TETRA TECH INC 10-Q

Item 1. Financial Statements Tetra Tech, Inc. Consolidated Balance Sheets (unaudited - in thousands, except par value) As of ASSETS December 29, 2024 September 29, 2024 Current assets: Cash and cash equivalents $ 248,104 $ 232,689 Accounts receivable, net 1,117,666 1,051,461 Contract assets 122,310 129,678 Prepaid expenses and other current assets 143,768 113,555 Total current assets 1,631,848 1,527,383 Property and equipment, net 67,102 73,065 Right-of-use assets, operating leases 172,080 177,950 Goodwill 1,968,684 2,046,569 Intangible assets, net 142,097 160,585 Deferred tax assets 96,916 105,529 Other non-current assets 100,457 101,595 Total assets $ 4,179,184 $ 4,192,676 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 238,157 $ 197,440 Accrued compensation 222,549 332,096 Contract liabilities 359,957 351,738 Short-term lease liabilities, operating leases 61,184 63,419 Current contingent earn-out liabilities 24,153 26,934 Other current liabilities 361,345 247,900 Total current liabilities 1,267,345 1,219,527 Deferred tax liabilities 24,902 30,162 Long-term debt 888,450 812,634 Long-term lease liabilities, operating leases 134,759 140,095 Non-current contingent earn-out liabilities 22,007 21,812 Other non-current liabilities 149,702 138,033 Commitments and contingencies (Note 17) Equity: Preferred stock - authorized, 2,000 shares of $ 0.01 par value; no shares issued and outstanding at December 29, 2024 and September 29, 2024 — — Common stock - authorized, 750,000 shares of $ 0.01 par value; issued and outstanding, 268,028 and 267,717 shares at December 29, 2024 and September 29, 2024, respectively 2,680 2,677 Additional paid-in capital 21,153 35,900 Accumulated other comprehensive loss ( 187,754 ) ( 78,875 ) Retained earnings 1,855,818 1,870,620 Tetra Tech stockholders’ equity 1,691,897 1,830,322 Noncontrolling interests 122 91 Total stockholders' equity 1,692,019 1,830,413 Total liabilities and stockholders' equity $ 4,179,184 $ 4,192,676 See Notes to Consolidated Financial Statements. 3 Tetra Tech, Inc. Consolidated Statements of Income (unaudited – in thousands, except per share data) Three Months Ended December 29, 2024 December 31, 2023 Revenue $ 1,420,561 $ 1,228,267 Subcontractor costs ( 223,231 ) ( 213,098 ) Other costs of revenue ( 975,853 ) ( 824,671 ) Gross profit 221,477 190,498 Selling, general and administrative expenses ( 83,951 ) ( 79,417 ) Legal contingency costs ( 115,000 ) — Income from operations 22,526 111,081 Interest expense, net ( 7,218 ) ( 9,577 ) Income before income tax expense 15,308 101,504 Income tax expense ( 14,530 ) ( 26,524 ) Net income 778 74,980 Net income attributable to noncontrolling interests ( 31 ) ( 8 ) Net income attributable to Tetra Tech $ 747 $ 74,972 Earnings per share attributable to Tetra Tech: Basic $ — $ 0.28 Diluted $ — $ 0.28 Weighted-average common shares outstanding: Basic 267,854 266,585 Diluted 271,886 268,690 See Notes to Consolidated Financial Statements. 4 Tetra Tech, Inc. Consolidated Statements of Comprehensive Income (Loss) (unaudited – in thousands) Three Months Ended December 29, 2024 December 31, 2023 Net income $ 778 $ 74,980 Other comprehensive (loss) income, net of tax Foreign currency translation adjustment, net of tax ( 108,846 ) 63,106 Net pension adjustments ( 33 ) ( 13 ) Other comprehensive (loss) income, net of tax ( 108,879 ) 63,093 Comprehensive (loss) income, net of tax ( 108,101 ) 138,073 Less: Comprehensive income attributable to noncontrolling interests, net of tax 31 8 Comprehensive (loss) income attributable to Tetra Tech, net of tax $ ( 108,132 ) $ 138,065 See Notes to Consolidated Financial Statements. 5 Tetra Tech, Inc. Consolidated Statements of Cash Flows (unaudited – in thousands) Three Months Ended December 29, 2024 December 31, 2023 Cash flows from operating activities: Net income $ 778 $ 74,980 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,063 19,484 Amortization of stock-based awards 8,142 7,641 Deferred income taxes 767 ( 1,624 ) Other non-cash items 775 123 Changes in operating assets and liabilities, net of effects of business acquisitions: Accounts receivable and contract assets ( 91,725 ) ( 22,288 ) Prepaid expenses and other assets ( 26,186 ) ( 28,615 ) Accounts payable 44,194 33,790 Accrued compensation ( 101,641 ) ( 80,069 ) Contract liabilities 27,527 41,862 Income taxes receivable/payable ( 1,538 ) ( 15,941 ) Cash settled on contingent earn-out liabilities ( 2,720 ) — Other liabilities 138,627 ( 20,097 ) Net cash provided by operating activities 13,063 9,246 Cash flows from investing activities: Capital expenditures ( 3,433 ) ( 3,434 ) Net cash used in investing activities ( 3,433 ) ( 3,434 ) Cash flows from financing activities: Proceeds from borrowings 90,000 125,000 Repayments on long-term debt ( 15,000 ) ( 60,000 ) Repurchases of common stock ( 25,000 ) — Shares repurchased for tax withholdings on share-based awards ( 13,307 ) ( 12,670 ) Payments of contingent earn-out liabilities ( 145 ) ( 18,862 ) Stock options exercised 114 335 Dividends paid ( 15,549 ) ( 13,873 ) Principal payments on finance leases ( 1,719 ) ( 1,539 ) Net cash provided by financing activities 19,394 18,391 Effect of exchange rate changes on cash and cash equivalents ( 13,609 ) 5,655 Net increase in cash and cash equivalents 15,415 29,858 Cash and cash equivalents at beginning of period 232,689 168,831 Cash and cash equivalents at end of period $ 248,104 $ 198,689 Supplemental information: Cash paid during the period for: Interest $ 4,295 $ 6,369 Income taxes, net of refunds received of $ 1.7 million and $ 0.9 million $ 14,489 $ 43,297 See Notes to Consolidated Financial Statements. 