What changed in this filing

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Item 1. Financial Statements

2023-02-03 compared with 2022-08-05 · 193 added, 268 removed, 423 unchanged (52% of the section changed)

3 unchanged sentences

(unaudited - in thousands, except par value)

ASSETS July 3,

ASSETS January 1,

2023 October 2,

4 unchanged sentences

Prepaid expenses and other current assets 193,635 125,605

Income taxes receivable 10,778 14,260

Total current assets 1,234,807 1,158,216

1 unchanged sentence

Right-of-use assets, operating leases 182,500 182,319

Investments in unconsolidated joint ventures 3,974 3,282

Goodwill 1,133,303 1,110,412

1 unchanged sentence

Deferred tax assets 52,009 47,804

Other long-term assets 60,309 53,196

Other non-current assets 66,435 62,546

Total assets $ 2,731,480 $ 2,622,776

5 unchanged sentences

Short-term lease liabilities, operating leases 55,809 57,865

Current portion of long-term debt and other short-term borrowings 27,081 12,504

Current portion of long-term debt 12,505 12,504

Current contingent earn-out liabilities 33,701 28,797

4 unchanged sentences

Long-term lease liabilities, operating leases 148,034 146,285

Long-term contingent earn-out liabilities 50,900 39,777

Other long-term liabilities 69,127 69,163

Non-current contingent earn-out liabilities 35,328 36,769

Other non-current liabilities 86,637 79,157

Commitments and contingencies (Note 17)

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

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

no shares issued and outstanding at January 1, 2023 and October 2, 2022

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

issued and outstanding, 53,319 and 53,981 shares at July 3, 2022 and October 3, 2021, respectively

issued and outstanding, 53,226 and 52,981 shares at January 1, 2023 and October 2, 2022, respectively

Additional paid-in capital 3,281 —

Accumulated other comprehensive loss ( 175,126 ) ( 208,144 )

8 unchanged sentences

(unaudited – in thousands, except per share data)

Three Months Ended Nine Months Ended

2022 June 27,

Three Months Ended

2023 January 2,

Revenue $ 894,766 $ 858,510

3 unchanged sentences

Selling, general and administrative expenses ( 56,502 ) ( 52,546 )

Acquisition and integration expenses ( 3,761 ) —

Contingent consideration – fair value adjustments ( 933 ) —

Income from operations 92,050 87,220

Interest expense, net ( 5,372 ) ( 2,904 )

Other non-operating income 67,995 —

Income before income tax expense 154,673 84,316

13 unchanged sentences

(unaudited – in thousands)

Three Months Ended Nine Months Ended

2022 June 27,

Three Months Ended

2023 January 2,

Net income $ 116,715 $ 68,499

2 unchanged sentences

33,107 ( 686 )

Gain on cash flow hedge valuations, net of tax 2,380 1,498 9,984 4,864

Other comprehensive income (loss), net of tax ( 42,504 ) 12,657 ( 32,779 ) 59,391

Gain (loss) on cash flow hedge valuations, net of tax ( 89 ) 2,666

Other comprehensive income, net of tax 33,018 1,980

Comprehensive income, net of tax $ 149,733 $ 70,479

5 unchanged sentences

(unaudited – in thousands)

Nine Months Ended

2022 June 27,

Three Months Ended

2023 January 2,

Cash flows from operating activities:

7 unchanged sentences

Fair value adjustments to contingent consideration 933 —

Loss (gain) on sale of assets 93 ( 110 )

Fair value adjustments to foreign currency forward contract ( 67,995 ) —

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

15 unchanged sentences

Repayments on long-term debt ( 73,125 ) ( 3,956 )

Bank overdrafts — ( 33,770 )

Repurchases of common stock — ( 50,000 )

5 unchanged sentences

Net cash used in financing activities ( 42,267 ) ( 36,414 )

Effect of exchange rate changes on cash and cash equivalents ( 4,403 ) 10,772

Net increase in cash and cash equivalents 50,816 76,751

Cash and cash equivalents at beginning of period 166,568 157,515

Cash and cash equivalents at end of period $ 217,384 $ 234,266

Effect of exchange rate changes on cash, cash equivalents and restricted cash 8,695 ( 169 )

Net increase (decrease) in cash, cash equivalents and restricted cash ( 13,326 ) 38,974

Cash, cash equivalents and restricted cash at beginning of period 185,491 166,568

Cash, cash equivalents and restricted cash at end of period $ 172,165 $ 205,542

Supplemental information:

3 unchanged sentences

$ 14,540 $ 11,535

Supplemental disclosures on non-cash investing activities:

Issuance of promissory note for business acquisition $ 14,578 $ —

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents $ 164,397 $ 205,542

Restricted cash 7,768 —

Total cash, cash equivalents and restricted cash $ 172,165 $ 205,542

See Notes to Consolidated Financial Statements.

