.10 34.8

Earn-out adjustments (0.04) (0.18) 0.14 NM

COVID-19 — 0.11 (0.11) NM

Non-core dispositions — (0.12) 0.12 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 (0.29) NM

Non-recurring tax benefits — (0.44) 0.44 NM

Non-recurring tax items (0.43) — (0.43) NM

Adjusted EPS (1)

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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.

Operating income increased $37.6 million in fiscal 2021 compared to fiscal 2020.

Our operating income reflects net gains of $3.3 million and $15.0 million related to changes in the estimated fair value of contingent earn-out liabilities in fiscal 2021 and 2020, respectively.

The net gain in fiscal 2020 was partially offset by the related compensation charges of $1.6 million.

These gains are described below under "Fiscal 2021 and 2020 Earn-Out Adjustments." Our operating income in fiscal 2020 was reduced by the previously described non-recurring charges of $8.2 million to address COVID-19.

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

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."

Further, our fiscal 2020 operating income reflects a non-cash goodwill impairment charge of $15.8 million, which is described below under "Fiscal 2020 and 2019 Impairment of Goodwill."

Excluding these items, our adjusted operating income increased $32.2 million, or 13.2%, in fiscal 2021 compared to fiscal 2020.

The increase reflects improved results in our 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 increase reflects improved results in our GSG and CIG segments, which are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

Our net interest expense w as $11.8 million and $13.1 million in fiscal 2021 and 2020, respectively.

The decrease primarily reflects lower average borrowings.

The effective tax rates for fiscal 2021 and 2020 were 12.8% and 23.7 %, respectively.

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.

Our fiscal 2021 effective tax rate reflects a non-recurring net tax benefit of $21.6 million primarily consisting of valuation allowances in the United Kingdom that were released due to sufficient sustainable profitability being achieved in fiscal 2021.

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

The goodwill impairment charge in fiscal 2020 did not have related tax benefits, which increased our effective tax rate by 1.5% in fiscal 2020.

Conversely, income tax expense was reduced by $12.9 million and $8.3 million of excess tax benefits on share-based payments in fiscal 2021 and 2020, respectively.

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

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

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

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

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

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

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

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

Excluding the impact of the fiscal 2021 non-recurring tax items, the non-deductible goodwill impairment charge, and the excess tax benefits on share-based payments, our effective tax rates in fiscal 2021 and 2020 were 25.7% and 25.6%, respectively.

Our EPS was $4.26 in fisc al 2021, compared to $3.16 in fiscal 2020.

On the same basis as our adjusted operating income and excluding non-recurring tax benefits in fiscal 2021, EPS was $3.79 in fiscal 2021, compared to $3.26 last fiscal year.

Segment Results of Operations

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2020 September 29,

($ in thousands)

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Income from operations $ 195,297 $ 168,669 $ 26,628 15.8%

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.

Revenue and revenue, net of subcontractor costs, increased $164.0 million, or 9.2%, and $120.3 million, or 9.3%, respectively, in fiscal 2021 compared to fiscal 2020.

These increases primarily reflect higher U.S.

state and local government activities related to water and environmental programs, and disaster response.

The increases also reflect contributions from acquisitions, which did not have comparable revenue in the prior fiscal year.

Operating income increased $26.6 million in fiscal 2021 compared to fiscal 2020 primarily reflecting the revenue growth.

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

Our operating margin, based on revenue, net of subcontractor costs, improved to 13.7% in fiscal 2021 compared to 13.0% last fiscal year.

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

The improved operating margin was primarily due to our increased focus on high-end consulting services and improved labor utilization.

Commercial/International Services Group ("CIG")

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2021 September 27,

2020 September 29,

($ in thousands)

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Income from operations $ 131,720 $ 114,022 $ 17,698 15.5

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.

Revenue and revenue, net of subcontractor costs, increased $59.6 million, or 4.7%, and increased $82.7 million, or 7.9%, respectively, in fiscal 2021 compared to fiscal 2020.

The revenue growth in fiscal 2021 primarily reflects increased infrastructure activity in Canada and fewer restrictions related to the COVID-19 pandemic in the second half of fiscal 2021 .

