10.17# |
| |
| | | | | 10.18# |
| | | |
| | | 10.19# |
| | | | | | 10.20# |
| | | |
| | | 10.21#10.20# |
| | | |
| | | 10.22#10.21# |
| | | |
| | | 10.23# |
| | | |
| | | 10.24# |
| | | |
| | | 10.25# |
| | | |
| | | 10.26# |
| | | |
| | | 10.27# |
| | | |
| | | 10.28# |
| | | |
| | | 10.29# |
| | | |
| | | 10.30# |
| | | |
| | | 10.31#10.22# |
| | | |
| | | 10.32#10.23# |
| | | |
| | | 10.33# |
| | | |
| | | 10.34# |
| | |
| | | | |
| | | 10.35#10.24#
|
| | | | | | 10.36#10.25#
|
| | | |
| | | 10.37#10.26# |
| | |
| | | | | |
| | | 10.38#
10.27# |
| | | | | | 10.39#
|
| | | | | | 10.40#
|
| | | | | | 10.41# |
| | | |
| | | 10.42# |
| | | |
| | | 10.43# |
| | | |
| | | 10.44# |
| | | |
| | | 10.45# |
| | | |
| | | 10.46# |
| | | |
| | | 10.47# |
| | | |
| | | 10.48# |
| | | |
| | | 10.49#10.28# |
| | | |
| | |
| | | | | 10.50# |
| | | |
| | | 10.51# |
| | | |
| | | 10.52# |
| | | |
| | | 10.53# |
| | | |
| | | 10.54#10.29# |
| | | |
| | | 10.55#10.30# |
| | | |
| | | 10.56#10.31# |
| | | |
| | | 10.57# |
| | | |
| | | 10.58# |
| | | |
| | | 10.59# |
| | | |
| | | 10.60# |
| | | |
| | | 10.61#10.32# |
| | | | | | 10.62#10.33# |
| | | | | | 10.63#
10.34# |
| | | | | | 10.35# |
| |
| | | | 10.36#
|
| | | | | |
| | | | | 10.64#10.37#
|
| | | | | | 10.65#10.38 |
| | | | | | 21† |
| | | |
| | | 23† |
| | | |
| | | 31.1† |
| | | |
| | | 31.2† |
| | | |
| | | 32.1† |
| | | |
| | | 32.2† |
| | |
| | | | | |
| | | 95† |
| | | |
| | | 101.INS† |
| | XBRL Instance Document | |
| | | 101.SCH† |
| | XBRL Taxonomy Extension Schema Document | |
| | | 101.CAL† |
| | XBRL Taxonomy Extension Calculation Linkbase Document | |
| | | 101.DEF† |
| | XBRL Taxonomy Extension Definition Linkbase Document | |
| | | 101.LAB† |
| | XBRL Taxonomy Extension Label Linkbase Document | |
| | | 101.PRE† |
| | XBRL Taxonomy Extension Presentation Linkbase Document | | | | 10.4† |
| | XBRL Coverpage interactive data file |
| | | # | Management contract or compensatory plan or arrangement. |
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | | | | | | | JACOBS ENGINEERING GROUP INC. | Dated: | | November 21, 201825, 2019 | | By: | | /S/ Steven J. Demetriou | | | | | | | Steven J. Demetriou | | | | | | | Chair of the Board and Chief Executive Officer and Chairman (Principal(Principal Executive Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
| | | | | | Signature | | Title | | Date | /S/ Steven J. Demetriou | | ChairmanChair of the Board and Chief Executive Officer (Principal Executive Officer) | | November 21, 201825, 2019 | Steven J. Demetriou | | | | | /S/ Joseph R. Bronson | | Director | | November 21, 201825, 2019 | Joseph R. Bronson | | | | | /S/ Juan Jose Suarez CoppelBarbara L. Loughran | | Director | | November 21, 201825, 2019 | Juan Jose Suarez CoppelBarbara L. Loughran | | | | | /S/ Robert C. Davidson, Jr. | | Director | | November 21, 201825, 2019 | Robert C. Davidson, Jr. | | | | | /S/ Ralph E. Eberhart | | Director | | November 21, 201825, 2019 | Ralph E. Eberhart | | | | | /S/ Dawne S. HicktonGeorgette D. Kiser | | Director | | November 21, 201825, 2019 | Dawne S. HicktonGeorgette D. Kiser | | | | | /S/ Linda Fayne Levinson | | Director | | November 21, 201825, 2019 | Linda Fayne Levinson | | | | | /S/ Robert A. McNamara | | Director | | November 21, 201825, 2019 | Robert A. McNamara | | | | | /S/ Peter J. Robertson | | Director | | November 21, 201825, 2019 | Peter J. Robertson | | | | | /S/ Christopher M.T. Thompson | | Director | | November 21, 201825, 2019 | Christopher M.T. Thompson | | | | | /S/ Barry Williams | | Director | | November 21, 201825, 2019 | Barry Williams | | | | | /S/ Kevin C. Berryman | | Executive Vice President, Chief Financial Officer (Principal Financial Officer) | | November 21, 201825, 2019 | Kevin C. Berryman | | | | | /S/ William B. Allen | | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | | November 21, 201825, 2019 | William B. Allen | | | | |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS WITH REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM September 28, 201827, 2019
JACOBSJACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS September 28, 201827, 2019
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share information) | | | September 28, 2018 | | September 29, 2017 | September 27, 2019 | | September 28, 2018 | ASSETS | | | | | | | Current Assets: | | | | | | | Cash and cash equivalents | $ | 793,358 |
| | $ | 774,151 |
| $ | 631,068 |
| | $ | 634,870 |
| Receivables | 3,554,930 |
| | 2,102,543 |
| | Receivables and contract assets | | 2,840,209 |
| | 2,513,934 |
| Prepaid expenses and other | 208,296 |
| | 119,486 |
| 639,539 |
| | 171,096 |
| Current assets held for sale | | 952 |
| | 1,236,684 |
| Total current assets | 4,556,584 |
| | 2,996,180 |
| 4,111,768 |
| | 4,556,584 |
| Property, Equipment and Improvements, net | 457,706 |
| | 349,911 |
| 308,143 |
| | 257,859 |
| Other Noncurrent Assets: | | | | | | | Goodwill | 6,103,856 |
| | 3,009,826 |
| 5,432,544 |
| | 4,795,856 |
| Intangibles, net | 655,957 |
| | 332,920 |
| 665,076 |
| | 572,952 |
| Miscellaneous | 871,692 |
| | 692,022 |
| 918,202 |
| | 760,854 |
| Noncurrent assets held for sale | | 26,978 |
| | 1,701,690 |
| Total other noncurrent assets | 7,631,505 |
| | 4,034,768 |
| 7,042,800 |
| | 7,831,352 |
| | $ | 12,645,795 |
| | $ | 7,380,859 |
| $ | 11,462,711 |
| | $ | 12,645,795 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | Current Liabilities: | | | | | | | Notes payable | $ | 4,954 |
| | $ | 3,071 |
| | Short-term debt | | $ | 199,901 |
| | $ | 3,172 |
| Accounts payable | 1,127,671 |
| | 683,605 |
| 1,072,645 |
| | 776,189 |
| Accrued liabilities | 1,488,629 |
| | 939,687 |
| 1,384,379 |
| | 1,167,002 |
| Billings in excess of costs | 524,439 |
| | 299,864 |
| | Contract liabilities | | 414,208 |
| | 442,760 |
| Current liabilities held for sale | | 2,573 |
| | 756,570 |
| Total current liabilities | 3,145,693 |
| | 1,926,227 |
| 3,073,706 |
| | 3,145,693 |
| Long-term Debt | 2,146,877 |
| | 235,000 |
| 1,201,245 |
| | 2,144,167 |
| Other Deferred Liabilities | 1,408,871 |
| | 732,281 |
| 1,419,005 |
| | 1,260,977 |
| Noncurrent liabilities held for sale | | 97 |
| | 150,604 |
| 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—142,217,933 shares and 120,385,544 shares as of September 28, 2018 and September 29, 2017, respectively | 142,218 |
| | 120,386 |
| | Common stock, $1 par value, authorized - 240,000,000 shares; issued and outstanding - 132,879,395 shares and 142,217,933 shares as of September 27, 2019 and September 28, 2018, respectively | | 132,879 |
| | 142,218 |
| Additional paid-in capital | 2,708,839 |
| | 1,239,782 |
| 2,559,450 |
| | 2,708,839 |
| Retained earnings | 3,809,991 |
| | 3,721,698 |
| 3,939,174 |
| | 3,809,991 |
| Accumulated other comprehensive loss | (806,703 | ) | | (653,514 | ) | (916,812 | ) | | (806,703 | ) | Total Jacobs stockholders’ equity | 5,854,345 |
| | 4,428,352 |
| 5,714,691 |
| | 5,854,345 |
| Noncontrolling interests | 90,009 |
| | 58,999 |
| 53,967 |
| | 90,009 |
| Total Group stockholders’ equity | 5,944,354 |
| | 4,487,351 |
| 5,768,658 |
| | 5,944,354 |
| | $ | 12,645,795 |
| | $ | 7,380,859 |
| $ | 11,462,711 |
| | $ | 12,645,795 |
|
See the accompanying Notes to Consolidated Financial Statements.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS For the Fiscal Years Ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (In thousands, except per share information) | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | September 27, 2019 |
| September 28, 2018 |
| September 29, 2017 | Revenues | $ | 14,984,646 |
| | $ | 10,022,788 |
| | $ | 10,964,157 |
| $ | 12,737,868 |
| | $ | 10,579,773 |
| | $ | 6,330,126 |
| Direct cost of contracts | (12,156,276 | ) | | (8,250,536 | ) | | (9,196,326 | ) | (10,260,840 | ) | | (8,421,223 | ) | | (5,070,091 | ) | Gross profit | 2,828,370 |
| | 1,772,252 |
| | 1,767,831 |
| 2,477,028 |
| | 2,158,550 |
| | 1,260,035 |
| Selling, general and administrative expenses | (2,180,399 | ) | | (1,379,983 | ) | | (1,429,233 | ) | (2,072,177 | ) | | (1,771,107 | ) | | (1,015,893 | ) | Operating Profit | 647,971 |
| | 392,269 |
| | 338,598 |
| 404,851 |
| | 387,443 |
| | 244,142 |
| Other Income (Expense): | | | | | | | | | | | Interest income | 8,984 |
| | 8,748 |
| | 7,848 |
| 9,487 |
| | 8,984 |
| | 8,748 |
| Interest expense | (76,760 | ) | | (12,035 | ) | | (15,260 | ) | (83,847 | ) | | (76,760 | ) | | (12,035 | ) | Gain (Loss) on disposal of business and investments | (20,967 | ) | | 10,880 |
| | (41,410 | ) | | Miscellaneous income (expense), net | (4,523 | ) | | (6,645 | ) | | (3,053 | ) | 20,468 |
| | 11,314 |
| | 2,299 |
| Total other (expense) income, net | (93,266 | ) | | 948 |
| | (51,875 | ) | (53,892 | ) | | (56,462 | ) | | (988 | ) | Earnings Before Taxes | 554,705 |
| | 393,217 |
| | 286,723 |
| | Income Tax Expense | (381,563 | ) | | (105,842 | ) | | (72,208 | ) | | Earnings from Continuing Operations Before Taxes | | 350,959 |
| | 330,981 |
| | 243,154 |
| Income Tax Benefit (Expense) for Continuing Operations | | (36,954 | ) | | (325,632 | ) | | (73,103 | ) | Net Earnings of the Group from Continuing Operations | | 314,005 |
| | 5,349 |
| | 170,051 |
| Net Earnings of the Group from Discontinued Operations | | 559,214 |
| | 167,793 |
| | 117,324 |
| Net Earnings of the Group | 173,142 |
| | 287,375 |
| | 214,515 |
| 873,219 |
| | 173,142 |
| | 287,375 |
| Net (Earnings) Loss Attributable to Noncontrolling Interests | (9,711 | ) | | 6,352 |
| | (4,052 | ) | | Net (Earnings) Loss Attributable to Noncontrolling Interests from Continuing Operations | | (23,045 | ) | | (9,534 | ) | | 116 |
| Net Earnings (Loss) Attributable to Jacobs from Continuing Operations | | 290,960 |
| | (4,185 | ) | | 170,167 |
| Net (Earnings) Loss Attributable to Noncontrolling Interests from Discontinued Operations | | (2,195 | ) | | (177 | ) | | 6,236 |
| Net Earnings Attributable to Jacobs from Discontinued Operations | | 557,019 |
| | 167,616 |
| | 123,560 |
| Net Earnings Attributable to Jacobs | $ | 163,431 |
| | $ | 293,727 |
| | $ | 210,463 |
| $ | 847,979 |
| | $ | 163,431 |
| | $ | 293,727 |
| Net Earnings Per Share: | | | | | | | Basic | $ | 1.18 |
| | $ | 2.43 |
| | $ | 1.75 |
| | Diluted | $ | 1.17 |
| | $ | 2.42 |
| | $ | 1.73 |
| | Net Earnings (Loss) Per Share: | | | | | | | Basic Net Earnings (Loss) from Continuing Operations Per Share | | $ | 2.11 |
| | $ | (0.03 | ) | | $ | 1.41 |
| Basic Net Earnings from Discontinued Operations Per Share | | $ | 4.03 |
| | $ | 1.21 |
| | $ | 1.02 |
| Basic Earnings Per Share | | $ | 6.14 |
| | $ | 1.18 |
| | $ | 2.43 |
| | | | | | | | Diluted Net Earnings (Loss) from Continuing Operations Per Share | | $ | 2.09 |
| | $ | (0.03 | ) | | $ | 1.40 |
| Diluted Net Earnings from Discontinued Operations Per Share | | $ | 4.00 |
| | $ | 1.21 |
| | $ | 1.02 |
| Diluted Earnings Per Share | | $ | 6.08 |
| | $ | 1.18 |
| | $ | 2.42 |
|
See the accompanying Notes to Consolidated Financial Statements.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Fiscal Years Ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (In thousands) | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Net Earnings of the Group | $ | 173,142 |
| | $ | 287,375 |
| | $ | 214,515 |
| $ | 873,219 |
| | $ | 173,142 |
| | $ | 287,375 |
| Other Comprehensive Income (Loss): | | | | | | | | | | | Foreign currency translation adjustment | (109,877 | ) | | (140,527 | ) | | (46,515 | ) | 15,972 |
| | (109,877 | ) | | (140,527 | ) | Gain (loss) on cash flow hedges | 118 |
| | (1,350 | ) | | (1,403 | ) | 1,369 |
| | 118 |
| | (1,350 | ) | Change in pension liabilities | (27,231 | ) | | 123,427 |
| | (111,488 | ) | | Change in pension and retiree medical plan liabilities | | (157,632 | ) | | (27,231 | ) | | 123,427 |
| Other comprehensive income (loss) before taxes | (136,990 | ) | | (18,450 | ) | | (159,406 | ) | (140,291 | ) | | (136,990 | ) | | (18,450 | ) | Income Tax (Expense) Benefit: | | | | | | | | | | | Cash flow hedges | 859 |
| | (90 | ) | | 273 |
| (568 | ) | | 859 |
| | (90 | ) | Change in pension liabilities | (17,058 | ) | | (24,380 | ) | | 13,303 |
| | Change in pension and retiree medical plan liabilities | | 30,750 |
| | (17,058 | ) | | (24,380 | ) | Income Tax (Expense) Benefit: | (16,199 | ) | | (24,470 | ) | | 13,576 |
| 30,182 |
| | (16,199 | ) | | (24,470 | ) | Net other comprehensive income (loss) | (153,189 | ) | | (42,920 | ) | | (145,830 | ) | (110,109 | ) | | (153,189 | ) | | (42,920 | ) | Net Comprehensive Income (Loss) of the Group | 19,953 |
| | 244,455 |
| | 68,685 |
| 763,110 |
| | 19,953 |
| | 244,455 |
| Net (Earnings) Loss Attributable to Noncontrolling Interests | (9,711 | ) | | 6,352 |
| | (4,052 | ) | (25,240 | ) | | (9,711 | ) | | 6,352 |
| Net Comprehensive Income (Loss) Attributable to Jacobs | $ | 10,242 |
| | $ | 250,807 |
| | $ | 64,633 |
| $ | 737,870 |
| | $ | 10,242 |
| | $ | 250,807 |
|
See the accompanying Notes to Consolidated Financial Statements including the Company's note on Accumulated Other Comprehensive Income for a presentation of amounts reclassified to net income during the period.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Fiscal Years Ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (In thousands) | | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comp-rehensive Income (Loss) | | Total Jacobs Stock-holders’ Equity | | Non-controlling Interests | | Total Group Stock-holders’ Equity | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comp-rehensive Income (Loss) | | Total Jacobs Stock-holders’ Equity | | Non-controlling Interests | | Total Group Stock-holders’ Equity | Balances at October 2, 2015 | $ | 123,153 |
| | $ | 1,137,144 |
| | $ | 3,496,212 |
| | $ | (464,764 | ) | | $ | 4,291,745 |
| | $ | 64,713 |
| | $ | 4,356,458 |
| | Net earnings | — |
| | — |
| | 210,463 |
| | — |
| | 210,463 |
| | 4,052 |
| | 214,515 |
| | Foreign currency translation adjustments | — |
| | — |
| | — |
| | (46,516 | ) | | (46,516 | ) | | — |
| | (46,516 | ) | | Pension liability, net of deferred taxes of $13,303 | — |
| | — |
| | — |
| | (98,185 | ) | | (98,185 | ) | | — |
| | (98,185 | ) | | Loss on derivatives, net of deferred taxes of $274 | — |
| | — |
| | — |
| | (1,129 | ) | | (1,129 | ) | | — |
| | (1,129 | ) | | Noncontrolling interest acquired / consolidated | — |
| | (127 | ) | | — |
| | — |
| | (127 | ) | | (1,150 | ) | | (1,277 | ) | | Distributions to noncontrolling interests | — |
| | — |
| | (3,146 | ) | | — |
| | (3,146 | ) | | (2,709 | ) | | (5,855 | ) | | Issuances of equity securities, net of deferred taxes of $3,382 | 1,351 |
| | 72,055 |
| | — |
| | — |
| | 73,406 |
| | — |
| | 73,406 |
| | Repurchases of equity securities | (3,553 | ) | | (40,800 | ) | | (116,882 | ) | | — |
| | (161,235 | ) | | — |
| | (161,235 | ) | | Balances at September 30, 2016 | $ | 120,951 |
| | $ | 1,168,272 |
| | $ | 3,586,647 |
