ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 95-4148514 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | (Do not check if a smaller reporting company) |
Smaller reporting company o | Emerging growth company o |
PAGE NO. | ||
ASSETS | April 1, 2018 | October 1, 2017 | |||||
Current assets: | |||||||
Cash and cash equivalents | $ | 203,177 | $ | 189,975 | |||
Accounts receivable – net | 863,219 | 788,767 | |||||
Prepaid expenses and other current assets | 65,102 | 49,969 | |||||
Income taxes receivable | 18,406 | 13,312 | |||||
Total current assets | 1,149,904 | 1,042,023 | |||||
Property and equipment – net | 55,495 | 56,835 | |||||
Investments in unconsolidated joint ventures | 3,167 | 2,700 | |||||
Goodwill | 809,690 | 740,886 | |||||
Intangible assets – net | 20,847 | 26,688 | |||||
Deferred tax assets | 8,588 | 1,763 | |||||
Other long-term assets | 35,102 | 31,850 | |||||
Total assets | $ | 2,082,793 | $ | 1,902,745 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 155,257 | $ | 177,638 | |||
Accrued compensation | 140,426 | 143,408 | |||||
Billings in excess of costs on uncompleted contracts | 144,327 | 117,499 | |||||
Current portion of long-term debt | 15,466 | 15,588 | |||||
Current contingent earn-out liabilities | 11,669 | 2,024 | |||||
Other current liabilities | 92,863 | 81,511 | |||||
Total current liabilities | 560,008 | 537,668 | |||||
Deferred tax liabilities | 45,740 | 43,781 | |||||
Long-term debt | 463,544 | 341,283 | |||||
Long-term contingent earn-out liabilities | 18,443 | 414 | |||||
Other long-term liabilities | 54,830 | 50,975 | |||||
Commitments and contingencies (Note 14) | |||||||
Equity: | |||||||
Preferred stock - authorized, 2,000 shares of $0.01 par value; no shares issued and outstanding at April 1, 2018 and October 1, 2017 | — | — | |||||
Common stock - authorized, 150,000 shares of $0.01 par value; issued and outstanding, 55,749 and 55,873 shares at April 1, 2018 and October 1, 2017, respectively | 557 | 559 | |||||
Additional paid-in capital | 161,387 | 193,835 | |||||
Accumulated other comprehensive loss | (118,044 | ) | (98,500 | ) | |||
Retained earnings | 896,146 | 832,559 | |||||
Tetra Tech stockholders’ equity | 940,046 | 928,453 | |||||
Noncontrolling interests | 182 | 171 | |||||
Total stockholders' equity | 940,228 | 928,624 | |||||
Total liabilities and stockholders' equity | $ | 2,082,793 | $ | 1,902,745 |
Three Months Ended | Six Months Ended | ||||||||||||||
April 1, 2018 | April 2, 2017 | April 1, 2018 | April 2, 2017 | ||||||||||||
Revenue | $ | 700,262 | $ | 663,781 | $ | 1,460,010 | $ | 1,332,632 | |||||||
Subcontractor costs | (167,469 | ) | (151,827 | ) | (382,370 | ) | (331,127 | ) | |||||||
Other costs of revenue | (441,368 | ) | (430,952 | ) | (892,070 | ) | (839,141 | ) | |||||||
Gross profit | 91,425 | 81,002 | 185,570 | 162,364 | |||||||||||
Selling, general and administrative expenses | (46,791 | ) | (45,195 | ) | (92,347 | ) | (86,702 | ) | |||||||
Contingent consideration – fair value adjustments | (1,918 | ) | 7,149 | (1,918 | ) | 7,149 | |||||||||
Income from operations | 42,716 | 42,956 | 91,305 | 82,811 | |||||||||||
Interest expense | (4,092 | ) | (3,099 | ) | (7,252 | ) | (6,007 | ) | |||||||
Income before income tax expense | 38,624 | 39,857 | 84,053 | 76,804 | |||||||||||
Income tax expense | (9,877 | ) | (12,990 | ) | (9,254 | ) | (23,348 | ) | |||||||
Net income | 28,747 | 26,867 | 74,799 | 53,456 | |||||||||||
Net income attributable to noncontrolling interests | (22 | ) | (5 | ) | (40 | ) | (32 | ) | |||||||
Net income attributable to Tetra Tech | $ | 28,725 | $ | 26,862 | $ | 74,759 | $ | 53,424 | |||||||
Earnings per share attributable to Tetra Tech: | |||||||||||||||
Basic | $ | 0.51 | $ | 0.47 | $ | 1.34 | $ | 0.93 | |||||||
Diluted | $ | 0.51 | $ | 0.46 | $ | 1.32 | $ | 0.92 | |||||||
Weighted-average common shares outstanding: | |||||||||||||||
Basic | 55,841 | 57,270 | 55,900 | 57,171 | |||||||||||
Diluted | 56,673 | 58,270 | 56,825 | 58,194 | |||||||||||
Cash dividends paid per share | $ | 0.10 | $ | 0.09 | $ | 0.20 | $ | 0.18 |
Three Months Ended | Six Months Ended | ||||||||||||||
April 1, 2018 | April 2, 2017 | April 1, 2018 | April 2, 2017 | ||||||||||||
Net income | $ | 28,747 | $ | 26,867 | $ | 74,799 | $ | 53,456 | |||||||
Foreign currency translation adjustments | (16,121 | ) | 9,328 | (19,590 | ) | (6,671 | ) | ||||||||
Gain (loss) on cash flow hedge valuations | (27 | ) | 452 | 39 | 1,448 | ||||||||||
Other comprehensive income (loss), net of tax | (16,148 | ) | 9,780 | (19,551 | ) | (5,223 | ) | ||||||||
Comprehensive income, net of tax | 12,599 | 36,647 | 55,248 | 48,233 | |||||||||||
Net income attributable to noncontrolling interests | (22 | ) | (5 | ) | (40 | ) | (32 | ) | |||||||
Foreign currency translation adjustments | 5 | (5 | ) | 7 | (188 | ) | |||||||||
Comprehensive income attributable to noncontrolling interests | (17 | ) | (10 | ) | (33 | ) | (220 | ) | |||||||
Comprehensive income attributable to Tetra Tech, net of tax | $ | 12,582 | $ | 36,637 | $ | 55,215 | $ | 48,013 |
Six Months Ended | |||||||
April 1, 2018 | April 2, 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 74,799 | $ | 53,456 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 20,312 | 23,234 | |||||
Equity in income of unconsolidated joint ventures | (2,032 | ) | (2,489 | ) | |||
Distributions of earnings from unconsolidated joint ventures | 1,470 | 2,301 | |||||
Non-cash stock compensation | 8,705 | 6,610 | |||||
Deferred income taxes | (10,100 | ) | 19,851 | ||||
Provision for doubtful accounts | 2,390 | (2,028 | ) | ||||
Fair value adjustments to contingent consideration | 1,918 | (7,149 | ) | ||||
Gain on disposal of property and equipment | (1,205 | ) | (266 | ) | |||
Changes in operating assets and liabilities, net of effects of business acquisitions: | |||||||
Accounts receivable | (42,912 | ) | 2,631 | ||||
Prepaid expenses and other assets | (15,528 | ) | (7,587 | ) | |||
Accounts payable | (26,460 | ) | (15,587 | ) | |||
Accrued compensation | (11,453 | ) | (12,888 | ) | |||
Billings in excess of costs on uncompleted contracts | 15,367 | 25,139 | |||||
Other liabilities | 716 | (5,021 | ) | ||||
Income taxes receivable/payable | (1,213 | ) | (29,843 | ) | |||
Net cash provided by operating activities | 14,774 | 50,364 | |||||
Cash flows from investing activities: | |||||||
Payments for business acquisitions, net of cash acquired | (64,451 | ) | (8,039 | ) | |||
Capital expenditures | (4,565 | ) | (3,896 | ) | |||
Proceeds from sale of property and equipment | 1,651 | 303 | |||||
Net cash used in investing activities | (67,365 | ) | (11,632 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowings | 180,026 | 133,596 | |||||
Payments on long-term debt | (62,109 | ) | (137,849 | ) | |||
Repurchases of common stock | (50,000 | ) | (20,000 | ) | |||
Net proceeds from issuance of common stock | 11,945 | 7,661 | |||||
Dividends paid | (11,172 | ) | (10,301 | ) | |||
Payments of contingent earn-out liabilities | (854 | ) | — | ||||
Net cash provided by (used in) financing activities | 67,836 | (26,893 | ) | ||||
Effect of exchange rate changes on cash | (2,043 | ) | (958 | ) | |||
Net increase in cash and cash equivalents | 13,202 | 10,881 | |||||
Cash and cash equivalents at beginning of period | 189,975 | 160,459 | |||||
Cash and cash equivalents at end of period | $ | 203,177 | $ | 171,340 | |||
Supplemental information: | |||||||
Cash paid during the period for: | |||||||
Interest | $ | 6,895 | $ | 5,970 | |||
Income taxes, net of refunds received of $0.3 million and $0.6 million | $ | 20,151 | $ | 32,995 |
April 1, 2018 | October 1, 2017 | ||||||
(in thousands) | |||||||
Billed | $ | 461,781 | $ | 376,287 | |||
Unbilled | 413,517 | 404,899 | |||||
Contract retentions | 22,019 | 39,840 | |||||
Total accounts receivable – gross | 897,317 | 821,026 | |||||
Allowance for doubtful accounts | (34,098 | ) | (32,259 | ) | |||
Total accounts receivable – net | $ | 863,219 | $ | 788,767 | |||
Billings in excess of costs on uncompleted contracts | $ | 144,327 | $ | 117,499 |
GSG | CIG | Total | ||||||||||
(in thousands) | ||||||||||||
Balance at October 1, 2017 | $ | 361,761 | $ | 379,125 | $ | 740,886 | ||||||
Goodwill additions | 26,726 | 54,275 | 81,001 | |||||||||
Foreign exchange impact | (2,138 | ) | (10,059 | ) | (12,197 | ) | ||||||
Balance at April 1, 2018 | $ | 386,349 | $ | 423,341 | $ | 809,690 |
April 1, 2018 | October 1, 2017 | ||||||||||||||||
Weighted- Average Remaining Life (in Years) | Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | |||||||||||||
($ in thousands) | |||||||||||||||||
Non-compete agreements | 0.0 | $ | 83 | $ | (83 | ) | $ | 495 | $ | (493 | ) | ||||||
Client relations | 2.7 | 54,643 | (43,119 | ) | 90,297 | (75,074 | ) | ||||||||||
Backlog | 0.8 | 23,184 | (16,443 | ) | 21,518 | (13,301 | ) | ||||||||||
Trade names | 2.8 | 5,248 | (2,666 | ) | 6,685 | (3,439 | ) | ||||||||||
Total | $ | 83,158 | $ | (62,311 | ) | $ | 118,995 | $ | (92,307 | ) |
Amount | |||
(in thousands) | |||
2018 | $ | 8,300 | |
2019 | 7,471 | ||
2020 | 2,786 | ||
2021 | 1,650 | ||
2022 | 411 | ||
Beyond | 229 | ||
Total | $ | 20,847 |
April 1, 2018 | October 1, 2017 | ||||||
(in thousands) | |||||||
Equipment, furniture and fixtures | 147,316 | 150,026 | |||||
Leasehold improvements | 31,066 | 27,689 | |||||
Land and buildings | $ | 3,746 | $ | 3,680 | |||
Total property and equipment | 182,128 | 181,395 | |||||
Accumulated depreciation | (126,633 | ) | (124,560 | ) | |||
Property and equipment, net | $ | 55,495 | $ | 56,835 |
Three Months Ended | Six Months Ended | ||||||||||||||
April 1, 2018 | April 2, 2017 | April 1, 2018 | April 2, 2017 | ||||||||||||
(in thousands, except per share data) | |||||||||||||||
Net income attributable to Tetra Tech | $ | 28,725 | $ | 26,862 | $ | 74,759 | $ | 53,424 | |||||||
Weighted-average common shares outstanding – basic | 55,841 | 57,270 | 55,900 | 57,171 | |||||||||||
Effect of dilutive stock options and unvested restricted stock | 832 | 1,000 | 925 | 1,023 | |||||||||||
Weighted-average common stock outstanding – diluted | 56,673 | 58,270 | 56,825 | 58,194 | |||||||||||
Earnings per share attributable to Tetra Tech: | |||||||||||||||
Basic | $ | 0.51 | $ | 0.47 | $ | 1.34 | $ | 0.93 | |||||||
Diluted | $ | 0.51 | $ | 0.46 | $ | 1.32 | $ | 0.92 |
Three Months Ended | Six Months Ended | ||||||||||||||
April 1, 2018 | April 2, 2017 | April 1, 2018 | April 2, 2017 | ||||||||||||
(in thousands) | |||||||||||||||
Revenue | |||||||||||||||
GSG | $ | 406,027 | $ | 357,113 | $ | 848,799 | $ | 719,973 | |||||||
CIG | 309,704 | 329,127 | 641,217 | 647,198 | |||||||||||
RCM | 1,480 | (23 | ) | 8,286 | 8,209 | ||||||||||
Elimination of inter-segment revenue | (16,949 | ) | (22,436 | ) | (38,292 | ) | (42,748 | ) | |||||||
Total revenue | $ | 700,262 | $ | 663,781 | $ | 1,460,010 | $ | 1,332,632 | |||||||
Income (loss) from operations | |||||||||||||||
GSG | $ | 34,177 | $ | 33,432 | $ | 73,302 | $ | 63,600 | |||||||
CIG | 18,400 | 18,459 | 39,693 | 40,003 | |||||||||||
RCM | (489 | ) | (8,466 | ) | (1,647 | ) | (11,508 | ) | |||||||
Corporate (1) | (9,372 | ) | (469 | ) | (20,043 | ) | (9,284 | ) | |||||||
Total income from operations | $ | 42,716 | $ | 42,956 | $ | 91,305 | $ | 82,811 | |||||||
April 1, 2018 | October 1, 2017 | ||||||
(in thousands) | |||||||
Total Assets | |||||||
GSG | $ | 488,073 | $ | 378,839 | |||
CIG | 507,493 | 518,697 | |||||
RCM | 31,092 | 33,620 | |||||
Corporate (1) | 1,056,135 | 971,589 | |||||
Total assets | $ | 2,082,793 | $ | 1,902,745 | |||
Three Months Ended | Six Months Ended | ||||||||||||||
April 1, 2018 | April 2, 2017 | April 1, 2018 | April 2, 2017 | ||||||||||||
(in thousands) | |||||||||||||||
Client Sector | |||||||||||||||
U.S. federal government (1) | $ | 236,951 | $ | 218,110 | $ | 473,199 | $ | 440,744 | |||||||
International (2) | 178,008 | 197,114 | 342,968 | 369,571 | |||||||||||
U.S. state and local government | 104,905 | 83,181 | 256,659 | 166,676 | |||||||||||
U.S. commercial | 180,398 | 165,376 | 387,184 | 355,641 | |||||||||||
Total | $ | 700,262 | $ | 663,781 | $ | 1,460,010 | $ | 1,332,632 | |||||||
Notional Amount (in thousands) | Fixed Rate | Expiration Date | ||
$38,438 | 1.36% | May 2018 | ||
38,438 | 1.34% | May 2018 | ||
38,438 | 1.35% | May 2018 | ||
