JACOBS SOLUTIONS INC. - Quarter Report: 2021 January (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended January 1, 2021
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-7463
JACOBS ENGINEERING GROUP INC.
(Exact name of registrant as specified in its charter)
| Delaware | 95-4081636 | |||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||||||||
| 1999 Bryan Street | Suite 1200 | Dallas | Texas | 75201 | ||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(214) 583 – 8500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
_________________________________________________________________
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | |||||||||
| Common Stock | $1 par value | J | New York Stock Exchange | ||||||||
Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: ☒ Yes ☐ No
Indicate by check-mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
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Indicate by check-mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check-mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Number of shares of common stock outstanding at January 29, 2021: 130,086,161
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JACOBS ENGINEERING GROUP INC.
INDEX TO FORM 10-Q
| Page No. | |||||||||||
| PART I | |||||||||||
| Item 1. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| PART II | |||||||||||
| Item 1. | |||||||||||
| Item 1A. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| Item 5. | |||||||||||
| Item 6. | |||||||||||
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
(Unaudited)
| January 1, 2021 | October 2, 2020 | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 837,012 | $ | 862,424 | |||||||
| Receivables and contract assets | 3,265,260 | 3,167,310 | |||||||||
| Prepaid expenses and other | 144,224 | 162,355 | |||||||||
| Investment in equity securities | 540,357 | 347,510 | |||||||||
| Total current assets | 4,786,853 | 4,539,599 | |||||||||
| Property, Equipment and Improvements, net | 318,042 | 319,371 | |||||||||
| Other Noncurrent Assets: | |||||||||||
| Goodwill | 5,808,484 | 5,639,091 | |||||||||
| Intangibles, net | 715,641 | 658,340 | |||||||||
| Deferred income tax assets | 158,491 | 211,047 | |||||||||
| Operating lease right-of-use assets | 582,985 | 576,915 | |||||||||
| Miscellaneous | 397,129 | 409,990 | |||||||||
| Total other noncurrent assets | 7,662,730 | 7,495,383 | |||||||||
| $ | 12,767,625 | $ | 12,354,353 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | 999,483 | $ | 1,061,754 | |||||||
| Accrued liabilities | 1,193,818 | 1,249,883 | |||||||||
| Operating lease liability | 164,639 | 164,312 | |||||||||
| Contract liabilities | 530,757 | 465,648 | |||||||||
| Total current liabilities | 2,888,697 | 2,941,597 | |||||||||
| Long-term Debt | 1,797,069 | 1,676,941 | |||||||||
| Liabilities relating to defined benefit pension and retirement plans | 578,417 | 568,176 | |||||||||
| Deferred income tax liabilities | 9,286 | 3,366 | |||||||||
| Long-term operating lease liability | 735,337 | 735,202 | |||||||||
| Other deferred liabilities | 615,452 | 573,404 | |||||||||
| Commitments and Contingencies | |||||||||||
| Stockholders’ Equity: | |||||||||||
| Capital stock: | |||||||||||
Preferred stock, $1 par value, authorized - 1,000,000 shares; issued and outstanding - none | — | — | |||||||||
Common stock, $1 par value, authorized - 240,000,000 shares; issued and outstanding 130,035,258 shares and 129,747,783 shares as of January 1, 2021 and October 2, 2020, respectively | 130,035 | 129,748 | |||||||||
| Additional paid-in capital | 2,597,586 | 2,598,446 | |||||||||
| Retained earnings | 4,249,408 | 4,020,575 | |||||||||
| Accumulated other comprehensive loss | (877,539) | (933,057) | |||||||||
| Total Jacobs stockholders’ equity | 6,099,490 | 5,815,712 | |||||||||
| Noncontrolling interests | 43,877 | 39,955 | |||||||||
| Total Group stockholders’ equity | 6,143,367 | 5,855,667 | |||||||||
| $ | 12,767,625 | $ | 12,354,353 | ||||||||
See the accompanying Notes to Consolidated Financial Statements – Unaudited.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended January 1, 2021 and December 27, 2019
(In thousands, except per share information)
(Unaudited)
| For the Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Revenues | $ | 3,381,836 | $ | 3,360,049 | |||||||
| Direct cost of contracts | (2,749,776) | (2,715,478) | |||||||||
| Gross profit | 632,060 | 644,571 | |||||||||
| Selling, general and administrative expenses | (418,120) | (493,226) | |||||||||
| Operating Profit | 213,940 | 151,345 | |||||||||
| Other Income (Expense): | |||||||||||
| Interest income | 1,124 | 946 | |||||||||
| Interest expense | (17,313) | (14,817) | |||||||||
| Miscellaneous income (expense), net | 156,360 | 116,695 | |||||||||
| Total other income (expense), net | 140,171 | 102,824 | |||||||||
| Earnings from Continuing Operations Before Taxes | 354,111 | 254,169 | |||||||||
| Income Tax Expense from Continuing Operations | (87,023) | (68,489) | |||||||||
| Net Earnings of the Group from Continuing Operations | 267,088 | 185,680 | |||||||||
| Net (Loss) Earnings of the Group from Discontinued Operations | (14) | 77,587 | |||||||||
| Net Earnings of the Group | 267,074 | 263,267 | |||||||||
| Net Earnings Attributable to Noncontrolling Interests from Continuing Operations | (10,026) | (6,257) | |||||||||
| Net Earnings Attributable to Jacobs from Continuing Operations | 257,062 | 179,423 | |||||||||
| Net Earnings Attributable to Jacobs | $ | 257,048 | $ | 257,010 | |||||||
| Net Earnings Per Share: | |||||||||||
| Basic Net Earnings from Continuing Operations Per Share | $ | 1.98 | $ | 1.35 | |||||||
| Basic Net Earnings from Discontinued Operations Per Share | $ | — | $ | 0.58 | |||||||
| Basic Earnings Per Share | $ | 1.98 | $ | 1.93 | |||||||
| Diluted Net Earnings from Continuing Operations Per Share | $ | 1.96 | $ | 1.33 | |||||||
| Diluted Net Earnings from Discontinued Operations Per Share | $ | — | $ | 0.58 | |||||||
| Diluted Earnings Per Share | $ | 1.96 | $ | 1.91 | |||||||
See the accompanying Notes to Consolidated Financial Statements - Unaudited.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended January 1, 2021 and December 27, 2019
(In thousands)
(Unaudited)
| For the Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Net Earnings of the Group | $ | 267,074 | $ | 263,267 | |||||||
| Other Comprehensive Income: | |||||||||||
| Foreign currency translation adjustment | 86,338 | 52,297 | |||||||||
| Gain on cash flow hedges | 3,583 | 18 | |||||||||
| Change in pension and retiree medical plan liabilities | (19,353) | (16,251) | |||||||||
| Other comprehensive income before taxes | 70,568 | 36,064 | |||||||||
| Income Tax (Expense) Benefit: | |||||||||||
| Foreign currency translation adjustment | (14,445) | — | |||||||||
| Cash flow hedges | 221 | — | |||||||||
| Change in pension and retiree medical plan liabilities | (826) | 582 | |||||||||
| Income Tax (Expense) Benefit: | (15,050) | 582 | |||||||||
| Net other comprehensive income | 55,518 | 36,646 | |||||||||
| Net Comprehensive Income of the Group | 322,592 | 299,913 | |||||||||
| Net Earnings Attributable to Noncontrolling Interests | (10,026) | (6,257) | |||||||||
| Net Comprehensive Income Attributable to Jacobs | $ | 312,566 | $ | 293,656 | |||||||
See the accompanying Notes to Consolidated Financial Statements - Unaudited.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months Ended January 1, 2021 and December 27, 2019
(In thousands)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Jacobs Stockholders’ Equity | Noncontrolling Interests | Total Group Stockholders’ Equity | |||||||||||||||||||||||||||||||||||
| Balances at September 27, 2019 | $ | 132,879 | $ | 2,559,450 | $ | 3,939,174 | $ | (916,812) | $ | 5,714,691 | $ | 53,967 | $ | 5,768,658 | |||||||||||||||||||||||||||
| Net earnings | — | — | 257,010 | — | 257,010 | 6,257 | 263,267 | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | 52,297 | 52,297 | — | 52,297 | ||||||||||||||||||||||||||||||||||
Pension and retiree medical plan liability, net of deferred taxes of $582 | — | — | — | (15,669) | (15,669) | — | (15,669) | ||||||||||||||||||||||||||||||||||
Gain on derivatives, net of deferred taxes of $— | — | — | — | 18 | 18 | — | 18 | ||||||||||||||||||||||||||||||||||
| Dividends | — | — | (68) | — | (68) | — | (68) | ||||||||||||||||||||||||||||||||||
| Noncontrolling interests - distributions and other | — | — | — | — | — | (2,478) | (2,478) | ||||||||||||||||||||||||||||||||||
| Stock based compensation | — | 13,200 | 1,079 | — | 14,279 | — | 14,279 | ||||||||||||||||||||||||||||||||||
| Issuances of equity securities including shares withheld for taxes | 474 | (10,115) | (8,492) | — | (18,133) | — | (18,133) | ||||||||||||||||||||||||||||||||||
| Repurchases of equity securities | (352) | 43,230 | (42,878) | — | — | — | — | ||||||||||||||||||||||||||||||||||
Balances at December 27, 2019 | $ | 133,001 | $ | 2,605,765 | $ | 4,145,825 | $ | (880,166) | $ | 6,004,425 | $ | 57,746 | $ | 6,062,171 | |||||||||||||||||||||||||||
| Balances at October 2, 2020 | $ | 129,748 | $ | 2,598,446 | $ | 4,020,575 | $ | (933,057) | $ | 5,815,712 | $ | 39,955 | $ | 5,855,667 | |||||||||||||||||||||||||||
| Net earnings | — | — | 257,048 | — | 257,048 | 10,026 | 267,074 | ||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of deferred taxes of $14,445 | — | — | — | 71,893 | 71,893 | — | 71,893 | ||||||||||||||||||||||||||||||||||
Pension liability, net of deferred taxes of $826 | — | — | — | (20,179) | (20,179) | — | (20,179) | ||||||||||||||||||||||||||||||||||
Gain on derivatives, net of deferred taxes of $(221) | — | — | — | 3,804 | 3,804 | — | 3,804 | ||||||||||||||||||||||||||||||||||
| Dividends | — | — | (34) | — | (34) | — | (34) | ||||||||||||||||||||||||||||||||||
| Noncontrolling interests - distributions and other | — | — | — | — | — | (6,104) | (6,104) | ||||||||||||||||||||||||||||||||||
| Stock based compensation | — | 11,841 | — | — | 11,841 | — | 11,841 | ||||||||||||||||||||||||||||||||||
| Issuances of equity securities including shares withheld for taxes | 538 | (7,674) | (8,658) | — | (15,794) | — | (15,794) | ||||||||||||||||||||||||||||||||||
| Repurchases of equity securities | (251) | (5,027) | (19,523) | — | (24,801) | — | (24,801) | ||||||||||||||||||||||||||||||||||
| Balances at January 1, 2021 | $ | 130,035 | $ | 2,597,586 | $ | 4,249,408 | $ | (877,539) | $ | 6,099,490 | $ | 43,877 | $ | 6,143,367 | |||||||||||||||||||||||||||
See the accompanying Notes to Consolidated Financial Statements – Unaudited.
.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended January 1, 2021 and December 27, 2019
(In thousands)
(Unaudited)
| For the Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net earnings attributable to the Group | $ | 267,074 | $ | 263,267 | |||||||
| Adjustments to reconcile net earnings to net cash flows provided by (used for) operations: | |||||||||||
| Depreciation and amortization: | |||||||||||
| Property, equipment and improvements | 22,989 | 22,152 | |||||||||
| Intangible assets | 23,155 | 21,845 | |||||||||
| Gain on sale of ECR business | — | (61,943) | |||||||||
| Gain on investment in equity securities | (190,368) | (105,319) | |||||||||
| Stock based compensation | 11,841 | 14,279 | |||||||||
| Equity in earnings of operating ventures, net of return on capital distributions | 1,159 | (715) | |||||||||
| (Gain) Loss on disposals of assets, net | (134) | 36 | |||||||||
| Impairment of equity method investment | 27,902 | — | |||||||||
| Loss on pension and retiree medical plan changes | — | 2,651 | |||||||||
| Deferred income taxes | 53,008 | 102,487 | |||||||||
| Changes in assets and liabilities, excluding the effects of businesses acquired: | |||||||||||
| Receivables and contract assets, net of contract liabilities | 33,250 | (96,075) | |||||||||
| Prepaid expenses and other current assets | 25,144 | (4,152) | |||||||||
| Miscellaneous other assets | 16,564 | 34,634 | |||||||||
| Accounts payable | (63,985) | (35,380) | |||||||||
| Accrued liabilities | (131,576) | (236,090) | |||||||||
| Other deferred liabilities | 16,491 | (60,562) | |||||||||
| Other, net | 104 | 1,699 | |||||||||
| Net cash provided by (used for) operating activities | 112,618 | (137,186) | |||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Additions to property and equipment | (16,766) | (22,260) | |||||||||
| Capital contributions to equity investees, net of return of capital distributions | (3,430) | (12,000) | |||||||||
| Acquisitions of businesses, net of cash acquired | (173,012) | — | |||||||||
| Net cash used for investing activities | (193,208) | (34,260) | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Proceeds from long-term borrowings | 603,500 | 841,544 | |||||||||
| Repayments of long-term borrowings | (500,827) | (631,000) | |||||||||
| Proceeds from short-term borrowings | — | 78 | |||||||||
| Repayments of short-term borrowings | (7,675) | (6) | |||||||||
| Proceeds from issuances of common stock | 9,541 | 6,201 | |||||||||
| Common stock repurchases | (24,801) | — | |||||||||
| Taxes paid on vested restricted stock | (25,335) | (24,334) | |||||||||
| Cash dividends, including to noncontrolling interests | (35,718) | (25,618) | |||||||||
| Net cash provided by financing activities | 18,685 | 166,865 | |||||||||
| Effect of Exchange Rate Changes | 36,493 | (7,275) | |||||||||
| Net Decrease in Cash and Cash Equivalents | (25,412) | (11,856) | |||||||||
| Cash and Cash Equivalents at the Beginning of the Period | 862,424 | 631,068 | |||||||||
| Cash and Cash Equivalents at the End of the Period | $ | 837,012 | $ | 619,212 | |||||||
See the accompanying Notes to Consolidated Financial Statements – Unaudited.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Basis of Presentation
Unless the context otherwise requires:
•References herein to “Jacobs” are to Jacobs Engineering Group Inc. and its predecessors;
•References herein to the “Company”, “we”, “us” or “our” are to Jacobs Engineering Group Inc. and its consolidated subsidiaries; and
•References herein to the “Group” are to the combined economic interests and activities of the Company and the persons and entities holding noncontrolling interests in our consolidated subsidiaries.
The accompanying consolidated financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. Readers of this Quarterly Report on Form 10-Q should also read our consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 2, 2020 (“2020 Form 10-K”).
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of our consolidated financial statements at January 1, 2021, and for the three months ended January 1, 2021.
Our interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year.
Effective the beginning of fiscal first quarter 2020, the Company adopted ASU 2016-02, Leases ("ASC 842"), including the subsequent ASU's that amended and clarified the related guidance. The Company adopted ASC 842 using a modified retrospective approach, and accordingly the new guidance was applied to leases that existed or were entered into after the first day of adoption without adjusting the comparative periods presented. Please refer to Note-13 Leases for required disclosures related to leases.
On November 24, 2020, a subsidiary of Jacobs completed the acquisition of Buffalo Group LLC ("Buffalo Group"), a leader in advanced cyber and intelligence solutions. The Company paid total consideration of $212.8 million, which was comprised of approximately $181.4 million in cash to the former owners of Buffalo Group and the assumption of Buffalo Group's debt of approximately $7.7 million and $23.7 million in other assumed liabilities. The Company repaid all of the assumed Buffalo Group debt by the end of the first fiscal quarter of 2021. The Company has recorded its preliminary purchase price allocation associated with the acquisition, which is summarized in Note 15- Business Combinations.
On March 6, 2020, a subsidiary of Jacobs completed the acquisition of the nuclear consulting, remediation and program management business of John Wood Group, a U.K.-based energy services company, for an enterprise value of £246 million, or approximately $317.9 million, less cash acquired of $24.3 million. The Company has recorded its preliminary purchase price allocation associated with the acquisition, which is summarized in Note 15- Business Combinations.