6 Tetra Tech, Inc. Consolidated Statements of Stockholders' Equity Three Months Ended December 31, 2023 and December 29, 2024 (unaudited – in thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Tetra Tech Equity Non-Controlling Interests Total Equity Shares Amount BALANCE AT OCTOBER 1, 2023 266,238 $ 2,662 $ — $ ( 195,295 ) $ 1,596,066 $ 1,403,433 $ 73 $ 1,403,506 Net income — — — — 74,972 74,972 8 74,980 Other comprehensive income — — — 63,093 — 63,093 — 63,093 Cash dividends of $ 0.052 per common share — — — — ( 13,873 ) ( 13,873 ) — ( 13,873 ) Stock-based compensation — — 7,641 — — 7,641 — 7,641 Restricted & performance shares released 524 5 ( 12,675 ) — — ( 12,670 ) — ( 12,670 ) Stock options exercised 45 — 335 — — 335 — 335 Shares issued for Employee Stock Purchase Plan 522 5 14,670 — — 14,675 — 14,675 BALANCE AT DECEMBER 31, 2023 267,329 $ 2,672 $ 9,971 $ ( 132,202 ) $ 1,657,165 $ 1,537,606 $ 81 $ 1,537,687 BALANCE AT SEPTEMBER 29, 2024 267,717 $ 2,677 $ 35,900 $ ( 78,875 ) $ 1,870,620 $ 1,830,322 $ 91 $ 1,830,413 Net income — — — — 747 747 31 778 Other comprehensive loss — — — ( 108,879 ) — ( 108,879 ) — ( 108,879 ) Cash dividends of $ 0.058 per common share — — — — ( 15,549 ) ( 15,549 ) — ( 15,549 ) Stock-based compensation — — 8,142 — — 8,142 — 8,142 Restricted & performance shares released 432 5 ( 13,312 ) — — ( 13,307 ) — ( 13,307 ) Stock options exercised 21 — 114 — — 114 — 114 Shares issued for Employee Stock Purchase Plan 458 4 15,303 — — 15,307 — 15,307 Stock repurchase ( 600 ) ( 6 ) ( 24,994 ) — — ( 25,000 ) — ( 25,000 ) BALANCE AT DECEMBER 29, 2024 268,028 $ 2,680 $ 21,153 $ ( 187,754 ) $ 1,855,818 $ 1,691,897 $ 122 $ 1,692,019 See Notes to Consolidated Financial Statements. 7 TETRA TECH, INC. Notes to Consolidated Financial Statements 1. Basis of Presentation The accompanying unaudited consolidated financial statements and related notes of Tetra Tech, Inc. (“we,” “us,” “our” or "Tetra Tech") have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and, therefore, should be read in conjunction with the audited consolidated financial statements and the notes contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2024. These financial statements reflect all normal recurring adjustments that are considered necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full fiscal year or for future fiscal yea r s. Certain prior year amounts have been reclassified to conform to the current year presentation in the accompanying notes. 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. 2. Recent Accounting Pronouncements 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 (fiscal 2025 year-end for us), and interim periods within fiscal years beginning after December 15, 2024 (first quarter of fiscal 2026 for us). Early adoption is permitted. The adoption of this ASU will not have a material impact on our consolidated financial statements. 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. The adoption of this ASU will not have a material impact on our consolidated financial statements. In November 2024, the FASB issued ASU No. 2024-03, Income Statement (Topic 220): Reporting Comprehensive Income. ASU 2024-03 does not change or remove current expense presentation requirements within the consolidated statements of income. However, the amendments require disclosure, on an annual and interim basis, of disaggregated information about certain income statement expense line items within the notes to the consolidated financial statements. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026 (fiscal 2028 for us), and interim reporting periods beginning after December 15, 2027 (first quarter of fiscal 2029 for us). Early adoption is permitted. The adoption of t his ASU will not have a material impact on our consolidated financial statements. In November 2024, the FASB issued ASU No. 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which clarifies the requirements related to accounting for the settlement of a debt instrument as an induced conversion. The amendments in this update are effective for annual reporting periods beginning after December 15, 2025, including interim periods within those fiscal years (first quarter of fiscal 2027 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 this ASU before fiscal 2027. 