| | $ | (610,594 | ) | | $ | 4,265,276 |
| | $ | 64,906 |
| | $ | 4,330,182 |
| $ | 120,951 |
| | $ | 1,168,272 |
| | $ | 3,586,647 |
| | $ | (610,594 | ) | | $ | 4,265,276 |
| | $ | 64,906 |
| | $ | 4,330,182 |
| Net earnings | — |
| | — |
| | 293,727 |
| | — |
| | 293,727 |
| | (6,352 | ) | | 287,375 |
| — |
| | — |
| | 293,727 |
| | — |
| | 293,727 |
| | (6,352 | ) | | 287,375 |
| Foreign currency translation adjustments | — |
| | — |
| | — |
| | (140,527 | ) | | (140,527 | ) | | — |
| | (140,527 | ) | — |
| | — |
| | — |
| | (140,527 | ) | | (140,527 | ) | | — |
| | (140,527 | ) | Pension liability, net of deferred taxes of $24,380 | — |
| | — |
| | — |
| | 99,047 |
| | 99,047 |
| | — |
| | 99,047 |
| — |
| | — |
| | — |
| | 99,047 |
| | 99,047 |
| | — |
| | 99,047 |
| Loss on derivatives, net of deferred taxes of $90 | — |
| | — |
| | — |
| | (1,440 | ) | | (1,440 | ) | | — |
| | (1,440 | ) | — |
| | — |
| | — |
| | (1,440 | ) | | (1,440 | ) | | — |
| | (1,440 | ) | Noncontrolling interest acquired / consolidated | — |
| | — |
| | — |
| | — |
| | — |
| | 445 |
| | 445 |
| — |
| | — |
| | — |
| | — |
| | — |
| | 445 |
| | 445 |
| Dividends | — |
| | — |
| | (72,765 | ) | | — |
| | (72,765 | ) | | — |
| | (72,765 | ) | — |
| | — |
| | (72,765 | ) | | — |
| | (72,765 | ) | | — |
| | (72,765 | ) | Distributions to noncontrolling interests | — |
| | — |
| | (4,559 | ) | | — |
| | (4,559 | ) | | — |
| | (4,559 | ) | — |
| | — |
| | (4,559 | ) | | — |
| | (4,559 | ) | | — |
| | (4,559 | ) | Issuances of equity securities, net of deferred taxes of $1,015 | 1,468 |
| | 99,117 |
| | — |
| | — |
| | 100,585 |
| | — |
| | 100,585 |
| 1,468 |
| | 99,117 |
| | — |
| | — |
| | 100,585 |
| | — |
| | 100,585 |
| Repurchases of equity securities | (2,033 | ) | | (27,607 | ) | | (81,352 | ) | | — |
| | (110,992 | ) | | — |
| | (110,992 | ) | (2,033 | ) | | (27,607 | ) | | (81,352 | ) | | — |
| | (110,992 | ) | | — |
| | (110,992 | ) | Balances at September 29, 2017 | $ | 120,386 |
| | $ | 1,239,782 |
| | $ | 3,721,698 |
| | $ | (653,514 | ) | | $ | 4,428,352 |
| | $ | 58,999 |
| | $ | 4,487,351 |
| $ | 120,386 |
| | $ | 1,239,782 |
| | $ | 3,721,698 |
| | $ | (653,514 | ) | | $ | 4,428,352 |
| | $ | 58,999 |
| | $ | 4,487,351 |
| Net earnings | — |
| | — |
| | 163,431 |
| | — |
| | 163,431 |
| | 9,711 |
| | 173,142 |
| — |
| | — |
| | 163,431 |
| | — |
| | 163,431 |
| | 9,711 |
| | 173,142 |
| Foreign currency translation adjustments | — |
| | — |
| | — |
| | (109,877 | ) | | (109,877 | ) | | — |
| | (109,877 | ) | — |
| | — |
| | — |
| | (109,877 | ) | | (109,877 | ) | | — |
| | (109,877 | ) | Pension liability, net of deferred taxes of $17,058 | — |
| | — |
| | 10,160 |
| | (44,289 | ) | | (34,129 | ) | | — |
| | (34,129 | ) | | Pension and retiree medical plan liability, net of deferred taxes of $17,058 | | — |
| | — |
| | 10,160 |
| | (44,289 | ) | | (34,129 | ) | | — |
| | (34,129 | ) | Gain on derivatives, net of deferred taxes of $(859) | — |
| | — |
| | — |
| | 977 |
| | 977 |
| | — |
| | 977 |
| — |
| | — |
| | — |
| | 977 |
| | 977 |
| | — |
| | 977 |
| Noncontrolling interest acquired / consolidated | — |
| | 3,456 |
| | — |
| | — |
| | 3,456 |
| | 33,690 |
| | 37,146 |
| — |
| | 3,456 |
| | — |
| | — |
| | 3,456 |
| | 33,690 |
| | 37,146 |
| Dividends | — |
| | — |
| | (85,608 | ) | | — |
| | (85,608 | ) | | — |
| | (85,608 | ) | — |
| | — |
| | (85,608 | ) | | — |
| | (85,608 | ) | | — |
| | (85,608 | ) | Distributions to noncontrolling interests | — |
| | — |
| | 7,705 |
| | — |
| | 7,705 |
| | (12,391 | ) | | (4,686 | ) | — |
| | — |
| | 7,705 |
| | — |
| | 7,705 |
| | (12,391 | ) | | (4,686 | ) | Stock based compensation | — |
| | 81,196 |
| | (1,954 | ) | | — |
| | 79,242 |
| | — |
| | 79,242 |
| — |
| | 81,196 |
| | (1,954 | ) | | — |
| | 79,242 |
| | — |
| | 79,242 |
| Issuances of equity securities | 21,881 |
| | 1,385,316 |
| | (3,420 | ) | | — |
| | 1,403,777 |
| | — |
| | 1,403,777 |
| 21,881 |
| | 1,385,316 |
| | (3,420 | ) | | — |
| | 1,403,777 |
| | — |
| | 1,403,777 |
| Repurchases of equity securities | (49 | ) | | (911 | ) | | (2,021 | ) | | — |
| | (2,981 | ) | | — |
| | (2,981 | ) | (49 | ) | | (911 | ) | | (2,021 | ) | | — |
| | (2,981 | ) | | — |
| | (2,981 | ) | Balances at September 28, 2018 | $ | 142,218 |
| | $ | 2,708,839 |
| | $ | 3,809,991 |
| | $ | (806,703 | ) | | $ | 5,854,345 |
| | $ | 90,009 |
| | $ | 5,944,354 |
| $ | 142,218 |
| | $ | 2,708,839 |
| | $ | 3,809,991 |
| | $ | (806,703 | ) | | $ | 5,854,345 |
| | $ | 90,009 |
| | $ | 5,944,354 |
| Net earnings | | — |
| | — |
| | 847,979 |
| | — |
| | 847,979 |
| | 25,240 |
| | 873,219 |
| Disposition of ECR business, net of deferred taxes of $5,402 | | — |
| | — |
| | — |
| | 112,764 |
| | 112,764 |
| | (45,727 | ) | | 67,037 |
| Adoption of ASC 606, net of deferred taxes of ($10,285) | | — |
| | — |
| | (37,209 | ) | | — |
| | (37,209 | ) | | — |
| | (37,209 | ) | Foreign currency translation adjustments | | — |
| | — |
| | — |
| | (84,456 | ) | | (84,456 | ) | | — |
| | (84,456 | ) | Pension and retiree medical plan liability, net of deferred taxes of $25,348 | | — |
| | — |
| | — |
| | (139,218 | ) | | (139,218 | ) | | — |
| | (139,218 | ) | Gain on derivatives, net of deferred taxes of $568 | | — |
| | — |
| | — |
| | 801 |
| | 801 |
| | — |
| | 801 |
| Noncontrolling interest acquired / consolidated | | — |
| | (1,113 | ) | | — |
| | — |
| | (1,113 | ) | | — |
| | (1,113 | ) | Dividends | | — |
| | — |
| | (92,980 | ) | | — |
| | (92,980 | ) | | — |
| | (92,980 | ) | Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | (15,555 | ) | | (15,555 | ) | Stock based compensation | | — |
| | 69,128 |
| | 9 |
| | — |
| | 69,137 |
| | — |
| | 69,137 |
| Issuances of equity securities including shares withheld for taxes | | 1,681 |
| | 43,508 |
| | (6,872 | ) | | — |
| | 38,317 |
| | — |
| | 38,317 |
| Repurchases of equity securities | | (11,020 | ) | | (260,912 | ) | | (581,744 | ) | | — |
| | (853,676 | ) | | — |
| | (853,676 | ) | Balances at September 27, 2019 | | $ | 132,879 |
| | $ | 2,559,450 |
| | $ | 3,939,174 |
| | $ | (916,812 | ) | | $ | 5,714,691 |
| | $ | 53,967 |
| | $ | 5,768,658 |
|
See the accompanying Notes to Consolidated Financial Statements.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Fiscal Years Ended September 27, 2019, September 28, 2018, and September 29, 2017 and September 30, 2016 (In thousands)
| | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Cash Flows from Operating Activities: | | | | | | | | | | | Net earnings attributable to the Group | $ | 173,142 |
| | $ | 287,375 |
| | $ | 214,515 |
| | Adjustments to reconcile net earnings to net cash flows provided by operations: | | | | | | | Net earnings (loss) attributable to the Group | | $ | 873,219 |
| | $ | 173,142 |
| | $ | 287,375 |
| Adjustments to reconcile net earnings to net cash flows (used for) provided by operations: | | | | | | | Depreciation and amortization: | | | | | | | | | | | Property, equipment and improvements | 117,856 |
| | 76,418 |
| | 82,363 |
| 90,171 |
| | 117,856 |
| | 76,418 |
| Intangible assets | 80,731 |
| | 46,095 |
| | 47,608 |
| 79,098 |
| | 80,731 |
| | 46,095 |
| (Gain) loss on sales of businesses and investments | 20,967 |
| | (10,058 | ) | | 41,410 |
| | Gain on sale of ECR business | | (935,110 | ) | | — |
| | — |
| (Gain) Loss on disposal of other businesses and investments | | 9,608 |
| | 20,967 |
| | (10,058 | ) | (Gain) Loss on investment in equity securities | | 78,108 |
| | — |
| | — |
| Stock based compensation | 79,242 |
| | 38,764 |
| | 32,370 |
| 69,137 |
| | 79,242 |
| | 38,764 |
| Tax deficiency from stock based compensation | — |
| | (2,877 | ) | | (377 | ) | — |
| | — |
| | (2,877 | ) | Equity in earnings of operating ventures, net | (2,639 | ) | | (7,788 | ) | | (11,892 | ) | | (Gain) Losses on disposals of assets, net | 17,491 |
| | 14,876 |
| | 10,680 |
| | Loss (gain) on pension plan changes | 5,414 |
| | (9,955 | ) | | — |
| | Equity in (earnings) loss of operating ventures, net | | (8,784 | ) | | (2,639 | ) | | (7,788 | ) | (Gain) Loss on disposals of assets, net | | 6,222 |
| | 17,491 |
| | 14,876 |
| (Gain) Loss on pension and retiree medical plan changes | | (33,087 | ) | | 5,414 |
| | (9,955 | ) | Deferred income taxes | 288,126 |
| | 36,663 |
| | (27,407 | ) | (105,939 | ) | | 288,126 |
| | 36,663 |
| Changes in assets and liabilities, excluding the effects of businesses acquired: | | | | | |
|
| |
|
| | | Receivables | (435,198 | ) | | 75,441 |
| | 397,268 |
| | Receivables and contract assets | | (401,770 | ) | | (435,198 | ) | | 75,441 |
| Prepaid expenses and other current assets | (19,134 | ) | | (23,755 | ) | | 17,906 |
| (13,117 | ) | | (19,134 | ) | | (23,755 | ) | Accounts payable | 183,057 |
| | 153,961 |
| | (44,214 | ) | 295,146 |
| | 183,057 |
| | 153,961 |
| Income taxes payable | | (294,995 | ) | | 68,970 |
| | 4,264 |
| Accrued liabilities | (37,746 | ) | | (56,279 | ) | | (71,930 | ) | (305,716 | ) | | (37,746 | ) | | (56,279 | ) | Billings in excess of costs | 6,268 |
| | (31,976 | ) | | 33,347 |
| | Income taxes payable | 68,970 |
| | 4,264 |
| | (4,586 | ) | | Contract liabilities | | 333,876 |
| | 6,268 |
| | (31,976 | ) | Other deferred liabilities | (79,280 | ) | | (33,547 | ) | | (37,605 | ) | (106,256 | ) | | (79,280 | ) | | (33,547 | ) | Other, net | 13,885 |
| | 17,259 |
| | 717 |
| 3,753 |
| | 13,885 |
| | 17,259 |
| Net cash (used for) provided by operating activities | 481,152 |
| | 574,881 |
| | 680,173 |
| (366,436 | ) | | 481,152 |
| | 574,881 |
| Cash Flows Used for Investing Activities: | | | | | | | Cash Flows from Investing Activities: | |
|
| |
|
| | | Additions to property and equipment | (94,884 | ) | | (118,060 | ) | | (67,688 | ) | (135,977 | ) | | (94,884 | ) | | (118,060 | ) | Disposals of property and equipment | 3,293 |
| | 2,387 |
| | 10,479 |
| | Purchases of intangibles | — |
| | — |
| | (10,027 | ) | | Disposals of property and equipment and other assets | | 7,177 |
| | 3,293 |
| | 2,387 |
| Distributions of capital from (contributions to) equity investees | (5,416 | ) | | 31,701 |
| | (3,403 | ) | (8,761 | ) | | (5,416 | ) | | 31,701 |
| Acquisitions of businesses, net of cash acquired | (1,488,336 | ) | | (150,190 | ) | | (49,943 | ) | (575,110 | ) | | (1,488,336 | ) | | (150,190 | ) | Disposals of investment in equity securities | | 64,708 |
| | — |
| | — |
| Proceeds (payments) related to sales of businesses | 7,736 |
| | (2,036 | ) | | (19,039 | ) | 2,801,425 |
| | 7,736 |
| | (2,036 | ) | Net cash used for investing activities | (1,577,607 | ) | | (236,198 | ) | | (139,621 | ) | | Cash Flows Provided by Financing Activities: | | | | | | | Purchases of noncontrolling interests | | (1,113 | ) | | — |
| | — |
| Net cash provided by (used for) investing activities | | 2,152,349 |
| | (1,577,607 | ) | | (236,198 | ) | Cash Flows from Financing Activities: | |
|
| |
|
| | | Proceeds from long-term borrowings | 5,784,355 |
| | 1,694,023 |
| | 1,649,653 |
| 2,782,193 |
| | 5,784,355 |
| | 1,694,023 |
| Repayments of long-term borrowings | (4,572,182 | ) | | (1,846,797 | ) | | (1,840,789 | ) | (3,996,970 | ) | | (4,572,182 | ) | | (1,846,797 | ) | Proceeds from short-term borrowings | 712 |
| | 1,347 |
| | 3,040 |
| 200,001 |
| | 712 |
| | 1,347 |
| Repayments of short-term borrowings | (3,391 | ) | | (702 | ) | | (14,042 | ) | (28,566 | ) | | (3,391 | ) | | (702 | ) | Debt issuance costs | | (3,915 | ) | | — |
| | — |
| Proceeds from issuances of common stock | 53,584 |
| | 62,645 |
| | 43,140 |
| 64,958 |
| | 53,584 |
| | 62,645 |
| Common stock repurchases | (2,981 | ) | | (97,180 | ) | | (152,550 | ) | (853,676 | ) | | (2,981 | ) | | (97,180 | ) | Excess tax benefits from stock based compensation | — |
| | 2,877 |
| | 377 |
| — |
| | — |
| | 2,877 |
| Taxes paid on vested restricted stock | (31,108 | ) | | — |
| | — |
| (26,641 | ) | | (31,108 | ) | | — |
| Cash dividends, including to noncontrolling interests | (86,569 | ) | | (58,793 | ) | | (5,855 | ) | (106,396 | ) | | (86,569 | ) | | (58,793 | ) | Net cash provided by (used for) financing activities | 1,142,420 |
| | (242,580 | ) | | (317,026 | ) | | Net cash (used for) provided by financing activities | | (1,969,012 | ) | | 1,142,420 |
| | (242,580 | ) | Effect of Exchange Rate Changes | (26,758 | ) | | 22,332 |
| | (28,669 | ) | 20,809 |
| | (26,758 | ) | | 22,332 |
| Net Increase in Cash and Cash Equivalents | 19,207 |
| | 118,435 |
| | 194,857 |
| | Net (Decrease) Increase in Cash and Cash Equivalents | | (162,290 | ) | | 19,207 |
| | 118,435 |
| Cash and Cash Equivalents at the Beginning of the Period | 774,151 |
| | 655,716 |
| | 460,859 |
| 793,358 |
| | 774,151 |
| | 655,716 |
| Cash and Cash Equivalents at the End of the Period | $ | 793,358 |
| | $ | 774,151 |
| | $ | 655,716 |
| 631,068 |
| | 793,358 |
| | 774,151 |
| Less Cash and Cash Equivalents included in Assets held for Sale | | — |
| | (158,488 | ) | | (166,330 | ) | Cash and Cash Equivalents of Continuing Operations at the End of the Period | | $ | 631,068 |
| | $ | 634,870 |
| | $ | 607,821 |
|
See the accompanying Notes to Consolidated Financial Statements.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | 1. | Description of Business and Basis of Presentation |
Description of Business Jacobs is a leading global professional services company that designs and deploys technology-centric solutions to solve many of the world’s most complex challenges. We operate in 2 lines of business: Critical Mission Solutions (formerly Aerospace, Technology and Nuclear), and People & Places Solutions (formerly known as Buildings, Infrastructure and Advanced Facilities). These lines of business are changing names to better reflect outcome-focused solutions for their customers and these name changes have no impact on reported financial statements, line of business leadership or customer relationships. We provide a broad range of technical, professional and construction services including 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, AfricaNew Zealand and Asia. We provide our services under cost-reimbursable and fixed-price contracts.contracts, with our fixed-price contracts comprised mainly of professional services arrangements and in some limited cases, construction. The percentage of revenues realized from each of these types of contracts for the fiscal years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 was as follows: | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Cost-reimbursable | 76 | % | | 74 | % |
| 76 | % | Fixed-price | 24 | % | | 26 | % |
| 24 | % |
| | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Cost-reimbursable | 76 | % | | 81 | % | | 82 | % | Fixed-price | 24 | % | | 19 | % | | 18 | % |
