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Item 7. Management’s Discussion and Analysis

2023-11-22 compared with 2022-11-25 · 175 added, 253 removed, 331 unchanged (56% of the section changed)

5 unchanged sentences

OVERVIEW OF RESULTS AND BUSINESS TRENDS

In fiscal 2022, o ur revenue increased 9.0% comp ared to fiscal 2021.

In fiscal 2023, o ur reve nue increased 29.1% compared to fiscal 2022.

This growth includes approximately $600 million from the acquisition of RPS Group plc ("RPS"), which was completed in the second quarter of fiscal 2023.

Excluding RPS, our revenue increased 12.0% in fiscal 2023 compared to last year.

This year-over-year growth reflects increased activity in our U.S.

state and local, U.S.

Federal, U.S.

Commercial and International client sectors.

Our revenue also includes contributions from acquisitions that did not have comparable revenue in fiscal 2021.

We report results of operations based on a 52 or 53-week period ending on the Sunday nearest September 30.

Fiscal years 2022, 2021 and 2020 contained 52, 53 and 52 weeks, respectively.

We estimate that our revenue increased approximately 11.0% in fiscal 2022 compared to last fiscal year adjusting for the extra week in fiscal 2021.

Federal Government.

federal government revenue decreased 1.6% in f iscal 2022 compared to fiscal 2021.

This decrease primarily reflects the wind-down of our international development activities in Afghanistan that ceased in the fourth quarter of last fiscal year.

Excluding Afghanistan, our U.S.

federal government revenue grew approximately 3% in fiscal 2022 compared to fiscal 2021, primarily due to increased environmental activities for civilian agencies.

Our revenue also includes contributions from acquisitions that did not have comparable revenue in the prior year.

During perio ds of economic volatility, our U.S.

federal government revenue increased 30.3% in fiscal 2023 compared to fiscal 2022.

This increase was primarily due to more international development and broad-based increases across civilian agencies.

During periods of economic volatility, our U.S.

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

We expect our U.S.

federal government revenue to grow in fiscal 2023.

federal government revenue to continue to grow in fiscal 2024.

Approximately $1 trillion in new U.S.

2 unchanged sentences

State and Local Government.

state and local government revenue increased 12.5% i n fiscal 2022 compared to fiscal 2021.

state and local government revenue increased 0.6% in fiscal 2023 compared to fiscal 2022, which includes lower disaster response activity.

Excluding disaster response and the contribution from RPS, our state and loca l government revenue increase d 14.9% in fiscal 2023 compared to last year.

The increase reflects continued broad-based growth in our U.S.

state and local government infrastructure business, particularly with increased revenue from municipal water infrastructure work, including digital water projects, in the metropolitan areas of California, Texas and Florida.

Our disaster response activities also increased compared to fiscal 2021.

state and local govern ment infrastructure business, particularly with increased revenue from municipal water infrastructure work, including digital water projects.

Most of our work for the U.S.

state and local governments relates to critical water and environmental programs, which we expect to continue to grow in fiscal 2024.

commercial revenue increased 17.4% i n fiscal 2022 compared to fiscal 2021.

This increase was primarily due to more activity on environmental programs, including meeting net zero carbon goals and designing high performance buildings.

In addition, industrial activity was reduced in fiscal 2021 as a result of the COVID-19 pandemic.

commercial reven ue increased 16.1% in fiscal 2023 compared to fiscal 2022.

Excluding the contribution from RPS, our U.S.

commercial revenue increased 8.2% in fiscal 2023 compared to last year.

This increase was primarily due to more activity on clean energy and environmental programs, including meeting net zero carbon goals and designing high performance buildings.

We expect growth in our U.S.

1 unchanged sentence

International.

Our international revenue increased 13.6% in f iscal 2022 compared to fiscal 2021.

Our revenue includes contributions from acquisitions that did not have comparable revenue in fiscal 2021.

Additionally, the revenue growth reflects government stimulus spending on infrastructure and commercial activities related to an increased focus on sustainability .

Our international revenue increased 52.5% in fiscal 2023 compared to fiscal 2022.

Excluding the contribution from RPS, our international revenue increased 10.2%, on a constant currency basis, compared to last year.

This revenue growth reflects government stimulus spending on infrastructure and commercial acti vities related to an increased focus on sustainability.

We expect growth in our international work to continue in fiscal 2024.

If the global economy were to experience a recession, as some forecasts predict, our international growth in fiscal 2023 could be adversely impacted.

Pending Acquisition.

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

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.

The transaction is to be affected using a court sanctioned scheme of arrangement between RPS and its shareholders, and is subject to certain regulatory approvals and approval by RPS shareholders.

On November 3, 2022, RPS's shareholders approved the scheme of arrangement, with the acquisition expected to be closed and effective in January 2023 after regulatory and court approval with an all cash purchase price for 100% of the outstanding shares of approximately GBP 636 million.