3. Revenue and Contract Balances We disaggregate revenue by client sector and contract type, as we believe it best depicts how the nature, timing and uncertainty of our revenue and cash flows are affected by economic factors. The following tables present our revenue disaggregated by client sector and contract type (in thousands): 8 Three Months Ended December 29, 2024 December 31, 2023 Client Sector: U.S. federal government (1) $ 501,848 $ 382,076 U.S. state and local government 202,987 150,925 U.S. commercial 233,591 222,430 International (2) 482,135 472,836 Total $ 1,420,561 $ 1,228,267 Contract Type: Fixed-price $ 519,822 $ 471,442 Time-and-materials 598,948 549,651 Cost-plus 301,791 207,174 Total $ 1,420,561 $ 1,228,267 (1) Includes revenue generated under U.S. federal government contracts performed outside the United States. (2) Includes revenue generated from non-U.S. clien ts, primarily in United Kingdom, Australia and Canada Other than the U.S. federal government, no single client accounted for more than 10% of our revenue for the first quarters of fiscal 2025 and 2024. Contract Assets 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 for the periods presented. Net contract assets/liabilities consisted of the following (in thousands): As of December 29, 2024 September 29, 2024 Contract assets (1) $ 122,310 $ 129,678 Contract liabilities - current ( 359,957 ) ( 351,738 ) Contract liabilities - non-current (2) ( 8,035 ) — Net contract liabilities $ ( 245,682 ) $ ( 222,060 ) (1) Includes $ 8.4 million and $ 7.9 million of contract retentions at December 29, 2024 and September 29, 2024, respectively. (2) Reported under "Other non-current liabilities" on our consolidated balance sheet as of December 29,2024. Our contract assets decreased, and contract liabilities increased in the first quarter of fiscal 2025 compared to fiscal 2024 year-end, due to the timing of our milestone billings on fixed-price contracts which were different from the timing of revenue recognition on those contracts. For the first three months of fiscal 2025 and 2024, we recognized revenue of approximately $ 116 million and $ 130 million, respect ively, from the amounts included in the contract liability balances at the end of fiscal 2024 and 2023, 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 9 our total costs incurred on each contract as a percentage of the total expected contract costs. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. As a result, in the first quarters of fiscal 2025 and 2024, we recognized net favorable revenue and operating income adjustments of $ 2.7 million and $ 5.7 million, respectively. C hanges in revenue and cos t estimates could also result in a projected loss, determined at the contract level, which would be recorded immediately in earnings. At December 29, 2024 and September 29, 2024, our consolidated balance sheets included liabilities for anticipated losses of $ 13.2 million and $ 15.1 million, respectively. The estimated cost to complete these related contracts was approximately $ 96 million and $ 101 million at December 29, 2024 and September 29, 2024, respectively. Accounts Receivable, Net Net accounts receivable consisted of the following (in thousands): As of December 29, 2024 September 29, 2024 Billed $ 707,357 $ 707,406 Unbilled 414,778 348,907 Total accounts receivable 1,122,135 1,056,313 Allowance for doubtful accounts ( 4,469 ) ( 4,852 ) Total accounts receivable, net $ 1,117,666 $ 1,051,461 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 December 29, 2024 are expected to be billed and collecte d within 12 months. The allowance for doubtful accounts represents amounts that are expected to become uncollectible or unrealizable in the future. We determine an estimated allowance for uncollectible accounts based on management's consideration of trends in the actual and forecasted credit quality of our clients, including delinquency and payment history; type of client, such as a government agency or a commerci al 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 December 29, 2024 and September 29, 2024. 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 had $ 5.4 billion of RUPO at December 29, 2024 . Our RUPO increases with awards from new contracts or additions on existing contracts, and decreases as work is performed and revenue is recognized on existing contracts. 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. We expect to satisfy our RUPO at December 29, 2024 over the following periods (in thousands): Amount Within 12 months $ 3,673,959 Beyond 1,717,412 Total $ 5,391,371 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. Acquisitions In the second quarter of 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 10 clients. In the third quarter of fiscal 2024, we also 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 Government Services Group ("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 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. The results of LST and CCE have been included in our consolidated financial statements since the beginning of their respective closing dates. 