What changed in this filing

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Item 1. Financial Statements

2023-05-11 compared with 2023-02-03 · 255 added, 145 removed, 471 unchanged (46% of the section changed)

3 unchanged sentences

(unaudited - in thousands, except par value)

ASSETS January 1,

ASSETS April 2,

2023 October 2,

29 unchanged sentences

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

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

no shares issued and outstanding at April 2, 2023 and October 2, 2022

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

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

issued and outstanding, 53,228 and 52,981 shares at April 2, 2023 and October 2, 2022, respectively

Additional paid-in capital 10,639 —

9 unchanged sentences

(unaudited – in thousands, except per share data)

Three Months Ended

2023 January 2,

Three Months Ended Six Months Ended

2023 April 3,

2022 April 2,

2023 April 3,

Revenue $ 1,158,226 $ 852,744 $ 2,052,991 $ 1,711,255

23 unchanged sentences

(unaudited – in thousands)

Three Months Ended

2023 January 2,

Three Months Ended Six Months Ended

2023 April 3,

2022 April 2,

2023 April 3,

Net income $ 42,841 $ 53,049 $ 159,556 $ 121,548

3 unchanged sentences

Gain (loss) on cash flow hedge valuations, net of tax ( 896 ) 4,938 ( 985 ) 7,604

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

Net pension adjustments 2,794 — 2,794 —

Other comprehensive income (loss), net of tax ( 6,256 ) 7,745 26,762 9,725

Comprehensive income, net of tax $ 36,585 $ 60,794 $ 186,318 $ 131,273

5 unchanged sentences

(unaudited – in thousands)

Three Months Ended

2023 January 2,

Six Months Ended

2023 April 3,

Cash flows from operating activities:

7 unchanged sentences

Fair value adjustments to contingent consideration 8,477 199

Loss on sale of property and equipment 32 178

Fair value adjustments to foreign currency forward contract ( 89,402 ) —

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Proceeds from sale of assets 88 3,665

Settlement of foreign currency forward contract 109,306 —

Net cash used in investing activities ( 755,219 ) ( 35,566 )

8 unchanged sentences

Principal payments on finance leases ( 2,714 ) ( 1,979 )

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

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

Net cash provided by (used in) financing activities 680,491 ( 115,794 )

Effect of exchange rate changes on cash and cash equivalents 7,899 1,621

Net increase in cash and cash equivalents 46,294 27,810

Cash and cash equivalents at beginning of period 185,094 166,568

Cash and cash equivalents at end of period $ 231,388 $ 194,378

Supplemental information:

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$ 40,107 $ 25,476

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.

1 unchanged sentence

Consolidated Statements of Stockholders' Equity

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

Three Months Ended April 3, 2022 and April 02, 2023

(unaudited – in thousands)

7 unchanged sentences

Shares Amount

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

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

5 unchanged sentences

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

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

Net income 42,830 42,830 11 42,841

Other comprehensive income ( 6,255 ) ( 6,255 ) ( 1 ) ( 6,256 )

Cash dividends of $ 0.23 per common share

( 12,242 ) ( 12,242 ) ( 12,242 )

Stock-based compensation 7,418 7,418 7,418

Restricted & performance shares released 1 — ( 94 ) ( 94 ) ( 94 )

Stock options exercised 1 — 34 34 34

BALANCE AT APRIL 2, 2023 53,228 $ 532 $ 10,639 $ ( 181,381 ) $ 1,525,809 $ 1,355,599 $ 69 $ 1,355,668

Tetra Tech, Inc.

Consolidated Statements of Stockholders' Equity

Six Months Ended April 3, 2022 and April 02, 2023

(unaudited – in thousands)

Common Stock Additional

Capital Accumulated

Comprehensive

Loss Retained

Earnings Total

Equity Non-Controlling

Interests Total

Shares Amount

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

1 unchanged sentence

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

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

Cash dividends of $ 0.40 per common share

4 unchanged sentences

Shares issued for Employee Stock Purchase Plan 106 1 12,128 12,129 12,129

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

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

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

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

Net income 159,536 159,536 20 159,556

Other comprehensive income 26,763 26,763 ( 1 ) 26,762

Cash dividends of $ 0.46 per common share

( 24,428 ) ( 24,428 ) ( 24,428 )

Stock-based compensation 14,602 14,602 14,602

Restricted & performance shares released 146 1 ( 16,681 ) ( 16,680 ) ( 16,680 )

Stock options exercised 3 — 91 91 91

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

BALANCE AT APRIL 2, 2023 53,228 $ 532 $ 10,639 $ ( 181,381 ) $ 1,525,809 $ 1,355,599 $ 69 $ 1,355,668

See Notes to Consolidated Financial Statements.