The increases also reflect contributions from acquisitions, which did not have comparable revenue in the prior fiscal year, partially offset by the disposal of our Canadian turn-key pipeline activities.

Operating income increased $17.7 million in fiscal 2021 compared to fiscal 2020 primarily due to revenue growth.

Additionally, we realized gains of $8.5 million from the disposition of non-core equipment related to our Canadian turn-key pipeline activities, partially offset by $6.6 million of incremental costs for actions to respond to the COVID-19 pandemic in fiscal 2020.

Excluding these disposition gains and the COVID-19 charges, operating income increased $19.6 million in fiscal 2021 compared to fiscal 2020.

Our operating margin, based on revenue, net of subcontractor costs, improved to 11.6% in fiscal 2021 compared to 10.9% last fiscal year.

Excluding the disposition gains and COVID-19 charges, our operating margin was 10.7% in fiscal 2020.

The improved operating margin was primarily due to our increased focus on high-end consulting services and improved labor utilization.

Remediation and Construction Management ("RCM")

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2021 September 27,

2020 September 29,

($ in thousands)

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Loss from operations $ — $ — $ — NM

NM = not meaningful

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.

There were no significant operating activities in RCM in fiscal 2021 and 2020.

Fiscal 2021 and 2020 Earn-Out Adjustments

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

We recorded adjustments to our contingent earn-out liabilities and reported net gains of $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.

We recorded adjustments to our contingent earn-out liabilities and reported net gains of $3.3 million and $15.0 million in fiscal 2021 and 2020, respectively.

Fiscal 2021 adjustments resulted from the updated valuations of several contingent consideration liabilities, which reflect updated projections of acquired companies' financial performance during their respective earn-out periods.

None of these valuation changes were individually material.

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

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.

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

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

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

At October 3, 2021, there was a total maximum of $105.4 million of outstanding contingent consideration related to our acquisitions.

Of this amount, $59.3 million was estimated as the fair value and accrued on our consolidated balance sheet.

Fiscal 2020 and 2019 Impairment of Goodwill

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

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

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

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

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

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

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

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

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

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

We also performed an interim goodwill impairment review of our RFS reporting unit and recorded a $7.8 million goodwill impairment charge.

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

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

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

Fiscal 2020 Compared to Fiscal 2019

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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

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

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

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

14 unchanged sentences

NM = not meaningful

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

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

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

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

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

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

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

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

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

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

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

The effective tax rates applied to these adjustments to 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.

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 third quarter of fiscal 2020.

Fiscal Year Ended

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2020 September 29, 2019 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)

$ 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

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 $ 241,091 $ 188,762 $ 52,329 27.7

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

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

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

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EPS $ 3.16 $ 2.84 $ 0.32 11.3

Earn-out expense 0.04 0.08 (0.04) NM

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

Non-core divestitures 0.28 0.11 0.17 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

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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 $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.

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

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

state and local government water infrastructure revenue.

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

state and local government adjusted revenue and revenue, net of subcontractor costs, increased $132.3 million, or 28.8%, and $90.7 million, or 27.1%, respectively, in fiscal 2019 compared to fiscal 2018.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

Ou r 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.

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 fiscal 2019.

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.

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

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

The TCJA significantly revised the U.S.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

corporate income tax rate.

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

The goodwill impairment charges in fiscal 2020 and 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.

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 in fiscal 2018.

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 in fiscal 2019.

Segment Results of Operations

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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 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.

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.

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% in fiscal 2019.

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

Commercial/International Services Group ("CIG")

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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 fiscal 2018.

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

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

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

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

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

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.

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 fiscal 2019.

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

On the same basis, our operating margin, based on revenue, net of subcontractor costs, improved to 10.7% in fiscal 2020 from 9.7% in fiscal 2019.

Remediation and Construction Management ("RCM")

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

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

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

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

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

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

NM = not meaningful

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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

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

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

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

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

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 EGT, NDY, and SEG.

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.

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

Fiscal 2020 and 2019 Impairment of Goodwill

This prompted a strategic review of our Asia/Pacific ("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

The impaired goodwill related to our acquisitions of Coffey International Limited ("Coffey") and NDY.

