TETRA TECH INC 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page Report of Independent Registered Public Accounting Firm 49 Consolidated Balance Sheets at October 1 , 202 3 and October 2 , 202 2 52 Consolidated Statements of Income for the fiscal years ended October 1 , 202 3 , October 2 , 202 2 and October 3 , 20 21 53 Consolidated Statements of Comprehensive Income for the fiscal years ended October 1 , 202 3 , October 2 , 202 2 and October 3 , 202 1 54 Consolidated Statements of Cash Flows for the fiscal years ended October 1 , 202 3 , October 2 , 202 2 and October 3 , 202 1 55 Consolidated Statements of Equity for the fiscal years ended October 1 , 202 3 , October 2 , 202 2 and October 3 , 202 1 56 Notes to Consolidated Financial Statements 58 Schedule II – Valuation and Qualifying Accounts and Reserves for the fiscal years ended October 1 , 202 3 , October 2 , 202 2 and October 3 , 202 1 91 48 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Tetra Tech, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Tetra Tech, Inc. and its subsidiaries (the “Company”) as of October 1, 2023 and October 2, 2022, and the related consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the three years in the period ended October 1, 2023, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of October 1, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 1, 2023 and October 2, 2022, and the results of its operations and its cash flows for each of the three years in the period ended October 1, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 1, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 49 Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition - Determination of Total Estimated Contract Cost for Fixed-price Contracts As described in Note 3 to the consolidated financial statements, $1.64 billion of the Company’s total revenues for the year ended October 1, 2023 was generated from fixed-price contracts. As disclosed by management, under fixed-price contracts, the Company's clients pay an agreed fixed-amount negotiated in advance for a specified scope of work. Revenue is recognized over time as the related performance obligation is satisfied by transferring control of a promised good or service to the Company's customers. Progress toward complete satisfaction of the performance obligation is primarily measured using a cost-to-cost measure of progress method. The cost input is based primarily on contract cost incurred to date compared to total estimated contract cost. This measure includes forecasts based on the best information available and reflects management's judgment to faithfully depict the value of the services transferred to the customer. 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. As a result, the Company recognized net favorable revenue and operating income adjustments of $11.0 million for the year ended October 1, 2023. Changes in revenue and cost estimates could also result in a projected loss, determined at the contract level, which would be recorded immediately in earnings. The anticipated losses and estimated cost to complete the related contracts was $8.5 million and approximately $68 million, respectively, as of October 1, 2023. The principal considerations for our determination that performing procedures relating to revenue recognition - determination of total estimated contract cost for fixed-price contracts is a critical audit matter are (i) the significant judgment by management in developing the estimate of total contract cost for fixed-price contracts; and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence related to management’s estimate of total contract costs for fixed-price contracts with cumulative catch-up adjustments, anticipated losses or claims. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the total estimated contract cost for fixed-price contracts. These procedures also included, among others, (i) evaluating and testing management’s process for developing the estimate of total contract cost for a sample of contracts with cumulative catch-up adjustments, anticipated losses or claims, which included evaluating the contract terms and other documents that support those estimates, and testing of underlying contract costs; (ii) assessing management's ability to reasonably estimate total contract costs by performing a comparison of the total estimated contract cost as compared with prior period estimates, including evaluating the timely identification of circumstances that may warrant a modification to the total estimated contract cost; and (iii) evaluating, for certain contracts, management’s methodologies and assessing the consistency of management’s approach over the life of the contract. Acquisition of RPS Group plc – Valuation of Certain Client Relations and Trade Name As described in Note 5 to the consolidated financial statements, the Company completed its acquisition of RPS Group plc (“RPS”) on January 23, 2023 for a total purchase price of approximately $784 million. Of the total acquired intangible assets of $174.1 million, certain client relations and a trade name represent the majority. Fair value was estimated by management using a multi-period excess earnings method for client relations and a relief from royalty method for trade names. Management’s significant assumptions used in estimating fair value of 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 name include the royalty rates and discount rates. The principal considerations for our determination that performing procedures relating to the valuation of certain client relations and trade name in the acquisition of RPS Group plc is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of certain client relations and trade name acquired, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to estimated life, revenue growth rates, customer attrition rates, EBITDA margins and discount rates for certain client relations and a royalty rate and discount rate for a trade name, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. 50 Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of certain client relations and trade name acquired. These procedures also included, among others, (i) reading the purchase agreement; (ii) testing management’s process for developing the fair value estimate of certain client relations and trade name acquired; (iii) evaluating the appropriateness of the multi-period excess earnings and relief from royalty methods used by management; (iv) testing the completeness and accuracy of the underlying data used in the multi-period excess earnings and relief from royalty methods; and (v) evaluating the reasonableness of the significant assumptions used by management related to the estimated life, revenue growth rates, customer attrition rates, EBITDA margins and discount rates for certain client relations and the royalty rate and discount rate for a trade name. Evaluating management’s assumptions related to the estimated life, revenue growth rates, customer attrition rates and EBITDA margins for client relations involved considering (i) the current and past performance of RPS; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the multi-period excess earnings and relief from royalty methods and (ii) the reasonableness of the discount rate assumption for certain client relations and trade name, as well as, the royalty rate for a trade name. /s/ PricewaterhouseCoopers LLP Los Angeles, California November 22, 2023 We have served as the Company’s auditor since 2004. 51 Tetra Tech, Inc. Consolidated Balance Sheets (in thousands, except par value) ASSETS October 1, 2023 October 2, 2022 Current assets: Cash and cash equivalents $ 168,831 $ 185,094 Accounts receivable, net 974,535 755,112 Contract assets 113,939 92,405 Prepaid expenses and other current assets 89,096 115,400 Income taxes receivable 9,623 10,205 Total current assets 1,356,024 1,158,216 Property and equipment, net 74,832 32,316 Right-of-use assets, operating leases 175,932 182,319 Goodwill 1,880,244 1,110,412 Intangible assets, net 173,936 29,163 Deferred tax assets 89,002 47,804 Other non-current assets 70,507 62,546 Total assets $ 3,820,477 $ 2,622,776 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 173,271 $ 147,436 Accrued compensation 302,755 237,669 Contract liabilities 335,044 241,340 Short-term lease liabilities, operating leases 65,005 57,865 Current portion of long-term debt — 12,504 Current contingent earn-out liabilities 51,108 28,797 Other current liabilities 280,959 190,406 Total current liabilities 1,208,142 916,017 Deferred tax liabilities 14,256 15,161 Long-term debt 879,529 246,250 Long-term lease liabilities, operating leases 144,685 146,285 Non-current contingent earn-out liabilities 22,314 36,769 Other non-current liabilities 148,045 79,157 Commitments and contingencies (Note 17) Equity: Preferred stock – Authorized, 2,000 shares of $ 0.01 par value; no shares issued and outstanding at October 1, 2023 and October 2, 2022 — — Common stock – Authorized, 150,000 shares of $ 0.01 par value; issued and outstanding, 53,248 and 52,981 shares at October 1, 2023 and October 2, 2022, respectively 532 530 Additional paid-in capital — — Accumulated other comprehensive loss ( 195,295 ) ( 208,144 ) Retained earnings 1,598,196 1,390,701 Tetra Tech stockholders' equity 1,403,433 1,183,087 Noncontrolling interests 73 50 Total stockholders' equity 1,403,506 1,183,137 Total liabilities and stockholders' equity $ 3,820,477 $ 2,622,776 See accompanying Notes to Consolidated Financial Statements. 52 Tetra Tech, Inc. Consolidated Statements of Income (in thousands, except per share data) Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Revenue $ 4,522,550 $ 3,504,048 $ 3,213,513 Subcontractor costs ( 771,461 ) ( 668,468 ) ( 661,341 ) Other costs of revenue ( 3,026,060 ) ( 2,260,021 ) ( 2,053,772 ) Gross profit 725,029 575,559 498,400 Selling, general and administrative expenses ( 305,107 ) ( 234,784 ) ( 222,972 ) Acquisition and integration expenses ( 33,169 ) — — Right-of-use operating lease asset impairment ( 16,385 ) — — Contingent consideration – fair value adjustments ( 12,255 ) ( 329 ) 3,273 Income from operations 358,113 340,446 278,701 Interest income 5,898 1,780 917 Interest expense ( 52,435 ) ( 13,364 ) ( 12,748 ) Other non-operating income 89,402 19,904 — Income before income tax expense 400,978 348,766 266,870 Income tax expense ( 127,526 ) ( 85,602 ) ( 34,039 ) Net income 273,452 263,164 232,831 Net income attributable to noncontrolling interests ( 32 ) ( 39 ) ( 21 ) Net income attributable to Tetra Tech $ 273,420 $ 263,125 $ 232,810 Earnings per share attributable to Tetra Tech: Basic $ 5.14 $ 4.91 $ 4.31 Diluted $ 5.10 $ 4.86 $ 4.26 Weighted-average common shares outstanding: Basic 53,203 53,620 54,078 Diluted 53,637 54,163 54,675 See accompanying Notes to Consolidated Financial Statements. 53 Tetra Tech, Inc. Consolidated Statements of Comprehensive Income (in thousands) Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Net income $ 273,452 $ 263,164 $ 232,831 Other comprehensive income, net of tax Foreign currency translation adjustments, net of tax 12,622 ( 94,933 ) 30,644 (Loss) gain on cash flow hedge valuations, net of tax ( 2,412 ) 11,806 6,117 Net pension adjustments 2,638 — — Other comprehensive income (loss), net of tax 12,848 ( 83,127 ) 36,761 Comprehensive income, net of tax $ 286,300 $ 180,037 $ 269,592 Comprehensive income attributable to noncontrolling interests, net of tax 31 28 24 Comprehensive income attributable to Tetra Tech, net of tax $ 286,269 $ 180,009 $ 269,568 See accompanying Notes to Consolidated Financial Statements. 54 Tetra Tech, Inc. Consolidated Statements of Cash Flows (in thousands) Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Cash flows from operating activities: Net income $ 273,452 $ 263,164 $ 232,831 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 61,206 27,033 23,805 Amortization of stock-based awards 28,607 26,227 23,067 Deferred income taxes ( 21,204 ) 2,175 ( 38,494 ) Fair value adjustments to contingent consideration 12,255 329 ( 3,273 ) Right-of-use operating lease asset impairment 16,385 — — Fair value adjustment to foreign currency forward contract ( 89,402 ) ( 19,904 ) — Other non-cash items 975 ( 1,245 ) ( 496 ) Changes in operating assets and liabilities, net of effects of business acquisitions: Accounts receivable and contract assets ( 19,783 ) ( 89,781 ) 13,301 Prepaid expenses and other assets 78,686 69,697 ( 582 ) Accounts payable ( 19,214 ) 17,099 13,551 Accrued compensation 37,094 27,458 5,425 Contract liabilities 44,152 55,915 13,407 Income taxes receivable/payable 40,527 14,627 13,090 Other liabilities ( 75,273 ) ( 56,606 ) 8,740 Net cash provided by operating activities 368,463 336,188 304,372 Cash flows from investing activities: Payments for business acquisitions, net of cash acquired ( 854,319 ) ( 49,124 ) ( 84,911 ) Settlement of foreign currency forward contract 109,306 — — Capital expenditures ( 26,901 ) ( 10,582 ) ( 8,573 ) Proceeds from sales of assets 715 3,966 492 Net cash used in investing activities ( 771,199 ) ( 55,740 ) ( 92,992 ) Cash flows from financing activities: Proceeds from borrowings 994,859 161,456 370,222 Repayments on long-term debt ( 1,026,051 ) ( 117,080 ) ( 414,308 ) Proceeds from issuance of convertible notes 575,000 — — Payments of debt issuance costs ( 14,451 ) — — Capped call transactions ( 51,750 ) — — Repurchases of common stock — ( 200,000 ) ( 60,000 ) Taxes paid on vested restricted stock ( 16,833 ) ( 25,223 ) ( 17,630 ) Payments of contingent earn-out liabilities ( 21,328 ) ( 20,124 ) ( 20,251 ) Stock options exercised 626 1,806 11,250 Bank overdrafts — — ( 36,627 ) Dividends paid ( 52,113 ) ( 46,099 ) ( 40,041 ) Principal payments on finance leases ( 5,579 ) ( 4,344 ) ( 2,714 ) Net cash provided by (used in) financing activities 382,380 ( 249,608 ) ( 210,099 ) Effect of exchange rate changes on cash and cash equivalents 4,093 ( 12,314 ) 7,772 Net (decrease) increase in cash and cash equivalents ( 16,263 ) 18,526 9,053 Cash and cash equivalents at beginning of year 185,094 166,568 157,515 Cash and cash equivalents at end of year $ 168,831 $ 185,094 $ 166,568 Supplemental information: Cash paid during the year for: Interest $ 47,367 $ 13,378 $ 10,330 Income taxes, net of refunds received of $ 2.2 million, $ 4.8 million and $ 2.1 million $ 93,176 $ 70,799 $ 59,111 See accompanying Notes to Consolidated Financial Statements. 