Basis of Presentation, Definition of Fiscal Year, and Other Matters The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and include the accounts of Jacobs Engineering Group Inc. and its subsidiaries and affiliates which it controls. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s fiscal year ends on the Friday closest to September 30 (determined on the basis of the number of workdays) and, accordingly, an additional week of activity is added every five -to- sixfive-to-six years. Fiscal 2015 included, and fiscal 2020 will include, an extra week of activity. DuringEffective the second quarterbeginning of fiscal first quarter 2019, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, including the subsequent ASUs that amended and clarified the related guidance. The Company adopted ASC Topic 606 using the modified retrospective method, and accordingly the new guidance was applied retrospectively to contracts that were not completed or substantially completed as of September 29, 2018 we reorganized our operating(the date of initial application). Please refer to Note 11- Revenue Accounting for Contracts and reporting structure around three linesAdoption of businessASC Topic 606.
On June 12, 2019, Jacobs completed the acquisition of The KeyW Holding Corporation (“LOBs”KeyW”). This reorganization occurred, a U.S.-based national security solutions provider to the intelligence, cyber, and counterterrorism communities by acquiring 100% of the outstanding shares of KeyW common stock. The Company paid total consideration of $902.6 million which was comprised of approximately $604.2 million in conjunctioncash to the former stockholders and certain equity award holders of KeyW and the assumption of KeyW’s convertible debt of $22.6 million and first and second lien notes which totaled approximately $275.8 million. Immediately following the effective time of the acquisition, the Company repaid KeyW’s first and second lien notes. In July 2019, the Company repaid KeyW's outstanding convertible debt of $22.6 million. The Company has recorded its preliminary purchase price allocation associated with the integrationacquisition, which is summarized in Note 5- Business Combinations. On April 26, 2019, Jacobs completed the sale of CH2M into the Company's legacy businesses, and was intended to better serve our global clients, leverage our workforce, help streamline operations and provide enhanced growth opportunities. The three global LOBs are as follows: Aerospace, Technology, Environmental and Nuclear ("ATEN"); Buildings, Infrastructure and Advanced Facilities ("BIAF"); andits 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”). JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As a result of the ECR sale, substantially all ECR-related assets and liabilities have been sold (the "Disposal Group"). Previously,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 Consolidated Statements of Earnings as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of the Disposal Group are reflected as held-for-sale in the Consolidated Balance Sheet as of September 28, 2018. Further, as of the year ended September 27, 2019, a portion of the ECR business remains held by Jacobs and continues to be classified as held for sale as of fiscal year 2019 in accordance with U.S. GAAP. For further discussion see Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business to the consolidated financial statements. On December 15, 2017, the Company operatedcompleted the acquisition of CH2M HILL Companies, Ltd. ("CH2M"), an international provider of engineering, construction, and technical services, by acquiring 100% of the outstanding shares of CH2M common stock and preferred stock. The Company paid total consideration of approximately $1.8 billion in cash (excluding $315.2 million of cash acquired) and issued approximately $1.4 billion of Jacobs’ common stock, or 20.7 million shares, to the former stockholders and certain equity award holders of CH2M. In connection with the acquisition, the Company also assumed CH2M’s revolving credit facility and second lien notes, including a $20.0 million prepayment penalty, which totaled approximately $700 million of long-term debt. Immediately following the effective time of the acquisition, the Company repaid CH2M’s revolving credit facility and second lien notes including the related prepayment penalty. The Company has finalized its business around four global lines of businesses. For a further discussion of our segment information, please refer topurchase accounting processes associated with the acquisition, which is summarized in Note 17- Segment Information5- Business Combinations. | | 2. | Significant Accounting Policies |
Revenue Accounting for Contracts We recognizeEngineering, Procurement & Construction Contracts and Service Contracts
On September 29, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, including the subsequent ASUs that amended and clarified the related guidance. The Company recognizes engineering, procurement, and construction contract revenue earned on our technical professionalover time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Upon adoption of ASC Topic 606, contracts which include engineering, procurement and fieldconstruction services projects underare generally accounted for as a single deliverable (a single performance obligation) and are no longer segmented between types of services. In some instances, the Company’s services associated with a construction activity are limited to specific tasks such as customer support, consulting or supervisory services. In these instances, the services are typically identified as separate performance obligations. The Company recognizes revenue using the percentage-of-completion method, describedbased primarily on contract costs incurred to date compared to total estimated contract costs. The percentage-of-completion method (an input method) is the most representative depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Subcontractor materials, labor and equipment and, in ASC 605-35, Construction-Typecertain cases, customer-furnished materials and Production-Type Contractslabor and equipment are included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an agent (e.g., the company integrates the materials, labor and equipment into the deliverables promised to the customer or is otherwise primarily responsible for fulfillment and acceptability of the materials, labor and/or equipment). In general, we recognize revenuesThe Company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when control is transferred. Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the time we provide services.contract level. Pre-contract costs are generally expensed as incurred unless they are directly associated with an anticipated contract and recoverabilityexpected to be recovered from that contract is probable. Contractsthe client. Project mobilization costs are generally segmented between typescharged to project costs as incurred when they are an integrated part of services, such asthe performance obligation being transferred to the client. Under the typical payment terms of our engineering, procurement and construction contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms at periodic intervals (e.g., biweekly or monthly) and accordingly, gross margin relatedcustomer payments are typically due within 30 to each activity is recognized as those separate services are rendered. For multiple contracts with a single customer we account for each contract separately. The percentage-of-completion method60 days of accounting is applied by comparing contract costs incurred to date to the total estimated costs at completion. Contract losses are provided for in their entirety in the period they become known, without regard to the percentage-of-completion.
Unapproved change orders are included in the contract price to the extent it is probable that such change orders will result in additional contract revenue and the amount of such additional revenue can be reliably estimated. Claims meeting these recognition criteria are included in revenues only to the extent of the related costs incurred.
Certain cost-reimbursable contracts include incentive-fee arrangements. These incentive fees can be based on a variety of factors but the most common are the achievement of target completion dates, target costs, and/or other performance criteria. Failure to meet these targets can result in unrealized incentive fees. We recognize incentive fees based on expected results using the percentage-of-completion method of accounting. As the contract progresses and more information becomes available, the estimate of the anticipated incentive fee that will be earned is revised as necessary. We bill incentive fees basedbilling, depending on the terms and conditionscontract.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For service contracts, the Company recognizes revenue over time using the cost-to-cost percentage-of-completion method. Service contracts that include multiple performance obligations are segmented between types of services. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using an estimate of the individual contracts. In certain situations, we are allowed to bill a portionstand-alone selling price of the incentive fees over the performance period ofeach distinct service in the contract. In other situations, we are allowedsome instances where the Company is standing ready to bill incentive fees only afterprovide services, the target criterion has been achieved. Incentive fees which have been recognized but not billed are included in receivables inCompany recognizes revenue ratably over the accompanying Consolidated Balance Sheets. Certain cost-reimbursable contracts with government customers as well as certain commercial clients provide that contract costs are subject to audit and adjustment. In this situation, revenues are recorded atservice period. Under the time services are performed based upon the amounts we expect to realize upon completion of the contracts. In those situations where an audit indicates that we may have billed a client for costs not allowable under thetypical payment terms of our service contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, and customer payments are typically due within 30 to 60 days of billing, depending on the contract, we estimate the amount of such nonbillable costs and adjust our revenues accordingly.contract.
Direct costs of contracts include all costs incurred in connection with and directly for the benefit of client contracts, including depreciation and amortization relating to assets used in providing the services required by the related projects. The level of direct costs of contracts may fluctuate between reporting periods due to a variety of factors, including the amount of pass-through costs we incur during a period. On those projects where we are responsibleacting as principal for subcontract labor or third-party materials and equipment, we reflect the amounts of such items in both revenues and costs (and we refer to such costs as “pass-through costs”). On other projects where Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the client electsamounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above have been satisfied. Variable Consideration The nature of the Company’s contracts gives rise to payseveral types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for such items directly and we have no associated responsibility for such items, these amounts are not considered pass-through costs and are, therefore, not reflected in either revenues or costs. To the extentvariable consideration when it is probable that we incur a significant reversal in the amount of pass-throughcumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in a period, our directthe company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of contractsthe work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are likelymet, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred and only up to increase as well.the amount of cost incurred. The Company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following table sets forth pass-throughsubstantial completion of the Company’s work on the project. Historically, warranty claims have not resulted in material costs includedincurred for which the Company was not compensated for by the customer. Practical Expedient If the Company has a right to consideration from a customer in revenuesan amount that corresponds directly with the value of the Company’s performance completed to date (a service contract in which the company bills a fixed amount for each hour of service provided), the Company recognizes revenue in the accompanying Consolidated Statementsamount to which it has a right to invoice for services performed. The Company does not adjust the contract price for the effects of Earnings (in millions):a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a service to a customer and when the customer pays for that service will be one year or less. See Note 11- Revenue Accounting for Contracts and Adoption of ASC Topic 606 for further discussion. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | | | | | | | | | | | For the Years Ended | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | $ | 3,058.6 |
| | $ | 2,539.3 |
| | $ | 2,489.9 |
|
Joint Ventures and VIEs As is common to the industry, 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. In general, at any given time, the equity of our joint ventures represents the undistributed profits earned on contracts the joint ventures hold with clients. Very few of our joint ventures have employees or third-party debt or credit facilities. The debt held by the joint ventures is non-recourse to the general credit of Jacobs. 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 which 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. See Note 15- 17- Contractual Guarantees, Litigation, Investigations and Insurance for further discussion. ManyMost 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. The Company uses a qualitative approach to determine if the Company is the primary beneficiary of the VIE, which considers factors that indicate a party has the power to direct the activities that most significantly impact the joint venture’s economic performance. These factors include the composition of the governing board, how board decisions are approved, the powers granted to the operational manager(s) and partner that holds that position(s), and to a certain extent, the partner’s economic interest in the joint venture. The Company analyzes each joint venture initially to determine if it should be consolidated or unconsolidated.
Consolidated if the Company is the primary beneficiary of a VIE, or holds the majority of voting interests of a non-VIE (and no significant participative rights are available to the other partners). Unconsolidated if the Company is not the primary beneficiary of a VIE, or does not hold the majority of voting interest of a non-VIE.