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. Our fiscal 2024 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. These goodwill additions are deductible for tax purposes. 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 5, “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 to 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 the first quarter of fis cal 2025, 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 the first quarters of fiscal 2025 and 2024, we recorded immaterial adjustments, individually and in aggregate, to our contingent earn-out liabilities and included the corresponding amount in our operating income. 11 The following table summarizes the changes in the fair value of estimated contingent consideration (in thousands): Three Months Ended December 29, 2024 December 31, 2023 Beginning balance $ 48,746 $ 73,422 Payments of contingent consideration ( 2,865 ) ( 18,862 ) Adjustments to fair value recorded in earnings ( 366 ) ( 37 ) Interest accretion expense 645 471 Effect of foreign currency exchange rate changes — 610 Ending balance $ 46,160 $ 55,604 Maximum potential payout at end of period $ 99,006 $ 92,253 5. 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 September 29, 2024 $ 750,817 $ 1,295,752 $ 2,046,569 Translation adjustments ( 4,124 ) ( 73,761 ) ( 77,885 ) Balance at December 29, 2024 $ 746,693 $ 1,221,991 $ 1,968,684 Translation adjustments resulted from our goodwill amounts in foreign subsidiaries with functional currencies that are different than our reporting currency. Th e goodwill amoun ts presented in the table above are net of reductions from historical impairment adjustments. The gross amounts for GSG were $ 764.4 million and $ 768.5 million at December 29, 2024 and September 29, 2024, respectively, excluding accumulated impairment of $ 17.7 million at each date. The gross amounts of goodwill for Commercial/International Services Group ("CIG") were $ 1,343.5 million and $ 1,417.3 million at December 29, 2024 and September 29, 2024, respectively, excluding accumulated impairment of $ 121.5 million at each period end. We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our most recent annual 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. At July 1, 2024, we had no reporting units that had estimated fair values that exceeded their carrying val ues by less than 72 %. We also regularly evaluate whether events and circumstances 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. 12 The following table presents the gross amount and accumulated amortization of our acquired identifiable intangible assets with finite useful lives included in “Intangible assets, net” on the consolidated balance sheets ($ in thousands): As of December 29, 2024 September 29, 2024 Weighted- Average Remaining Life (in Years) Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount Client relations 8.0 $ 189,027 $ ( 60,294 ) $ 128,733 $ 198,726 $ ( 57,975 ) $ 140,751 Backlog 0.2 71,647 ( 70,405 ) 1,242 75,194 ( 71,101 ) 4,093 Trade names 1.2 38,349 ( 26,227 ) 12,122 40,926 ( 25,185 ) 15,741 Total $ 299,023 $ ( 156,926 ) $ 142,097 $ 314,846 $ ( 154,261 ) $ 160,585 Amortization expense for the identifiable intangible assets for the first quarter of fiscal 2025 w as $ 10.7 million, compared to $ 12.5 million for the prior-year quarter. Estimated amortization expense for the remainder of fiscal 2025 and succeeding years is as follows (in thousands): Amount 2025 (remaining) $ 24,093 2026 23,384 2027 16,754 2028 16,245 2029 15,387 Beyond 46,234 Total $ 142,097 6. Property and Equipment Property and equipment consisted of the following (in thousands): As of December 29, 2024 September 29, 2024 Equipment, furniture and fixtures $ 137,639 $ 139,070 Leasehold improvements 42,322 44,883 Total property and equipment 179,961 183,953 Accumulated depreciation ( 112,859 ) ( 110,888 ) Property and equipment, net $ 67,102 $ 73,065 For the first quart ers of fiscal 2025 and 2024, o ur depreciation expense related to property and equipment was $ 5.4 million and $ 7.0 million, respectively. 7. 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 stock. In the first quarter of fiscal 2025, we repurchased and settled 600,007 shares with an average price of $ 41.67 per share for a total cost of $ 25.0 million in the open market. We did not repurchase any shares of our common stock in the first quarter of fiscal 2024. At December 29, 2024, we had a remaining balance of $ 322.8 million under our stock repurchase program. 13 The following table presents dividends declared and paid in the first quarters of fisc al 2025 and 2024 : Declare Date Dividend Paid Per Share Record Date Payment Date Dividend Paid (in thousands) November 11, 2024 $ 0.058 November 27, 2024 December 13, 2024 $ 15,549 November 13, 2023 $ 0.052 November 30, 2023 December 13, 2023 $ 13,873 Subsequent Event. O n January 27, 2025, our Board of Directors declared a quarterly cash dividend of $ 0.058 per share payable on February 26, 2025 to stockholders of record as of the close of business on February 12, 2025. 8. 