55 Tetra Tech, Inc. Consolidated Statements of Equity Fiscal Years Ended October 3, 2021, October 2, 2022, and October 1, 2023 (in thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Tetra Tech Equity Non-Controlling Interests Total Equity Shares Amount BALANCE AT SEPTEMBER 27, 2020 53,797 $ 538 $ — $ ( 161,786 ) $ 1,198,567 $ 1,037,319 $ 54 $ 1,037,373 Comprehensive income, net of tax: Net income 232,810 232,810 21 232,831 Foreign currency translation adjustments 30,641 30,641 3 30,644 Gain on cash flow hedge valuations 6,117 6,117 6,117 Comprehensive income, net of tax 269,568 24 269,592 Distributions paid to noncontrolling interests ( 25 ) ( 25 ) Cash dividends of $ 0.74 per common share ( 40,041 ) ( 40,041 ) ( 40,041 ) Stock-based compensation 23,067 23,067 23,067 Restricted & performance shares released 215 3 ( 17,633 ) ( 17,630 ) ( 17,630 ) Stock options exercised 324 3 11,247 11,250 11,250 Shares issued for Employee Stock Purchase Plan 124 1 10,704 10,705 10,705 Stock repurchases ( 479 ) ( 5 ) ( 27,385 ) $ ( 32,610 ) ( 60,000 ) ( 60,000 ) BALANCE AT OCTOBER 3, 2021 53,981 540 — ( 125,028 ) 1,358,726 1,234,238 53 1,234,291 Comprehensive income, net of tax: Net income 263,125 263,125 39 263,164 Foreign currency translation adjustments ( 94,922 ) ( 94,922 ) ( 11 ) ( 94,933 ) Gain on cash flow hedge valuations 11,806 11,806 11,806 Comprehensive income, net of tax 180,009 28 180,037 Distributions paid to noncontrolling interests ( 31 ) ( 31 ) Cash dividends of $ 0.86 per common share ( 46,099 ) ( 46,099 ) ( 46,099 ) Stock-based compensation 26,227 26,227 26,227 Restricted & performance shares released 190 2 ( 25,225 ) ( 25,223 ) ( 25,223 ) Stock options exercised 46 — 1,806 1,806 1,806 Shares issued for Employee Stock Purchase Plan 106 1 12,128 12,129 12,129 Stock repurchases ( 1,342 ) ( 13 ) ( 14,936 ) ( 185,051 ) ( 200,000 ) ( 200,000 ) BALANCE AT OCTOBER 2, 2022 52,981 530 — ( 208,144 ) 1,390,701 1,183,087 50 1,183,137 Comprehensive income, net of tax: Net income 273,420 273,420 32 273,452 56 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Tetra Tech Equity Non-Controlling Interests Total Equity Shares Amount Foreign currency translation adjustments 12,623 12,623 ( 1 ) 12,622 Pension 2,638 2,638 2,638 Gain on cash flow hedge valuations ( 2,412 ) ( 2,412 ) ( 2,412 ) Comprehensive income, net of tax 286,269 31 286,300 Distributions paid to noncontrolling interests ( 8 ) ( 8 ) Cash dividends of $ 0.98 per common share ( 52,113 ) ( 52,113 ) ( 52,113 ) Stock-based compensation 28,607 28,607 28,607 Restricted & performance shares released 149 1 ( 16,834 ) ( 16,833 ) ( 16,833 ) Stock options exercised 19 — 626 626 626 Shares issued for Employee Stock Purchase Plan 99 1 12,627 12,628 12,628 Reclassification of APIC 26,724 ( 26,724 ) — — Capped call transactions ( 51,750 ) 12,912 ( 38,838 ) ( 38,838 ) BALANCE AT OCTOBER 1, 2023 53,248 $ 532 $ — $ ( 195,295 ) $ 1,598,196 $ 1,403,433 $ 73 $ 1,403,506 See accompanying Notes to Consolidated Financial Statements. 57 Tetra Tech, Inc. Notes to Consolidated Financial Statements 1. Description of Business We are a leading global provider of high-end consulting and engineering services that focuses on water, environment, sustainable infrastructure, renewable energy and international development. We are a global company that is Leading with Science® to provide innovative solutions for our public and private clients. We typically begin at the earliest stage of a project by identifying technical solutions and developing execution plans tailored to our clients’ needs and resources. Our solutions may span the entire life cycle of high-end consulting and engineering projects and include applied science, data analysis, research, engineering, design, project management and operations and maintenance. We manage our business under two reportable segments. Our Government Services Group (“GSG”) reportable segment primarily includes activities with U.S. government clients (federal, state and local) and all activities with development agencies worldwide. Our Commercial/International Services Group (“CIG”) reportable segment primarily includes activities with U.S. commercial clients and international clients other than development agencies. 2. Basis of Presentation and Preparation Principles of Consolidation and Presentation. The consolidated financial statements include our accounts and those of joint ventures of which we are the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. Fiscal Year. We report results of operations based on 52 or 53-week periods ending on the Sunday nearest September 3 0. Fiscal years 2023, 2022 and 2021 contained 52, 52 and 53 weeks, respectively. Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us to make estimates and assumptions. These estimates and assumptions affect the amounts reported in our consolidated financial statements and accompanying notes. Although such estimates and assumptions are based on management's best knowledge of current events and actions we may take in the future, actual results could differ materially from those estimates. Cash and Cash Equivalents. Cash and cash equivalents include highly liquid investments with original maturities of 90 days or less. Occasionally, we have bank overdrafts, which occur when a bank honors disbursements in excess of funds on deposit in our bank accounts. We classify bank overdrafts as short-term borrowings on our consolidated balance sheets, and report the change in overdrafts as a financing activity in our consolidated statements of cash flows. Insurance Matters, Litigation and Contingencies. In the normal course of business, we are subject to certain contractual guarantees and litigation. In addition, we maintain insurance coverage for various aspects of our business and operations. We record in our consolidated balance sheets amounts representing our estimated liability for these legal and insurance obligations. Any adjustments to these liabilities are recorded in our consolidated statements of income. Accounts Receivable – Net. Net accounts receivable consists of billed and unbilled accounts receivable, and allowances for doubtful accounts. Billed accounts receivable represent amounts billed to clients that have not been collected. 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 our fiscal 2023 year-end are expected to be billed and collected within 12 months. Unbilled accounts receivable also include amounts related to requests for equitable adjustment to contracts that provide for price redetermination. These amounts are recorded only when they can be reliably estimated, and realization is probabl e. The allowance for doubtful accounts represents amounts that are expected to become uncollectible or unrealizable in the future. We determine an estimated allowance for uncollectible accounts based on management's consideration of trends in the actual and forecasted credit quality of our clients, including delinquency and payment history; type of client, such as a government agency or a commercial sector client; and general economic and industry conditions that may affect our clients' ability to pay. Contract Assets and Contract Liabilities. Contract assets represent revenue recognized in excess of the amounts for which we have the contractual right to bill our customers. Contract retentions, included in contract assets, represent amounts withheld by clients until certain conditions are met or the project is completed, which may extend beyond one year. Contract liabilities represent the amount of cash collected from clients and billings to clients on contracts in advance of work performed and revenue recognized. The majority of these amounts are expected be earned within 12 months and are classified as current liabilities. 58 Prepaid and other current assets. Prepaid assets consist primarily of payments for insurance and software costs and are amortized over the estimated period of benefit. Other current assets include primarily sales/services and use tax receivables from our U.S and foreign operations. Property and Equipment. Property and equipment are recorded at cost and d epreciated over their estimated useful lives using the straight-line method. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from our consolidated balance sheets and any resulting gain or loss is reflected in our consolidated statements of income. Expenditures for maintenance and repairs are expensed as incurred. Generally, estimated useful lives range from three to seven years for equipment, furniture and fixtures. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term. Assets held for sale are measured at the lower of carrying amount (i.e., net book value) and fair value less cost to sell, and are reported within "Prepaid expenses and other current assets" on our consolidated balance sheets. Once assets are classified as held for sale, they are no longer depreciated. Long-Lived Assets. We evaluate the recoverability of our long-lived assets when the facts and circumstances suggest that the assets may be impaired. This assessment is performed based on the estimated undiscounted cash flows compared to the carrying value of the assets. If the future cash flows (undiscounted and without interest charges) are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. Leases. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, and current and long-term operating lease liabilities in the consolidated balance sheets. Our finance leases are reported in "Other long-term assets", "Other current liabilities" and "Other long-term liabilities" on our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, incremental borrowing rates are used based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset at the commencement date also includes any lease payments made to the lessor at or before the commencement date and initial direct costs less lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. We recognize a liability for contra ct termination costs associated with an exit activity for costs that will continue to be incurred under a lease for its remaining term without economic benefit to us, initially measured at its fair value at the cease-use date. The fair value is determined based on the remaining lease rentals, adjusted for the effects of any prepaid or deferred items recognized under the lease, and reduced by estimated sublease rentals. Business Combinations. The cost of an acquired company is assigned to the tangible and intangible assets purchased and the liabilities assumed based on their fair values at the date of acquisition. The determination of fair values of these assets and liabilities requires us to make estimates and use valuation techniques when a market value is not readily available. Any excess of purchase price over the fair value of net tangible and intangible assets acquired is allocated to goodwill. Goodwill typically represents the value paid for the assembled workforce and enhancement of our service offerings. Transaction costs associated with business combinations are expensed as incurred. Goodwill and Intangible Assets. Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business acquisition. Following an acquisition, we perform an analysis to value the acquired company's tangible and identifiable intangible assets and liabilities. With respect to identifiable intangible assets, we consider backlog, non-compete agreements, client relations, trade names, patents and other assets. We amortize our intangible assets based on the period over which the contractual or economic benefits of the intangible assets are expected to be realized. 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. We test our goodwill for impairment on an annual basis, and more frequently when an event occurs, or circumstances indicate that the carrying value of the asset may not be recoverable. 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. However, many of the factors employed in determining whether our goodwill is impaired are outside of our control and it is reasonably likely that assumptions and estimates will change in future periods. These changes could result in future impairments. 