On April 26, 2019, Jacobs completed the sale of its Energy, Chemicals and Resources ("ECR") business to Worley Limited, a company incorporated in Australia ("Worley"), for a purchase price of $3.4 billion consisting of (i) $2.8 billion in cash plus (ii) 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”). As a result of the ECR sale, substantially all ECR-related assets and liabilities were sold (the "Disposal Group"). We determined that the Disposal Group should be reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations because their disposal represents a strategic shift that had a major effect on our operations and financial results. As such, the financial results of the ECR business are reflected in our unaudited Consolidated Statements of Earnings as discontinued operations for all periods presented. As of October 2, 2020, all of the ECR business to be sold under the terms of the ECR sale had been conveyed to Worley and as such, no amounts remain held for sale. For further discussion, see Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business to the consolidated financial statements.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. Use of Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires us to employ estimates and make assumptions that affect the reported amounts of certain assets and liabilities, the revenues and expenses reported for the periods covered by the accompanying consolidated financial statements, and certain amounts disclosed in these Notes to the Consolidated Financial Statements. Although such estimates and assumptions are based on management’s most recent assessment of the underlying facts and circumstances utilizing the most current information available and past experience including considerations for potential impacts of the continuing coronavirus (COVID-19) pandemic, actual results could differ significantly from those estimates and assumptions. Our estimates, judgments, and assumptions are evaluated periodically and adjusted accordingly.
Please refer to Note 2- Significant Accounting Policies of Notes to Consolidated Financial Statements included in our 2020 Form 10-K for a discussion of other significant estimates and assumptions affecting our consolidated financial statements.
3. Fair Value and Fair Value Measurements
Certain amounts included in the accompanying consolidated financial statements are presented at “fair value.” Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants as of the date fair value is determined (the “measurement date”). When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider only those assumptions we believe a typical market participant would consider when pricing an asset or liability. In measuring fair value, we use the following inputs in the order of priority indicated:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets included in Level 1, such as (i) quoted prices for similar assets or liabilities; (ii) quoted prices in markets that have insufficient volume or infrequent transactions (e.g., less active markets); and (iii) model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data for substantially the full term of the asset or liability.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the fair value measurement.
Please refer to Note 2- Significant Accounting Policies of Notes to Consolidated Financial Statements included in our 2020 Form 10-K for a more complete discussion of the various items within the consolidated financial statements measured at fair value and the methods used to determine fair value. Please also refer to Note 16- Sale of Energy, Chemicals and Resources for discussion regarding the Company's investment in Worley ordinary shares and Note 18- Commitments and Contingencies and Derivative Financial Instruments for discussion regarding the Company's derivative instruments.
The net carrying amounts of cash and cash equivalents, trade receivables and payables and short-term debt approximate fair value due to the short-term nature of these instruments. See Note 12- Borrowings for a discussion of the fair value of long-term debt.
4. New Accounting Pronouncements
ASU 2017-04, Simplifying the Test for Goodwill Impairment, is effective for fiscal years beginning after December 15, 2019. ASU 2017-04 removed the second step of the goodwill impairment test, which requires a hypothetical purchase price allocation. An entity will now recognize a goodwill impairment charge for the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the amount of goodwill allocated to the reporting unit. The adoption of ASU 2017-04 did not have a material impact on the Company's financial position, results of operations or cash flows.
Page 10
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
ASU No. 2016-13, Financial Instruments - Credit Losses ("ASC 326"): Measurement of Credit Losses on Financial Instruments requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using this methodology will result in earlier recognition of losses than under the current incurred loss approach, which requires waiting to recognize a loss until it is probable of having been incurred. There are other provisions within the standard that affect how impairments of other financial assets may be recorded and presented, and that expand disclosures. This standard is effective beginning with the current fiscal quarter. The adoption of ASU 326 did not have a material impact on the Company's financial position, results of operations or cash flows.
5. Revenue Accounting for Contracts
Disaggregation of Revenues
Our revenues are principally derived from contracts to provide a diverse range of technical, professional, and construction services to a large number of industrial, commercial, and governmental clients. We provide a broad range of engineering, design, and architectural services; construction and construction management services; operations and maintenance services; and process, scientific, and systems consulting services. We provide our services through offices and subsidiaries located primarily in North America, South America, Europe, the Middle East, India, Australia, Africa, and Asia. We provide our services under cost-reimbursable and fixed-price contracts. Our contracts are with many different customers in numerous industries. Refer to Note 19- Segment Information for additional information on how we disaggregate our revenues by reportable segment.
The following table further disaggregates our revenue by geographic area for the three months ended January 1, 2021 and December 27, 2019 (in thousands):
| Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Revenues: | |||||||||||
| United States | $ | 2,457,041 | $ | 2,532,716 | |||||||
| Europe | 639,315 | 551,272 | |||||||||
| Canada | 55,627 | 55,396 | |||||||||
| Asia | 27,405 | 30,440 | |||||||||
| India | 14,548 | 5,980 | |||||||||
| Australia and New Zealand | 137,408 | 129,194 | |||||||||
| Middle East and Africa | 50,492 | 55,051 | |||||||||
| Total | $ | 3,381,836 | $ | 3,360,049 | |||||||
Contract Liabilities
Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. Revenue recognized for the three months ended January 1, 2021 and December 27, 2019 that was included in the contract liability balance on October 2, 2020 and September 27, 2019, respectively was $259.0 million and $244.1 million, respectively.
Remaining Performance Obligations
The Company’s remaining performance obligations as of January 1, 2021 represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The Company had approximately $17.3 billion in remaining performance obligations as of January 1, 2021. The Company expects to recognize approximately 44% of our remaining performance obligations into revenue within the next twelve months and the remaining 56% thereafter.
Although remaining performance obligations reflect business that is considered to be firm, cancellations, scope adjustments, foreign currency exchange fluctuations or deferrals may occur that impact their volume or the expected timing of their recognition. Remaining performance obligations are adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as appropriate.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. Earnings Per Share and Certain Related Information
Basic and diluted earnings per share (“EPS”) are computed using the two-class method, which is an earnings allocation method that determines EPS for common shares and participating securities. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. Participating securities and common shares have equal rights to undistributed earnings. Net earnings used for the purpose of determining basic and diluted EPS is determined by taking net earnings, less earnings available to participating securities. During the three months ended January 1, 2021, the Company did not have any outstanding participating securities.
The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for the three months ended January 1, 2021 and December 27, 2019 (in thousands):
| Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Numerator for Basic and Diluted EPS: | |||||||||||
| Net earnings attributable to Jacobs from continuing operations | $ | 257,062 | $ | 179,423 | |||||||
| Net earnings from continuing operations allocated to participating securities | — | (92) | |||||||||
| Net earnings from continuing operations allocated to common stock for EPS calculation | $ | 257,062 | $ | 179,331 | |||||||
| Net earnings attributable to Jacobs from discontinued operations | $ | (14) | $ | 77,587 | |||||||
| Net earnings from discontinued operations allocated to participating securities | — | (40) | |||||||||
| Net earnings from discontinued operations allocated to common stock for EPS calculation | $ | (14) | $ | 77,547 | |||||||
| Net earnings allocated to common stock for EPS calculation | $ | 257,048 | $ | 256,878 | |||||||
| Denominator for Basic and Diluted EPS: | |||||||||||
| Weighted average basic shares | 129,968 | 133,202 | |||||||||
| Shares allocated to participating securities | — | (68) | |||||||||
| Shares used for calculating basic EPS attributable to common stock | 129,968 | 133,134 | |||||||||
| Effect of dilutive securities: | |||||||||||
| Stock compensation plans | 1,182 | 1,484 | |||||||||
| Shares used for calculating diluted EPS attributable to common stock | 131,150 | 134,618 | |||||||||
| Net Earnings Per Share: | |||||||||||
| Basic Net Earnings from Continuing Operations Per Share | $ | 1.98 | $ | 1.35 | |||||||
| Basic Net Earnings from Discontinued Operations Per Share | $ | — | $ | 0.58 | |||||||
| Basic Earnings Per Share | $ | 1.98 | $ | 1.93 | |||||||
| Diluted Net Earnings from Continuing Operations Per Share | $ | 1.96 | $ | 1.33 | |||||||
| Diluted Net Earnings from Discontinued Operations Per Share | $ | — | $ | 0.58 | |||||||
| Diluted Earnings Per Share | $ | 1.96 | $ | 1.91 | |||||||
Share Repurchases
On January 17, 2019, the Company’s Board of Directors authorized a share repurchase program of up to $1.0 billion of the Company’s common stock, to expire on January 16, 2022 (the "2019 Repurchase Authorization"). On January 16, 2020, the Company's Board of Directors authorized an additional share repurchase program of up to $1.0 billion of the Company's common stock, to expire on January 15, 2023 (the "2020 Repurchase Authorization"). | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table summarizes the activity under the 2019 and 2020 Repurchase Authorizations in the first quarter of fiscal 2021:
| Amount Authorized (2019 and 2020 Repurchase Authorizations) | Average Price Per Share (1) | Shares Repurchased | Total Shares Retired | |||||||||||||||||
| $2,000,000,000 | $98.81 | 251,001 | 251,001 | |||||||||||||||||
(1)Includes commissions paid and calculated at the average price per share
As a precautionary measure in light of the COVID-19 pandemic, the Company temporarily suspended purchases under the share repurchase plan in March 2020, with such suspension remaining in effect through the fiscal third quarter of 2020. During the fourth fiscal quarter of 2020, the Company resumed share repurchases on a limited basis while we continue to monitor developments in fiscal 2021 with the pandemic. As of January 1, 2021, the Company has $33.1 million remaining under the 2019 Repurchase Authorization and $1.0 billion remaining under the 2020 Repurchase Authorization.
The share repurchase programs do not obligate the Company to purchase any shares. Share repurchases may be executed through various means including, without limitation, accelerated share repurchases, open market transactions, privately negotiated transactions, purchases pursuant to Rule 10b5-1 plans or otherwise. The authorization for the share repurchase programs may be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time. The timing, amount and manner of share repurchases may depend upon market conditions and economic circumstances, availability of investment opportunities, the availability and costs of financing, currency fluctuations, the market price of the Company's common stock, other uses of capital and other factors. | ||
Dividend Program
On January 27, 2021, the Company’s Board of Directors declared a quarterly dividend of $0.21 per share of the Company’s common stock to be paid on March 26, 2021, to shareholders of record on the close of business on February 26, 2021. Future dividend declarations are subject to review and approval by the Company’s Board of Directors. Dividends paid through the first fiscal quarter of 2021 and the preceding fiscal year are as follows:
| Declaration Date | Record Date | Payment Date | Cash Amount (per share) | |||||||||||||||||
| September 17, 2020 | October 2, 2020 | October 30, 2020 | $0.19 | |||||||||||||||||
| July 9, 2020 | July 24, 2020 | August 21, 2020 | $0.19 | |||||||||||||||||
| May 5, 2020 | May 20, 2020 | June 17, 2020 | $0.19 | |||||||||||||||||
| January 16, 2020 | January 31, 2020 | February 28, 2020 | $0.19 | |||||||||||||||||
| September 19, 2019 | October 4, 2019 | November 1, 2019 | $0.17 | |||||||||||||||||
7. Goodwill and Intangibles
The carrying value of goodwill associated with continuing operations and appearing in the accompanying Consolidated Balance Sheets at January 1, 2021 and October 2, 2020 was as follows (in thousands):
| Critical Mission Solutions | People & Places Solutions | Total | |||||||||||||||
| Balance October 2, 2020 | $ | 2,409,081 | $ | 3,230,010 | $ | 5,639,091 | |||||||||||
| Acquired | 139,550 | — | 139,550 | ||||||||||||||
| Foreign Exchange Impact | 12,379 | 17,170 | 29,549 | ||||||||||||||
| Post-Acquisition Adjustments | 294 | — | 294 | ||||||||||||||
| Balance January 1, 2021 | $ | 2,561,304 | $ | 3,247,180 | $ | 5,808,484 | |||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table provides certain information related to the Company’s acquired intangibles in the accompanying Consolidated Balance Sheets at January 1, 2021 and October 2, 2020 (in thousands):
| Customer Relationships, Contracts and Backlog | Developed Technology | Trade Names | Total | ||||||||||||||||||||
| Balances October 2, 2020 | $ | 614,045 | $ | 43,572 | $ | 723 | $ | 658,340 | |||||||||||||||
| Amortization | (22,063) | (985) | (107) | (23,155) | |||||||||||||||||||
| Acquired | 71,000 | — | — | 71,000 | |||||||||||||||||||
| Foreign currency translation | 9,112 | 339 | 5 | 9,456 | |||||||||||||||||||
| Balances January 1, 2021 | $ | 672,094 | $ | 42,926 | $ | 621 | $ | 715,641 | |||||||||||||||
The following table presents estimated amortization expense of intangible assets for the remainder of fiscal 2021 and for the succeeding years.
| Fiscal Year | (in millions) | |||||||
| 2021 | $ | 75.4 | ||||||
| 2022 | 98.8 | |||||||
| 2023 | 98.6 | |||||||
| 2024 | 98.6 | |||||||
| 2025 | 98.2 | |||||||
| Thereafter | 246.0 | |||||||
| Total | $ | 715.6 | ||||||
8. Receivables and contract assets
The following table presents the components of receivables appearing in the accompanying Consolidated Balance Sheets at January 1, 2021 and October 2, 2020, as well as certain other related information (in thousands):
| January 1, 2021 | October 2, 2020 | ||||||||||
| Components of receivables and contract assets: | |||||||||||
| Amounts billed, net | $ | 1,384,558 | $ | 1,294,204 | |||||||
| Unbilled receivables and other | 1,439,632 | 1,449,184 | |||||||||
| Contract assets | 441,070 | 423,922 | |||||||||
| Total receivables and contract assets, net | $ | 3,265,260 | $ | 3,167,310 | |||||||
| Other information about receivables: | |||||||||||
| Amounts due from the United States federal government, included above, net of advanced billings | $ | 637,937 | $ | 600,207 | |||||||
Amounts billed, net consist of amounts invoiced to clients in accordance with the terms of our client contracts and are shown net of an allowance for doubtful accounts. We anticipate that substantially all of such billed amounts will be collected over the next twelve months.
Unbilled receivables and other, which represent an unconditional right to payment subject only to the passage of time, are reclassified to amounts billed when they are billed under the terms of the contract. Prior to adoption of ASC 606, receivables related to contractual milestones or achievement of performance-based targets were included in unbilled receivables. These are now included in contract assets. We anticipate that substantially all of such unbilled amounts will be billed and collected over the next twelve months.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Contract assets represent unbilled amounts where the right to payment is subject to more than merely the passage of time and includes performance-based incentives and services provided ahead of agreed contractual milestones. Contract assets are transferred to unbilled receivables when the right to consideration becomes unconditional and are transferred to amounts billed upon invoicing. The increase in contract assets was a result of normal business activity and not materially impacted by any other factors.
9. Accumulated Other Comprehensive Income
The following table presents the Company's roll forward of accumulated other comprehensive income (loss) after-tax for the three months ended January 1, 2021 (in thousands):
| Change in Pension Liabilities | Foreign Currency Translation Adjustment | Gain/(Loss) on Cash Flow Hedges | Total | ||||||||||||||||||||
Balance at October 2, 2020 | $ | (498,726) | $ | (419,715) | $ | (14,616) | $ | (933,057) | |||||||||||||||
| Other comprehensive income (loss) | (20,179) | 71,893 | 1,968 | 53,682 | |||||||||||||||||||
| Reclassifications from accumulated other comprehensive income (loss) | — | — | 1,836 | 1,836 | |||||||||||||||||||
Balance at January 1, 2021 | $ | (518,905) | $ | (347,822) | $ | (10,812) | $ | (877,539) | |||||||||||||||
10. Income Taxes
The Company’s effective tax rates from continuing operations for the three months ended January 1, 2021 and December 27, 2019 were 24.6% and 27.0%, respectively. The Company’s effective tax rate from continuing operations for the three months ended January 1, 2021 was lower than the corresponding rate in the prior period primarily due to one-time income tax charges associated with partnership interest basis differences generated during the quarter ending December 27, 2019. For the three months ended January 1, 2021, the effective tax rate was impacted by a $1.4 million benefit from an Internal Revenue Code section 179D energy credit, a $2.2 million excess tax benefit attributable to stock compensation, and a $5.0 million benefit related to a change in the Company’s assertion about indefinite reinvestment of certain foreign unremitted earnings in Canada. The Company is continuing to accrue taxes related to all other foreign earnings. | ||
See Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business for further information on the Company's discontinued operations reporting for the sale of the ECR business. | ||
The amount of income taxes the Company pays is subject to ongoing audits by tax jurisdictions around the world. In the normal course of business, the Company is subject to examination by tax authorities throughout the world, including such major jurisdictions as Australia, Canada, India, the Netherlands, the United Kingdom and the United States. Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time. The Company believes that it has adequately provided for reasonably foreseeable outcomes related to these matters. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate. | ||
11. Joint Ventures, VIEs and Other Investments
We execute certain contracts jointly with third parties through various forms of joint ventures. Although the joint ventures own and hold the contracts with the clients, the services required by the contracts are typically performed by us and our joint venture partners, or by other subcontractors under subcontracting agreements with the joint ventures. Many of these joint ventures are formed for a specific project. The assets of our joint ventures generally consist almost entirely of cash and receivables (representing amounts due from clients), and the liabilities of our joint ventures generally consist almost entirely of amounts due to the joint venture partners (for services provided by the partners to the joint ventures under their individual subcontracts) and other subcontractors. Many of the joint ventures are deemed to be variable interest entities (“VIE”) because they lack sufficient equity to finance the activities of the joint venture.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The assets of a joint venture are restricted for use to the obligations of the particular joint venture and are not available for general operations of the Company. Our risk of loss on these arrangements is usually shared with our partners. The liability of each partner is usually joint and several, which means that each partner may become liable for the entire risk of loss on the project. Furthermore, on some of our projects, the Company has granted guarantees that may encumber both our contracting subsidiary company and the Company for the entire risk of loss on the project. The Company is unable to estimate the maximum potential amount of future payments that we could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by our joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects, and the terms of the related contracts. Refer to Note 18 - Commitments and Contingencies and Derivative Financial Instruments, for further discussion relating to performance guarantees.
