What changed in this filing

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Item 1. Financial Statements

2022-05-06 compared with 2022-02-04 · 207 added, 101 removed, 490 unchanged (39% of the section changed)

3 unchanged sentences

(unaudited - in thousands, except par value)

ASSETS January 2,

ASSETS April 3,

2022 October 3,

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Preferred stock - authorized, 2,000 shares of $ 0.01 par value;

no shares issued and outstanding at January 2, 2022 and October 3, 2021

no shares issued and outstanding at April 3, 2022 and October 3, 2021

Common stock - authorized, 150,000 shares of $ 0.01 par value;

issued and outstanding, 53,999 and 53,981 shares at January 2, 2022 and October 3, 2021, respectively

issued and outstanding, 53,683 and 53,981 shares at April 3, 2022 and October 3, 2021, respectively

Accumulated other comprehensive loss ( 115,303 ) ( 125,028 )

8 unchanged sentences

(unaudited – in thousands, except per share data)

Three Months Ended

2022 December 27,

Three Months Ended Six Months Ended

2022 March 28,

2021 April 3,

2022 March 28,

Revenue $ 852,744 $ 754,764 $ 1,711,255 $ 1,519,868

20 unchanged sentences

(unaudited – in thousands)

Three Months Ended

2022 December 27,

Three Months Ended Six Months Ended

2022 March 28,

2021 April 3,

2022 March 28,

Net income $ 53,049 $ 45,528 $ 121,548 $ 97,976

Other comprehensive income (loss), net of tax

Other comprehensive income, net of tax

Foreign currency translation adjustment, net of tax

9 unchanged sentences

(unaudited – in thousands)

Three Months Ended

2022 December 27,

Six Months Ended

2022 March 28,

Cash flows from operating activities:

6 unchanged sentences

Deferred income taxes 494 350

(Gain) loss on sale of property and equipment 239 ( 7 )

Fair value adjustments to contingent consideration 199 ( 193 )

Loss (gain) on sale of property and equipment 178 ( 66 )

Changes in operating assets and liabilities, net of effects of business acquisitions:

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Capital expenditures ( 5,620 ) ( 4,297 )

Proceeds from sales of assets 3,514 9

Proceeds from sales of divested business 3,124 —

Proceeds from sale of property and equipment 541 79

Net cash used in investing activities ( 35,566 ) ( 7,283 )

22 unchanged sentences

Consolidated Statements of Stockholders' Equity

Three Months Ended December 27, 2020 and January 02, 2022

Three Months Ended March 28, 2021 and April 03, 2022

(unaudited – in thousands)

7 unchanged sentences

Shares Amount

BALANCE AT DECEMBER 27, 2020 54,193 $ 542 $ — $ ( 127,919 ) $ 1,232,563 $ 1,105,186 $ 68 $ 1,105,254

Net income 45,517 45,517 11 45,528

Other comprehensive income 12,863 12,863 2 12,865

Cash dividends of $ 0.17 per common share

( 9,212 ) ( 9,212 ) ( 9,212 )

Stock-based compensation 5,668 5,668 5,668

Restricted & performance shares released 2 — ( 158 ) ( 158 ) ( 158 )

Stock options exercised 77 1 2,274 2,275 2,275

Shares issued for Employee Stock Purchase Plan — — 8 8 8

Stock repurchases ( 114 ) ( 1 ) ( 7,792 ) ( 7,207 ) ( 15,000 ) ( 15,000 )

BALANCE AT MARCH 28, 2021 54,158 $ 542 $ — $ ( 115,056 ) $ 1,261,661 $ 1,147,147 $ 81 $ 1,147,228

BALANCE AT JANUARY 2, 2022 53,999 $ 540 $ — $ ( 123,048 ) $ 1,360,390 $ 1,237,882 $ 63 $ 1,237,945

Net income 53,040 53,040 9 53,049

Other comprehensive income 7,745 7,745 — 7,745

Distributions paid to noncontrolling interests — ( 31 ) ( 31 )

Cash dividends of $ 0.20 per common share

( 10,769 ) ( 10,769 ) ( 10,769 )

Stock-based compensation 529 6,035 6,564 6,564

Restricted & performance shares released 3 — ( 107 ) 1 ( 106 ) ( 106 )

Stock options exercised 9 — 244 244 244

Shares issued for Employee Stock Purchase Plan — — 1 1 1

Stock repurchases ( 328 ) ( 3 ) ( 667 ) ( 49,330 ) ( 50,000 ) ( 50,000 )

BALANCE AT APRIL 3, 2022 53,683 $ 537 $ — $ ( 115,303 ) $ 1,359,367 $ 1,244,601 $ 41 $ 1,244,642

Tetra Tech, Inc.