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

Three Months Ended

2023 January 2,

Three Months Ended Six Months Ended

2023 April 3,

2022 April 2,

2023 April 3,

Client Sector:

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federal government contracts performed outside the United States.

(2) Includes revenue generated from foreign operations, primarily in Canada, Australia, the United Kingdom, and revenue generated from non-U.S.

(2) Includes revenue generated from non-U.S.

clien ts, primarily in Canada, Australia and the United Kingdom.

Other than the U.S.

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.

federal government, no single client accounted for more than 10% of our revenue for the three and six months ended April 2, 2023 and April 3, 2022.

Contract Assets and Contract Liabilities

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Net contract liabilities $ ( 200,407 ) $ ( 148,935 )

(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.

(1) Inclu des $ 13.0 million and $ 23.3 million of contract retentions at April 2, 2023 and October 2, 2022, respectively.

In the first half of fiscal 2023 and 2022, we recognized revenue of approximately $ 121 million and $ 93 million, respectively, from the amounts included in the contract liability balances at the end of fiscal 2022 and 2021, 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

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

As a res ult, we recognized net

favorable revenue and operating income adjustments of $ 4.0 million and $ 5.0 million in the first hal ves 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.

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.

At April 2, 2023 and October 2, 2022, our consolidated balance sheets included liabilities for anticipated losses of $ 7.8 million and $ 10.0 million, respectively.

The estimated cost to complete these related contracts at April 2, 2023 and October 2, 2022 was approximately $ 67 million and $ 80 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 1, 2023 are expected to be billed and collecte d within 12 months.

Substantially all of our unbilled receivables at April 2, 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.

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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.

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 January 1, 2023 and October 2, 2022.

federal government, no single client accounted for more than 10% of our accounts receivable at April 2, 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 $ 3.8 billion of RUPO at January 1, 2023.

We had $ 4.2 billion of RUPO at April 2, 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 at January 1, 2023 over the following periods (in thousands):

We expect to satisfy our RUPO at April 2, 2023 over the following periods (in thousands):

Within 12 months $ 2,879,867

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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).

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 November 3, 2022, RPS' 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, 2023.

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.

Substantially all of RPS is included in our CIG segment.

The total purchase price of RPS was approximately £ 633 million ($ 784 million).

In the second quarter and first half of fiscal 2023, we incurred $ 19.9 million and $ 23.7 million, respectively, related to acquisition and integration costs primarily for professional fees, substantially all of which were paid as of the end of the second quarter of fiscal 2023.

On January 23, 2023, we also settled a foreign exchange forward contract that was integral to our plan to finance the RPS acquisition developed in the fourth quarter of fiscal 2022.

The cash gain of $ 109.3 million did not qualify for hedge accounting.

As a result, the gain was recognized as non-operating income over the life of the contract and not included in the purchase price allocation below.

However, the cash proceeds of $ 109.3 million economically reduced the purchase price for the shares of RPS to approximately $ 675 million.

This forward contract is explained further in Note 15, "Derivative Financial Instruments".

The table below represents the preliminary purchase price allocation for RPS based on estimates, assumptions, valuations and other analyses as of January 23, 2023, that has not been finalized in order to make a definitive allocation.

The purchase consideration, excluding the aforementioned forward contract gain, is allocated to the tangible and intangible assets, and liabilities of RPS based on their estimated fair values, with any excess purchase consideration allocated to goodwill as follows (in thousands):

Cash and cash equivalents $ 32,093

Accounts receivable and contract assets 202,634

Prepaid expenses and other current assets 49,216

Income taxes receivables 1,999

Property and equipment 43,276

Right-of-use assets, operating leases 40,179

Intangible assets 206,186

Deferred income taxes 28,995

Other long-term assets 1,061

Total assets acquired 605,639

Accounts payable $ ( 44,376 )

Accrued compensation ( 22,290 )

Contract liabilities ( 46,287 )

Income tax payable ( 7,083 )

Short-term lease liabilities, operating leases ( 13,477 )

Other current liabilities ( 124,851 )

Long-term debt ( 91,973 )

Long-term lease liabilities, operating leases ( 26,702 )

Other long-term liabilities ( 7,423 )

Deferred tax liabilities ( 55,965 )

Total liabilities assumed ( 440,427 )