For consolidated joint ventures, the entire amount of the services performed, and the costs associated with these services, including the services provided by the other joint venture partners, are included in the Company's result of operations. Likewise, the entire amount of each of the assets and liabilities are included in the Company’s Consolidated Balance Sheets. For the consolidated VIEs, the carrying value of assets and liabilities was $297.6 million and $217.9 million, respectively, as of January 1, 2021 and $261.8 million and $190.3 million, respectively, as of October 2, 2020. There are no consolidated VIEs that have debt or credit facilities.
Unconsolidated joint ventures are accounted for under proportionate consolidation or the equity method. Proportionate consolidation is used for joint ventures that include unincorporated legal entities and activities of the joint venture that are construction-related. For those joint ventures accounted for under proportionate consolidation, only the Company’s pro rata share of assets, liabilities, revenue, and costs are included in the Company’s balance sheet and results of operations. For the proportionate consolidated VIEs, the carrying value of assets and liabilities was $67.2 million and $65.9 million, respectively, as of January 1, 2021, and $64.1 million and $63.0 million, respectively, as of October 2, 2020. For those joint ventures accounted for under the equity method, the Company's investment balances for the joint venture are included in Other Noncurrent Assets: Miscellaneous on the balance sheet and the Company’s pro rata share of net income is included in revenue. In limited cases, there are basis differences between the equity in the joint venture and the Company's investment created when the Company purchased its share of the joint venture. These basis differences are amortized based on an internal allocation to underlying net assets, excluding allocations to goodwill. As of January 1, 2021, the Company’s equity method investments exceeded its share of venture net assets by $44 million. Our investments in equity method joint ventures on the Consolidated Balance Sheets as of January 1, 2021 and October 2, 2020 were $140.2 million and $161.3 million, respectively. During the three months ended January 1, 2021 and December 27, 2019, we recognized income from equity method joint ventures of $18.3 million and $17.3 million, respectively.
Accounts receivable from unconsolidated joint ventures accounted for under the equity method is $5.4 million and $8.3 million as of January 1, 2021 and October 2, 2020, respectively.
The Company currently holds a 24.5% interest in AWE Management Ltd ("AWE ML") that is accounted for under the equity method, and the carrying value of the Company’s investment as of October 2, 2020 was approximately $38 million. As of October 2, 2020, AWE ML was under a contractual operating arrangement with the UK Ministry of Defence (MoD) with multiple years remaining under the arrangement. Subsequent to year end, on November 2, 2020, the MoD unexpectedly announced plans to change its current operating agreements with AWE ML that would result in the early termination of the current contract in 2021. During the three months ended January 1, 2021, the Company recorded an other-than-temporary impairment on its investment in AWE ML in the amount of $27.9 million, which is included in miscellaneous income (expense), net in the consolidated statement of earnings.
At October 2, 2020, the Company held a cost method investment in C3.ai, Inc. ("C3") of approximately $2.5 million. On December 9, 2020, C3 completed an initial public offering and as a result the Company now carries its investment in C3 at fair value, with mark to market changes reflected in net income as it is an investment in equity securities with a readily determinable fair value based on quoted market prices. In connection with the IPO, the Company became subject to a 180-day lock-up period, which restricts sales of the shares, subject to certain conditions that permit partial share sales based on C3's share performance during the lock-up period. The fair value of the Company's investment at January 1, 2021 was $85.2 million and is included in investment in equity securities in the consolidated balance sheet. Dividend income and unrealized gains and losses on changes in fair value of C3 shares are recognized in miscellaneous income (expense), net in the consolidated statement of earnings. Quoted market prices are available for these securities in an active market, however a discount is applied to account for the lock-up period restrictions and therefore the investment is categorized as a Level 2 input.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. Borrowings
Long-Term Debt
At January 1, 2021 and October 2, 2020, long-term debt consisted of the following (principal amounts in thousands):
| Interest Rate | Maturity | January 1, 2021 | October 2, 2020 | ||||||||||||||||||||
| Revolving Credit Facility | LIBOR + applicable margin (1) | March 2024 | $ | 268,794 | $ | 152,794 | |||||||||||||||||
| Term Loan Facility | LIBOR + applicable margin (2) | March 2025 | 1,029,889 | 1,025,826 | |||||||||||||||||||
| Fixed-rate notes due: | |||||||||||||||||||||||
| Senior Notes, Series A | 4.27% | May 2025 | 190,000 | 190,000 | |||||||||||||||||||
| Senior Notes, Series B | 4.42% | May 2028 | 180,000 | 180,000 | |||||||||||||||||||
| Senior Notes, Series C | 4.52% | May 2030 | 130,000 | 130,000 | |||||||||||||||||||
| Less: Deferred Financing Fees | (1,614) | (1,679) | |||||||||||||||||||||
| Total Long-term debt, net | $ | 1,797,069 | $ | 1,676,941 | |||||||||||||||||||
(1)Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the Revolving Credit Facility (defined below)), borrowings under the Revolving Credit Facility bear interest at either a eurocurrency rate plus a margin of between 0.875% and 1.625% or a base rate plus a margin of between 0% and 0.625%. including applicable margins The applicable LIBOR rates at January 1, 2021 and October 2, 2020 were approximately 1.16% and 1.39%.
(2)Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the Term Loan Facility (defined below)), borrowings under the Term Loan Facility bear interest at either a eurocurrency rate plus a margin of between 0.875% and 1.5% or a base rate plus a margin of between 0% and 0.5% including applicable margins. The applicable LIBOR rates at January 1, 2021 and October 2, 2020 were approximately 1.11% and 1.37%.
On February 7, 2014, Jacobs and certain of its subsidiaries entered into a $1.6 billion long-term unsecured, revolving credit facility (as amended, the “2014 Revolving Credit Facility”) with a syndicate of U.S. and international banks and financial institutions. On March 27, 2019, the Company entered into a second amended and restated credit agreement (the "Revolving Credit Facility"), which amended and restated the 2014 Revolving Credit Facility by, among other things, (a) extending the maturity date of the credit facility to March 27, 2024, (b) increasing the facility amount to $2.25 billion (with an accordion feature that allows a further increase of the facility amount up to $3.25 billion), (c) eliminating the covenants restricting investments, joint ventures and acquisitions by the Company and its subsidiaries and (d) adjusting the financial covenants to eliminate the net worth covenant upon the removal of the same covenant from the Company’s existing Note Purchase Agreement (defined below). We were in compliance with the covenants under the Revolving Credit Facility at January 1, 2021.
On December 16, 2020, Jacobs entered into a first amendment to the Revolving Credit Facility, which provides for, among other things, (a) administrative changes allowing a one-time limited conditionality draw under the Revolving Credit Facility in connection with the consummation of the proposed acquisition by the Company, indirectly through a subsidiary of the Company, of a majority interest in PA Consulting Group Limited, a private limited company organized under the laws of England and Wales and (b) an increase in the interest rate applicable margin to 1.625% per annum if the Consolidated Leverage Ratio (as defined in the Revolving Credit Facility) of the Company is equal to or greater than 3.00 to 1.00.
The Revolving Credit Facility permits the Company to borrow under two separate tranches in U.S. dollars, certain specified foreign currencies, and any other currency that may be approved in accordance with the terms of the Revolving Credit Facility. The Revolving Credit Facility also provides for a financial letter of credit sub facility of $400.0 million, permits performance letters of credit, and provides for a $50.0 million sub facility for swing line loans. Letters of credit are subject to fees based on the Company’s Consolidated Leverage Ratio. The Company pays a facility fee of between 0.08% and 0.20% per annum depending on the Company’s Consolidated Leverage Ratio.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On March 25, 2020, the Company entered into an unsecured term loan facility (the “Term Loan Facility”) with a syndicate of financial institutions as lenders. Under the Term Loan Facility, the Company borrowed an aggregate principal amount of $730.0 million and one of the Company's U.K. subsidiaries borrowed an aggregate principal amount of £250.0 million. The proceeds of the term loans were used to repay an existing term loan with a maturity date of June 2020 and for general corporate purposes. The Term Loan Facility contains affirmative and negative covenants and events of default customary for financings of this type that are consistent with those included in the Revolving Credit Facility. During fiscal 2020, the Company entered into interest rate and cross currency derivative contracts to swap a portion of our variable rate debt to fixed rate debt. See Note 18- Commitments and Contingencies and Derivative Financial Instruments for discussion regarding the Company's derivative instruments.
On March 12, 2018, Jacobs entered into a note purchase agreement (as amended, the "Note Purchase Agreement") with respect to the issuance and sale in a private placement transaction of $500 million in the aggregate principal amount of the Company’s senior notes in three series (collectively, the “Senior Notes”). The Note Purchase Agreement provides that if the Company's consolidated leverage ratio exceeds a certain amount, the interest on the Senior Notes may increase by 75 basis points. The Senior Notes may be prepaid at any time subject to a make-whole premium. The sale of the Senior Notes closed on May 15, 2018. The Company used the net proceeds from the offering of Senior Notes to repay certain existing indebtedness and for other general corporate purposes. The Note Purchase Agreement contains affirmative, negative and financial covenants customary for financings of this type, including, among other things, covenants to maintain a minimum consolidated net worth and maximum consolidated leverage ratio and limitations on certain other liens, mergers, dispositions and transactions with affiliates. In addition, the Note Purchase Agreement contains customary events of default. We were in compliance with the covenants under the Note Purchase Agreement at January 1, 2021.
We believe the carrying value of the Revolving Credit Facility, the Term Loan Facility and other debt outstanding approximates fair value based on the interest rates and scheduled maturities applicable to the outstanding borrowings. The fair value of the Senior Notes is estimated to be $547.8 million at January 1, 2021, based on Level 2 inputs. The fair value is determined by discounting future cash flows using interest rates available for issuances with similar terms and average maturities.
On January 20, 2021, Jacobs entered into a delayed draw term loan facility (the "Delayed Draw Term Loan Facility) with a syndicate of financial institutions as lenders. The Delayed Draw Term Loan Facility matures on the third anniversary of the date of closing. Under the Delayed Draw Term Loan Facility, the Company may borrow up to $200 million of U.S. dollar denominated term loans and up to £650 million U.K. pound sterling denominated loans. The proceeds of the term loans may be used to fund the acquisition of a majority interest in PA Consulting Group Limited, refinance certain existing indebtedness and pay related transaction costs and expenses. The Delayed Draw Term Loan Facility contains affirmative and negative covenants and events of default customary for financings of this type and that are consistent with those included in the Revolving Credit Facility and the Term Loan Facility. Depending on the Company’s consolidated leverage ratio, borrowings under the Delayed Draw Term Loan Facility will bear interest at either a eurocurrency rate plus a margin of between 0.875% and 1.625% or a base rate plus a margin of between 0% and 0.625%. From the date that is 90 days after the closing of the Delayed Draw Term Loan Facility, the Company must pay a ticking fee with respect to undrawn commitments under the facility at a rate that will range between 0.80% and 0.225% based on the Company’s Consolidated Leverage Ratio.
The Company has issued $2.3 million in letters of credit under the Revolving Credit Facility, leaving $1.98 billion of available borrowing capacity under the Revolving Credit Facility at January 1, 2021. In addition, the Company had issued $249.8 million under separate, committed and uncommitted letter-of-credit facilities for total issued letters of credit of $252.1 million at January 1, 2021.
13. Leases
The Company’s right-of use assets and lease liabilities relate to real estate, project assets used in connection with long-term construction contracts, IT assets and vehicles. The Company’s leases have remaining lease terms of one year to thirteen years. The Company’s lease obligations are primarily for the use of office space and are primarily operating leases. Certain of the Company’s leases contain renewal, extension, or termination options. The Company assesses each option on an individual basis and will only include options reasonably certain of exercise in the lease term. The Company generally considers the base term to be the term provided in the contract. None of the Company’s lease agreements contain material options to purchase the lease property, material residual value guarantees, or material restrictions or covenants.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Long-term project asset and vehicle leases (leases with terms greater than twelve months), along with all real estate and IT asset leases, are recorded on the consolidated balance sheet at the present value of the minimum lease payments not yet paid. Because the Company primarily acts as a lessee and the rates implicit in its leases are not readily determinable, the Company generally uses its incremental borrowing rate on the lease commencement date to calculate the present value of future lease payments. Certain leases include payments that are based solely on an index or rate. These variable lease payments are included in the calculation of the right-of-use ("ROU") asset and lease liability and are initially measured using the index or rate at the lease commencement date. Other variable lease payments, such as payments based on use and for property taxes, insurance, or common area maintenance that are based on actual assessments are excluded from the ROU asset and lease liability and are expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease, such as commissions.
Certain lease contracts contain nonlease components such as maintenance and utilities. The Company has made an accounting policy election, as allowed under ASC 842-10-15-37 and discussed above, to capitalize both the lease component and nonlease components of its contracts as a single lease component for all of its right-of-use assets.
Short-term project asset and vehicle leases (project asset and vehicle leases with an initial term of twelve months or less or leases that are cancellable by the lessee and lessor without significant penalties) are not recorded on the consolidated balance sheet and are expensed on a straight-line basis over the lease term. The majority of the Company’s short-term leases relate to equipment used on construction projects. These leases are entered into at agreed upon hourly, daily, weekly or monthly rental rates for an unspecified duration and typically have a termination for convenience provision. Such equipment leases are considered short-term in nature unless it is reasonably certain that the equipment will be leased for a term greater than twelve months.
The components of lease expense (reflected in selling, general and administrative expenses) for the three months ended January 1, 2021 and December 27, 2019 were as follows (in thousands):
| Three Months Ended | ||||||||||||||
| January 1, 2021 | December 27, 2019 | |||||||||||||
| Lease cost | ||||||||||||||
| Operating lease cost | $ | 39,444 | $ | 44,080 | ||||||||||
| Variable lease cost | 8,183 | 8,597 | ||||||||||||
| Sublease income | (3,396) | (3,334) | ||||||||||||
| Total lease cost | $ | 44,231 | $ | 49,343 | ||||||||||
Supplemental information related to the Company's leases for the three months ended January 1, 2021 was as follows (in thousands):
| Three Months Ended | ||||||||
| Cash paid for amounts included in the measurements of lease liabilities | $ | 48,909 | ||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 27,569 | ||||||
| Weighted average remaining lease term - operating leases | 7 years | |||||||
| Weighted average discount rate - operating leases | 2.7% | |||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Total remaining lease payments under the Company's leases for the remainder of fiscal 2021 and for the succeeding years is as follows (in thousands):
| Fiscal Year | Operating Leases | |||||||
| 2021 | $ | 141,552 | ||||||
| 2022 | 170,667 | |||||||
| 2023 | 151,661 | |||||||
| 2024 | 132,968 | |||||||
| 2025 | 111,438 | |||||||
| Thereafter | 277,047 | |||||||
| 985,333 | ||||||||
| Less Interest | (85,357) | |||||||
| $ | 899,976 | |||||||
14. Pension and Other Postretirement Benefit Plans
The following table presents the components of net periodic pension benefit recognized in earnings during the three months ended January 1, 2021 and December 27, 2019 (in thousands):
| Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Component: | |||||||||||
| Service cost | $ | 1,735 | $ | 1,465 | |||||||
| Interest cost | 11,785 | 13,031 | |||||||||
| Expected return on plan assets | (25,427) | (27,665) | |||||||||
| Amortization of previously unrecognized items | 4,032 | 3,110 | |||||||||
| Plan Amendment and settlement loss (gain) | — | 2,651 | |||||||||
| Total net periodic pension benefit recognized | $ | (7,875) | $ | (7,408) | |||||||
The service cost component of net periodic pension benefit is presented in the same line item as other compensation costs (direct cost of contracts and selling, general and administrative expenses) and the other components of net periodic pension expense are presented in miscellaneous income (expense), net on the Consolidated Statements of Earnings. In the first fiscal quarter of 2020, the Company incurred a settlement loss on one of its U.S. defined benefit plans of approximately $2.7 million.