RESULTS OF OPERATIONS

3 unchanged sentences

2023 October 2,

($ in thousands)

($ in thousands, except per share data)

Revenue $ 4,522,550 $ 3,504,048 $ 1,018,502 29.1%

5 unchanged sentences

Selling, general and administrative expenses (305,107) (234,784) (70,323) (30.0)

Contingent consideration – fair value adjustments (329) 3,273 (3,602) (110.1)

Acquisition and integration expenses (33,169) — (33,169) NM

Right-of-use operating lease asset impairment (16,385) — (16,385) NM

Contingent consideration – fair value adjustments (12,255) (329) (11,926) NM

Income from operations 358,113 340,446 17,667 5.2

Interest expense – net (46,537) (11,584) (34,953) (301.7)

Other income 19,904 — 19,904 NM

Other non-operating income 89,402 19,904 69,498 349.2

Income before income tax expense 400,978 348,766 52,212 15.0

12 unchanged sentences

NM = not meaningful

In fiscal 2022, revenue and revenue, net of subcontractor costs, increased $290.5 million, or 9.0%, and $283.4 million, or 11.1%, respectively, compared to fiscal 2021.

Excluding the contributions from acquisitions, which did not have comparable revenue in fiscal 2021, our revenue increased 4.1% in fiscal 2022 compared to last fiscal year.

In fiscal 2023, revenue and revenue, net of subcontractor costs, increased $1.02 billion, or 29.1%, and $915.5 million, or 32.3%, respectively, compared to fiscal 2022.

Excluding the contribution from RPS, our revenue increased 12.0% in fiscal 2023 compared to last year.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $338.0 million, or 18.6%, and $299.0 million, or 22.4%, respectively, in fiscal 2023 compared to the prior year.

Our CIG segment's revenue increased $686.2 million, or 39.5%, and revenue, net of subcontractor costs, increased $616.5 million, or 41.1% in fiscal 2023 compared to fiscal 2022.

Excluding the contribution from RPS, our CIG segment's revenue increased approximately 6.7% in fiscal 2023 compared to fiscal 2022 (9.5% on a constant currency basis).

The fiscal 2023 results for GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

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

GAAP adjusted results, which exclude a non-operating benefit from Employee Retention Credits ("ERC's") received in fiscal 2022 and gains from adjustments to contingent consideration liabilities in fiscal 2021.

Our adjusted earnings per share ("EPS") for fiscal 2022 also excludes a non-operating $19.9 million unrealized gain on a foreign exchange contract that serves as an economic hedge related to our planned acquisition of RPS.

This gain is reported as "Other income" in our Consolidated Statement of Income for fiscal 2022.

Our adjusted EPS for fiscal 2021 also excludes non-recurring tax items.

The effective tax rates applied to the adjustments to EPS to arrive at adjusted EPS average 26% and 25% for fiscal 2022 and 2021, respectively.

GAAP adjusted results, which exclude acquisition and integration costs related to the RPS acquisition and related lease impairment charge in fiscal 2023, adjustments to contingent consideration liabilities, and a non-operating benefit from Employee Retention Credits ("ERC's") received in fiscal 2022.

Our adjusted earnings per share ("EPS") for fiscal 2023 also excludes non-operating gains on a foreign exchange contract of $89.4 million and non-recurring tax expense items.

The foreign exchange gain is reported as "Other non-operating income" in our consolidated statements of income.

The effective tax rates applied to the adjustments to EPS to arrive at adjusted EPS average 26% for both fiscal 2023 and 2022.

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

2 unchanged sentences

2023 October 2,

($ in thousands, except per share data)

Income from operations $ 358,113 $ 340,446 $ 17,667 5.2%

Earn-out adjustments — (3,273) 3,273 NM

Employee retention credits — (6,486) 6,486 NM

Acquisition & integration expenses 33,169 — 33,169 NM

Right-of-use operating lease asset impairment 16,385 — 16,385 NM

Earn-out adjustments 12,255 — 12,255 NM

Adjusted income from operations (1)

1 unchanged sentence

EPS $ 5.10 $ 4.86 $ 0.24 4.9%

Earn-out adjustments — (0.04) 0.04 NM

Employee retention credits — (0.08) 0.08 NM

Other income (0.28) — (0.28) NM

Acquisition & integration expenses 0.56 — 0.56 NM

Right-of-use operating lease asset impairment 0.22 — 0.22 NM

Earn-out adjustments 0.19 — 0.19 NM

Foreign exchange forward contract gain (1.24) (0.28) (0.96) NM

Non-recurring tax items 0.38 — 0.38 NM

3 unchanged sentences

GAAP financial measure

Operating income increased $61.7 million, or 22.2%, in fiscal 2022 compared to fiscal 2021.

The fiscal 2022 results included the benefit of ERC's totaling $6.5 million, which represents reimbursement from the U.S.

federal government under the Coronavirus Aid, Relief and Economic Security Act for the costs that we incurred during the second quarter of fiscal 2020 to address the COVID-19 pandemic.

The amounts were recognized in fiscal 2022 when the funds were received due to the uncertainty related to the computation of qualifying amounts and delayed processing times for our application.

These amounts were primarily reflected as a reduction to "Other costs of revenue" in our Consolidated Statement of Income and an increase to "Net cash provided by operating activities" in our Consolidated Statement of Cash Flows for fiscal 2022, consistent with the presentation of the related costs recognized in the second quarter of fiscal 2020.

Excluding the ERC's and the contributions from acquisitions, which did not have comparable results in fiscal 2021, our adjusted operating income increased $31.5 million, or 11.5% in fiscal 2022 compared to fiscal 2021.

These increases reflect improved results in both GSG and CIG segments, which are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

Operating income increased $17.7 million, or 5.2%, in fiscal 2023 compared to last year.