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. Right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. 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. The components of lease costs are as follows (in thousands): Three Months Ended December 29, 2024 December 31, 2023 Operating lease cost $ 25,916 $ 24,232 Sublease income ( 219 ) ( 57 ) Total lease cost $ 25,697 $ 24,175 Supplemental cash flow information related to leases is as follows (in thousands): Three Months Ended December 29, 2024 December 31, 2023 Operating cash flows for operating leases $ 18,523 $ 19,682 Right-of-use assets obtained in exchange for new operating lease liabilities 15,207 9,803 14 Supplemental balance sheet and other information related to leases are as follows ($ in thousands): As of December 29, 2024 September 29, 2024 Operating leases: Right-of-use assets $ 172,080 $ 177,950 Lease liabilities: Current 61,184 63,419 Non-current 134,759 140,095 Total operating lease liabilities $ 195,943 $ 203,514 Weighted-average remaining lease term: Operating leases 4.4 years 4.5 years Weighted-average discount rate: Operating leases 3.7 % 3.6 % At December 29, 2024, we had $ 12.7 million of operating leases that have not yet commenced. A maturity analysis of the future undiscounted cash flows associated with our lease liabilities at December 29, 2024 is as follows (in thousands): Operating Leases 2025 (remaining) $ 51,634 2026 53,759 2027 41,045 2028 23,437 2029 18,314 Beyond 24,498 Total lease payments 212,687 Less: imputed interest ( 16,744 ) Total present value of lease liabilities $ 195,943 9. 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 ame ndments to the qualification criteria, including some that were proposed with retroactive application, were finalized in fiscal 2022. I n the first quarter of fiscal 2024, we distributed approximately $ 10 million to our Canadian employees. The remainder was distributed in the first quarter of fiscal 2025. We have no outstanding applications for further government assistance. 10. Stockholders’ Equity and Stock Compensation Plans We recogniz e the fair value of our stock-based awards as compensation expense on a straight-line basis over the requisite service period in which the award vests. Stock-based compensation expense wa s $ 8.1 million and $ 7.6 million for the first quarters of fiscal 2025 and 2024, respectively. Most of these amounts were included in our selling, general and administrative expenses on our consolidated statements of income. In the first quarter of fiscal 2025, we awa rded 236,928 performance share units (“PSUs”) to our non-employee directors and executive officers at an estimated fair value of $ 49.85 per share on the award date. All PSUs are performance-based and vest, if at all, after the conclusion of the three-year performance period. The number of PSUs that ultimately vest is based 50 % on growth in our diluted earnings per share and 50 % on our relative total shareholder return over the vesting period. Additionally, we awarded 481,247 restricted stock units (“RSUs”) to our non-employee directors, executive officers and employees at a fair value of $ 40.29 per share on the award da te. All 15 executive officer and employee RSUs have time-based vesting over a four-year period, and the non-employee director RSUs vest after one year . 11. Earnings per Share (“EPS”) Basic EPS is computed by dividing net income available to common stockholders by the weighted-average common shares outstanding 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 Senior Notes (the "Convertible Notes"). For the first quarter of fiscal 2025, our Convertible Notes, described in Note 15, "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. For the first quarter of fiscal 2024, the Convertible Notes had no impact on the calculation of dilutive potential common shares, as the price of our common stock did not exceed the conversion price. The related capped call transactions (the "Capped Call Transactions") for both periods were excluded from the calculation of dilutive potential common shares as their effect is anti-dilutive. For the first quarters of fiscal 2025 and 2024, 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): Three Months Ended December 29, 2024 December 31, 2023 Net income attributable to Tetra Tech $ 747 $ 74,972 Weighted-average common shares outstanding – basic 267,854 266,585 Effect of dilutive stock options and unvested restricted stock 2,160 2,105 Shares issuable assuming conversion of convertible notes 1,872 — Weighted-average common shares outstanding – diluted 271,886 268,690 Earnings per share attributable to Tetra Tech: Basic $ — $ 0.28 Diluted $ — $ 0.28 12. Income Taxes The effective tax rates for the first quarters of fiscal 2025 and 2024 were 94.9 % and 26.1 %, respectively. In the first quarter of fiscal 2025, we recognized a $ 115 million non-recurring charge related to legal contingencies as described in Note 17, " Commitments and Contingencies ". We also determined that $ 31.3 million of this charge is not tax deductible, which increased our effective tax rate this