The following table presents certain information regarding the Company’s cash contributions to our pension plans for fiscal 2021 (in thousands):
Cash contributions made during the first three months of fiscal 2021 | $ | 9,096 | |||
Cash contributions projected for the remainder of fiscal 2021 | 28,942 | ||||
| Total | $ | 38,038 | |||
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15. Business Combinations
Buffalo Group
On November 24, 2020, a subsidiary of Jacobs completed the acquisition of Buffalo Group, a leader in advanced cyber and intelligence solutions. The Company paid total consideration of $212.8 million, which was comprised of approximately $181.4 million in cash to the former owners of Buffalo Group and the assumption of Buffalo Group's debt of approximately $7.7 million and $23.7 million in other assumed liabilities. The Company repaid all of the assumed Buffalo Group debt by the end of the first fiscal quarter of 2021. Additionally, the Company recorded contingent consideration of $14.6 million which is expected to be settled in fiscal 2022. The acquisition of Buffalo Group allows Jacobs to further expand its cyber and intelligence solutions offering to government clients. The following summarizes the fair values of The Buffalo Group's assets acquired and liabilities assumed as of the acquisition date (in millions):
| Assets | |||||
| Cash and cash equivalents | $ | 8.4 | |||
| Receivables | 19.2 | ||||
| Property, equipment and improvements, net | 2.3 | ||||
| Goodwill | 139.6 | ||||
| Identifiable intangible assets | 71.0 | ||||
| Prepaid expenses and other current assets | 6.2 | ||||
| Total Assets | $ | 246.7 | |||
| Liabilities | |||||
| Accounts payable, accrued expenses and other current liabilities | $ | 46.9 | |||
| Contingent consideration | 14.6 | ||||
| Other long term liabilities | 3.8 | ||||
Total Liabilities | 65.3 | ||||
| Net assets acquired | $ | 181.4 | |||
The purchase price allocation is based upon preliminary information and is subject to change when additional information is obtained. Goodwill recognized results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes, given the acquisition was structured as an asset acquisition. The Company has not completed its final assessment of the fair values of Buffalo Group's assets acquired and liabilities assumed. The final purchase price allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.
Identified intangibles are customer relationships, contracts and backlog and have estimated lives of 9 years.
Fair value measurements relating to the Buffalo Group are made primarily using Level 3 inputs including discounted cash flow and Monte Carlo simulation techniques. Fair value for the identified intangible assets is estimated using inputs primarily for the income approach, which include the use of both the multiple period excess earnings method and the relief from royalties method. The significant assumptions used in estimating fair value include (i) the estimated life the asset will contribute to cash flows, such as attrition rate of customers or remaining contractual terms, (ii) profitability and (iii) the estimated discount rate that reflects the level of risk associated with receiving future cash flows. Other personal property assets, such as furniture, fixtures and equipment, are valued using the cost approach, which is based on replacement or reproduction costs of the asset less depreciation. The fair value of the contingent consideration is estimated using a Monte Carlo simulation and the significant assumptions used include projections of revenues for Buffalo Group through fiscal 2021 and probabilities of meeting those projections.
No summarized unaudited pro forma results are provided for the Buffalo Group due to the immateriality of this acquisition relative to the Company's consolidated financial position and results of operations.
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John Wood Group's Nuclear Business
On March 6, 2020, a subsidiary of Jacobs completed the acquisition of the nuclear consulting, remediation and program management business of John Wood Group, a U.K.-based energy services company, for an enterprise value of £246 million, or approximately $317.9 million, less cash acquired of $24.3 million, as updated for additional working capital adjustments. The John Wood Group nuclear business allows Jacobs to further expand its lifecycle nuclear services business. The following summarizes the fair values of John Wood Group's assets acquired and liabilities assumed as of the acquisition date (in millions):
| Assets | |||||
| Cash and cash equivalents | $ | 24.3 | |||
| Receivables | 74.2 | ||||
| Other current assets | 5.2 | ||||
| Property, equipment and improvements, net | 8.3 | ||||
| Goodwill | 206.2 | ||||
| Identifiable intangible assets | 80.0 | ||||
| Miscellaneous | 19.4 | ||||
| Total Assets | $ | 417.6 | |||
| Liabilities | |||||
| Accounts payable, accrued expenses and other current liabilities | $ | 70.7 | |||
| Long term liabilities | 29.0 | ||||
Total Liabilities | 99.7 | ||||
| Net assets acquired | $ | 317.9 | |||
The purchase price allocation is based upon preliminary information and is subject to change when additional information is obtained. Goodwill recognized results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. None of the goodwill recognized is expected to be deductible for tax purposes. The Company has not completed its final assessment of the fair values of John Wood Group's assets acquired and liabilities assumed. The final purchase price allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.
Identified intangibles include customer relationships, contracts and backlog and developed technology. The customer relationships, contracts and backlog intangible represents the fair value of existing contracts, underlying customer relationships and backlog. The customer relationships, contracts and backlog intangible and the developed technology intangible have lives of 12 and 15 years, respectively.
Fair value measurements relating to the John Wood Group nuclear business are made primarily using Level 3 inputs including discounted cash flow techniques. Fair value is estimated using inputs primarily for the income approach, which include the use of both the multiple period excess earnings method and the relief from royalties method. The significant assumptions used in estimating fair value include (i) the estimated life the asset will contribute to cash flows, such as attrition rate of customers or remaining contractual terms, (ii) profitability and (iii) the estimated discount rate that reflects the level of risk associated with receiving future cash flows. Other personal property assets, such as furniture, fixtures and equipment, are valued using the cost approach, which is based on replacement or reproduction costs of the asset less depreciation.
No summarized unaudited pro forma results are provided for the John Wood Group nuclear business due to the immateriality of this acquisition relative to the Company's consolidated financial position and results of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PA Consulting Group Limited
On November 27, 2020, the Company entered into an agreement to make an investment in PA Consulting Group Limited by acquiring approximately 65% of its share capital in the form of preferred and common equity for an aggregate amount of £1.8 billion. The transaction is expected to close in the second quarter of fiscal 2021.
16. Sale of Energy, Chemicals and Resources ("ECR") Business
On April 26, 2019, Jacobs completed the sale of its ECR business to Worley for a purchase price of $3.4 billion consisting of (i) $2.8 billion in cash plus (ii) 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”).
Discontinued Operations
As a result of the ECR sale, substantially all ECR-related assets and liabilities were sold (the "Disposal Group"). We determined that the Disposal Group should be reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations because their disposal represent a strategic shift that had a major effect on our operations and financial results. As such, the financial results of the ECR business are reflected in our unaudited Consolidated Statements of Earnings as discontinued operations for all periods presented. Additionally, assets and liabilities of the ECR business were reflected as held-for-sale in the Consolidated Balance Sheets through December 27, 2019. As of the fiscal year ended October 2, 2020, all of the ECR business to be sold under the terms of the ECR sale had been conveyed to Worley and as such, no amounts remain held for sale.
Summarized Financial Information of Discontinued Operations
The following table represents earnings (loss) from discontinued operations, net of tax (in thousands):
For the Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Revenues | $ | — | $ | 7,099 | |||||||
| Direct cost of contracts | — | (4,692) | |||||||||
| Gross profit | — | 2,407 | |||||||||
| Selling, general and administrative expenses | (19) | 47,159 | |||||||||
| Operating (Loss) Profit | (19) | 49,566 | |||||||||
| Gain on sale of ECR business | — | 61,943 | |||||||||
| Other (expense) income, net | — | 1 | |||||||||
| Earnings Before Taxes from Discontinued Operations | (19) | 111,510 | |||||||||
| Income Tax Expense | 5 | (33,923) | |||||||||
| Net Earnings of the Group from Discontinued Operations | $ | (14) | $ | 77,587 | |||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For the three months ended December 27, 2019, selling, general and administrative expenses included an offsetting insurance recovery of $50.0 million recorded in connection with a legal matter. The gain on sale of the ECR business of $61.9 million for the three months ended December 27, 2019, primarily included additional income for the release of a deferred gain upon achievement of the IT Migration Date described below in connection with the delivery to Worley of certain IT application and hardware assets related to the ECR business, as well as adjustments to the purchase price for working capital and certain other items in connection with the ECR sale.
The Company expects to finalize the remaining purchase price adjustments in connection with the ECR sale before the end of fiscal 2021.
Gain on Sale and Deferred Gain
As a result of the ECR sale, the Company recognized a pre-tax gain of approximately $1.0 billion, $935.1 million of which was recognized in fiscal 2019, $110.2 million for the year ended October 2, 2020 and $— million for the three months ended January 1, 2021.
Upon closing the ECR sale, the Company retained a noncontrolling interest (with significant influence) in People & Places Solutions ("P&PS")-related activities in one international legal entity acquired by Worley. The fair value of the Company’s retained interest in the net assets and liabilities of this entity was estimated at $33.0 million and recorded at closing. For another international legal entity, the closing and transfer of ECR-related assets to Worley were set to occur at a future date. At the time of the ECR sale, the Company allocated proceeds received to these deferred closing items on a relative fair value basis and recognized a deferred gain of $34.4 million. During the second fiscal quarter of 2020, the delayed transfer of the ECR-related assets and liabilities of these two international entities occurred, and as a result, previously deferred gain amounts were recognized.
In addition to consideration received for the sale of the business, the proceeds received included advanced consideration for the Company to deliver IT application and related hardware assets at a future date (“IT Migration Date”) to Worley upon completion of the interim transition services, described further below. This deliverable of IT assets was considered to be a separate element of the ECR business sale transaction, and accordingly, we allocated a portion of the proceeds received of $95.3 million on a relative fair value basis to this separate deliverable and recognized deferred income. Upon completion and acceptance of this deliverable by Worley in December 2019, the deferred proceeds were recognized in income, along with expenses associated with any costs incurred and deferred by the Company for this deliverable.
Investment in Worley Stock
As discussed above, subsequent to the ECR sale, the Company holds 51.4 million in ordinary shares of Worley. Dividend income and unrealized gains and losses on changes in fair value of Worley shares are recognized in miscellaneous income (expense), net in continuing operations. The Company's investment in Worley is measured at fair value through net income as it is an equity investment with a readily determinable fair value based on quoted market prices and is $455.2 million at January 1, 2021 and $347.5 million at October 2, 2020. For the three months ended January 1, 2021 and December 27, 2019, the Company recognized a gain of $107.7 million and $105.3 million, respectively, associated with share price and currency changes on this investment. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input.
Transition Service Agreement
Upon closing of the ECR sale, the Company entered into a Transition Services Agreement (the "TSA") with Worley pursuant to which the Company, on an interim basis, provided various services to Worley, including executive consultation, corporate, information technology, and project services. The initial term of the TSA began immediately following closing of the ECR sale on April 26, 2019 and expired in April 2020, although the parties mutually agreed to extend certain of the services for additional time periods beyond the initial term. Pursuant to the terms of the TSA, the Company received payments for the interim services which approximate costs incurred to perform the services. The Company has recognized costs recorded in SG&A expense incurred to perform the TSA, offset by $0.2 million and $12.0 million in TSA related income for such services that is reported in miscellaneous income (expense) for the three months ended January 1, 2021 and December 27, 2019, respectively, before inclusion of certain incremental outside service support costs agreed to be shared equally by the parties.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. Restructuring and Other Charges
During fiscal 2021, the Company implemented certain restructuring and integration initiatives relating to the Buffalo Group acquisition. The activities of these initiatives are expected to be substantially completed before the end of fiscal 2021.
Additionally, the Company recorded an impairment on its investment in AWE during the first quarter of fiscal 2021. See related discussion in Note 11- Joint ventures, VIEs and other investments.
During fiscal 2020, the Company implemented certain restructuring and separation initiatives, including the Company's fourth quarter fiscal 2020 transformation initiatives relating to real estate and other staffing programs. The activities of these initiatives are expected to continue into fiscal 2023.
During fiscal 2019 and continuing into fiscal 2020, the Company implemented certain restructuring, separation and integration initiatives associated with the ECR sale, the acquisition of KeyW Holding Corporation ("KeyW"), and other related cost reduction initiatives. Additionally, in fiscal 2020, the Company implemented certain restructuring and integration initiatives associated with the acquisition of John Wood Group's nuclear business. The restructuring activities and related costs were comprised mainly of separation and lease abandonment and sublease programs, while the separation and integration activities and costs were mainly related to the engagement of consulting services and internal personnel and other related costs dedicated to the Company’s ECR-business separation and integration of KeyW and the John Wood Group’s nuclear business. The activities of these initiatives are expected to be substantially completed before the end of fiscal 2021.
During the fourth fiscal quarter of 2017, the Company implemented certain restructuring and pre-integration plans associated with the then-pending acquisition of CH2M, which closed on December 15, 2017. The restructuring activities and related costs under these plans were comprised mainly of severance and lease abandonment programs, while the integration activities and costs were mainly related to the engagement of professional services and internal personnel and other related costs dedicated to the Company’s integration management efforts. Following the closing of the CH2M acquisition, these activities have continued through fiscal 2020 and are expected to be substantially completed before the end of fiscal 2022.
Collectively, the above-mentioned restructuring activities are referred to as “Restructuring and other charges.”
The following table summarizes the impacts of the Restructuring and other charges by LOB in connection with the CH2M, KeyW, John Wood Group's nuclear business and Buffalo Group acquisitions, the ECR sale and the Company's fourth quarter fiscal 2020 transformation initiatives relating to real estate and other staffing programs and impairment of the AWE Management Ltd. investment for the three months ended January 1, 2021 and the CH2M and KeyW acquisitions and the ECR sale for the December 27, 2019 (in thousands):
| Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Critical Mission Solutions | $ | 3,209 | $ | 4,291 | |||||||
| People & Places Solutions | 5,167 | 10,153 | |||||||||
| Corporate | 40,017 | 37,597 | |||||||||
| Total (1) | $ | 48,393 | $ | 52,041 | |||||||
(1)For the three months ended January 1, 2021 and December 27, 2019, amounts include $20.5 million and $49.7 million, respectively, in items impacting operating profit, along with items recorded in other income (expense), net, which include $(27.9) million related to the impairment of our AWE Management Ltd. investment which is reflected in other income (expense) for the three months ended January 1, 2021 and the loss on settlement of the CH2M portion of the U.S. pension plan of $(2.4) million for the three months ended December 27, 2019. See Note 19- Segment Information.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The activity in the Company’s accrual for the Restructuring and other charges, including the program activities described above, for the three months ended January 1, 2021 is as follows (in thousands):
Balance at October 2, 2020 | $ | 52,854 | |||
| Net Charges | 48,393 | ||||
| Payments and Usage | (70,973) | ||||
| Balance at January 1, 2021 | $ | 30,274 | |||
The following table summarizes the Restructuring and other charges by major type of costs for the three months ended January 1, 2021 and December 27, 2019 (in thousands):
| Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Lease Abandonments and Impairments | $ | 148 | $ | — | |||||||
| Voluntary and Involuntary Terminations | 9,503 | 13,153 | |||||||||
| Outside Services | 7,399 | 31,466 | |||||||||
| Other (1) | 31,343 | 7,422 | |||||||||
| Total | $ | 48,393 | $ | 52,041 | |||||||
(1)Includes $27.9 million related to the impairment of our AWE Management Ltd. investment for the three months ended January 1, 2021.
Cumulative amounts since 2017 incurred to date under our various restructuring and other activities described above by each major type of cost as of January 1, 2021 are as follows (in thousands):
| Lease Abandonments and Impairments | $ | 313,665 | |||
| Voluntary and Involuntary Terminations | 138,472 | ||||
| Outside Services | 266,523 | ||||
| Other | 131,657 | ||||
| Total | $ | 850,317 | |||
18. Commitments and Contingencies and Derivative Financial Instruments
Derivative Financial Instruments
The Company is exposed to interest rate risk under its variable rate borrowings and additionally, due to the nature of the Company's international operations, we are at times exposed to foreign currency risk. As such, we sometimes enter into foreign exchange hedging contracts and interest rate hedging contracts in order to limit our exposure to fluctuating foreign currencies and interest rates.
In fiscal 2020 we entered into interest rate swap agreements with a notional value of $798.4 million as of January 1, 2021 to manage the interest rate exposure on our variable rate loans. Additionally, we entered into a cross-currency swap agreement with a notional value of $127.8 million to manage the interest rate and foreign currency exposure on our USD borrowings by a European subsidiary. By entering into the swap agreements, the Company converted the LIBOR rate based liability into a fixed rate liability and, for the cross currency swap, our LIBOR rate based borrowing in USD to a fixed rate Euro liability, for periods ranging from three and a half to ten years. Under the interest rate swap agreements, the Company receives the one month LIBOR rate and pays monthly a fixed rate ranging from .704% to 1.116% and under the cross currency swap agreement, the Company receives the one month LIBOR rate plus 0.875% in USD and pays monthly a Euro fixed rate of .726% to .746% for the term of the swaps. The swaps were designated as cash-flow hedges in accordance with ASC 815, Derivatives and Hedging. The fair value of the interest rate and cross currency swaps at January 1, 2021 was $(34.8) million, which is included in other deferred liabilities on the consolidated balance
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
sheet. The unrealized net losses on these interest rate and cross currency swaps was $10.8 million, net of tax, and was included in accumulated other comprehensive income as of January 1, 2021.
Additionally, the Company held foreign exchange forward contracts in currencies that support our operations, including British Pound, Euro, Australian Dollar and other currencies, with notional values of $425.8 million at January 1, 2021. The length of these contracts currently ranges from to 12 months. The fair value of the foreign exchange contracts at January 1, 2021 was $82.3 million, which is included in current assets within receivables and contract assets on the consolidated balance sheet and with associated income statement impacts included in miscellaneous income (expense) in the consolidated statement of earnings.