The fiscal 2023 results include $33.2 million of acquisition and integration expenses (primarily investment banking, legal and other professional fees) for the RPS acquisition and a related $16.4 million of right-of-use ("ROU") lease asset impairment expense.

The fiscal 2023 results also include losses of $12.3 million, related to changes in the estimated fair value of contingent earn-out liabilities.

The fiscal 2022 results include the benefit of ERC's totaling $6.5 million, which represents reimbursement from the U.S.

federal government under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") for the costs that we incurred during fiscal 2020 to address the COVID-19 pandemic.

These amounts were recognized in fiscal 2022 when the funds were received due to the uncertainty related to the computation of qualifying amounts and delayed processing times for our application.

These amounts were primarily reflected as a reduction to "Other costs of revenue" in our consolidated statement of income and an increase to "Net cash provided by operating activities" in our consolidated statement of cash flows for fiscal 2022, consistent with the presentation of the related costs recognized in fiscal 2020.

Excluding the acquisition and integration expenses, ROU asset impairment, earn-out losses and the ERC's, our adjusted operating income increased $86.0 million, or 25.7% in fiscal 2023 compared to fiscal 2022.

These increases reflect improved results in both GSG and CIG segments, which are described below under "Government Services Group" and "Commercial/International Group", respectively.

Our net interest expense was $46.5 million and $11.6 million in fiscal 2023 and 2022, respectively.

The decrease primarily reflects lower average year-over-year borrowings, partially offset by higher borrowing rates.

Net interest expense in fiscal 2023 included $2.7 million of additional expense for the write-off of previously deferred debt origination fees due to the cancellation of the bridge loan facility that we entered to support our offer to acquire RPS, which was replaced with an amendment to our existing debt facility and $1.1 million of additional expense for the write-off of previously deferred debt origination fees due to the repayment and cancellation of RPS' debt facilities.

Excluding these write-offs, our interest expense increased $31.2 million in fiscal 2023 compared to last year primarily due to the additional borrowings to fund the RPS acquisition.

Other non-operating income of $89.4 million in fiscal 2023, reflect gains on a foreign exchange forward contract integrated with the RPS acquisition.

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 recognized in earnings each period.

The forward contract was settled on January 23, 2023, together with the closing of the RPS acquisition, with a cumulative cash gain of approximately $109 million.

The effective tax rates for fiscal 2023 and 2022 were 31.8% and 24.5%, respectively.

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

The valuation allowance was primarily related to net operating loss carry-forwards.

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

Also, i ncome tax expense was reduced by $10.3 million and $12.9 million of excess tax benefits on share-based payments in fiscal 2022 and 2021, respectively.

Excluding the impact of the fiscal 2021 valuation allowance benefit, the fiscal 2021 Canadian repatriation and the excess tax benefits on share-based payments in both fiscal years, our effective tax rates for fiscal 2022 and 2021 were 27.5% and 25.7%, respectively.

Income tax expense in fiscal 2023 included non-operating income tax expenses totaling $20.6 million to (i) increase the tax liability for uncertain tax positions related to certain U.S.

tax credits and an intercompany financing transaction, (ii) to recognize the tax liability for

foreign earnings, primarily in the U.K.

and Australia, that are no longer indefinitely reinvested.

In addition, income tax expense was reduced by $4.6 million and $10.3 million of excess tax benefits on share-based payments in fiscal 2023 and 2022, respectively.

Excluding the impact of the non-operating tax expenses in fiscal 2023 and the excess tax benefits on share-based payments in both years, our effective tax rates in fiscal 2023 and 2022 were 27.8% and 27.5%.

Our EPS was $5.10 in fiscal 2023, compared to $4.86 in fiscal 2022.

Excluding the aforementioned non-operating and non-recurring items, our adjusted EPS was $4.50 in fiscal 2022, compared to $3.79 last fiscal year, an increase of 18.7%.

Excluding the aforementioned non-operating items (including the foreign exchange gain and the non-operating tax items, which are both reported outside of operating income), our adjusted EPS was $5.21 in fiscal 2023, compared to $4.50 in fiscal 2022, an increase of 15.8%.

For fiscal 2023, we estimate that RPS increased our adjusted EPS by $0.07 before intangible amortization, which reduced our EPS by $0.37.

Excluding RPS, our adjusted EPS was $5.51 in fiscal 2023 representing an increase of 22.4%, compared to fiscal 2022.

Segment Results of Operations

8 unchanged sentences

Revenue and revenue, net of subcontractor costs, increased $338.0 million, or 18.6%, and increased $299.0 million, or 22.4%, respectively, in fiscal 2023 compared to fiscal 2022.

The increases primarily reflect higher U.S.

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

This increase includes approximately $70 million in revenue in the second quarter of fiscal 2023 related to a distinct international development funded energy program in Ukraine.

In addition, the increases reflect higher U.S.

state and local government activities related to digital water and U.S.

federal programs, partially offset by lower disaster response revenue.

Operating income increased $33.3 million in fiscal 2023 compared to fiscal 2022.

The fiscal 2022 results included $4.4 million of the aforementioned ERC's.

Excluding this benefit, operating income increased 11.0% in fiscal 2022 compared to last fiscal year.

Our operating margin, based on revenue, net of subcontractor costs, improved to 14.8% in fiscal 2022 compared to 13.8% in fiscal 2021.