19,218 | 1.23% | May 2018 | ||
19,218 | 1.24% | May 2018 |
Fair Value of Derivative Instruments as of | |||||||||
Balance Sheet Location | April 1, 2018 | October 1, 2017 | |||||||
(in thousands) | |||||||||
Interest rate swap agreements | Other current assets | $ | 96 | $ | 49 |
Three Months Ended | |||||||||||
Foreign Currency Translation Adjustments | Gain (Loss) on Derivative Instruments | Accumulated Other Comprehensive Loss | |||||||||
(in thousands) | |||||||||||
Balances at January 1, 2017 | $ | (143,026 | ) | $ | (168 | ) | $ | (143,194 | ) | ||
Other comprehensive income before reclassifications | 9,323 | 689 | 10,012 | ||||||||
Amounts reclassified from accumulated other comprehensive income | |||||||||||
Interest rate contracts, net of tax (1) | — | (237 | ) | (237 | ) | ||||||
Net current-period other comprehensive income | 9,323 | 452 | 9,775 | ||||||||
Balances at April 2, 2017 | $ | (133,703 | ) | $ | 284 | $ | (133,419 | ) | |||
Balances at December 31, 2017 | $ | (102,413 | ) | $ | 512 | $ | (101,901 | ) | |||
Other comprehensive loss before reclassifications | (16,116 | ) | (136 | ) | (16,252 | ) | |||||
Amounts reclassified from accumulated other comprehensive income | |||||||||||
Interest rate contracts, net of tax (1) | — | 109 | 109 | ||||||||
Net current-period other comprehensive loss | (16,116 | ) | (27 | ) | (16,143 | ) | |||||
Balances at April 1, 2018 | $ | (118,529 | ) | $ | 485 | $ | (118,044 | ) | |||
Six Months Ended | |||||||||||
Foreign Currency Translation Adjustments | Gain (Loss) on Derivative Instruments | Accumulated Other Comprehensive Loss | |||||||||
(in thousands) | |||||||||||
Balances at October 2, 2016 | $ | (126,844 | ) | $ | (1,164 | ) | $ | (128,008 | ) | ||
Other comprehensive income (loss) before reclassifications | (6,859 | ) | 2,027 | (4,832 | ) | ||||||
Amounts reclassified from accumulated other comprehensive income | |||||||||||
Interest rate contracts, net of tax (1) | — | (579 | ) | (579 | ) | ||||||
Net current-period other comprehensive income (loss) | (6,859 | ) | 1,448 | (5,411 | ) | ||||||
Balances at April 2, 2017 | $ | (133,703 | ) | $ | 284 | $ | (133,419 | ) | |||
Balances at October 1, 2017 | $ | (98,946 | ) | $ | 446 | $ | (98,500 | ) | |||
Other comprehensive loss before reclassifications | (19,583 | ) | (52 | ) | (19,635 | ) | |||||
Amounts reclassified from accumulated other comprehensive income | |||||||||||
Interest rate contracts, net of tax (1) | — | 91 | 91 | ||||||||
Net current-period other comprehensive income (loss) | (19,583 | ) | 39 | (19,544 | ) | ||||||
Balances at April 1, 2018 | $ | (118,529 | ) | $ | 485 | $ | (118,044 | ) | |||
(1) This accumulated other comprehensive component is reclassified to “Interest expense” in our consolidated statements of income. See Note 12, “Derivative Financial Instruments”, for more information. |
Three Months Ended | Six Months Ended | ||||||||||
April 1, 2018 | April 2, 2017 | April 1, 2018 | April 2, 2017 | ||||||||
Client Sector | |||||||||||
U.S. state and local government | 15.0 | % | 12.5 | % | 17.6 | % | 12.5 | % | |||
U.S. federal government (1) | 33.8 | 32.9 | 32.4 | 33.1 | |||||||
U.S. commercial | 25.8 | 24.9 | 26.5 | 26.7 | |||||||
International (2) | 25.4 | 29.7 | 23.5 | 27.7 | |||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Three Months Ended | Six Months Ended | ||||||||||
April 1, 2018 | April 2, 2017 | April 1, 2018 | April 2, 2017 | ||||||||
Reportable Segment | |||||||||||
GSG | 58.0 | % | 53.8 | % | 58.1 | % | 54.0 | % | |||
CIG | 44.2 | 49.6 | 43.9 | 48.6 | |||||||
RCM | 0.2 | — | 0.6 | 0.6 | |||||||
Inter-segment elimination | (2.4 | ) | (3.4 | ) | (2.6 | ) | (3.2 | ) | |||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Three Months Ended | Six Months Ended | ||||||||||
April 1, 2018 | April 2, 2017 | April 1, 2018 | April 2, 2017 | ||||||||
Contract Type | |||||||||||
Fixed-price | 32.1 | % | 30.1 | % | 31.5 | % | 31.2 | % | |||
Time-and-materials | 47.6 | 47.9 | 48.7 | 47.2 | |||||||
Cost-plus | 20.3 | 22.0 | 19.8 | 21.6 | |||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
April 1, 2018 | April 2, 2017 | Change | April 1, 2018 | April 2, 2017 | Change | ||||||||||||||||||||||||
$ | % | $ | % | ||||||||||||||||||||||||||
($ in thousands) | |||||||||||||||||||||||||||||
Revenue | $ | 700,262 | $ | 663,781 | $ | 36,481 | 5.5 | % | $ | 1,460,010 | $ | 1,332,632 | $ | 127,378 | 9.6 | % | |||||||||||||
Subcontractor costs | (167,469 | ) | (151,827 | ) | (15,642 | ) | (10.3) | (382,370 | ) | (331,127 | ) | (51,243 | ) | (15.5 | ) | ||||||||||||||
Revenue, net of subcontractor costs (1) | 532,793 | 511,954 | 20,839 | 4.1 | 1,077,640 | 1,001,505 | 76,135 | 7.6 | |||||||||||||||||||||
Other costs of revenue | (441,368 | ) | (430,952 | ) | (10,416 | ) | (2.4) | (892,070 | ) | (839,141 | ) | (52,929 | ) | (6.3 | ) | ||||||||||||||
Gross profit | 91,425 | 81,002 | 10,423 | 12.9 | 185,570 | 162,364 | 23,206 | 14.3 | |||||||||||||||||||||
Selling, general and administrative expenses | (46,791 | ) | (45,195 | ) | (1,596 | ) | (3.5) | (92,347 | ) | (86,702 | ) | (5,645 | ) | (6.5 | ) | ||||||||||||||
Contingent consideration - fair value adjustments | (1,918 | ) | 7,149 | (9,067 | ) | NM | (1,918 | ) | 7,149 | (9,067 | ) | NM | |||||||||||||||||
Income from operations | 42,716 | 42,956 | (240 | ) | (0.6) | 91,305 | 82,811 | 8,494 | 10.3 | ||||||||||||||||||||
Interest expense | (4,092 | ) | (3,099 | ) | (993 | ) | (32.0) | (7,252 | ) | (6,007 | ) | (1,245 | ) | (20.7 | ) | ||||||||||||||
Income before income tax expense | 38,624 | 39,857 | (1,233 | ) | (3.1) | 84,053 | 76,804 | 7,249 | 9.4 | ||||||||||||||||||||
Income tax expense | (9,877 | ) | (12,990 | ) | 3,113 | 24.0 | (9,254 | ) | (23,348 | ) | 14,094 | 60.4 | |||||||||||||||||
Net income | 28,747 | 26,867 | 1,880 | 7.0 | 74,799 | 53,456 | 21,343 | 39.9 | |||||||||||||||||||||
Net income attributable to noncontrolling interests | (22 | ) | (5 | ) | (17 | ) | (340.0) | (40 | ) | (32 | ) | (8 | ) | (25.0 | ) | ||||||||||||||
Net income attributable to Tetra Tech | $ | 28,725 | $ | 26,862 | $ | 1,863 | 6.9 | $ | 74,759 | 53,424 | $ | 21,335 | 39.9 | ||||||||||||||||
Diluted earnings per share | $ | 0.51 | $ | 0.46 | $ | 0.05 | 10.9 | $ | 1.32 | $ | 0.92 | $ | 0.40 | 43.5 | |||||||||||||||
(1) We believe that the presentation of “Revenue, net of subcontractor costs”, which is a non-GAAP financial measure, enhances investors’ ability to analyze our business trends and performance because it substantially measures the work performed by our employees. In the course of providing services, we routinely subcontract various services and, under certain U.S. Agency for International Development programs, issue grants. Generally, these subcontractor costs and grants are passed through to our clients and, in accordance with GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage these activities. The grants are included as part of our subcontractor costs. Because subcontractor services can vary significantly from project to project and period to period, changes in revenue may not necessarily be indicative of our business trends. Accordingly, we segregate subcontractor costs from revenue to promote a better understanding of our business by evaluating revenue exclusive of costs associated with external service providers. | |||||||||||||||||||||||||||||
NM = not meaningful |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||
April 1, 2018 | April 2, 2017 | Change | April 1, 2018 | April 2, 2017 | Change | ||||||||||||||||||||||
$ | % | $ | % | ||||||||||||||||||||||||
($ in thousands) | |||||||||||||||||||||||||||
Revenue | $ | 700,262 | $ | 663,781 | $ | 36,481 | 5.5% | $ | 1,460,010 | $ | 1,332,632 | $ | 127,378 | 9.6% | |||||||||||||
RCM | (1,480 | ) | 23 | (1,503 | ) | NM | (8,286 | ) | (8,209 | ) | (77 | ) | NM | ||||||||||||||
Ongoing revenue | $ | 698,782 | $ | 663,804 | $ | 34,978 | 5.3 | $ | 1,451,724 | $ | 1,324,423 | $ | 127,301 | 9.6 | |||||||||||||
Revenue, net of subcontractor costs | $ | 532,793 | $ | 511,954 | $ | 20,839 | 4.1 | $ | 1,077,640 | $ | 1,001,505 | $ | 76,135 | 7.6 | |||||||||||||
RCM | (369 | ) | 3,704 | (4,073 | ) | NM | (1,521 | ) | 1,909 | (3,430 | ) | NM | |||||||||||||||
Ongoing revenue, net of subcontractors costs | $ | 532,424 | $ | 515,658 | $ | 16,766 | 3.3 | $ | 1,076,119 | $ | 1,003,414 | $ | 72,705 | 7.2 | |||||||||||||
Income from operations | $ | 42,716 | $ | 42,956 | $ | (240 | ) | (0.6) | $ | 91,305 | $ | 82,811 | $ | 8,494 | 10.3 | ||||||||||||
Contingent consideration – fair value adjustments | 1,918 | (7,149 | ) | 9,067 | NM | 1,918 | (7,149 | ) | 9,067 | NM | |||||||||||||||||
RCM | 489 | 8,466 | (7,977 | ) | NM | 1,647 | 11,508 | (9,861 | ) | NM | |||||||||||||||||
Ongoing income from operations | $ | 45,123 | $ | 44,273 | $ | 850 | 1.9 | $ | 94,870 | $ | 87,170 | $ | 7,700 | 8.8 | |||||||||||||
EPS | $ | 0.51 | $ | 0.46 | $ | 0.05 | 10.9 | $ | 1.32 | $ | 0.92 | $ | 0.40 | 43.5% | |||||||||||||
Earn-out (gain) loss | 0.03 | (0.08 | ) | 0.11 | NM | 0.03 | (0.08 | ) | 0.11 | NM | |||||||||||||||||
RCM | — | 0.10 | (0.10 | ) | NM | 0.01 | 0.13 | (0.12 | ) | NM | |||||||||||||||||
Revaluation of deferred tax liabilities | — | — | — | NM | (0.18 | ) | — | (0.18 | ) | NM | |||||||||||||||||
Ongoing EPS | $ | 0.54 | $ | 0.48 | $ | 0.06 | 12.5% | $ | 1.18 | $ | 0.97 | $ | 0.21 | 21.6% | |||||||||||||
NM = not meaningful |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
April 1, 2018 | April 2, 2017 | Change | April 1, 2018 | April 2, 2017 | Change | |||||||||||||||||||||||
$ | % | $ | % | |||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||
Revenue | $ | 406,027 | $ | 357,113 | $ | 48,914 | 13.7% | $ | 848,799 | $ | 719,973 | $ | 128,826 | 17.9 | % | |||||||||||||
Subcontractor costs | (115,463 | ) | (95,754 | ) | (19,709 | ) | (20.6) | (248,269 | ) | (201,455 | ) | (46,814 | ) | (23.2 | ) | |||||||||||||
Revenue, net of subcontractor costs | $ | 290,564 | $ | 261,359 | $ | 29,205 | 11.2 | $ | 600,530 | $ | 518,518 | $ | 82,012 | 15.8 | ||||||||||||||
Income from operations | $ | 34,177 | $ | 33,432 | $ | 745 | 2.2 | $ | 73,302 | $ | 63,600 | $ | 9,702 | 15.3 |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
April 1, 2018 | April 2, 2017 | Change | April 1, 2018 | April 2, 2017 | Change | |||||||||||||||||||||||
$ | % | $ | % | |||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||
Revenue | $ | 309,704 | $ | 329,127 | $ | (19,423 | ) | (5.9)% | $ | 641,217 | $ | 647,198 | $ | (5,981 | ) | (0.9 | )% | |||||||||||
Subcontractor costs | (67,844 | ) | (74,828 | ) | 6,984 | 9.3 | (165,628 | ) | (162,302 | ) | (3,326 | ) | (2.0 | ) | ||||||||||||||
Revenue, net of subcontractor costs | $ | 241,860 | $ | 254,299 | $ | (12,439 | ) | (4.9) | $ | 475,589 | $ | 484,896 | $ | (9,307 | ) | (1.9 | ) | |||||||||||
Income from operations | $ | 18,400 | $ | 18,459 | $ | (59 | ) | (0.3) | $ | 39,693 | $ | 40,003 | $ | (310 | ) | (0.8 | ) |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
April 1, 2018 | April 2, 2017 | Change | April 1, 2018 | April 2, 2017 | Change | |||||||||||||||||||||||
$ | % | $ | % | |||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||
Revenue | $ | 1,480 | $ | (23 | ) | $ | 1,503 | NM | $ | 8,286 | $ | 8,209 | $ | 77 | 0.9 | % | ||||||||||||
Subcontractor costs | (1,111 | ) | (3,681 | ) | 2,570 | 69.8 | (6,765 | ) | (10,118 | ) | 3,353 | 33.1 | ||||||||||||||||
Revenue, net of subcontractor costs | $ | 369 | $ | (3,704 | ) | $ | 4,073 | 110.0 | $ | 1,521 | $ | (1,909 | ) | $ | 3,430 | 179.7 | ||||||||||||
Loss from operations | $ | (489 | ) | $ | (8,466 | ) | $ | 7,977 | 94.2 | $ | (1,647 | ) | $ | (11,508 | ) | $ | 9,861 | 85.7 |
Dividend Per Share | Record Date | Total Maximum Payment | Payment Date | ||||||||
(in thousands, except per share data) | |||||||||||
November 6, 2017 | $ | 0.10 | November 30, 2017 | $ | 5,589 | December 15, 2017 | |||||
January 29, 2018 | $ | 0.10 | February 14, 2018 | $ | 5,583 | March 2, 2018 | |||||
April 30, 2018 | $ | 0.12 | May 16, 2018 | N/A | June 1, 2018 |
• | Letters of credit and bank guarantees are used primarily to support project performance and insurance programs. We are required to reimburse the issuers of letters of credit and bank guarantees for any payments they make under the outstanding letters of credit or bank guarantees. Our Credit Agreement and additional letter of credit facilities cover the issuance of our standby letters of credit and bank guarantees and are critical for our normal operations. If we default on the Credit Agreement or additional credit facilities, our inability to issue or renew standby letters of credit and bank guarantees would impair our ability to maintain normal operations. At April 1, 2018, we had $0.9 million in standby letters of credit outstanding under our Credit Agreement, $23.7 million in standby letters of credit outstanding under our additional letter of credit facilities and $6.6 million of bank guarantees under our Australian facility. |
• | From time to time, we provide guarantees and indemnifications related to our services. If our services under a guaranteed or indemnified project are later determined to have resulted in a material defect or other material deficiency, then we may be responsible for monetary damages or other legal remedies. When sufficient information about claims on guaranteed or indemnified projects is available and monetary damages or other costs or losses are determined to be probable, we recognize such guaranteed losses. |
• | In the ordinary course of business, we enter into various agreements as part of certain unconsolidated subsidiaries, joint ventures, and other jointly executed contracts where we are jointly and severally liable. We enter into these agreements primarily to support the project execution commitments of these entities. The potential payment amount of an outstanding performance guarantee is typically the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts. However, we are not able to estimate other amounts that may be required to be paid in excess of estimated costs to complete contracts and, accordingly, the total potential payment amount under our outstanding performance guarantees cannot be estimated. For cost-plus contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For lump sum or fixed-price contracts, this amount is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete. In those cases where costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, co-venturers, subcontractors or vendors, for claims. |
• | In the ordinary course of business, our clients may request that we obtain surety bonds in connection with contract performance obligations that are not required to be recorded in our consolidated balance sheets. We are obligated to reimburse the issuer of our surety bonds for any payments made thereunder. Each of our commitments under performance bonds generally ends concurrently with the expiration of our related contractual obligation. |
• | prices, and expectations about future prices, of oil and natural gas; |
• | domestic and foreign supply of and demand for oil and natural gas; |
• | the cost of exploring for, developing, producing and delivering oil and natural gas; |
• | transportation capacity, including but not limited to train transportation capacity and its future regulation; |
• | available pipeline, storage and other transportation capacity; |
• | availability of qualified personnel and lead times associated with acquiring equipment and products; |
• | federal, state, provincial and local regulation of oilfield activities; |
• | environmental concerns regarding the methods our customers use to produce hydrocarbons; |
• | the availability of water resources and the cost of disposal and recycling services; and |
• | seasonal limitations on access to work locations. |
• | imposition of governmental controls and changes in laws, regulations, or policies; |
• | lack of developed legal systems to enforce contractual rights; |
• | greater risk of uncollectible accounts and longer collection cycles; |
• | currency exchange rate fluctuations, devaluations, and other conversion restrictions; |
• | uncertain and changing tax rules, regulations, and rates; |
• | the potential for civil unrest, acts of terrorism, force majeure, war or other armed conflict, and greater physical security risks, which may cause us to have to leave a country quickly; |
• | logistical and communication challenges; |
• | changes in regulatory practices, including tariffs and taxes; |
• | changes in labor conditions; |
• | general economic, political, and financial conditions in foreign markets; and |
• | exposure to civil or criminal liability under the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act, the Canadian Corruption of Foreign Public Officials Act, the Brazilian Clean Companies Act, the anti-boycott rules, trade and export control regulations, as well as other international regulations. |
• | the failure of the U.S. government to complete its budget and appropriations process before its fiscal year-end, which would result in the funding of government operations by means of a continuing resolution that authorizes agencies to continue to operate but does not authorize new spending initiatives. As a result, U.S. government agencies may delay the procurement of services; |
• | changes in and delays or cancellations of government programs, requirements or appropriations; |
• | budget constraints or policy changes resulting in delay or curtailment of expenditures related to the services we provide; |
• | re-competes of government contracts; |
• | the timing and amount of tax revenue received by federal, and state and local governments, and the overall level of government expenditures; |
• | curtailment in the use of government contracting firms; |
• | delays associated with insufficient numbers of government staff to oversee contracts; |
• | the increasing preference by government agencies for contracting with small and disadvantaged businesses; |
• | competing political priorities and changes in the political climate with regard to the funding or operation of the services we provide; |
• | the adoption of new laws or regulations affecting our contracting relationships with the federal, state or local governments; |
• | unsatisfactory performance on government contracts by us or one of our subcontractors, negative government audits or other events that may impair our relationship with federal, state or local governments; |
• | a dispute with or improper activity by any of our subcontractors; and |
• | general economic or political conditions. |
• | we may not be able to identify suitable acquisition candidates or to acquire additional companies on acceptable terms; |
• | we are pursuing international acquisitions, which inherently pose more risk than domestic acquisitions; |
• | we compete with others to acquire companies, which may result in decreased availability of, or increased price for, suitable acquisition candidates; |
• | we may not be able to obtain the necessary financing, on favorable terms or at all, to finance any of our potential acquisitions; |
• | we may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a company; and |
• | acquired companies may not perform as we expect, and we may fail to realize anticipated revenue and profits. |
• | issues in integrating information, communications, and other systems; |
• | incompatibility of logistics, marketing, and administration methods; |
• | maintaining employee morale and retaining key employees; |
• | integrating the business cultures of both companies; |
• | preserving important strategic client relationships; |
• | consolidating corporate and administrative infrastructures, and eliminating duplicative operations; and |
• | coordinating and integrating geographically separate organizations. |
• | issue common stock that would dilute our current stockholders’ ownership percentage; |
• | use a substantial portion of our cash resources; |
• | increase our interest expense, leverage, and debt service requirements (if we incur additional debt to fund an acquisition); |
• | assume liabilities, including environmental liabilities, for which we do not have indemnification from the former owners. Further, indemnification obligations may be subject to dispute or concerns regarding the creditworthiness of the former owners; |
• | record goodwill and non-amortizable intangible assets that are subject to impairment testing and potential impairment charges; |
• | experience volatility in earnings due to changes in contingent consideration related to acquisition earn-out liability estimates; |
• | incur amortization expenses related to certain intangible assets; |
• | lose existing or potential contracts as a result of conflict of interest issues; |
• | incur large and immediate write-offs; or |
• | become subject to litigation. |
• | the application of the percentage-of-completion method of accounting and revenue recognition on contracts, change orders, and contract claims, including related unbilled accounts receivable; |
• | unbilled accounts receivable, including amounts related to requests for equitable adjustment to contracts that provide for price redetermination, primarily with the U.S. federal government. These amounts are recorded only when they can be reliably estimated and realization is probable; |
• | provisions for uncollectible receivables, client claims, and recoveries of costs from subcontractors, vendors, and others; |
• | provisions for income taxes, research and development tax credits, valuation allowances, and unrecognized tax benefits; |
• | value of goodwill and recoverability of other intangible assets; |
• | valuations of assets acquired and liabilities assumed in connection with business combinations; |
• | valuation of contingent earn-out liabilities recorded in connection with business combinations; |
• | valuation of employee benefit plans; |
• | valuation of stock-based compensation expense; and |
• | accruals for estimated liabilities, including litigation and insurance reserves. |
• | our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees; |
• | our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our geographies and operating units; |
• | our ability to manage attrition; |
• | our need to devote time and resources to training, business development, professional development, and other non-chargeable activities; and |
• | our ability to match the skill sets of our employees to the needs of the marketplace. |
• | incur additional indebtedness; |
• | create liens securing debt or other encumbrances on our assets; |
• | make loans or advances; |
• | pay dividends or make distributions to our stockholders; |
• | purchase or redeem our stock; |
• | repay indebtedness that is junior to indebtedness under our credit agreement; |
• | acquire the assets of, or merge or consolidate with, other companies; and |
• | sell, lease, or otherwise dispose of assets. |
• | loss of key employees; |
• | the number and significance of client contracts commenced and completed during a quarter; |
• | creditworthiness and solvency of clients; |
• | the ability of our clients to terminate contracts without penalties; |
• | general economic or political conditions; |
• | unanticipated changes in contract performance that may affect profitability, particularly with contracts that are fixed-price or have funding limits; |
• | contract negotiations on change orders, requests for equitable adjustment, and collections of related billed and unbilled accounts receivable; |
• | seasonality of the spending cycle of our public sector clients, notably the U.S. federal government, the spending patterns of our commercial sector clients, and weather conditions; |
• | budget constraints experienced by our U.S. federal, and state and local government clients; |
• | integration of acquired companies; |
• | changes in contingent consideration related to acquisition earn-outs; |
• | divestiture or discontinuance of operating units; |
• | employee hiring, utilization and turnover rates; |
• | delays incurred in connection with a contract; |
• | the size, scope and payment terms of contracts; |
• | the timing of expenses incurred for corporate initiatives; |
• | reductions in the prices of services offered by our competitors; |
• | threatened or pending litigation; |
• | legislative and regulatory enforcement policy changes that may affect demand for our services; |
• | the impairment of goodwill or identifiable intangible assets; |
• | the fluctuation of a foreign currency exchange rate; |
• | stock-based compensation expense; |
• | actual events, circumstances, outcomes, and amounts differing from judgments, assumptions, and estimates used in determining the value of certain assets (including the amounts of related valuation allowances), liabilities, and other items reflected in our consolidated financial statements; |
• | success in executing our strategy and operating plans; |
• | changes in tax laws or regulations or accounting rules; |
• | results of income tax examinations; |
• | the timing of announcements in the public markets regarding new services or potential problems with the performance of services by us or our competitors, or any other material announcements; |
• | speculation in the media and analyst community, changes in recommendations or earnings estimates by financial analysts, changes in investors’ or analysts’ valuation measures for our stock, and market trends unrelated to our stock; |
• | our announcements concerning the payment of dividends or the repurchase of our shares; |
• | resolution of threatened or pending litigation; |
• | changes in investors’ and analysts’ perceptions of our business or any of our competitors’ businesses; |
• | changes in environmental legislation; |
• | broader market fluctuations; and |
• | general economic or political conditions. |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value that May Yet be Purchased Under the Plans or Programs | ||||||||||
October 2, 2017 – October 29, 2017 | 154,528 | $ | 48.12 | 154,528 | $ | 92,564,290 | ||||||||
October 30, 2017 – November 26, 2017 | 161,251 | 48.67 | 161,251 | 84,716,836 | ||||||||||
November 27, 2017 – December 31, 2017 | 198,897 | 48.86 | 198,897 | 74,999,595 | ||||||||||
January 1, 2018 - January 28, 2018 | 139,239 | 49.06 | 139,239 | 68,167,968 | ||||||||||
January 29, 2018 - February 25, 2018 | 166,494 | 48.68 | 166,494 | 60,062,752 | ||||||||||
February 26, 2018 - April 1, 2018 | 199,624 | 50.41 | 199,624 | 49,999,603 |
101 | The following financial information from our Company’s Quarterly Report on Form 10-Q, for the period ended April 1, 2018, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements. |
Dated: May 4, 2018 | TETRA TECH, INC. | ||
By: | /s/ Dan L. Batrack | ||
Dan L. Batrack | |||
Chairman, Chief Executive Officer and President | |||
(Principal Executive Officer) | |||
By: | /s/ Steven M. Burdick | ||
Steven M. Burdick | |||
Chief Financial Officer | |||
(Principal Financial Officer) | |||
By: | /s/ Brian N. Carter | ||
Brian N. Carter | |||
Senior Vice President, Corporate Controller | |||
(Principal Accounting Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Tetra Tech, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Dan L. Batrack | |
Dan L. Batrack | |
Chairman, Chief Executive Officer and President | |
(Principal Executive Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Tetra Tech, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Steven M. Burdick | |
Steven M. Burdick | |
Chief Financial Officer | |
(Principal Financial Officer) |
1. | The Report fully complies with requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Dan L. Batrack | |
Dan L. Batrack | |
Chairman, Chief Executive Officer and President | |
May 4, 2018 |
1. | The Report fully complies with requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Steven M. Burdick | |
Steven M. Burdick | |
Chief Financial Officer | |
May 4, 2018 |
3 Month Period Ending April 1, 2018 | Delaney Crushed Stone Products, Inc. |
Alleged violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard (#) | 0 |
Section 104(b) orders (#) | 0 |
Section 104(d) citations and orders (#) | 0 |
Section 110(b)(2) violations (#) | 0 |
Section 107(a) orders (#) | 0 |
Proposed assessments under MSHA ($) whole dollars | 0 |
Mining-related fatalities (#) | 0 |
Section 104(e) notice | 0 |
Notice of the potential for a pattern of violations under Section 104(e) | 0 |
Legal actions before the Federal Mine Safety and Health Review Commission (“FMSHRC”) initiated (#) | 0 |
Legal actions before the FMSHRC resolved | 0 |
Legal actions pending before the FMSHRC, end of period | — |
Contests of citations and orders reference in Subpart B of 29 CFR Part 2700 | 0 |
Contests of proposed penalties referenced in Subpart C of 29 CFR Part 2700 (#) | 0 |
Complaints for compensation referenced in Subpart D of 29 CFR Part 2700 (#) | 0 |
Complaints of discharge, discrimination or interference reference in Subpart E of 29 CFR Part 2700 (#) | 0 |
Applications for temporary relief referenced in Subpart F of 29 CFR Part 2700 (#) | 0 |
Appeals of judges’ decisions or orders reference in Subpart H of 29 CFR Part 2700 (#) | 0 |
Total pending legal actions (#) | 0 |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 30, 2018 |
|
Document and Entity Information | ||
Entity Registrant Name | TETRA TECH INC | |
Entity Central Index Key | 0000831641 | |
Document Type | 10-Q | |
Document Period End Date | Apr. 01, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 55,615,925 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q2 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Apr. 01, 2018 |
Oct. 01, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred stock, authorized shares (in shares) | 2,000,000 | 2,000,000 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, authorized shares (in shares) | 150,000,000 | 150,000,000 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares issued (in shares) | 55,749,000 | 55,873,000 |
Common stock, shares outstanding (in shares) | 55,749,000 | 55,873,000 |
Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Income Statement [Abstract] | ||||
Revenue | $ 700,262 | $ 663,781 | $ 1,460,010 | $ 1,332,632 |
Subcontractor costs | (167,469) | (151,827) | (382,370) | (331,127) |
Other costs of revenue | (441,368) | (430,952) | (892,070) | (839,141) |
Gross profit | 91,425 | 81,002 | 185,570 | 162,364 |
Selling, general and administrative expenses | (46,791) | (45,195) | (92,347) | (86,702) |
Contingent consideration – fair value adjustments | (1,918) | 7,149 | (1,918) | 7,149 |
Income from operations | 42,716 | 42,956 | 91,305 | 82,811 |
Interest expense | (4,092) | (3,099) | (7,252) | (6,007) |
Income before income tax expense | 38,624 | 39,857 | 84,053 | 76,804 |
Income tax expense | (9,877) | (12,990) | (9,254) | (23,348) |
Net income | 28,747 | 26,867 | 74,799 | 53,456 |
Net income attributable to noncontrolling interests | (22) | (5) | (40) | (32) |
Net income attributable to Tetra Tech | $ 28,725 | $ 26,862 | $ 74,759 | $ 53,424 |
Earnings per share attributable to Tetra Tech: | ||||
Basic (in dollars per share) | $ 0.51 | $ 0.47 | $ 1.34 | $ 0.93 |
Diluted (in dollars per share) | $ 0.51 | $ 0.46 | $ 1.32 | $ 0.92 |
Weighted-average common shares outstanding: | ||||
Basic (in shares) | 55,841 | 57,270 | 55,900 | 57,171 |
Diluted (in shares) | 56,673 | 58,270 | 56,825 | 58,194 |
Cash dividends paid per share (in dollars per share) | $ 0.1 | $ 0.09 | $ 0.2 | $ 0.18 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
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Apr. 02, 2017 |
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Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 28,747 | $ 26,867 | $ 74,799 | $ 53,456 |
Foreign currency translation adjustments | (16,121) | 9,328 | (19,590) | (6,671) |
Gain (loss) on cash flow hedge valuations | (27) | 452 | 39 | 1,448 |
Other comprehensive income (loss), net of tax | (16,148) | 9,780 | (19,551) | (5,223) |
Comprehensive income, net of tax | 12,599 | 36,647 | 55,248 | 48,233 |
Net income attributable to noncontrolling interests | (22) | (5) | (40) | (32) |
Foreign currency translation adjustments | 5 | (5) | 7 | (188) |
Comprehensive income attributable to noncontrolling interests | (17) | (10) | (33) | (220) |
Comprehensive income attributable to Tetra Tech, net of tax | $ 12,582 | $ 36,637 | $ 55,215 | $ 48,013 |
Consolidated Statements of Cash Flows (Parenthetical) - USD ($) $ in Millions |
6 Months Ended | |
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Apr. 01, 2018 |
Apr. 02, 2017 |
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Statement of Cash Flows [Abstract] | ||
Income tax refunds | $ 0.3 | $ 0.6 |
Basis of Presentation |
6 Months Ended |
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Apr. 01, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying unaudited interim 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 (“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 GAAP for complete financial statements and, therefore, should be read in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended October 1, 2017. 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 year or for future years. Beginning in fiscal 2018, we aligned our operations to better serve our clients and markets, resulting in two renamed 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 all international activities other than work for development agencies. This alignment allows us to capitalize on our growing market opportunities and enhance the development of high-end consulting and technical solutions to meet our growing client demand. We continue to report the results of the wind-down of our non-core construction activities in the Remediation and Construction Management (“RCM”) segment. Prior year amounts for reportable segments have been revised to conform to the current-year presentation. |
Accounts Receivable - Net and Revenue Recognition |
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Accounts Receivable - Net and Revenue Recognition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Receivable - Net and Revenue Recognition | Accounts Receivable – Net and Revenue Recognition Net accounts receivable and billings in excess of costs on uncompleted contracts consisted of the following:
Billed accounts receivable represent amounts billed to clients that have not been collected. Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to contract terms or billed after the period end date. Except for amounts related to claims as discussed below, most of our unbilled receivables at April 1, 2018 are expected to be billed and collected within 12 months. Contract retentions represent amounts withheld by clients until certain conditions are met or the project is completed, which may be several months or years. 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 particular industry conditions that may affect a client's ability to pay. Billings in excess of costs on uncompleted contracts represent the amount of cash collected from clients and billings to clients on contracts in advance of revenue recognized. The majority of billings in excess of costs on uncompleted contracts will be earned within 12 months. Once contract performance is underway, we may experience changes in conditions, client requirements, specifications, designs, materials and expectations regarding the period of performance. Such changes result in change orders and may be initiated by us or by our clients. In many cases, agreement with the client as to the terms of change orders is reached prior to work commencing; however, sometimes circumstances require that work progress without a definitive client agreement. Unapproved change orders constitute claims in excess of agreed contract prices that we seek to collect from our clients for delays, errors in specifications and designs, contract terminations, or other causes of unanticipated additional costs. Revenue on claims is recognized when contract costs related to claims have been incurred and when their addition to contract value can be reliably estimated. This can lead to a situation in which costs are recognized in one period and revenue is recognized in a subsequent period, such as when client agreement is obtained or a claims resolution occurs. Total accounts receivable at April 1, 2018 and October 1, 2017 included $65 million and $59 million, respectively, related to claims, including requests for equitable adjustment, on contracts that provide for price redetermination. We regularly evaluate all unsettled claim amounts and record appropriate adjustments to operating earnings when it is probable that the claim will result in a different contract value than the amount previously estimated. We recorded no material gains or losses related to claims in the first half of fiscal 2018. In the first half of fiscal 2017 (all in the second quarter), we recognized a reduction of revenue of $4.5 million and a related loss in operating income of $3.2 million in our RCM segment. Billed accounts receivable related to U.S. federal government contracts were $89.3 million and $45.4 million at April 1, 2018 and October 1, 2017, respectively. U.S. federal government contracts unbilled receivables were $104.5 million and $109.7 million at April 1, 2018 and October 1, 2017, respectively. Other than the U.S. federal government, no single client accounted for more than 10% of our accounts receivable at April 1, 2018 and October 1, 2017. We recognize our revenue from contracts using the percentage-of-completion method, primarily utilizing the cost-to-cost approach, to estimate the progress towards completion in order to determine the amount of revenue and profit to recognize. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. As a result, we recognized net unfavorable operating income adjustments of $0.7 million and $1.4 million during the second quarter and first half of fiscal 2018, respectively, in the CIG segment. We recognized net unfavorable operating income adjustments of $4.0 million (all in the RCM segment) during the second quarter of fiscal 2017, and $8.0 million ($2.3 million in the CIG segment and $5.7 million in the RCM segment) during the first half of fiscal 2017. Changes in revenue and cost estimates could also result in a projected loss that would be recorded immediately in earnings. As of April 1, 2018 and October 1, 2017, our consolidated balance sheets included liabilities for anticipated losses of $4.4 million and $8.1 million, respectively. The estimated cost to complete the related contracts as of April 1, 2018 was $4.6 million. |
Mergers and Acquisitions |
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Apr. 01, 2018 | |
Business Combinations [Abstract] | |
Mergers and Acquisitions | Mergers and Acquisitions In the second quarter of fiscal 2018, we completed the acquisition of Norman Disney & Young (“NDY”), a leader in sustainable infrastructure engineering design. NDY is an Australian-based global engineering design firm with more than 700 professionals operating in offices throughout Australia, the Asia-Pacific region, the United Kingdom, and Canada and is part of our CIG segment. The fair value of the purchase price for NDY was $56.1 million. This amount is comprised of $46.3 million of initial cash payments made to the sellers, $1.6 million held in escrow and $0.6 million in accruals included in current liabilities for pending resolution of the closing balance sheet, and $7.6 million for the estimated fair value of contingent earn-out obligations, with a maximum amount of $20.2 million, based upon the achievement of specified operating income targets in each of the three years following the acquisition. In the first quarter of fiscal 2017, we acquired Glumac, headquartered in Portland, Oregon. Glumac is a leader in sustainable infrastructure design with more than 300 employees and is part of our GSG segment. The fair value of the purchase price for Glumac was $38.4 million. This amount is comprised of $19.0 million of initial cash payments made to the sellers, $1.0 million held in escrow and included in current liabilities for pending resolution of the closing balance sheet, and $18.4 million for the estimated fair value of contingent earn-out obligations, with a maximum of $20.0 million payable, based upon the achievement of specified operating income targets in each of the three years following the acquisition. In the second quarter of fiscal 2017, we acquired Eco Logical Australia (“ELA”), headquartered in Sydney, Australia. ELA is a multi-disciplinary consulting firm with over 160 staff that provides innovative, high-end environmental and ecological services, and is part of our CIG segment. The fair value of the purchase price for ELA was $9.9 million. This amount consists of $8.3 million of cash payments made to the sellers and $1.6 million for the estimated fair value of contingent earn-out obligations, with a maximum of $1.7 million payable, based upon the achievement of specified operating income targets in each of the two years following the acquisition. Goodwill additions resulting from the above business combinations are primarily attributable to the existing workforce of the acquired companies and the synergies expected to arise after the acquisitions. The goodwill addition related to the fiscal 2018 acquisitions primarily represent the value of a workforce with distinct expertise in the sustainable infrastructure design market. The goodwill addition related to the fiscal 2017 acquisition primarily represents the value of a workforce with distinct expertise in the environmental and ecological markets. 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. The results of these acquisitions were included in our consolidated financial statements from their respective closing dates. These acquisitions were not considered material to our consolidated financial statements. As a result, no pro forma information has been provided. Backlog, client relations and trade names intangible assets include the fair value of existing contracts and the underlying customer relationships with lives ranging from 1 to 10 years, and trade names with lives ranging from 3 to 5 years. For detailed information regarding our intangible assets, see Note 4, “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 “Long-term contingent earn-out liabilities” on our 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 two or three 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. We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates. 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. During the first half of fiscal 2018 (all in the second quarter), we recorded increases in our contingent earn-out liabilities related to ELA and Cornerstone Environmental Group ("CEG"), and reported related losses in operating income totaling $1.9 million. During the first half of fiscal 2017 (all in the second quarter), we recorded decreases in our contingent earn-out liabilities related to INDUS Corporation ("INDUS") and CEG, and reported related gains in operating income totaling $7.1 million ($5.0 million for INDUS and $2.1 million for CEG). The acquisition agreement for INDUS included a contingent earn-out agreement based on the achievement of operating income thresholds in each of the first two years beginning on the acquisition date, which was in the second quarter of fiscal 2016. The maximum earn-out obligation over the two-year earn-out period was $8.0 million ($4.0 million in each year). These amounts could be earned on a pro-rata basis starting at 50% of the earn-out maximum for operating income within a predetermined range in each year. INDUS was required to meet a minimum operating income threshold in each year to earn any contingent consideration. These minimum thresholds were $3.2 million and $3.6 million in years one and two, respectively. In order to earn the maximum contingent consideration, INDUS needed to generate operating income of $3.6 million in year one and $4.0 million in year two. The determination of the fair value of the purchase price for INDUS on the acquisition date included our estimate of the fair value of the related contingent earn-out obligation. The initial valuation was primarily based on probability-weighted internal estimates of INDUS' operating income during each earn-out period. As a result of these estimates, we calculated an initial fair value at the acquisition date of INDUS' contingent earn-out liability of $4.7 million in the second quarter of fiscal 2016. This amount had increased to $4.9 million at the end of fiscal 2016 due to the passage of time for the present value calculation. In determining that INDUS would earn 59% of the maximum potential earn-out, we considered several factors including INDUS' recent historical revenue and operating income levels and growth rates. We also considered the recent trend in INDUS' backlog level. INDUS' annual financial performance in the first earn-out period was below our original expectation at the acquisition date. As a result, in the second quarter of fiscal 2017, we evaluated our estimate of INDUS' contingent consideration liability for both earn-out periods. This assessment included a review of INDUS' financial results in the first earn-out period, the status of ongoing projects in INDUS' backlog, and the inventory of prospective new contract awards. As a result of this assessment, we concluded that INDUS' operating income in both the first and second earn-out periods would be lower than the minimum requirements of $3.2 million and $3.6 million, respectively, to earn any contingent consideration. Accordingly, in the second quarter of fiscal 2017, we reduced the INDUS contingent earn-out liability to $0, which resulted in a gain of $5.0 million. At April 1, 2018, there was a total potential maximum of $43.4 million of outstanding contingent consideration related to acquisitions. Of this amount, $30.1 million was estimated as the fair value and accrued on our consolidated balance sheet. |
Goodwill and Intangible Assets |
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Goodwill and Intangible Assets | Goodwill and Intangible Assets The following table summarizes the changes in the carrying value of goodwill:
During the first half of fiscal 2018, we recorded goodwill additions as a result of our recent acquisitions. The purchase price allocations for these acquisitions are preliminary, and subject to adjustment based upon the final determination of the net assets acquired and information to perform the final valuation. Foreign exchange impact relates to our foreign subsidiaries with functional currencies that are different than our reporting currency. The gross amounts of goodwill for GSG were $404.0 million and $379.5 million at April 1, 2018 and October 1, 2017, respectively, excluding $17.7 million of accumulated impairment. The gross amounts of goodwill for CIG were $521.3 million and $477.0 million at April 1, 2018 and October 1, 2017, respectively, excluding $97.9 million of accumulated impairment. We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our most recent annual review at July 3, 2017 (i.e. the first day of our fourth quarter in fiscal 2017) indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their carrying values, including goodwill. We 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. The reorganization of our core operations, described in Note 1, “Basis of Presentation” and Note 10, “Reportable Segments”, also impacted the definition of our reporting units for goodwill impairment testing. As a result, on October 2, 2017, we performed impairment testing for goodwill under our new segment structure and determined that the estimated fair value of each new reporting unit exceeded its corresponding carrying amount including recorded goodwill. Although we believe that our estimates of fair value for our reporting units are reasonable, if financial performance for our reporting units falls significantly below our expectations or market prices for similar businesses decline, the goodwill for our reporting units could become impaired. We estimate the fair value of all reporting units with a goodwill balance based on a comparison and weighting of the income approach (weighted 70%), specifically the discounted cash flow method, and the market approach (weighted 30%), 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 resulting fair value is most sensitive to the assumptions we use in our discounted cash flow analysis. The assumptions that have the most significant impact on the fair value calculation are the reporting unit’s revenue growth rate and operating profit margin, and the discount rate used to convert future estimated cash flows to a single present value amount. The gross amount and accumulated amortization of our acquired identifiable intangible assets with finite useful lives included in “Intangible assets - net” on our consolidated balance sheets, were as follows:
The gross amount and accumulated amortization for client relations decreased due to the full amortization of assets as of fiscal 2017 year-end. Amortization expense for the three and six months ended April 1, 2018 was $5.0 million and $9.7 million, respectively, compared to $5.9 million and $11.8 million for the prior-year periods. Estimated amortization expense for the remainder of fiscal 2018 and succeeding years is as follows:
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Property and Equipment |
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Property and Equipment | Property and Equipment Property and equipment consisted of the following:
The depreciation expense related to property and equipment was $5.1 million and $10.3 million for the three and six months ended April 1, 2018, respectively, compared to $5.8 million and 11.0 million for the prior-year periods. |
Stock Repurchase and Dividends |
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Apr. 01, 2018 | |
Stock Repurchase and Dividends | |
Stock Repurchase and Dividends | Stock Repurchase and Dividends On November 7, 2016, the Board of Directors authorized a new stock repurchase program under which we could repurchase up to $200 million of our common stock. In the first half of fiscal 2018, we repurchased through open market purchases under this program a total of 1,020,033 shares at an average price of $49.02 for a total cost of $50.0 million. On November 7, 2017, the Board of Directors declared a quarterly cash dividend of $0.10 per share payable on December 15, 2017 to stockholders of record as of the close of business on November 30, 2017. On January 29, 2018, the Board of Directors declared a quarterly cash dividend of $0.10 per share payable on March 2, 2018 to stockholders of record as of the close of business on February 14, 2018. Dividends totaling $11.2 million and $10.3 million were paid in the first half of fiscal 2018 and 2017, respectively. Subsequent Event. On April 30, 2018, the Board of Directors declared a quarterly cash dividend of $0.12 per share payable on June 1, 2018 to stockholders of record as of the close of business on May 16, 2018. |
Stockholders' Equity and Stock Compensation Plans |
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Apr. 01, 2018 | |
Stockholders' Equity Note [Abstract] | |
Stockholders' Equity and Stock Compensation Plans | Stockholders’ Equity and Stock Compensation Plans We recognize the fair value of our stock-based compensation awards as compensation expense on a straight-line basis over the requisite service period in which the award vests. Stock-based compensation expense for the three and six months ended April 1, 2018 was $4.7 million and $8.7 million, respectively, compared to $3.4 million and $6.6 million for the same periods last year. The majority of these amounts were included in “Selling, general and administrative (“SG&A”) expenses” in our consolidated statements of income. There were no material stock compensation awards in the second quarter of fiscal 2018. In the six months ended April 1, 2018, we granted 170,222 stock options with an exercise price of $47.95 per share and an estimated weighted-average fair value of $14.79 per share to our non-employee directors and executive officers. The executive officer options vest over a four-year period, and the non-employee director options vest after one year. In addition, we awarded 98,599 performance shares units (“PSUs”) to our non-employee directors and executive officers at a fair value of $56.10 per share on the award date. 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 the growth in our diluted earnings per share and 50% on our total shareholder return relative to a peer group of companies and a stock market index over the vesting period. Additionally, we awarded 189,651 restricted stock units (“RSUs”) to our non-employee directors, executive officers and employees at the fair value of $48.01 per share on the award date. All of the executive officer and employee RSUs have time-based vesting over a four-year period, and the non-employee director RSUs vest after one year. |
Earnings per Share ("EPS") |
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Earnings per Share (EPS) | Earnings per Share (“EPS”) 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 outstanding stock options and unvested restricted stock using the treasury stock method. The following table sets forth the number of weighted-average shares used to compute basic and diluted EPS:
For the three and six months of fiscal 2018 and 2017, no options were excluded from the calculation of dilutive potential common shares. |
Income Taxes |
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Apr. 01, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes The effective tax rates for the first half of fiscal 2018 and 2017 were 11.0% and 30.4%, respectively. The fiscal 2018 tax rate reflects the impact of the comprehensive tax legislation enacted by the U.S. government on December 22, 2017, which is commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). The TCJA significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, limiting the deductibility of certain executive compensation, implementing a modified territorial tax system, and imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. As we have a September 30 fiscal year-end, our U.S. federal corporate income tax rate will be blended in fiscal 2018, resulting in a statutory federal rate of approximately 24.5% (3 months at 35% and 9 months at 21%), and will be 21% for subsequent fiscal years. GAAP requires that the impact of tax legislation be recognized in the period in which the tax law was enacted. As a result of the TCJA, we reduced our deferred tax liabilities and recorded a one-time deferred tax benefit of approximately $10.1 million in the first quarter of fiscal 2018 to reflect our estimate of temporary differences in the United States that will be recovered or settled in fiscal 2018 based on the 24.5% blended corporate tax rate or based on the 21% tax rate in fiscal 2019 and beyond versus the previous enacted 35% corporate tax rate. Excluding this tax benefit, our effective tax rate in the first half of fiscal 2018 was 23.0%. The TCJA also imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries. We analyzed this provision of the TCJA and our related foreign earnings accumulated under legacy tax laws during the half of fiscal 2018. Based on our preliminary analysis of tax earnings and profits and tax deficits at the prescribed measurement dates, we have a cumulative net tax deficit and do not believe we have any tax liability related to this tax. The one-time revaluation of our deferred tax liabilities and our estimate of the one-time transition tax on foreign earnings are both preliminary and subject to adjustment as we refine the information necessary to record the final values. The provisional amounts incorporate assumptions made based on our current interpretation of the TCJA and may change as we receive additional clarification on the implementation guidance. Additionally, in order to complete the valuation of our deferred tax liabilities, additional information related to the timing of the recovery or settlement of our deferred tax assets and liabilities and the effective tax rates (including state tax rates) that will apply needs to be obtained and analyzed. Similarly, information related to the computation of our foreign earnings and profits subject to the one-time transition tax requires further analysis before we make a final determination that we have no related liability. The U.S. Securities and Exchange Commission (“SEC”) has issued rules that would allow for a measurement period of up to one year after the enactment date of the TCJA to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending September 30, 2018. At the beginning of fiscal 2017, we adopted accounting guidance which requires excess tax benefits and deficiencies on share-based payments to be recorded as an income tax benefit or expense, respectively, in the consolidated statement of income rather than being recorded in additional paid-in capital on the consolidated balance sheet. As a result, we recognized income tax benefits of $1.4 million and $4.6 million in the second quarter and first half of fiscal 2018, respectively, compared to $0.9 million and $2.7 million for the prior-year periods. Also in the second quarter of fiscal 2017, the Internal Revenue Service (“IRS”) concluded their examination for fiscal years 2010 through 2013. As a result, we recognized a $1.2 million tax benefit in the second quarter of fiscal 2017, and we made payments to the IRS of approximately $20 million in the third quarter of fiscal 2017 that represented the acceleration of a deferred tax liability. In the second quarter of fiscal 2017, we also recognized a tax expense of $2.3 million to establish a reserve for an international tax position that is under examination. Excluding these discrete amounts from both periods and the one-time impacts of the TCJA, the effective tax rates for the first half of fiscal 2018 and 2017 were 28.5% and 32.5%, respectively. We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and adjust the allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The ability or failure to achieve the forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets. Based on future operating results in certain jurisdictions, it is possible that the current valuation allowance positions of those jurisdictions could be adjusted in the next 12 months. Because of the complexity of the new Global Intangible Low-Taxed Income (“GILTI”) tax rules, we continue to evaluate this provision of the TCJA and the application of Accounting Standards Codification 740, Income Taxes. Under GAAP, we are allowed to make an accounting policy choice of either: 1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or 2) factoring such amounts into our measurement of our deferred taxes (the “deferred method”). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Whether we expect to have future U.S. inclusions in taxable income related to GILTI depends on not only our current structure and estimated future results of global operations, but also our intent and ability to modify our structure. We are currently in the process of analyzing our structure and, as a result, we are not yet able to reasonably estimate the effect of this provision of the TCJA. Therefore, we have not made any adjustments related to potential GILTI tax in our consolidated financial statements, and have not made a policy decision regarding whether to record deferred taxes on GILTI. As of April 1, 2018 and October 1, 2017, the liability for income taxes associated with uncertain tax positions was $6.3 million and $6.0 million, respectively. These uncertain tax positions substantially relate to ongoing examinations, which are reasonably likely to be resolved within the next 12 months. |
Reportable Segments |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reportable Segments | Reportable Segments Beginning in fiscal 2018, we aligned our operations to better serve our clients and markets, resulting in two renamed 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 all international activities other than work for development agencies. This alignment allows us to capitalize on our growing market opportunities and enhance the development of high-end consulting and technical solutions to meet our growing client demand. We will continue to report the results of the wind-down of our non-core construction activities in the RCM segment. Prior year amounts for reportable segments have been revised to conform to the current-year presentation. GSG provides consulting and engineering services primarily to U.S. government clients (federal, state and local) and development agencies worldwide. GSG supports U.S. government civilian and defense agencies with services in water, environment, infrastructure, information technology, and emergency management services. GSG also provides engineering design services for municipal and commercial clients, especially in water infrastructure, solid waste, and high-end sustainable infrastructure designs. Additionally, GSG provides a wide range of support to development agencies worldwide. CIG provides consulting and engineering services primarily to U.S. commercial clients and international clients, both commercial and local government. CIG supports commercial clients across the Fortune 500, oil and gas, energy utilities, and mining markets. CIG also provides infrastructure and related environmental and geotechnical services, testing, engineering and project management services to commercial and local government clients across Canada, in Asia Pacific (primarily Australia and New Zealand), as well as Brazil and Chile. CIG also provides field construction management activities in the United States and Western Canada. We report the results of the wind-down of our non-core construction activities in the RCM reportable segment. The remaining backlog for RCM as of April 1, 2018 was immaterial as the related projects were substantially completed. Management evaluates 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. Reportable Segments The following tables set forth summarized financial information regarding our reportable segments:
(1) Includes amortization of intangibles, other costs, and other income not allocable to our reportable segments.
(1) Corporate assets consist of assets not allocated to our reportable segments including goodwill, intangible assets, deferred income taxes and certain other assets. Major Clients Other than the U.S. federal government, no single client accounted for more than 10% of our revenue. For the three and six months ended April 1, 2018 and April 2, 2017, GSG and CIG generated revenue from all client sectors. The following table represents our revenue by client sector:
(1) Includes revenue generated under U.S. federal government contracts performed outside the United States. (2) Includes revenue generated from foreign operations, primarily in Canada and Australia, and revenue generated from non-U.S. clients. |
Fair Value Measurements |
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Apr. 01, 2018 | |
Fair Value Disclosures [Abstract] | |
Fair Value Measurements | Fair Value Measurements The fair value of long-term debt was determined using the present value of future cash flows based on the borrowing rates currently available for debt with similar terms and maturities (Level 2 measurement, as described in “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended October 1, 2017). The carrying value of our long-term debt approximated fair value at April 1, 2018 and October 1, 2017. As of April 1, 2018, we had borrowings of $478.8 million outstanding under our credit agreement, which were used to fund our business acquisitions, working capital needs, stock repurchases, dividends, capital expenditures and contingent earn-outs. |
Derivative Financial Instruments |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | Derivative Financial Instruments We use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt. We enter into foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and earnings will be adversely 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 our 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 (loss), and in our consolidated statements of income for those derivatives designated as fair value hedges. In fiscal 2013, we entered into three interest rate swap agreements that we designated as cash flow hedges to fix the variable interest rates on a portion of borrowings under our term loan facility. In the first quarter of fiscal 2014, we entered into two interest rate swap agreements that we designated as cash flow hedges to fix the variable interest rates on the borrowings under our term loan facility. At April 1, 2018, the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was $(0.1) million and is expected to be reclassified from accumulated other comprehensive income (loss) to interest expense within the next 12 months. As of April 1, 2018, the notional principal, fixed rates and related expiration dates of our outstanding interest rate swap agreements are as follows:
The fair values of our outstanding derivatives designated as hedging instruments were as follows:
The impact of the effective portions of derivative instruments in cash flow hedging relationships and fair value relationships on income and other comprehensive income was immaterial for the first half of fiscal 2018 and the fiscal year ended October 1, 2017. Additionally, there were no ineffective portions of derivative instruments. Accordingly, no amounts were excluded from effectiveness testing for our interest rate swap agreements. |
Reclassifications Out of Accumulated Other Comprehensive Income (Loss) |
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Reclassifications Out of Accumulated Other Comprehensive Income (Loss) | Reclassifications Out of Accumulated Other Comprehensive Income (Loss) The accumulated balances and reporting period activities for the three and six months ended April 1, 2018 and April 2, 2017 related to reclassifications out of accumulated other comprehensive loss are summarized as follows:
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Commitments and Contingencies |
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Apr. 01, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies We are subject to certain claims and lawsuits typically filed against the engineering, consulting and construction 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. The Civil Division of the United States Attorney's Office ("USAO") has informed us that it is currently evaluating claims for penalties and damages in connection with radiation remediation services provided by Tetra Tech EC, Inc., our subsidiary, at the former Navy base at Hunters Point in San Francisco. We have cooperated with the USAO and are engaged in ongoing discussions with the USAO concerning this matter. Based upon the discussions to date, we are currently unable to determine the probability of the outcome of this matter or the range of reasonably possible loss, if any. |
Recent Accounting Pronouncements |
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Apr. 01, 2018 | |
Accounting Changes and Error Corrections [Abstract] | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard that will supersede existing revenue recognition guidance under current GAAP. The new standard is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods and services. The standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. This guidance is effective for fiscal reporting periods and interim periods within that reporting period, beginning after December 15, 2017 (first quarter of fiscal 2019 for us). We continue to evaluate the impact that this guidance will have on our consolidated financial statements. We expect to use the modified retrospective method, which may result in a cumulative effect adjustment as of the date of adoption. In January 2016, the FASB issued guidance that generally requires companies to measure investments in other entities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2017 (first quarter of fiscal 2019 for us). We do not expect the adoption of this guidance to have an impact on our consolidated financial statements. In February 2016, the FASB issued guidance that primarily requires lessees to recognize most leases on their balance sheets but record expenses on their income statements in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018 (first quarter of fiscal 2020 for us). Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements. In June 2016, the FASB issued updated guidance which requires entities to estimate all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The updated guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019 (first quarter of fiscal 2021 for us). Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements. In August 2016, the FASB issued guidance to address eight specific cash flow issues to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2017 (first quarter of fiscal 2019 for us). Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements. In October 2016, the FASB issued updated guidance which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance is effective for fiscal reporting periods and interim reporting periods within those fiscal reporting periods, beginning after December 15, 2017 (first quarter of fiscal 2019 for us). Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements. In November 2016, the FASB issued updated guidance which provides amendments to address the classification and presentation of changes in restricted cash and in the statement of cash flows. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2017 (first quarter of fiscal 2019 for us). Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements. In January 2017, the FASB issued updated guidance to simplify the test for goodwill impairment. This guidance eliminates step two from the goodwill impairment test. Under the updated guidance, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. This guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 (first quarter of fiscal 2021 for us), on a prospective basis. Earlier adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. We adopted this guidance in the first quarter of our fiscal 2018, and the adoption of this guidance had no impact on our consolidated financial statements. In May 2017, the FASB issued updated guidance to clarify when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the updated guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of a change in terms or conditions. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2017 (first quarter of fiscal 2019 for us), on a prospective basis. Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements. In August 2017, the FASB issued accounting guidance on hedging activities. The amendment better aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018 (first quarter of fiscal 2020 for us). Early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements. In February 2018, the FASB issued guidance on reclassification of certain tax effects from accumulated comprehensive income, which allows for a reclassification of stranded tax effects from the TCJA from accumulated other comprehensive income to retained earnings. This guidance is effective for fiscal years beginning after December 15, 2018 (first quarter of fiscal 2020 for us). We are currently evaluating the impact that this guidance will have on our consolidated financial statements. |
Accounts Receivable - Net and Revenue Recognition (Tables) |
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Schedule of net accounts receivable and billings in excess of costs on uncompleted contracts | Net accounts receivable and billings in excess of costs on uncompleted contracts consisted of the following:
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Goodwill and Intangible Assets (Tables) |
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of changes in the carrying value of goodwill | The following table summarizes the changes in the carrying value of goodwill:
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Summary of gross amount and accumulated amortization of acquired identifiable intangible assets with finite useful lives | The gross amount and accumulated amortization of our acquired identifiable intangible assets with finite useful lives included in “Intangible assets - net” on our consolidated balance sheets, were as follows:
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Schedule of estimated amortization expense for remainder of fiscal and succeeding years | Estimated amortization expense for the remainder of fiscal 2018 and succeeding years is as follows:
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Property and Equipment (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of property and equipment | Property and equipment consisted of the following:
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Earnings per Share ("EPS") (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of number of weighted-average shares used to compute basic and diluted EPS | The following table sets forth the number of weighted-average shares used to compute basic and diluted EPS:
|
Reportable Segments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summarized financial information of reportable segments | The following tables set forth summarized financial information regarding our reportable segments:
(1) Includes amortization of intangibles, other costs, and other income not allocable to our reportable segments.
(1) Corporate assets consist of assets not allocated to our reportable segments including goodwill, intangible assets, deferred income taxes and certain other assets. |
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Summary of revenue by client sector | The following table represents our revenue by client sector:
(1) Includes revenue generated under U.S. federal government contracts performed outside the United States. (2) Includes revenue generated from foreign operations, primarily in Canada and Australia, and revenue generated from non-U.S. clients. |
Derivative Financial Instruments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of notional principal, fixed rates and related expiration dates of outstanding interest rate swap agreements | As of April 1, 2018, the notional principal, fixed rates and related expiration dates of our outstanding interest rate swap agreements are as follows:
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Schedule of fair values of the entity's outstanding derivatives designated as hedging instruments | The fair values of our outstanding derivatives designated as hedging instruments were as follows:
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Reclassifications Out of Accumulated Other Comprehensive Income (Loss) (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of reclassifications out of accumulated other comprehensive loss | The accumulated balances and reporting period activities for the three and six months ended April 1, 2018 and April 2, 2017 related to reclassifications out of accumulated other comprehensive loss are summarized as follows:
|
Basis of Presentation (Details) |
6 Months Ended |
---|---|
Apr. 01, 2018
segment
| |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Number of renamed reportable segments | 2 |
Accounts Receivable - Net and Revenue Recognition - Net Accounts Receivable and Billings in Excess of Costs on Uncompleted Contracts (Details) - USD ($) $ in Thousands |
Apr. 01, 2018 |
Oct. 01, 2017 |
---|---|---|
Accounts Receivable - Net and Revenue Recognition [Abstract] | ||
Billed | $ 461,781 | $ 376,287 |
Unbilled | 413,517 | 404,899 |
Contract retentions | 22,019 | 39,840 |
Total accounts receivable – gross | 897,317 | 821,026 |
Allowance for doubtful accounts | (34,098) | (32,259) |
Total accounts receivable – net | 863,219 | 788,767 |
Billings in excess of costs on uncompleted contracts | $ 144,327 | $ 117,499 |
Goodwill and Intangible Assets - Goodwill (Details) $ in Thousands |
6 Months Ended |
---|---|
Apr. 01, 2018
USD ($)
| |
Goodwill | |
Balance at beginning of the period | $ 740,886 |
Goodwill additions | 81,001 |
Foreign exchange impact | (12,197) |
Balance at end of the period | 809,690 |
GSG | |
Goodwill | |
Balance at beginning of the period | 361,761 |
Goodwill additions | 26,726 |
Foreign exchange impact | (2,138) |
Balance at end of the period | 386,349 |
CIG | |
Goodwill | |
Balance at beginning of the period | 379,125 |
Goodwill additions | 54,275 |
Foreign exchange impact | (10,059) |
Balance at end of the period | $ 423,341 |
Goodwill and Intangible Assets - Narrative (Details) - USD ($) |
6 Months Ended | ||
---|---|---|---|
Jul. 03, 2017 |
Apr. 01, 2018 |
Oct. 01, 2017 |
|
Goodwill [Line Items] | |||
Impairment of goodwill | $ 0 | ||
GSG | |||
Goodwill [Line Items] | |||
Gross amounts of goodwill | $ 404,000,000 | $ 379,500,000 | |
Accumulated impairment | 17,700,000 | 17,700,000 | |
CIG | |||
Goodwill [Line Items] | |||
Gross amounts of goodwill | 521,300,000 | 477,000,000 | |
Accumulated impairment | $ 97,900,000 | $ 97,900,000 | |
Income approach | |||
Goodwill [Line Items] | |||
Weighted rate used in fair value of goodwill (as a percent) | 70.00% | ||
Discounted cash flow and market approach | |||
Goodwill [Line Items] | |||
Weighted rate used in fair value of goodwill (as a percent) | 30.00% |
Goodwill and Intangible Assets - Finite Lived Assets (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
Apr. 01, 2018 |
Apr. 02, 2017 |
Oct. 01, 2017 |
|
Finite-lived intangible assets | |||||
Gross Amount | $ 83,158 | $ 83,158 | $ 118,995 | ||
Accumulated Amortization | (62,311) | (62,311) | (92,307) | ||
Amortization expense | 5,000 | $ 5,900 | 9,700 | $ 11,800 | |
Estimated amortization expense | |||||
2018 | 8,300 | 8,300 | |||
2019 | 7,471 | 7,471 | |||
2020 | 2,786 | 2,786 | |||
2021 | 1,650 | 1,650 | |||
2022 | 411 | 411 | |||
Beyond | 229 | 229 | |||
Total | 20,847 | $ 20,847 | |||
Non-compete agreements | |||||
Finite-lived intangible assets | |||||
Weighted- Average Remaining Life (in Years) | 0 years | ||||
Gross Amount | 83 | $ 83 | 495 | ||
Accumulated Amortization | (83) | $ (83) | (493) | ||
Client relations | |||||
Finite-lived intangible assets | |||||
Weighted- Average Remaining Life (in Years) | 2 years 8 months 12 days | ||||
Gross Amount | 54,643 | $ 54,643 | 90,297 | ||
Accumulated Amortization | (43,119) | $ (43,119) | (75,074) | ||
Backlog | |||||
Finite-lived intangible assets | |||||
Weighted- Average Remaining Life (in Years) | 9 months 18 days | ||||
Gross Amount | 23,184 | $ 23,184 | 21,518 | ||
Accumulated Amortization | (16,443) | $ (16,443) | (13,301) | ||
Trade names | |||||
Finite-lived intangible assets | |||||
Weighted- Average Remaining Life (in Years) | 2 years 9 months 18 days | ||||
Gross Amount | 5,248 | $ 5,248 | 6,685 | ||
Accumulated Amortization | $ (2,666) | $ (2,666) | $ (3,439) |
Property and Equipment (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
Apr. 01, 2018 |
Apr. 02, 2017 |
Oct. 01, 2017 |
|
Property and Equipment | |||||
Property and equipment, gross | $ 182,128 | $ 182,128 | $ 181,395 | ||
Accumulated depreciation | (126,633) | (126,633) | (124,560) | ||
Property and equipment, net | 55,495 | 55,495 | 56,835 | ||
Depreciation expense related to property and equipment | 5,100 | $ 5,800 | 10,300 | $ 11,000 | |
Equipment, furniture and fixtures | |||||
Property and Equipment | |||||
Property and equipment, gross | 147,316 | 147,316 | 150,026 | ||
Leasehold improvements | |||||
Property and Equipment | |||||
Property and equipment, gross | 31,066 | 31,066 | 27,689 | ||
Land and buildings | |||||
Property and Equipment | |||||
Property and equipment, gross | $ 3,746 | $ 3,746 | $ 3,680 |
Stock Repurchase and Dividends (Details) - USD ($) |
6 Months Ended | |||||
---|---|---|---|---|---|---|
Apr. 30, 2018 |
Jan. 29, 2018 |
Nov. 07, 2017 |
Apr. 01, 2018 |
Apr. 02, 2017 |
Nov. 07, 2016 |
|
Subsequent Event [Line Items] | ||||||
Maximum repurchase amount under stock repurchase program | $ 200,000,000 | |||||
Shares repurchased through open market purchases (in shares) | 1,020,033 | |||||
Average price of shares repurchased (in dollars per share) | $ 49.02 | |||||
Cost of shares repurchased | $ 50,000,000 | |||||
Quarterly cash dividend declared (in dollars per share) | $ 0.10 | $ 0.10 | ||||
Dividends paid | $ 11,172,000 | $ 10,301,000 | ||||
Subsequent Event | ||||||
Subsequent Event [Line Items] | ||||||
Quarterly cash dividend declared (in dollars per share) | $ 0.12 |
Earnings per Share ("EPS") - Calculation (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Earnings Per Share [Abstract] | ||||
Net income attributable to Tetra Tech | $ 28,725 | $ 26,862 | $ 74,759 | $ 53,424 |
Weighted-average common shares outstanding – basic (in shares) | 55,841 | 57,270 | 55,900 | 57,171 |
Effect of dilutive stock options and unvested restricted stock (in shares) | 832 | 1,000 | 925 | 1,023 |
Weighted-average common stock outstanding – diluted (in shares) | 56,673 | 58,270 | 56,825 | 58,194 |
Earnings per share attributable to Tetra Tech: | ||||
Basic (in dollars per share) | $ 0.51 | $ 0.47 | $ 1.34 | $ 0.93 |
Diluted (in dollars per share) | $ 0.51 | $ 0.46 | $ 1.32 | $ 0.92 |
Earnings per Share ("EPS") - Antidilutive Securities (Details) - shares |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Stock options | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Securities excluded from the calculation of dilutive potential common shares (in shares) | 0 | 0 | 0 | 0 |
Reportable Segments - Revenue By Client Sector (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Revenue by client sector | ||||
Threshold percentage for disclosure of revenue from a single client | 10.00% | 10.00% | 10.00% | 10.00% |
Revenue | $ 700,262 | $ 663,781 | $ 1,460,010 | $ 1,332,632 |
U.S. federal government | ||||
Revenue by client sector | ||||
Revenue | 236,951 | 218,110 | 473,199 | 440,744 |
International | ||||
Revenue by client sector | ||||
Revenue | 178,008 | 197,114 | 342,968 | 369,571 |
U.S. state and local government | ||||
Revenue by client sector | ||||
Revenue | 104,905 | 83,181 | 256,659 | 166,676 |
U.S. commercial | ||||
Revenue by client sector | ||||
Revenue | $ 180,398 | $ 165,376 | $ 387,184 | $ 355,641 |
Fair Value Measurements (Details) $ in Millions |
Apr. 01, 2018
USD ($)
|
---|---|
Fair Value Disclosures [Abstract] | |
Borrowing under credit agreement | $ 478.8 |
Derivative Financial Instruments - Fair Value (Details) - USD ($) $ in Thousands |
Apr. 01, 2018 |
Oct. 01, 2017 |
---|---|---|
Interest rate swap agreements | Derivatives designated as hedging instruments | Designated as cash flow hedges | Other current assets | ||
Derivative Financial Instruments | ||
Fair Value of Derivative Instruments | $ 96 | $ 49 |
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