Fair value of net assets acquired 165,212

Goodwill 618,997

Total purchase consideration $ 784,209

The following table summarizes the estimated fair values that were assigned to intangible assets at the acquisition date:

Fair Value Weighted-Average Estimated Useful Life

(in thousands) (in years)

Backlog $ 19,702 1.5

Trade names 17,843 3.0

Client relations 168,641 8.0

Total intangible assets acquired $ 206,186 6.9

Supplemental Pro Forma Information (Unaudited)

Following are the supplemental consolidated financial results of Tetra Tech and RPS on an unaudited pro forma basis, as if the RPS acquisition had been consummated as of the beginning of fiscal 2022 (in thousands):

Three Months Ended Six Months Ended

2023 April 3,

2022 April 2,

2023 April 3,

Revenue $ 1,203,538 $ 1,040,645 $ 2,310,839 $ 2,074,544

Net Income including noncontrolling interests $ 40,200 $ 36,104 $ 103,901 $ 59,043

For the period from January 23, 2023 through April 2, 2023, RPS had revenue o f $ 169.5 million.

RPS' net income, including interest expense, for this period was a loss of $ 2.0 million, or $ 0.03 per share, before intangible amortization.

Intangible amortization for RPS was $ 7.7 million, or $ 0.11 per share .

In the second quarter of fiscal 2023, we also 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 is included in our GSG segment.

The total fair value of the purchase price of Amyx was $ 120.9 million, comprised of a $ 100.0 million payable in a promissory note issued to the sellers (paid subsequent to closing), $ 8.7 million of payables related to estimated post-closing adjustments, and $ 12.2 million for the estimated fair value of contingent earn-out obligations, with a maximum of $ 25.0 million, based upon the achievement of specified operating income targets in each of the three years following the acquisition date.

Amyx was not considered significant to our consolidated financial statements.

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

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

PAE is based in Vancouver, British Columbia and is a global leader in sustainable natural resource analytics including hydrologic numerical modeling and dewatering system design.

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

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

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.

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.

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 to our financial statements, individually or in the aggregate, to our consolidated financial statements.

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

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

Backlog and client relations intangible assets include the fair value of existing contracts and the underlying customer relationships with lives ranging from one to ten years , and trade names intangible assets have lives ranging from three to five years .

The majority of the goodwill from the fiscal 2023 acquisitions is not deductible for tax purposes, while the majority of the goodwill from the fiscal 2022 acquisitions is deductible for tax purposes.

The results of fiscal 2022 and 2023 acquisitions were included in our consolidated financial statements beginning on the respective closing dates.

Goodwill additions resulting from the fiscal 2023 business combinations are primarily attributable to the significant technical expertise residing in embedded workforces that are sought out by clients, synergies expected to arise after the acquisitions in the areas of enterprise technology services, data management, energy transformation, water, program management, and data analytics and the long-standing reputations of RPS and Amyx.

These acquisitions further expand and complement our market-leading positions in water, renewable energy and sustainable infrastructure;

enhanced by a combined suite of differentiated data analytics and digital technologies, and expansion into existing and new geographies.

Our fiscal 2022 goodwill additions 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.

Intangible assets with finite lives arise from business acquisitions and are amortized based on the period over which the contractual or economic benefit of the intangible assets are expected to be realized or on a straight-line basis over the useful lives of the underlying assets, ranging from one to eight years .

These consist of client relations, backlog and trade names.

For detailed information regarding our intangible assets, see Note 5, “Goodwill and Intangible Assets”.

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The contingent earn-out arrangements are based on our valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved.

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 “Non-current contingent earn-out liabilities” on the consolidated balance sheets.

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.

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 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 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.

For the first half 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.

During the first half of fiscal 2023, we recorded adjustments to our contingent earn-out liabilities and reported a related net loss in operating income of $ 8.5 million (largely in the second quarter).

The net loss primarily resulted from increased valuations of the contingent consideration liabilities for our prior acquisitions of Segue Technologies, Inc.

(SEG), Hoare Lea, LLP (HLE) and TIGA reflecting financial performance that exceeded our previous expectations.

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

At April 2, 2023, there was a total potential maximum of $ 143.9 million of outstanding contingent consideration related to acquisitions.

Of this amount, $ 88.1 million was estimated as the fair value and accrued on our consolidated balance sheet at April 2, 2023.

Goodwill and Intangible Assets

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

Acquisition activity 104,720 618,997 723,717

Translation adjustments 3,380 18,912 22,292

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

Balance at April 2, 2023 $ 627,202 $ 1,229,219 $ 1,856,421

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

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.