Excluding the ERC's, our op erating margin was 14.5% in fiscal 2022.

The improved operating margin in fiscal 2022 was primarily due to our increased focus on high-end consulting services, including digital water, and improved labor utilization.

The increase in operating income is consistent with the revenue increase noted above.

The fiscal 2023 results were reduced by $6.8 million of the aforementioned lease impairment charge and the fiscal 2022 results included $4.4 million of the aforementioned ERC's.

Our operating margin, based on revenue, net of subcontractor costs, was 14.2% in fiscal 2023 compared to 14.8% last year.

Excluding the lease impairment charge in fiscal 2023 and last year's ERC's, our operating margin increased to 14.6% in fiscal 2023 from 14.5% in fiscal 2022.

Commercial/International Services Group ("CIG")

7 unchanged sentences

Revenue and revenue, net of subcontractor costs, increased $686.2 million, or 39.5%, and increased $616.5 million, or 41.1%, respectively, in fiscal 2023 compared to fiscal 2022.

The revenue growth primarily reflects increased activity on commercial environmental programs, including meeting net zero carbon goals and high performance buildings.

These increases were also due to the international government stimulus spending on infrastructure.

Additionally, the fiscal 2022 revenue included contributions from acquisitions, which did not have comparable revenue in fiscal 2021.

The RPS acquisition contributed approximately $570 million to revenue growth in fiscal 2023.

The remaining revenue growth in fiscal 2023 primarily reflects increased activity on high performance buildings, clean energy and international infrastructure.

Operating income increased $49.6 million in fiscal 2023 compared to fiscal 2022.

The RPS acquisition contributed approximately $34 million to operating income in fiscal 2023.

Conversely, the fiscal 2023 results were reduced by $8.3 million of the aforementioned lease impairment charge.

The fiscal 2022 operating income included $1.9 million of the aforementioned ERC's.

Excluding this benefit, operating income increased 26.2% in fiscal 2022 compared to last fiscal year.

Our operating margin, based on revenue, net of subcontractor costs, improved to 13.0% in fiscal 2022 compared to 11.8% in fiscal 2021.

Excluding the ERC's, o ur operating margin was 12.8% for fiscal 2022.

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

Remediation and Construction Management ("RCM")

RCM's projects were substantially complete at the end of fiscal 2018.

In May 2022, we received a cash settlement for the last $11 million RCM claim.

This settlement resulted in an immaterial gain in the third quarter of fiscal 2022.

There were no significant operating activities in RCM for fiscal 2022 and 2021.

Our operating margin, based on revenue, net of subcontractor costs, was 11.5% in fiscal 2023 compared to 13.0% in

Excluding the lease impairment and RPS in fiscal 2023 and the ERC's in fiscal 2022, our operating margin was 13.3% in fiscal 2023 compared to 12.8% in fiscal 2022.

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

Fiscal 2022 Compared to Fiscal 2021

1 unchanged sentence

Fiscal Year Ended

2021 September 27, 2020 Change

($ in thousands)

2022 October 3, 2021 Change

($ in thousands, except per share data)

Revenue $ 3,504,048 $ 3,213,513 $ 290,535 9.0%

6 unchanged sentences

Contingent consideration – fair value adjustments (329) 3,273 (3,602) (110.1)

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

Income from operations 340,446 278,701 61,745 22.2

Interest expense – net (11,584) (11,831) 247 2.1

Other income 19,904 — 19,904 NM

Income before income tax expense 348,766 266,870 81,896 30.7

13 unchanged sentences

In fiscal 2022, revenue and revenue, net of subcontractor costs, increased $290.5 million, or 9.0%, and $283.4 million, or 11.1%, respectively, compared to fiscal 2021.

Excluding the net contributions from acquisitions and the impact of the disposal of our Canadian turn-key pipeline activities, our revenue increased 3.2% in fiscal 2021 compared to fiscal 2020.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $194.6 million, or 12.3%, and $148.3 million, or 13.3%, respectively, in fiscal 2021 compared to fiscal 2020.

Excluding the contributions from acquisitions, which did not have comparable revenue in fiscal 2021, our revenue increased 4.1% in fiscal 2022 compared to fiscal 2021.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $48.0 million, or 2.7%, and $70.7 million, or 5.6%, respectively, in fiscal 2022 compared to the prior year.

Our CIG segment's revenue increased $238.4 million, or 15.9%, and revenue, net of subcontractor costs, increased $213.3 million, or 16.6% in fiscal 2022 compared to fiscal 2021.

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

The fiscal 2022 results for GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

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

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

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

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

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

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

GAAP adjusted results, which exclude a non-operating benefit from ERC's received in fiscal 2022 and gains from adjustments to contingent consideration liabilities in fiscal 2021.

Our adjusted EPS for fiscal 2022 also excludes a non-operating $19.9 million unrealized gain on the aforementioned foreign exchange contract that served as an economic hedge related to our acquisition of RPS.

This gain is reported as "Other non-operating income" in our Consolidated Statement of Income for fiscal 2022.

Our adjusted EPS for fiscal 2021 also excludes non-recurring tax items.

The effective tax rates applied to the adjustments to EPS to arrive at adjusted EPS average 26% and 25% for fiscal 2022 and 2021, respectively.