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Consolidated Statements of Stockholders' Equity

Three Months Ended June 27, 2021 and July 03, 2022

(unaudited – in thousands)

Common Stock Additional

Capital Accumulated

Comprehensive

Loss Retained

Earnings Total

Equity Non-Controlling

Interests Total

Shares Amount

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

Net income 51,903 51,903 21 51,924

Other comprehensive income 12,655 12,655 2 12,657

Distributions paid to noncontrolling interests — ( 9 ) ( 9 )

Cash dividends of $ 0.20 per common share

( 10,831 ) ( 10,831 ) ( 10,831 )

Stock-based compensation 5,695 5,695 5,695

Restricted & performance shares released 2 — ( 101 ) ( 101 ) ( 101 )

Stock options exercised 29 1 931 932 932

Stock repurchases ( 118 ) ( 2 ) ( 6,525 ) ( 8,473 ) ( 15,000 ) ( 15,000 )

BALANCE AT JUNE 27, 2021 54,071 $ 541 $ — $ ( 102,401 ) $ 1,294,260 $ 1,192,400 $ 95 $ 1,192,495

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

Net income 58,650 58,650 7 58,657

Other comprehensive loss ( 42,503 ) ( 42,503 ) ( 1 ) ( 42,504 )

Cash dividends of $ 0.23 per common share

( 12,311 ) ( 12,311 ) ( 12,311 )

Stock-based compensation 12,747 ( 6,035 ) 6,712 6,712

Restricted & performance shares released 4 — ( 6,172 ) 6,034 ( 138 ) ( 138 )

Stock repurchases ( 368 ) ( 4 ) ( 6,575 ) ( 43,421 ) ( 50,000 ) ( 50,000 )

BALANCE AT JULY 3, 2022 53,319 $ 533 $ — $ ( 157,806 ) $ 1,362,284 $ 1,205,011 $ 47 $ 1,205,058

Tetra Tech, Inc.

Consolidated Statements of Stockholders' Equity

Nine months ended June 27, 2021 and July 03, 2022

Three Months Ended January 2, 2022 and January 01, 2023

(unaudited – in thousands)

7 unchanged sentences

Shares Amount

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

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

Net income 68,489 68,489 10 68,499

Other comprehensive income 1,980 1,980 1,980

Distributions paid to noncontrolling interests — ( 9 ) ( 9 )

Cash dividends of $ 0.20 per common share

5 unchanged sentences

Stock repurchases ( 290 ) ( 3 ) — ( 49,997 ) ( 50,000 ) ( 50,000 )

BALANCE AT JUNE 27, 2021 54,071 $ 541 $ — $ ( 102,401 ) $ 1,294,260 $ 1,192,400 $ 95 $ 1,192,495

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

BALANCE AT OCTOBER 2, 2022 52,981 $ 530 $ — $ ( 208,144 ) $ 1,390,701 $ 1,183,087 $ 50 $ 1,183,137

Net income 116,706 116,706 9 116,715

Other comprehensive loss ( 32,778 ) ( 32,778 ) ( 1 ) ( 32,779 )

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

Other comprehensive income 33,018 33,018 33,018

Cash dividends of $ 0.23 per common share

4 unchanged sentences

Shares issued for Employee Stock Purchase Plan 98 1 12,627 12,628 12,628

Stock repurchases ( 986 ) ( 10 ) ( 7,242 ) ( 142,748 ) ( 150,000 ) ( 150,000 )

BALANCE AT JULY 3, 2022 53,319 $ 533 $ — $ ( 157,806 ) $ 1,362,284 $ 1,205,011 $ 47 $ 1,205,058

BALANCE AT JANUARY 1, 2023 53,226 $ 532 $ 3,281 $ ( 175,126 ) $ 1,495,221 $ 1,323,908 $ 59 $ 1,323,967

See Notes to Consolidated Financial Statements.

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These financial statements reflect all normal recurring adjustments that are considered necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented.

The results of operations and cash flows for any interim period are not necessarily indicative of results for the full fiscal year or for future fiscal years .

Beginning in fiscal 2022, we aligned our operations to better serve our clients and markets, and created a new High Performance Buildings ("HPB") division in our Commercial/International Services Group ("CIG") reportable segment.

As a result, we transferred some related operations in our Government Services Group (" GSG") reportable segment to our CIG reportable segment.

Prior year amounts for reportable segments have been reclassified to conform to the current year presentation.

The results of operations and cash flows for any interim period are not necessarily indicative of results for the full fiscal year or for future fiscal yea rs.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to general prin ciple s in Topic 740 and amending certain existing guidance for clarity .

We adopted this guidance in the first quarter of fiscal 2022, and the adoption did not have an impact on our consolidated financial statements.

In May 2020, the Securities and Exchange Commission issued guidance amending certain financial disclosures about acquired and disposed businesses.

The amendments are designed to assist registrants in making more meaningful determinations of whether a subsidiary or an acquired or disposed business is significant, and to improve the related disclosure requirements.

We adopted this guidance in the first quarter of fiscal 2022, and the adoption did not have an impact on our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, which requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" ("ASC 606").

Considerations to determine the amount of contract assets and contract liabilities to record at the acquisition date include the terms of the acquired contract, such as timing of payment, identification of each performance obligation in the contract and allocation of the contract transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception.

ASU 2021-08 is effective for us beginning in the first quarter of fiscal 2023.

ASU 2021-08 should be applied prospectively for acquisitions occurring on or after the effective date of the amendments.

Early adoption of the proposed amendments would be permitted, including adoption in an interim period.

We adopted this guidance in the first quarter of fiscal 2022, and the adoption did not have an impact on our consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires disclosures for transactions with a government authority that are accounted for by applying a grant or contribution model by analogy, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity's financial statements.

