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 51 Consolidated Balance Sheets at September 29 , 202 4 and October 1 , 202 3 53 Consolidated Statements of Income for the fiscal years ended September 29 , 202 4 , October 1 , 202 3 and October 2 , 202 2 54 Consolidated Statements of Comprehensive Income for the fiscal years ended September 29 , 202 4 , October 1 , 202 3 and October 2 , 202 2 55 Consolidated Statements of Cash Flows for the fiscal years ended September 29 , 202 4 , October 1 , 202 3 and October 2 , 202 2 56 Consolidated Statements of Equity for the fiscal years ended September 29 , 202 4 , October 1 , 202 3 and October 2 , 20 2 2 57 Notes to Consolidated Financial Statements 59 Schedule II – Valuation and Qualifying Accounts and Reserves for the fiscal years ended September 29 , 202 4 , October 1 , 202 3 and October 2 , 202 2 92 50 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 September 29, 2024 and October 1, 2023, 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 September 29, 2024, 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 September 29, 2024, 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 September 29, 2024 and October 1, 2023, and the results of its operations and its cash flows for each of the three years in the period ended September 29, 2024 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 September 29, 2024, 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. As described in Management's Report on Internal Control over Financial Reporting, management has excluded LS Technologies ("LST") from its assessment of internal control over financial reporting as of September 29, 2024 because it was acquired by the Company in a purchase business combination during 2024. We have also excluded LST from our audit of internal control over financial reporting. LST is a wholly-owned subsidiary whose total assets and total revenues excluded from management's assessment and our audit of internal control over financial reporting represent 1.4% and 1.7%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 29, 2024. 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. 51 Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition - Certain fixed-price, time-and-materials and cost-plus contracts As described in Note 3 to the consolidated financial statements, the Company recognized revenue of $5,199 million for the year ended September 29, 2024, of which a majority relates to revenue recognized for certain fixed-price, time-and-materials and cost-plus contracts. The Company recognizes revenue 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 depict the value of the services transferred to the customer. For those performance obligations for which revenue is recognized using a cost-to-cost measure of progress method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. For certain on-call engineering or consulting and similar contracts, the Company recognizes revenue in the amount which they have the right to invoice the customer if that amount corresponds directly with the value of the 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. The principal consideration for our determination that performing procedures relating to revenue recognition for certain fixed-price, time-and-materials and cost-plus contracts is a critical audit matter is a high degree of audit effort in performing procedures related to the Company's revenue recognition. 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. These procedures also included, among others, (i) evaluating management’s significant accounting policies related to revenue recognition; (ii) for certain fixed-price contracts, testing management's process for developing the estimate of total contract cost for a sample of contracts with cumulative catch-up adjustments and anticipated losses or claims, and evaluating the contract terms and other documents that support the changes in total estimated contract costs; (iii) assessing, for a sample of fixed-price contracts, estimated total contract costs by performing a comparison of the total estimated contract cost as compared with prior period estimates and evaluating the timely identification of circumstances that may warrant a modification to the total estimated contract cost; (iv) evaluating, for certain contracts, management’s methodologies and assessing the consistency of management’s methodology over the life of the contract; (v) re-calculating revenue recognized based on the contract value, year-to-date costs, and total estimated costs to complete; (vi) testing the existence and accuracy of total contract revenue recorded, on a sample basis, by obtaining and inspecting source documents such as contracts and purchase orders; (vii) for certain on-call engineering or consulting contracts where revenue is recognized using the practical expedient right to invoice, testing the accuracy of revenue recognized, on a sample basis by obtaining and inspecting source documents, such as contracts and purchase orders; and (viii) for certain contracts, testing the completeness and accuracy of costs incurred to date, on a sample basis, by obtaining and inspecting source documents, such as invoices and timecards. /s/ PricewaterhouseCoopers LLP Los Angeles, California November 19, 2024 We have served as the Company’s auditor since 2004 . 52 Tetra Tech, Inc. Consolidated Balance Sheets (in thousands, except par value) Fiscal Year Ended ASSETS September 29, 2024 October 1, 2023 Current assets: Cash and cash equivalents $ 232,689 $ 168,831 Accounts receivable, net 1,051,461 974,535 Contract assets 129,678 113,939 Prepaid expenses and other current assets 91,585 89,096 Income taxes receivable 21,970 9,623 Total current assets 1,527,383 1,356,024 Property and equipment, net 73,065 74,832 Right-of-use assets, operating leases 177,950 175,932 Goodwill 2,046,569 1,880,244 Intangible assets, net 160,585 173,936 Deferred tax assets 105,529 89,002 Other non-current assets 101,595 70,507 Total assets $ 4,192,676 $ 3,820,477 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 197,440 $ 173,271 Accrued compensation 332,096 302,755 Contract liabilities 351,738 335,044 Short-term lease liabilities, operating leases 63,419 65,005 Current contingent earn-out liabilities 26,934 51,108 Other current liabilities 247,900 280,959 Total current liabilities 1,219,527 1,208,142 Deferred tax liabilities 30,162 14,256 Long-term debt 812,634 879,529 Long-term lease liabilities, operating leases 140,095 144,685 Non-current contingent earn-out liabilities 21,812 22,314 Other non-current liabilities 138,033 148,045 Commitments and contingencies (Note 18) Equity: Preferred stock – Authorize d, 2,000 shares of $ 0.01 par value; no shares issued and outstanding at September 29, 2024 and October 1, 2023 — — Common stock – Authoriz ed, 750,000 shares of $ 0.01 par value; issued and outstanding, 267,717 and 266,238 shares at September 29, 2024 and October 1, 2023 , respectively 2,677 2,662 Additional paid-in capital 35,900 — Accumulated other comprehensive loss ( 78,875 ) ( 195,295 ) Retained earnings 1,870,620 1,596,066 Tetra Tech stockholders' equity 1,830,322 1,403,433 Noncontrolling interests 91 73 Total stockholders' equity 1,830,413 1,403,506 Total liabilities and stockholders' equity $ 4,192,676 $ 3,820,477 See accompanying Notes to Consolidated Financial Statements. 53 Tetra Tech, Inc. Consolidated Statements of Income (in thousands, except per share data) Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Revenue $ 5,198,679 $ 4,522,550 $ 3,504,048 Subcontractor costs ( 876,817 ) ( 771,461 ) ( 668,468 ) Other costs of revenue ( 3,455,422 ) ( 3,026,060 ) ( 2,260,021 ) Gross profit 866,440 725,029 575,559 Selling, general and administrative expenses ( 356,024 ) ( 305,107 ) ( 234,784 ) Acquisition and integration expenses ( 7,138 ) ( 33,169 ) — Right-of-use operating lease asset impairment — ( 16,385 ) — Contingent consideration – fair value adjustments ( 2,541 ) ( 12,255 ) ( 329 ) Income from operations 500,737 358,113 340,446 Interest income 7,288 5,898 1,780 Interest expense ( 44,559 ) ( 52,435 ) ( 13,364 ) Other non-operating income — 89,402 19,904 Income before income tax expense 463,466 400,978 348,766 Income tax expense ( 130,023 ) ( 127,526 ) ( 85,602 ) Net income 333,443 273,452 263,164 Net income attributable to noncontrolling interests ( 61 ) ( 32 ) ( 39 ) Net income attributable to Tetra Tech $ 333,382 $ 273,420 $ 263,125 Earnings per share attributable to Tetra Tech: Basic $ 1.25 $ 1.03 $ 0.98 Diluted $ 1.23 $ 1.02 $ 0.97 Weighted-average common shares outstanding: Basic 267,364 266,015 268,100 Diluted 270,042 268,185 270,815 See accompanying Notes to Consolidated Financial Statements. 