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

Both EPS and adjusted EPS were calculated using diluted weighted-average common shares outstanding for the respective periods as reflected in our consolidated statements of income.

During the second quarter of fiscal 2020, we took actions in response to the COVID-19 pandemic to ensure the health and safety of our employees, clients and communities.

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

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

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

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

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

Some of these costs were related to the $6.5 million benefit of ERC's, which were applied for in fiscal 2020 and subsequently received and recognized in fiscal 2022.

Fiscal Year Ended

2021 September 27, 2020 Change

2022 October 3, 2021 Change

($ in thousands, except per share data)

Income from operations $ 340,446 $ 278,701 $ 61,745 22.2%

Earn-out adjustments — (3,273) 3,273 NM

COVID-19 — 8,233 (8,233) NM

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

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

Employee Retention Credits (6,486) — (6,486) NM

Adjusted income from operations (1)

2 unchanged sentences

Earn-out adjustments — (0.04) 0.04 NM

COVID-19 — 0.11 (0.11) NM

Non-core dispositions — (0.12) 0.12 NM

Impairment of goodwill — 0.29 (0.29) NM

Employee Retention Credits (0.08) — (0.08) NM

Other income (0.28) — (0.28) NM

Non-recurring tax benefits — (0.43) 0.43 NM

3 unchanged sentences

GAAP financial measure

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

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

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

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

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

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

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

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

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

The decrease primarily reflects lower average borrowings.

Operating income increased $61.7 million, or 22.2%, in fiscal 2022 compared to fiscal 2021.

The fiscal 2022 results included the benefit of ERC's totaling $6.5 million.

These increases reflect improved results in both GSG and CIG segments, which are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

Our net interest expense was $11.6 million and $11.8 million in fiscal 2022 and 2021, respectively.

The decrease primarily reflects lower average year-over-year borrowings, partially offset by higher borrowing rates.

The effective tax rates for fiscal 2022 and 2021 were 24.5% and 12.8%, respectively.

Our fiscal 2021 effective tax rate reflects the aforementioned non-recurring net tax benefit of $21.6 million primarily consisting of a valuation allowance in the United Kingdom.

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

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

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

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

On the same basis as our adjusted operating income and excluding non-recurring tax benefits in fiscal 2021, EPS was $3.79 in fiscal 2021, compared to $3.26 fiscal 2020, an increase of 16.3%.

The valuation allowance was primarily related to net operating loss carry-forwards.

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

Also, i ncome tax expense was reduced by $10.3 million and $12.9 million of excess tax benefits on share-based payments in fiscal 2022 and 2021, respectively.

Our EPS was $4.86 in fiscal 2022, compared to $4.26 in fiscal 2021.

Excluding the aforementioned non-operating and non-recurring items, our adjusted EPS was $4.50 in fiscal 2022, compared to $3.79 the prior year, an increase of 18.7%.

Segment Results of Operations

1 unchanged sentence

Fiscal Year Ended

2021 September 27, 2020 Change

2022 October 3, 2021 Change

($ in thousands)

3 unchanged sentences

Income from operations $ 198,448 $ 174,755 $ 23,693 13.6%

Revenue and revenue, net of subcontractor costs, increased $194.6 million, or 12.3%, and $148.3 million, or 13.3%, respectively, in fiscal 2021 compared to fiscal 2020.

These increases primarily reflect higher U.S.

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

The increases also reflect contributions from acquisitions, which did not have comparable revenue in fiscal 2020.

Operating income increased $28.5 million in fiscal 2021 compared to fiscal 2020 primarily reflecting the revenue growth.

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

Our operating margin, based on revenue, net of subcontractor costs, improved to 13.8% in fiscal 2021 compared to 13.1% fiscal 2020.

Excluding the COVID-19 charges, our operating margin was 13.2% in fiscal 2020.

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

Revenue and revenue, net of subcontractor costs, increased $48.0 million, or 2.7%, and increased $70.7 million, or 5.6%, respectively, in fiscal 2022 compared to fiscal 2021.

The increases primarily reflect higher U.S.

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

Operating income increased $23.7 million in fiscal 2022 compared to fiscal 2021.

The fiscal 2022 results included $4.4 million of the aforementioned ERC's.

Excluding this benefit, operating income increased 11.0% in fiscal 2022 compared the previous year.

Our operating margin, based on revenue, net of subcontractor costs, improved to 14.8% in fiscal 2022 compared to 13.8% in fiscal 2021.

Excluding the ERC's, our op erating margin was 14.5% in fiscal 2022.

The improved operating margin in fiscal 2022 was primarily due to our increased focus on high-end consulting services, including digital water, and improved labor utilization.

Commercial/International Services Group ("CIG")

Fiscal Year Ended

2021 September 27, 2020 Change

2022 October 3, 2021 Change

($ in thousands)

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Income from operations $ 194,142 $ 152,262 $ 41,880 27.5%

Revenue and revenue, net of subcontractor costs, increased $29.0 million, or 2.0%, and $54.7 million, or 4.4%, respectively, in fiscal 2021 compared to fiscal 2020.

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

The increases also reflect contributions from acquisitions, which did not have comparable revenue in fiscal 2020, partially offset by the disposal of our Canadian turn-key pipeline activities.

Operating income increased $15.8 million in fiscal 2021 compared to fiscal 2020 primarily due to revenue growth.