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

On September 28, 2020 (the first day of our fiscal 2021), we merged our former ASP reporting unit into our Client Account Management reporting unit.

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

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

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

We also performed an interim goodwill impairment review of our RFS reporting unit and recorded a $7.8 million goodwill impairment charge.

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

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

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Capital Requirements.

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

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

As of October 3, 2021 , we h ad $166.6 million of cash and cash equivalents and access to an additional $749 million of borrowing capacity available under our credit facility.

We generated $304.4 million of cash from operations in fiscal 2021.

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.

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

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

In the fourth quarter of fiscal 2021, we repatriated approximately $80 million from Canada and recognized a related tax expense of $5.6 million.

At this time, we also determined that our remaining undistributed earnings in Canada of approximately $20.1 million are no longer being indefinitely reinvested and recorded an additional deferred tax liability/expense of $3.1 mill ion.

At October 3, 2021, undistributed earnings of our other foreign subsidiaries, primarily in Australia and the U.K.

of approximately $50.9 million are expected to be indefinitely 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 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.

Assuming the indefinitely reinvested foreign earnings were repatriated under the laws and rates applicable at October 3, 2021, the incremental taxes applicable to those earnings would not be material.

We currently have no need or plans to repatriate undistributed foreign earnings, other than from Canada, in the foreseeable future;

however, this could change due to varied economic circumstances.

On January 27, 2020, the Board of Directors authorized a $200 million stock repurchase program, which was included in our remaining balance of $207.8 million as of fiscal 2020 year-end.

In fiscal 2021, we repurchased and settled 479,369 shares with an average price of $125.16 per share for a total cost of $60.0 million in the open market.

At October 3, 2021, we had a remaining balance of $147.8 million under our stock repurchase program.

We declared and paid common stock dividends totaling $40.0 million, or $0.74 per share, in fiscal 2021 compared to $34.7 million, or $0.64 per share, in fiscal 2020.

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.

Subsequent Events.

On October 5, 2021, the Board of Directors authorized a new stock repurchase program under which we could repurchase up to $400 million of our common stock in addition to the $147.8 million remaining under the previous stock repurchase program at October 3, 2021.

On November 15, 2021, the Board of Directors also declared a quarterly cash dividend of $0.20 per share payable on December 20, 2021 to stockholders of record as of the close of business on December 2, 2021.

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.

As of October 3, 2021, cash and cash equivalents were $166.6 million, an increase of $9.1 million compared to the fiscal 2020 year-end.

The increase was due to net cash provided by operating activities, partially offset by net repayments of long-term debt, stock repurchases, dividends, as well as payments for business acquisitions and contingent earn-out payments.

Operating Activities.

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

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

In fiscal 2021, net cash provided by operating activities was $304.4 million compared to $262.5 million in fiscal 2020.

The increase primarily reflects an increase in earnings adjusted for non-cash items of $24.1 million and improved working capital from faster collections of our accounts receivable in fiscal 2021 compared to the prior fiscal year.

Investing Activities.

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

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

Net cash used in investing activities was $93.0 million in fiscal 2021, an increase of $30.0 million compared to last fiscal year.

The increase was due to higher payments for business acquisitions in fiscal 2021 and the proceeds from sales of equipment related to the disposal of our Canadian turn-key pipeline activities in fiscal 2020.

Financing Activities.

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

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

In fiscal 2021, net cash used in financing activities was $210.1 million, an increase of $47.1 million compared to fiscal 2020.

The increase was due to the net change in overdrafts and higher net repayments on long-term debt, partially offset by lower stock repurchases compared to last fiscal year.

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.

On July 30, 2018, we entered into a Second Ame nded 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.

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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 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.

At October 3, 2021, we had $212.5 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $212.5 million under the Amended Term Loan Facility and no borrowings outstanding under the Amended Revolving Credit Facility.

The weighted-average interest rate of the outstanding borrowings during fiscal 2021 was 1.25%.

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

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

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

Commitment fees related to our revolving credit facilities were $0.7 million, $0.7 million, and $0.6 million for fiscal 2020 , 2019 and 2018, respectively.