The fair value measurements of these derivatives are being made using Level 2 inputs under ASC 820, Fair Value Measurement, as the measurements are based on observable inputs other than quoted prices in active markets. We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under forward exchange and interest rate contracts and expect all counterparties to meet their obligations. We have not experienced credit losses from our counterparties.
Contractual Guarantees and Insurance
In the normal course of business, we make contractual commitments (some of which are supported by separate guarantees) and on occasion we are a party in a litigation or arbitration proceeding. The litigation or arbitration in which we are involved includes personal injury claims, professional liability claims and breach of contract claims. Where we provide a separate guarantee, it is strictly in support of the underlying contractual commitment. Guarantees take various forms including surety bonds required by law, or standby letters of credit ("LOC" and also referred to as “bank guarantees”) or corporate guarantees given to induce a party to enter into a contract with a subsidiary. Standby LOCs are also used as security for advance payments or in various other transactions. The guarantees have various expiration dates ranging from an arbitrary date to completion of our work (e.g., engineering only) to completion of the overall project. We record in the Consolidated Balance Sheets amounts representing our estimated liability relating to such guarantees, litigation and insurance claims. Guarantees are accounted for in accordance with ASC 460-10, Guarantees, at fair value at the inception of the guarantee.
At January 1, 2021 and October 2, 2020, the Company had issued and outstanding approximately $252.1 million and $263.0 million, respectively, in LOCs and $2.1 billion and $2.3 billion, respectively, in surety bonds.
We maintain insurance coverage for most insurable aspects of our business and operations. Our insurance programs have varying coverage limits depending upon the type of insurance and include certain conditions and exclusions which insurance companies may raise in response to any claim that is asserted by or against the Company. We have also elected to retain a portion of losses and liabilities that occur through using various deductibles, limits, and retentions under our insurance programs. As a result, we may be subject to a future liability for which we are only partially insured or completely uninsured. We intend to mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms and conditions of the contracts which the Company enters with its clients. Our insurers are also subject to business risk and, as a result, one or more of them may be unable to fulfill their insurance obligations due to insolvency or otherwise.
Additionally, as a contractor providing services to the U.S. federal government, we are subject to many types of audits, investigations, and claims by, or on behalf of, the government including with respect to contract performance, pricing, cost allocations, procurement practices, labor practices, and socioeconomic obligations. Furthermore, our income, franchise, and similar tax returns and filings are also subject to audit and investigation by the Internal Revenue Service, most states within the United States, as well as by various government agencies representing jurisdictions outside the United States.
Our Consolidated Balance Sheets include amounts representing our probable estimated liability relating to such claims, guarantees, litigation, audits, and investigations. We perform an analysis to determine the level of reserves to establish for insurance-related claims that are known and have been asserted against us, as well as for insurance-related claims that are believed to have been incurred based on actuarial analysis but have not yet been reported to our claims administrators as of the respective balance sheet dates. We include any adjustments to such insurance reserves in our consolidated results of operations. Insurance recoveries are recorded as assets if recovery is probable and estimated liabilities are not reduced by expected insurance recoveries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company believes, after consultation with counsel, that such guarantees, litigation, U.S. government contract-related audits, investigations and claims, and income tax audits and investigations should not have a material adverse effect on our consolidated financial statements, beyond amounts currently accrued.
Litigation and Investigations
In 2012, CH2M HILL Australia Pty Limited, a subsidiary of CH2M, entered into a 50/50 integrated joint venture with Australian construction contractor UGL Infrastructure Pty Limited. The joint venture entered into a Consortium Agreement with General Electric and GE Electrical International Inc. The Consortium was awarded a subcontract by JKC Australia LNG Pty Limited ("JKC") for the engineering, procurement, construction and commissioning of a 360 MW Combined Cycle Power Plant for INPEX Operations Australia Pty Limited at Blaydin Point, Darwin, NT, Australia. In January 2017, the Consortium terminated the Subcontract because of JKC’s repudiatory breach and demobilized from the work site. JKC claimed the Consortium abandoned the work and itself purported to terminate the Subcontract. The Consortium and JKC are now in dispute over the termination. In August 2017, the Consortium filed an International Chamber of Commerce arbitration against JKC and is seeking compensatory damages in the amount of approximately $530.0 million for repudiatory breach or, in the alternative, seeking damages for unresolved contract claims and change orders. JKC is seeking damages in excess of $1.7 billion and has drawn on the bonds. In light of the COVID-19 pandemic, a November 2020 date for commencement of the hearing has been vacated and the hearing has been rescheduled for opening arguments in April and the remaining proceedings in July and August 2021. Although an earlier decision is possible, no decision is expected before 2022. In September 2018, JKC filed a declaratory judgment action in Western Australia alleging that the entities which executed parent company guaranties for the Consortium, including CH2M Hill Companies, Ltd., have an obligation to pay JKC’s ongoing costs to complete the project after termination. A hearing on that matter was held in March 2019, and a decision in favor of the Consortium was issued. JKC appealed the decision, a hearing on the appeal took place in March 2020 and a decision was handed down on July 22, 2020 denying JKC’s appeal in its entirety. The Consortium has denied liability and is vigorously defending JKC's claims and pursuing its affirmative claims against JKC. Based on the information currently available, the Company does not expect the resolution of this matter to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows, in excess of the current reserve for this matter. See Note 14- Business Combinations in the Company's fiscal 2020 Form 10K for further information related to CH2M contingencies.
On December 22, 2008, a coal fly ash pond at the Kingston Power Plant of the Tennessee Valley Authority ("TVA") was breached, releasing fly ash waste into the Emory River and surrounding community. In February 2009, TVA awarded a contract to the Company to provide project management services associated with the clean-up. All remediation and dredging were completed in August 2013 by other contractors under direct contracts with TVA. The Company did not perform the remediation, and its scope was limited to program management services. Certain employees of the contractors performing the cleanup work on the project filed lawsuits against the Company beginning in August 2013, alleging they were injured due to the Company's failure to protect the plaintiffs from exposure to fly ash, and asserting related personal injuries. The primary case, Greg Adkisson, et al. v. Jacobs Engineering Group Inc., case No. 3:13-CV-505-TAV-HBG, filed in the U.S. District Court for the Eastern District of Tennessee, consists of 10 consolidated cases. This case and the related cases involve several hundred plaintiffs that have been filed against the Company by employees of the contractors that completed the remediation and dredging work. The cases are at various stages of litigation, and several of the cases are currently stayed pending resolution of other cases. Additionally, in May 2019, Roane County and the cities of Kingston and Harriman filed a claim against TVA and the Company alleging that they misled the public about risks associated with the released fly ash. In October 2020, the Court granted Jacobs and TVA’s motion to dismiss the Roane County litigation and closed the case. In addition, in November 2019, a resident of Roane County, Margie Delozier, filed a putative class action against TVA and the Company alleging they failed to adequately warn local residents about risks associated with the released fly ash. The Company and TVA filed separate motions to dismiss the Delozier case in April 2020, which remain pending before the Court. In February 2020, the Company learned that the district attorney in Roane County recommended that the Tennessee Bureau of Investigation investigate issues pertaining to clean up worker safety at Kingston, with that investigation still pending. There has been no finding of liability against the Company or that any of the alleged illnesses are the result of exposure to fly ash in any of the above matters. The Company disputes the claims asserted in all of the above matters and is vigorously defending these claims. The Company does not expect the resolution of these matters to have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On October 31, 2019, the Company received a request from the Enforcement Division of the Securities and Exchange Commission (the "SEC") for the voluntary production of certain information and documents. The information and documents sought by the SEC primarily relate to the operations of a joint venture in Morocco which was at one time partially-owned by the Company (and subsequently divested), including in respect of possible corrupt practices. The Company is fully cooperating with the SEC and is producing the requested information and documents in its possession. The Company does not expect the resolution of this matter to have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.
19. Segment Information
The Company's two operating segments and global lines of business ("LOBs") are as follows: Critical Mission Solutions ("CMS") and People & Places Solutions ("P&PS"), with the previous Energy, Chemicals and Resources ("ECR") LOB reported as discontinued operations. For further information on ECR, refer to Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business.
The Company’s Chair and Chief Executive Officer is the Chief Operating Decision Maker (“CODM”) and can evaluate the performance of each of these segments and make appropriate resource allocations among each of the segments. For purposes of the Company’s goodwill impairment testing, it has been determined that the Company’s operating segments are also its reporting units based on management’s conclusion that the components comprising each of its operating segments share similar economic characteristics and meet the aggregation criteria for reporting units in accordance with ASC 350, Intangibles-Goodwill and Other.
Under this organization, the sales function is managed by LOB, and accordingly, the associated cost is embedded in the segments and reported to the respective head of each LOB. In addition, a portion of the costs of other support functions (e.g., finance, legal, human resources, and information technology) is allocated to each LOB using methodologies which, we believe, effectively attribute the cost of these support functions to the revenue generating activities of the Company on a rational basis. The cost of the Company’s cash incentive plan, the Leadership Performance Plan ("LPP"), formerly named the Management Incentive Plan, and the expense associated with the Jacobs Engineering Group Inc. 1999 Stock Incentive Plan (“1999 SIP”) have likewise been charged to the LOBs except for those amounts determined to relate to the business as a whole (which amounts remain in other corporate expenses).
Financial information for each LOB is reviewed by the CODM to assess performance and make decisions regarding the allocation of resources. The Company generally does not track assets by LOB, nor does it provide such information to the CODM.
The CODM evaluates the operating performance of our LOBs using segment operating profit, which is defined as margin less “corporate charges” (e.g., the allocated amounts described above). The Company incurs certain Selling, General and Administrative costs (“SG&A”) that relate to its business as a whole which are not allocated to the LOBs.
The following tables present total revenues and segment operating profit from continuing operations for each reportable segment (in thousands) and includes a reconciliation of segment operating profit to total U.S. GAAP operating profit by including certain corporate-level expenses, Restructuring and other charges (as defined in Note 17 - Restructuring and Other Charges) and transaction and integration costs (in thousands).
| For the Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Revenues from External Customers: | |||||||||||
| Critical Mission Solutions | $ | 1,295,287 | $ | 1,182,457 | |||||||
| People & Places Solutions | 2,086,549 | 2,177,592 | |||||||||
| Total | $ | 3,381,836 | $ | 3,360,049 | |||||||
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
| For the Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Segment Operating Profit: | |||||||||||
| Critical Mission Solutions | $ | 110,072 | $ | 90,422 | |||||||
| People & Places Solutions | 196,300 | 178,328 | |||||||||
| Total Segment Operating Profit | 306,372 | 268,750 | |||||||||
| Other Corporate Expenses (1) | (70,341) | (66,719) | |||||||||
| Restructuring, Transaction and Other Charges | (22,091) | (50,686) | |||||||||
| Total U.S. GAAP Operating Profit | 213,940 | 151,345 | |||||||||
| Total Other Income (Expense), net (2) | 140,171 | 102,824 | |||||||||
| Earnings from Continuing Operations Before Taxes | $ | 354,111 | $ | 254,169 | |||||||
| (1) | Other corporate expenses also include intangibles amortization of $23.2 million and $21.8 million for the three-month periods ended January 1, 2021 and December 27, 2019, respectively. | ||||
| (2) | For the three month period ended January 1, 2021, includes $93.1 million in fair value adjustments related to our investment in Worley stock and certain foreign currency revaluations relating to the ECR sale, $82.6 million in fair adjustments related to our investment in C3 stock and $(27.9) million related to impairment of our AWE Management Ltd. investment. For the three month period ended December 27, 2019, includes revenues under the Company's TSA with Worley of $12.0 million, $99.1 million in fair value adjustments related to our investment in Worley stock and certain foreign currency revaluations relating to the ECR sale, the amortization of deferred financing fees related to the CH2M acquisition of $0.6 million and the loss on settlement of the CH2M portion of the U.S. pension plan of $2.4 million. | ||||
(1)Included in other corporate expenses in the above table are costs and expenses, which relate to general corporate activities as well as corporate-managed benefit and insurance programs. Such costs and expenses include: (i) those elements of SG&A expenses relating to the business as a whole; (ii) those elements of our incentive compensation plans relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of business combinations; (iv) the quarterly variances between the Company’s actual costs of certain of its self-insured integrated risk and employee benefit programs and amounts charged to the LOBs; and (v) certain adjustments relating to costs associated with the Company’s international defined benefit pension plans. In addition, other corporate expenses may also include from time to time certain adjustments to contract margins (both positive and negative) associated with projects, as well as other items, where it has been determined that such adjustments are not indicative of the performance of the related LOB.
See also MD&A results of operations for our operating segments in Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
The purpose of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to provide a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition from the most recent fiscal year-end to January 1, 2021 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year. In order to better understand such changes, readers of this MD&A should also read:
•The discussion of the critical and significant accounting policies used by the Company in preparing its consolidated financial statements. The most current discussion of our critical accounting policies appears in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2020 Form 10-K, and the most current discussion of our significant accounting policies appears in Note 2- Significant Accounting Polices in Notes to Consolidated Financial Statements of our 2020 Form 10-K;
•The Company’s fiscal 2020 audited consolidated financial statements and notes thereto included in our 2020 Form 10-K; and
•Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2020 Form 10-K.
In addition to historical information, this MD&A and other parts of this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that do not directly relate to any historical or current fact. When used herein, words such as “expects,” “anticipates,” “believes,” “seeks,” “estimates,” “plans,” “intends,” “future,” “will,” “would,” “could,” “can,” “may,” and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make concerning the potential continued effects of the COVID-19 pandemic on our business, financial condition and results of operations and our expectations as to our future growth, prospects, financial outlook and business strategy for fiscal 2021 or future fiscal years. You should not place undue reliance on these forward-looking statements. Although such statements are based on management’s current estimates and expectations, and/or currently available competitive, financial, and economic data, forward-looking statements are inherently uncertain, and you should not place undue reliance on such statements as actual results may differ materially. We caution the reader that there are a variety of risks, uncertainties and other factors that could cause actual results to differ materially from what is contained, projected or implied by our forward-looking statements. Such factors include the magnitude, timing, duration and ultimate impact of the COVID-19 pandemic and any resulting economic downturn on our results, prospects and opportunities; the timeline for easing or removing “shelter-in-place”, “stay-at-home”, social distancing, travel restrictions and similar orders, measures or restrictions imposed by governments and health officials in response to the pandemic, or if such orders, measures or restrictions are re-imposed after being lifted or eased, including as a result of increases in cases of COVID-19; the development, effectiveness and distribution of vaccines or treatments for COVID-19; and the timing and scope of any government stimulus programs enacted in response to the impacts of the COVID-19 pandemic. The impact of such matters includes, but is not limited to, the possible reduction in demand for certain of our services and the delay or abandonment of ongoing or anticipated projects due to the financial condition of our clients and suppliers or to governmental budget constraints; the inability of our clients to meet their payment obligations in a timely manner or at all; potential issues and risks related to a significant portion of our employees working remotely; illness, travel restrictions and other workforce disruptions that could negatively affect our supply chain and our ability to timely and satisfactorily complete our clients’ projects; difficulties associated with hiring additional employees or replacing any furloughed employees; increased volatility in the capital markets that may affect our ability to access sources of liquidity on acceptable pricing or borrowing terms or at all; and the inability of governments in certain of the countries in which we operate to effectively mitigate the financial or other impacts of the COVID-19 pandemic on their economies and workforces and our operations therein. The foregoing factors and potential future developments are inherently uncertain, unpredictable and, in many cases, beyond our control. For a description of these and additional factors that may occur that could cause actual results to differ from our forward-looking statements, see those listed and discussed in Item 1A, Risk Factors included in our 2020 Form 10-K and our Quarterly Reports on Form 10-Q. We undertake no obligation to release publicly any revisions or updates to any forward-looking statements. We encourage you to read carefully the risk factors, as well as the financial and business disclosures contained in this Quarterly Report on Form 10-Q and in other documents we file from time to time with the United States Securities and Exchange Commission ("SEC").
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Impact of COVID-19 on Our Business
On March 11, 2020, the World Health Organization characterized the outbreak of the novel coronavirus (“COVID-19”) as a global pandemic and recommended certain containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and the vast majority of states and many municipalities have declared public health emergencies or taken similar actions. Along with these declarations, there were extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat outbreaks of COVID-19 in regions across the United States and around the world. These actions included quarantines and “stay-at-home” or “shelter-in-place” orders, social distancing measures, travel restrictions, school closures and similar mandates for many individuals in order to substantially restrict daily activities and orders for many businesses to curtail or cease normal operations unless their work is critical, essential or life-sustaining. Although certain jurisdictions have taken steps to lift or ease such restrictions to various degrees, some jurisdictions have subsequently reversed such lifting or easing in response to increased cases of COVID-19. In addition, governments and central banks in the United States and other countries in which we operate have enacted fiscal and monetary stimulus and assistance measures to counteract the economic impacts of COVID-19.