54 Tetra Tech, Inc. Consolidated Statements of Comprehensive Income (in thousands) Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Net income $ 333,443 $ 273,452 $ 263,164 Other comprehensive income (loss), net of tax Foreign currency translation adjustments, net of tax 115,120 12,622 ( 94,933 ) (Loss) gain on cash flow hedge valuations, net of tax — ( 2,412 ) 11,806 Net pension adjustments 1,300 2,638 — Other comprehensive income (loss), net of tax 116,420 12,848 ( 83,127 ) Comprehensive income, net of tax $ 449,863 $ 286,300 $ 180,037 Less: comprehensive income attributable to noncontrolling interests, net of tax 61 31 28 Comprehensive income attributable to Tetra Tech, net of tax $ 449,802 $ 286,269 $ 180,009 See accompanying Notes to Consolidated Financial Statements. 55 Tetra Tech, Inc. Consolidated Statements of Cash Flows (in thousands) Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Cash flows from operating activities: Net income $ 333,443 $ 273,452 $ 263,164 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 73,677 61,206 27,033 Amortization of stock-based awards 31,155 28,607 26,227 Deferred income taxes ( 19,980 ) ( 21,204 ) 2,175 Fair value adjustments to contingent consideration 2,541 12,255 329 Right-of-use operating lease asset impairment — 16,385 — Fair value adjustment to foreign currency forward contract — ( 89,402 ) ( 19,904 ) Acquisition and integration expenses 7,138 — — Other non-cash items 5,369 975 ( 1,245 ) Changes in operating assets and liabilities, net of effects of business acquisitions: Accounts receivable and contract assets ( 40,188 ) ( 19,783 ) ( 89,781 ) Prepaid expenses and other assets ( 20,894 ) 78,686 69,697 Accounts payable 18,091 ( 19,214 ) 17,099 Accrued compensation 6,657 37,094 27,458 Contract liabilities 4,704 44,152 55,915 Cash settled contingent earn-out liability ( 7,943 ) — — Income taxes receivable/payable ( 35,530 ) 40,527 14,627 Other liabilities 468 ( 75,273 ) ( 56,606 ) Net cash provided by operating activities 358,708 368,463 336,188 Cash flows from investing activities: Payments for business acquisitions, net of cash acquired ( 93,650 ) ( 854,319 ) ( 49,124 ) Settlement of foreign currency forward contract — 109,306 — Capital expenditures ( 18,135 ) ( 26,901 ) ( 10,582 ) Proceeds from sales of assets 742 715 3,966 Net cash used in investing activities ( 111,043 ) ( 771,199 ) ( 55,740 ) Cash flows from financing activities: Proceeds from borrowings 217,000 994,859 161,456 Repayments on long-term debt ( 287,000 ) ( 1,026,051 ) ( 117,080 ) 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 ) Shares repurchased for tax withholdings on share-based awards ( 12,982 ) ( 16,833 ) ( 25,223 ) Payments of contingent earn-out liabilities ( 46,107 ) ( 21,328 ) ( 20,124 ) Stock options exercised 3,067 626 1,806 Dividends paid ( 58,828 ) ( 52,113 ) ( 46,099 ) Principal payments on finance leases ( 6,530 ) ( 5,579 ) ( 4,344 ) Net cash (used in) provided by financing activities ( 191,380 ) 382,380 ( 249,608 ) Effect of exchange rate changes on cash and cash equivalents 7,573 4,093 ( 12,314 ) Net increase (decrease) in cash and cash equivalents 63,858 ( 16,263 ) 18,526 Cash and cash equivalents at beginning of year 168,831 185,094 166,568 Cash and cash equivalents at end of year $ 232,689 $ 168,831 $ 185,094 Supplemental information: Cash paid during the year for: Interest $ 36,855 $ 47,367 $ 13,378 Income taxes, net of refunds received o f $ 4.2 million, $ 2.2 million and $ 4.8 million $ 180,707 $ 93,176 $ 70,799 See accompanying Notes to Consolidated Financial Statements. 56 Tetra Tech, Inc. Consolidated Statements of Equity Fiscal Years Ended October 2, 2022, October 1, 2023, and September 29, 2024 (in thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Retained Earnings Total Tetra Tech Equity Non-Controlling Interests Total Equity Shares Amount BALANCE AT OCTOBER 3, 2021 53,981 $ 540 $ — $ ( 125,028 ) $ 1,358,726 $ 1,234,238 $ 53 $ 1,234,291 Issuance of shares under five -for-one stock split 215,926 2,160 — — ( 2,160 ) — — — 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 $ 0.172 per common share — — — — ( 46,099 ) ( 46,099 ) — ( 46,099 ) Stock-based compensation — — 26,227 — — 26,227 — 26,227 Restricted & performance shares released 944 10 ( 25,233 ) — — ( 25,223 ) — ( 25,223 ) Stock options exercised 229 — 1,806 — — 1,806 — 1,806 Shares issued for Employee Stock Purchase Plan 531 5 12,124 — — 12,129 — 12,129 Stock repurchases ( 6,708 ) ( 65 ) ( 14,884 ) — $ ( 185,051 ) ( 200,000 ) — ( 200,000 ) Reclassification of APIC — — ( 40 ) — 40 — — — BALANCE AT OCTOBER 2, 2022 264,903 2,650 — ( 208,144 ) 1,388,581 1,183,087 50 1,183,137 Comprehensive income, net of tax: Net income — — — — 273,420 273,420 32 273,452 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 $ 0.196 per common share — — — — ( 52,113 ) ( 52,113 ) — ( 52,113 ) Stock-based compensation — — 28,607 — — 28,607 — 28,607 Restricted & performance shares released 746 7 ( 16,840 ) — — ( 16,833 ) — ( 16,833 ) Stock options exercised 97 — 626 — — 626 — 626 Shares issued for Employee Stock Purchase Plan 492 5 12,623 — — 12,628 — 12,628 Reclassification of APIC — — 26,734 — ( 26,734 ) — — — 57 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Retained Earnings Total Tetra Tech Equity Non-Controlling Interests Total Equity Shares Amount Capped call transactions — — ( 51,750 ) — 12,912 ( 38,838 ) — ( 38,838 ) BALANCE AT OCTOBER 1, 2023 266,238 2,662 — ( 195,295 ) 1,596,066 1,403,433 73 1,403,506 Comprehensive income, net of tax: Net income — — — — 333,382 333,382 61 333,443 Foreign currency translation adjustments — — — 115,120 — 115,120 — 115,120 Pension — — — 1,300 — 1,300 — 1,300 Comprehensive income, net of tax 449,802 61 449,863 Distributions paid to noncontrolling interests — — — — — — ( 43 ) ( 43 ) Cash dividends of $ 0.220 per common share — — — — ( 58,828 ) ( 58,828 ) — ( 58,828 ) Stock-based compensation — — 31,155 — — 31,155 — 31,155 Restricted & performance shares released 547 5 ( 12,987 ) — — ( 12,982 ) — ( 12,982 ) Stock options exercised 410 4 3,063 — — 3,067 — 3,067 Shares issued for Employee Stock Purchase Plan 522 6 14,669 — — 14,675 — 14,675 BALANCE AT SEPTEMBER 29, 2024 267,717 $ 2,677 $ 35,900 $ ( 78,875 ) $ 1,870,620 $ 1,830,322 $ 91 $ 1,830,413 See accompanying Notes to Consolidated Financial Statements. 58 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 and sustainable infrastructure. 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 Principles of Consolidation. The accompanying consolidated financial statements include our accounts and those of joint ventures of which we are the primary beneficiary and are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and expressed in U.S. dollars. All significant intercompany balances and transactions have been eliminated in consolidation. Fiscal Year. We operate on a 52 or 53-week year, ending on the Sunday nearest September 3 0. Fiscal years 2024, 2023 and 2022 are 52-week years. Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that 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. On an on-going basis, we evaluate our estimates based on historical facts and other assumptions that we believe are reasonable. Stock Split. On July 29, 2024, our Board of Directors approved a five -for-one stock split of our common stock. The stock split had a record date of September 5, 2024 and an effective date of September 6, 2024. The par value per share of our common stock remains unchanged at $ 0.01 per share after the stock split. All prior-period share or per share amounts presented herein have been retroactively adjusted to reflect the stock split. 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 fiscal 2024 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 59 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. 