See Note 7-8- Joint Ventures and VIEs for further discussion. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The net carrying amounts of cash and cash equivalents, trade receivables and payables and notes payableshort-term debt approximate fair value due to the short-term nature of these instruments. See Note 9- 10- Borrowings for a discussion of the fair value of long-term debt. Certain other assets and liabilities, such as forward contracts and interest rate swap agreements we purchased as cash-flow hedges discussed in Note 14- 16- Commitments and Contingencies and Derivative Financial Instrumentsand the Company's investment in Worley ordinary shares discussed in Note 7- Sale of Energy, Chemicals and Resources are required to be carried in our Consolidated Financial Statements at Fair Value. The fair value of the Company’s reporting units (used for purposes of determining whether there is an indication of possible impairment of the carrying value of goodwill) is determined using both an income approach and a market approach. Both approaches require us to make certain estimates and judgments. Under the income approach, fair value is determined by using the discounted cash flows of our reporting units. Under the market approach, the fair values of our reporting units are determined by reference to guideline companies that are reasonably comparable to our reporting units; the fair values are estimated based on the valuation multiples of the invested capital associated with the guideline companies. In assessing whether there is an indication that the carrying value of goodwill has been impaired, we utilize the results of both valuation techniques and consider the range of fair values indicated. With respect to equity-based compensation (i.e., share-based payments), we estimate the fair value of stock options granted to employees and directors using the Black-Scholes option-pricing model. Like all option-pricing models, the Black-Scholes model requires the use of subjective assumptions including (i) the expected volatility of the market price of the underlying stock, and (ii) the expected term of the award, among others. Accordingly, changes in assumptions and any subsequent adjustments to those assumptions can cause different fair values to be assigned to our future stock option awards. For restricted stock awards (including restricted stock units) containing market conditions, compensation expense is based on the fair value of such awards using a Monte Carlo simulation. For restricted stock awards (including restricted stock units) containing service and performance conditions, compensation expense is based on the closing stock price on the date of grant. The fair values of the assets owned by the various pension plans that the Company sponsors are determined based on the type of asset, consistent with U.S. GAAP. Equity securities are valued by using market observable data such as quoted prices. Publicly traded corporate equity securities are valued at the last reported sale price on the last business day of the year. Securities not traded on the last business day are valued at the last reported bid price. Fixed income investment funds categorized as Level 2 are valued by the trustee using pricing models that use verifiable observable market data (e.g., interest rates and yield curves observable at commonly quoted intervals), bids provided by brokers or dealers, or quoted prices of securities with similar characteristics. Real estate consists primarily of common or collective trusts, with underlying investments in real estate. These investments are valued using the best information available, including quoted market price, market prices for similar assets when available, internal cash flow estimates discounted at an appropriate interest rate, or independent appraisals, as appropriate. Management values insurance contracts and hedge funds using actuarial assumptions and certain values reported by fund managers. The methodologies described above and elsewhere in these Notes to Consolidated Financial Statements may produce a fair value measure that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement. Cash Equivalents We consider all highly liquid investments with original maturities of less than three months to be cash equivalents. Cash equivalents at September 28, 201827, 2019 and September 29, 201728, 2018 consisted primarily of money market mutual funds and overnight bank deposits. Receivables, Contract Assets and Billings in Excess of CostsContract Liabilities Receivables include amounts billed, receivables,net and unbilled receivables and retentions receivable.receivables. 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. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Unbilled receivables and other, and retentions receivable generallywhich represent reimbursable costs, profit and amounts earned under contracts in progress, or in some cases completed, as of the respective balance sheet dates. Such amounts become billable accordingan unconditional right to the contract terms, which usually provide that such amounts become billable uponpayment 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 certain milestones or completion of the project.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 fiscal year.twelve months. Certain contracts allow usContract assets represent unbilled amounts where the right to issue invoicespayment 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.
Contract liabilities represent amounts billed to clients in advance of providing services. Billings in excess of costs represent billingsrevenue recognized to and cash collected from, clients in advance of work performed.date. We anticipate that substantially all such amounts will be earned over the next twelve months. Claims receivable are included in receivables in the accompanying Consolidated Balance Sheets and represent certain costs incurred on contracts to the extent it is probable that such claims will result in additional contract revenue and the amount of such additional revenue can be reliably estimated.
Property, Equipment, and Improvements Property, equipment and improvements are carried at cost, and are shown net of accumulated depreciation and amortization in the accompanying Consolidated Balance Sheets. Depreciation and amortization is computed primarily by using the straight-line method over the estimated useful lives of the assets. The cost of leasehold improvements is amortized using the straight-line method over the lesser of the estimated useful life of the asset or the remaining term of the related lease. Estimated useful lives range from 20 to 40 years for buildings, from 3 to 10 years for equipment and from 4 to 10 years for leasehold improvements. Goodwill and Other Intangible Assets Goodwill represents the excess of the cost of an acquired business over the fair value of the net tangible and intangible assets acquired. Goodwill and intangible assets with indefinite lives are not amortized; instead, on an annual basis we test goodwill and intangible assets with indefinite lives for possible impairment. Intangible assets with finite lives are amortized on a straight-line basis over the useful lives of those assets. During the quarter ended September 28, 2018, the Company voluntarily changed the date of its annual goodwill and indefinite-lived intangible asset impairment testing from the last day of the fiscal third quarter to the first day of the fourth quarter. This voluntary change is preferable under the circumstances as it results in better alignment with the Company’s strategic planning and forecasting process and provides the Company with additional time to complete its annual impairment testing. The voluntary change in accounting principle related to the annual testing date will not delay, accelerate or avoid an impairment charge. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require application of significant estimates and assumptions with the use of hindsight. Accordingly, the change will be applied prospectively.
Interim testing for impairment is performed if indicators of potential impairment exist. For purposes of impairment testing, goodwill is assigned to the applicable reporting units based on the current reporting structure. We have determined that our operating segments are also our reporting units based on management’s conclusion that the components comprising each of our operating segments share similar economic characteristics and meet the aggregation criteria in accordance with ASC 350. When testing goodwill for impairment quantitatively, the Company first compares the fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, a second step is performed to measure the amount of potential impairment. In the second step, the Company compared the implied fair value of the reporting unit JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
goodwill with the carrying amount of the reporting unit's goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized. During 2018,2019, we completed our annual goodwill impairment test and quantitatively determined that none of our goodwill was impaired. We have determined that the fair value of our reporting units substantially exceeded their respective carrying values for the Consolidated Balance Sheets presented. The range of fair values (both ends of the range) for each reporting unit exceeded the respective book values by 31% to 132%. See Note 6- Goodwill and Intangibles. Foreign Currencies In preparing our Consolidated Financial Statements, it is necessary to translate the financial statements of our subsidiaries operating outside the U.S., which are denominated in currencies other than the U.S. dollar, into the U.S. dollar. In accordance with U.S. GAAP, revenues and expenses of operations outside the U.S. are translated into U.S. dollars using weighted-average exchange rates for the applicable periods being translated while the assets and liabilities of operations outside the U.S. are generally translated into U.S. dollars using period-end exchange rates. The net effect of foreign currency translation adjustments is included in stockholders’ equity as a component of accumulated other comprehensive income (loss) in the accompanying Consolidated Balance Sheets. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Share-Based Payments We measure the value of services received from employees and directors in exchange for an award of an equity instrument based on the grant-date fair value of the award. The computed value is recognized as a non-cash cost on a straight-line basis over the period the individual provides services, which is typically the vesting period of the award with the exception of awards containing an internal performance measure, such as EPSEarnings Per Share growth and ROIC,Return on Invested Capital, which is recognized on a straight-line basis over the vesting period subject to the probability of meeting the performance requirements and adjusted for the number of shares expected to be earned. The cost of these awards is recorded in selling, general and administrative expense in the accompanying Consolidated Statements of Earnings. During fiscal 2018, the Company adopted ASU No 2016-09, Improvements to Employee Share Based Payment Accounting. As a result, the cash paid by the Company to taxing authorities as a result of withholding shares for the exercise of employee stock awards is classified as financing activity and this change is adopted retrospectively. Additionally, all excess tax benefits related to share-based payments in our provision for income taxes are now classified as an operating activity along with other income taxes in the statement of cash flows and this change is applied prospectively. These items were historically recorded in additional paid-in capital and in financing activities. The amount recognized by the Company in excess tax benefits related to share-based payments in our provision for income taxes for the fiscal year ended September 28, 2018 was not material. Finally, we have elected to begin accounting for share-based compensation award forfeitures when they occur instead of estimating the number of forfeitures expected in accordance with the new guidance. This change in accounting policy for share-based compensation award forfeitures resulted in a $1.8 million cumulative effect of change in accounting principle to retained earnings in the Company’s Consolidated Balance Sheets.
Concentrations of Credit Risk Our cash balances and cash equivalents are maintained in accounts held by major banks and financial institutions located in North America, South America, Europe, the Middle East, India, Australia, Africa and Asia. In the normal course of business, and consistent with industry practices, we grant credit to our clients without requiring collateral. Concentrations of credit risk is the risk that, if we extend a significant amount of credit to clients in a specific geographic area or industry, we may experience disproportionately high levels of default if those clients are adversely affected by factors particular to their geographic area or industry. Concentrations of credit risk relative to trade receivables are limited due to our diverse client base, which includes the U.S. federal government and multi-national corporations operating in a broad range of industries and geographic areas. Additionally, in order to mitigate credit risk, we continually evaluate the credit worthiness of our major commercial clients. Use of Estimates and AssumptionsPensions
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 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, actual results could differ significantly from those estimates and assumptions. Our estimates, judgments and assumptions are evaluated periodically and adjusted accordingly.
Earlier in these Notes to Consolidated Financial Statements we discussed three significant accounting policies that rely on the application of estimates and assumptions: revenue recognition for long-term contracts; the process for testing goodwill for
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
possible impairment; and the accounting for share-based payments to employees and directors. The following is a discussion of certain other significant accounting policies that rely on the use of estimates:
Accounting for Pensions - We use certain assumptions and estimates in order to calculate periodic pension cost and the value of the assets and liabilities of our pension plans. These assumptions involve discount rates, investment returns and projected salary increases, among others. Changes in the actuarial assumptions may have a material effect on the plans’ liabilities and the projected pension expense.
AccountingWe use a corridor approach to amortize actuarial gains and losses. Under this approach, net gains or losses in excess of ten percent of the larger of the pension benefit obligation or the market-related value of the assets are amortized on a straight-line basis. The period of amortization is the average remaining service of active participants who are expected to receive benefits under certain plans and the average remaining future lifetime of plan participants for certain plans.
We measure our defined benefit plan assets and obligations as of the end of the month closest to their fiscal year end, which is September 30, 2019 as the alternative measurement date in accordance with FASB guidance ASU 2015-04, Compensation Retirement Benefit (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Asset. This guidance allows employers with fiscal year ends that do not coincide with a calendar month end to make an accounting policy election to measure defined benefit plan assets and obligations as of the end of the month closest to their fiscal year end. Income Taxes- We determine our consolidated income tax expense using the asset and liability method prescribed by U.S.GAAP. Under this method, deferred tax assets and liabilities are recognized for the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Such deferred tax assets and liabilities are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. If and when we determine that a deferred tax asset will not be realized for its full amount, we will recognize and record avaluation allowance with a corresponding charge to earnings. Judgment is required in determining our provision for income taxes. In the normal course of business, we may engage in numerous transactions every day for which the ultimate tax outcome(including the period in which the transaction will ultimately be included in taxable income or deducted as an expense) is uncertain. Additionally, we file income, franchise, gross receipts and similar tax returns in many jurisdictions. Our tax returns are subject to audit and investigation by the Internal Revenue Service, most states in the U.S., and by various government agencies representing many jurisdictions outside the U.S. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contractual Guarantees, Litigation, Investigations and Insurance- In the normal course of business we are subject to certain contractual guarantees and litigation. 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. We perform an analysis to determine the level of reserves to establish for both 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 Statements of Earnings. In addition, as a contractor providing services to various agencies of the U.S. federal government, we are subject to many levels of audits, investigations, and claims by, or on behalf of, the U.S. federal government with respect to contract performance, pricing, costs, cost allocations and procurement practices. We adjust revenues based upon the amounts we expect to realize considering the effects of any client audits or governmental investigations. Accounting for Business Combinations-
U.S. GAAP requires that the purchase price paid for business combinations accounted for using the acquisition method be allocated to the assets and liabilities acquired based on their respective Fair Values. Determining the Fair Value of contract assets and liabilities acquired often requires estimates and judgments regarding, among other things, the estimated cost to complete such contracts. The Company must also make certain estimates and judgments relating to other assets and liabilities acquired as well as any identifiable intangible assets acquired. During the third fiscal quarter of 2019, the Company acquired KeyW. During the first fiscal quarter of 2018, the Company acquired CH2M HILL Companies, Ltd. ("CH2M"). During the fourth fiscal quarter of 2017, the Company acquired Blue Canopy LLC. During the second fiscal quarter of 2017, the Company acquired Aquenta Consulting Pty Ltd. During the first fiscal quarter of 2016, the Company acquired J.L. Patterson & Associates. Other than the KeyW and CH2M acquisitionacquisitions discussed in Note 5- Business Combinations, these acquisitions were not material to the Company’s consolidated results for fiscal 2019, 2018 2017 or 2016.2017. On May 19, 2017,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 Company entered into an agreement with Saudi Aramcoreported amounts of certain assets and liabilities; the revenues and expenses reported for the periods covered by the financial statements; and certain amounts disclosed in these Notes to form a 50/50 Saudi Arabia-based joint venture company to provide professional programthe Consolidated Financial Statements. Although such estimates and construction management (“PMCM”) services for social infrastructure projects throughout Saudi Arabia and across the Middle East and North Africa. The venture commenced start-up operations in fourth quarter fiscal 2017 and initial funding commitments were made from eachassumptions are based on management’s most recent assessment of the partners for $6.0 million in capital contributions each.underlying facts and circumstances utilizing the most current information available and past experience, actual results could differ significantly from those estimates and assumptions. Our estimates, judgments and assumptions are evaluated periodically and adjusted accordingly. New Accounting Pronouncements Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers. The new guidance provided by ASU 2014-09 is intended to remove inconsistencies and perceived weaknesses in the existing revenue requirements, provide a more robust framework for addressing revenue issues, improve comparability, provide more useful information and simplify the preparation of financial statements. The effective date for ASU 2014-09 is for annual reporting periods beginning after December 15, 2017 and interim periods therein.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company’s adoption activities have been performed over three phases: (i) assessment, (ii) design and (iii) implementation. As part of these phases, the Company has identified the following, potentially significant differences to date:
Performance Obligations
Under current U.S. GAAP, the Company typically segments contracts that contain multiple services by service type - for instance, engineering, procurement and construction services - for purposes of revenue recognition. Under ASU 2014-09, multiple-service contracts where the Company is responsible for providing a single deliverable (e.g., a constructed asset) will be treated as a single performance obligation for purposes of revenue recognition and thus no longer will be segmented. Typically, this will occur when the company is contracted to perform both engineering and construction on a project. In these circumstances, the timing and pattern of revenue recognition will change. The remainder of the Company's contracts will continue to be treated as having discrete units of account because they either contain only one service or because the Company has determined that the component services in the contract are distinct.
Contract Modifications
In many instances, the Company enters into separate contracts for related services (e.g., engineering and construction) but is held responsible for providing a single deliverable (“Phased Projects”). Under ASU 2014-09, the separate contracts may be required to be combined and treated as a single contract with one performance obligation. This modification or combination of contracts may result in a cumulative catchup adjustment, which will have an immediate impact on the Company’s results of operations in the period the contract combination or modification occurs. In addition, it will change the timing and pattern of revenue recognition after the period the contracts have been combined or modified. Based on the two noted changes above, the Company has identified selected changes to our systems, processes and internal controls and designed updates for each to meet the standard's revised reporting and disclosure requirements.
The Company will adopt the new standard using the Modified Retrospective application for periods beginning with the first fiscal quarter of 2019. This standard will impact the Company’s Consolidated Financial Statements and will its administrative operations. The impact will depend on the magnitude of the items discussed above. While the Company will continue to evaluate the impact through the implementation phase, we expect a reduction of retained earnings in our consolidated financial statements in the period of adoption due to revenue recognition timing for certain engineering and construction contracts shifting as a result of being accounted for as a single performance obligation. This adjustment will create a corresponding adjustment in the Company's consolidated financial statements to accounts receivable and unbilled receivables and to billings in excess of costs.