Consolidated Statements of Stockholders' Equity

Six months ended March 28, 2021 and April 03, 2022

(unaudited – in thousands)

Common Stock Additional

Capital Accumulated

Comprehensive

Loss Retained

Earnings Total

Equity Non-Controlling

Interests Total

Shares Amount

BALANCE AT SEPTEMBER 27, 2020 53,797 $ 538 $ — $ ( 161,786 ) $ 1,198,567 $ 1,037,319 $ 54 $ 1,037,373

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Stock repurchases ( 249 ) ( 2 ) ( 13,549 ) $ ( 16,449 ) ( 30,000 ) ( 30,000 )

BALANCE AT DECEMBER 27, 2020 54,193 $ 542 $ — $ ( 127,919 ) $ 1,232,563 $ 1,105,186 $ 68 $ 1,105,254

BALANCE AT MARCH 28, 2021 54,158 $ 542 $ — $ ( 115,056 ) $ 1,261,661 $ 1,147,147 $ 81 $ 1,147,228

BALANCE AT OCTOBER 3, 2021 53,981 $ 540 $ — $ ( 125,028 ) $ 1,358,726 $ 1,234,238 $ 53 $ 1,234,291

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Other comprehensive income 9,725 9,725 9,725

Distributions paid to noncontrolling interests — ( 31 ) ( 31 )

Cash dividends of $ 0.40 per common share

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Stock repurchases ( 618 ) ( 6 ) ( 667 ) ( 99,327 ) ( 100,000 ) ( 100,000 )

BALANCE AT JANUARY 2, 2022 53,999 $ 540 $ — $ ( 123,048 ) $ 1,360,390 $ 1,237,882 $ 63 $ 1,237,945

BALANCE AT APRIL 3, 2022 53,683 $ 537 $ — $ ( 115,303 ) $ 1,359,367 $ 1,244,601 $ 41 $ 1,244,642

See Notes to Consolidated Financial Statements.

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This guidance should be applied prospectively to all transactions that are reflected in the financial statements at the date of initial application and to new transactions that are entered into after that date, or retrospectively.

We do not expect the adoption of this guidance to have an impact on our consolidated financial statements.

We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

Revenue and Contract Balances

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The following tables present revenue disaggregated by client sector and contract type:

Three Months Ended

2022 December 27,

Three Months Ended Six Months Ended

2022 March 28,

2021 April 3,

2022 March 28,

(in thousands)

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Other than the U.S.

federal government, no single client accounted for more than 10% of our revenue for the three months ended January 2, 2022 and December 27, 2020.

federal government, no single client accounted for more than 10% of our revenue for the three and six months ended April 3, 2022 and March 28, 2021.

Contract Assets and Contract Liabilities

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Net contract liabilities $ ( 110,020 ) $ ( 86,619 )

(1) Inclu des $ 13.5 million and $ 12.2 million of contract retentions as of January 2, 2022 and October 3, 2021, respectively.

In the first quarters of fiscal 2022 and 2021, we recognized revenue of approximately $ 63 million and $ 60 million, respectively, from amounts included in the contract liability balances at the end of fiscal 2021 and 2020, respectively.

(1) Inclu des $ 18.8 million and $ 12.2 million of contract retentions as of April 3, 2022 and October 3, 2021, respectively.

In the first halves of fiscal 2022 and 2021, we recognized revenue of approximately $ 93 million and $ 90 million , respectively, from amounts included in the contract liability balances at the end of fiscal 2021 and 2020, respectively.

We recognize revenue primarily using the cost-to-cost measure of progress to estimate progress towards completion.

Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made.

As a result, we recognized net favorable revenue and operating income adjustments of $ 2.8 million in the first quarter of fiscal 2022.

For the first quarter of fiscal 2021, these net adjustments to our revenue and operating income were immaterial.

C hanges in revenue and cost estimates could also result in a projected loss, determined at the contract level, which would be recorded immediately in earnings.

As of January 2, 2022 and October 3, 2021, our consolidated balance sheets included liabilities for anticipated losses of $ 14.2 million and $ 12.7 million, respectively.

The estimated cost to complete these related contracts as of January 2, 2022 and October 3, 2021 was approximately $ 116 million and $ 104 million, respectively.

As a result, we recognized net favorable revenue and operating income adjustments of $ 5.0 million in the first half of fiscal 2022 and $ 1.1 million in the first half of fiscal 2021.

C hanges in revenue and cost estimates could also result in a projected loss, determined at the contract level, which would be recorded immediate ly in earnings.

As of April 3, 2022 and October 3, 2021, our consolidated balance sheets included liabilities for anticipated losses of $ 11.6 million and $ 12.7 million, respectively.

The estimated cost to complete these related contracts as of April 3, 2022 and October 3, 2021 was approximately $ 88 million and $ 104 million, respectively.