59 We perform our annual goodwill impairment review at the beginning of our fiscal fourth qu arter. Our last annual review was performed at July 3, 2023 (i.e., the first day of our fiscal fourth quarter). I n addition, we regularly evaluate whether events and circumstances have occurred that may indicate a potential change in recoverability of goodwill. We perform interim goodwill impairment reviews between our annual reviews if certain events and circumstances have occurred, including a deterioration in general economic conditions, an increased competitive environment, a change in management, key personnel, strategy or customers, negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods. We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. Our operating segments are the same as our reportable segments and our reporting units for goodwill impairment testing are the components one level below our reportable segments. These components constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. We aggregate components within an operating segment that have similar economic characteristics. The impairment test for goodwill involves the comparison of the estimated fair value of each reporting unit to the reporting unit's carrying value, including goodwill. We estimate the fair value of reporting units based on a comparison and weighting of the income approach, specifically the discounted cash flow method and the market approach, which estimates the fair value of our reporting units based upon comparable market prices and recent transactions and also validates the reasonableness of the multiples from the income approach. The development of the present value of future cash flow projections includes assumptions and estimates derived from a review of our expected revenue growth rates, operating profit margins, discount rates and the terminal growth rate. If the fair value of a reporting unit exceeds its carrying amount, the goodwill of that reporting unit is not considered impaired. However, if its carrying value exceeds its fair value, our goodwill is impaired, and we are required to record a non-cash charge that could have a material adverse effect on our consolidated financial statements. An impairment loss recognized, if any, should not exceed the total amount of goodwill allocated to the reporting unit. Contingent Consideration. Most of our acquisition agreements include contingent earn-out arrangements, which are generally based on the achievement of future operating income thresholds. The contingent earn-out arrangements are based upon 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 these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability in "Current contingent earn-out liabilities" and "Long-term contingent earn-out liabilities" on the consolidated balance sheets. We consider several factors when determining that contingent earn-out liabilities are part of the purchase price, including the following: (1) the valuation of our acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and material component of the valuation approach to determining the purchase price; and (2) the former owners of acquired companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level compared with the compensation of our other key employees. The contingent earn-out payments are not affected by employment termination. We measure our contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. We use a probability weighted discounted income approach as a valuation technique to convert future estimated cash flows to a single present value amount. The significant unobservable inputs used in the fair value measurements are operating income projections over the earn-out period (generally three or five years ) and the probability outcome percentages we assign to each scenario. Significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the contingent earn-out liability on the acquisition date is reflected as cash used in financing activities in our consolidated statements of cash flows. Any amount paid in excess of the contingent earn-out liability on the acquisition date is reflected as cash used in operating activities in our consolidated statements of cash flows. We review and reassess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates. Changes in the estimated fair value of our contingent earn-out liabilities related to the time component of the present value calculation are reported in interest expense. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income. Other current liabilities. Other current liabilities consist primarily of accrued insurance, contingent liabilities, sales/services and use taxes due to our U.S. and foreign operations, other tax accruals and accrued professional fees. 60 Fair Value of Financial Instruments. We determine the fair values of our financial instruments, including short-term investments, debt instruments, derivative instruments and pension plan assets bas ed on inputs or assumptions that market participants would use in pricing an asset or a liability. We categorize our instruments using a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair values based on their short-term nature. The carrying amounts of our revolving credit facility approximates fair value because the interest rates are based upon variable reference rates. Certain other assets and liabilities, such as contingent earn-out liabilities and amounts related to cash-flow hedges, are required to be carried in our consolidated financial statements at fair value. Our fair value measurement methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with those used by other market participants, the use of different methodologies or assumptions to determine fair value could result in a different fair value measurement at the reporting date. Derivative Financial Instruments. We account for our derivative instruments as either assets or liabilities and carry them at fair value. For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income in stockholders' equity and reclassified into income in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is recognized in current income. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. The net gain or loss on the effective portion of a derivative instrument that is designated as an economic hedge of the foreign currency translation exposure generated by the re-measurement of certain assets and liabilities denominated in a non-functional currency in a foreign operation is reported in the same manner as a foreign currency translation adjustment. Accordingly, any gains or losses related to these derivative instruments are recognized in current income. Derivatives that do not qualify as hedges are adjusted to fair value through current income. Deferred Compensation. We maintain a non-qualified defined contribution supplemental retirement plan for certain key employees and non-employee directors that is accounted for in accordance with applicable authoritative guidance on accounting for deferred compensation arrangements where amounts earned are held in a rabbi trust and invested. Employee deferrals are deposited into a rabbi trust, and the funds are generally invested in individual variable life insurance contracts that we own and are specifically designed to informally fund savings plans of this nature. Our consolidated balance sheets reflect our investment in variable life insurance contracts in "Other long-term assets." Our obligation to participating employees is reflected in "Other long-term liabilities." The net gains and losses related to the deferred compensation plan are reported as part of “Selling, general and administrative expenses” in our consolidated statements of income . Pension Plan . We assumed a defined benefit pension plan from an acquisition. We calculate the market-related value of assets, which is used to determine the return-on-assets component of annual pension expense and the cumulative net unrecognized gain or loss subject to amortization. This calculation reflects our anticipated long-term rate of return and amortization of the difference between the actual return (including capital, dividends, and interest) and the expected return. Cumulative net unrecognized gains or losses that exceed 10% of the greater of the projected benefit obligation or the fair market-related value of plan assets are subject to amortization. Income 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 difference 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, management reviews both positive and negative evidence, including current and historical results of operations, future income projections, scheduled reversals of deferred tax amounts, availability of carrybacks and potential tax planning strategies. Based on our assessment, we have concluded that a portion of the deferred tax assets will not be realized. 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 61 such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. This guidance also addresses de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and disclosure requirements for uncertain tax positions. Concentration of Credit Risk. Financial instruments that subject us to credit risk consist primarily of cash and cash equivalents and net accounts receivable. In th e event that we have surplus cash, we place our temporary cash investments with lower ri sk financial institutions and, by policy, limit the amount of investment exposure to any one financial institution. Approximately 22 % of accounts receivable were due from various agencies of the U.S. federal government at fiscal 2023 year-end. The remaining accounts receivable are generally diversified due to the large number of organizations comprising our client base and their geographic dispersion. We perform ongoing credit evaluations of our clients and maintain an allowance for potential credit losses. Approximately 31 %, 13 %, 19 % and 37 % of our fiscal 2023 revenue was generated from our U.S. federal government, U.S. state and local government, U.S. commercial and international clients, respectively. Foreign Currency Translation. We determine the fu nctional currency of our foreign operating units based upon the primary currency in which they operate. These operating units maintain their accounting records in their local currency, primarily Canadian and Australian dollars, the Euros and British pounds. Where the functional currency is not the U.S. dollar, translation of assets and liabilities to U.S. dollars is based on exchange rates at the balance sheet date. Translation of revenue and expenses to U.S. dollars is based on the average rate during the period. Translation gains or losses are reported as a component of other comprehensive income. Gains or losses from foreign currency transactions are included in income from operations. Reclassifications. Certain reclassifications were made to the prior fiscal years to conform to the current-year presentation. Recently Issued Accounting Pro nouncements In November 2021, the Financial Accounting Standards Board issued ASU 2021-10, Government Assistance (Topic 832), which requires annual disclosures for transactions with a government authority that are accounted for by applying a grant or contribution model by analogy, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity's financial statements. ASU 2021-10 was effective for us beginning in the first quarter of fiscal 2023. In fiscal 2020, the Canadian federal government implemented the Canadian Emergency Wage Subsidy ("CEWS") program in response to the negative impact of the coronavirus disease 2019 pandemic on businesses operating in Canada. Some of our Canadian legal entities qualified for and applied for these CEWS cash benefits to partially offset the impacts of revenue reductions and on-going staffing costs. The $ 21.0 million total received was initially recorded in " Other current liabilities " until all potential amendments to the qualification criteria, including some that were proposed with retroactive application, were finalized in fiscal 2022. As there are no further contingencies, the amounts received will be distributed to all Canadian employees. We expect to distribute approximately $ 10 million in the next twelve months. Accordingly, this amount is included in "Accrued compensation" on our consolidated balance sheet as of October 1, 2023. The remaining $ 11.0 million, which we expect to distribute beyond one year, is reported in " Other long-term liabilities ". We do not expect there will be any related impact on our operating income, and we have no outstanding applications for further government assistance. 3. Revenue and Contract Balances We recognize revenue over time as the related performance obligation is satisfied by transferring control of a promised good or service to our customers. Progress toward complete satisfaction of the performance obligation is primarily measured using a cost-to-cost measure of progress method. The cost input is based primarily on contract cost incurred to date compared to total estimated contract cost. This measure includes forecasts based on the best information available and reflects our judgement to faithfully depict the value of the services transferred to the customer. For certain on-call engineering or consulting and similar contracts, we recognize revenue in the amount which we have the right to invoice the customer if that amount corresponds directly with the value of our performance completed to date. 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. 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. 