Lease Accounting In February 2016, the FASB issued ASU 2016-02 Leases. ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for public entity financial statements for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The new guidance currently requires a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. ASU 2016-02 was further clarified and amended within ASU 2017-13, ASU 2018-01, ASU 2018-10 and ASU 2018-11 which included provisions that would provide us with the option to adopt the provisions of the new guidance using a modified retrospective transition approach, without adjusting the comparative periods presented. The Company is evaluating the impact of the new guidance on its consolidated financial statements. This standard could havestatements and expects to use the modified retrospective transition approach without adjusting the comparative periods presented and expects a significant administrative impact onincrease to the balance sheet in its operations,assets for the lease right of use asset and a significant increase to the Company will further assessbalance sheet in its liabilities for the impact through its implementation program.lease obligation. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other Pronouncements In the first quarter of fiscal 2019, the Company adopted ASU 2016-01, Financial Instruments - Overall - Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and to recognize any changes in fair value in net income unless the investments qualify for a practicability exception. The adoption of ASU 2016-01 in the first quarter did not impact the Company’s financial position, results of operations or cash flows. However, as described in Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business, the Company received ordinary shares of Worley during the third quarter of 2019 which are measured at fair value through net income in accordance with ASU 2016-01. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accountingfor Hedging Activities.Activities. ASU 2017-12 provides financial reporting improvements related to hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. Additionally, ASU No. 2017-12 makes certain targeted improvements to simplify the application of the hedge accounting guidance. The revised guidance becomes effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company is evaluating the impact of the new guidance on its consolidated financial statements. It is not expected that the updated guidance will have a significant impact on the Company’s consolidated financial statements. ASU 2017-04, Simplifying the Test for Goodwill Impairment,, is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. ASU 2017-04 removes 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.allocated to the reporting unit. Management does not expect the adoption of ASU 2017-04 to have any impact on the Company's financial position, results of operations or cash flows. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In March 2017, the FASB issued ASU No. 2017-07, Compensation- Retirement Benefits2016-13, Financial Instruments - Credit Losses (Topic 715)326): ImprovingMeasurement 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 Presentationcurrent incurred loss approach, which requires waiting to recognize a loss until it is probable of Net Periodic Pension Costhaving been incurred. There are other provisions within the standard that affect how impairments of other financial assets may be recorded and Net Periodic Postretirement Benefit Cost.presented, and that expand disclosures. This new standard intends to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new standard requires the service cost component of net periodic costwill be reported in the same line item(s) as other employee compensation costs and all other components of the net periodic cost be reported in the consolidated statements of earnings and comprehensive income below operating income. ASU 2017-7 is effective for our interim and annual periods beginning with the first quarter of fiscal years beginning after December 15, 2017 for public companies2021, and early adoption is permitted. Management ismust be applied on a modified retrospective basis. We are currently evaluating the potential impact that the adoption of ASU 2017-07 will have on the Company's financial position, results of operations and cash flows.this standard.
| | 3. | Employee Stock Purchase and Stock Option Plans |
Broad-Based, 3. Employee Stock Purchase and Stock Option Plans
Employee Stock Purchase Plans Under the 1989 ESPP and the GESPP, eligible employees who elect to participate in these plans are granted the right to purchase shares of the common stock of Jacobs at a discount that is limited to 5% of the per-share market value on the day shares are sold to employees. The following table summarizes the stock issuance activity under the 1989 ESPP and the GESPP for the fiscal years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016:2017: | | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Aggregate Purchase Price Paid for Shares Sold: | |
| | |
| | |
| Under the 1989 ESPP | $ | 24,824,232 |
| | $ | 21,590,858 |
| | $ | 21,084,657 |
| Under the GESPP | 2,471,193 |
| | 2,240,609 |
| | 2,105,834 |
| Total | $ | 27,295,425 |
| | $ | 23,831,467 |
| | $ | 23,190,491 |
| Aggregate Number of Shares Sold: | |
| | |
| | |
| Under the 1989 ESPP | 354,580 |
| | 357,899 |
| | 403,652 |
| Under the GESPP | 34,843 |
| | 36,405 |
| | 39,648 |
| Total | 389,423 |
| | 394,304 |
| | 443,300 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | | | | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Aggregate Purchase Price Paid for Shares Sold: | |
| | |
| | |
| Under the 1989 ESPP | $ | 21,590,858 |
| | $ | 21,084,657 |
| | $ | 23,631,241 |
| Under the GESPP | 2,240,609 |
| | 2,105,834 |
| | 2,660,067 |
| Total | $ | 23,831,467 |
| | $ | 23,190,491 |
| | $ | 26,291,308 |
| Aggregate Number of Shares Sold: | |
| | |
| | |
| Under the 1989 ESPP | 357,899 |
| | 403,652 |
| | 564,461 |
| Under the GESPP | 36,405 |
| | 39,648 |
| | 63,196 |
| Total | 394,304 |
| | 443,300 |
| | 627,657 |
|
On January 19, 2017, the Company’s stockholders approved an increase in the number of shares authorized by 4,350,000 shares for the 1989 ESPP and by 150,000 shares for the GESPP. At September 28, 2018,27, 2019, there remains 4,187,9553,833,375 shares reserved for issuance under the 1989 ESPP and 138,575103,732 shares reserved for issuance under the GESPP. Stock Incentive Plans We also sponsor the 1999 Stock Incentive Plan, as amended and restated (the "SIP") and the 1999 Outside Director Stock Plan, as amended and restated (the "ODSP"). The 1999 SIP provides for the issuance of incentive stock options, non-qualified stock options, share appreciation rights ("SARs"), restricted stock and restricted stock units to employees. The 1999 ODSP provides for awards of shares of common stock, restricted stock, restricted stock units and grants of non-qualified stock options to our outside (i.e., nonemployee) directors. The following table sets forth certain information about the 1999 Plans: | | | | | | | | | | | 1999 SIP | | 1999 ODSP | | Total | Number of shares authorized | 29,850,000 |
| | 1,100,000 |
| | 30,950,000 |
| Number of remaining shares reserved for issuance at September 27, 2019 | 5,719,617 |
| | 427,002 |
| | 6,146,619 |
| Number of shares relating to outstanding stock options at September 27, 2019 | 755,856 |
| | 170,750 |
| | 926,606 |
| Number of shares available for future awards: | | | |
| | |
| At September 27, 2019 | 4,963,761 |
| | 256,252 |
| | 5,220,013 |
| At September 28, 2018 | 5,335,741 |
| | 295,630 |
| | 5,631,371 |
|
| | | | | | | | | | | 1999 SIP | | 1999 ODSP | | Total | Number of shares authorized | 29,850,000 |
| | 1,100,000 |
| | 30,950,000 |
| Number of remaining shares reserved for issuance at September 28, 2018 | 6,911,375 |
| | 486,755 |
| | 7,398,130 |
| Number of shares relating to outstanding stock options at September 28, 2018 | 1,575,634 |
| | 191,125 |
| | 1,766,759 |
| Number of shares available for future awards: | | | |
| | |
| At September 28, 2018 | 5,335,741 |
| | 295,630 |
| | 5,631,371 |
| At September 29, 2017 | 7,351,946 |
| | 312,412 |
| | 7,664,358 |
|
Effective September 28, 2012, all grants of shares under the 1999 SIP are issued on a fungible basis. An award other than an option or SAR are granted on a 1.92-to-1.00 basis (“Fungible”). An award of an option or SAR are granted on a 1-to-1 basis (“Not Fungible”). JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents the fair value of shares (of restricted stock and restricted stock units) vested for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Restricted Stock and Restricted Stock Units (service condition) | $ | 37,864 |
| | $ | 64,121 |
| | $ | 34,466 |
| Restricted Stock Units (service, market, and performance conditions at target) | 17,124 |
| | 2,626 |
| | 4,183 |
| Total | $ | 54,988 |
| | $ | 66,747 |
| | $ | 38,649 |
|
| | | | | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Restricted Stock and Restricted Stock Units (service condition) | $ | 64,121 |
| | $ | 34,466 |
| | $ | 17,481 |
| Restricted Stock Units (service, market, and performance conditions at target) | 2,626 |
| | 4,183 |
| | 4,336 |
| Total | $ | 66,747 |
| | $ | 38,649 |
| | $ | 21,817 |
|
At September 28, 2018,27, 2019, the amount of compensation cost relating to non-vested awards not yet recognized in the financial statements is approximately $93.3$77.2 million. The majority of these unrecognized compensation costs will be recognized by the first quarter of fiscal 2020.2021. The weighted average remaining contractual term of options currently exercisable is 4.32.1 years. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock Options The following table summarizes the stock option activity for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016:2017: | | | | | | | | | Number of Stock Options | | Weighted Average Exercise Price | Outstanding at September 30, 2016 | 3,577,512 |
| | $ | 45.69 |
| Granted | — |
| | $ | — |
| Exercised | (906,648 | ) | | $ | 43.79 |
| Cancelled or expired | (154,039 | ) | | $ | 48.79 |
| Outstanding at September 29, 2017 | 2,516,825 |
| | $ | 46.19 |
| Granted | — |
| | $ | — |
| Exercised | (636,019 | ) | | $ | 46.93 |
| Cancelled or expired | (114,047 | ) | | $ | 52.26 |
| Outstanding at September 28, 2018 | 1,766,759 |
| | $ | 45.53 |
| Granted | — |
| | $ | — |
| Exercised | (828,529 | ) | | $ | 45.63 |
| Cancelled or expired | (11,624 | ) | | $ | 42.10 |
| Outstanding at September 27, 2019 | 926,606 |
| | $ | 45.48 |
|
| | | | | | | | | Number of Stock Options | | Weighted Average Exercise Price | Outstanding at October 2, 2015 | 4,072,707 |
| | $ | 46.06 |
| Granted | 460,770 |
| | $ | 42.17 |
| Exercised | (412,416 | ) | | $ | 40.88 |
| Cancelled or expired | (543,549 | ) | | $ | 49.13 |
| Outstanding at September 30, 2016 | 3,577,512 |
| | $ | 45.69 |
| Granted | — |
| | $ | — |
| Exercised | (906,648 | ) | | $ | 43.79 |
| Cancelled or expired | (154,039 | ) | | $ | 48.79 |
| Outstanding at September 29, 2017 | 2,516,825 |
| | $ | 46.19 |
| Granted | — |
| | $ | — |
| Exercised | (636,019 | ) | | $ | 46.93 |
| Cancelled or expired | (114,047 | ) | | $ | 52.26 |
| Outstanding at September 28, 2018 | 1,766,759 |
| | $ | 45.53 |
|
Cash received from the exercise of stock options, net of tax remitted, during the year ended September 28, 201827, 2019 was $29.8$37.8 million. Stock options outstanding at September 28, 201827, 2019 consisted entirely of non-qualified stock options. The following table presents the total intrinsic value of stock options exercised for the fiscal years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | For the Years Ended | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | $27,720 | | $13,931 | | $14,713 |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | | | | | For the Years Ended | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | $13,931 | | $14,713 | | $4,149 |
The total intrinsic value of stock options exercisable at September 28, 201827, 2019 was approximately $47.6$38.7 million. The following table presents certain other information regarding our 1999 SIP and 1999 OSDP for the fiscal years ended September 27, 2019, September 28, 2018 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
and September 29, 2017 and September 30, 2016:2017: | | | | | | | | | | | | | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | At fiscal year end: | |
| | |
| | |
| Range of exercise prices for options exercisable | $32.51–$60.43 |
| | $32.51–$60.43 |
| | $32.51–$80.63 |
| Number of options exercisable | 860,114 |
| | 1,557,900 |
| | 1,992,022 |
| For the fiscal year: | |
| | |
| | |
| Range of prices relating to options exercised | $36.88–$60.43 |
| | $35.93–$61.26 |
| | $37.03–$55.53 |
| Estimated weighted average fair values of options granted | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | At fiscal year end: | |
| | |
| | |
| Range of exercise prices for options outstanding | $32.51–$60.43 |
| | $32.51–$80.63 |
| | $32.51–$80.63 |
| Number of options exercisable | 1,557,900 |
| | 1,992,022 |
| | 2,581,421 |
| For the fiscal year: | |
| | |
| | |
| Range of prices relating to options exercised | $35.93–$61.26 |
| | $37.03–$55.53 |
| | $36.88–$55.00 |
| Estimated weighted average fair values of options granted | $ | — |
| | $ | — |
| | $ | 12.80 |
|
The following table presents certain information regarding stock options outstanding and stock options exercisable at September 28, 2018:27, 2019: | | | | | | | | | | | | | | | | | | September 27, 2019 | | Options Outstanding | | Options Exercisable | Range of Exercise Prices | Number | | Weighted Average Remaining Contractual Life (years) | | Weighted Average Price | | Number | | Weighted Average Exercise Price | $32.51 - $37.03 | 60,500 |
| | 2.65 | | $ | 36.99 |
| | 60,500 |
| | $ | 36.99 |
| $37.43 - $46.09 | 607,119 |
| | 4.76 | | $ | 42.90 |
| | 540,627 |
| | $ | 43.02 |
| $47.11 - $55.13 | 227,612 |
| | 3.46 | | $ | 52.54 |
| | 227,612 |
| | $ | 52.54 |
| $60.08 - $80.63 | 31,375 |
| | 4.31 | | $ | 60.36 |
| | 31,375 |
| | $ | 60.36 |
| | 926,606 |
| | 4.29 | | $ | 45.48 |
| | 860,114 |
| | $ | 45.75 |
|
| | | | | | | | | | | | | | | | | | September 28, 2018 | | Options Outstanding | | Options Exercisable | Range of Exercise Prices | Number | | Weighted Average Remaining Contractual Life (years) | | Weighted Average Price | | Number | | Weighted Average Exercise Price | $32.51 - $37.03 | 153,000 |
| | 3.49 | | $ | 37.01 |
| | 153,000 |
| | $ | 37.01 |
| $37.43 - $46.09 | 1,059,647 |
| | 4.87 | | $ | 42.69 |
| | 850,788 |
| | $ | 42.74 |
| $47.11 - $55.13 | 513,237 |
| | 4.48 | | $ | 52.74 |
| | 513,237 |
| | $ | 52.74 |
| $60.08 - $80.63 | 40,875 |
| | 5.25 | | $ | 60.33 |
| | 40,875 |
| | $ | 60.33 |
| | 1,766,759 |
| | 4.65 | | $ | 45.53 |
| | 1,557,900 |
| | $ | 45.93 |
|
The 1999 ODSP and the 1999 SIP allow participants to satisfy the exercise price of stock options by tendering shares of Jacobs common stock that have been owned by the participants for at least six months. Shares so tendered are retired and canceled, and are shown as repurchases of common stock in the accompanying Consolidated Statements of Stockholders’ Equity. The weighted average remaining contractual term of options currently exercisable is 4.304.15 years. Restricted Stock The following table presents the number of shares of restricted stock and restricted stock units issued as common stock under the 1999 SIP for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016:2017: | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Restricted stock | — |
| | — |
| | — |
| Restricted stock units (service condition) | 318,056 |
| | 1,087,724 |
| | 496,951 |
| Restricted stock units (service, market and performance conditions) | 240,068 |
| | 254,784 |
| | 237,058 |
|
| | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Restricted stock | — |
| | — |
| | 597,091 |
| Restricted stock units (service condition) | 1,087,724 |
| | 496,951 |
| | 183,131 |
| Restricted stock units (service, market and performance conditions) | 254,784 |
| | 237,058 |
| | 372,794 |
|
The amount of restricted stock units issued for awards with performance and market conditions in the above table are issued based on performance against the target amount. The number of shares ultimately issued, which could be greater or less than target, will be based on achieving specific performance conditions related to the awards. The share amounts in the above tables reflect the Fungible share on a 1.92-to-1.00 basis of restricted stock and restricted stock unit issued.JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents the number and weighted average grant-date fair value of restricted stock and restricted stock units at September 28, 2018:27, 2019: JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES | | | | | | | | | Number of Shares | | Weighted Average Grant-Date Fair Value | Outstanding at September 28, 2018 | 2,329,535 |
| | $ | 56.11 |
| Granted | 710,718 |
| | $ | 73.12 |
| Vested | (1,093,926 | ) | | $ | 51.54 |
| Canceled | (223,290 | ) | | $ | 57.87 |
| Outstanding at September 27, 2019 | 1,723,037 |
| | $ | 65.80 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | Number of unvested Restricted Stock and Restricted Stock Units: | Number of Shares | | Weighted Average Grant-Date Fair Value | Outstanding at September 29, 2017 | 2,514,387 |
| | $ | 49.62 |
| Granted | 1,364,128 |
| | $ | 65.64 |
| Vested | (1,209,322 | ) | | $ | 55.19 |
| Cancelled | (339,658 | ) | | $ | 49.57 |
| Outstanding at September 28, 2018 | 2,329,535 |
| | $ | 56.11 |
|
The following table presents the number of shares of restricted stock and restricted stock units canceled and withheld for taxes under the 1999 SIP for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016:2017: | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Restricted stock | 105,301 |
| | 284,254 |
| | 365,481 |
| Restricted stock units (service condition) | 295,122 |
| | 336,516 |
| | 128,536 |
| Restricted stock units (service, market and performance conditions) | 183,654 |
| | 95,063 |
| | 86,742 |
|
| | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Restricted stock | 284,254 |
| | 365,481 |
| | 512,903 |
| Restricted stock units (service condition) | 336,516 |
| | 128,536 |
| | 177,640 |
| Restricted stock units (service, market and performance conditions) | 95,063 |
| | 86,742 |
| | 275,933 |
|
The amount of unvested restricted stock units canceled for awards with service and performance conditions in the above table is based on the service period achieved and performance against the target amount. The share amounts in the above tables reflect the Fungible share on a 1.92-to-1.00 basis of restricted stock and restricted stock unit issued.
