Leases

12 Months Ended

Sep. 28, 2025

Our operating leases are primarily for corporate and project office spaces. To a much lesser extent, we have operating leases for vehicles and equipment. Our operating leases have remaining lease terms of one month to ten years, some of which may include options to extend the leases for up to five years.

We determine if an arrangement is a lease at inception. Operating leases are included in "Right-of-use assets, operating leases", "Short-term lease liabilities, operating leases" and "Long-term lease liabilities, operating leases" in the consolidated balance sheets. Our finance leases are primarily for certain IT equipment and are immaterial.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, incremental borrowing rates are used based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset at the commencement date also includes any lease payments made to the lessor at or before the commencement date and initial direct costs less lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

In fiscal 2023, we exited certain lease arrangements as a result of the RPS acquisition and its subsequent integration. Accordingly, we evaluated the ongoing value of the ROU assets associated with the discontinued lease agreements. Based on this evaluation, we determined that some long-lived assets were no longer recoverable and were in fact impaired. Fair value was based on expected future cash flows using Level 3 inputs under ASC Topic 820, Fair Value Measurement. The cash flows are those expected to be generated by the market participants, discounted at a real estate-based rate of interest. As a result of our evaluation, we recorded a $16.4 million non-cash charge related to the ROU operating lease asset impairment which was reported in our fiscal 2023 consolidated statement of income, and a corresponding decrease to our ROU assets operating leases on our consolidated balance sheet at fiscal 2023 year-end.

The components of lease costs are as follows (in thousands):


	Fiscal Year Ended
	September 28, 2025		September 29, 2024

Operating lease cost	$	102,518	$	100,002
Sublease income	(985)		(589)
Total lease cost	$	101,533	$	99,413

Supplemental cash flow information related to leases is as follows (in thousands):


	Fiscal Year Ended
	September 28, 2025		September 29, 2024

Operating cash flows for operating leases	$	76,536	$	79,354
Right-of-use assets obtained in exchange for new operating lease liabilities	90,969		62,601

Supplemental balance sheet and other information related to leases are as follows (in thousands):


	Fiscal Year Ended
	September 28, 2025			September 29, 2024

Operating leases:
Right-of-use assets	$	197,618		$	177,950

Lease liabilities:
Current	$	69,099		$	63,419
Non-current	154,695			140,095
Total operating lease liabilities	$	223,794		$	203,514

Weighted-average remaining lease term:
Operating leases	4.4 years			4.5 years
Weighted-average discount rate:
Operating leases	4.2		%	3.6		%

As of fiscal 2025 year-end, we had $7.0 million of operating leases that have not yet commenced.

A maturity analysis of the future undiscounted cash flows associated with our lease liabilities at fiscal 2025 year-end is as follows (in thousands):


	Amount

2026	$	74,692
2027	62,620
2028	39,533
2029	24,744
2030	18,778
Beyond	21,421
Total lease payments	241,788
Less: imputed interest	(17,994)
Total present value of lease liabilities	$	223,794

TETRA TECH INC 10-K