quarter. Excluding the impact of the legal contingency charge, our effective tax rate was 27.2 % in the first quarter of fiscal 2025. At December 29, 2024 and September 29, 2024, the liability for income taxes associated with uncertain tax positions was $ 51.1 million and $ 50.1 million, respectively. I t is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions may not significantly decrease within the next 12 months. These liabilities represent our current estimates of the additional tax liabilities that we may be assessed when the related audits are concluded. If these audits are resolved in a manner more unfavorable than our current expectations, our additional tax liabilities could be materially higher than the amounts currently recorded resulting in additional tax expense. 13. Reportable Segments We manage our 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 reportable segment primarily includes activities with U.S. commercial clients and international clients other than development agencies. 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 16 solid waste. GSG also leads our support for development agencies worldwide, especially in the United States, United Kingdom and Australia. CIG primarily provides high-end consulting and engineering services to U.S. commercial clients, and international clients 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 Canada, in Asia Pacific (primarily Australia and New Zealand), Europe, the United Kingdom and South America (primarily Brazil). Management evaluates th e performance of these reportable segments based upon their respective segment operating income before the effect of amortization expense related to acquisitions, and other unallocated corporate expenses. 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. Our Corporate Segment's operating income in the first quarter of fiscal 2025, includes a non-recurring charge of $ 115.0 million related to legal contingencies as described in Note 17, " Commitments and Contingencies ". This charge is reported separately as "Legal contingency costs" in our consolidated statement of income for the first quarter of fiscal 2025. We expect to pay this amount within the next 12 months with our cash on hand and by drawing on our credit facility. The following tables summarize financial information regarding our reportable segments (in thousands): Three Months Ended December 29, 2024 December 31, 2023 Revenue GSG $ 751,782 $ 575,041 CIG 688,235 669,107 Elimination of inter-segment revenue ( 19,456 ) ( 15,881 ) Total revenue $ 1,420,561 $ 1,228,267 Income from operations GSG $ 83,282 $ 63,127 CIG 77,677 71,401 Corporate (1) ( 138,433 ) ( 23,447 ) Total income from operations $ 22,526 $ 111,081 (1) Includes amortization of intangibles, acquisition and integration expenses, certain legal contingency costs as well as other costs and other income not allocable to our reportable segments. As of December 29, 2024 September 29, 2024 Total Assets GSG $ 756,176 $ 658,493 CIG 1,012,644 1,059,915 Corporate (1) 2,410,364 2,474,268 Total assets $ 4,179,184 $ 4,192,676 (1) Corporate assets consist of intercompany eliminations and assets not allocated to our reportable segments including goo dwill, intangible assets, deferred income taxes and certain other assets. 14. 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. 17 Contingent Consideration. We measure our contingent earn-out liabilities at fair value on a recurring basis usin g significant unobservable inputs classified within Level 3 of the fair value hierarchy (see Note 4 , " Acquisitions " for further information). Debt. The fair value of long-term 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, as described in “Critical Accounting Policies and Estim ates” in our Annual Report on Form 10-K for the fiscal year ended September 29, 2024). The carrying value of our long-term debt under our Credit Facility approximated fair value at December 29, 2024 and September 29, 2024. At December 29, 2024, we had $ 325 million in outstanding borrowings under our Amended Credit Agreement, which consisted of $ 250 million under the New Term Loan Facility and $ 75 million und er 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 our first quarter of fiscal 2025. 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 approximate ly $ 564 million and $ 673 million, respectively, at December 29, 2024, and $ 564 million and $ 743 million, respectively, at September 29, 2024 (see Note 15 , " Long-Term Debt " for further information). 15. Long-Term Debt Long-term debt consisted of the following (in thousands): As of December 29, 2024 September 29, 2024 Credit facilities $ 325,000 $ 250,000 Convertible notes 575,000 575,000 Debt issuance costs and discount ( 11,550 ) ( 12,366 ) Long-term debt $ 888,450 $ 812,634 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. 