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 60 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. We perform our annual goodwill impairment review at the beginning of our fiscal fourth qu arter. Our last annual review was performed at July 1, 2024 (i.e., the first day of our fiscal fourth quarter). In addition, we regularly evaluate whether events and circumstances have occurred that may indicate a potential change in recoverability of goodwill. We perf orm 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. 61 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. 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. 62 According to the authoritative guidance on accounting for uncertainty in income taxes, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. 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 24 % of accounts receivable were due from various agencies of the U.S. federal government at fiscal 2024 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 32 %, 12 %, 18 % and 38 % of our fiscal 2024 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, 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. Recently Issued Accounting Pro nouncements In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires that an entity report segment information in accordance with Topic 280, Segment Reporting. The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 (fiscal 2025 for us). Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements; however, we do not plan to adopt Topic 280 before fiscal 2025. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendments in the ASU are intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU are effective for annual periods beginning after December 15, 2024 (fiscal 2026 for us). Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements; however, we do not plan to adopt Topic 740 before fiscal 2026. 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. 63 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 September 29, 2024 October 1, 2023 October 2, 2022 Client Sector: U.S. federal government (1) $ 1,675,996 $ 1,387,101 $ 1,064,347 U.S. state and local government 613,185 607,074 603,286 U.S. commercial 909,642 869,460 748,953 International (2) 1,999,856 1,658,915 1,087,462 Total $ 5,198,679 $ 4,522,550 $ 3,504,048 Contract Type: Fixed-price $ 2,016,638 $ 1,643,849 $ 1,317,993 Time-and-materials 2,337,913 2,166,671 1,637,019 Cost-plus 844,128 712,030 549,036 Total $ 5,198,679 $ 4,522,550 $ 3,504,048 (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 i n United Kingdom, Australia and Canada. Other than the U.S. federal government, no single client accounted for more than 10% of our revenue for fiscal 2024, 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): Fiscal Year Ended September 29, 2024 October 1, 2023 Contract assets (1) $ 129,678 $ 113,939 Contract liabilities ( 351,738 ) ( 335,044 ) Net contract liabilities $ ( 222,060 ) $ ( 221,105 ) (1) Includ es $ 7.9 million and $ 6.8 million of contract retentions at fiscal 2024 and 2023 year-ends, respectively. Both our contract assets and contract liabilities increased in fiscal 2024 compared to fiscal 2023 year-end, due to the timing of our milestone billing on fixed-price contracts which were different from the timing of revenue recognition on those 64 contracts. In fiscal 2024 and 2023, we recognized revenue of approximately $ 247 million and $ 164 million, respectively, from amounts included in the contract liability balances at the end of fiscal 2023 and 2022 , respectively. Revenue is recognized by measuring progress over time under Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers". We estimate and measure progress on our contracts over time whereby we compare our total costs incurred on each contract as a percentage of the total expected contract costs. Changes in t hose 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 2024 and 2023, we recognized net favorable revenue and operating income adjustments of $ 29.8 million and $ 11.0 million, respective ly. The 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 immediately in earnings. As of September 29, 2024 and October 1, 2023, our consolidated balance sheets included liabilities for anticipated losses of $ 15.1 million and $ 8.5 million, respectively. The estimated cost to complete these related contracts at the end of fiscal 2024 and 2023 was approximately $ 101 million and $ 68 million, respectively. Accounts Receivable, Net Net accounts receivable consisted of the following (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 Billed $ 707,406 $ 672,712 Unbilled 348,907 306,788 Total accounts receivable 1,056,313 979,500 Allowance for doubtful accounts ( 4,852 ) ( 4,965 ) Total accounts receivable, net $ 1,051,461 $ 974,535 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 fisc al 2024 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 government agency or a commercial sector client; and general economic and industry conditions, 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 2024 and 2023 year-ends. Remaining Unsatisfied Performance Obligation (“RUPO”) Our RUPO represents a measure of the total dollar value of work to be performed on contracts awarded and in progress. We h ad $ 5.3 billion of RUPO as of September 29, 2024. Our RUPO increases with awards from new contracts or additions to existing contracts and decreases as work is performed and revenue is recognized on existing contracts. Our RUPO may also decrease when projects are canceled or modified in scope. We include a contract within our RUPO when the contract is awarded and an agreement on contract terms has been reached. 65 We expect to satisfy our RUPO as of fiscal 2024 year- end over the following periods (in thousands): Amount Within 12 months $ 3,723,668 Beyond 1,607,721 Total $ 5,331,389 Although RUPO reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. Our RUPO is 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 stock repurchase program under which we could repurchase up to $ 400 million of our common stoc k . In fiscal 2024 and 2023, we did not repurchase any shares of our common stock. We repurchased and settled 6,708,395 shares with an average price of $ 29.81 per share for a total cost of $ 200.0 million in fiscal 2022 in the open market. At fiscal 2024 year-end, we had a remaining balance of $ 347.8 million under our stock repurchase program. The following table presents dividends declared and paid in fiscal 2024, 2023 and 2022: Declare Date Dividend Paid Per Share Record Date Payment Date Dividends Paid (in thousands) November 13, 2023 $ 0.052 November 30, 2023 December 13, 2023 $ 13,873 January 29, 2024 0.052 February 14, 2024 February 27, 2024 13,908 April 29, 2024 0.058 May 20, 2024 May 31, 2024 15,522 July 29, 2024 0.058 August 15, 2024 August 30, 2024 15,525 Total dividends paid as of September 29, 2024 $ 58,828 November 7, 2022 $ 0.046 November 21, 2022 December 9, 2022 $ 12,186 January 30, 2023 0.046 February 13, 2023 February 24, 2023 12,242 May 8, 2023 0.052 May 24, 2023 June 6, 2023 13,840 August 7, 2023 0.052 August 23, 2023 September 6, 2023 13,845 Total dividends paid as of October 1, 2023 $ 52,113 November 15, 2021 $ 0.040 December 2, 2021 December 20, 2021 $ 10,793 January 31, 2022 0.040 February 11, 2022 February 25, 2022 10,769 May 2, 2022 0.046 May 13, 2022 May 27, 2022 12,311 August 1, 2022 0.046 August 12, 2022 August 26, 2022 12,226 Total dividends paid as of October 2, 2022 $ 46,099 Subsequent Events. On November 11, 2024, our Board of Directors declared a quarterly cash dividend of $ 0.058 per share payable on December 13, 2024 to stockholders of record as of the close of business on November 27, 2024. 