Accounts Receivable, Net

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Unbilled accounts receivable, which represent an unconditional right to payment subject only to the passage of time, include unbilled amounts typically resulting from revenue recognized but not yet billed pursuant to contract terms or billed after the period end date.

Substantially all of our unbilled receivables at January 2, 2022 are expected to be billed and collecte d within 12 months.

Substantially all of our unbilled receivables at April 3, 2022 are expected to be billed and collecte d within 12 months.

The allowance for doubtful accounts represents amounts that are expected to become uncollectible or unrealizable in the future.

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and general economic and industry conditions, including the potential impacts of the coronavirus disease 2019 ("COVID-19") pandemic, that may affect our clients' ability to pay.

Total accounts receivable at January 2, 2022 and October 3, 2021 included approximately $ 11 million for each period, related to claims, including requests for equitable adjustment, on contracts that provide for price redetermination.

Total accounts receivable at April 3, 2022 and October 3, 2021 included approximately $ 11 million f or each period, related to claims, including requests for equitable adjustment, on contracts that provide for price redetermination.

This amount relates to a single claim in our RCM reportable segment.

In May 2022, we received a cash settlement for the $ 11 million claim in our RCM segment, which will result in an immaterial gain in the third quarter of fiscal 2022.

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.

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We regularly evaluate all unsettled claim amounts and record appropriate adjustme nts to revenue when it is probable that the claim will result in a different contract value than the amount previously estimated.

In the first quarters of fiscal 2022 and fiscal 2021, we recorded no gains or losses related to claims.

In the first halves of fiscal 2022 and fiscal 2021, we recorded no gains or losses related to claims.

Other than the U.S.

federal government, no single client accounted for more than 10% of our accounts receivable at January 2, 2022 and October 3, 2021.

federal government, no single client accounted for more than 10% of our accounts receivable at April 3, 2022 and October 3, 2021.

Remaining Unsatisfied Performance Obligations (“RUPO”)

Our RUPO represents a measure of the total dollar value of work to be performed on contracts awarded and in progress.

We h ad $ 3.4 billion of RUPO as of January 2, 2022.

We h ad $ 3.6 billion of RUPO as of April 3, 2022.

RUPO increases with awards from new contracts or additions on existing contracts and decreases as work is performed and revenue is recognized on existing contracts.

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We include a contract within our RUPO when the contract is awarded and an agreement on contract terms has been reached.

We expect to satisfy our RUPO as of January 2, 2022 over the following periods:

We expect to satisfy our RUPO as of April 3, 2022 over the following periods:

(in thousands)

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Therefore, the remaining performance obligations on such contracts are limited to the notice period required for the termination (usually 30 , 60 , or 90 days).

In the first quarter of fiscal 2022, our acquisition activity was immaterial.

In the second quarter of fiscal 2022, we acquired Piteau Associates (“PAE”), based in Vancouver, British Columbia.

PAE is a global leader in sustainable natural resource analytics including hydrologic numerical modeling and dewatering system design.

PAE is part of our Commercial/International Services Group (“CIG”) segment.

During the first half of fiscal 2022, we completed other immaterial acquisitions, which are part of our GSG segment.

The total fair value of the purchase price of all acquisitions during the first half of fiscal 2022 was $ 70.0 million.

This amount is comprised of $ 44.0 million in initial cash payments made to the sellers, $ 1.8 million of payables related to estimated post-closing adjustments for net assets acquired, and $ 24.2 million for the estimated fair value of contingent earn-out obligations, with a maximum of $ 35.5 million, based upon the achievement of specified operating income targets in each of the five years following the acquisitions.

In fiscal 2021, we acquired Coanda Research and Development Corporation ("CRD"), The Kaizen Company (“KZN”), IBRA-RMAC Automation Solutions (“IRM”), and the partnership interests of Hoare Lea, LLP and Subsidiaries ("HLE").

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This amount was comprised of $ 101.4 million in initial cash payments made to the sellers, and $ 50.3 million for the estimated fair value of contingent earn-out obligations, with a maximum of $ 74.0 million, based upon the achievement of specified operating income targets in each of the three to four years following the acquisitions.

Goodwill additions resulting from the above business combinations are primarily attributable to the existing workforce of the acquired companies and the synergies expected to arise after the acquisitions.

Goodwill additions resulting from fiscal 2022 business combinations are primarily attributable to the significant technical expertise residing in embedded workforces that are sought out by clients, long-term management experience, the reputation of PAE in its industry, and the synergies expected to arise after the acquisitions in the areas of data management, digitization, modeling, water, and natural resources.

The fiscal 2021 goodwill additions represent the significant technical expertise residing in embedded workforces that are sought out by clients and the long-standing reputation of HLE.