62 Disaggregation of Revenue We disaggregate revenue by client sector and contract type, as we believe it best depicts how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors. The following tables present revenue disaggregated by client sector and contract type (in thousands): Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Client Sector: U.S. federal government (1) $ 1,387,101 $ 1,064,347 $ 1,081,608 U.S. state and local government 607,074 603,286 536,309 U.S. commercial 869,460 748,953 638,169 International (2) 1,658,915 1,087,462 957,427 Total $ 4,522,550 $ 3,504,048 $ 3,213,513 Contract Type: Fixed-price $ 1,643,849 $ 1,317,993 $ 1,191,244 Time-and-materials 2,166,671 1,637,019 1,492,813 Cost-plus 712,030 549,036 529,456 Total $ 4,522,550 $ 3,504,048 $ 3,213,513 (1) Includes revenue generated under U.S. federal government contracts performed outside the United States. (2) Includes revenue generated from non-U.S. clients, primarily in Canada, Australia, Europe and the United Kingdom. Other than the U.S. federal government, no single client accounted for more than 10% of our revenue for fiscal 2023 and 2022. Contract Asset s and Contract Liabilities We invoice customers based on the contractual terms of each contract. However, the timing of revenue recognition may differ from the timing of invoice issuance. Contract assets represent revenue recognized in excess of the amounts for which we have the contractual right to bill our customers. Such amounts are recoverable from customers based upon various measures of performance, including achievement of certain milestones or completion of a contract. In addition, many of our time and materials arrangements are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled receivables being recorded, as revenue is recognized in advance of billings. Contract retentions, included in contract assets, represent amounts withheld by clients until certain conditions are met or the project is completed, which may extend beyond one year. Contract liabilities consist of billings in excess of revenue recognized. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and increase as billings in advance of revenue recognition occur. Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. There were no substantial non-current contract assets or liabilities for the periods presented. Net contract assets/liabilities consisted of the following (in thousands): Balance at October 1, 2023 October 2, 2022 Contract assets (1) $ 113,939 $ 92,405 Contract liabilities 335,044 241,340 Net contract liabilities $ ( 221,105 ) $ ( 148,935 ) (1) Includ es $ 6.8 million and $ 23.3 million of contract retentions at fiscal 2023 and 2022 year-ends, respectively. In fiscal 2023, we recognized revenue of approximately $ 164 million from amounts included in the contract liability balance at the end of fiscal 2022, compared to approximately $ 125 million in fiscal 2022 . 63 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, in fiscal 2023, we recognized net favorable revenue and operating income adjustments of $ 11.0 million. T he corresponding net revenue and operating income adjustments were immaterial for fiscal 2022. Changes in revenue and cost estimates could also result in a projected loss, determined at the contract level, which would be recorded i mmediately in earn ings. As of October 1, 2023 and October 2, 2022, our consolidated balance sheets included liabilities for anticipated losses of $ 8.5 million and $ 10.0 million, respectively. The estimated cost to complete these related contracts at the end of fiscal 2023 and 2022 was approximately $ 68 million and $ 80 million, respectively. Accounts Receivable, Net Net accounts receivable consisted of the following (in thousands): Balance at October 1, 2023 October 2, 2022 Billed $ 672,712 $ 491,700 Unbilled 306,788 267,161 Total accounts receivable 979,500 758,861 Allowance for doubtful accounts ( 4,965 ) ( 3,749 ) Total accounts receivable, net $ 974,535 $ 755,112 Billed accounts receivable represent amounts billed to clients that have not been collected. 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 fiscal 2023 year-end 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. We determine an estimated allowance for uncollectible accounts based on management's consideration of trends in the actual and forecasted credit quality of our clients, including delinquency and payment history; type of client, such as a government agency or a commercial sector client; and general economic and industry condition s , which may affect our clients' ability to pay . Other than the U.S. federal government, no single client accounted for more than 10% of our accounts receivable at fiscal 2023 and 2022 year-ends . Remaining Unsatisfied Performance Obligations (“RUPOs”) Our RUPOs represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. We h ad $ 4.8 billion of RUP Os as of October 1, 2023. RUPOs increase with awards from new contracts or additions to existing contracts and decrease as work is performed and revenue is recognized on existing contracts. RUPOs may also decrease when projects are canceled or modified in scope. We include a contract within our RUPOs when the contract is awarded and an agreement on contract terms has been reached. We expect to satisfy our RUPOs as of fiscal 2023 year-end over the following periods (in thousands): Amount Within 12 months $ 3,103,466 Beyond 1,651,611 Total $ 4,755,077 Although RUPOs reflect business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. RUPOs are adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as appropriate. Our operations and maintenance contracts can generally be terminated by the clients without a substantive financial penalty. Therefore, the remaining performance obligations on such contracts are limited to the notice period required for the termination (usually 30 , 60 or 90 days). 4. 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 . In fiscal 2023, we did not repurchase any shares of our common stock. We 64 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 fiscal 2022, and 479,369 shares with an average price of $ 125.16 per share for a total cost of $ 60.0 million in fiscal 2021, in the open market. As of October 1, 2023, we had a remaining balance of $ 347.8 million under our repurchase program. The following table presents dividends declared and paid in fiscal 2023, 2022 and 2021: Declare Date Dividend Paid Per Share Record Date Payment Date Dividends Paid (in thousands) 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 May 8, 2023 $ 0.26 May 24, 2023 June 6, 2023 13,840 August 7, 2023 $ 0.26 August 23, 2023 September 6, 2023 13,845 Total dividends paid as of October 1, 2023 $ 52,113 November 15, 2021 $ 0.20 December 2, 2021 December 20, 2021 $ 10,793 January 31, 2022 $ 0.20 February 11, 2022 February 25, 2022 10,769 May 2, 2022 $ 0.23 May 13, 2022 May 27, 2022 12,311 August 1, 2022 $ 0.23 August 12, 2022 August 26, 2022 12,226 Total dividends paid as of October 2, 2022 $ 46,099 November 9, 2020 $ 0.17 November 30, 2020 December 11, 2020 $ 9,198 January 25, 2021 $ 0.17 February 10, 2021 February 26, 2021 9,212 April 26, 2021 $ 0.20 May 12, 2021 May 28, 2021 10,831 July 26, 2021 $ 0.20 August 20, 2021 September 3, 2021 10,800 Total dividends paid as of October 3, 2021 $ 40,041 Subsequent Events. On November 13, 2023, our Board of Directors declared a quarterly cash dividend of $ 0.26 per share payable on December 13, 2023 to stockholders of record as of the close of business on November 30, 2023. 5. Acquisitions 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' Board of Directors. 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. 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 is included in our CIG segment. The total purchase price of RPS was approximately £ 633 million ($ 784 million). In connection with the transaction, we incurred acquisition and integration costs of $ 33.2 million, primarily for professional fees, substantially all of which were paid as of fiscal 2023 year-end. On January 23, 2023, we also settled a foreign exchange forward contract that was integral to our plan to finance the RPS acquisition. 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 14, "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) : 65 Amount Cash and cash equivalents $ 32,093 Accounts receivable and contract assets 202,303 Prepaid expenses and other current assets 45,999 Income taxes receivables 1,999 Property and equipment 38,435 Right-of-use assets, operating leases 40,179 Intangible assets 174,094 Deferred income taxes 36,388 Other long-term assets 1,061 Total assets acquired 572,551 Account Payable $ ( 44,376 ) Accrued compensation ( 19,073 ) Contract liabilities ( 46,287 ) Income tax payable ( 7,083 ) Short-term lease liabilities, operating leases ( 13,477 ) Other current liabilities ( 135,474 ) Current portion of long-term debt ( 91,973 ) Long-term lease liabilities, operating leases ( 26,702 ) Other long-term liabilities ( 18,571 ) Deferred tax liabilities ( 41,613 ) Total liabilities assumed ( 444,629 ) Fair value of net assets acquired 127,922 Goodwill 656,287 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 $ 27,880 1.6 Trade names 27,260 3.0 Client relations 118,954 11.1 Total intangible assets acquired $ 174,094 8.3 Estimated fair value measurements for the intangible assets related to the RPS acquisition were made using Level 3 inputs including discounted cash flow techniques. Fair value was 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. 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) : 66 Fiscal Year Ended October 1, 2023 October 2, 2022 Revenue $ 4,780,404 $ 4,271,580 Net income including noncontrolling interests $ 223,857 $ 152,964 Our fiscal 2023 consolidated results reflect RPS' contribution of revenue of approximately $ 600 million, with net income, including interest expense, of $ 3.6 million, or $ 0.07 per share, before the related intangible amortization of $ 26.8 million. In fiscal 2023, we also acquired Amyx, Inc. (“Amyx”), an enterprise technology services, cybersecurity and management consulting firm based in Reston, Virginia. With over 500 employees, Amyx provides application modernization, cybersecurity, systems engineering, financial management and program management support on over 30 Federal Government programs. Amyx is included in our Government Services Group ("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. 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 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. These acquisitions were not considered significant, individually or in the aggregate, to our consolidated financial statements. 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. The 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. In addition, these acquired capabilities, when combined with our exis ting global consulting and engineering business, result in opportunities that allow us to provide services under contracts that could not have been pursued individually by either us or the acquired companies. The results of these acquisitions were included in our consolidated financial statements from their respective closing dates. 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 twelve years . These consist of client relations, backlog and trade names. For detailed information regarding our intangible assets, see Note 6 , “ Goodwill and Intangible Assets ”. Most of our acquisition agreements include contingent earn-out agreements, which are generally based on the achievement of future operating income thresholds. 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. We consider several factors when 67 determining that contingent earn-out liabilities are part of the purchase price, including the following: (1) the valuation of our acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and material component of the valuation approach to determining the purchase price; and (2) the former owners of acquired companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level compared with the compensation of our other key employees. The contingent earn-out payments are not affected by employment termination. We measure our contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. We use a probability-weighted discounted income approach as a valuation technique to convert future estimated cash flows to a single present value amount. The significant unobservable inputs used in the fair value measurements are operating income projections over the earn-out period (generally three or five years ) and the probability outcome percentages we assign to each scenario. Significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the contingent earn-out liability on the acquisition date is reflected as cash used in financing activities in our consolidated statements of cash flows. Any amount paid in excess of the contingent earn-out liability on the acquisition date is reflected as cash used in operating activities in our consolidated statements of cash flows. We review and reassess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates. Changes in the estimated fair value of our contingent earn-out liabilities related to the time component of the present value calculation are reported in interest expen se. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income. In each quarter during fiscal 2023, we evaluated our estimates for contingent consideration liabilities for the remaining earn-out periods for each individual acquisition, which included a review of their financial results to-date, the status of ongoing projects in their RUPOs and the inventory of prospective new contract awards. In fiscal 2023, we recorded adjustments to our contingent earn-out liabilities and reported a net loss to operating income of $ 12.3 million. The net loss primarily resulted from increased valuations of the contingent consideration liabilities for our prior acquisitions of Segue Technologies, Inc., Hoare Lea, LLP ("HLE"), TIGA and PAE, reflecting their financial performance that exceeded our previous expectations. These increases were partially offset by a decreased valuation of the contingent consideration for Amyx, which has the forecasted revenue becoming realized later than originally anticipated. In fiscal 2022, total adjustments to our contingent earn-out liabilities in operating income were immaterial. In fiscal 2021, we recorded adjustments to our contingent earn-out liabilities and reported a net gain in operating income of $ 3.3 million. These adjustments resulted from the updated valuations of the contingent consideration liabilities, which reflect updated projections of acquired companies' financial performance during their respective earn-out periods. At October 1, 2023, there was a total potential max imum of $ 113.8 million of outstanding contingent consideration related to acquisitions. Of this amount, $ 73.4 million was estimated as the fair value and accrued on our consolidated balance sheet. The following table summarizes the changes in the carrying value of estimated contingent earn-out liabilities (in thousands): Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Beginning balance $ 65,566 $ 59,297 $ 32,617 Acquisition date fair value of contingent earn-out liabilities 12,248 31,341 50,235 Change in fair value of contingent earn-out liabilities 2,480 2,184 992 Re-measurement of contingent earn-out liabilities 12,255 329 ( 3,273 ) Foreign exchange impact 2,201 ( 7,152 ) ( 596 ) Earn-out payments: Reported as cash used in operating activities — ( 310 ) ( 427 ) Reported as cash used in financing activities ( 21,328 ) ( 20,123 ) ( 20,251 ) Ending balance $ 73,422 $ 65,566 $ 59,297 68 6. Goodwill and Intangible Assets The following table summarizes the changes in the carrying value of goodwill (in thousands): GSG CIG Total Balance at October 3, 2021 $ 538,433 $ 570,145 $ 1,108,578 Goodwill reallocation ( 51,497 ) 51,497 — Acquisitions 42,365 26,318 68,683 Translation and other ( 10,199 ) ( 56,650 ) ( 66,849 ) Balance at October 2, 2022 519,102 591,310 1,110,412 Acquisitions 138,380 621,496 759,876 Translation and other 2,460 7,496 9,956 Balance at October 1, 2023 $ 659,942 $ 1,220,302 $ 1,880,244 Our goodwill balances reflect the goodwill reallocation related to the creation of our new High Performance Buildings division on the first day of fiscal 2022, which included a transfer of some related operations in our GSG reportable segment to our CIG reportable segment. The foreign currency translation adjustments resulted from our foreign subsidiaries with functional currencies that are different than our rep orting currency. The fiscal 2023 goodwill amounts are presented net of reductions from historical impairment adjustments and fiscal 2023 goodwill additions relate to our fiscal 2023 acquisitions. The purchase price allocations for our fiscal 2023 acquisitions are preliminary and subject to adjustment based upon the final determinations of the net assets acquired and information to perform the final valuations. We per form our annual goodwill impairment review at the beginning of our fiscal fourth quarter. 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. As of July 3, 2023, and after the reallocation of goodwill on the first day of fiscal 2023, we had no reporting units that had estimated fair values that exceeded their carrying values by less than 45 %. We also regularly evaluate whether events and c ircumstances have occurred that may indicate a potential change in the recoverability of goodwill. We perform interim goodwill impairment reviews between our annual reviews if certain events and circumstances have occurred, such as a deterioration in general economic conditions; an increase in the 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. 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 gross amounts of goodwill for GSG were $ 677.6 million and $ 536.8 million at fiscal 2023 and 2022 year-ends, respectively, excluding accumulated impairment of $ 17.7 million for each period. The gross amounts of goodwill for CIG were $ 1,341.8 million and $ 712.8 million at fiscal 2023 and 2022 year-ends, respectively, excluding accumulated impairment of $ 121.5 million for each period. 69 The fo llowing tabl e 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): Fiscal Year Ended October 1, 2023 October 2, 2022 Weighted- Average Remaining Life (in years) Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount Client relations 9.4 $ 169,217 $ ( 36,072 ) $ 133,145 $ 41,676 $ ( 21,092 ) $ 20,584 Backlog 0.9 63,825 ( 47,802 ) 16,023 33,286 ( 29,990 ) 3,296 Trade names 2.4 37,411 ( 12,643 ) 24,768 12,711 ( 7,428 ) 5,283 Total $ 270,453 $ ( 96,517 ) $ 173,936 $ 87,673 $ ( 58,510 ) $ 29,163 Amortization expense for the identifiable intangible assets for fiscal 2023, 2022 and 2021 was $ 41.2 million, $ 13.2 million and $ 11.5 million, respectively. Foreign currency translation adjustments reduced net identifiable intangible assets by $ 0.2 million and $ 5.3 million in fiscal 2023 and 2022, respectively. Estimated amortization expense for the succeeding five fiscal years and beyond is as foll ows (in thousands): Amount 2024 $ 42,180 2025 28,032 2026 19,922 2027 13,861 2028 13,352 Beyond 56,589 Total $ 173,936 7. Property and Equipment Property and equipment consisted of the following (in thousands): Fiscal Year Ended October 1, 2023 October 2, 2022 Equipment, furniture and fixtures $ 132,744 $ 96,710 Leasehold improvements 44,733 32,428 Total property and equipment 177,477 129,138 Accumulated depreciation ( 102,645 ) ( 96,822 ) Property and equipment, net $ 74,832 $ 32,316 The depreciation expense related to property and e quipment was $ 20.0 million, $ 13.9 million and $ 12.3 million for fiscal 2023, 2022 and 2021, respectively. The increases in property and equipment from October 2, 2022 to October 1, 2023 are primarily due to the RPS acquisition. 70 8. Income Taxes Income before income taxes, by geographic area, was as follows (in thousands): Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Income before income taxes: United States $ 287,295 $ 262,428 $ 211,222 Foreign 113,683 86,338 55,648 Total income before income taxes $ 400,978 $ 348,766 $ 266,870 Income tax expense consisted of the following (in thousands): Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Current: Federal $ 110,371 $ 47,447 $ 41,056 State 16,025 9,613 9,893 Foreign 28,970 26,332 18,887 Total current income tax expense 155,366 83,392 69,836 Deferred: Federal ( 18,062 ) ( 424 ) ( 6,034 ) State ( 4,976 ) ( 382 ) ( 2,060 ) Foreign ( 4,802 ) 3,016 ( 27,703 ) Total deferred income tax (benefit) expense ( 27,840 ) 2,210 ( 35,797 ) Total income tax expense $ 127,526 $ 85,602 $ 34,039 71 Total income tax expense was different from the amount computed by applying the U.S. federal statutory rate to pre-tax income as follows: Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Tax at federal statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 2.2 2.1 2.3 Research and Development ("R&D") credits ( 0.5 ) ( 1.0 ) ( 2.6 ) Tax differential on foreign earnings 1.5 1.0 0.9 Non-taxable foreign interest income — — ( 1.0 ) Stock compensation ( 0.4 ) ( 2.0 ) ( 3.3 ) Valuation allowance — 0.2 ( 9.3 ) Change in uncertain tax positions 11.6 ( 1.1 ) 1.7 Return to provision 1.1 1.4 ( 3.7 ) Disallowed officer compensation 1.2 1.9 2.0 Cash repatriation — 0.1 2.1 Unremitted earnings 0.2 ( 0.2 ) 1.0 Hedging gain ( 5.7 ) — — Global intangible low-taxed income 0.5 — — Deferred tax adjustments ( 1.0 ) 0.1 0.8 Other 0.1 1.0 0.9 Total income tax expense 31.8 % 24.5 % 12.8 % The effective tax rates for fiscal 2023, 2022 and 2021 wer e 31.8 %, 24.5 % and 12.8 %, respectively. The fiscal 2023 income tax expense 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. The fiscal 2021 effective tax rate reflects a non-recurring net tax benefit of $ 21.6 million, consisting of a valuation allowance in the United Kingdom that was released due to sufficient positive evidence being obtained in fiscal 2021. The valuation allowance was primarily related to net operating loss carry-forwards. We evaluated the positive evidence against any negative evidence and determined that it was more likely than not that the deferred tax assets would be realized. The primary factors used to assess the likelihood of realization were the past performance of the related entity and our forecast of future taxable income. In 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. Also, income tax expense was reduced by $ 4.6 million , $ 10.3 million and $ 12.9 million of excess tax benefits on share-based payments in fiscal 2023, 2022 and 2021, respectively. Excluding the impact of increasing the tax liability for uncertain tax positions, the valuation allowance release, the foreign earnings repatriation and the excess tax benefits on share-based payments our effective tax rates in fiscal 2023, 2022 and 2021 were 27.8 % , 27.5 % and 25.7 % respectively. We are currently under examination by the Internal Revenue Service for fiscal years from 2018 to 2021, and the Canada Revenue Agency for fiscal 2011 through 2016. We are also subject to various other state audits. Temporary differences comprising the net deferred income tax asset shown on the accompanying consolidated balance sheets were as follows (in thousands): 72 Fiscal Year Ended October 1, 2023 October 2, 2022 Deferred Tax Assets: State taxes $ 2,686 $ 1,238 Reserves and contingent liabilities 2,849 5,023 Accounts receivable including the allowance for doubtful accounts 5,323 4,986 Accrued liabilities 64,155 35,973 Lease liabilities, operating leases 53,437 49,618 Stock-based compensation 1,900 2,925 Unbilled revenue 3,090 4,885 Loss and other carry-forwards 62,777 41,648 Property and equipment 552 — Capitalized research and development 17,778 — Capped call transactions 12,696 — Valuation allowance ( 11,663 ) ( 12,286 ) Total deferred tax assets 215,580 134,010 Deferred Tax Liabilities: Prepaid expense ( 2,703 ) ( 6,065 ) Right-of-use assets, operating leases ( 53,437 ) ( 49,618 ) Intangibles ( 83,242 ) ( 42,863 ) Undistributed earnings ( 1,453 ) ( 2,200 ) Property and equipment — ( 621 ) Total deferred tax liabilities ( 140,835 ) ( 101,367 ) Net deferred tax assets $ 74,745 $ 32,643 Our foreign earnings 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 1, 2023, we had available unused federal net operating loss (“NOL”) carry forwards of $ 37.5 million that has no expiration date; state net operating loss carry forwards of $ 26.0 million that expire at various dates from 2024 to 2037; and available foreign NOL carry forwards of $ 170.8 million, of which $ 21.1 million expire at various dates from 2024 to 2043, and $ 149.7 million have no expiration date. In addition, we had foreign capital loss carryforwards of $ 18.4 million, foreign corporate interest restriction allowances of $ 6.2 million, and foreign research and development credits of $ 4.5 million that do not have expiration dates. We have performed an assessment of positive and negative evidence regarding the realization of the deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, availability of carrybacks, cumulative losses in recent years, estimates of projected future taxable income and tax planning strategies. Although realization is not assured, based on our assessment, we have concluded that it is more likely than not that the assets will be realized except for the deferred tax assets related to certain loss carry-forwards for which a valuation allowance of $ 11.7 million has been provided. At October 1, 2023, we had $ 53.6 million of unrecognized tax benefits, all of which, if recognized, would affect our effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of our unrecognized tax positions may not significantly decrease in the next 12 months. These changes would be the result of ongoing examinations. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands) : 73 Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Beginning balance $ 8,908 $ 12,899 $ 9,228 Acquisition of RPS Group 6,012 — — Additions for current fiscal year tax positions 27,272 — 2,171 Additions for prior fiscal year tax positions 14,602 — 1,500 Reductions for prior fiscal year tax positions ( 1,358 ) ( 3,014 ) — Settlements ( 1,817 ) ( 977 ) — Ending balance $ 53,619 $ 8,908 $ 12,899 We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2023 , 2022 and 2021 , we accrued additional interest and penalties of $ 4.6 million , $ 0.5 million and $ 0.8 million, respectively, and recorded reductions in accrued interest and penalties of $ 2.0 million , $ 0.4 million and $ 0 , respe ctively, as a result of audit settlements and other prior-year adjustments. The amount of interest and penalties accrued at October 1, 2023, October 2, 2022 and October 3, 2021 was $ 8.0 million , $ 5.3 million and $ 5.2 million, respectively. 