5. Acquisitions In fiscal 2024, we acquired LS Technologies ("LST"), an innovative U.S. federal enterprise technology services and management consulting firm based in Fairfax, Virginia. LST provides high-end consulting and engineering services including advanced data analytics, cybersecurity and digital transformation solutions to U.S. government clients. Additionally, we acquired Convergence Controls & Engineering ("CCE"), an industry leader in process automation and systems integration solutions. CCE’s expertise includes customized digital controls and software solutions, advanced data analytics, cloud data integration and cybersecurity applications. Both LST and CCE are included in our GSG segment. The aggregate fair value of the purchase price of these two acquisitions was $ 120 million. This amount consisted of $ 93 million in initial cash payments, $ 4 million of cash holdback related to a tax reserve, and $ 23 million for the estimated fair value of contingent earn-out obligations, with a maximum of $ 60 million, based upon the achievement of specified operating income targets in each of the 66 three years following the acquisition dates. The $ 120 million purchase price was allocated $ 12 million to net tangible assets, $ 23 million to identifiable intangible assets, and $ 85 million to goodwill. The purchase price allocation is preliminary and subject to adjustment as the estimates, assumptions, valuations and other analyses have not yet been finalized in order to make a definitive allocation. These acquisitions were not considered material, individually or in aggregate, to our consolidated financial statements. As a result, no pro forma information has been provided. 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 employed 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 15, "Derivative Financial Instruments". The table below represents the purchase price allocation for RPS based on estimates, assumptions, valuations and other analyses as of January 23, 2023. The all cash purchase consideration, excluding the aforementioned forward contract gain, was 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) : 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 35,084 Other long-term assets 1,061 Total assets acquired 571,247 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 ( 13,742 ) Deferred tax liabilities ( 41,613 ) Total liabilities assumed ( 439,800 ) Fair value of net assets acquired 131,447 Goodwill 652,762 Total purchase consideration $ 784,209 67 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 (i n thousands) : 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 $ 0.01 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, consisted 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 material to our consolidated financial statements. As a result, no pro forma information has been provided. In fiscal 2022, we acquired The Integration Group of America ("TIGA"), Piteau Associates (“PAE”) and two other financially immaterial acquisitions. TIGA is based in Spring, Texas and is an industry leader in process automation and system integration solutions, including customized software and platform (SaaS/PaaS) applications, advanced data analytics, cloud data integration and platform virtualization. PAE is based in Vancouver, British Columbia and is a global leader in sustainable natural resource analytics including hydrologic numerical modeling and dewatering system design. PAE is part of our CIG segment, and TIGA and other 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 material, individually or in the aggregate, to our consolidated financial statements. As a result, no pro forma information has been provided. The majority of the goodwill from fiscal 2024 and 2022 acquisitions is deductible for tax purposes, while the majority of the goodwill from the fiscal 2023 acquisitions is not deductible for tax purposes. The results of our acquisitions were included in our consolidated financial statements beginning on the respective closing dates. 68 In fiscal 2024, our goodwill additions from the LST and CCE acquisitions reflect the extensive technical knowledge of the acquired workforces, the anticipated synergies in data analytics, cybersecurity and digital transformation services, and collective reputations of these acquisitions in providing mission critical solutions to both commercial and government customers. In fiscal 2023, our goodwill additions 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 and environment; 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 existing 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. 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 on a straight-line basis over the useful lives of the underlying assets, ranging from one to 12 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 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 2024, we evaluated our estimates for contingent consideration liabilities for the remaining earn-out periods for each individual acquisition, which included a review of their financial results to-date, the status of ongoing projects in their RUPO and the inventory of prospective new contract awards. In fiscal 2024, we recorded adjustments to our contingent earn-out liabilities and reported a net loss to operating income of $ 2.5 million. The net loss primarily resulted from increased valuations of the contingent consideration liabilities for our prior acquisitions of LST and BlueWater Federal Solutions, Inc., reflecting their financial performance that exceeded our previous expectations. These increases were partially offset primarily by a decreased valuation of the contingent consideration for Amyx, as forecasted revenues and earnings did not become realized as originally anticipated. 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 69 performance that exceeded our previous expectations. These increases were partially offset by a decreased valuation of the contingent consideration for Amyx. In fiscal 2022, total adjustments to our contingent earn-out liabilities in operating income were immaterial. The following table summarizes the changes in the fair value of estimated contingent consideration (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Beginning balance $ 73,422 $ 65,566 $ 59,297 Estimated earn-out liabilities for acquisitions 23,038 12,248 31,341 Payments of contingent consideration ( 54,050 ) ( 21,328 ) ( 20,433 ) Adjustments to fair value reported in earnings 2,541 12,255 329 Interest accretion expense 2,639 2,480 2,184 Effect of foreign currency exchange rate changes 1,156 2,201 ( 7,152 ) Ending balance $ 48,746 $ 73,422 $ 65,566 Maximum potential payout at end of period $ 102,006 $ 113,820 $ 120,882 6. Goodwill and Intangible Assets The following table summarizes the changes in the carrying value of goodwill by reportable segment (in thousands): GSG CIG Total Balance at October 2, 2022 $ 519,102 $ 591,310 $ 1,110,412 Acquisition activity 138,380 621,496 759,876 Translation and other adjustments 2,460 7,496 9,956 Balance at October 1, 2023 659,942 1,220,302 1,880,244 Acquisition activity 84,865 — 84,865 Translation and other adjustments 6,010 75,450 81,460 Balance at September 29, 2024 $ 750,817 $ 1,295,752 $ 2,046,569 Goodwill amounts are presented net of reductions from historical impairment adjustments. The fiscal 2024 goodwill addition resulted from the purchase price allocations for our recent acquisitions which are preliminary and subject to adjustment based upon the final determinations of the net assets acquired and information to perform the final valuation. Goodwill adjustments primarily related to the foreign currency translation adjustments which resulted from our foreign subsidiaries with functional currencies that are different than our reporting currency. We per form our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our last review at July 1, 2024 (i.e., the first day of our fourth quarter in fiscal 2024) 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 1, 2024, we had no reporting units that had estimated fair values that exceeded their carrying values by less than 72 %. 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 $ 768.5 million and $ 677.6 million at fiscal 2024 and 2023 year-ends, respectively, excluding accumulated impairment of $ 17.7 million for each period. The gross amounts of goodwill for CIG were $ 1,417.3 million and $ 1,341.8 million at fiscal 2024 and 2023 year-ends, respectively, excluding accumulated impairment of $ 121.5 million for each period. 