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

Excluding these disposition gains and the COVID-19 charges, operating income increased $17.7 million in fiscal 2021 compared to fiscal 2020.

Our operating margin, based on revenue, net of subcontractor costs, improved to 11.8% in fiscal 2021 compared to 11.1% fiscal 2020.

Excluding the disposition gains and COVID-19 charges, our operating margin was 10.9% in fiscal 2020.

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

Revenue and revenue, net of subcontractor costs, increased $238.4 million, or 15.9%, and increased $213.3 million, or 16.6%, respectively, in fiscal 2022 compared to fiscal 2021.

The revenue growth primarily reflects increased activity on commercial environmental programs, including meeting net zero carbon goals and high performance buildings.

These increases were also due to the international government stimulus spending on infrastructure.

Additionally, the fiscal 2022 revenue included contributions from acquisitions, which did not have comparable revenue in fiscal 2021.

Operating income increased $41.9 million in fiscal 2022 compared to fiscal 2021.

The fiscal 2022 operating income included $1.9 million of the aforementioned ERC's.

Excluding this benefit, operating income increased 26.2% in fiscal 2022 compared the prior fiscal year.

Our operating margin, based on revenue, net of subcontractor costs, improved to 13.0% in fiscal 2022 compared to 11.8% in fiscal 2021.

Excluding the ERC's, o ur operating margin was 12.8% for fiscal 2022.

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

Remediation and Construction Management ("RCM")

Fiscal Year Ended

2021 September 27, 2020 Change

($ in thousands)

Revenue $ 613 $ 198 $ 415 NM

Subcontractor costs (25) (221) 196 NM

Revenue, net of subcontractor costs $ 588 $ (23) $ 611 NM

Loss from operations $ — $ — $ — NM

NM = not meaningful

RCM's projects were substantially complete at the end of fiscal 2018.

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

Fiscal 2021 and 2020 Earn-Out Adjustments

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

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

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

None of these valuation changes were individually material.

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

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

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

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

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

Of this amount, $59.3 million was estimated as the fair value and accrued on our consolidated balance sheet at October 3, 2021.

Fiscal 2020 Impairment of Goodwill

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

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

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

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

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

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

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

In May 2022, we received a cash settlement for the last $11 million RCM claim.

This settlement resulted in an immaterial gain in the third quarter of fiscal 2022.

There were no significant operating activities in RCM for fiscal 2022 and 2021.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Capital Requirements.

As of October 2, 2022 , we h ad $185.1 million of cash and cash equivalents and access to an additional $784.3 million of borrowing available under our credit facility.

We generated $336.2 million of cash from operations in fiscal 2022.

As of October 1, 2023, we had $168.8 million of cash and cash equivalents and access to an additional $800 million of borrowing available under our credit facility.

We generated $368.5 million of cash from operations

in fiscal 2023.

Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities.

Our primary uses of cash are to fund working capital, stock repurchases, cash dividends, capital expenditures and repayment of debt, as well as to fund acquisitions and earn-out obligations from prior acquisitions.

We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement as amended in the anticipation of our planned acquisition of RPS in the second quarter of fiscal 2023, as described below, will be sufficient to meet our capital requirements for at least the next 12 months.

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

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

At that time, we also determined that our remaining undistributed earnings in Canada of approximately $20.1 million were no longer being indefinitely reinvested and recorded an additional deferred tax

liability/expense of $3.1 million.

Prospectively, from the date of the repatriation, our earnings in Canada are not considered indefinitely reinvested and any potential tax liability that would be incurred upon repatriation is recognized currently with the related income.

At October 2, 2022, undistributed earnings of our other foreign subsidiaries, primarily in Australia and the U.K.

of approximately $81.7 million are expected to be indefinitely reinvested in these foreign countries.

Accordingly, no provision for foreign withholding taxes has been made.

Assuming the indefinitely reinvested foreign earnings were repatriated under the laws and rates applicable at October 3, 2022, the incremental taxes applicable to those earnings would not be material.

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 in addition to the $147.8 million remaining under the previous stock repurchase program at October 3, 2021.

In fiscal 2022, we repurchased and settled 1,341,679 shares with an average price of $149.07 per share for a total cost of $200.0 million in the open market.

At October 2, 2022 , we had a remaining balance of $347.8 million under our stock repurchase program.

Our primary uses of cash are to fund working capital, cash dividends, capital expenditures and repayment of debt, as well as to fund acquisitions and earn-out obligations from prior acquisitions.

We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement as amended for the RPS acquisition in the second quarter of fiscal 2023, as described below, will be sufficient to meet our capital requirements for at least the next 12 months.

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.

In fiscal 2023, we did not repurchase any shares of our common stock.

At fiscal 2023 year-end, we had a remaining balance of $347.8 million under our stock repurchase program.

We declared and paid common stock dividends totaling $52.1 million, or $0.98 per share, in fiscal 2023 compared to $46.1 million, or $0.86 per share, in fiscal 2022.

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Cash and Cash Equivalents.

As of October 2, 2022, cash and cash equivalents were $185.1 million, an increase of $18.5 million compared to the fiscal 2021 year-end.

The increase was primarily due to net cash provided by operating activities, partially offset by stock repurchases, dividends, as well as payments for business acquisitions, contingent earn-outs and taxes on vested restricted stock.