In addition, these acquired capabilities, when combined with our exis ting global consulting and engineering business, result in opportunities that allow us to provide services under contracts that could not have been pursued individually by either us or the acquired compan ies.

T he results of these acquisitions were included in our consolidated financial statements from their respective closing dates.

The results of these acquisitions were included in our consolidated financial statements from their respective closing dates.

These acquisitions were not considered material, individually or in the aggregate, to our consolidated financial statements.

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The fair values of any earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates.

For each transaction, we estimate the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability in “Current contingent earn-out liabilities”

and “Long-term contingent earn-out liabilities” on the consolidated balance sheets.

We consider several factors when determining that contingent earn-out liabilities are part of the purchase price, including the following:

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

In the first quarter of fiscal 2022, we evaluated our estimates for contingent consideration liabilities for the remaining earn-out periods for each individual acquisition, which included a review of their financial results to-date, the status of ongoing projects in their RUPO, and the inventory of prospective new contract awards.

In the first half of fiscal 2022, we evaluated our estimates for contingent consideration liabilities for the remaining earn-out periods for each individu al acquisition, which included a review of their financial results to-date, the status of ongoing projects in their RUPO, and the inventory of prospective new contract awards.

In addition, we considered the potential impact of the global economic disruption due to the COVID-19 pandemic on our operating income projections over the various earn-out peri ods.

For the first quarters of fiscal 2022 and 2021, we had no material adjustments to our contingent earn-out liabilities in operating income.

At January 2, 2022, there was a total potential ma ximum of $ 119.4 million of outstanding contingent consideration related to acquisitions.

During the first halves of fiscal 2022 and 2021, the total adjustments to our contingent earn-out liabilities in operating income were immaterial.

At April 3, 2022, there was a total potential maximum of $ 139.6 million of outstanding contingent consideration related to acquisitions.

Of this amount, $ 79.1 million was estimated as the fair value and accrued on our consolidated balance sheet.

If the global economic disruption related to the COVID-19 pandemic is prolo nged, we could have significant reductions in our contingent earn-out liabilities and related gains in our operating income in future periods.

Goodwill and Intangible Assets

6 unchanged sentences

Translation and adjustments 443 25 468

Balance at January 2, 2022 $ 501,651 $ 621,409 $ 1,123,060

Balance at April 3, 2022 $ 510,403 $ 648,220 $ 1,158,623

Our goodwill balances reflect the goodwill reallocation related to the creation of our new HPB division on the first day of fiscal 2022, which included a transfer of some related operations in our GSG reportable segment to our CIG reportable segment.

The foreign currency translation adjustments resulted from our foreign subsidiaries with functional currencies that are different than our reporting currency.

The foreign currency translation adjustments resulted from our foreign subsidiaries with functional currencies that are

different than our reporting currency.

These amounts are presented net of reductions from historical impairment adjustments.

The gross amounts o f goodwill for GSG were $ 519.4 million and $ 556.1 million at January 2, 2022 and October 3, 2021, respectively, excluding accumulated impairment of $ 17.7 million for each period.

The gross amounts of goodwill for CIG were $ 742.9 million and $ 691.6 million at January 2, 2022 and October 3, 2021, respectively, excluding accumulated impairment of $ 121.5 million for each period.

The gross amounts o f goodwill for GSG were $ 528.1 million and $ 556.1 million at April 3, 2022 and October 3, 2021, respectively, excluding accumulated impairment of $ 17.7 million at each date.

The gross amounts of goodwill for CIG were $ 769.7 million and $ 691.6 million at April 3, 2022 and October 3, 2021, respectively, excluding accumulated impairment of $ 121.5 million at each date.

We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter.

Our most recent annual review at June 28, 2021 (i.e.

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

As of June 28, 2021, and after the reallocation of goodwill on the first day of fiscal 2022, we had no reporting units that had estimated fair values that exceeded their carrying values by less than 150 %.

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The following table presents the gross amount and accumulated amortization of our acquired identifiable intangible assets with finite useful lives included in “Intangible assets, net” on the consolidated balance sheets:

January 2, 2022 October 3, 2021

April 3, 2022 October 3, 2021

Remaining Life

9 unchanged sentences

Total $ 97,165 $ ( 57,685 ) $ 39,480 $ 118,971 $ ( 80,981 ) $ 37,990

Amortization expense for the three months ended January 2, 2022 wa s $ 2.7 million, compared to $ 3.4 million for the prior-year periods.

Amortization expense for the three and six months e nded April 3, 2022 wa s $ 3.2 million and $ 5.9 million, respectively, compared to $ 2.2 million and $ 5.6 million for the prior-year periods.

Estimated amortization expense for the remainder of fiscal 2022 and succeeding years is as follows:

10 unchanged sentences

Property and equipment, net $ 36,715 $ 37,733

The depreciation expense related to property and equipment wa s $ 3.4 million for the three months ended January 2, 2022, compared to $ 2.9 million for the prior-year period.