70 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 September 29, 2024 October 1, 2023 Weighted- Average Remaining Life (in years) Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount Client relations 8.3 $ 198,726 $ ( 57,975 ) $ 140,751 $ 169,217 $ ( 36,072 ) $ 133,145 Backlog 0.4 75,194 ( 71,101 ) 4,093 63,825 ( 47,802 ) 16,023 Trade names 1.4 40,926 ( 25,185 ) 15,741 37,411 ( 12,643 ) 24,768 Total $ 314,846 $ ( 154,261 ) $ 160,585 $ 270,453 $ ( 96,517 ) $ 173,936 Amortization expense for the identifiable intangible assets for fiscal 2024, 2023 and 2022 was $ 50.0 million, $ 41.2 million and $ 13.2 million, respectively. Foreign currency translation adjustments increased net identifiable intangible assets by $ 13.4 million in fiscal 2024. The foreign currency translation adjustments were immaterial in fiscal 2023. Estimated amortization expense for the succeeding five fiscal years and beyond is as follows (in thousands ): Amount 2025 $ 36,198 2026 24,332 2027 17,625 2028 17,116 2029 16,204 Beyond 49,110 Total $ 160,585 7. Property and Equipment Property and equipment consisted of the following (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 Equipment, furniture and fixtures $ 139,070 $ 132,744 Leasehold improvements 44,883 44,733 Total property and equipment 183,953 177,477 Accumulated depreciation ( 110,888 ) ( 102,645 ) Property and equipment, net $ 73,065 $ 74,832 The depreciation expense related to property and e quipment was $ 23.7 million, $ 20.0 million and $ 13.9 million for fiscal 2024, 2023 and 2022, respectively. 71 8. Income Taxes Income before income taxes, by geographic area, was as follows (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Income before income taxes: United States $ 294,401 $ 287,295 $ 262,428 Foreign 169,065 113,683 86,338 Total income before income taxes $ 463,466 $ 400,978 $ 348,766 Income tax expense consisted of the following (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Current: Federal $ 76,851 $ 110,371 $ 47,447 State 20,997 16,025 9,613 Foreign 44,402 28,970 26,332 Total current income tax expense 142,250 155,366 83,392 Deferred: Federal ( 18,734 ) ( 18,062 ) ( 424 ) State ( 6,747 ) ( 4,976 ) ( 382 ) Foreign 13,254 ( 4,802 ) 3,016 Total deferred income tax (benefit) expense ( 12,227 ) ( 27,840 ) 2,210 Total income tax expense $ 130,023 $ 127,526 $ 85,602 72 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 September 29, 2024 October 1, 2023 October 2, 2022 Tax at federal statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 2.4 2.2 2.1 Research and Development ("R&D") credits ( 1.2 ) ( 0.5 ) ( 1.0 ) Tax differential on foreign earnings 2.0 1.5 1.0 Stock compensation ( 0.4 ) ( 0.4 ) ( 2.0 ) Valuation allowance ( 0.1 ) 1.3 0.2 Change in uncertain tax positions 1.3 11.6 ( 1.1 ) Return to provision ( 1.0 ) 1.1 1.4 Disallowed officer compensation 0.9 1.2 1.9 Unremitted earnings 0.4 0.2 ( 0.2 ) Hedging gain — ( 5.7 ) — Deferred tax adjustments 0.8 ( 2.3 ) 0.1 Audit settlements 0.9 — — Other 1.1 0.6 1.1 Total income tax expense 28.1 % 31.8 % 24.5 % The effective tax rates for fiscal 2024, 2023 and 2022 wer e 28.1 %, 31.8 % and 24.5 %, respectively. The fiscal 2024 income tax expense included $ 4.2 million of expense for the settlement of various tax positions that were under audit for fiscal years 2011 through 2021. 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) recognize the tax liability for foreign earnings, primarily in the United Kingdom and Australia, that are no longer indefinitely reinvested. Also, income tax expense was reduced by $ 4.5 million, $ 4.6 million and $ 10.3 million of excess tax benefits on share-based payments in fiscal 2024, 2023 and 2022, respectively. Excluding the impact of the excess tax benefits on share-based payments in all years, the settlement amount in fiscal 2024, and the non-operating tax expenses in fiscal 2023, our effective tax rates for fiscal 2024, 2023 and 2022 were 28.1 %, 27.8 % and 27.5 %, respectively. Temporary differences comprising the net deferred income tax asset shown on the accompanying consolidated balance sheets were as follows (in thousands): 73 Fiscal Year Ended September 29, 2024 October 1, 2023 Deferred Tax Assets: State taxes $ 3,916 $ 2,686 Reserves and contingent liabilities — 2,849 Accounts receivable including the allowance for doubtful accounts 5,315 5,323 Accrued liabilities 64,929 64,155 Lease liabilities, operating leases 51,841 53,437 Stock-based compensation 1,923 1,900 Unbilled revenue 9,273 3,090 Loss and other carry-forwards 48,256 67,673 Property and equipment — 552 Capitalized research and development 37,417 17,778 Capped call transactions 10,311 12,696 Valuation allowance ( 16,841 ) ( 16,559 ) Total deferred tax assets 216,340 215,580 Deferred Tax Liabilities: Prepaid expense ( 3,065 ) ( 2,702 ) Reserves and contingent liabilities ( 153 ) — Right-of-use assets, operating leases ( 51,841 ) ( 53,437 ) Intangibles ( 81,623 ) ( 83,242 ) Undistributed earnings ( 2,708 ) ( 1,453 ) Property and equipment ( 1,583 ) — Total deferred tax liabilities ( 140,973 ) ( 140,834 ) Net deferred tax assets $ 75,367 $ 74,746 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 September 29, 2024, we had available state net operating loss carry forwards of $ 26.6 million that expire at various dates from 2025 to 2043; and available foreign NOL carry forwards of $ 123.9 million, of which $ 15.0 million expire at various dates from 2025 to 2044, and $ 108.9 million have no expiration date. In addition, we had foreign capital loss carryforwards of $ 41.4 million, foreign corporate interest restriction allowances of $ 7.5 million, and foreign research and development credits of $ 4.2 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 $ 16.8 million has been provided. At September 29, 2024, we had $ 41.4 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. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands) : 74 Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Beginning balance $ 53,619 $ 8,908 $ 12,899 Acquisition of RPS Group — 6,012 — Additions for current fiscal year tax positions 1,000 27,272 — Additions for prior fiscal year tax positions 1,000 14,602 — Reductions for prior fiscal year tax positions — ( 1,358 ) ( 3,014 ) Settlements ( 14,179 ) ( 1,817 ) ( 977 ) Ending balance $ 41,440 $ 53,619 $ 8,908 We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2024 , 2023 and 2022 , we accrued additional interest and penalties of $ 3.8 million, $ 4.6 million and $ 0.5 million, respectively, and recorded reductions in accrued interest and penalties of $ 3.2 million , $ 2.0 million and $ 0.4 million, respe ctively, as a result of audit settlements and other prior-year adjustments. The amount of interest and penalties accrued at September 29, 2024, October 1, 2023 and October 2, 2022 was $ 8.6 million, $ 8.0 million and $ 5.3 million, respectively. 9. Long-Term Debt Long-term debt consisted of the following (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 Credit facilities $ 250,000 $ 320,000 Convertible notes 575,000 575,000 Debt issuance costs and discount ( 12,366 ) ( 15,471 ) Long-term debt $ 812,634 $ 879,529 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 was 5.0855 shares (pre-stock split) 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 (pre-stock split) of our common stock. The conversion rate is subject to adjustment for certain events, including stock splits and issuance of certain stock dividends on our common stock. As adjusted to give effect to the stock split, the applicable conversion rate was 25.4345 shares of common stock per $1,000 principal amount of the Convertible Notes (equivalent to an adjusted conversion price of approximately $ 39.32 per share of common stock) at September 29, 2024. 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. 75 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 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 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 are amortized to interest expense using the effective interest method over the terms of the Convertible Notes resulting in an effective annual interest rate of 2.79 %. The net carrying amount of the Convertible Notes was as follows (in thousands) : Fiscal Year Ended September 29, 2024 October 1, 2023 Principal $ 575,000 $ 575,000 Unamortized discount and issuance costs ( 11,434 ) ( 14,158 ) Net carrying amount $ 563,566 $ 560,842 The following table sets forth the interest expense recognized related to the Convertible Notes (in thousands) : Fiscal Year Ended September 29, 2024 October 1, 2023 Interest expense $ 12,866 $ 1,438 Amortization of discount and issuance costs 2,724 292 Total interest expense $ 15,590 $ 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 of 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 was initially $ 259.56 per share (pre-stock split), which represents a premium of 65 % over the last reported sale price of our common stock of $ 157.31 per share (pre-stock split) on the NASDAQ Global Select Market on August 17, 2023. The cap price is subject to adjustment for certain events, including stock splits and issuance of certain stock dividends on our common stock. As adjusted to give effect to the stock split, the adjusted cap price was approximately $ 51.90 per share at September 29, 2024. 