As of October 1, 2023, cash and cash equivalents were $168.8 million, a decrease of $16.3 million compared to the fiscal 2022 year-end.

Operating Activities.

Cash provided by operating activities increased 9.6% from $336.2 million in fiscal 2022 to $368.5 million in fiscal 2023.

The increase primarily reflects higher earnings and improved working capital from faster collections of our receivables in fiscal 2022 compared to fiscal 2021.

The increase primarily reflects improved working capital, partially offset by approximately $37.0 million of additional payments made in fiscal 2023 for the RPS acquisition, primarily related to the acquisition and integration costs.

Investing Activities.

Net cash used in investing activities was $55.7 million in fiscal 2022, a decrease of $37.3 million compared to fiscal 2021.

The decrease was primarily due to lower payments for business acquisitions completed in fiscal 2022 compared to last fiscal year.

Net cash used in investing activities was $771.2 million in fiscal 2023, an increase of $715.5 million compared to fiscal 2022.

The increase was primarily due to the RPS acquisition in the second quarter of fiscal 2023.

Financing Activities.

In fiscal 2022, net cash used in financing activities was $249.6 million, an increase of $39.5 million compared to fiscal 2021.

The increase was primarily due to higher stock repurchases.

In fiscal 2023, net cash provided by financing activities was $382.4 million compared to net cash used in financing activities of $249.6 million in fiscal 2022.

The financing activities in fiscal 2023 primarily consisted of additional borrowings to fund the RPS acquisition.

Debt Financing.

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.

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

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

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

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

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

At October 2, 2022, we had $258.8 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $243.8 million under the Amended Term Loan Facility and $15.0 million under the Amended Revolving Credit Facility.

The year-to-date weighted-average interest rate of the outstanding borrowings during fiscal 2022 was 1.97%.

On August 22, 2023, we issued $575.0 million in convertible notes that bear interest at 2.25% per annum payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2024 with a maturity date of August 15, 2028 (the "Convertible Notes").

As of October 1, 2023, $560.8 million of the Convertible Notes was included in long-term debt in our consolidated balance sheets, which is net of $14.2 million of unamortized debt issuance costs.

The net proceeds from the Convertible Notes were $560.5 million, $51.8 million of which were used to purchase related capped call transactions on the issue date.

The remaining proceeds were used to prepay and terminate the $234.4 million outstanding under the Amended Term Loan Facility, to prepay $89.4 million outstanding under the New Term Loan Facility and to pay down

borrowings of $185.0 million under the Amended Revolving Credit Facility.

See Note 9, "Long-Term Debt" of the "Notes to Consolidated Financial Statements" in Item 8 for further discussion).

At fiscal 2023 year-end, we had $320 million in outstanding borrowings under the Amended Credit Agreement, which was all under the New Ter m Loan Facility, and no borrowings under the Amended Revolving Credit Facility.

The weighted-average interest rate of the outstanding borrowings during fiscal 2023 was 5.71%.

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

Our year-to-date weighted-average interest rate on borrowings outstanding during fiscal 2022 under the Amended Credit Agreement, including the effects of interest rate swap agreements described in Note 14, “Derivative Financial Instruments” of the "Notes to Consolidated

Financial Statements" included in Item 8, was 3.60%.

Our year-to-date weighted-average interest rate on borrowings outstanding during fiscal 2023 under the Amended Credit Agreement, including the effects of interest rate swap agreements described in Note 14, “Derivative Financial Instruments” of the "Notes to Consolidated Financial Statements" included in Item 8, was 5.37%.

At October 1, 2023, we had $499.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt covenants.

Commitment fees related to our revolving credit facilities were $0.7 million each year for fiscal 2022, 2021 and 2020, respectively.

Commitment fees related to our revolving credit facilities were $0.6 million for fiscal year 2023 and $0.7 million each year for fiscal 2022 and 2021, respectively.

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

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As of October 1, 2023, we had no bank overdrafts related to our disbursement bank accounts.

Subsequent Event.

We expect to draw the entire amount of the New Term Loan Facility to partially finance the planned acquisition of RPS.

The remaining purchase price is expected to be 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.

We believe our operations have not been, and, in the foreseeable future, are not expected to be, materially adversely affected by inflation or changing prices due to the average duration of our projects and our ability to negotiate prices as contracts end and new contracts begin.

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(in thousands) Payment Date

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

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

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

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

August 1, 2022 $ 0.23 August 12, 2022 $ 12,226 August 26, 2022

May 8, 2023 $ 0.26 May 24, 2023 $ 13,840 June 6, 2023

August 7, 2023 $ 0.26 August 23, 2023 $ 13,845 September 6, 2023

November 13, 2023 $ 0.26 November 30, 2023 N/A December 13, 2023

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

As of October 2, 2022 and October 3, 2021, the liability for income taxes associated with uncertain tax positions was $10.6 million and $14.1 million, respectively.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions may significantly decrease within the next 12 months.

At the end of fiscal 2023 and 2022, the liability for income taxes associated with uncertain tax positions was $62.0 million and $10.6 million, respectively.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions may not significantly decrease within the next 12 months.

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

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If we default on t he Amended Credit Agreement or additional credit facilities, our inability to issue or renew standby letters of credit and bank guarantees would impair our ability to maintain normal operations.

At October 2, 2022, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $44.4 million in standby letters of credit outstanding under our additional letter of credit facilities.