As it became clear that the pandemic was unparalleled in the rate of community spread, we took early, decisive action to put people first, help flatten the curve and take care of our clients and communities. In early March 2020, we swiftly restricted travel and established return protocols for both client-related and personal travel. In 10 days, we successfully transitioned more than 85% of our employees to a remote working environment to support physical distancing. Where the essential and mission-critical nature of our work requires us to maintain staff at certain sites or locations, we worked closely with our clients and established project-specific plans designed to ensure the safety of our people and the integrity of our operations. Using technology and optimizing our networks, we continue to offer flexible work scenarios for our people, and to deliver business continuity for and continued collaboration with our clients. Our Executive Leadership Team met daily for the first three months and weekly thereafter, focusing on transparency, agile response and business resiliency; and our global and regional crisis management teams continued to maintain consistent messaging and direct local responses. Our regular global Town Halls, a weekly Chair and CEO email and short, self-produced leadership videos are intended to share open, transparent information to connect and unite our global community.
We are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with international, federal, state and local requirements to date, we continue to materially operate. In addition, demand for certain of our services, including those supporting health care relief efforts relating to COVID-19, has increased, and could continue to increase, as a result of COVID-19. Notwithstanding our continued critical operations, COVID-19 has negatively impacted our business, and may have further adverse impacts, on our continued operations, including those listed and discussed in Item 1A, Risk Factors included in our 2020 Form 10-K. Accordingly, we have reduced spending broadly across the Company, only proceeding with operating and capital spending that is critical. We also temporarily ceased all non-essential hiring and reduced discretionary expenses, including temporarily suspending certain employee benefits and compensation through the end of fiscal 2020. Looking ahead, we have developed contingency plans to reduce costs further if the situation further deteriorates or lasts longer than current expectations. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be necessary or appropriate for the health and safety of employees, contractors, customers, suppliers or others or as required by international, federal, state or local authorities.
Based on current estimates, we expect the impact of COVID-19 to continue into the first half of fiscal 2021, although to a lesser degree than what was seen in fiscal 2020. Although this business disruption is expected to be temporary, significant uncertainty exists concerning the magnitude, duration and impacts of the COVID-19 pandemic, including with regard to the effects on our customers and customer demand for our services. Accordingly, actual results for future fiscal periods could differ materially versus current expectations and current results and financial condition discussed herein may not be indicative of future operating results and trends.
For a discussion of risks and uncertainties related to COVID-19, including the potential impacts on our business, financial condition and results of operations, see Item 1A - Risk Factors contained in our 2020 Form 10-K.
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Business Overview
At Jacobs, we’re challenging today to reinvent tomorrow by solving the world’s most critical problems for thriving cities, resilient environments, mission-critical outcomes, operational advancement, scientific discovery and cutting-edge manufacturing, turning abstract ideas into realities that transform the world for good. Leveraging a talent force of nearly 55,000, Jacobs provides a full spectrum of professional services including consulting, technical, scientific and project delivery for the government and private sector.
The Company’s deep global domain knowledge - applied together with the latest advances in technology - are why customers large and small choose to partner with Jacobs. We operate in two lines of business: Critical Mission Solutions and People & Places Solutions. After spending three years transforming our portfolio and setting the foundation to get us where we are today, we launched a three-year accelerated profitable growth strategy at our Investor Day in February 2019, focused on innovation and continued transformation to build upon our position as the leading solutions provider for our clients. This transformation included the $3.2 billion acquisition of CH2M and the $3.4 billion divestiture of the Company's energy, chemicals and resources business. Our acquisitions of KeyW, John Wood Group’s nuclear business and Buffalo Group will further position us as a leader in high-value government services and technology-enabled solutions, enhancing our portfolio by adding intellectual property-driven technology with unique proprietary C5ISR (command, control, communications, computer, combat systems, intelligence, surveillance and reconnaissance) rapid solutions, and amplifying Jacobs’ position as a Tier-1 global nuclear services provider.
We have altered the course of Jacobs’ future and are now focused on broadening our leadership in high growth sectors. As part of our strategy, our new brand was created from an understanding of where we’ve been, what’s true to our culture and our strategy going forward. Central to it is our new tagline: Challenging today. Reinventing tomorrow. Signaling our transition from an engineering and construction company to a global technology-forward solutions company, we have a new look, and we plan to change our name to Jacobs Solutions Inc.
Revenue by Type (Q1 FY2021)1
1 Due to COVID-19 and the actions taken by governmental authorities and others related thereto, some of the information provided in this summary relating to sources of revenue could be substantially different in the remainder of fiscal 2021.
Lines of Business
The Company's two operating segments and global lines of business ("LOBs") are as follows: (i) Critical Mission Solutions and (ii) People & Places Solutions; with the previous Energy, Chemicals and Resources ("ECR") line of business now reported as discontinued operations.
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Critical Mission Solutions (CMS)
Our Critical Mission Solutions line of business provides a full spectrum of cyber, data analytics, systems and software application integration services and consulting, enterprise level operations and maintenance and mission IT, engineering and design, enterprise operations and maintenance, program management, and other highly technical consulting solutions to government agencies as well as commercial customers. Our representative clients include the U.S. Department of Defense (DoD), the Combatant Commands, the U.S. Intelligence Community, NASA, the U.S. Department of Energy (DoE), Ministry of Defence in the U.K. Nuclear Decommissioning Authority (NDA), and the Australian Department of Defence, as well as private sector customers mainly in the aerospace, automotive, energy and telecom sectors.
Serving mission-critical industry end markets
Critical Mission Solutions serves broad sectors, including U.S. government services, cyber, nuclear, commercial, and international sectors.
The U.S. government is the world’s largest buyer of technical services, and in fiscal 2020, approximately 79% of CMS’s revenue was earned from serving the DoD, Intelligence Community and Federal Civilian governmental entities.
Trends affecting our government clients include information warfare, cyber, IT modernization, space exploration and intelligence, defense systems and intelligent asset management, which are driving demand for our highly technical solutions.
Another trend we are witnessing is an increase in the capabilities of unmanned aircraft and hypersonic weapons, which is impacting both offensive and defensive spending priorities among our clients and is a driver for next generation solutions such as C5ISR (command, control, communications, computer, combat systems, intelligence, surveillance and reconnaissance) and advanced aeronautical testing, respectively. We are also seeing an increase in space exploration initiatives both from the U.S. government, such as NASA’s Artemis program to return to the moon in 2024, as well as the commercial sector.
Within the nuclear sector, our customers have decades-long initiatives to manage, upgrade, decommission and remediate existing energy infrastructure and nuclear weapons.
Our international customers, which accounted for 13% of fiscal 2020 revenue, have also increased demand for our IT and cybersecurity solutions and nuclear projects, and the U.K. Ministry of Defence continues to focus on accelerating its strategic innovative and technology focused initiatives.
Leveraging our base market of offering valued technical services to U.S. government customers, CMS also serves commercial and international markets. In fiscal 2020, approximately 8% of CMS’s revenue was from various U.S. commercial sectors, including the telecommunications sector, which anticipates a large cellular infrastructure build-out from 4G to 5G technology. And like our government facility-based clients, our commercial manufacturing clients are seeking ways to reduce maintenance costs and optimize their facilities with network connected facilities and equipment to optimize operational systems, which we refer to as Intelligent Asset Management.
Leveraging strong domain expertise to deliver solutions
CMS brings domain-specific capability and cross-market innovations in each of the above sectors by leveraging six core capability groups.
•Information Technology Services. Across various business units in CMS, we provide a wide range of software development and enterprise IT solutions. We develop, integrate, modify and maintain software solutions and complex systems. These services include a broad array of lifecycle services, including requirements analysis, design, integration, testing, maintenance, quality assurance and documentation management. Our software activities support all major methodologies, including Agile, DevSecOps and other hybrid methodologies. For our enterprise IT capability, we develop, implement and sustain enterprise information technology systems, with a focus on improving mission performance, increasing security and reducing cost for our customers. Solutions typically include IT service management, data center consolidation, network operations, enterprise architecture, mobile computing, cloud computing and migration, software, infrastructure and platform as a service (SaaS, IaaS and PaaS), and data collection and analytics.
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•Cyber and Data Analytics. Strongly enhanced by our recent acquisition of KeyW, CMS offers a full suite of cyber services for our government and commercial clients, including defensive cyber operations and training, offensive cyber operations, cloud and data analytics, threat intelligence, intelligence analysis, incident response and forensics, software and infrastructure security engineering, computer forensics and exploitation and information technology-operational technology (IT-OT) convergence services.
•C5ISR (Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance and Reconnaissance). CMS is a leader in the design, development, analysis, implementation and support of C5ISR systems and technology in any environment, including land, sea, air, space and cyber domains. We provide advanced solutions for collecting, processing, exploiting and disseminating geospatial intelligence for the U.S. and Allied Intelligence Communities and Special Forces organizations. Core capabilities include: imaging systems, radar systems, precision geo-location products, custom packaging and microelectronics and customizable tagging, tracking and locating devices.
•Technical Services. We provide a broad range of technical consulting services to our government and commercial clients, including: systems integration, specialized propulsion, avionics, electrical, materials, aerodynamics, manufacturing processes modeling and simulation, testing and evaluation, scientific research, intelligent asset management, program management and consulting. NASA is one of our major government customers in the U.S., where we provide a wide range of technology services. For our telecommunications customers, we provide permitting, site planning and engineering to enable the development of wireline and wireless communications including the development of 5G small cell sites.
•Facility Engineering and Operations. We provide services for advanced technical structures and systems, including flight/launch facilities, R&D facilities, test facilities and military range facilities. Customers also engage us to operate, maintain and provide technical services for these facilities and systems over their lives. We also provide sustainment and technical services for facility-oriented clients including for the automotive industry where we provide highly technical aerodynamic, climatic, altitude and acoustic solutions for our customer research and development operations.
•Nuclear Solutions. We provide support across the full nuclear life cycle, including new build, operational support, and decommissioning. Support includes project management, engineering, technical and R&D services, complemented by the full range of CMS' other services. Customers include the U.S. DoE, the UK's NDA, and commercial companies such as EDF Energy, the UK's largest producer of low-carbon energy.
Applying internally-developed technology
Across multiple businesses within CMS we license internally developed technology such as:
•KeyRadar®: The acquisition of KeyW brought numerous internally developed technologies, including KeyRadar, a scalable, software-defined synthetic aperture radar that can be configured to address a variety of missions, ranging from foliage penetration to long-range maritime domain awareness or long-range moving target detection.
•Ginkgo: Ginkgo is the only virtual learning environment specifically created for cybersecurity training. Designed by experienced cyber instructors, Ginkgo offers a complete solution for implementing hands-on IT and cybersecurity training for both local and distance learning environments on desktops, tablets, and other mobile devices.
•ion©: ion© is our open architecture, multi-protocol Industrial Internet of Things (IIoT) software solution providing an integrated, secure, and scalable platform for data aggregation integration, analysis and visualization. Ion© is both licensed and delivered as-a-service (aas) to commercial customers around the globe to enable a host of operational solutions, ranging from worker monitoring and safety to industrial asset visibility and management to smart/connected construction. Most recently, Jacobs is using ion© to support Return to Work solutions that allow our pharmaceutical clients to return mission essential personnel to their advanced research and production facilities despite the ongoing COVID-19 pandemic.
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People & Places Solutions (P&PS)
Jacobs' People & Places Solutions line of business provides end-to-end solutions for our clients’ most complex projects - whether connected mobility, integrated water management, smart cities, advanced manufacturing or environmental stewardship. In doing so, we employ predictive analytics, artificial intelligence and automation, digital twin technology, IoT smart sensors, geospatial visualization and advanced delivery processes and tools for consulting, planning, architecture, design, engineering, and implementation, as well as long-term operation of facilities and infrastructure. Solutions may be delivered as standalone engagements or through comprehensive program management solutions that integrates disparate workstreams to yield additional benefits not attainable through project-by-project implementation. We also provide progressive design-build and construction management at-risk delivery for our P&PS clients.
Our clients include national, state and local government in the U.S., Europe, U.K., Middle East, Australia, New Zealand and Asia, as well as multinational private sector clients throughout the world.
Serving broad market sectors that support people and places
Aging infrastructure; climate action; urbanization; water, food and energy security; global supply chains; pandemic preparedness and response; environmental, social, and corporate governance (ESG); and digital transformation are driving new challenges and opportunities for our clients. These drivers are highlighting the need for holistic, integrated technology solutions that draw on the domain knowledge resident in the multidisciplinary consulting and delivery expertise of our global workforce. For example, an airport is no longer simply aviation infrastructure but is now a smart city with extensive operational, cybersecurity and autonomous mobility requirements, as well as the contactless travel requirements necessary to best manage COVID-19. Master planning for a city now requires advanced analytics to plan for climate adaption and next-generation mobility as well as revenue generating fiber infrastructure. Furthermore, the future of nearly all water infrastructure will be highly technology-enabled, leveraging solutions with digital twins, predictive analytics and smart metering technology to ensure we are giving communities, industries and regions the secure water resource they need to flourish and expand.
This increase in technology requirements is a key factor in our organic growth strategy as well as our recent acquisitions and divestitures. Moreover, our business model is evolving to provision a broader spectrum of digital- and technology-enabled solutions to address our infrastructure clients' challenges with less exposure to craft construction services. Our focus on the five core sectors of Transportation, Water, Built Environment, Environmental and Advanced Facilities provides us with the ability to leverage our expansive domain expertise across all global markets, enabling truly end-to-end connected solutions for our clients' most complex major projects and programs, including the London 2012 Olympic and Paralympic Games, Expo 2020 Dubai, and the LaGuardia Airport Redevelopment.
Today, we are executing complex solutions that pull expertise from all markets, fused with digital expertise, for major developments in places like London, Dubai, Sydney, Singapore, Miami, Los Angeles and Toronto.
Leveraging our global platform to deliver integrated solutions to clients
One of our key differentiators is our global integrated delivery model, which harnesses deep domain expertise from our global Solutions and Technology and solution organization that is leveraged with the benefits of scale when we focus the world’s best talent to deliver innovative solutions and value to our clients.
•Within transportation, we provide sustainable solutions to plan, develop, finance, design engineer, construct, operate and maintain, next generation mobility across all modes, including highway, bridge, rail and transit, aviation, port and maritime infrastructure. For example, we do this by assessing the impact of autonomous vehicles on roadways and cities for transportation agencies, engineering and specifying vehicles for mass-transit, delivering consulting services for digital fare payment systems; providing program management of the largest airport developments, designing cutting edge automated container terminals and ports infrastructure and utilizing big data to develop cross modal mobility solutions. Our clients encompass the world’s largest transportation agencies as well as private shipping and logistics companies worldwide, including the multi-modal Port Authority of New York and New Jersey, Transport for London, Highways England, Transport for New South Wales and Etihad Rail.
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•Water is one of the most precious resources in the world. Extreme weather events in the form of droughts, desertification and flooding are stressing water supplies, at the same time population growth and industrialization are increasing demand. Addressing these challenges, we provide integrated solutions across water and wastewater treatment, water reuse, and water resources such as the deployment of next generation smart metering, digital twin technology and highly technical consulting, engineering, design-build and operation of complex water systems. We support our clients on some of the world’s largest water infrastructure projects such as California WaterFix, Thames Tideway, Houston Water and Singapore National Water Agency.
•For the built environment, we deliver full-service architecture, engineering, interiors, planning, urban design, landscape architecture and project delivery solutions for government, corporate, commercial, institutional and industrial clients across diverse sectors. Our technology-enabled expertise ranges from the future of work, transaction advisory and asset management to transportation hubs, urban developments, government, healthcare, higher education and science facilities, as well as sports and entertainment venues. We plan and deliver resilient, triple bottom line-based solutions that are connected, secure and smart, including the rebuild of Tyndall Air Force Base in Florida into a visionary Installation of the Future; the corporate headquarters and research facility relocation of Spark Therapeutics in Philadelphia, Pennsylvania; and the expanded Blacktown Mount Druitt Hospital in New South Wales, Australia.
•In our environmental business, we utilize a multidisciplinary, systems-oriented approach to develop environmental planning for infrastructure development; data-driven site remediation and regeneration for per- and poly-fluoroalkyl substances (PFAS) and other known and emerging contaminants; environmental health & safety (EHS) operational excellence and information management; and climate action solutions that incorporate sustainability and resiliency principles as essential to the well-being of all people and of our planet. We also provide post-disaster response and recovery services in support of the Federal Emergency Management Agency’s mission throughout the U.S. In addition to providing end-to-end technology-enabled solutions for multinational oil & gas, chemical and life sciences, mining, manufacturing and energy clients, Jacobs provides comprehensive environmental services for the U.S. Department of Defense, the U.S. Environmental Protection Agency, NASA and other civilian agencies, the UK Environment Agency, and the Australian Department of Defense.
•Within advanced facilities, we provide fully integrated solutions for highly specialized facilities in the fields of medical research, sustainable manufacturing, nanoscience, biotechnology, semiconductor and data centers. Our services span the full range of facility work, from early planning and site selection through architecture, engineering, construction and facility operations, all tailored to specific client needs in the life sciences and pharmaceutical, specialty manufacturing, microelectronics and data intensive industries. As the largest professional services provider to the biopharmaceutical industry, we are working with our multinational clients to rapidly increase capacity for vaccines and therapeutics, as well as reshoring manufacturing facilities, in response to the COVID-19 pandemic. Representative projects include the retrofit of AstraZeneca’s West Chester, Ohio manufacturing facility to deliver a potential COVID-19 vaccine; the Mountbatten Nanotechnology Electronics Research Complex, University of Southampton, U.K.; and the Procter & Gamble, Singapore Innovation Center.