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. 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 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 76 Company’s projects and operational sustainability initiatives and (ii) improvement of peoples’ lives as a result of the Company’s projects that provide environmental, social and governance benefits. The Amended Revolving Credit Facility includes a $ 100 million sublimit for the issuance of standby letters of credit, a $ 20 million sublimit for swingline loans and a $ 300 million sublimit for multicurrency borrowings and letters of credit. The entire Amended Term Loan Facility was drawn on February 18, 2022. We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a benchmark rate plus a margin that ranges from 1.000 % to 1.875 % per annum, or (b) a base rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50 % per annum, the bank’s prime rate or the Secured Overnight Financing Rate ("SOFR") rate plus 1.00 %, plus a margin that ranges from 0 % to 0.875 % per annum. In each case, the applicable margin is based on our Consolidated Leverage Ratio, calculated quarterly. The Amended Term Loan Facility is subject to the same interest rate provisions. The Amended Credit Agreement expires on February 18, 2027, or earlier at our discretion upon payment in full of loans and other obligations. In fiscal 2023, we repaid the Amended Term Loan Facility in full with the Convertible Notes proceeds. At fiscal 2024 year-end, we had $ 250 million in outstanding borrowings under the Amended Credit Agreement, which was consisted of $ 250 million under the New Term Loan Facility and no borrowings under the Amended Revolving Credit Facility. The weighted-average interest rate of the outstanding borrowings under the Amended Credit Agreement during fiscal 2024 was 6.70 %. In addition, we had $ 0.7 million in standby letters of credit under the Amended Credit Agreement. At September 29, 2024, 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 2024 year-end, we were in compliance with these covenants with a consolidated leverage ratio of 1.38 x and a consolidated interest coverage ratio of 13.94 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 2024 year-end, there were no outstanding borrowings under these facilities and the aggregate amount of standby letters of credit outstanding was $ 43.3 million. As of September 29, 2024 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 2025 — 2026 250,000 2027 — 2028 575,000 Total $ 825,000 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 and 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 77 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. 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. 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 at fiscal 2023 year-end. The components of lease costs are as follows (in thousands) : Fiscal Year Ended September 29, 2024 October 1, 2023 Operating lease cost $ 100,002 $ 93,674 Sublease income ( 589 ) ( 740 ) Total lease cost $ 99,413 $ 92,934 Supplemental cash flow information related to leases is as follows (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 Operating cash flows for operating leases $ 79,354 $ 78,268 Right-of-use assets obtained in exchange for new operating lease liabilities 62,601 70,552 Supplemental balance sheet and other information related to leases are as follows (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 Operating leases: Right-of-use assets $ 177,950 $ 175,932 Lease liabilities: Current $ 63,419 $ 65,005 Non-current 140,095 144,685 Total operating lease liabilities $ 203,514 $ 209,690 Weighted-average remaining lease term: Operating leases 5 years 5 years Weighted-average discount rate: Operating leases 3.6 % 3.0 % 78 As of fiscal 2024 year-en d, we had $ 15.3 million of operating leases that have not yet commenced. A maturity analysis of the future undiscounted cash flows associated with our lease liabili ties at fiscal 2024 year-end is as follows (in thousands): Amount 2025 $ 68,743 2026 51,485 2027 38,106 2028 25,111 2029 15,551 Beyond 21,436 Total lease payments 220,432 Less: imputed interest ( 16,918 ) Total present value of lease liabilities $ 203,514 11. Employee Benefits 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 million total received was initially recorded in " Other long-term liabilities " until all potential amendments to the qualification criteria, including some that were proposed with retroactive application, were finalized in fiscal 2022. In fiscal 2024 (all in the first quarter of fiscal 2024), we distributed approximately $ 10 million to our Canadian employees. The remaining $ 11 million, which we expect to distribute in the first quarter of fiscal 2025, is reported in " Accrued compensation ". We do not expect there will be any related impact on our operating income, and we have no outstanding applications for further government assistance. 12. Stockholders' Equity and Stock Compensation Plans Stock Split. On September 9, 2024, we completed a five -for-one stock split of our common stock. All share, equity award and per share amounts and related stockholders' equity balances presented herein have been retroactively adjusted, where applicable, to reflect the stock split. At fiscal 2024 year-end, we had t he 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 restricted stock units ("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 2024 year-end, there were 12.8 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 890,250 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). 79 The following table presents our stock-based compensation and related income tax benefits (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Total stock-based compensation $ 31,155 $ 28,607 $ 26,227 Income tax benefit related to stock-based compensation ( 6,489 ) ( 5,779 ) ( 5,377 ) Stock-based compensation, net of tax benefit $ 24,666 $ 22,828 $ 20,850 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 2024 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 1, 2023 742 $ 7.89 Exercised ( 410 ) 7.47 Outstanding on September 29, 2024 332 $ 8.41 2.44 $ 12,598 Vested or expected to vest on September 29, 2024 332 $ 8.41 2.44 $ 12,598 Exercisable on September 29, 2024 332 $ 8.41 2.44 $ 12,598 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 fi scal 2024 and the exercise price, times the number of shares) that would have been received by the in-the-money option holders if they had exercised their options on September 29, 2024. This amount will change based on the fair market value of our stock. No stock options were granted in fiscal 2024, 2023 and 2022. The aggregate intrinsic value of options exercised during fiscal 2024, 2023 and 2022 was $ 12.7 million, $ 2.5 million and $ 5.7 million, respectively. Net cash proceeds from the exercise of stock options were $ 3.1 million, $ 0.6 million and $ 1.8 million for fiscal 2024, 2023 and 2022, 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 2024, 2023 and 2022 was $ 2.8 million, $ 0.6 million and $ 1.3 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 diluted 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. 