9. Long-Term Debt Long-term debt consisted of the following (in thousands): Fiscal Year Ended October 1, 2023 October 2, 2022 Credit facilities $ 320,000 $ 258,754 Convertible notes 575,000 — Debt issuance costs and discount ( 15,471 ) — Less: Current portion of long-term debt — ( 12,504 ) Long-term debt $ 879,529 $ 246,250 On August 22, 2023, we issued $ 575.0 million in convertible notes that bear interest at a rate of 2.25 % per annum payable in arrears on February 15 and August 15 of each year, beginning on February 15, 2024 and mature on August 15, 2028, unless converted, redeemed or repurchased (the "Convertible Notes"). Prior to May 15, 2028, the Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The initial conversion rate applicable to the Convertible Notes is 5.0855 shares of our common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial price of approximately $ 196.64 per share of our common stock, subject to adjustment if certain events occur. Upon conversion, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. In addition, upon the occurrence of a "fundamental change" as defined in the indenture governing the Convertible Notes, holders may require us to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid interest. If certain corporate events occur prior to the maturity date of the Convertible Notes or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such event or notice of redemption. We will not be able to redeem the Convertible Notes prior to August 20, 2026. On or after August 20, 2026, we have the option to redeem for cash all or any portion of the Convertible Notes if the last reported sale price of our common stock is equal to or greater than 130 % of the conversion price for a specified period of time at a redemption price equal to 100 % of the principal amount of the Convertible Notes to be redeemed, plus any accrued but unpaid interest. In addition, as described in the indenture governing the Convertible Notes, certain events of default including, but not limited to, bankruptcy, insolvency or reorganization, may result in the Convertible Notes becoming due and payable immediately. Our net proceeds from the offering were approximately $ 560.5 million after deducting the initial purchasers’ discounts and commissions and offering expenses. We used approximately $ 51.8 million of the net proceeds to pay the cost of the capped 74 call transactions described below. We used the remaining net proceeds to repay all $ 185.0 million principal amount outstanding under our revolving credit facility, the remaining $ 234.4 million principal amount outstanding under our senior secured term loan due 2027 and approximately $ 89.4 million principal amount outstanding under our senior secured term loan due 2026. The Convertible Notes were recorded as a single unit within "Long-term debt" in our fiscal 2023 year-end consolidated balance sheet as the conversion option within the Convertible Notes was not a derivative that would require bifurcation and the Convertible Notes did not involve a substantial premium. Transaction costs to issue the Convertible Notes were recorded as direct deductions from the related debt liabilities and amortized to interest expense using the effective interest method over the terms of the Convertible Notes. Debt issuance costs for the Convertible Notes have been amortized to interest expense over the terms of the Convertible Notes at an effective annual interest rate of 2.79 %. The net carrying amount of the Convertible Notes was as follows (in thousands) : Balance at October 1, 2023 Principal $ 575,000 Unamortized discount and issuance costs ( 14,158 ) Net carrying amount $ 560,842 The following table sets forth the interest expense recognized related to the Convertible Notes (in thousands) : Balance at October 1, 2023 Interest expense $ 1,438 Amortization of discount and issuance costs 292 Total interest expense $ 1,730 Concurrent with the offering of the Convertible Notes, in August 2023, we entered into capped call transactions (the "Capped Call Transactions"). The Capped Call Transactions are expected generally to reduce the potential dilution our common stock upon conversion of the Convertible Notes and/or offset any cash payments we elect to make in excess of the principal amount of converted Convertible Notes, as the case may be. If, however, the market price per share of our common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions is initially $ 259.56 per share, which represents a premium of 65 % over the last reported sale price of our common stock of $ 157.31 per share on the NASDAQ Global Select Market on August 17, 2023, and is subject to certain adjustments under the terms of the Capped Call Transactions. We recorded the Capped Call Transactions as separate transactions from the issuance of the Convertible Notes. The cost of $ 51.8 million incurred to purchase the Capped Call Transactions was recorded as a reduction to additional paid-in capital (net of $ 12.9 million in deferred taxes) on our consolidated balance sheet as of fiscal 2023 year-end. 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. The New Term Loan Facility will mature in January 2026. 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 in January 2026. On February 18, 2022, we entered into Amendment No. 2 to our Second Amended and Restated Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $ 1.05 billion that will mature in February 2027. The Amended Credit Agreement is a $ 750 million senior secured, five -year facility that provides for a $ 250 million term loan facility (the “Amended Term Loan Facility”) and a $ 500 million revolving credit facility (the “Amended Revolving Credit Facility”). In addition, the Amended Credit Agreement includes a $ 300 million accordion feature that allows us to increase the Amended Credit Agreement to $ 1.05 billion subject to lender approval. The Amended Credit Agreement provides for, among other things, (i) refinance indebtedness under our Credit Agreement dated as of July 30, 2018; (ii) finance open market repurchases of common stock, acquisitions and cash dividends and distributions; and (iii) utilize the proceeds for working capital, capital expenditures and other general corporate purposes. The Amended Credit Agreement provides for a reduction in the interest grid for meeting certain sustainability targets related to the (i) reduction of greenhouse gas emissions through the Company’s projects and operational sustainability initiatives and (ii) improvement of peoples’ lives as a result of the 75 Company’s projects that provide environmental, social and governance benefits. The Amended Revolving Credit Facility includes a $ 100 million sublimit for the issuance of standby letters of credit, a $ 20 million sublimit for swingline loans and a $ 300 million sublimit for multicurrency borrowings and letters of credit. The entire Amended Term Loan Facility was drawn on February 18, 2022. We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a benchmark rate plus a margin that ranges from 1.000 % to 1.875 % per annum, or (b) a base rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50 % per annum, the bank’s prime rate or the Secured Overnight Financing Rate ("SOFR") rate plus 1.00 %, plus a margin that ranges from 0 % to 0.875 % per annum. In each case, the applicable margin is based on our Consolidated Leverage Ratio, calculated quarterly. The Amended Term Loan Facility is subject to the same interest rate provisions. The Amended Credit Agreement expires in February 2027, or earlier at our discretion upon payment in full of loans and other obligations. At fiscal 2023 year-end, we had $ 320 million in outstanding borrowings under the Amended Credit Agreement, which was all under the New Term 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 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. The Amended Credit Agreement contains certain affirmative and restrictive covenants, and customary events of default. The financial covenants provide for a maximum Consolidated Leverage Ratio of 3.25 to 1.00 (total funded debt/EBITDA, as defined in the Amended Credit Agreement) and a minimum Consolidated Interest Coverage Ratio of 3.00 to 1.00 (EBITDA/Consolidated Interest Charges, as defined in the Amended Credit Agreement). Our obligations under the Amended Credit Agreement are guaranteed by certain of our domestic subsidiaries and are secured by first priority liens on (i) the equity interests of certain of our subsidiaries, including those subsidiaries that are guarantors or borrowers under the Amended Credit Agreement, and (ii) the accounts receivable, general intangibles and intercompany loans, and those of our subsidiaries that are guarantors or borrowers. At fiscal 2023 year-end, we were in compliance with these covenants with a consolidated leverage ratio of 1.79 x and a consolidated interest coverage ratio of 9.84 x. In addition to the Amended Credit Agreement, we maintain other credit facilities, which may be used for short-term cash advances and bank guarantees. At fiscal 2023 year-end, there were no outstanding borrowings under these facilities and the aggregate amount of standby letters of credit outstanding was $ 54.9 million. As of October 1, 2023 we had no bank overdrafts related to our disbursement bank accounts. The following table presents scheduled maturities of our long-term debt (in thousands) : Amount 2026 320,000 2028 575,000 Total $ 895,000 10. Leases Our operating leases are primarily for corporate and project office spaces. To a much lesser extent, we have operating leases for vehicles and equipment. Our operating leases have remaining lease terms of one month to ten years , some of which may include options to extend the leases for up to five years . We determine if an arrangement is a lease at inception. Operating leases are included in "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 IT equipment. Our finance leases are immaterial. ROU assets represent our right to use an underlying asset for the lease te rm and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, incremental borrowing rates are used based on the information available at commencement date in determining the present value of lease payments . The operating lease ROU asset at the commencement date also includes any lease payments made to the lessor at or before the commencement date and initial direct costs less lease incentives received. Lease te rms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. 76 In fiscal 2023, we exited certain lease arrangements as a result of the RPS acquisition and its subsequent integration. Accordingly, we evaluated the ongoing value of the ROU assets associated with the discontinued lease agreements. Based on this evaluation, we determined that some long-lived assets were no longer recoverable and were in fact impaired. Fair value was based on expected future cash flows using Level 3 inputs under Accounting Standards Codification Topic 820, Fair Value Measurement ("ASC 820"). The cash flows are those expected to be generated by the market participants, discounted at a real estate-based rate of interest. As a result of our evaluation, we recorded a $ 16.4 million non-cash charge related to the ROU operating lease asset impairment which was reported in our fiscal 2023 statement of income, and a corresponding decrease to our ROU assets operating leases on our consolidated balance sheet as of fiscal 2023 year-end. The components of lease costs are as follows (in thousands) : Fiscal Year Ended October 1, 2023 October 2, 2022 Operating lease cost $ 93,674 $ 86,725 Sublease income ( 740 ) ( 150 ) Total lease cost $ 92,934 $ 86,575 Supplemental cash flow information related to leases is as follows (in thousands): Fiscal Year Ended October 1, 2023 October 2, 2022 Operating cash flows for operating leases $ 78,268 $ 71,365 Right-of-use assets obtained in exchange for new operating lease liabilities 70,552 44,096 77 Supplemental balance sheet and other information related to leases are as follows (in thousands): Fiscal Year Ended October 1, 2023 October 2, 2022 Operating leases: Right-of-use assets $ 175,932 $ 182,319 Lease liabilities: Current 65,005 57,865 Non-current 144,685 146,285 Total operating lease liabilities $ 209,690 $ 204,150 Weighted-average remaining lease term: Operating leases 5 years 5 years Weighted-average discount rate: Operating leases 3.0 % 2.2 % As of fiscal 2023 year-en d, we had $ 8.3 million of operating leases that have not yet commenced. A maturity analysis of the future undiscounted cash flows associated with our operating lease liabili ties as of fiscal 2023 year-end is as follows (in thousands): Amount 2024 $ 69,562 2025 53,685 2026 36,013 2027 24,904 2028 16,545 Beyond 25,671 Total lease payments 226,380 Less: imputed interest ( 16,690 ) Total present value of lease liabilities $ 209,690 11. Stockholders' Equity and Stock Compensation Plans At fiscal 2023 year-end, we had the following stock-based compensation plans: • 2015 Equity Incentive Plan ("2015 EIP"). Key employees and non-employee directors may be granted equity awards, including stock options, performance share units ("PSUs") and RSUs. Shares issued with respect to awards granted under the 2015 EIP other than stock options or stock appreciation rights, which are referred to as "full value awards", are counted against the 2015 EIP's aggregate share limit as three shares for every share or unit actually issued . No awards have been made under the 2015 Equity Incentive Plan since the adoption of the 2018 Equity Incentive Plan on March 8, 2018 as described below. • 2018 Equity Incentive Plan ("2018 EIP") . Key employees and non-employee directors may be granted equity awards, including stock options, PSUs and RSUs. Shares issued with respect to awards granted under the 2018 EIP other than stock options or stock appreciation rights, which are referred to as "full value awards", are counted against the 2018 EIP's aggregate share limit as one share for every share or unit issued. At fiscal 2023 year-end, there were 2.7 million shares available for future awards pursuant to the 2018 EIP. • Employee Stock Purchase Plan ("ESPP"). Purchase rights to purchase common stock are granted to our eligible full and part-time employees, and shares of common stock are issued upon exercise of the purchase rights. An aggregate of 282,350 shares may be issued pursuant to such exercise. The maximum amount that an employee can contribute during a purchase right period is $ 5,000 . The exercise price of a purchase right i s the lesser of 100 % of the fair market value of a share of common stock on the first day of the purchase right period (the business day preceding January 1) or 85 % of the fair market value on the last day of the purchase right period (December 15, or the business day preceding December 15 if December 15 is not a business day). 