The restrictions attached to restricted stock and restricted stock units generally relate to the recipient’s ability to sell or otherwise transfer the stock or stock units. There are also restrictions that subject the stock and stock units to forfeiture back to the Company until earned by the recipient through continued employment or service. The following table provides the number of shares of restricted stock and restricted stock units outstanding at September 28, 201827, 2019 under the 1999 SIP. Shares granted inNaN shares of restricted stock were issued under the table below are granted on a 1.92-to-1.00 basis (fungible):1999 ODSP during such periods. | | | | | September 28, 201827, 2019 | | Total | Restricted stock | 337,80595,626 |
| Restricted stock units (service condition) | 1,131,200833,091 |
| Restricted stock units (service, market and performance conditions) | 735,438668,252 |
|
The following table presents the number of shares of restricted stock and restricted stock units issued under the 1999 ODSP for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016:2017: | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Restricted stock units (service condition) | 26,372 |
| | 21,620 |
| | 21,123 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Restricted stock units (service condition) | 21,620 |
| | 21,123 |
| | 23,090 |
|
The following table provides the number of shares of restricted stock and restricted stock units outstanding at September 28, 201827, 2019 under the 1999 ODSP: | | | | | September 28, 201827, 2019 | Restricted stock | 34,000 |
| Restricted stock units (service condition) | 91,09292,068 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All shares granted under the 1999 ODSP are issued on a 1.92-to-11.92-to-1.00 basis. Modification
On January 18, 2017, the Company modified time vested outstanding restricted stock units, paid out in stock and cash, specifically to allow participants to be entitled to dividend equivalents during the vesting period on the outstanding RSUs. Dividends will be paid out at the end of the vesting period and are forfeitable before the vesting period concludes. This modification affected 786 employees and resulted in $1.1 million of incremental compensation cost and will be recognized over the remaining vesting period for each grant, since dividends are forfeitable until vesting is achieved.
| | 4. | Earnings Per Share and Certain Related Information |
Basic and Diluted Earnings Per Share 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. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 30, 2017 | Numerator for Basic and Diluted EPS: | | | | | | Net earnings (loss) attributable to Jacobs from continuing operations | $ | 290,960 |
| | $ | (4,185 | ) | | $ | 170,167 |
| Net earnings (loss) from continuing operations allocated to participating securities | (415 | ) | | — |
| | (1,783 | ) | Net earnings (loss) from continuing operations allocated to common stock for EPS calculation | $ | 290,545 |
| | $ | (4,185 | ) | | $ | 168,384 |
| | | | | | | Net earnings (loss) attributable to Jacobs from discontinued operations | $ | 557,019 |
| | $ | 167,616 |
| | $ | 123,560 |
| Net earnings (loss) from discontinued operations allocated to participating securities | (795 | ) | | (808 | ) | | (1,294 | ) | Net earnings (loss) from discontinued operations allocated to common stock for EPS calculation | $ | 556,224 |
| | $ | 166,808 |
| | $ | 122,266 |
| | | | | | | Net earnings allocated to common stock for EPS calculation | $ | 846,769 |
| | $ | 162,623 |
| | $ | 290,650 |
| | | | | | | Denominator for Basic and Diluted EPS: | | | | | | Weighted average basic shares | 138,104 |
| | 138,182 |
| | 120,689 |
| Shares allocated to participating securities | (197 | ) | | (646 | ) | | (1,319 | ) | Shares used for calculating basic EPS attributable to common stock | 137,907 |
| | 137,536 |
| | 119,370 |
| | | | | | | Effect of dilutive securities: | | | | | | Stock compensation plans (1) | 1,299 |
| | — |
| | 777 |
| Shares used for calculating diluted EPS attributable to common stock | 139,206 |
| | 137,536 |
| | 120,147 |
| | | | | | | Net Earnings Per Share: | | | | | | Basic Net Earnings (Loss) from Continuing Operations Per Share | $ | 2.11 |
| | $ | (0.03 | ) | | $ | 1.41 |
| Basic Net Earnings from Discontinued Operations Per Share | $ | 4.03 |
| | $ | 1.21 |
| | $ | 1.02 |
| Basic EPS | $ | 6.14 |
| | $ | 1.18 |
| | $ | 2.43 |
| Diluted Net Earnings (Loss) from Continuing Operations Per Share | $ | 2.09 |
| | $ | (0.03 | ) | | $ | 1.40 |
| Diluted Net Earnings from Discontinued Operations Per Share | $ | 4.00 |
| | $ | 1.21 |
| | $ | 1.02 |
| Diluted EPS | $ | 6.08 |
| | $ | 1.18 |
| | $ | 2.42 |
|
| | | | | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Numerator for Basic and Diluted EPS: | | | | | | Net income | $ | 163,431 |
| | $ | 293,727 |
| | $ | 210,463 |
| Net income allocated to participating securities | (788 | ) | | (3,077 | ) | | — |
| Net income allocated to common stock for EPS calculation | $ | 162,643 |
| | $ | 290,650 |
| | $ | 210,463 |
| | | | | | | Denominator for Basic and Diluted EPS: | | | | | | Weighted average basic shares | 138,182 |
| | 120,689 |
| | 120,133 |
| Shares allocated to participating securities | (646 | ) | | (1,319 | ) | | — |
| Shares used for calculating basic EPS attributable to common stock | 137,536 |
| | 119,370 |
| | 120,133 |
| | | | | | | Effect of dilutive securities: | | | | | | Stock compensation plans | 1,176 |
| | 777 |
| | 1,350 |
| Shares used for calculating diluted EPS attributable to common stock | 138,712 |
| | 120,147 |
| | 121,483 |
| | | | | | | Basic EPS | $ | 1.18 |
| | $ | 2.43 |
| | $ | 1.75 |
| Diluted EPS | $ | 1.17 |
| | $ | 2.42 |
| | $ | 1.73 |
|
| | (1) | For the fiscal 2018 period, because net earnings (loss) from continuing operations was a loss, the effect of antidilutive securities of 1,176 was excluded from the denominator in calculating diluted EPS. |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Share Repurchases On July 23, 2015, the Company’s Board of Directors authorized a share repurchase program of up to $500 million of the Company’s common stock, to expire on July 31, 2018. On July 19, 2018, the Company's Board of Directors authorized the continuation of this share repurchase program for an additional three years, to expire on July 31, 2021. As of September 27, 2019, no authorized amounts remain outstanding under this program. The following table summarizes the activity under this program during fiscal 2018:2019: | | | | | | | |
| | Average Price Per Share (1) | | Shares Repurchased | | Total Shares Retired | $500,000,000 | | $60.77 | | 49,074 | | 49,074 |
| | | | | | | | Amount Authorized | | Average Price Per Share (1) | | Shares Repurchased | | Total Shares Retired | $500,000,000 | | $61.74 | | 4,005,007 | | 4,005,007 |
(1) | | (1) | Includes commissions paid and calculated at the average price per share since the repurchase program authorization date. |
On January 17, 2019, 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 16, 2022. On February 19, 2019, the Company launched accelerated share repurchase programs by advancing $250 million to two financial institutions in privately negotiated transactions (collectively, the "First 2019 ASR Program"). The specific number of shares that the Company repurchased under the First 2019 ASR Program was determined based generally on a discount to the volume-weighted average price per share sinceof the Company's common stock during a calculation period completed on June 5, 2019. The purchase was recorded as a share retirement for purposes of calculating earnings per share. On August 21, 2019, the Company launched a second accelerated share repurchase program authorization date.by advancing $250 million to a financial institution in a privately negotiated transaction (the "Second 2019 ASR Program"). The specific number of shares that the Company ultimately will repurchase under the Second 2019 ASR Program will be determined based generally on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period to be completed no later than December 2019. The purchase will be recorded as a share retirement for purposes of calculating earnings per share. Subsequent to the launch of the First 2019 ASR Program, the Second 2019 ASR Program and other share repurchases, the Company has $393.7 million remaining under its $1.0 billion share repurchase authorization. The following table summarizes the activity under this program during fiscal 2019: | | | | | | | Amount Authorized | Average Price Per Share (1) |
| Shares Repurchased |
| Total Shares Retired | $1,000,000,000 | $86.43 |
| 7,014,633 |
| 7,014,633 |
| | (1) | Includes commissions paid and calculated at the average price per share since the repurchase program authorization date. |
Share repurchases may be executed through various means including, without limitation, accelerated share repurchases, open market transactions, privately negotiated transactions, purchases pursuant to a Rule 10b5-1 plan or otherwise. The share repurchase program does not obligate the Company to purchase any shares. The authorization for the share repurchase program may be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time. The timing and amount 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. Common and Preferred Stock Jacobs is authorized to issue two classes of capital stock designated “common stock” and “preferred stock” (each has a par value of $1.00 per share). The preferred stock may be issued in one or more series. The number of shares to be included in a series as well as each series’ designation, relative powers, dividend and other preferences, rights and qualifications, redemption provisions and restrictions are to be fixed by the Company’s Board of Directors at the time each series is issued. Except as may be provided by the Company’s Board of Directors in a preferred stock designation, or otherwise provided for by statute, the holders of shares of common stock have the exclusive right to vote for the election of directors and on all other matters requiring stockholder action. The holders of shares of common stock are entitled to dividends if and when declared by the Company’s Board of Directors from whatever assets are legally available for that purpose. Dividend ProgramJACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES InNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Dividends On September 19, 2019, the fourth fiscal quarterCompany’s Board of 2017, the CompanyDirectors declared a quarterly dividend of $0.15$0.17 per share of the Company’s common stock that was paid in the first fiscal quarter of 2018. In the second, third and fourth fiscal quarters of 2018, the Company declared and paid a dividend of $0.15 per share of the Company’s common stock, for a total of $0.60 per share paid during the year ended September 28, 2018. On September 11, 2018, the Company's Board of Directors declared a dividend of $0.15 per share of the Company's common stock thatwhich was paid on October 26, 2018November 1, 2019, to shareholders of record on the close of business on September 28, 2018.October 4, 2019. Future dividend declarations are subject to review and approval by the Company’s Board of Directors. Dividends paid through September 27, 2019 and the preceding fiscal year are as follows: | | | | | | | | Declaration Date | | Record Date | | Payment Date | | Cash Amount (per share) | July 11, 2019 | | July 26, 2019 | | August 23, 2019 | | $0.17 | May 2, 2019 | | May 17, 2019 | | June 14, 2019 | | $0.17 | January 17, 2019 | | February 15, 2019 | | March 15, 2019 | | $0.17 | September 11, 2018 | | September 28, 2018 | | October 26, 2018 | | $0.15 | July 19, 2018 | | August 3, 2018 | | August 31, 2018 | | $0.15 | May 3, 2018 | | May 18, 2018 | | June 15, 2018 | | $0.15 | January 18, 2018 | | February 16, 2018 | | March 16, 2018 | | $0.15 | September 27, 2017 | | October 13, 2017 | | November 10, 2017 | | $0.15 |
KeyW On June 12, 2019, Jacobs completed the acquisition of The KeyW Holding Corporation (“KeyW”), a U.S. based national security solutions provider to the intelligence, cyber, and counterterrorism communities by acquiring 100% of the outstanding shares of KeyW common stock. The acquisition allows Jacobs to further expand its government services business. The Company paid total consideration of $902.6 million which was comprised of approximately $604.2 million in cash to the former stockholders and certain equity award holders of KeyW and the assumption of KeyW’s debt of $298.4 million. As of July 2019, the Company has repaid all of KeyW's debt. The following summarizes the fair values of KeyW assets and acquired liabilities assumed as of the acquisition date (in millions): | | | | | Assets | | Cash and cash equivalents | $ | 29.1 |
| Receivables | 80.1 |
| Inventories, net | 21.3 |
| Prepaid expenses and other | 2.5 |
| Property, equipment and improvements, net | 25.9 |
| Deferred tax asset and other | 36.7 |
| Goodwill | 611.8 |
| Identifiable intangible assets | 179.0 |
| Total Assets | $ | 986.4 |
| | | Liabilities | | Accounts payable | $ | 8.3 |
| Accrued expenses | 68.7 |
| Short term debt | 298.4 |
| Other current liabilities | 3.9 |
| Other non-current liabilities | 2.9 |
| Total Liabilities | $ | 382.2 |
| Net assets acquired | $ | 604.2 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. $136.0 million 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 purchased receivables, tax balances or contingent liabilities. The final purchase price allocation will result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill. During the three months ended September 27, 2019, the Company updated certain provisional amounts reflected in the preliminary purchase price allocation, as summarized in the estimated fair values of KeyW assets acquired and liabilities assumed above. Specifically, the carrying amount of the intangible assets discussed above were decreased by $9.3 million, all other assets excluding goodwill increased by $7.4 million and total liabilities increased by $7.5 million. These updates led to a $9.4 million increase in goodwill. These measurement period adjustments are recognized in the reporting period in which the adjustments are determined and calculated as if the accounting had been completed at the acquisition date. Identified intangible assets 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, contract and backlog intangible, and the developed technology intangible have lives of 10 and 12 years, respectively. Other intangible liabilities consist of the fair value of office leases and have a weighted average life of approximately 9 years. Fair value measurements relating to the KeyW acquisition 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. From the acquisition date of June 12, 2019 through September 27, 2019, KeyW contributed approximately $136.3 million in revenue and $17.7 million in pre-tax loss included in the accompanying Consolidated Statement of Earnings. Included in these results were approximately $12.9 million in pre-tax transaction costs which related primarily to professional services and other transaction related expenses. The following presents summarized unaudited pro forma operating results of Jacobs assuming that the Company had acquired KeyW at October 1, 2017. These pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the related events occurred (in millions, except per share data): | | | | | | | | | | | | For the Years Ended | | | September 27, 2019 | | September 28, 2018 | Revenues | | $ | 13,068.7 |
| | $ | 11,087.2 |
| Net earnings of the Group from Continuing Operations | | $ | 326.0 |
| | $ | 2.8 |
| Net earnings (loss) attributable to Jacobs from continuing operations | | $ | 303.0 |
| | $ | (6.7 | ) | Net earnings (loss) attributable to Jacobs from continuing operations per share: | | | | | Basic earnings (loss) from continuing operations per share | | $ | 2.19 |
| | $ | (0.05 | ) | Diluted earnings (loss) from continuing operations per share | | $ | 2.17 |
| | $ | (0.05 | ) |
Included in the table above are the unaudited pro forma operating results of continuing operations. Additionally, charges relating to transaction expenses, severance expense and other items are removed from the year ended September 27, 2019 and are reflected in the prior fiscal year due to the assumed timing of the transaction. Also, income tax expense (benefit) for the fiscal year pro forma periods ended September 27, 2019 and September 28, 2018 were $41.3 million and $305.7 million, respectively. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CH2M On December 15, 2017, the Company completed the acquisition of CH2M HILL Companies, Ltd. (CH2M)("CH2M"), an international provider of engineering, construction and technical services, by acquiring 100% of the outstanding shares of CH2M common stock and preferred stock. The purpose of the acquisition was to further diversify the Company’s presence in the water, nuclear and environmental remediation sectors and to further the Company’s profitable growth strategy. The Company paid total consideration of approximately $1.8 billion in cash (excluding $315.2 million of cash acquired) and issued approximately $1.4 billion of Jacobs’ common stock, or 20.7 million shares, to the former stockholders and certain equity award holders of CH2M. In connection with the acquisition, the Company also assumed CH2M’s revolving credit facility and second lien notes, including a $20.0 million prepayment penalty, which totaled approximately $700 million of long-term debt. Immediately following the effective time of the acquisition, the Company repaid CH2M’s revolving credit facility and second lien notes including the related prepayment penalty. The following summarizes the estimated fair values of CH2M assets acquired and liabilities assumed as of the acquisition date (in millions): JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES | | | | | Assets | | Cash and cash equivalents | $ | 315.2 |
| Receivables | 1,120.6 |
| Prepaid expenses and other | 72.7 |
| Property, equipment and improvements, net | 175.1 |
| Goodwill | 3,165.5 |
| Identifiable intangible assets: | | Customer relationships, contracts and backlog | 412.3 |
| Lease intangible assets | 4.4 |
| Total identifiable intangible assets | 416.7 |
| Miscellaneous | 530.8 |
| Total Assets | $ | 5,796.6 |
| | | Liabilities | | Notes payable | $ | 2.2 |
| Accounts payable | 309.6 |
| Accrued liabilities | 787.4 |
| Contract liabilities | 260.8 |
| Identifiable intangible liabilities: | | Lease intangible liabilities | 9.6 |
| Long-term debt | 706.0 |
| Other deferred liabilities | 659.0 |
| Total Liabilities | $ | 2,734.6 |
| Noncontrolling interests | (37.3 | ) | Net assets acquired | $ | 3,024.7 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | Assets | | Cash and cash equivalents | $ | 315.2 |
| Receivables | 1,124.6 |
| Prepaid expenses and other | 72.7 |
| Property, equipment and improvements, net | 175.1 |
| Goodwill | 3,129.1 |
| Identifiable intangible assets: | | Customer relationships, contracts and backlog | 412.3 |
| Lease intangible assets | 4.4 |
| Total identifiable intangible assets | 416.7 |
| Miscellaneous | 522.9 |
| Total Assets | $ | 5,756.3 |
| | | Liabilities | | Notes payable | $ | 2.2 |
| Accounts payable | 309.6 |
| Accrued liabilities | 753.1 |
| Billings in excess of costs | 260.8 |
| Identifiable intangible liabilities: | | Lease intangible liabilities | 9.6 |
| Long-term debt | 706.0 |
| Other deferred liabilities | 653.0 |
| Total Liabilities | 2,694.3 |
| Noncontrolling interests | (37.3 | ) | Net assets acquired | $ | 3,024.7 |
|
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. NoneNaN of the goodwill recognized is expected to be deductible for tax purposes. TheDuring the first quarter of fiscal 2019, the Company has not completed its final assessment of the fair values of purchased receivables, intangible assets, tax balances, contingent liabilities orthe acquired contracts. The final purchase price allocation will result in adjustments to certain assets and liabilities including the residual amount allocated to goodwill.of CH2M. Accrued liabilities and other deferred liabilities include approximately $385.3$404.7 million related to provisional estimates related tofor various legal and other pre-acquisition contingent liabilities accounted for under ASC 450. See Note 15- 17- Contractual Guarantees, Litigation, Investigations and Insurance relating to CH2M contingencies.