80 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 October 3, 2021 1,903 $ 16.66 1,588 $ 16.59 Granted 389 36.92 209 49.43 Vested ( 734 ) 15.49 ( 880 ) 16.03 Adjustment (1) — — 441 16.13 Forfeited ( 63 ) 21.80 — — Nonvested balance at October 2, 2022 1,495 22.28 1,358 21.85 Granted 525 31.27 281 39.10 Vested ( 595 ) 20.81 ( 689 ) 19.97 Adjustment (1) — — 344 19.97 Forfeited ( 78 ) 28.00 ( 45 ) 38.74 Nonvested balance at October 1, 2023 1,347 26.12 1,249 25.64 Granted 723 33.14 279 41.08 Vested ( 508 ) 25.87 ( 431 ) 30.61 Adjustment (1) — — 193 30.61 Forfeited ( 75 ) 31.45 ( 29 ) 40.36 Nonvested balance at September 29, 2024 1,487 $ 29.35 1,261 $ 27.78 (1) Fiscal 2022 includes a payout adju stment of 440,990 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 343,960 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2020 that vested during fiscal 2023. Fiscal 2024 includes a payout adjustment of 193,340 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2021 that vested during fiscal 2024. In fiscal 2024, 2023 and 2022, we awarded 723,420 , 525,410 and 389,220 shares of RSUs, respectively, to our key employees and non-employee directors. The weighted-average grant-date fair value of RSUs granted during fiscal 2024, 2023 and 2022 was $ 33.14 , $ 31.27 and $ 36.92 , respectively. At fiscal 2024 year-end, there were 1,486,725 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 2024, 2023 and 2022, we awarded 279,180 , 281,070 and 208,670 shares of PSUs, respectively, to our executive officers and non-employee directors. The weighted-average grant-date fair value of PSUs granted in fiscal 2024, 2023 and 2022 was $ 41.08 , $ 39.10 and $ 49.43 , respectively. At fiscal 2024 year-end, there were 1,261,120 PSUs outstanding. The stock-based compensation expense related to RSUs and PSUs for fiscal 2024, 2023 and 2022 was $ 29.1 million, $ 26.2 million and $ 23.9 million, respectively, and was included in total stock-based compensation expense. The actual income tax benefit realized from RSUs and PSUs for fiscal 2024, 2023 and 2022 was $ 1.6 million, $ 4.0 million and $ 9.1 million, respectively. At fiscal 2024 year-end, there was $ 46.4 million of unrecognized stock-based compensation costs related to nonvested RSUs and PSUs that will be substantially recognized by fiscal 2027 year-end. 81 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 September 29, 2024 October 1, 2023 October 2, 2022 Shares purchased 522 492 531 Weighted-average purchase price per share $ 28.14 $ 25.66 $ 22.83 Cash received from exercise of purchase rights $ 14,675 $ 12,628 $ 12,129 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 September 29, 2024 October 1, 2023 October 2, 2022 Dividend yield 0.7 % 0.7 % 1.0 % Expected stock price volatility 27.1 % 38.0 % 32.2 % Risk-free rate of return, annual 4.7 % 4.7 % 0.4 % Expected life (in years) 1 1 1 For fiscal 2024, 2023 and 2022, we based our expected stock price volatility on historical volatility behavior and current implied volatility behavior. The risk-fr ee 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 2024, 2023 and 2022 included $ 2.0 million, $ 2.4 million and $ 2.3 million, respectively, related to the ESPP. The unrecognized stock-based compensation costs for awards granted under the ESPP at fiscal 2024 and 2023 year-ends were $ 0.5 million and $ 0.6 million, respectively. At fiscal 2024 year-end, ESPP participants had accumulated $ 13 million to purchase our common stock. 82 13. Retirement Plans We have defined contribution plans in various countries where we have employees. Th is primarily includes 401(k) plans in the United States. For fiscal 2024, 2023 and 2022, employer contributions to the U.S. plans were $ 35.3 million, $ 31.6 million and $ 29.3 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 2024 and 2023 year-ends, the consolidated balance sheets reflect assets of $ 70.1 million and $ 43.5 million, respectively, related to the deferred compensation plan in "Other long-term assets," and liabilities of $ 74.3 million and $ 43.4 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 consolidated statements of income. These related net gains and losses were immaterial for fiscal 2024, 2023 and 2022. In connection with an acquisition, we assumed a defined benefit pension plan (the “Plan”), which was operated for all qualifying employees. The assets of the Plan are held in a separate trustee administered fund. The plan is closed to new participants and to future benefit accrual. Under the agreed schedule of contributions, we make no further contributions, and continue 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 2024, 2023 and 2022 were immaterial. The Plan's funded status was as follows (in thousands) : Fiscal Year Ended September 29, 2024 October 1, 2023 Fair value of plan assets $ 46,815 $ 39,572 Benefit obligation ( 39,722 ) ( 35,303 ) Net surplus $ 7,093 $ 4,269 The net surplus is reflected in other long-term assets on our consolidated balance sheets as of fiscal 2024 and 2023 year-ends. The benefits paid in fiscal 2024 and 2023 were $ 1.5 million and $ 1.3 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 September 29, 2024 October 1, 2023 Equities $ 3,739 $ 2,213 Mutual funds 22,923 20,458 Liability driven investment funds 15,833 13,807 Bonds 2,657 2,354 Cash/other 1,663 740 Fair value of plan assets $ 46,815 $ 39,572 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 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. 83 Principal assumptions used for the benefit obligation in the valuation are as follows: Fiscal Year Ended September 29, 2024 October 1, 2023 Discount rate 5.00 % 5.35 % Rate of inflation 2.70 % to 3.15 % 2.80 % to 3.35 % 14. Earnings per Share Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding, less unvested restricted stock for the period. Diluted EPS is computed by dividing net income by the weighted-average number of common shares outstanding and dilutive potential common shares for the period. Potential common shares include the weighted-average dilutive effects of stock-based awards and shares underlying our Convertible Notes. For fiscal 2024, our Convertible Notes, described in Note 9, "Long-Term Debt", had a dilution impact on the dilutive potential common shares, which was calculated using the if-converted method. The dilution impact was due to the price of our common stock exceeding the conversion price. The related Capped Call Transactions were excluded from the calculation of dilutive potential common shares as their effect is anti-dilutive. For fiscal 2024, 2023 and 2022, no options were excluded from the calculation of dilutive potential common shares. The following table presents the number of weighted-average shares used to compute basic and diluted EPS (in thousands, except per share data): Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Net income attributable to Tetra Tech $ 333,382 $ 273,420 $ 263,125 Weighted-average common shares outstanding – basic 267,364 266,015 268,100 Effect of diluted stock options and unvested restricted stock 2,125 2,170 2,715 Shares issuable assuming conversion of convertible notes 553 — — Weighted-average common stock outstanding – diluted 270,042 268,185 270,815 Earnings per share attributable to Tetra Tech: Basic $ 1.25 $ 1.03 $ 0.98 Diluted $ 1.23 $ 1.02 $ 0.97 15. Derivative Financial Instruments We periodically use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt. We also enter into foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and earnings could adversely be affected by foreign currency exchange rate fluctuations. Our hedging program is not designated for trading or speculative purposes. 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 84 $ 19.9 million, and an unrealized gain of the same amount was recognized in our fourth quarter of fiscal 2022 results. On January 23, 2023, the forward contract was settled at the fair value of $ 109.3 million. We recognized additional gains of $ 68.0 million and $ 21.4 million in the first and second quarters of fiscal 2023, respectively. All gains related to this transaction were reported in “Other non-operating income" on our consolidated income statements for the respective periods. In fiscal 2018, we 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 and a gain of $ 11.8 million for fiscal yea r ended 2023 and 2022, respectively, were recognized and reported on our consolidated statements of comprehensive income. There were no derivative instruments that were not designated as hedging instruments for fiscal 2024, 2023 and 2022. 