The depreciation expense related to property and equipment wa s $ 3.3 million and $ 6.7 million for the three and six months ended April 3, 2022, compared t o $ 3.1 million and $ 5.9 million for the prior-year periods.

Stock Repurchase and Dividends

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 .

In the first quarter of fiscal 2022, we repurchased and settled 290,196 shares with an average price of $ 172.30 per share for a total cost of $ 50.0 million in the open market.

At January 2, 2022, we had a remaining balance of $ 497.8 million under our stock repurchase program.

The following table presents dividends declared and paid in the first quarters of fiscal 2022 and 2021:

In the first half of fiscal 2022, we repurchased and settled 618,236 shares with an average price of $ 161.75 per share for a total cost of $ 100.0 million in the open market.

At April 3, 2022, we had a remaining balance of $ 447.8 million under our stock repurchase program.

The following table presents dividends declared and paid in the first halves of fiscal 2022 and 2021:

Declare Date Dividend Paid Per Share Record Date Payment Date Dividend Paid

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November 15, 2021 $ 0.20 December 2, 2021 December 20, 2021 $ 10,793

January 31, 2022 $ 0.20 February 11, 2022 February 25, 2022 10,769

Total dividend paid as of April 3, 2022 $ 21,562

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

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

Total dividend paid as of March 28, 2021 $ 18,410

Subsequent Event.

On January 31, 2022, the Board of Directors declared a quarterly cash dividend of $ 0.20 pe r share payable on February 25, 2022 to stockholders of record as of the close of business on February 11, 2022.

On May 2, 2022 the Board of Directors declared a quarterly cash dividend of $ 0.23 per share payable on May 27, 2022 to stockholders of record as of the close of business on May 13, 2022.

Our operating leases are primarily for corporate and project office spaces.

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Our finance leases are primarily for certain information technology equipment.

The related ROU assets and lease liabilities were immaterial, and are included in "Property and equipment, net", "Other current liabilities" and "Other long-term liabilities", accordingly, in the consolidated balance sheets at January 2, 2022 and October 3, 2021.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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The operating lease ROU asset at the commencement date also includes any lease payments made to the lessor at or before the commencement date and initial direct costs less lease incentives received.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease terms may

include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

The components of lease costs are as follows:

Three Months Ended

2022 December 27,

Three Months Ended Six Months Ended

2022 March 28,

2021 April 3,

2022 March 28,

(in thousands)

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Supplemental cash flow information related to leases is as follows:

Three Months Ended

2022 December 27,

Six Months Ended

2022 March 28,

(in thousands

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Supplemental balance sheet and other information related to leases are as follows:

January 2, 2022 October 3, 2021

April 3, 2022 October 3, 2021

(in thousands)

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Operating leases 2.1 % 2.2 %

As of January 2, 2022, we do not have any material additional operating leases that have not yet commenced.

A maturity analysis of the future undiscounted cash flows associated with our operating lease liabilities at January 2, 2022 is as follows:

As of April 3, 2022, we do not have any material additional operating leases that have not yet commenced.

A maturity analysis of the future undiscounted cash flows associated with our operating lease liabilities at April 3, 2022 is as follows:

(in thousands)

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We recogniz e the fair value of our stock-based awards as compensation expense on a straight-line basis over the requisite service period in which the award vests.

Stock-based compensation expense for the three months ended January 2, 2022 was $ 5.8 million , compared to $ 4.9 million for the same period last year.

Most of these amounts were included in selling,

general and administrative expenses on our consolidated statements of income.

In the first quarter of fiscal 2022, we awarded 41,199 performance share units (“PSUs”) to our non-employee directors and executive officers at an estimate fair value of $ 227.94 per share on the award date.

Stock-based compensation expense for the three and six months ended April 3, 2022 was $ 6.6 million and $ 12.4 million, respectively, compared to $ 5.7 million and $ 10.6 million for the same periods last year.

Most of these amounts were included in selling, general and administrative expenses on our consolidated statements of income.

In the first half of fiscal 2022, we awarded 41,199 performance share units (“PSUs”) to our non-employee directors and executive officers at a fair value of $ 247.47 per share on the award date.

All PSUs are performance-based and vest, if at all, after the conclusion of the three-year performance period.

The number of PSUs that ultimately vest is based 50 % on the growth in our diluted earnings per share and 50 % on our relative total shareholder return over the vesting period.

Additionally, we awarded 70,976 restricted stock units (“RSUs”) to our non-employee directors, executive officers and employees at a fair value of $ 188.32 per s hare on the award date.

All exec utive officer and employee RSUs have time-based vesting over a four-year period, and the non-employee director RSUs vest after one year .