78 The following table presents our stock-based compensation and related income tax benefits (in thousands): Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Total stock-based compensation $ 28,607 $ 26,227 $ 23,067 Income tax benefit related to stock-based compensation ( 5,779 ) ( 5,377 ) ( 4,910 ) Stock-based compensation, net of tax benefit $ 22,828 $ 20,850 $ 18,157 We recognize 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. Most of these amounts were included in selling, general and administrative expenses on our consolidated statements of income. Stock Options The following table presents our stock option activity for fiscal 2023 year-end: Number of Options (in thousands) Weighted- Average Exercise Price per Share Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding on October 2, 2022 168 $ 38.62 Exercised ( 20 ) 32.30 Forfeited — — Outstanding on October 1, 2023 148 $ 39.45 3.20 $ 16,708 Vested or expected to vest on October 1, 2023 148 $ 39.45 3.20 $ 16,708 Exercisable on October 1, 2023 148 $ 39.45 3.20 $ 16,708 The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing stock price on the last trading day of fiscal 2023 and the exercise price, times the number of shares) t hat would have been rec eived by the in-the-money option holders if they had exercised their options on October 1, 2023. This amount will change based on the fair market value of our stock. No stock options were granted in fiscal 2023, 2022 and 2021. The aggregate intrinsic value of options exercised during fiscal 2023, 2022 and 2021 was $ 2.5 million, $ 5.7 million and $ 29.4 million, respectively. Net cash proceeds from the exercise of stock options were $ 0.6 million, $ 1.8 million and $ 11.3 million for fiscal 2023, 2022 and 2021, respectively. Our policy is to issue shares from our authorized shares upon the exercise of stock options. The actual income tax benefit realized from exercises of nonqualified stock options for fiscal 2023, 2022 and 2021 was $ 0.6 million, $ 1.3 million and $ 6.7 million, respectively. RSU and PSU RSU awards are granted to our key employee and non-employee directors. The fair value of the RSU was determined at the date of grant using the market price of the underlying common stock as of the date of grant. All of the RSUs have time-based vesting over a four-year period, except that RSUs awarded to directors vest after one year . The total compensation cost of the awards is then amortized over their applicable vesting period on a straight-line basis. PSU awards are granted to our executive officers and non-employee directors. All of the 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 growth in our EPS and 50 % on our relative total shareholder return over the vesting period. For these performance-based awards, our expected performance is reviewed to estimate the percentage of shares that will vest. The total compensation cost of the awards is then amortized over their applicable vesting period on a straight-line basis. 79 A summary of the RSU and PSU activity under our stock plans is as follows: RSU PSU Number of Shares (in thousands) Weighted- Average Grant Date Fair Value per Share Number of Shares (in thousands) Weighted- Average Grant Date Fair Value per Share Nonvested balance at September 27, 2020 444 $ 63.93 355 $ 64.83 Granted 118 122.02 58 153.03 Vested ( 167 ) 59.64 ( 193 ) 57.40 Adjustment (1) — — 99 57.40 Forfeited ( 14 ) 77.74 ( 1 ) 74.05 Nonvested balance at October 3, 2021 381 83.30 318 82.96 Granted 78 184.61 42 247.16 Vested ( 147 ) 77.47 ( 176 ) 80.17 Adjustment (1) — — 88 80.63 Forfeited ( 13 ) 109.01 — — Nonvested balance at October 2, 2022 299 111.40 272 109.23 Granted 105 156.33 56 195.50 Vested ( 119 ) 104.05 ( 138 ) 99.85 Adjustment (1) — — 69 99.85 Forfeited ( 16 ) 140.01 ( 9 ) 193.69 Nonvested balance at October 1, 2023 269 $ 130.58 250 $ 128.21 (1) Fiscal 2021 includes a payout adjustment of 99,214 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2018 that vested during fiscal 2021. Fiscal 2022 includes a payout adjustment of 88,198 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2019 that vested during fiscal 2022. Fiscal 2023 includes a payout adjustment of 68,792 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2020 that vested during fiscal 2023. In fiscal 2023, 2022 and 2021, we awar ded 105,082 , 77,844 and 117,934 shares of RSUs, respectively, to our key employees and non-employee directors. The weighted-average grant-date fair value of RSUs granted during fiscal 2023, 2022 and 2021 was $ 156.33 , $ 184.61 and $ 122.02 , respectively. At fiscal 2023 year-end, there were 269,424 RSUs outstanding. RSU forfeitures result from employment terminations prior to vesting. Forfeited shares return to the pool of authorized shares available for award. We use historical data as a basis to estimate the probability of forfeitures related to RSUs and the ESPP Plan. In fiscal 2023, 2022 and 2021, we awarded 56,214 , 41,734 and 57,542 shares of PSUs, respectively, to our executive officers and non-employee directors. The weighted-average grant-date fair value of PSUs granted in fiscal 2023, 2022 and 2021 was $ 195.50 , $ 247.16 and $ 153.03 , respectively. At fiscal 2023 year-end, there were 249,880 PSUs outstanding. The stock-based compensation expense related to RSUs and PSUs for fiscal 2023, 2022 and 2021 was $ 26.2 million, $ 23.9 million and $ 20.9 million, respectively, and was included in total stock-based compensation expense. The actual income tax benefit realized from RSUs and PSUs for fiscal 2023, 2022 and 2021 was $ 4.0 million, $ 9.1 million and $ 6.2 million, respectively. At fiscal 2023 year-end, there was $ 38.8 million of unrecognized stock-based compensation costs related to nonvested RSUs and PSUs that will be substantially recognized by fiscal 2026 year-end. 80 ESPP The following table summarizes shares purchased, weighted-average purchase price, and cash received for shares purchased under the ESPP (in thousands, except for purchase price): Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Shares purchased 98 106 124 Weighted-average purchase price per share $ 128.29 $ 114.17 $ 86.16 Cash received from exercise of purchase rights $ 12,628 $ 12,129 $ 10,705 The grant date fair value of each award granted under the ESPP was estimated using the Black-Scholes option pricing model with the following assumptions: Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Dividend yield 0.7 % 1.0 % 1.0 % Expected stock price volatility 38.0 % 32.2 % 47.9 % Risk-free rate of return, annual 4.7 % 0.4 % 0.1 % Expected life (in years) 1 1 1 For fiscal 2023, 2022 and 2021, we based our expected stock price volatility on historical volatility behavior and current implied volatility behavior. The risk-free rate of return was based on constant maturity rates provided by the U.S. Treasury. The expected life was based on the ESPP terms and conditions. Stock-based compensation expense for fiscal 2023, 2022 and 2021 includ ed $ 2.4 million, $ 2.3 million and $ 2.0 million, respectively, related to the ESPP. The unrecognized stock-based compensation costs for awards granted under the ESPP at fiscal 2023 and 2022 year-ends were $ 0.6 million and $ 0.6 million, respectively. At fiscal 2023 year-end, ESPP participants had accumulated $ 12 million to purchase our common stock. 81 12. Retirement Plans We have defined contribution plans in various countries where we have employees. This p rimarily includes 401(k) plans in the United States. For fiscal 2023, 2022 and 2021, employer contributions to the U.S. plans were $ 31.6 million, $ 29.3 million and $ 26.9 million, respectively. Additionally, we have established a non-qualified deferred compensation plan for certain key employees and non-employee directors. These eligible employees and non-employee directors may elect to defer the receipt of salary, incentive payments, restricted stock, PSU and RSU awards and non-employee director fees. The plan is accounted for in accordance with applicable authoritative guidance on accounting for deferred compensation arrangements where amounts earned are held in a rabbi trust and invested. Employee deferrals are deposited into a rabbi trust, and the funds are generally invested in individual variable life insurance contracts that we own and are specifically designed to informally fund savings plans of this nature. At fiscal 2023 and 2022 year-ends, the consolidated balance sheets reflect assets of $ 43.5 million and $ 36.7 million, respectively, related to the deferred compensation plan in "Other long-term assets," and liabilities of $ 43.4 million and $ 36.3 million, respectively, related to the deferred compensation plan in "Other long-term liabilities." The net gains and losses related to the deferred compensation plan are reported as part of “Selling, general and administrative expenses” in our c onsolidated statements of income . These related net gains and losses were immaterial for fiscal 2023 , 2022 and 2021 . In connection with the acquisition of HLE in fiscal 2021, we assumed a defined benefit pension plan (the “Plan”), which HLE operates for all qualifying employees. The assets of the Plan are held in a separate trustee administered fund. The Plan was closed to new entrants in August 2003, except for current employees who had not attained the age of 24 at that date. The Plan was closed to future accrual on December 31, 2009. Under the agreed schedule of contributions, HLE will make no further contributions, and is to pay the expenses of administering the plan. The change in the defined benefit obligation, the change in fair value of plan assets and the amounts recognized in the Consolidated Statement of Income, the Consolidated Statement of Comprehensive Income and the Consolidated Statements of Shareholders’ Equity for fiscal 2023 and fiscal 2022 were immaterial. The Plan's funded status was as follows (in thousands) : Fiscal Year Ended October 1, 2023 October 2, 2022 Fair value of plan assets $ 39,572 $ 36,250 Benefit obligation ( 35,303 ) ( 33,006 ) Net surplus $ 4,269 $ 3,244 The net surplus is reflected in other long-term assets on our consolidated balance sheets as of fiscal 2023 and 2022 year-ends. The plan is closed to new participants and to future benefit accrual. The benefits paid in fiscal 2023 and 2022 were $ 1.3 million and $ 1.0 million, respectively. The fair values of the plan assets are substantially categorized within Level 2 of the fair value hierarchy. The fair values of the plan assets by major asset categories were as follows (in thousands) : Fiscal Year Ended October 1, 2023 October 2, 2022 Equities $ 2,213 $ 8,390 Mutual funds 20,458 20,886 Liability driven investment funds 13,807 6,484 Bonds 2,354 — Cash/other 740 490 Fair value of plan assets $ 39,572 $ 36,250 We seek a competitive rate of return relative to an appropriate level of risk depending on the funded status and obligations of each plan and typically employ both active and passive investment management strategies. The risk in our practices includes diversification across asset classes and investment styles and periodic rebalancing toward asset allocation 82 targets. The target asset allocation selected for each plan reflects a risk/return profile that we believe is appropriate relative to each plan’s liability structure and return goals. Principal assumptions used for the benefit obligation in the valuation are as follows: Fiscal Year Ended October 1, 2023 October 2, 2022 Discount rate 5.35 % 4.75 % Rate of inflation 2.80 % to 3.35 % 2.95 % to 3.55 % 13. Earnings per Share The following table sets forth the number of weighted-average shares used to compute basic and diluted EPS (in thousands, except per share data): Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Net income attributable to Tetra Tech $ 273,420 $ 263,125 $ 232,810 Weighted-average common shares outstanding – basic 53,203 53,620 54,078 Effect of diluted stock options and unvested restricted stock 434 543 597 Weighted-average common stock outstanding – diluted 53,637 54,163 54,675 Earnings per share attributable to Tetra Tech: Basic $ 5.14 $ 4.91 $ 4.31 Diluted $ 5.10 $ 4.86 $ 4.26 For fiscal 2023, 2022 and 2021, no options were excluded from the calculation of dilutive potential common shares. The Convertible Notes had no impact on the calculation of dilutive potential common shares in fiscal 2023, as the price of our common stock did not exceed the conversion price. The Capped Call Transactions are excluded from the calculation of dilutive potential common shares as their effect is anti-dilutive. 