16. Reclassifications Out of Accumulated Other Comprehensive Income (Loss) The accumulated balances and reporting period activities for fiscal 2024, 2023 and 2022 related to reclassifications out of accumulated other comprehensive inc ome (loss) are sum marized as follows (in thousands): Foreign Currency Translation Adjustments (Loss) Gain on Derivative Instruments Net Pension Adjustments Accumulated Other Comprehensive (Loss) Income Balances at October 3, 2021 $ ( 115,634 ) $ ( 9,394 ) $ — $ ( 125,028 ) Other comprehensive (loss) 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 (loss) before reclassifications 12,623 ( 5,192 ) 2,638 10,069 Amounts reclassified from accumulated other comprehensive income (loss) 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 ) Other comprehensiv e income be fore reclassifications 115,120 — 1,300 116,420 Net current-period other comprehensive income 115,120 — 1,300 116,420 Balances at September 29, 2024 $ ( 82,813 ) $ — $ 3,938 $ ( 78,875 ) (1) This accumulated other comprehensive component is reclassified to "Interest expense" in our consolidated statements of income. See Note 15, "Derivative Financial Instruments", for more information. 17. Fair Value Measurements We classified our assets and liabilities that were carried at fair value in one of the following categories: • Level 1: Quoted market prices in active markets for identical assets or liabilities. • Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. • Level 3: Unobservable inputs that are not corroborated by market data. 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 Note 15, "Derivative Financial Instruments"). 85 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 Note 5, "Acquisitions" for further information). Debt. The fair value of long-t erm debt under our Credit Facility 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 under our Credit Facility approximated fair value at the end of our fiscal 2024 and 2023. At fiscal 2024 year-end, we had $ 250 million in outstanding borrowings under our Amended Credit Agreement, which consisted of $ 250 million under the New Term Loan Facility and no borrowings under the Amended Revolving Credit Facility. The estimated fair value of our $ 575 million Convertible Notes, which were used to fund our business acquisitions, working capital needs, dividends, capital expenditures and contingent earn-outs, was determined based on the trading price of the Convertible Notes as of the last trading day of fiscal 2024. We consider the fair value of the Convertible Notes to be a Level 2 measurement as they are not actively traded in markets. The carrying amounts and estimated fair values of the Convertible Notes were approximately $ 564 million and $ 743 million, respectively, at September 29, 2024, and $ 561 million and $ 566 million, respectively, at October 1, 2023 (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 13, " Retirement Plans "). 18. 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 ("the USAO") filed an amended complaint in the intervention of 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 Court"). 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. On March 5, 2024, the Court granted the USAO's motion to amend the filing to include additional claims against TtEC under the Comprehensive Environmental Response, Compensation, and Liability Act and common law. Several ancillary claims brought by third-party private plaintiffs arising from the same services provided by TtEC at Hunters Point are also ongoing. To explore whether a negotiated resolution is possible, TtEC began engaging in discussions with the USAO subsequent to the end of fiscal 2024 regarding a potential resolution of all claims. There can be no assurance that any framework for resolution will be achieved and, if any settlement is achieved, what the final terms or dollar amount will be. If a settlement is achieved, TtEC would not admit any wrongdoing and would be settling to avoid the delay, uncertainty and expense of protracted litigation. It is reasonably possible that a charge to income, which could be material to our financial position, results of operations and cash flows, may be required in future periods as discussions with the USAO continue and additional information becomes available. 19. 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 international 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 worldwide in 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 86 Canada, in Asia Pacific (primarily Australia and New Zealand), Europe, the United Kingdom and South America (primarily Brazil). 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) non-cash impairment charge related to our ROU operating lease assets in fiscal 2023 (see Note 10, "Leases" for more information). T he following tables present summarized financial information of our reportable segments (in thousands): Reportable Segments Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Revenue GSG $ 2,483,355 $ 2,158,889 $ 1,820,868 CIG 2,786,731 2,424,649 1,738,436 Elimination of inter-segment revenue ( 71,407 ) ( 60,988 ) ( 55,256 ) Total revenue $ 5,198,679 $ 4,522,550 $ 3,504,048 Income from operations GSG $ 281,026 $ 231,762 $ 198,448 CIG 328,510 243,750 194,142 Corporate (1) ( 108,799 ) ( 117,399 ) ( 52,144 ) Total income from operations $ 500,737 $ 358,113 $ 340,446 (1) Includes amortizat ion of intangibles, acquisition and integration expenses, as well as other costs and other income not allocable to segments. The intangible asset amortization expense for fiscal 2024, 2023 and 2022 was $ 50.0 million, $ 41.2 million and $ 13.2 million, respectively. Additionally, Corporate results included loss for fair value adjustments to contingent consideration liabilities of $( 2.5 ) million, $( 12.3 ) million and $( 0.3 ) million for fiscal 2024, 2023 and 2022, respectively. See Note 6 - "Goodwill and Intangible Assets" for more information. Fiscal Year Ended September 29, 2024 October 1, 2023 Total Assets GSG $ 658,493 $ 543,066 CIG 1,059,915 994,470 Corporate (1) 2,474,268 2,282,941 Total assets $ 4,192,676 $ 3,820,477 (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. 87 Geographic Information Fiscal Year Ended Revenue: September 29, 2024 October 1, 2023 October 2, 2022 United States $ 3,198,823 $ 2,863,635 $ 2,416,586 Foreign countries (1) 1,999,856 1,658,915 1,087,462 Total $ 5,198,679 $ 4,522,550 $ 3,504,048 Fiscal Year Ended Long-lived assets (2) : September 29, 2024 October 1, 2023 United States $ 154,616 $ 159,856 Foreign countries (1) 196,376 160,174 Total $ 350,992 $ 320,030 (1) Includes revenue and long-lived assets from our foreign operations, primarily in the United Kingdom, Australia and Canada, and reve nue generated from non-U.S. clients. (2) Excludes goodwill, intangible assets and deferred income taxes. 20. Related Party Transactions We often provide services to unconsolidated joint ventures. The table below presents revenue and reimbursable costs related to services we provided to our unconsolidated joint ventures (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 October 2, 2022 Revenue $ 67,744 $ 83,148 $ 95,967 Related reimbursable costs 61,637 78,489 91,656 Our consolidated balance sheets also included the following amounts related to these services (in thousands): Fiscal Year Ended September 29, 2024 October 1, 2023 Accounts receivable, net $ 15,612 $ 19,944 Contract assets 1,625 2,723 Contract liabilities ( 4,237 ) ( 3,158 ) 21. Quarterly Financial Information – Unaudited In the opinion of management, the followin g unaudited quarte rly data for the fiscal 2024 and 2023 reflect all adjustments necessary for a fair statement of the results of operations (in thousands, except per share data). In the first and second quarters of fiscal 2023, we recognized $ 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 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". 88 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year 2024 Revenue $ 1,228,267 $ 1,251,616 $ 1,344,323 $ 1,374,473 Income from operations 111,081 117,683 128,630 143,343 Net income attributable to Tetra Tech 74,972 76,446 85,810 96,154 Earnings per share attributable to Tetra Tech: Basic $ 0.28 $ 0.29 $ 0.32 $ 0.36 Diluted $ 0.28 $ 0.28 $ 0.32 $ 0.35 Weighted-average common shares outstanding: Basic 266,585 267,420 267,575 267,687 Diluted 268,690 269,375 270,260 271,656 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 $ 0.44 $ 0.16 $ 0.23 $ 0.20 Diluted $ 0.44 $ 0.16 $ 0.22 $ 0.20 Weighted-average common shares outstanding: Basic 265,345 266,135 266,155 266,235 Diluted 267,645 268,135 268,265 268,510 89 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.