ASU 2021-10 is effective for us beginning in the first quarter of fiscal 2023, with early adoption permitted.

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

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

In November 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-10, Government Assistance (Topic 832), which requires annual disclosures for transactions with a government authority that are accounted for by applying a grant or contribution model by analogy, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity's financial statements.

ASU 2021-10 was effective for us beginning in the first quarter of fiscal 2023.

In fiscal 2020, the Canadian federal government implemented the Canadian Emergency Wage Subsidy ("CEWS") program in response to the negative impact of the coronavirus disease 2019 (" COVID-19") pandemic on businesses operating in Canada.

Our Canadian legal entities qualified for and applied for these CEWS cash benefits to partially offset the impacts of revenue reductions and on-going staffing costs.

The $ 26.0 million total received was initially recorded in "Other current liabilities" until all potential amendments to the qualification criteria, including some that were proposed with retroactive application, were finalized in fiscal 2022.

As there are no further contingencies, beginning in fiscal 2023, the amounts received will be distributed to all Canadian employees.

We expect to distribute approximately $ 9 million in the next twelve months.

Accordingly, this amount was reclassified from "Other current liabilities" to "Accrued compensation" on our consolidated balance sheet at October 2, 2022.

The remaining $ 17.0 million, which we expect to distribute beyond one year, was reclassified to "Other non-current liabilities".

We do not expect there will be any related impact to our operating income, and we have no outstanding applications for further government assistance.

Revenue and Contract Balances

We disaggregate revenue by client sector and contract type, as we believe it best depicts how the nature, timing, and uncertainty of revenue and cash flows are affected by economic factors.

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

Three Months Ended Nine Months Ended

2022 June 27,

(in thousands)

The following tables present revenue disaggregated by client sector and contract type (in thousands):

Three Months Ended

2023 January 2,

Client Sector:

state and local government $ 150,731 $ 135,717 $ 465,770 $ 390,464

federal government (1)

$ 276,075 $ 266,797

state and local government 153,195 159,008

commercial 198,956 176,904

11 unchanged sentences

Other than the U.S.

federal government, no single client accounted for more than 10% of our revenue for the three and nine months ended July 3, 2022 and June 27, 2021.

federal government, no single client accounted for more than 10% of our revenue for the three months ended January 1, 2023 and January 2, 2022.

Contract Assets and Contract Liabilities

9 unchanged sentences

There were no substantial non-current contract assets or liabilities for the periods presented.

Net contract assets/liabilities consisted of the following:

Net contract assets/liabilities consisted of the following (in thousands):

2023 October 2, 2022

(in thousands)

Contract assets (1)

2 unchanged sentences

Net contract liabilities $ ( 193,215 ) $ ( 148,935 )

(1) Inclu des $ 21.3 million and $ 12.2 million of contract retentions as of July 3, 2022 and October 3, 2021, respectively.

In the first nine months of fiscal 2022 and 2021, we recognized revenue of approximately $ 111 million and $ 108 million, respectively, from amounts included in the contract liability balances at the end of fiscal 2021 and 20 20, respectively.

(1) Inclu des $ 17.2 million and $ 23.3 million of contract retentions at January 1, 2023 and October 2, 2022, respectively.

In the first quarters of fiscal 2023 and 2022 , we recognized revenue of approximately $ 81 million and $ 63 million, respectively, from amounts included in the contract liability balances at the end of fiscal 2022 and 20 21, respectively.

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

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

As a result, we recognized net unfavorable revenue and operating income adjustments of $ 2.8 million and net favorable revenue and operating income adjustments of $ 2.2 million in the third quarter and first nine months of fiscal 2022, respectively, compared to net favorable adjustments of $ 1.7 million and $ 2.8 million in the third quarter and first nine months of fiscal 2021, respectively.

As a result, we recognized net

favorable revenue and operating income adjustments of $ 3.5 million and $ 2.8 million in the first quarters of fiscal 2023 and 2022, respectively.

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 July 3, 2022 and October 3, 2021, our consolidated balance sheets included liabilities for anticipated losses of $ 11.1 million and $ 12.7 million, respectively.

The estimated cost to complete these related contracts as of July 3, 2022 and October 3, 2021 was approximately $ 84 million and $ 104 million, respectively.

At January 1, 2023 and October 2, 2022, our consolidated balance sheets included liabilities for anticipated losses of $ 7.6 million and $ 10.0 million, respectively.

The estimated cost to complete these related contracts at January 1, 2023 and October 2, 2022 was approximately $ 55 million and $ 80 million, respectively.

Accounts Receivable, Net

Net accounts receivable consisted of the following:

Net accounts receivable consisted of the following (in thousands):

2023 October 2,

(in thousands)

Billed $ 486,027 $ 491,700

5 unchanged sentences

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 July 3, 2022 are expected to be billed and collecte d within 12 months.

Substantially all of our unbilled receivables at January 1, 2023 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.

1 unchanged sentence

type of client, such as a government agency or a commercial sector client;

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

and general economic and industry conditions.

Claims are amounts in excess of agreed contract prices that we seek to collect from our clients or other third parties for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated additional costs.

Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regards to both scope and price) should be recognized include the following:

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

This can lead to a situation in which costs are recognized in one period and revenue is recognized in a subsequent period when a client agreement is obtained, or a claims resolution occurs.

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

This amount related to a single claim in our Remediation and Construction Management ("RCM") reportable segment.

In May 2022, we received a cash settlement for the claim, which resulted in an immaterial gain in the third quarter of fiscal 2022.

There were no claims included in our total accounts receivable at July 3, 2022.

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 nine months of fiscal 2022, we recorded no gains or losses related to claims other than the aforementioned immaterial gain on the settled RCM claim.

In the first nine months of fiscal 2021 (all in the second quarter), we recognized increases to revenue and related gains of $ 2.8 million.

There were no claims included in our total accounts receivable at January 1, 2023 and October 2, 2022.

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

In the first quarters of fiscal 2023 and 2022, 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 July 3, 2022 and October 3, 2021.

federal government, no single client accounted for more than 10% of our accounts receivable at January 1, 2023 and October 2, 2022.

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 $ 3.5 billion of RUPO as of July 3, 2022.

We h ad $ 3.8 billion of RUPO at January 1, 2023.

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 July 3, 2022 over the following periods:

(in thousands)

We expect to satisfy our RUPO at January 1, 2023 over the following periods (in thousands):

Within 12 months $ 2,460,171

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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).

For the first nine months of fiscal 2022, we acquired The Integration Group of America ("TIGA"), Piteau Associates (“PAE”) and other immaterial acquisitions.

Subsequent Event.

O n January 3, 2023, we acquired Amyx, Inc.

(“Amyx”), an enterprise technology services, cybersecurity and management consulting firm.

Based in Reston, Virginia, Amyx, with over 500 employees, provides application modernization, cybersecurity, systems engineering, financial management, and program management support on over 30 Federal Government programs.

Amyx will be included in our GSG segment.

Subsequent Event.

On September 23, 2022, we made an all cash offer to acquire all of the outstanding shares of RPS Group plc ("RPS"), a publicly traded company on the London Stock Exchange for 222 pence per share, through a scheme of arrangement, which was unanimously recommended by RPS's Board of Directors.

On November 3, 2022, RPS's shareholders approved the scheme of arrangement.

On January 19, 2023, the court sanctioned scheme of arrangement to purchase RPS was approved, and we completed the acquisition on January 23, 202 3.

The total purchase price including assumed debt and transactions costs was approximately GBP 714 million.

RPS employs approximately 5,000 associates in the United Kingdom, Europe, Asia Pacific and North America, delivering high-end solutions, especially in energy transformation, water and program management for government and commercial clients.

Substantially all of RPS will be included in our CIG segment.

T he results of these acquisitions will be included in our consolidated financial statements beginning on the respective closing dates.

We are in the process of performing procedures to determine the fair value of assets acquired and liabilities assumed related to the acquisitions, and will include the preliminary purchase price allocation in our Quarterly Report on Form 10-Q for the period ending April 2, 2023.

See Note 14, "Credit Facility" for additional information regarding the financing of these acquisitions.

In fiscal 2022, we acquired The Integration Group of America ("TIGA"), Piteau Associates (“PAE”) and other financially immaterial acquisitions.

TIGA is based in Spring, Texas and is an industry leader in process automation and system integration solutions, including customized software and platform (SaaS/PaaS) applications, advanced data analytics, cloud data integration and platform virtualization.

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PAE is part of our CIG segment, and TIGA and other immaterial acquisitions are part of our GSG segment.

The total fair value of the purchase price for all of these acquisitions was $ 86.5 million.

The total fair value of the purchase price for all four acquisitions was $ 88.3 million.

This amount is comprised of $ 44.0 million in initial cash payments made to the sellers, $ 2.5 million of receivables (net) related to estimated post-closing adjustments for the net assets acquired, $ 15.5 million payable in a promissory note issued to the sellers along with related transaction expenses of the sellers (which were subsequently paid in July 2022), and $ 31.3 million for the estimated fair value of contingent earn-out obligations, with a maximum of $ 47.0 million, based upon the achievement of specified operating income targets in each of the three to five years following the acquisitions.

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

CRD is based in Burnaby, British Columbia and provides world-class expertise in computational fluid dynamics and utilizes industry-leading capabilities to solve complex engineering science problems for commercial customers, across a broad range of industries.

KZN is based in Washington, DC and provides international development advisory and management consulting services offering a suite of innovative tools that support advanced solutions in health, education, governance, peace and stability, and sustainable economic growth.

IRM is based in San Diego, California, and provides digital water transformation consulting services and an innovative suite of tools to address complex water system modernization challenges.

HLE is a leader in sustainable engineering design based in Bristol, United Kingdom.

It was established in 1862 and is an award-winning high-end consultancy firm in the United Kingdom, with more than 900 employees, providing innovative solutions to complex engineering and design challenges for sustainable infrastructure and high performance buildings.

CRD and HLE are part of our CIG segment, and KZN and IRM are part of our GSG segment.

The total fair value of the purchase price for these acquisitions was $ 151.7 million.

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

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

The fiscal 2021 goodwill additions represent the significant technical expertise residing

in embedded workforces that are sought out by clients and the long-standing reputation of HLE.

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 companies.

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 companies.