Additionally, we awarded 73,729 restricted stock units (“RSUs”) to our non-employee directors, executive officers and employees at a fair value of $ 186.91 per share on the award date.

All executive officer and employee RSUs have time-based vesting over a four-year period, and the non-employee director RSUs vest after one year .

Earnings per Share (“EPS”)

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The following table presents the number of weighted-average shares used to compute basic and diluted EPS:

Three Months Ended

2022 December 27,

Three Months Ended Six Months Ended

2022 March 28,

2021 April 3,

2022 March 28,

(in thousands, except per share data)

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Diluted $ 0.98 $ 0.83 $ 2.23 $ 1.79

The effective tax rates for the first three months of fiscal 2022 and 2021 were 18.8 % and 17.0 %, respectively.

Income tax expense was reduced b y $ 4.5 million and $ 6.1 million of excess tax benefits on share-based payments in the first three months of fiscal 2022 and 2021, respectively.

Excluding the impact of the excess tax benefits on share-based payments, our effective tax rates in the first three months fiscal 2022 and 2021 were 24.1 % an d 26.8 %, r espectively.

As of January 2, 2022 and October 3, 2021, the liability for income taxes associated with uncertain tax positions was $ 13.4 million a nd $ 14.1 million, respectively.

Th ese uncertain tax positions substantially relate to ongoing examinations.

It is reasonably possible that these examinations will be resolved within the next 12 months.

The effective tax rates for the first halves of fiscal 2022 and 2021 were 21.9 % and 19.2 %, respectively.

Income tax expense was reduced b y $ 4.8 million and $ 8.0 million of excess tax benefits on share-based payments in the first halves of fiscal 2022 and 2021, respectively.

Excluding the impact of the excess tax benefits on share-based payments, our effective tax rates in the first halves of fiscal 2022 and 2021 were 25.0 % an d 25.8 %, r espectively.

As of April 3, 2022 and October 3, 2021, the liability for income taxes associated with uncertain tax positions was $ 13.9 million and $ 14.1 million, respectively.

These uncertain tax positions substantially relate to ongoing examinations.

It is reasonably p ossible that these liabilities may decrease within the next 12 months as certain examinations are resolved.

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.

On December 28, 2021, the U.S.

Department of the Treasury and the Internal Revenue Service released final regulations addressing aspects of the foreign tax credit regime, and represent the third and final regulations that have been issued with respect to the core provisions of the U.S.

foreign tax credit regime following the 2017 Tax Cut and Jobs Act.

These regulations were primarily effective on March 7, 2022, with certain provisions applicable to prior periods.

We do not expect these new regulations to materially impact our consolidated financial statements.

Reportable Segments

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commercial clients, and international clients that include both commercial and government sectors.

CIG supports commercial clients across the Fortun e 500, renewable energy, industrial, high performance buildings, and aerospace markets.

CIG also provides sustainable infrastructure and related environmental, engineering and project management services to commercial and local government clients across Canada, in Asia Pacific (primarily Australia and New Zealand), the United Kingdom, as well as Brazil and Chile.

Beginning in fiscal 2022, we aligned our operations to better serve our clients and markets, and created a new HPB division in our CIG reportable segment.

CIG supports commercial clients across the Fortun e 500, clean energy, industrial, high performance buildings, and aerospace markets.

CIG also provides sustainable infrastructure and related

environmental, engineering and project management services to commercial and local government clients across Canada, in Asia Pacific (primarily Australia and New Zealand), the United Kingdom, as well as Brazil and Chile.

At the beginning of fiscal 2022, we aligned our operations to better serve our clients and markets, and created a new HPB division in our CIG reportable segment.

As a result, we transferred some related operations in our GSG reportable segment to our CIG reportable segment.

Accordingly, related balances in our segment reporting for the first quarter of fiscal 2021 have been reclassified to conform to the current year presentation.

Accordingly, amounts related to our segment reporting for the first quarter and first half of fiscal 2021 have been reclassified to conform to the current year presentation.

Management evaluates th e performance of these reportable segments based upon their respective segment operating income before the effect of amortization expense related to acquisitions, and other unallocated corporate expenses.

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The following tables summarize financial information regarding our reportable segments:

Three Months Ended

2022 December 27,

Three Months Ended Six Months Ended

2022 March 28,

2021 April 3,

2022 March 28,

(in thousands)

1 unchanged sentence

CIG 416,945 335,432 833,231 691,958

RCM — 470 — 470

Elimination of inter-segment revenue ( 13,157 ) ( 13,708 ) ( 27,030 ) ( 29,793 )

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The fair value of long-term debt was determined using the present value of future cash flows based on the borrowing rates currently available for debt with similar terms and maturities (Level 2 measurement, as described in “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021).

The carrying value of our long-term debt approximated fair value at January 2, 2022 and October 3, 2021.