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 25.4275 shares (5.0855 pre-stock split) of our common stock per $1,000 principal amount of the Convertible Notes, which was equivalent to an initial price of approximately $ 39.33 per share ($ 196.64 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. At December 29, 2024, 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) . Upon conversion, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or de liver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. In addition, upon the occurrence of a "fundamental change" as defined in the indenture governing the Convertible Notes, holders may require us to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid interest. If certain corporate events occur prior to the maturity date of the Convertible Notes or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such event or notice of redemption. We will not be able to redeem the Convertible Notes prior to August 20, 2026. On or after August 20, 2026, we have the option to redeem for cash all or any portion of the Convertible Notes if the last reported sale price of our common stock is equal to or greater than 130 % of the conversion price for a specified period of time at a redemption price equal to 100 % of the principal amount of the Convertible Notes to be redeemed, plus any accrued but unpaid interest. In addition, as described in the indenture governing the Convertible Notes, certain events of default including, but not limited to, bankruptcy, insolvency or reorganization, may result in the Convertible Notes becoming due and payable immediately. Our net proceeds from the offering were approximately $ 560.5 million after deducting the initial purchasers’ discounts and commissions and offering expenses. We used approximately $ 51.8 million of the net proceeds to pay the cost of the Capped 18 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 sheets 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) : As of December 29, 2024 September 29, 2024 Principal $ 575,000 $ 575,000 Unamortized discount and issuance costs ( 10,737 ) ( 11,434 ) Net carrying amount $ 564,263 $ 563,566 The following table sets forth the interest expense recognized related to the Convertible Notes (in thousands) : Three Months Ended December 29, 2024 December 31, 2023 Interest expense $ 3,234 $ 3,270 Amortization of discount and issuance costs 697 678 Total interest expense $ 3,931 $ 3,948 Concurrent with the offering of the Convertible Notes, in August 2023, we entered into 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 $ 51.91 per share ($ 259.56 pre-stock split), which represented a premium of 65 % over the last reported sale price of our common stock of $ 31.46 per share ($ 157.31 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. At December 29, 2024, the adjusted cap price was approximately $ 51.90 per share. 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 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 at July 30, 2018; (ii) finance open market repurchases of common stock, acquisitions, and cash dividends and distributions; and (iii) utilize the proceeds for working capital, capital expenditures and other general corporate purposes. The Amended Credit Agreement provides for a reduction in the interest grid for meeting certain sustainability targets related to the (i) reduction of greenhouse gas emissions through the Company’s projects and operational sustainability initiatives and (ii) improvement of peoples’ lives as a result of the Company’s projects 19 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 from the Convertible Notes proceeds. At December 29, 2024 , we h a d $ 325 million in outstanding borrowings under the Amended Credit Agreement, which was consisted of $ 250 million under the New Term Loan Facility and $ 75 million under the Amended Revolving Credit Facility. During the three months ended December 29, 2024, the weighted-average interest rate of the outstanding borrowings under the Amended Credit Agreement was 5.98 %. In addition, we had $ 0.7 million in standby letters of credit under the Amended Credit Agreement. At December 29, 2024, we had $ 424.3 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 December 29, 2024, we were in compliance with these covenants with a consolidated leverage ratio of 1.77 x and a consolidated interest coverage ratio of 12.33 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 December 29, 2024, there were no outstanding borrowings under these facilities and the aggregate amount of standby letters of credit outstanding was $ 40.2 million. As of December 29, 2024, we had no bank overdrafts related to our disbursement bank accounts. 16. Reclassifications Out of Accumulated Other Comprehensive Income The accumulated balances and activities for the three months ended December 29, 2024 and December 31, 2023 related to reclassifications out of accumulated other comprehensive income are summarized as follows (in thousands): Three Months Ended Foreign Currency Translation Adjustments Net Pension Adjustments Accumulated Other Comprehensive (Loss) Income Balance at October 1, 2023 $ ( 197,933 ) $ 2,638 $ ( 195,295 ) Other comprehensive income (loss) before reclassifications 63,106 ( 13 ) 63,093 Net current-period other comprehensive income (loss) 63,106 ( 13 ) 63,093 Balance at December 31, 2023 $ ( 134,827 ) $ 2,625 $ ( 132,202 ) Balance at September 29, 2024 $ ( 82,813 ) $ 3,938 $ ( 78,875 ) Other comprehensive loss before reclassifications ( 108,846 ) ( 33 ) ( 108,879 ) Net current-period other comprehensive loss ( 108,846 ) ( 33 ) ( 108,879 ) Balance at December 29, 2024 $ ( 191,659 ) $ 3,905 $ ( 187,754 ) 17. Commitments and Contingencies We are subject to certain claims and lawsuits typically filed against the consulting and engineering profession, alleging primarily professional errors or omissions. We carry professional liability insurance, subject to certain deductibles and policy limits, against such claims. However, in some actions, parties are seeking damages that exceed our insurance coverage or for which we are not insured. While management does not believe that the resolution of these claims will have a material adverse 20 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 of the United States Department of Justice ("the USAO") filed an amended complaint in the intervention of three qui tam actions filed against our wholly-owned 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 ("FCA") 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 (the "Covered Conduct"). 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 ("CERCLA") and common law. As we previously disclosed, to explore whether a negotiated resolution was possible, TtEC began engaging in discussions with the USAO during the first quarter of fiscal 2025 regarding a potential resolution of all claims. On January 17, 2025, TtEC entered into a settlement agreement with the United States of America, acting through the USAO and on behalf of the Department of the Navy (collectively, the "United States") an d also fil ed a proposed consent decree with the Court, to resolve this litigation. Under the terms of the settlement agreement and consent decree, TtEC has agreed to pay the United States $ 57 million and $ 40 million for FCA claims and CERCLA claims, respectively (the "Settlement Amounts"), which we expect to pay with cash on hand and by drawing on our credit facility. Upon entry of the consent decree by the Court and the United States' receipt of the Settlement Amounts, the United States will release TtEC from any, and all civil or administrative monetary claims for the Covered Conduct under the civil FCA, the CERCLA, and other specified civil statutes and common law theories of liability. The consent decree is subject to a number of contingencies that could prevent it from being finalized with its current terms. In particular, and without limitation, (i) the consent decree is required to be lodged with the Court for a period of 30 days for public notice and comment, and the United States has reserved the right to withdraw or withhold its consent if the comments regarding the consent decree disclose facts or considerations that indicate the consent decree is inappropriate, improper or inadequate; and (ii) the Court might determine not to enter the consent decree as currently written or as approved by the United States. There can be no assurance that the contingencies will not preclude entry of the consent decree. TtEC entered into the settlement agreement and consent decree to avoid delay, uncertainty and expense of protracted litigation. The settlement agreement and consent decree contain no admission of liability by TtEC. TtEC has initiated litigation with the insurance carrier with which TtEC maintained liability policies regarding the reasonably possible payment or reimbursement of a significant portion of the Settlement Amounts. TtEC can give no assurances as to what portion, if any, of the Settlement Amounts will be recovered from the insurance carrier. As also previously disclosed, several ancillary claims brought by third-party private plaintiffs arising from the same services provided by TtEC at Hunters Point are also ongoing. The settlement agreement and consent decree do not resolve these ancillary claims. As a result of the settlement agreement and consent decree with the United States and in connection with discussions regarding the ancillary claims, we recorded a $ 115.0 million charge to operating income ($ 97.0 million for the settlement and $ 18.0 million estimated for the ancillary claims, respectively) in the first quarter of fiscal 2025. 21 18. Related Party Transactions We often provide services to unconsolidated joint ventures. The table below presents revenue and reimbursable costs related t o services we provided to our unconsolidated joint ventures (in thousands): Three Months Ended December 29, 2024 December 31, 2023 Revenue $ 16,479 $ 18,968 Related reimbursable costs 14,781 17,622 Our consolidated balance sheets also included the following amounts related to these services (in thousands): As of December 29, 2024 September 29, 2024 Accounts receivable, net $ 13,932 $ 15,612 Contract assets 1,701 1,625 Contract liabilities ( 5,693 ) ( 4,237 ) 22