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

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

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

As a result, no pro forma information has been provided.

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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.

and “Non-current 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.

For the first nine months 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.

For the first quarter of fiscal 2023, 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 nine months of fiscal 2022 and 2021, total adjustments to our contingent earn-out liabilities in operating income were immaterial.

At July 3, 2022, there was a total potential maximum of $ 141.1 million of outstanding contingent consideration related to acquisitions.

For the first quarters of fiscal 2023 and 2022, we had no material adjustments to our contingent earn-out liabilities in operating income.

At January 1, 2023, there was a total potential maximum of $ 120.9 million of outstanding contingent consideration related to acquisitions.

Of this amount, $ 69.0 million was estimated as the fair value and accrued on our consolidated balance sheet.

Goodwill and Intangible Assets

The following table summarizes the changes in the carrying value of goodwill by reportable segment:

The following table summarizes the changes in the carrying value of goodwill by reportable segment (in thousands):

GSG CIG Total

(in thousands)

Balance at October 2, 2022 $ 519,102 $ 591,310 $ 1,110,412

Goodwill reallocation ( 51,497 ) 51,497 —

Acquisition activity 46,326 26,318 72,644

Translation and adjustments ( 3,961 ) ( 25,804 ) ( 29,765 )

Balance at July 3, 2022 $ 529,301 $ 622,156 $ 1,151,457

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.

Translation adjustments 2,792 20,099 22,891

Balance at January 1, 2023 $ 521,894 $ 611,409 $ 1,133,303

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 $ 547.0 million and $ 556.1 million at July 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 $ 743.7 million and $ 691.6 million at July 3, 2022 and October 3, 2021, respectively, excluding accumulated impairment of $ 121.5 million at each date.

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

The gross amounts for GSG were $ 539.6 million and $ 536.8 million at January 1, 2023 and October 2, 2022, respectively, excluding accumulated impairment of $ 17.7 million at each date.

The gross amounts of goodwill for CIG were $ 732.9 million and $ 712.8 million at January 1, 2023 and October 2, 2022, 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.

Our most recent annual review at July 4, 2022 (i.e.

the first day of our fourth quarter in fiscal 2022) indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their carrying values, including goodwill.

As of 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 %.

At July 4, 2022, and after the reallocation of goodwill on the first day of fiscal 2022, we had no reporting units that had estimated fair values that exceeded their carrying values by less than 165 %.

We also regularly evaluate whether events and circumstances have occurred that may indicate a potential change in the recoverability of goodwill.

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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.

or a decline in

actual or planned revenue or earnings compared with actual and projected results of relevant prior periods.

Although we believe that our estimates of fair value for these reporting units are reasonable, if financial performance for these reporting units falls significantly below our expectations or market prices for similar business decline, the goodwill for these reporting units could become impaired.

The 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:

July 3, 2022 October 3, 2021

January 1, 2023 October 2, 2022

Remaining Life

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Amortization Net Amount

($ in thousands)

Client relations 5.4 $ 43,601 $ ( 23,081 ) $ 20,520 $ 41,676 $ ( 21,092 ) $ 20,584

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Total $ 92,094 $ ( 64,558 ) $ 27,536 $ 87,673 $ ( 58,510 ) $ 29,163

Amortization expense for the three and n ine months e nded July 3, 2022 wa s $ 3.7 million and $ 9.6 million, respectively, compared to $ 2.2 million and $ 7.8 million for the prior-year periods.

Estimated amortization expense for the

remainder of fiscal 2022 and succeeding years is as follows:

(in thousands)

Amortization expense for the three months e nded January 1, 2023 wa s $ 3.4 million, compared to $ 2.7 million for the prior-year period.

Estimated amortization expense for the remainder of fiscal 2023 and succeeding years is as follows (in thousands):

2023 (remaining) $ 6,755

Total $ 27,536

Property and Equipment

Property and equipment consisted of the following:

Property and equipment consisted of the following (in thousands):

2023 October 2,

(in thousands)

Equipment, furniture and fixtures $ 101,002 $ 96,710

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Property and equipment, net $ 34,890 $ 32,316

The depreciation expense related to property and equipment was $ 3.2 million and $ 9.9 million for th e three and nine months ended July 3, 2022, compared t o $ 3.1 million and $ 9.0 million for the prior-year periods.

The depreciation expense related to property and equipment was $ 3.2 million for th e three months ended January 1, 2023, compared t o $ 3.4 million for the prior-year period.

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 nine months of fiscal 2022, we repurchased and settled 986,280 shares with an average price of $ 152.09 per share for a total cost of $ 150.0 million in the open market.

At July 3, 2022, we had a remaining balance of $ 397.8 million under our stock repurchase program.

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

On October 5, 2021, our Board of Directors authorized a new stock repurchase program under which we could repurchase up to $ 400 million of our common stock .

We did not repurchase any shares of our common stock in the first quarter of fiscal 2023.

At January 1, 2023, we had a remaining balance of $ 347.8 million under our stock repurchase program.

The following table presents dividends declared and paid in the first three months of fiscal 2023 and 2022:

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

(in thousands)

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

May 2, 2022 $ 0.23 May 13, 2022 May 27, 2022 12,311

Total dividend paid as of July 3, 2022 $ 33,873

November 7, 2022 $ 0.23 November 21, 2022 December 9, 2022 $ 12,186

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

April 26, 2021 $ 0.20 May 12, 2021 May 28, 2021 10,831

Total dividend paid as of June 27, 2021 $ 29,241

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

Subsequent Event.