14. Derivative Financial Instruments We use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt. Also, we may enter into foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and earnings could adversely be affected by foreign currency exchange rate fluctuations. Our hedging program is not designated for trading or speculative purposes. We recognize derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as cash flow hedges in our consolidated balance sheets as accumulated other comprehensive income, and in our consolidated statements of income for those derivatives designated as fair value hedges. Our derivative contracts are categorized within Level 2 of the fair value hierarchy. 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 contract 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 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 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 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. 83 In fiscal 2018, we entered into five interest rate swap agreements that we designated as cash flow hedges to fix the interest rates on the borrowings under our term loan facility. The five swaps expired on July 31, 2023. At fiscal 2022 year-end, the fair value of the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was an unrealized gain of $ 2.4 million, which was reported in "Other non-current assets" on our consolidated balance sheet. Additionally, the related loss of $ 2.4 million, a gain of $ 11.8 million and a gain of $ 6.1 million for fiscal year ended 2023, 2022 and 2021, respectively, were recognized and reported on our consolidated statements of comprehensive income. There were no other derivative instruments that were not designated as hedging instruments for fiscal 2023, 2022 and 2021. 15. Reclassifications Out of Accumulated Other Comprehensive Income (Loss) The accumulated balances and reporting period activities for fiscal 2023, 2022 and 2021 related to reclassifications out of accumulated other comprehensive income are summarized as follows (in thousands): Foreign Currency Translation Adjustments Gain (Loss) on Derivative Instruments Net Pension Adjustments Accumulated Other Comprehensive Income (Loss) Balances at September 27, 2020 $ ( 146,275 ) $ ( 15,511 ) $ — $ ( 161,786 ) Other comprehensive income before reclassifications 30,641 12,175 — 42,816 Amounts reclassified from accumulated other comprehensive income Interest rate contracts, net of tax (1) — ( 6,058 ) — ( 6,058 ) Net current-period other comprehensive income 30,641 6,117 — 36,758 Balances at October 3, 2021 $ ( 115,634 ) $ ( 9,394 ) $ — $ ( 125,028 ) Other comprehensive income before reclassifications ( 94,922 ) 15,937 — ( 78,985 ) Amounts reclassified from accumulated other comprehensive income Interest rate contracts, net of tax (1) — ( 4,131 ) — ( 4,131 ) Net current-period other comprehensive (loss) income ( 94,922 ) 11,806 — ( 83,116 ) Balances at October 2, 2022 $ ( 210,556 ) $ 2,412 $ — $ ( 208,144 ) Other comprehensive income before reclassifications 12,623 ( 5,192 ) 2,638 10,069 Amounts reclassified from accumulated other comprehensive income Interest rate contracts, net of tax (1) — 2,780 — 2,780 Net current-period other comprehensive income (loss) 12,623 ( 2,412 ) 2,638 12,849 Balances at October 1, 2023 $ ( 197,933 ) $ — $ 2,638 $ ( 195,295 ) (1) This accumulated other comprehensive component is reclassified to "Interest expense" in our consolidated statements of income. See Note 14, "Derivative Financial Instruments", for more information. 16. Fair Value Measurements Derivative Instruments. Our derivative instruments are categorized within Level 2 of the fair value hierarchy. For additional information about our derivative financial instruments (see Note 2, "Basis of Presentation and Preparation" and Note 14, "Derivative Financial Instruments"). Contingent Consideration. We measure our contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. (see Note 2, "Basis of Presentation and Preparation" and Note 5, "Acquisitions" for further information). Debt. 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). The carrying value of our long-term debt approximated fair value at the end of our fiscal 2023 and 2022. At fiscal 2023 year-end, we had borrowings of $ 320 million outstanding under our Amended Credit Agreement and $ 575 million outstanding under our Convertible Senior 84 Notes, which were used to fund our business acquisitions, working capital needs, dividends, capital expenditures and contingent earn-outs (see Note 9, "Long-Term Debt "). Defined Benefit Pension Plan. The fair values of the plan assets are primarily categorized within Level 2 of the fair value hierarchy. For additional information about our defined benefit pension plan (see Note 12, "Retirement Plans "). 17. Commitments and Contingencies We are subject to certain claims and lawsuits typically filed against the consulting and engineering profession, alleging primarily professional errors or omissions. We carry professional liability insurance, subject to certain deductibles and policy limits, against such claims. 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. 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. ("TtEC"), in the U.S. District Court for the Northern District of California. The complaint alleges False Claims Act violations and breach of contract related to TtEC's contracts to perform environmental remediation services at the former Hunters Point Naval Shipyard in San Francisco, California. TtEC disputes the claims and will defend this matter vigorously. We are currently unable to determine the probability of the outcome of this matter or the range of reasonably possible loss, if any 18. Reportable Segments We manage ou r operations under two reportable segments. Our GSG reportable segment primarily includes activities with U.S. government clients (federal, state and local) and all activities with development agencies worldwide. Our CIG reporta ble segment primarily includes activities with U.S. commercial clients and international clients other than development agencies. Our reportable segments are described as follows: GSG: GSG provides high-end consulting and engineering services primarily to U.S. government clients (federal, state and local) and development agencies worldwide. GSG supports U.S. government civilian and defense agencies with services in water, environment, sustainable infrastructure, information technology and disaster management. GSG also provides engineering design services for U.S. based federal and municipal clients, especially in water infrastructure, flood protection and solid waste. GSG also leads our support for development agencies worldwide, especially in the United States, United Kingdom and Australia. CIG: CIG primarily provides high-end consulting and engineering services to U.S. commercial clients, and international clients inclusive of the commercial and government sectors. CIG supports commercial clients across the Fortune 500, renewable energy, industrial, high performance buildings and aerospace markets. CIG also provides sustainable infrastructure and related environmental, engineering and project management services to commercial and local government clients across Canada, in Asia Pacific (primarily Australia and New Zealand), the United Kingdom, as well as Brazil and Chile. Management eva luates the performance of these reportable segments based upon their respective segment operating income before the effect of amortization expense related to acquisitions, and other unallocated corporate expenses. We account for inter-segment revenues and transfers as if they were to third parties; that is, by applying a negotiated fee onto the costs of the services performed. All significant intercompany balances and transactions are eliminated in consolidation. In fiscal 2023, our Corporate segment operating losses included $ 33.2 million of acquisition and integration expenses as described in Note 5, "Acquisitions". We also recorded a $ 16.4 million ($ 6.8 million in GSG, $ 8.3 million in CIG and $ 1.3 million in Corporate) of a non-cash impairment charge related to our ROU operating lease assets in fiscal 2023 (see Note 10, "Leases" for more information.) 85 T he following tables present summarized financial information of our reportable segments (in thousands): Reportable Segments Fiscal Year Ended October 1, 2023 October 2, 2022 October 3, 2021 Revenue GSG $ 2,158,889 $ 1,820,868 $ 1,772,905 CIG 2,424,649 1,738,436 1,500,074 Elimination of inter-segment revenue ( 60,988 ) ( 55,256 ) ( 59,466 ) Total revenue $ 4,522,550 $ 3,504,048 $ 3,213,513 Income from operations GSG $ 231,762 $ 198,448 $ 174,755 CIG 243,750 194,142 152,262 Corporate (1) ( 117,399 ) ( 52,144 ) ( 48,316 ) Total income from operations $ 358,113 $ 340,446 $ 278,701 (1) Includes goodwill and intangible assets impairment charges, amortizat ion of intangibles, other costs and other income not allocable to segments. The intangible asset amortization expense for fiscal 2023, 2022 and 2021 was $ 41.2 million, $ 13.2 million and $ 11.5 million, respectively. Additionally, Corporate results included (loss) income for fair value adjustments to contingent consideration liabilities of $( 12.3 ) million, $( 0.3 ) million and $ 3.3 million for fiscal 2023, 2022 and 2021, respectively. See Note 6 - "Goodwill and Intangible Assets" for more information. Balance at October 1, 2023 October 2, 2022 Total Assets GSG $ 543,066 $ 558,764 CIG 994,470 688,640 Corporate (1) 2,282,941 1,375,372 Total assets $ 3,820,477 $ 2,622,776 (1) Corporate assets consist of intercompany eliminations and assets not allocated to our reportable segments including goodwill, intangible assets, deferred income taxes and certain other assets. 86 Geographic Information Fiscal Year Ended Revenue: October 1, 2023 October 2, 2022 October 3, 2021 United States $ 2,863,635 $ 2,416,586 $ 2,256,086 Foreign countries (1) 1,658,915 1,087,462 957,427 Total $ 4,522,550 $ 3,504,048 $ 3,213,513 Balance at Long-lived assets (2) : October 1, 2023 October 2, 2022 United States $ 159,856 $ 199,875 Foreign countries (1) 160,174 77,305 Total $ 320,030 $ 277,180 (1) Includes revenue and long-lived assets from our foreign operations, primarily in Canada, Australia and the United Kingdom, and revenue generated from non-U.S. clients. (2) Excludes goodwill, intangible assets and deferred income taxes. 19. Related Party Transactions We often provide services to unconsolidated joint ventures. Our revenue related to services we provided to unconsolidated joint ventures for fiscal 2023, 2022 and 2021 was $ 83.1 million, $ 96.0 million and $ 95.5 million, respectively. Our related reimbursable costs for fiscal 2023, 2022 and 2021 were $ 78.5 million, $ 91.7 million and $ 92.4 million, respectively. Our consolidated balance sheets also included the following amounts related to these services (in thousands): Balance at October 1, 2023 October 2, 2022 Accounts receivable, net $ 19,944 $ 16,818 Contract assets 2,723 2,935 Contract liabilities 3,158 3,464 20. Quarterly Financial Information – Unaudited In the opinion of management, the followin g unaudited quarte rly data for the fiscal 2023 and 2022 reflect all adjustments necessary for a fair statement of the results of operations (in thousands, except per share data). In the fourth quarter of fiscal 2022 and in the first and second quarters of fiscal 2023, we recognized a $ 19.9 million, $ 68.0 million and $ 21.4 million, respectively, of unrea lized gain on a foreign currency forward contract related to the planned acquisition of RPS. We also recorded a $ 16.4 million of a non-cash impairment charge related to our ROU operating lease assets in the fourth quarter of fiscal 2023 (see Note 10, "Leases" for more information). Additionally, we incurred $ 33.2 million of acquisition and integration expenses in fiscal 2023 (largely comprised of $ 19.9 million in the second quarter and $ 7.3 million in fourth quarter) as described in Note 5, "Acquisitions". 87 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year 2023 Revenue $ 894,766 $ 1,158,226 $ 1,208,947 $ 1,260,611 Income from operations 92,050 61,011 97,675 107,377 Net income attributable to Tetra Tech 116,706 42,830 60,235 53,649 Earnings per share attributable to Tetra Tech: Basic $ 2.20 $ 0.80 $ 1.13 $ 1.01 Diluted $ 2.18 $ 0.80 $ 1.12 $ 1.00 Weighted-average common shares outstanding: Basic 53,069 53,227 53,231 53,247 Diluted 53,529 53,627 53,653 53,702 Fiscal Year 2022 Revenue $ 858,510 $ 852,744 $ 890,231 $ 902,562 Income from operations 87,220 74,520 83,905 94,802 Net income attributable to Tetra Tech 68,489 53,040 58,650 82,947 Earnings per share attributable to Tetra Tech: Basic $ 1.27 $ 0.99 $ 1.10 $ 1.56 Diluted $ 1.25 $ 0.98 $ 1.09 $ 1.55 Weighted-average common shares outstanding: Basic 53,937 53,834 53,507 53,148 Diluted 54,577 54,346 54,006 53,667 88 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.