Since the initial preliminary estimates reported in the first quarter offiscal 2018 Form 10-K, the Company has updated certain provisional amounts reflected in the preliminaryfinal purchase price allocation due to additional information that became available during the measurement JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
period, including results of preliminary mediation discussions, recommendations from external advisors and claims for damages filed against Jacobs related to pre-acquisition contingencies, as summarized in the estimated fair values of CH2M assets acquired and liabilities assumed above. Specifically, the carrying amount of the intangible assets discussed above were decreased by $186.2 million as a result of valuation adjustments. Additionally, the carrying amount of property, equipment and improvements, net decreased by $50.5 million to reflect its estimated fair value, receivables decreased $77.3 million and accrued liabilities and other deferred liabilities increased $364.4 million primarily related to provisional estimates related to various legal and other pre-acquisition contingent liabilities. Further, miscellaneous long-term assets increased $245.5 million largely due to the deferred tax impact of these valuation adjustments. As a result of these adjustments to the initial preliminary purchase price allocation, goodwill has increased $430.3 million.set forth above. Measurement period adjustments are recognized in the reporting period in which the adjustments are determined and calculated as if the accounting had been completed at the acquisition date. With respect to measurement period adjustments recognized in the first quarter of 2019, receivables decreased $4.0 million and accrued liabilities and other deferred liabilities decreased $11.5 million, respectively, primarily related to provisional estimates related to various legal and other pre-acquisition contingent liabilities. Further, miscellaneous long-term assets increased $20.7 million largely due to the deferred tax impact of these valuation adjustments. Subsequently, during the fourth quarter of 2019, the Company identified and corrected income tax errors related to the purchase price allocation resulting to an increase in accrued liabilities of $51.8 million, and a decrease in miscellaneous long-term assets of $12.8 million, with an offset to goodwill. As a result of the total adjustments to the purchase price allocation in fiscal 2019, goodwill increased $36.4 million. Customer relationships, contracts and backlog represent the fair value of existing contracts, the underlying customer relationships and backlog of consolidated subsidiaries and have lives ranging from 9 to 11 years (weighted average life of approximately 10 years). Other intangible assets and liabilities primarily consist of the fair value of office leases and have a weighted average life of approximately 10 years. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Estimated fairFair value measurements relating to the CH2M acquisition are made using Level 3 inputs including discounted cash flow techniques. Fair value is estimated using inputs primarily from 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 reflect the level of risk associated with receiving future cash flows. The estimated fair value of land has been determined using the market approach, which arrives at an indication of value by comparing the site being valued to sites that have been recently acquired in arm’s-length transactions. Personal property assets with an active and identifiable secondary market are valued using the market approach. Buildings and land improvements are valued using the cost approach using a direct cost model built on estimates of replacement cost. 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.
From the acquisition date of December 15, 2017 through the end of September 28, 2018, CH2M consolidated, including both continuing and discontinued operations, contributed approximately $3.8 billion in revenue and $185.9 million in pretax income included in the accompanying consolidated statement of earnings. Included in these results were approximately $99.3 million in pre-tax restructuring and transaction costs. Transaction costs associated with the CH2M acquisition in the accompanying consolidated statements of earnings for the yearsyear ended September 28, 2018 and September 29, 2017 are comprised of the following (in millions): | | | | | | For the Year Ended | | September 28, 2018 | Personnel costs | $ | 50.2 |
| Professional services and other expenses | 27.5 |
| Total | $ | 77.7 |
|
| | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | Personnel costs | $ | 50.2 |
| | $ | 2.2 |
| Professional services and other expenses | 27.5 |
| | 14.9 |
| Total | $ | 77.7 |
| | $ | 17.1 |
|
Personnel costs above include change of control payments and related severance costs. The following presents summarized unaudited pro forma operating results assuming that the Company had acquired CH2M at October 1, 2016. These pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the related events occurred (in millions):. Additionally, these pro forma operating results have not been recast for the sale of our ECR business. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | | | | Revenues | $ | 16,012.4 |
| | $ | 14,612.4 |
| Net earnings | $ | 196.3 |
| | $ | 264.8 |
| Net earnings (loss) attributable to Jacobs | $ | 184.5 |
| | $ | 243.6 |
| Net earnings (loss) attributable to Jacobs per share: |
| |
| Basic earnings (loss) per share | $ | 1.28 |
| | $ | 1.73 |
| Diluted earnings (loss) per share | $ | 1.27 |
| | $ | 1.72 |
|
| | | | | | For the Year Ended | | September 28, 2018 | Revenues | $ | 16,012.4 |
| Net earnings | $ | 196.3 |
| Net earnings (loss) attributable to Jacobs | $ | 184.5 |
| Net earnings (loss) attributable to Jacobs per share: |
| Basic earnings (loss) per share | $ | 1.28 |
| Diluted earnings (loss) per share | $ | 1.27 |
|
Included in the unaudited pro forma operating results are charges relating to transaction expenses, severance expense and other items that are removed from the year ended September 28, 2018 and are reflected in the year ended September 29, 2017 due to the assumed timing of the transaction. Also, income tax expense (benefit) for the twelvetwelve- month pro forma periodsperiod ended September 28, 2018 and September 29, 2017 was $409.7 million. John Wood Group's Nuclear Business On August 20, 2019, Jacobs announced the entry into an agreement to acquire John Wood Group's Nuclear consulting, remediation and program management business for an enterprise value of £250 million and $24.2 million, respectively.(approx. $300 million) on a debt-free, cash-free basis. The transaction is expected to close by the end of fiscal 2020 second quarter. In fiscal 2017, the Company recorded $119.3 million of goodwill in conjunction with the acquisitions of Aquenta Consulting Pty Ltd. and Blue Canopy LLC. The Company has completed its final assessment of the fair values of purchased assets and liabilities of the related companies acquired.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | 6. | Goodwill and Intangibles |
As a result of the refinement of the segment realignment this year, see Note 17- 19- Segment Information, a portion of the historical carrying value of goodwill has beenfor the former Aerospace, Technology, Environmental and Nuclear segment was allocated to the three remaining reportable segments to present balancesPeople & Places Solutions segment on a comparable basis.relative fair value basis to reflect the movement of the Global Environmental Solutions ("GES") business between segments. Additionally, because of the sale of the Energy, Chemicals and Resources ("ECR") line of business (see Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business) which is now reflected as discontinued operations, the goodwill balance associated with ECR has been reclassified to noncurrent assets held for sale on the Consolidated Balance Sheet for the year ended September 28, 2018. The roll-forwardcarrying value of goodwill by LOBassociated with continuing operations and appearing in the accompanying Consolidated Balance Sheets for the year ended September 28, 201827, 2019 was as follows (in millions): | | | | | | | | | | | | | | Critical Mission Solutions | | People & Places Solutions | | Total | Balance September 28, 2018 | $ | 1,581 |
| | $ | 3,215 |
| | $ | 4,796 |
| Acquired | 612 |
| | — |
| | 612 |
| Post-Acquisition Adjustments relating to prior year acquisition | 17 |
| | 34 |
| | 51 |
| Foreign Exchange Impact | (8 | ) | | (18 | ) | | (26 | ) | Balance September 27, 2019 | $ | 2,202 |
| | $ | 3,231 |
| | $ | 5,433 |
|
| | | | | | | | | | | | | | | | | | Aerospace, Technology, Environmental and Nuclear | | Buildings, Infrastructure and Advanced Facilities | | Energy, Chemicals and Resources | | Total | Balance September 29, 2017 | $ | 1,038 |
| | $ | 1,049 |
| | $ | 923 |
| | $ | 3,010 |
| Acquired | 1,147 |
| | 1,585 |
| | 397 |
| | 3,129 |
| Post-Acquisition Adjustments relating to prior year acquisition | 4 |
| | — |
| | — |
| | 4 |
| Foreign Exchange Impact | (13 | ) | | (14 | ) | | (12 | ) | | (39 | ) | Balance September 28, 2018 | $ | 2,176 |
| | $ | 2,620 |
| | $ | 1,308 |
| | $ | 6,104 |
|
During the preparation of our Quarterly Report on Form 10-Q for the first fiscal quarter of 2017, the Company determined that its prior financial statements contained immaterial misstatements related to incorrect translation of the Company’s non-U.S. goodwill balances from local currency to the U.S. Dollar reporting currency. It was determined that the Company had incorrectly used historical translation rates for the U.S. Dollar in place at the time of the Company’s recording of its foreign goodwill balances rather than using current translation rates at each balance sheet date in accordance with U.S. GAAP. The error dated back to the time of our initial reporting of non-U.S. goodwill balances in the late 1990s and affected our historical quarterly and annual reporting periods through the first fiscal quarter of 2017. As a result, goodwill and accumulated other comprehensive income in the Company’s September 30, 2016 consolidated balance sheet (which have not been adjusted) were each overstated by $209.9 million and were corrected in the first fiscal quarter of 2017 foreign currency translation adjustment. Consequently, the correction was a direct component of the overall translation adjustment amount of $140.5 million that was reported for fiscal 2017. These adjustments had no impact on the Company’s Consolidated Statements of Earnings or Cash Flows. Also, other comprehensive income for the year ended September 30, 2016 was overstated by $33.8 million as a result of these misstatements.
The following table provides a roll-forward of the Company’s acquired intangibles in the accompanying Consolidated Balance Sheets for the yearsyear ended September 28, 2018 and September 29, 201727, 2019 (in thousands): | | | | | | | | | | | | | | | | | | | | | | Customer Relationships, Contracts and Backlog | | Developed Technology | | Trade Names | | Lease Intangible Assets | | Total | Balances, September 28, 2018 | $ | 568,323 |
| | $ | — |
| | $ | 2,102 |
| | $ | 2,527 |
| | $ | 572,952 |
| Acquired | 137,000 |
| | 42,000 |
| | — |
| | — |
| | 179,000 |
| Disposal | — |
| | — |
| | — |
| | (883 | ) | | (883 | ) | Amortization | (76,565 | ) | | (1,167 | ) | | (920 | ) | | (446 | ) | | (79,098 | ) | Foreign currency translation | (6,366 | ) | | — |
| | 1 |
| | (530 | ) | | (6,895 | ) | Balance at September 27, 2019 | $ | 622,392 |
| | $ | 40,833 |
| | $ | 1,183 |
| | $ | 668 |
| | $ | 665,076 |
| Weighted Average Amortization Period (years) | 8 |
| | 12 |
| | 9 |
| | 2 |
| | 8 |
|
| | | | | | | | | | | | | | | | | | | | | | | Customer Relationships, Contracts and Backlog | | Developed Technology | | Trade Names | | Patents | | Lease Intangible Assets | | Other | | Total | Balances, September 30, 2016 | 307,637 |
| | 14,311 |
| | 4,786 |
| | 10,027 |
| | — |
| | 161 |
| | 336,922 |
| Acquisitions | 29,803 |
| | 1,685 |
| | 4,417 |
| | — |
| |
| | — |
| | 35,905 |
| Amortization | (39,679 | ) | | (1,534 | ) | | (2,549 | ) | | (400 | ) | |
| | (50 | ) | | (44,212 | ) | Foreign currency translation | 3,707 |
| | — |
| | 45 |
| | 553 |
| |
| | — |
| | 4,305 |
| Balances, September 29, 2017 | 301,468 |
| | 14,462 |
| | 6,699 |
| | 10,180 |
| | — |
| | 111 |
| | 332,920 |
| Acquisitions | 412,300 |
| | 237 |
| | — |
| | — |
| | 4,415 |
| | — |
| | 416,952 |
| Post-Acquisition Adjustments relating to prior year acquisition | 200 |
| | (1,921 | ) | | (1,700 | ) | | — |
| | — |
| | — |
| | (3,421 | ) | Amortization | (75,375 | ) | | (1,533 | ) | | (2,738 | ) | | (410 | ) | | (625 | ) | | (50 | ) | | (80,731 | ) | Foreign currency translation | (9,150 | ) | | — |
| | (159 | ) | | (454 | ) | | — |
| | — |
| | (9,763 | ) | Balances, September 28, 2018 | 629,443 |
| | 11,245 |
| | 2,102 |
| | 9,316 |
| | 3,790 |
| | 61 |
| | 655,957 |
| Weighted Average Amortization Period (years) | 9 |
| | 8 |
| | 8 |
| | 24 |
| | 8 |
| | 2 |
| | 9 |
|
In addition, we acquired $9.6 million in lease intangible liabilities in connection with the CH2M acquisition, of which $8.7 million remain unamortized at September 28, 2018.