On August 1, 2022, the Board of Directors declared a quarterly cash dividend of $ 0.23 per share payable on August 26, 2022 to stockholders of record as of the close of business on August 12, 2022.

On January 30, 2023, our Board of Directors declared a quarterly cash dividend of $ 0.23 per share payable on February 24, 2023 to stockholders of record as of the close of business on February 13, 2023.

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

To a much lesser extent, we have operating leases for vehicles and equipment.

Our operating leases have remaining lease terms of one month to twelve years , some of which may include options to extend the leases for up to five years .

Our operating leases have remaining lease terms of one month to ten years , some of which may include options to extend the leases for up to five years .

We determine if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use ("ROU") assets and current and long-term operating lease liabilities in the consolidated balance sheets.

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 July 3, 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.

Operating leases are included in "Right-of-use assets, operating leases", "Short-term lease liabilities, operating leases" and "Long-term lease liabilities, operating leases" in the consolidated balance sheets.

Our finance leases are primarily for certain information technology equipment , and are included in "Other non-current assets", "Other current liabilities" and "Other non-current liabilities" in the consolidated balance sheets at January 1, 2023 and October 2, 2022.

Right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

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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 Nine Months Ended

2022 June 27,

(in thousands)

The components of lease costs are as follows (in thousands):

Three Months Ended

2023 January 2,

Operating lease cost $ 20,961 $ 21,751

Sublease cost (income) 140 ( 21 ) ( 116 ) ( 81 )

Sublease income ( 32 ) ( 125 )

Total lease cost $ 20,929 $ 21,626

Supplemental cash flow information related to leases is as follows:

Nine Months Ended

2022 June 27,

(in thousands)

Supplemental cash flow information related to leases is as follows (in thousands):

Three Months Ended

2023 January 2,

Operating cash flows for operating leases $ 16,493 $ 17,519

Financing cash flows for finance leases 1,316 945

Right-of-use assets obtained in exchange for new operating lease liabilities 11,117 12,347

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

July 3, 2022 October 3, 2021

(in thousands)

Right-of-use assets obtained in exchange for new finance lease liabilities $ 1,431 $ 1,349

Supplemental balance sheet and other information related to leases are as follows (in thousands):

January 1, 2023 October 2, 2022

Operating leases:

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Current 55,809 57,865

Long-term 154,499 174,285

Non-current 148,034 146,285

Total operating lease liabilities $ 203,843 $ 204,150

Finance leases:

Other non-current assets $ 9,932 $ 9,564

Other current liabilities $ 4,582 $ 4,481

Other non-current liabilities $ 5,343 $ 4,745

Weighted-average remaining lease term:

Operating leases 5 years 5 years

Finance leases 2 years 2 years

Weighted-average discount rate:

Operating leases 2.2 % 2.2 %

As of July 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 July 3, 2022 is as follows:

(in thousands)

Finance leases 3 % 3 %

At January 1, 2023, we have approximately $ 8 million of operating leases that have not yet commenced.

A maturity analysis of the future undiscounted cash flows associated with our lease liabilities at January 1, 2023 is as follows (in thousands):

Leases Finance

2023 (remaining) $ 49,216 $ 3,787

2024 51,833 3,699

2025 39,744 2,182

2026 25,234 574

2027 17,870 211

Beyond 32,484 —

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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 and first nine months ended July 3, 2022 was $ 6.7 million and $ 19.1 million, respectively, compared to $ 5.7 million and $ 16.3 million for the same periods last year.

Stock-based compensation expense for the three months ended January 1, 2023 was $ 7.2 million, compared to $ 5.8 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 nine months of fiscal 2022, we awarded 41,734 performance share units (“PSUs”) to our non-employee directors and executive officers at a fair value of $ 247.16 per share on the award date.

In the first quarter of fiscal 2023, we awarded 55,708 performance share units (“PSUs”) to our non-employee directors and executive officers at an estimated fair value of $ 204.00 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 76,231 restricted stock units (“RSUs”) to our non-employee directors, executive officers and employees at a fair value of $ 185.35 per share on the award date.

Additionally, we awarded 98,305 restricted stock units

(“RSUs”) to our non-employee directors, executive officers and employees at a fair value of $ 156.52 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 .

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Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding, less unvested restricted stock for the period.

Diluted EPS is computed by dividing net income by

the weighted-average number of common shares outstanding and dilutive potential common shares for the period.

Diluted EPS is computed by dividing net income by the weighted-average number of common shares outstanding and dilutive potential common shares for the period.

Potential common shares include the weighted-average dilutive effects of outstanding stock options and unvested restricted stock using the treasury stock method.

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

Three Months Ended Nine Months Ended

2022 June 27,

(in thousands, except per share data)

The following table presents the number of weighted-average shares used to compute basic and diluted EPS (in thousands, except per share data):

Three Months Ended

2023 January 2,

Net income attributable to Tetra Tech $ 116,706 $ 68,489

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Diluted $ 2.18 $ 1.25

The effective tax rates for the first nine months of fiscal 2022 and 2021 were 23.9 % and 20.4 %, respectively.