Applying internally developed technology
A strong foundation of data-rich innovative solutions is woven into every project that we deliver. This may include Jacobs-developed proprietary software that employs an array of technical expertise to enable the most efficient, effective and predictable solutions for our clients. Examples of these technologies include:
•TrackRecord is a workflow automation and compliance management platform for the delivery of major projects.
•AquaDNA is a predictive analytics platform that integrates innovative technologies for wastewater asset management through an AI learning platform, facilitating a move from reactive to proactive maintenance and reduced operation and maintenance costs.
•Travel Service Optimisation (TSO) is Jacobs' travel sharing solution for Special Education needs children which centers on the children’s ability to travel together rather than focusing on their disability.
•SafetyWeb is a site hazard management and compliance tool.
•ProjectMapper is a web based geospatial mapping and project visualization software platform.
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•Flood Modeller provides proactive decision-making to help manage our environment and the challenges associated with flood risk. It is suitable for a wide range of engineering and environmental applications, from calculating simple backwater profiles and modeling entire catchments to mapping potential flood risk for entire countries.
•ion© is an Industrial Internet of Things (IoT) multi-protocol wireless application networking system which provides an open, integrated, secure and scalable system for data aggregation and viewing.
•Replica™ is Jacobs’ digital twin solution software platform and consists of the following capabilities:
•Replica Parametric Design™ (formerly CPES™) provides outputs on construction quantities and costs, life cycle quantities and costs, and estimates of environmental impacts. Rapid process design in Replica Process and the resulting development of the Replica Parametric Designs allows for thorough alternatives analysis and enhanced team communication.
•Replica Preview™ is used for early stage visualization of facility designs. This software rapidly creates scaled three-dimensional designs, which can be placed on Google Earth®. Rapid design development in Replica Parametric Design and visualization with Replica Preview allows for informed analysis of many alternatives and sound decision-making.
•Replica Systems Analysis™ (formerly Voyage™) is a flexible platform that can simulate resource systems dynamically, over time. Examples of modeled systems include water resources, energy, solid waste and traffic. The ability to connect complex systems together in a single interface that is visually intuitive leads to informed team collaboration and creative solutions.
•Replica Process™ allows Jacobs' world-renowned expertise in water treatment to be simulated both statically and dynamically over time in Replica Process™ software. Much of the process predictive capabilities in Replica Process are founded on the Jacobs' Pro2D2™ and Source™ software. Informed decisions are founded on the ability of Replica Process to provide details on system performance among many alternatives, very quickly.
•Replica Hydraulics™ was designed to simulate all pressurized and gravity flow hydraulics of a system, simultaneously. Replica’s hydraulic blocks were built on accepted engineering practice equations and have been successfully verified on hundreds of projects. The Replica Hydraulics library is the foundation for complete, dynamic water system analysis and can be used exclusively for hydraulic analysis of a system or in conjunction with Replica Process, Replica Controls and/or Replica Air.
•Replica Controls™ allows for dynamic simulation of system instrumentation such as flow meters, indicator transmitters, limit switches and stream analyzers as well as the logic objects including PID controllers, sequencers, units, controller and alarms. The software's controls capabilities and functionality align with industry design standards and its ability to predict full scale performance is unmatched due to the connectivity with Replica Hydraulics.
•Replica Air™ simulates all aspects of a compressible fluid (e.g. air) supply system, including pipes, valves, diffusers and blowers. The ability to couple Replica Air with Replica Controls in a single simulation allows for the development of unique and robust designs that reduce energy use and life cycle costs.
Energy, Chemicals and Resources (ECR)
ECR Disposition
On April 26, 2019, Jacobs completed the sale of its Energy, Chemicals and Resources ("ECR") business to Worley Limited, a company incorporated in Australia ("Worley"), for a purchase price of $3.4 billion consisting of (i) $2.8 billion in cash plus (ii) 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”).
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As a result of the ECR sale, substantially all ECR-related assets and liabilities were sold (the "Disposal Group"). We determined that the disposal group should be reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations because their disposal represented a strategic shift that had a major effect on our operations and financial results. As such, the assets and liabilities of the ECR business were reflected as held-for-sale in the Consolidated Balance Sheets through September 27, 2019. As of the year ended October 2, 2020, all of the ECR business to be sold under the terms of the ECR sale had been conveyed to Worley and as such, no amounts remain held for sale. For further discussion see Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business to the consolidated financial statements.
Prior to the ECR sale, the ECR business served the energy, chemicals and resources sectors, including upstream, midstream and downstream oil, gas, refining, chemicals and mining and minerals industries. We provided integrated delivery of complex projects for our Oil and Gas, Refining, and Petrochemicals clients. Bridging the upstream, midstream and downstream industries, our services encompassed consulting, engineering, procurement, construction, maintenance and project management.
Results of Operations for the three months ended January 1, 2021 and December 27, 2019
(in thousands, except per share information)
| For the Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Revenues | $ | 3,381,836 | $ | 3,360,049 | |||||||
| Direct cost of contracts | (2,749,776) | (2,715,478) | |||||||||
| Gross profit | 632,060 | 644,571 | |||||||||
| Selling, general and administrative expenses | (418,120) | (493,226) | |||||||||
| Operating Profit | 213,940 | 151,345 | |||||||||
| Other Income (Expense): | |||||||||||
| Interest income | 1,124 | 946 | |||||||||
| Interest expense | (17,313) | (14,817) | |||||||||
| Miscellaneous income (expense), net | 156,360 | 116,695 | |||||||||
| Total other income (expense), net | 140,171 | 102,824 | |||||||||
| Earnings from Continuing Operations Before Taxes | 354,111 | 254,169 | |||||||||
| Income Tax Expense from Continuing Operations | (87,023) | (68,489) | |||||||||
| Net Earnings of the Group from Continuing Operations | 267,088 | 185,680 | |||||||||
| Net (Loss) Earnings of the Group from Discontinued Operations | (14) | 77,587 | |||||||||
| Net Earnings of the Group | 267,074 | 263,267 | |||||||||
| Net Earnings Attributable to Noncontrolling Interests from Continuing Operations | (10,026) | (6,257) | |||||||||
| Net Earnings Attributable to Jacobs from Continuing Operations | 257,062 | 179,423 | |||||||||
| Net Earnings Attributable to Jacobs | $ | 257,048 | $ | 257,010 | |||||||
| Net Earnings Per Share: | |||||||||||
| Basic Net Earnings from Continuing Operations Per Share | $ | 1.98 | $ | 1.35 | |||||||
| Basic Net Earnings from Discontinued Operations Per Share | $ | — | $ | 0.58 | |||||||
| Basic Earnings Per Share | $ | 1.98 | $ | 1.93 | |||||||
| Diluted Net Earnings from Continuing Operations Per Share | $ | 1.96 | $ | 1.33 | |||||||
| Diluted Net Earnings from Discontinued Operations Per Share | $ | — | $ | 0.58 | |||||||
| Diluted Earnings Per Share | $ | 1.96 | $ | 1.91 | |||||||
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Overview – Three Months Ended January 1, 2021
COVID-19 Pandemic. There are many risks and uncertainties regarding the COVID-19 pandemic, including the anticipated duration of the pandemic and the extent of local and worldwide social, political, and economic disruption it may cause. The Company’s operations for the first fiscal quarter of 2021 were adversely impacted by COVID-19. While certain business units of both Critical Mission Solutions and People & Places Solutions have experienced, and may continue to experience, an increase in demand for certain of their services regarding new projects that may arise in response to the COVID-19 pandemic, it is still expected that COVID-19 is likely to continue to have an adverse impact on each of Critical Missions Solutions and People & Places Solutions continuing into fiscal 2021, although to a lesser degree than what was seen in fiscal 2020.
For a discussion of risks and uncertainties related to COVID-19, including the potential impacts on the Company’s business, financial condition and results of operations, see “Part I - Item 1A - Risk Factors” of our 2020 Form 10-K.
Net earnings attributable to the Company from continuing operations for the first fiscal quarter ended January 1, 2021 were $257.1 million (or $1.96 per diluted share), an increase of $77.6 million, or 43.3%, from earnings of $179.4 million (or $1.33 per diluted share) for the corresponding period last year. Included in the Company’s operating results from continuing operations for the three months ended January 1, 2021 were $70.4 million in after-tax unrealized appreciation gains recorded in miscellaneous income (expense), net, associated with our investment in Worley stock and certain foreign currency revaluations relating to the ECR sale, after-tax unrealized appreciation gains associated with our investment in C3.ai, Inc. ("C3") of $62.3 million. Also included in other income for the period was a $22.6 million after-tax other-than-temporary impairment in respect of our AWE investment.
Net earnings attributable to the Company from discontinued operations for the first fiscal quarter ended January 1, 2021 were $(14.0) thousand (or $0.00 per diluted share), a decrease of $77.6 million, or 100.0%, from earnings of $77.6 million (or $0.58 per diluted share) for the corresponding period last year. Included in net earnings attributable to Jacobs from discontinued operations for the prior year was the settlement of a legal matter that was reimbursed by insurance, the release of the deferred gain for the delivery of the ECR IT Instance and the adjustment for working capital and certain other items in connection with the ECR sale. For further discussion, see Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business.
On November 24, 2020, Jacobs completed the acquisition of Buffalo Group. For further discussion, see Note 15- Business Combinations.
On November 27, 2020, the Company entered into an agreement to make a strategic investment in PA Consulting Group Limited by acquiring approximately 65% of its share capital in the form of preferred and common equity for an aggregate amount of £1.8 billion. The transaction is expected to close in the second quarter of fiscal 2021.
Consolidated Results of Operations
Revenues for the first fiscal quarter of 2021 were $3.38 billion, an increase of $21.8 million, or 0.6% from $3.36 billion for the corresponding period last year. The increase in revenues for the three month period year over year was due in part to fiscal 2020 incremental revenues from the Buffalo Group and John Wood Group Nuclear business acquisitions, in addition to overall growth in our Critical Mission Solutions (CMS) business, largely offset by impacts from the COVID 19 pandemic on our P&PS business which resulted in a decrease to P&PS revenues period over period. Pass-through costs included in revenues for the three months ended January 1, 2021 amounted to $648.7 million, a decrease of $53.1 million, or 7.6%, from $701.8 million from the corresponding periods last year.
Gross profit for the first quarter of 2021 was $632.1 million, a decrease of $12.5 million, or 1.9% from $644.6 million from the corresponding period last year. Our gross profit margins were 18.7% and 19.2% for the three month periods ended January 1, 2021 and December 27, 2019, respectively, with these trend differences being mainly attributable to project mix impacts in our legacy portfolio year over year and lower overhead rate impacts on revenue, with partial offsets from favorable margin trends from our recent Buffalo Group and John Wood Group nuclear business acquisitions and as well as year over year impacts from lower overhead reimbursement rates resulting from our ongoing cost reduction programs partially offset by COVID-19 cost mitigation efforts.
See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment.
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SG&A expenses for the three months ended January 1, 2021 were $418.1 million, a decrease of $75.1 million, or 15.2%, from $493.2 million for the corresponding period last year. The decrease in SG&A expenses as compared to the corresponding period last year was due primarily to less expense relating to the Transition Services Agreement (the "TSA") with Worley which terminated in April 2020, although the parties agreed to extend certain of the services beyond the initial term, and reductions in personnel related and other overhead costs resulting from our ongoing cost reduction programs as well as COVID-19 cost mitigation efforts, partially offset by incremental SG&A expenses from the Buffalo Group and John Wood Group nuclear business acquisitions. Also, included in the current year results were $22.0 million of Restructuring and other charges and transaction costs associated in part with the Company's transformation initiatives relating to real estate and other staffing programs. In comparison, the prior year included $50.7 million ofRestructuring and other charges and transaction costs. Unfavorable impacts on SG&A expenses from foreign exchange were $3.8 million for the three months ended January 1, 2021, although impacts from foreign exchange were immaterial to the Company's operating profit as a whole.
Net interest expense for the three months ended January 1, 2021 was $16.2 million, an increase of $2.3 million from $13.9 million for the corresponding period last year. The increase in net interest expense for the three month period year over year is due to higher levels of debt outstanding.
Miscellaneous income (expense), net for the three months ended January 1, 2021 was $156.4 million, an increase of $39.7 million, from $116.7 million for the corresponding period last year. The increase from the prior year was due primarily to $93.1 million in pre-tax unrealized gains associated with changes in the fair value of our investment in Worley stock and certain foreign currency revaluations relating to the ECR sale, compared to $99.1 million in the prior year and $82.6 million in net gains related to the C3 investment in the current year. Additionally, during the three months ended January 1, 2021, the Company recorded an other-than-temporary impairment on its investment in AWE in the amount of $27.9 million, which is also included in miscellaneous income (expense), net on its consolidated statement of earnings.
The Company’s effective tax rates from continuing operations for the three months ended January 1, 2021 and December 27, 2019 were 24.6% and 27.0%, respectively. The Company’s effective tax rate from continuing operations for the three months ended January 1, 2021 was lower than the corresponding rate in the prior period primarily due to one-time income tax charges associated with partnership interest basis differences generated during the quarter ending December 27, 2019. For the three months ended January 1, 2021, the effective tax rate was impacted by a $1.4 million benefit from an Internal Revenue Code section 179D energy credit, a $2.2 million excess tax benefit attributable to stock compensation, and a $5.0 million benefit related to a change in the Company’s assertion about indefinite reinvestment of certain foreign unremitted earnings in Canada. The Company is continuing to accrue taxes related to all other foreign earnings.
See Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business for further information on the Company's discontinued operations reporting for the sale of the ECR business.
The amount of income taxes the Company pays is subject to ongoing audits by tax jurisdictions around the world. In the normal course of business, the Company is subject to examination by tax authorities throughout the world, including such major jurisdictions as Australia, Canada, India, the Netherlands, the United Kingdom and the United States. Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time. The Company believes that it has adequately provided for reasonably foreseeable outcomes related to these matters. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate.
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Segment Financial Information
The following table provides selected financial information for our operating segments and includes a reconciliation of segment operating profit to total U.S. GAAP operating profit from continuing operations by including certain corporate-level expenses, Restructuring and other charges and transaction and integration costs (in thousands).
| Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
Revenues from External Customers: | |||||||||||
| Critical Mission Solutions | $ | 1,295,287 | $ | 1,182,457 | |||||||
| People & Places Solutions | 2,086,549 | 2,177,592 | |||||||||
| Total | $ | 3,381,836 | $ | 3,360,049 | |||||||
| Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Segment Operating Profit: | |||||||||||
| Critical Mission Solutions | $ | 110,072 | $ | 90,422 | |||||||
| People & Places Solutions | 196,300 | 178,328 | |||||||||
| Total Segment Operating Profit | 306,372 | 268,750 | |||||||||
| Other Corporate Expenses (1) | (70,341) | (66,719) | |||||||||
| Restructuring, Transaction and Other Charges | (22,091) | (50,686) | |||||||||
| Total U.S. GAAP Operating Profit | 213,940 | 151,345 | |||||||||
| Total Other Income (Expense), net (2) | 140,171 | 102,824 | |||||||||
Earnings Before Taxes from Continuing Operations | $ | 354,111 | $ | 254,169 | |||||||
| (1) | Other corporate expenses also include intangibles amortization of $23.2 million and $21.8 million for the three-month periods ended January 1, 2021 and December 27, 2019, respectively. | ||||
| (2) | For the three month period ended January 1, 2021, includes $93.1 million in fair value adjustments related to our investment in Worley stock and certain foreign currency revaluations relating to the ECR sale, $82.6 million in fair adjustments related to our investment in C3 stock and $(27.9) million related to impairment of our AWE Management Ltd. investment. For the three month period ended December 27, 2019, includes revenues under the Company's TSA with Worley of $12.0 million, $99.1 million in fair value adjustments related to our investment in Worley stock and certain foreign currency revaluations relating to the ECR sale, the amortization of deferred financing fees related to the CH2M acquisition of $0.6 million and the loss on settlement of the CH2M portion of the U.S. pension plan of $2.4 million. | ||||
Critical Mission Solutions
| Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Revenue | $ | 1,295,287 | $ | 1,182,457 | |||||||
| Operating Profit | $ | 110,072 | $ | 90,422 | |||||||
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Critical Mission Solutions (CMS) segment revenues for the three months ended January 1, 2021 were $1.30 billion, an increase of $112.8 million, or 9.5%, from $1.18 billion for the corresponding period last year. The increase in revenue was primarily attributable to incremental revenue from the Buffalo Group and John Wood Group nuclear business acquisitions, combined with areas of year over year revenue volume growth across our legacy portfolio, highlighted by increased spending by customers in the U.S. government business sector. These favorable performance trends more than offset limited unfavorable COVID-19 related revenue impacts mainly due to challenges from physical distancing requirements, client scheduling changes and other related factors. Impacts on revenues from favorable foreign currency translation were approximately $4.6 million for the three month period ended January 1, 2021 compared to the corresponding prior year period.