The gross amounts for GSG were $ 644.9 million and $ 536.8 million at April 2, 2023 and October 2, 2022, respectively, excluding accumulated impairment of $ 17.7 million at each date.

The gross amounts of goodwill for CIG were $ 1,350.7 million and $ 712.8 million at April 2, 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.

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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.

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 ($ in thousands):

January 1, 2023 October 2, 2022

April 2, 2023 October 2, 2022

Remaining Life

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Total $ 309,330 $ ( 76,776 ) $ 232,554 $ 87,673 $ ( 58,510 ) $ 29,163

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.

Amortization expense for the three and six months e nded April 2, 2023 w as $ 12.1 million and $ 15.5 million, compared to $ 3.2 million and $ 5.9 million for the prior-year periods.

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

2023 (remaining) $ 27,074

Beyond 73,749

Total $ 232,554

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Property and equipment, net $ 76,586 $ 32,316

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.

The depreciation expense related to property and equipment was $ 4.8 million and $ 8.0 million for the three and six months ended April 2, 2023, compared t o $ 3.3 million and $ 6.7 million for the prior-year periods.

The increases in property equipment from October 2, 2022 to April 2, 2023 are primarily due to the RPS acquisition.

Stock Repurchase and Dividends

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:

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

At April 2, 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 halves of fiscal 2023 and 2022:

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

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

January 30, 2023 $ 0.23 February 13, 2023 February 24, 2023 12,242

Total dividend paid as of April 2, 2023 $ 24,428

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

Subsequent Event.

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.

On May 8, 2023, our Board of Directors declared a quarterly cash dividend of $ 0.26 per share payable on June 6, 2023 to stockholders of record as of the close of business on May 24, 2023.

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

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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.

Our finance leases are immaterial.

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.

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

Three Months Ended

2023 January 2,

Three Months Ended Six Months Ended

2023 April 3,

2022 April 2,

2023 April 3,

Operating lease cost $ 24,419 $ 21,260 $ 45,380 $ 43,011

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

Three Months Ended

2023 January 2,

Six Months Ended

2023 April 3,

Operating cash flows for operating leases $ 36,439 $ 34,531

Financing cash flows for finance leases 1,316 945

Right-of-use assets obtained in exchange for new operating lease liabilities 52,036 24,875

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

2023 October 2, 2022

Operating leases:

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Total operating lease liabilities $ 227,076 $ 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 2.8 % 2.2 %

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

At April 2, 2023, we have no material operating leases that have not yet commenced.

A maturity analysis of the future undiscounted cash flows associated with our lease liabilities at April 2, 2023 is as follows (in thousands):

2023 (remaining) $ 39,435

2024 51,833 3,699

2025 39,744 2,182

2026 25,234 574

2027 17,870 211

Beyond 38,466

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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 1, 2023 was $ 7.2 million, compared to $ 5.8 million for the same period last year.

Stock-based compensation expense for the three and six months ended April 2, 2023 was $ 7.4 million and $ 14.6 million, respectively, compared to $ 6.6 million and $ 12.4 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 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.

In the first half of fiscal 2023, we awarded 56,214 performance share units (“PSUs”) to our non-employee directors and executive officers at a fair value of $ 195.50 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 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.

Additionally, we awarded 100,977 restricted stock units (“RSUs”) to our non-employee directors, executive officers and employees at a fair value of $ 156.41 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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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,

Three Months Ended Six Months Ended

2023 April 3,

2022 April 2,

2023 April 3,

Net income attributable to Tetra Tech $ 42,830 $ 53,040 $ 159,536 $ 121,529

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Diluted $ 0.80 $ 0.98 $ 2.98 $ 2.23

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.

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

The effective tax rates for the first halves of fiscal 2023 and 2022 were 28.7 % and 21.9 %, respectively.

Income tax expense was reduced by $ 1.8 million and $ 4.8 million of excess tax benefits on share-based payments in the first halves of fiscal 2023 and 2022, respectively.

In addition, income tax expense in the first half of fiscal 2023 (all in the second quarter) included non-operating income tax expenses of $ 6.7 million to recognize the tax liability for foreign earnings, primarily in the U.K.

and Australia, that are no longer indefinitely reinvested and to increase the liability for an uncertain tax position.

Excluding the impact of the excess tax benefits on share-based payments and the non-operating tax expenses in the second quarter of fiscal 2023, our effective tax rates in the first halves of fiscal 2023 and 2022 were 26.5 % and 25.0 %, respectively.