Income tax expense was reduced b y $ 4.9 million and $ 8.7 million of excess tax benefits on share-based payments in the first nine 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 nine months of fiscal 2022 and 2021 were 25.9 % an d 25.0 %, r espectively.

As of July 3, 2022 and October 3, 2021, the liability for income taxes associated with uncertain tax positions was $ 11.3 million and $ 14.1 million, respectively.

The effective tax rates for the first three months of fiscal 2023 and 2022 were 24.5 % and 18.8 %, respectively.

Income tax expense was reduced by $ 1.7 million and $ 4.5 million of excess tax benefits on share-based payments in the first quarters of fiscal 2023 and 2022, respectively.

Excluding the impact of the excess tax benefits on share-based payments, our effective tax rates in the first quarters of fiscal 2023 and 2022 were 25.7 % an d 24.1 %, r espectively.

At January 1, 2023 and October 2, 2022, the liability for income taxes associated with uncertain tax positions was $ 10.8 million and $ 10.6 million, respectively.

These uncertain tax positions substantially relate to ongoing examinations.

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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, and they do not materially impact our consolidated financial statements.

Reportable Segments

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commercial clients and international clients other than development agencies.

Additionally , we continue to report the results of the wind-down of our non-core construction activities in the RCM reportable segment.

There has been no remaining backlog for RCM since fiscal 2018 as the projects were complete.

GSG provides high-end consulting and engineering services primarily to U.S.

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GSG also provides engineering design services for U.S.

municipal and commercial clients, especially in water infrastructure, solid waste, and high-end sustainable infrastructure designs.

based federal and municipal clients, especially in water infrastructure, flood protection and solid waste.

GSG also leads our support for development agencies worldwide, especially in the United States, United Kingdom, and Australia.

CIG primarily provides high-end consulting and engineering services to U.S.

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

commercial clients, and international clients inclusive of the 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.

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, amounts related to our segment reporting for the third quarter and first nine months 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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All significant intercompany balances and transactions are eliminated in consolidation.

The following tables summarize financial information regarding our reportable segments:

Three Months Ended Nine Months Ended

2022 June 27,

(in thousands)

The following tables summarize financial information regarding our reportable segments (in thousands):

Three Months Ended

2023 January 2,

GSG $ 471,067 $ 456,099

CIG 439,556 416,286

RCM — 143 — 613

Elimination of inter-segment revenue ( 15,857 ) ( 13,875 )

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2023 October 2,

(in thousands)

GSG $ 586,128 $ 558,764

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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 2, 2022 ).

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

At July 3, 2022, we had borrowing s of $ 246.9 million outstanding under our Amended Credit Agreement, which were used to fund business acquisitions, work ing capital needs, stock repurchases, dividends, capital expenditures and contingent earn-outs.

The carrying value of our long-term debt approximated fair value at January 1, 2023 and October 2, 2022.

At January 1, 2023, we had bor rowing s of $ 240.6 million outstanding under our Amended Credit Agreement, which were used to fund business acquisitions, work ing capital needs, stock repurchases, dividends, capital expenditures and contingent earn-outs.

Credit Facility

On October 26, 2022, we entered into a Third Amended and Restated Credit Agreement that provides for an additional $ 500 million senior secured term loan facility (the "New Term Loan Facility") increasing our total borrowing capacity to $ 1.55 billion.

Subsequent Event.

On January 23, 2023, we acquired RPS and drew the entire amount of the New Term Loan Facility to partially finance the RPS acquisition.

The remaining purchase price was financed with existing cash on hand and borrowings under the existing Amended Revolving Credit Facility.

The New Term Loan Facility is not subject to any amortization payments of principal and matures on the third anniversary of the RPS acquisition closing date.

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

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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;

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

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

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Derivative Financial Instruments

We often use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt.

Also, we may enter in foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and earnings could adversely be affected by foreign currency exchange rate fluctuations.

We use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt.

We also enter into foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and earnings could adversely be affected by foreign currency exchange rate fluctuations.

Our hedging program is not designated for trading or speculative purposes.

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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.

Our derivative contracts are categorized within Level 2 of the fair value hierarchy.

We entered into a forward contract in the fourth quarter of fiscal 2022 to acquire GBP 714.0 million at a rate of 1.0852 for a total of USD 774.8 million that was integrated with our planned acquisition of RPS.

This contract matured on December 30, 2022.

On December 28, 2022, we entered into an extension of the integrated forward contr act to acquire GBP 714.0 million at a rate of 1.086 for a total of USD 775.4 million, extending the maturity date to January 23, 2023, the closing date of the RPS

Although an effective economic hedge of our foreign exchange risk related to this transaction, the forward contract does not qualify for hedge accounting.

As a result, the forward contract is marked-to-market with changes in fair value recogni zed in earnings each period.

The intrinsic value of the forward contract was immaterial at inception as the GBP/USD spot and forward exchange rates were essentially the same.

The fair value of the forward contract at October 2, 2022 was $ 19.9 million, and an unrealized gain of the same amount was recognized in the fourth quarter of fiscal 2022 results.

The fair value of the forward contract at January 1, 2023 was $ 87.9 million, which is reported in the "Prepaid expenses and other current assets" on our consolidated balance sheet at January 1, 2023.