At January 2, 2022, we had borrowings o f $ 259.4 million ou tstanding under our Amended Credit Agreement, which were used to fund business acquisitions, working capital needs, stock repurchases, dividends, capital expenditures and contingent earn-outs.

The carrying value of our long-term debt approximated fair value at April 3, 2022 and October 3, 2021.

At April 3, 2022, we had borrowings o f $ 250.0 million outstan ding under our Amended Credit Agreement, which were used to fund business acquisitions, working capital needs, stock repurchases, dividends, capital expenditures and contingent earn-outs.

Credit Facility

On February 18, 2022, we entered into Amendment No.

2 to Second Amended and Restated Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $ 1.05 billion that will mature in February 2027.

The Amended Credit Agreement is a $ 750 million senior secured, five-year facility that provides for a $ 250 million term loan facility (the “Amended Term Loan Facility”) and a $ 500 million revolving credit facility (the “Amended Revolving Credit Facility”).

In addition, the Amended Credit Agreement includes a $ 300 million accordion feature that allows us to increase the Amended Credit Agreement to $ 1.05 billion subject to lender approval.

The Amended Credit Agreement provides for, among other things, (i) refinance indebtedness under our Credit Agreement dated as of July 30, 2018;

(ii) finance open market repurchases of common stock, acquisitions, and cash dividends and distributions;

and (iii) utilize the proceeds for working capital, capital expenditures and other general corporate purposes.

The Amended Credit Agreement provides for a reduction in the interest grid for meeting certain sustainability targets related to the (i) reduction of greenhouse gas emissions through the Company’s projects and operational sustainability initiatives and (ii) improvement of peoples’ lives as a result of the Company’s projects that provide environmental, social and governance benefits.

The Amended Revolving Credit Facility includes a $ 100 million sublimit for the issuance of standby letters of credit, a $ 20 million sublimit for swingline loans, and a $ 300 million sublimit for multicurrency borrowings and letters of credit.

The entire Amended Term Loan Facility was drawn on February 18, 2022.

The Amended Term Loan Facility is subject to quarterly amortization of principal at 5 % annually commencing June 30, 2022.

We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a benchmark rate plus a margin that ranges from 1.000 % to 1.875 % per annum, or (b) a base rate for loans in U.S.

dollars (the highest of the U.S.

federal funds rate plus 0.50 % per annum, the bank’s prime rate or the Secured Overnight Financing Rate ("SOFR") rate plus 1.00 %, plus a margin that ranges from 0 % to 0.875 % per annum.

In each case, the applicable margin is based on our Consolidated Leverage Ratio, calculated quarterly.

The Amended Term Loan Facility is subject to the same interest rate provisions.

The Amended Credit Agreement expires on February 18, 2027, or earlier at our discretion upon payment in full of loans and other obligations.

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

The financial covenants provide for a maximum Consolidated Leverage Ratio of 3.25 to 1.00 (total funded debt/EBITDA, as defined in the Amended Credit Agreement) and a minimum Consolidated Interest Coverage Ratio of 3.00 to 1.00 (EBITDA/Consolidated Interest Charges, as defined in the Amended Credit Agreement).

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

Derivative Financial Instruments

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We recognize derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at fair value.

We record changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as cash flow hedges in our consolidated balance sheets as accumulated other comprehensive income, and in our consolidated statements of

income for those derivatives designated as fair value hedges.

The derivative contracts to hedge interest exposure are categorized within Level 2 of the fair value hierarchy.

In fiscal 2018, we entere d into five interest rate swap agreements that we designated as cash flow hedges to fix the interest rate on the borrowings under our term loan facility.

As of January 2, 2022, the notional principal of our outstanding interest swap agreements was $ 209.4 million ($ 41.9 million each.) The interest rate swaps have a fixed interest rate of 2.79 % and expire in July 2023 for all five agreements.

At January 2, 2022 and October 3, 2021, the fair value of the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was $( 6.7 ) million and $( 9.4 ) million, which were reported in "Other current liabilities" on our consolidated balance sheets.

Additionally, the related gains of $ 2.7 million for the three months ended January 2, 2022, compared to related gains of $ 1.5 million for the prior-year period, were recognized and reported on our consolidated statements of comprehensive income.

As of April 3, 2022, the notional principal of our outstanding interest swap agreements was $ 206.3 million ($ 41.3 million each.) The interest rate swaps have a fixed interest rate of 2.79 %

and expire in July 2023 for all five agreements.

At April 3, 2022 and October 3, 2021, the fair values of the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect were unrealized losses of $ 1.8 million and $ 9.4 million, which were reported in "Other current liabilities" on our consolidated balance sheets.