At April 2, 2023 and October 2, 2022, the liability for income taxes associated with uncertain tax positions was $ 42.4 million and $ 10.6 million, respectively.

These liabilities could materially decrease within the next 12 months as some related examinations have commenced.

These liabilities represent our current estimates of the additional tax liabilities that we may be assessed when the related audits are concluded.

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All significant intercompany balances and transactions are eliminated in consolidation.

In the second quarter and first half of fiscal 2023, our Corporate segment operating losses included $ 19.9 million and $ 23.7 million of acquisition and integration expenses, respectively, as described in Note 4, “Acquisitions”.

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

Three Months Ended

2023 January 2,

Three Months Ended Six Months Ended

2023 April 3,

2022 April 2,

2023 April 3,

GSG $ 563,254 $ 448,956 $ 1,034,322 $ 905,054

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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 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.

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

At April 2, 2023, we had bor rowing s of $ 1.08 billion outstanding under our Amended Credit Agreement, which were primarily used to fund business acquisitions, working capital needs, and capital expenditures.

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.

On January 23, 2023, we 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.

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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.

In the fourth quarter of fiscal 2022, we entered into a forward contract 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 plan to acquire 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.

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

As a result, the forward contract was 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.

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 quarter of fiscal 2023.

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 our fourth quarter of fiscal 2022 results.

On January 23, 2023, the forward contract was settled at the fair value of $ 109.3 million.

We recognized additional gains of

$ 68.0 million and $ 21.4 million in the first and second quarters of fiscal 2023, respectively.

All gains related to this transaction were reported in “Other non-operating income" on our consolidated income statements for the respective periods.

In fiscal 2018, we enter ed 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.

At April 2, 2023, the notional principal of our outstanding interest swap agreements was $ 193.8 million ($ 38.8 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 2, 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 $ 1.4 million and $ 2.4 million, respectively, which were reported in "Other non-current assets" on our consolidated balance sheets.

Additionally, the related loss of $ 0.9 million and $ 1.0 million for the three and six months ended April 2, 2023, compared to the related gain of $ 4.9 million and $ 7.6 million for the prior-year periods, were recognized and reported on our consolidated statements of comprehensive income.

We expect to reclassify a credit of $ 1.4 million from accumulated other comprehensive loss to interest expense during the second half of fiscal 2023, up to the expiration date in July 2023.

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

Reclassifications Out of Accumulated Other Comprehensive Income

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):

The accumulated balances and activities for the three and six months ended April 2, 2023 and April 3, 2022 related to reclassifications out of accumulated other comprehensive income are summarized as follows (in thousands):

Three Months Ended

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on Derivative

Instruments Accumulated Other Comprehensive Income (Loss)

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

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

Instruments Net Pension Adjustments Accumulated Other Comprehensive Income (Loss)

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

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— ( 1,394 ) — ( 1,394 )

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

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

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

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

Other comprehensive income (loss) before reclassifications ( 8,153 ) ( 1,767 ) 2,794 ( 7,126 )

Amounts reclassified from accumulated other comprehensive loss

Interest rate contracts, net of tax (1)

Net current-period other comprehensive income (loss) ( 8,153 ) ( 896 ) 2,794 ( 6,255 )

Balance at April 2, 2023 $ ( 185,602 ) $ 1,427 $ 2,794 $ ( 181,381 )

Six Months Ended

Adjustments Gain (Loss)

on Derivative

Instruments Net Pension Adjustments Accumulated Other Comprehensive Income (Loss)

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

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

Amounts reclassified from accumulated other comprehensive loss

Interest rate contracts, net of tax (1)

— ( 2,760 ) ( 2,760 )

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

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

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

Other comprehensive income (loss) before reclassifications 24,954 ( 2,302 ) 2,794 25,446

1 unchanged sentence

Interest rate contracts, net of tax (1)

— 1,317 — 1,317

Net current-period other comprehensive income (loss) 24,954 ( 985 ) 2,794 26,763

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

Balance at April 2, 2023 $ ( 185,602 ) $ 1,427 $ 2,794 $ ( 181,381 )

(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 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 revenue related t o services we provided to unconsolidated joint ventures for the three and six months of fiscal 2023 was approximately $ 20 million and $ 43 million, respectively, compared to $ 24 million and $ 50 million for the same periods last year.

Our related reimbursable costs for the three and six months of fiscal 2023 were approximately $ 19 million and $ 41 million, respectively.

Our related reimbursable costs for the three and six months of fiscal 2022 were approximately $ 22 million and $ 47 million, respectively.

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

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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