This resulted in an unrealized gain of $ 68.0 million in the first quarter of fiscal 2023, which was recognized in earnings and reported in the “Other non-operating income" on our consolidated income statement.

The forward contract was settled on January 23, 2023, with a cumulative gain of approximately $ 109 million.

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 July 3, 2022, the notional principal of our outstanding interest swap agreements was $ 203.1 million ($ 40.6 million each.) The interest rate swaps have a fixed interest rate of 2.79 % and expire

in July 2023 for all five agreements.

At July 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 was an unrealized gain of $ 0.6 million and an unrealized loss of $ 9.4 million, which were reported in "Other long-term assets" and "Other current liabilities" on our consolidated balance sheets, respectively.

Additionally, the related gains of $ 2.4 million and $ 10.0 million for the three and first nine months ended July 3, 2022, compared to related gains of $ 1.5 million and $ 4.9 million for the prior-year periods, were recognized and reported on our consolidated statements of comprehensive income.

At January 1, 2023, the notional principal of our outstanding interest swap agreements was $ 196.9 million ($ 39.4 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 1, 2023 and October 2, 2022, the fair values of the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect were unrealized gains of $ 2.3 million and $ 2.4 million, respectively, which were reported in "Other non-current assets" on our consolidated balance sheets.

Additionally, the related loss of $ 0.1 million for the three months ended January 1, 2023, compared to the related gain of $ 2.7 million for the prior-year period, were recognized and reported on our consolidated statements of comprehensive income.

We expect to reclassify a credit of $ 2.2 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 nine months of fiscal 2022.

There were no other derivative instruments designated as hedging instruments for the first quarter of fiscal 2023.

Reclassifications Out of Accumulated Other Comprehensive Income

The accumulated balances and activities for the three and nine months ended July 3, 2022 and June 27, 2021 related to reclassifications out of accumulated other comprehensive income are summarized as follows:

The accumulated balances and activities for the three months ended January 1, 2023 and January 2, 2022 related to reclassifications out of accumulated other comprehensive income are summarized as follows (in thousands):

Three Months Ended

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Instruments Accumulated Other Comprehensive Income (Loss)

(in thousands)

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

Other comprehensive income before reclassifications 11,157 2,981 14,138

Amounts reclassified from accumulated other comprehensive loss

Interest rate contracts, net of tax (1)

— ( 1,483 ) ( 1,483 )

Net current-period other comprehensive income 11,157 1,498 12,655

Balance at June 27, 2021 $ ( 91,754 ) $ ( 10,647 ) $ ( 102,401 )

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

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

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

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

Balance at July 3, 2022 $ ( 158,396 ) $ 590 $ ( 157,806 )

Nine 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 54,521 9,341 63,862

Amounts reclassified from accumulated other comprehensive loss

Interest rate contracts, net of tax (1)

— ( 4,477 ) ( 4,477 )

Net current-period other comprehensive income 54,521 4,864 59,385

Balance at June 27, 2021 $ ( 91,754 ) $ ( 10,647 ) $ ( 102,401 )

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

Balance at October 2, 2022 $ ( 210,556 ) $ 2,412 $ ( 208,144 )

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Interest rate contracts, net of tax (1)

— ( 3,849 ) ( 3,849 )

Net current-period other comprehensive income (loss) 33,107 ( 89 ) 33,018

Balance at July 3, 2022 $ ( 158,396 ) $ 590 $ ( 157,806 )

Balance at January 1, 2023 $ ( 177,449 ) $ 2,323 $ ( 175,126 )

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

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However, in some actions, parties are seeking damages that exceed our insurance coverage or for which we are not insured.

While management does not believe that the resolution of these claims will have a material adverse effect, individually or in aggregate, on our financial position, results of operations or cash flows, management acknowledges the uncertainty surrounding the ultimate resolution of these matters.

While management does not believe that the resolution of these claims will have a material adverse

effect, individually or in aggregate, on our financial position, results of operations or cash flows, management acknowledges the uncertainty surrounding the ultimate resolution of these matters.

On July 15, 2019, following an initial January 14, 2019 filing, the Civil Division of the United States Attorney's Office filed an amended complaint in intervention in three qui tam actions filed against our subsidiary, Tetra Tech EC, Inc.

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We often provide services to unconsolidated joint ventures.

Our revenue related to services we provided to unconsolidated joint ventures for th e three and first nine months o f fiscal 2022 was approxim ately $ 24 million and $ 74 million, respectively, compared to $ 24 million and $ 70 million for the same periods last year.

Related reimbursable costs for the three and first nine months of fiscal 2022 were approximately $ 23 million and $ 70 million.

Related reimbursable costs for the three and first nine months of fiscal 2021 were approximately $ 23 million and $ 67 million.

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

Our revenue related to services we provided to unconsolidated joint ventures for th e first quarters o f fiscal 2023 and 2022 was approxim ately $ 23 million and $ 26 million, respectively.

Our related reimbursable costs for the first quarters of fiscal 2023 and 2022 were approximately $ 22 million and $ 25 million, respectively.

Our consolidated balance sheets also included the following amounts related to these services (in thousands):

2023 October 2, 2022

(in thousands)

Accounts receivable, net $ 18,376 $ 16,818

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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