Additionally, the related gains of $ 4.9 million and $ 7.6 million for the three and six months ended April 3, 2022, compared to related gain s of $ 1.9 million and $ 3.4 million for the prior-year periods, were recognized and reported on our consolidated statements of comprehensive income.

We expect to reclassify $ 1.7 million from accumulated other comprehensive loss to interest expense within the next twelve months.

There were no other derivative instruments designated as hedging instruments for the first three months of fiscal 2022.

There were no other derivative instruments designated as hedging instruments for the fir st half o f fiscal 2022.

Reclassifications Out of Accumulated Other Comprehensive Income

The accumulated balances and activities for the three months ended January 2, 2022 and December 27, 2020 related to reclassifications out of accumulated other comprehensive income are summarized as follows:

The accumulated balances and activities for the three and six months ended April 3, 2022 and March 28, 2021 related to reclassifications out of accumulated other comprehensive income are summarized as follows:

Three Months Ended

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(in thousands)

Balance at September 27, 2020 $ ( 146,275 ) $ ( 15,511 ) $ ( 161,786 )

Balance at December 27, 2020 $ ( 113,884 ) $ ( 14,035 ) $ ( 127,919 )

Other comprehensive income before reclassifications 10,973 3,382 14,355

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Net current-period other comprehensive income 10,973 1,890 12,863

Balance at December 27, 2020 $ ( 113,884 ) $ ( 14,035 ) $ ( 127,919 )

Balance at March 28, 2021 $ ( 102,911 ) $ ( 12,145 ) $ ( 115,056 )

Balance at January 2, 2022 $ ( 116,320 ) $ ( 6,728 ) $ ( 123,048 )

Other comprehensive income before reclassifications 2,807 6,332 9,139

Amounts reclassified from accumulated other comprehensive loss

Interest rate contracts, net of tax (1)

— ( 1,394 ) ( 1,394 )

Net current-period other comprehensive income 2,807 4,938 7,745

Balance at April 3, 2022 $ ( 113,513 ) $ ( 1,790 ) $ ( 115,303 )

Six Months Ended

Adjustments Gain (Loss)

on Derivative

Instruments Accumulated Other Comprehensive Income (Loss)

(in thousands)

Balance at September 27, 2020 $ ( 146,275 ) $ ( 15,511 ) $ ( 161,786 )

Other comprehensive loss before reclassifications 43,364 6,360 49,724

Amounts reclassified from accumulated other comprehensive loss

Interest rate contracts, net of tax (1)

— ( 2,994 ) ( 2,994 )

Net current-period other comprehensive income 43,364 3,366 46,730

Balance at March 28, 2021 $ ( 102,911 ) $ ( 12,145 ) $ ( 115,056 )

Balance at October 3, 2021 $ ( 115,634 ) $ ( 9,394 ) $ ( 125,028 )

Other comprehensive income (loss) before reclassifications ( 686 ) 4,032 3,346

Other comprehensive income before reclassifications 2,121 10,364 12,485

Amounts reclassified from accumulated other comprehensive loss

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— ( 2,760 ) ( 2,760 )

Net current-period other comprehensive income (loss) ( 686 ) 2,666 1,980

Balance at January 2, 2022 $ ( 116,320 ) $ ( 6,728 ) $ ( 123,048 )

Net current-period other comprehensive income 2,121 7,604 9,725

Balance at April 3, 2022 $ ( 113,513 ) $ ( 1,790 ) $ ( 115,303 )

(1) This accumulated other comprehensive component is reclassified to “Interest expense” in our consolidated statements of income.

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District Court for the Northern District of California.

The complaint alleges False Claims Act violations and breach

of contract related to TtEC's contracts to perform environmental remediation services at the former Hunters Point Naval Shipyard in San Francisco, California.

The complaint alleges False Claims Act violations and breach of contract related to TtEC's contracts to perform environmental remediation services at the former Hunters Point Naval Shipyard in San Francisco, California.

TtEC disputes the claims and will defend this matter vigorously.

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We often provide services to unconsolidated joint ventures.

Our revenue related to services we provided to unconsolidated joint ventures for the first quarter of fiscal 2022 and 2021 was approximatel y $ 26 million and $ 22 million, respectively.

Related reimbursable costs for the first quarter of fiscal 2022 and 2021 were $ 25 million and $ 21 million, respectively.

Our revenue related to services we provided to unconsolidated joint ventures for th e three and six months o f fiscal 2022 was approxima tely $ 24 million and $ 50 million, respectively, compared to $ 24 million and $ 46 million for the same periods last year.

Related reimbursable costs for the three and six months of fiscal 2022 were approximately $ 22 million and $ 47 million.

Related reimbursable costs for the three and six months of fiscal 2021 were approximately $ 23 million and $ 44 million.

Our consolidated balance sheets also included the following amounts related to these services:

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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-Q

Item 1. Financial Statements