Our weighted-average interest rate on borrowings outstanding during fiscal 2021 under the Amended Credit Agreement, including the effects of interest rate swap agreements described in Note 14, “Derivative Financial Instruments” of the "Notes to Consolidated Financial Statements" included in Item 8, was 3.30%.

At October 3, 2021, we had $449.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt covenants.

Commitment fees related to our revolving credit facilities were $0.7 million each year for fiscal 2021 , 2020 and 2019, respectively.

The Amended Credit Agreement contains certain affirmative and restrictive covenants, and customary events of default.

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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.

At October 3, 2021, we were in compliance with these covenants with a consolidated leverage ratio of 0.87x and a consolidated interest coverage ratio of 26.38x.

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.

At October 3, 2021, there was no outstanding borrowings under these facilities and the aggregate amount of standby letters of credit outstanding was $53.4 million.

As of October 3, 2021, we had no bank overdrafts related to our disbursement bank accounts.

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.

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(in thousands) Payment Date

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

November 9, 2020 $ 0.17 November 30, 2020 $ 9,198 December 11, 2020

January 25, 2021 $ 0.17 February 10, 2021 $ 9,212 February 26, 2021

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July 26, 2021 $ 0.20 August 20, 2021 $ 10,800 September 3, 2021

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 $ — $ —

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)

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.

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

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

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

(4) Predominantly represents deferred compensation liability.

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

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

November 15, 2021 $ 0.20 December 2, 2021 N/A December 20, 2021

We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and adjust the allowance, if necessary.

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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, 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.

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

As of October 3, 2021 and September 27, 2020, the liability for income taxes associated with uncertain tax positions was $14.1 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.

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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 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.

At October 3, 2021, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $53.4 million in standby letters of credit outstanding under our additional letter of credit facilities.

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

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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.

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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 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.

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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.

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:

Factors considered in determining whether revenue associated with

claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following:

(a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in our performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable.

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We record in our consolidated balance sheets amounts representing our estimated liability for self-insurance claims.

We utilize actuarial analyses to assist in determining the level of accrued liabilities to establish for our employee medical and workers' compensation self-insurance claims that are known and have been asserted against us, as well as for self-insurance claims that are believed to have been incurred based on actuarial analyses but have not yet been reported to our claims administrators at the balance sheet date.

administrators at the balance sheet date.

We include any adjustments to such insurance reserves in our consolidated statements of income.

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In addition, we regularly evaluate whether events and circumstances have occurred that may indicate a potential change in recoverability of goodwill.

We perform interim goodwill impairment reviews between our annual reviews if certain events and circumstances have occurred, including a deterioration in general economic conditions, an increased competitive environment, a change in management, key personnel, strategy or customers, negative or declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods (see Note 6, "Goodwill and Intangible Assets" of the "Notes to Consolidated Financial Statements" in Item 8 for further discussion).

We perform interim goodwill impairment reviews between our annual reviews if certain events and circumstances have occurred, including a deterioration in general economic conditions, an increased competitive environment, a change in management, key personnel, strategy or customers, negative or declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods (se e Note 6, "Goodwill and Intangible Assets" of the "Notes to Consolidated Financial Statements" in Item 8 for further discussion).

We believe the methodology that we use to review impairment of goodwill, which includes a significant amount of judgment and estimates, provides us with a reasonable basis to determine whether impairment has occurred.

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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 first day of our fourth quarter in fiscal 2021), indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their carrying values, including goodwill.

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

We had no reporting units that had estimated fair values that exceeded their carrying values by less than 150%.

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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 .

On September 28, 2020 (the first day of our fiscal 2021), we merged our former ASP reporting unit into our Client Account Management reporting unit.

During the fourth quarter of fiscal 2019, we performed an interim goodwill impairment review of our RFS reporting unit and recorded a $7.8 million goodwill impairment charge.

As a result of the impairment charge, the estimated fair value of the RFS reporting unit equaled its carrying value of $61 million at September 29, 2019, including the remaining $48.8 million of goodwill.

Contingent Consideration

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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.

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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Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income.

Incom e Taxes

We file a consolidated U.S.

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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 27, 2020, primarily loss carryforwards, 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 October 3, 2021, 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