At fiscal 2023 year-end, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $54.9 million in standby letters of credit outstanding under our additional letter of credit facilities.

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

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Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client.

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

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

(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.

In some cases, contract retentions are withheld by clients until certain conditions are met or the project is completed, which may be several months or years.

In these cases, we have not identified a significant financing component under ASC 606 as the timing difference in payment compared to delivery of obligations under the contract is not for purposes of financing.

For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation using a best estimate of the standalone selling price of each distinct good or service in the contract.

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Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term.

For those performance obligations for which revenue is recognized using a cost-to-

cost measure of progress method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made.

For those performance obligations for which revenue is recognized using a cost-to-cost measure of progress method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made.

When the current estimate of total costs indicates a loss, a provision for the entire estimated loss on the contract is made in the period in which the loss becomes evident.

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In addition, our costs are generally subject to review by our clients and regulatory audit agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract.

Insurance Matters, Litigation and Contingencies

In the normal course of business, we are subject to certain contractual guarantees and litigation.

Generally, such guarantees relate to project schedules and performance.

Most of the litigation involves us as a defendant in contractual disagreements, workers' compensation, personal injury and other similar lawsuits.

We maintain insurance coverage for various aspects of our business and operations.

However, we have elected to retain a portion of losses that may occur through the use of various deductibles, limits and retentions under our insurance programs.

This practice may subject us to some future liability for which we are only partially insured or are completely uninsured.

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

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

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

Except as described in Note 17, "Commitments and Contingencies" of the "Notes to Consolidated Financial Statements" included in Item 8, we do not have any litigation or other contingencies that have had, or are currently anticipated to have, a material impact on our results of operations or financial position.

As additional information about current or future litigation or other contingencies becomes available, management will assess whether such information warrants the recording of additional expenses relating to those contingencies.

Such additional expenses could potentially have a material impact on our results of operations and financial position.

Goodwill and Intangibles

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Goodwill typically represents the value paid for the assembled workforce and enhancement of our service offerings.

Identifiable intangible assets include backlog, non-compete agreements, client relations, trade names, patents and other assets.

The costs of these intangible assets are amortized over their contractual or economic lives, which range from one to ten years.

Identifiable intangible assets primarily include backlog, client relations and trade names.

The costs of these intangible assets are amortized over their contractual or economic lives, which range from one to twelve years.

We assess the recoverability of the unamortized balance of our intangible assets when indicators of impairment are present based on expected future profitability and undiscounted expected cash flows and their contribution to our overall operations.

Should the review indicate that the carrying value is not fully recoverable, the excess of the carrying value over the fair value of the intangible assets would be recognized as an impairment loss.

Estimated fair value measurements for intangible assets are made using Level 3 inputs including discounted cash flow techniques.

Fair value is estimated using a multi-period excess earnings method for backlog and client relations and a relief from royalty method for trade names.

The significant assumptions used in estimating fair value of backlog and client relations include (i) the estimated life the asset will contribute to cash flows, such as remaining contractual terms, (ii) revenue growth rates and EBITDA margins, (iii) attrition rate of customers, and (iv) the estimated discount rates that reflect the level of risk associated with receiving future cash flows.

The significant assumptions used in estimating fair value of trade names include the royalty rates and discount rates.

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

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

management, key personnel, strategy or customers, negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods (se e Note 6, "Goodwill and Intangible Assets" of the "Notes to Consolidated Financial Statements" in Item 8 for further discussion).

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

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

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The Income Approach utilizes the discounted cash flow method, which focuses on the expected cash flow of the reporting unit.

In applying this approach, the cash flow available for distribution is calculated for a finite period of years.

In applying this approach, the cash flow

available for distribution is calculated for a finite period of years.

Cash flow available for distribution is defined, for purposes of this analysis, as the amount of cash that could be distributed as a dividend without impairing the future profitability or operations of the reporting unit.

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The Income Approach was given a higher weight because it has the most direct correlation to the specific economics of the reporting unit, as compared to the Market Approach, which is based on multiples of broad-based (i.e., less comparable) companies .

Our last 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.

Our last review at July 3, 2023 (i.e., the first day of our fourth quarter in fiscal 2023), 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.

We had no reporting units that had estimated fair values that exceeded their carrying values by less than 45%.

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

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

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

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

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

Contingent Consideration

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

Incom e Taxes

We file a consolidated U.S.

federal income tax return.

In addition, we file other returns that are required in the states, foreign jurisdictions and other jurisdictions in which we do business.

We account for certain income and expense items differently for financial reporting and income tax purposes.

Deferred tax assets and liabilities are computed for the differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to reverse.

In determining the need for a valuation allowance on deferred tax assets, management reviews both positive and negative evidence, including current and historical results of operations, future income projections and potential tax planning strategies.

Based on our assessment, we have concluded that a portion of the deferred tax assets at October 2, 2022, primarily loss carryforwards, will not be realized, and we have reserved accordingly.

In fiscal 2022, the Inflation Reduction Act and the CHIPS and Science Act were signed into law.

These Acts both contain new U.S.

income tax provisions;

however, we do not expect them to have a material impact on our consolidated financial statements.

According to the authoritative guidance on accounting for uncertainty in income taxes, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

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

RECENT ACCOUNTING PRONOUNCEMENTS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis