TETRA TECH INCTTEK
TETRA TECH INC Income Taxes Disclosure
Income Taxes
Income before income taxes, by geographic area, was as follows (in thousands):
| Fiscal Year Ended | |||||||||||||||||
| September 28, 2025 | September 29, 2024 | October 1, 2023 | |||||||||||||||
| Income before income taxes: | |||||||||||||||||
| United States | $ | 176,118 | $ | 294,401 | $ | 287,295 | |||||||||||
| Foreign | 201,499 | 169,065 | 113,683 | ||||||||||||||
| Total income before income taxes | $ | 377,617 | $ | 463,466 | $ | 400,978 | |||||||||||
Income tax expense consisted of the following (in thousands):
| Fiscal Year Ended | |||||||||||||||||
| September 28, 2025 | September 29, 2024 | October 1, 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 75,166 | $ | 76,851 | $ | 110,371 | |||||||||||
| State | 16,005 | 20,997 | 16,025 | ||||||||||||||
| Foreign | 49,794 | 44,402 | 28,970 | ||||||||||||||
| Total current income tax expense | 140,965 | 142,250 | 155,366 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (21,982) | (18,734) | (18,062) | ||||||||||||||
| State | (3,451) | (6,747) | (4,976) | ||||||||||||||
| Foreign | 14,136 | 13,254 | (4,802) | ||||||||||||||
| Total deferred income tax (benefit) expense | (11,297) | (12,227) | (27,840) | ||||||||||||||
| Total income tax expense | $ | 129,668 | $ | 130,023 | $ | 127,526 | |||||||||||
Total income tax expense was different from the amount computed by applying the U.S. federal statutory rate to pre-tax income as follows:
| Fiscal Year Ended | |||||||||||||||||
| September 28, 2025 | September 29, 2024 | October 1, 2023 | |||||||||||||||
| Tax at federal statutory rate | 21.0% | 21.0% | 21.0% | ||||||||||||||
| State taxes, net of federal benefit | 2.6 | 2.4 | 2.2 | ||||||||||||||
| Research and Development ("R&D") credits | (1.8) | (1.2) | (0.5) | ||||||||||||||
| Tax differential on foreign earnings | 2.8 | 2.0 | 1.5 | ||||||||||||||
| Goodwill impairment | 3.2 | — | — | ||||||||||||||
| Legal settlements | 1.8 | — | — | ||||||||||||||
| Stock compensation | 0.2 | (0.4) | (0.4) | ||||||||||||||
| Valuation allowance | 0.4 | (0.1) | 1.3 | ||||||||||||||
| Change in uncertain tax positions | 0.9 | 1.3 | 11.6 | ||||||||||||||
| Return to provision | (0.8) | (1.0) | 1.1 | ||||||||||||||
| Disallowed officer compensation | 1.2 | 0.9 | 1.2 | ||||||||||||||
| Unremitted earnings | 0.2 | 0.4 | 0.2 | ||||||||||||||
| Hedging gain | — | — | (5.7) | ||||||||||||||
| Deferred tax adjustments | (0.7) | 0.8 | (2.3) | ||||||||||||||
| Audit settlements | — | 0.9 | — | ||||||||||||||
| Receivables/payables adjustments | 1.7 | — | — | ||||||||||||||
| Other | 1.6 | 1.1 | 0.6 | ||||||||||||||
| Total income tax expense | 34.3% | 28.1% | 31.8% | ||||||||||||||
The effective tax rates for fiscal 2025, 2024 and 2023 were 34.3%, 28.1% and 31.8%, respectively. In fiscal 2025, we recognized a $92.4 million goodwill impairment as described in Note 6, “Goodwill and Intangible Assets”. We determined that $58.3 million of goodwill impairment is not deductible for income tax purposes. We also recognized a $115.0 million non-recurring charge related to legal contingencies as described in Note 18, "Commitments and Contingencies". We determined that $31.3 million of this charge is not tax deductible. The fiscal 2024 income tax expense included $4.2 million of expense for the settlement of various tax positions that were under audit for fiscal years 2011 through 2021. The fiscal 2023 income tax expense included non-operating income tax expenses totaling $20.6 million to (i) increase the tax liability for uncertain tax positions related to certain U.S. tax credits and an intercompany financing transaction, (ii) recognize the tax liability for foreign earnings, primarily in the United Kingdom and Australia, that are no longer indefinitely reinvested. Also, income tax expense was reduced by $1.6 million, $4.5 million and $4.6 million of excess tax benefits on share-based payments in fiscal 2025, 2024 and 2023, respectively.
Excluding the impact of the excess tax benefits on share-based payments in all years, the goodwill impairment and the legal contingency charge in fiscal 2025, the settlement amount in fiscal 2024, and the non-operating tax expenses in fiscal 2023, our effective tax rates for fiscal 2025, 2024 and 2023 were 27.4%, 28.1% and 27.8%, respectively.
In the normal course of business, we are subject to examination by tax authorities throughout the world. The major jurisdictions where we file income tax returns are the United States, Australia, Canada, and the United Kingdom. In the United States, Australia, and the United Kingdom, our income tax returns prior to fiscal year 2021 are no longer open for examination by tax authorities. In Canada, we are currently under examination for fiscal years 2014 to 2022.
Temporary differences comprising the net deferred income tax asset shown on the accompanying consolidated balance sheets were as follows (in thousands):
| Fiscal Year Ended | |||||||||||
| September 28, 2025 | September 29, 2024 | ||||||||||
| Deferred Tax Assets: | |||||||||||
| State taxes | $ | 2,973 | $ | 3,916 | |||||||
| Reserves and contingent liabilities | 7,620 | — | |||||||||
| Accounts receivable including the allowance for doubtful accounts | 6,674 | 5,315 | |||||||||
| Accrued liabilities | 51,924 | 64,929 | |||||||||
| Lease liabilities, operating leases | 57,769 | 51,841 | |||||||||
| Stock-based compensation | 1,772 | 1,923 | |||||||||
| Unbilled revenue | 13,524 | 9,273 | |||||||||
| Loss and other carry-forwards | 30,201 | 48,256 | |||||||||
| Property and equipment | 8 | — | |||||||||
| Capitalized research and development | 54,969 | 37,417 | |||||||||
| Capped call transactions | 7,841 | 10,311 | |||||||||
| Valuation allowance | (17,791) | (16,841) | |||||||||
| Total deferred tax assets | 217,484 | 216,340 | |||||||||
| Deferred Tax Liabilities: | |||||||||||
| Prepaid expense | (1,775) | (3,065) | |||||||||
| Reserves and contingent liabilities | — | (153) | |||||||||
| Right-of-use assets, operating leases | (55,736) | (51,841) | |||||||||
| Intangibles | (74,883) | (81,623) | |||||||||
| Undistributed earnings | (3,647) | (2,708) | |||||||||
| Property and equipment | — | (1,583) | |||||||||
| Total deferred tax liabilities | (136,041) | (140,973) | |||||||||
| Net deferred tax assets | $ | 81,443 | $ | 75,367 | |||||||
| Reported As: | |||||||||||
| Deferred tax assets excluding held-for-sale | $ | 106,238 | $ | 105,529 | |||||||
| Deferred tax assets held-for-sale | — | — | |||||||||
| Deferred tax assets | 106,238 | 105,529 | |||||||||
| Deferred tax liabilities excluding held-for-sale | (21,333) | (30,162) | |||||||||
| Deferred tax liabilities held-for-sale | (3,462) | — | |||||||||
| Deferred tax liabilities | (24,795) | (30,162) | |||||||||
| Net deferred tax assets | $ | 81,443 | $ | 75,367 | |||||||
Our foreign earnings are not considered indefinitely reinvested and any potential tax liability that would be incurred upon repatriation is recognized currently with the related income.
At September 28, 2025, we had available state net operating loss carry forwards of $25.3 million, of which $24.7 million expire at various dates from 2026 to 2044, and $0.6 million have no expiration date; and available foreign NOL carry forwards of $71.1 million, of which $12.7 million expire at various dates from 2026 to 2045, and $58.4 million have no expiration date. In addition, we had foreign capital loss carryforwards of $40.4 million, foreign corporate interest restriction allowances of $4.4 million. We have performed an assessment of positive and negative evidence regarding the realization of the deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, availability of carrybacks, cumulative losses in recent years, estimates of projected future taxable income and tax planning strategies. Although realization is not assured, based on our assessment, we have concluded that it is more likely than not that the assets will be realized except for the deferred tax assets related to certain loss carry-forwards for which a valuation allowance of $17.8 million has been provided.
At September 28, 2025, we had $40.9 million of unrecognized tax benefits, all of which, if recognized, would affect our effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of our unrecognized tax positions may significantly decrease in the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
| Fiscal Year Ended | |||||||||||||||||
| September 28, 2025 | September 29, 2024 | October 1, 2023 | |||||||||||||||
| Beginning balance | $ | 41,440 | $ | 53,619 | $ | 8,908 | |||||||||||
| Acquisition of RPS Group | — | — | 6,012 | ||||||||||||||
| Additions for current fiscal year tax positions | 688 | 1,000 | 27,272 | ||||||||||||||
| Additions for prior fiscal year tax positions | — | 1,000 | 14,602 | ||||||||||||||
| Reductions for prior fiscal year tax positions | (737) | — | (1,358) | ||||||||||||||
| Settlements | (532) | (14,179) | (1,817) | ||||||||||||||
| Ending balance | $ | 40,859 | $ | 41,440 | $ | 53,619 | |||||||||||
We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2025, 2024 and 2023, we accrued additional interest and penalties of $3.4 million, $3.8 million and $4.6 million, respectively. Additionally, we recorded reductions in accrued interest and penalties of $3.2 million and $2.0 million for fiscal 2024 and 2023, respectively, as a result of audit settlements and other prior-year adjustments. The amount of interest and penalties accrued at September 28, 2025, September 29, 2024 and October 1, 2023 was $12.0 million, $8.6 million and $8.0 million, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Nov 20, 2025 | Showing above |
| 2024 | Nov 19, 2024 | |
| 2023 | Nov 22, 2023 | |
| 2022 | Nov 25, 2022 | |
| 2021 | Nov 24, 2021 | |
| 2020 | Nov 23, 2020 | |
| 2019 | Nov 29, 2019 | |
| 2018 | Nov 16, 2018 | |
| 2017 | Nov 20, 2017 | |
| 2016 | Nov 22, 2016 | |
| 2015 | Nov 20, 2015 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.