Operating profit for the segment was $110.1 million for the three months ended January 1, 2021, an increase of $19.7 million, or 21.7%, from $90.4 million for the corresponding period last year. The increase from the prior year was primarily attributable to incremental operating profit from the Buffalo Group and John Wood Group nuclear business acquisitions and the continued growth in profits from our U.S. governmental business sector, offset by the favorable close out of a large program management contract in the first fiscal quarter of 2020. Impacts on operating profit from favorable foreign currency translation were approximately $0.8 million for the three months ended January 1, 2021, compared to the corresponding prior year period. Limited revenue impacts from COVID-19 mentioned above were largely offset by the Company’s limited discretionary spend actions and other areas of improved operating performance.
People & Places Solutions
| Three Months Ended | |||||||||||
| January 1, 2021 | December 27, 2019 | ||||||||||
| Revenue | $ | 2,086,549 | $ | 2,177,592 | |||||||
| Operating Profit | $ | 196,300 | $ | 178,328 | |||||||
Revenues for the People & Places Solutions (P&PS) segment for the three months ended January 1, 2021 were $2.09 billion, a decrease of $91.0 million, or 4.2%, from $2.18 billion for the corresponding period last year. The decrease in revenue was primarily due to lower pass through activity as well as client scheduling changes from COVID-19, particularly in the transportation and advanced facilities sectors, which was partially offset by growth in environmental services. Impacts on revenues from favorable foreign currency translation were approximately $19.5 million for the three month period ended January 1, 2021 compared to the corresponding prior year period.
Operating profit for the segment for the three months ended January 1, 2021 was $196.3 million, an increase of $18.0 million, or 10.1%, from $178.3 million for the corresponding period last year. The year over year increase in operating profit was due primarily to lower labor, travel and discretionary spending related to COVID-19 mitigation efforts. Impacts on operating profit from favorable foreign currency translation were approximately $2.1 million for the three month period ended January 1, 2021, compared to the corresponding prior year period. The unfavorable revenue impacts mentioned above were more than offset by the Company’s cost mitigation actions.
Other Corporate Expenses
Other corporate expenses for the three months ended January 1, 2021 were $70.3 million, an increase of $3.6 million from $66.7 million for the corresponding period last year. This increase was due primarily to higher intangible amortization expense from the John Wood Group nuclear business acquisition, as well as impacts from Company benefit program enhancements. These increases were partly offset by employee related and other cost reductions across the Company's corporate functions.
Included in other corporate expenses in the above table are costs and expenses which relate to general corporate activities as well as corporate-managed benefit and insurance programs. Such costs and expenses include: (i) those elements of SG&A expenses relating to the business as a whole; (ii) those elements of our incentive compensation plans relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of business combinations; (iv) the quarterly variances between the Company’s actual costs of certain of its self-insured integrated risk and employee benefit programs and amounts charged to the LOBs; and (v) certain adjustments relating to costs associated with the Company’s international defined benefit pension plans. In addition, other corporate expenses may also include from time to time certain adjustments to contract margins (both positive and negative) associated with projects, as well as other items, where it has been determined that such adjustments are not indicative of the performance of the related LOB.
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Restructuring and Other Charges
See Note 17- Restructuring and Other Charges for information on the Company’s activity relating to restructuring and other charges.
Backlog Information
We include in backlog the total dollar amount of revenues we expect to record in the future as a result of performing work under contracts that have been awarded to us. Our policy with respect to O&M contracts, however, is to include in backlog the amount of revenues we expect to receive for one succeeding year, regardless of the remaining life of the contract. For national government programs (other than national government O&M contracts, which are subject to the same policy applicable to all other O&M contracts), our policy is to include in backlog the full contract award, whether funded or unfunded, excluding option periods. Because of variations in the nature, size, expected duration, funding commitments, and the scope of services required by our contracts, the timing of when backlog will be recognized as revenues can vary greatly between individual contracts.
Consistent with industry practice, substantially all of our contracts are subject to cancellation or termination at the option of the client, including our U.S. government work. While management uses all information available to determine backlog, at any given time our backlog is subject to changes in the scope of services to be provided as well as increases or decreases in costs relating to the contracts included therein. Backlog is not necessarily an indicator of future revenues.
Because certain contracts (e.g., contracts relating to large EPC projects as well as national government programs) can cause large increases to backlog in the fiscal period in which we recognize the award, and because many of our contracts require us to provide services that span over several fiscal quarters (and sometimes over fiscal years), we evaluate our backlog on a year-over-year basis, rather than on a sequential, quarter-over-quarter basis.
The following table summarizes our backlog at January 1, 2021 and December 27, 2019 (in millions):
| January 1, 2021 | December 27, 2019 | ||||||||||
| Critical Mission Solutions | $ | 9,683 | $ | 8,473 | |||||||
| People & Places Solutions | 15,422 | 14,197 | |||||||||
| Total | $ | 25,105 | $ | 22,670 | |||||||
The increase in backlog in Critical Mission Solutions (CMS) from December 27, 2019 was primarily the result of the acquisition of the Buffalo Group and John Wood Group's nuclear consulting, remediation and program management business.
The increase in backlog in People & Places Solutions (P&PS) from December 27, 2019 was primarily the result of new awards in the U.S. markets.
Consolidated backlog differs from the Company’s remaining performance obligations as defined by ASC 606 primarily because of our national government contracts (other than national government O&M contracts). Our policy is to include in backlog the full contract award, whether funded or unfunded excluding the option periods while our remaining performance obligations represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. Additionally, the Company includes our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligations.
Liquidity and Capital Resources
At January 1, 2021, our principal sources of liquidity consisted of $837.0 million in cash and cash equivalents and $1.98 billion of available borrowing capacity under our $2.25 billion revolving credit agreement (the "Revolving Credit Facility"). We finance much of our operations and growth through cash generated by our operations.
The amount of cash and cash equivalents at January 1, 2021 represented a decrease of $25.4 million from $862.4 million at October 2, 2020, the reasons for which are described below.
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Our cash flow provided by operations of $112.6 million during the three month period ended January 1, 2021 was favorable by $249.8 million in comparison to the cash flow used for operations of $137.2 million for the corresponding prior year period. This improvement was due mainly to lower uses of cash in other working capital, which in turn was primarily due to improved receivable collections compared to the previous period along with less cash used in accrued liabilities year over year. The cash spend decrease in accrued liabilities is associated with lower payments in personnel related liabilities year over year.
Our cash used for investing activities for the three months ended January 1, 2021 was $193.2 million, compared to cash used for investing activities of $34.3 million in the corresponding prior year period, the change due primarily to the acquisition of the Buffalo Group in the current quarter.
Our cash provided by financing activities of $18.7 million for the three months ended January 1, 2021 resulted mainly from net proceeds from borrowings of $95.0 million, partly offset by cash used for share repurchases of $24.8 million, $35.7 million in dividends to shareholders and noncontrolling interest and approximately $15.8 million in stock-based compensation and benefit plan related activity. Cash provided by financing activities in the corresponding prior year period was $166.9 million, due primarily to net proceeds from borrowings of $210.6 million, partly offset by dividends of $25.6 million and stock-based compensation and benefit plan related activity of $18.1 million.
At January 1, 2021, the Company had approximately $129.8 million in cash and cash equivalents held in the U.S. and $707.2 million held outside of the U.S. (primarily in the U.K., the Eurozone, Australia, India, Japan and the United Arab Emirates), which is used primarily for funding operations in those regions. Other than the tax cost of repatriating funds to the U.S. (see Note 7- Income Taxes of Notes to Consolidated Financial Statements included in our 2020 Form 10-K), there are no material impediments to repatriating these funds to the U.S.
The Company had $252.1 million in letters of credit outstanding at January 1, 2021. Of this amount, $2.3 million was issued under the Revolving Credit Facility and $249.8 million was issued under separate, committed and uncommitted letter-of-credit facilities.
On November 24, 2020, a subsidiary of Jacobs completed the acquisition of Buffalo Group, a leader in advanced cyber and intelligence solutions. The Company paid total consideration of $212.8 million, which was comprised of approximately $181.4 million in cash to the former owners of Buffalo Group and the assumption of Buffalo Group's debt of approximately $7.7 million and $23.7 million in other assumed liabilities. The Company repaid all of the assumed Buffalo Group debt by the end of the first fiscal quarter of 2021. The Company has recorded its preliminary purchase price allocation associated with the acquisition, which is summarized in Note 15- Business Combinations.
On March 6, 2020, a subsidiary of Jacobs completed the acquisition of John Wood Group's nuclear consulting, remediation and program management business for an enterprise value of £246 million, or approximately $317.9 million, less cash acquired of $24.3 million. The Company has recorded its preliminary purchase accounting allocation associated with the acquisition, which is summarized in Note 15- Business Combinations.
On November 27, 2020, the Company entered into an agreement to make a strategic investment in PA Consulting Group Limited by acquiring approximately 65% of its share capital in the form of preferred and common equity for an aggregate amount of £1.8 billion. The transaction is expected to be funded by cash on hand and debt proceeds and to close in the second quarter of fiscal 2021 .
On January 20, 2021, Jacobs entered into a delayed draw term loan facility (the "Delayed Draw Term Loan Facility) under the Revolving Credit Facility. The Delayed Draw Term Loan Facility matures on the third anniversary of the date of closing. Under the Delayed Draw Term Loan Facility, the Company may borrow up to $200 million of U.S. dollar denominated term loans and up to £650 million U.K. pound sterling denominated loans. The proceeds of the term loans may be used to fund the acquisition of a majority interest in PA Consulting Group Limited, refinance certain existing indebtedness and pay related transaction costs and expenses.
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We believe we have adequate liquidity and capital resources to fund our projected cash requirements for the next twelve months based on the liquidity provided by our cash and cash equivalents on hand, our borrowing capacity and our continuing cash from operations. We further believe that our financial resources and discretionary spend controls, as well as near term benefits from government assistance programs, will allow us to continue managing the negative impacts of the COVID-19 pandemic on our business operations for the foreseeable future, which are expected to include reduced revenue from operating activities, based on current assumptions and expectations regarding the pandemic. We have taken actions to reduce spending more broadly across the Company, only proceeding with operating and capital spending that is critical. We also ceased all non-essential hiring and reduced discretionary expenses, including certain employee benefits and compensation through the end of fiscal 2020. In addition, as a precautionary measure, we temporarily suspended purchases under the share repurchase plan in March 2020, with such suspension remaining in effect through the third fiscal quarter of 2020. During the fourth fiscal quarter of 2020, we resumed share repurchases on a limited basis. Looking ahead, we have developed contingency plans to reduce costs further if the situation deteriorates beyond or lasts longer than current assumptions and expectations.
We were in compliance with all of our debt covenants at January 1, 2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We do not enter into derivative financial instruments for trading, speculation or other similar purposes that would expose the Company to market risk. In the normal course of business, our results of operations are exposed to risks associated with fluctuations in interest rates and currency exchange rates.
Interest Rate Risk
Please see the Note 12- Borrowings in Notes to Consolidated Financial Statements appearing under Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for a discussion of the Revolving Credit Facility, Term Loan Facility and Note Purchase Agreement.
Our Revolving Credit Facility, Term Loan Facility and certain other debt obligations are subject to variable rate interest which could be adversely affected by an increase in interest rates. As of January 1, 2021, we had an aggregate of $1.30 billion in outstanding borrowings under our Revolving Credit Facility and Term Loan Facility. Interest on amounts borrowed under these agreements is subject to adjustment based on the Company’s Consolidated Leverage Ratio (as defined in the credit agreements governing the Revolving Credit Facility and the Term Loan Facility). Depending on the Company’s Consolidated Leverage Ratio, borrowings under the Revolving Credit Facility and the Term Loan Facility bear interest at a Eurocurrency rate plus a margin of between 0.875% and 1.625% or a base rate plus a margin of between 0.0% and 0.625% including applicable margins. Additionally, if our Consolidated Leverage Ratio exceeds a certain amount, the interest on the Senior Notes may increase by 75 basis points. However, as discussed in Note 18- Commitments and Contingencies and Derivative Financial Instruments, we have entered into swap agreements with an aggregate notional value of $926.2 million to convert the variable rate interest based liabilities associated with a corresponding amount of our debt into fixed interest rate liabilities, leaving $372.5 million in principal amount subject to variable interest rate risk.
For the three months ended January 1, 2021, our weighted average borrowings that are subject to floating rate exposure were approximately $466.2 million. If floating interest rates had increased by 1.00%, our interest expense for the three months ended January 1, 2021 would have increased by approximately $1.2 million.
Foreign Currency Risk
In situations where the Company incurs costs in currencies other than our functional currency, we sometimes enter into foreign exchange contracts to limit our exposure to fluctuating foreign currencies. We follow the provisions of ASC No. 815, Derivatives and Hedging in accounting for our derivative contracts. The Company has $425.8 million in notional value of exchange rate sensitive instruments at January 1, 2021. See Note 18- Commitments and Contingencies and Derivative Financial Instruments for discussion.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chair and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure.
The Company’s management, with the participation of its Chair and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of the Company’s disclosure controls and procedures as defined by Rule 13a-15(e) of the Exchange Act defined above, as of January 1, 2021, the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on that evaluation, the Company’s management, with the participation of the Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) concluded that the Company’s disclosure controls and procedures, as of the Evaluation Date, were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chair and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting which were identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act during the quarter ended January 1, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The information required by this Item 1 is included in the Note 18- Commitments and Contingencies and Derivative Financial Instruments included in the Notes to Consolidated Financial Statements appearing under Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors.
Please refer to Item 1A- Risk Factors in our 2020 Form 10-K, which is incorporated herein by reference, for a discussion of some of the factors that have affected our business, financial condition, and results of operations in the past and which could affect us in the future. There have been no material changes to those risk factors. Before making an investment decision with respect to our common stock, you should carefully consider those risk factors, as well as the financial and business disclosures contained in this Quarterly Report on Form 10-Q and our other current and periodic reports filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no sales of unregistered equity securities during the first fiscal quarter of 2021.
Share Repurchases
On January 17, 2019, the Company’s Board of Directors authorized a share repurchase program of up to $1.0 billion of the Company’s common stock, to expire on January 16, 2022 (the "2019 Repurchase Authorization"). On January 16, 2020, the Company's Board of Directors authorized an additional share repurchase program of up to $1.0 billion of the Company's common stock, to expire on January 15, 2023 (the "2020 Repurchase Authorization").
The following table summarizes the activity under the 2019 and 2020 Repurchase Authorizations during the first quarter of fiscal 2021:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share (1) | Total Numbers of Shares Purchased as Part of the 2019 and 2020 Repurchase Authorizations | Approximate Dollar Value of Shares that May Yet Be Purchased Under the 2019 and 2020 Repurchase Authorizations | ||||||||||
| October 7, 2020 - October 30, 2020 | 138,320 | $97.93 | 138,320 | $1,044,330,855 | ||||||||||
| November 2, 2020 - November 27, 2020 | 108,081 | $99.61 | 108,081 | $1,033,564,473 | ||||||||||
| November 30, 2020 - December 1, 2020 | 4,600 | $106.33 | 4,600 | $1,033,075,335 | ||||||||||
(1) Includes commissions paid and calculated at the average price per share
As a precautionary measure in light of the COVID-19 pandemic, the Company temporarily suspended purchases under the share repurchase plan in March 2020, with such suspension remaining in effect through the fiscal third quarter of 2020. During the fourth fiscal quarter of 2020, the Company resumed share repurchases on a limited basis while we continue to monitor developments in fiscal 2021 with the pandemic.
The share repurchase programs do not obligate the Company to purchase any shares. Share repurchases may be executed through various means including, without limitation, accelerated share repurchases, open market transactions, privately negotiated transactions, purchases pursuant to Rule 10b5-1 plans or otherwise. The authorization for the share repurchase programs may be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time. The timing, amount and manner of share repurchases may depend upon market conditions and economic circumstances, availability of investment opportunities, the availability and costs of financing, currency fluctuations, the market price of the Company's common stock, other uses of capital and other factors.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure.
None.
Item 5. Other Information.
None.
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Item 6. Exhibits.
First Amendment to Second Amended and Restated Credit Agreement, dated as of December 16, 2020, among Jacobs Engineering Group Inc., the designated borrowers party thereto, and the lenders thereto, and Bank of America, N.A., as administrative agent, to the Second Amended and Restated Credit Agreement dated as of March 27, 2019, by and among Jacobs Engineering, Inc., the designated borrowers party thereto, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K on December 18, 2020 and incorporated herein by reference. | |||||
| 101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended January 1, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | ||||
| 104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended January 1, 2021, (formatted as Inline XBRL and contained in Exhibit 101). | ||||
# Management contract or compensatory plan or arrangement
*Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
JACOBS ENGINEERING GROUP INC.
| By: | /s/ Kevin C. Berryman | ||||
| Kevin C. Berryman | |||||
| President | |||||
| and Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
| Date: | February 9, 2021 | ||||
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