The weighted average amortization period includes the effects of foreign currency translation.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In addition, we acquired $4.7 million in lease intangible liabilities in connection with the CH2M and KeyW acquisitions, of which $4.0 million remain unamortized at September 27, 2019. The weighted average amortization period includes the effects of foreign currency translation. The following table presents estimated amortization expense of intangible assets for fiscal 2019 and for the succeeding years. The amounts below include preliminary amortization estimates for the CH2MKeyW opening balance sheet fair values that are still preliminary and are subject to change. | | | | | | Fiscal Year | | (in millions) | 2020 | | $ | 86.6 |
| 2021 | | 82.8 |
| 2022 | | 81.7 |
| 2023 | | 81.4 |
| 2024 | | 81.4 |
| Thereafter | | 247.2 |
| Total | | $ | 661.1 |
|
| | | | | Fiscal Year | (in millions) | 2019 | $ | 86.1 |
| 2020 | 83.0 |
| 2021 | 79.4 |
| 2022 | 78.2 |
| 2023 | 77.6 |
| Thereafter | 242.9 |
| Total | $ | 647.2 |
|
| | 7. | 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”). On April 26, 2019, the Company and Worley entered into an Amended and Restated Stock and Asset Purchase Agreement (the “A&R Purchase Agreement”), pursuant to which the previously executed purchase agreement dated October 21, 2018 was amended in connection with the closing of the ECR sale. Among other things, the amendments in the A&R Purchase Agreement modified the lock-up period for share consideration to apply to 9.9% of Worley’s ordinary shares and extended the end date of the lock-up period to eight weeks following the ECR Business IT Migration Date (as defined in the related Transition Services Agreement ("TSA")) in the event such date had not occurred on or prior to October 1, 2019. Subsequent to year end, the ECR Business IT Migration Date occurred, and as a result, the eight-week lock up period is expected to end in December 2019. Gain on Sale and Deferred Gain As a result of the ECR sale, the Company recognized a pre-tax gain of $935.1 million which is included in Net Earnings of the Group from Discontinued Operations on the consolidated statement of earnings for the fiscal year ended September 27, 2019. Upon closing the ECR sale, the Company retained a noncontrolling interest (with significant influence) in PPS-related activities in one international legal entity that is now controlled and consolidated 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 will occur at a future date. Accordingly, the Company allocated proceeds received to this deferred closing on a relative fair value basis and recognized a deferred gain of $34.4 million, which will be recorded in income when the ECR-related assets are transferred. In addition to consideration received for the sale of the ECR business, the proceeds received included advanced consideration for the Company to deliver IT application and related hardware assets at a future date (ECR Business “IT Migration Date”) to Worley upon completion of the interim transition services, described further below. This deliverable of IT assets is considered to be a separate element of the ECR business sale transaction, and accordingly, we have 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 fiscal year 2020, the deferred proceeds will be recognized in income, along with expenses associated with any costs incurred and deferred by the Company for this deliverable. Investment in Worley Stock JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As discussed above, the Company received 58.2 million in ordinary shares of Worley. Pursuant to the A&R Purchase Agreement, 51.4 million of the shares are considered "restricted" during a lock-up period expected to expire in December 2019. During the lock-up period, Jacobs may not, without Worley's consent, directly or indirectly dispose of the "restricted" shares. The remaining 6.8 million shares not considered "restricted" were sold in the current year, netting a loss of $4.9 million, which was recognized in miscellaneous Income (Expense), net. 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. The 51.4 million ordinary shares considered "restricted" are recorded within Prepaid expenses and other at their estimated fair value, which is $451.1 million as of September 27, 2019. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input. During the year ended September 27, 2019 Jacobs received dividend income related to the equity investment in the amount of $5.2 million. Transition Services Agreement Upon closing of the sale, the Company entered into a TSA with Worley pursuant to which the Company, on an interim basis, provides various services to Worley including executive consultation, corporate, information technology, and project services. The term of the TSA began immediately following the closing of the ECR sale on April 26, 2019 and will continue for up to one year, with an option to extend the period if mutually agreed upon. Pursuant to the terms of the TSA, the Company will receive payments for the interim services which approximate costs incurred to perform the services. Since inception of the TSA agreement, the Company has recognized costs recorded in SG&A expense incurred to perform the TSA, offset by $35.4 million in TSA related income for such services that is reported in miscellaneous income (expense) in continuing operations for the year ended September 27, 2019 before inclusion of certain incremental outside service support costs agreed to be shared equally by the parties. Discontinued Operations As a result of the ECR sale, substantially all ECR-related assets and liabilities have been 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 Consolidated Statements of Earnings as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of the Disposal Group are reflected as held-for-sale in the Consolidated Balance Sheet as of September 28, 2018. Further, as of the year ended September 27, 2019, a portion of the ECR business remains held by Jacobs as described above and continues to be classified as held for sale for the in accordance with U.S. GAAP. Summarized Financial Information of Discontinued Operations The following table represents earnings (loss) from discontinued operations, net of tax (in thousands): | | | | | | | | | | | | | | For the Years Ended (1) | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Revenues | $ | 2,725,699 |
| | $ | 4,404,873 |
| | $ | 3,692,662 |
| Direct cost of contracts | (2,338,113 | ) | | (3,756,263 | ) | | (3,191,747 | ) | Gross profit | 387,586 |
| | 648,610 |
| | 500,915 |
| Selling, general and administrative expenses | (320,264 | ) | | (412,282 | ) | | (366,284 | ) | Operating Profit (Loss) | 67,322 |
| | 236,328 |
| | 134,631 |
| Gain on sale of ECR business | 935,110 |
| | — |
| | — |
| Other (expense) income, net (2) | (47,390 | ) | | (12,604 | ) | | 15,432 |
| Earnings Before Taxes from Discontinued Operations | 955,042 |
| | 223,724 |
| | 150,063 |
| Income Tax Expense | (395,828 | ) | | (55,931 | ) | | (32,739 | ) | Net Earnings of the Group from Discontinued Operations | $ | 559,214 |
| | $ | 167,793 |
| | $ | 117,324 |
|
| | (1) | The ECR business was sold April 26, 2019, therefore the year ended September 27, 2019 includes only seven months of results. |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | (2) | For the year ended September 27, 2019, other (expense) income, net includes $35.0 million in interest expense relating to the Nui Phao settlement, $6.0 million in foreign currency revaluations, $9.6 million in loss on the sale of a joint venture which is offset by $4.4 million in miscellaneous income. For the year ended September 28, 2018, other expense (income), net was comprised of an approximate $21.0 million loss on the sale of the Guimar joint venture, offset by $8.4 million in miscellaneous income. |
Selling, general and administrative expenses includes $95.0 million and total other (expense) income, net includes $35.0 million for the year ended September 27, 2019 recorded in connection with charges recognized related to the Nui Phao ("NPMC") legal matter described in Note 17- Contractual Guarantees, Litigation, Investigations and Insurance. The following tables represent the assets and liabilities held for sale (in thousands): | | | | | | | | | | September 27, 2019 (1) | | September 28, 2018 | Cash and cash equivalents | $ | — |
| | $ | 158,488 |
| Receivables and contract assets | 871 |
| | 1,040,996 |
| Prepaid expenses and other | 81 |
| | 37,200 |
| Current assets held for sale | $ | 952 |
| | $ | 1,236,684 |
|
| | | | | | | | | Property, Equipment and Improvements, net | $ | 1,643 |
| | $ | 199,847 |
| Goodwill | 24,896 |
| | 1,308,000 |
| Intangibles, net | — |
| | 83,005 |
| Miscellaneous | 439 |
| | 110,838 |
| Noncurrent assets held for sale | $ | 26,978 |
| | $ | 1,701,690 |
|
| | | | | | | | | Notes payable | $ | — |
| | $ | 1,782 |
| Accounts payable | — |
| | 351,482 |
| Accrued liabilities | 2,495 |
| | 321,627 |
| Contract liabilities | 78 |
| | 81,679 |
| Current liabilities held for sale | $ | 2,573 |
| | $ | 756,570 |
|
| | | | | | | | | Long-term Debt | $ | — |
| | $ | 2,710 |
| Other Deferred Liabilities | 97 |
| | 147,894 |
| Noncurrent liabilities held for sale | $ | 97 |
| | $ | 150,604 |
|
| | (1) | The September 27, 2019 held for sale balances above pertain to certain ECR entities that will be conveyed at a later date. Please refer to the Gain on Sale and Deferred Gain section above for more information. |
The significant components included in our Consolidated Statements of Cash Flows for the discontinued operations are as follows (in thousands): | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | Depreciation and amortization: | | | | Property, equipment and improvements | $ | 2,110 |
| | $ | 26,627 |
| Intangible assets | $ | 614 |
| | $ | 13,327 |
| Additions to property and equipment | $ | (9,204 | ) | | $ | (19,669 | ) | Stock based compensation | $ | 10,852 |
| | $ | 10,838 |
|
The decrease in depreciation and amortization period over period is due to the cessation of such charges under assets held-for-sale accounting rules. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | 8. | Joint Ventures and VIEs |
For consolidated joint ventures, the entire amount of the revenue recognized for 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 sheet. For the consolidated VIEs, the carrying value of assets and liabilities was $199.9 million and $125.6 million, respectively, as of September 28, 2018 and $9.6 million and $8.3 million, respectively as of September 29, 2017. There are no consolidated VIEs that have debt or credit facilities. Summary financial information of consolidated VIEs is as follows (in millions): | | | | | | | | | | September 27, 2019 | | September 28, 2018 | Current assets | $ | 192.6 |
| | $ | 161.9 |
| Non-Current assets | — |
| | 0.3 |
| Total assets | $ | 192.6 |
| | $ | 162.2 |
| Current liabilities | $ | 138.5 |
| | $ | 85.7 |
| Non-current liabilities | — |
| | — |
| Total liabilities | $ | 138.5 |
| | $ | 85.7 |
|
| | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Revenue | $ | 571.6 |
| | $ | 481.4 |
| | $ | 72.5 |
| Direct cost of contracts | (526.7 | ) | | (452.9 | ) | | (71.8 | ) | Gross profit | $ | 44.9 |
| | $ | 28.5 |
| | $ | 0.7 |
| Net earnings | $ | 45.2 |
| | $ | 28.4 |
| | $ | 0.7 |
|
Unconsolidated joint ventures are accounted for under the equity method or proportionate consolidation. Proportionate consolidation is used for joint ventures that include unincorporated legal entities and activities of the joint venture 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 $88.6$61.1 million and $79.3$63.7 million as of September 27, 2019, respectively and $85.1 million and $75.9 million as of September 28, 2018, respectively and $50.3 million and $44.1 million as of September 29, 2017, respectively. For those joint ventures accounted for under the equity method, the Company's investment balances for the joint venture is 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 Jacobs' investment created when Jacobs purchased their share of the joint venture. These basis differences are amortized based on an internal allocation to underlying net assets.assets, excluding allocations to goodwill. As of September 28, 2018,27, 2019, the Company’s equity method investments exceeded its share of venture net assets by $82.8$71.8 million. Our investments in equity method joint ventures on the Consolidated Balance Sheets as of September 28, 201827, 2019 and September 29, 201728, 2018 was a net asset of $219.1$157.9 million and $131.4$150.1 million, respectively. During the years ended September 27, 2019, September 28, 2018, and September 29, 2017, and September 30, 2016, we recognized income from equity method joint ventures of $55.4$48.5 million, $44.7$47.9 million, and $51.1$38.1 million, respectively. Summary of financial information of the unconsolidated joint ventures accounted for under the equity method, as derived from their unaudited financial statements, is as follows (in millions): | | | For the Years Ended | | | | | | | | | September 28, 2018 |
| | September 29, 2017 |
| September 27, 2019 | | September 28, 2018 | Current assets | $ | 1,736.0 |
| | $ | 1,385.7 |
| $ | 1,443.5 |
| | $ | 1,509.8 |
| Non-Current assets | 51.5 |
| | 55.9 |
| 29.9 |
| | 32.8 |
| Total assets | $ | 1,787.5 |
| | $ | 1,441.6 |
| $ | 1,473.4 |
| | $ | 1,542.6 |
| Current liabilities | $ | 944.9 |
| | $ | 415.8 |
| $ | 692.1 |
| | $ | 832.9 |
| Non-current liabilities | 664.1 |
| | 845 |
| 473.6 |
| | 664.0 |
| Total liabilities | 1,609 |
| | 1,260.8 |
| 1,165.7 |
| | 1,496.9 |
| Joint ventures' equity | 178.5 |
| | 180.8 |
| 307.7 |
| | 45.7 |
| Total liabilities & joint venture equity | $ | 1,787.5 |
| | $ | 1,441.6 |
| $ | 1,473.4 |
| | $ | 1,542.6 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Revenue | $ | 3,533.1 |
| | $ | 3,165.0 |
| | $ | 1,853.7 |
| Direct cost of contracts | (3,176.2 | ) | | (2,902.5 | ) | | (1,706.6 | ) | Gross profit | $ | 356.9 |
| | $ | 262.5 |
| | $ | 147.1 |
| Net earnings | $ | 227.0 |
| | $ | 221.1 |
| | $ | 130.3 |
|
| | | | | | | | | | | | | | For the Years Ended | | September 28, 2018 |
| | September 29, 2017 |
| | September 30, 2016 |
| Revenue | $ | 3,334.5 |
| | $ | 2,015.6 |
| | $ | 2,199.1 |
| Cost of revenue | 3,034.1 |
| | 1,829.5 |
| | 1,998.0 |
| Gross profit | $ | 300.4 |
| | $ | 186.1 |
| | $ | 201.1 |
| Net income | $ | 233.2 |
| | $ | 140 |
| | $ | 136.5 |
|
Accounts receivable from unconsolidated joint ventures accounted for under the equity method is $13.0$19.5 million and $6.3$11.1 million as of September 28, 201827, 2019 and September 29, 2017,28, 2018, respectively. In September 2018,July 2019, the Company sold 10% of its 45% share of itsthe equity method investment in the GuimarJasara, a Saudi Arabia joint venture in Brazil. The interest was sold to the other partners in the venture. The Company recordedsold the participation percentage for $1.2 million and recognized a $21.0$0.4 million loss,gain on the sale. 9. Restructuring and Other Charges During fiscal 2019, the Company implemented certain restructuring and pre-separation initiatives associated with the sale of which $9.0 millionthe ECR business, the acquisition of KeyW and other related cost reduction initiatives. The restructuring activities and related costs were comprised mainly of separation and lease abandonment programs, while the pre-separation activities and costs were mainly related to the reclassificationengagement of foreign currency translation losses accumulated inconsulting services and internal personnel and other comprehensive income.
8. Restructuring and Other Chargesrelated costs dedicated to the Company’s ECR-business separation.
During the fourth fiscal quarter of 2017, the Company implemented certain restructuring and pre-integration plans associated with the 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 pre-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 integration management efforts. Following the closing of the CH2M acquisition, these activities have continued intothrough fiscal 20182019 and include restructuringcontinue to be comprised mainly of severance, lease abandonment, IT related, consulting and other professional services as well as internal personnel costs. The activities amounting to approximately $101.7 million in pre-tax charges duringof the year ended September 28, 2018. Combined with $89.2 million in integration activities for the same period, the total cost of these restructuring and integration activities approximated $190.8 million for the year ended September 28, 2018. These activitiesabove-mentioned programs are expected to continue throughbe substantially completed before the end of fiscal 2019. These activities are not expected to involve the exit of any service types or client end-markets. Also during fiscal 2018 the Company disposed of its investment in Guimar in order to resolve potential conflicts arising from the CH2M acquisition, which resulted in a loss as discussed below.2020. During the second fiscal quarter of 2017, the Company entered into strategic business restructuring activities associated with realignment of its Europe, United Kingdom ("U.K.") and Middle East regional operations in our BIAF segment. Pre-tax net charges of $22.6 million were recorded associated mainly with net realizable value write-offs on contract accounts receivable of $16.5 million, with additional charges recorded for statutory redundancy and severance costs of $1.4 million and other liabilities of $4.7 million. During the second fiscal quarter of 2015, the Company began implementing a series of initiatives intended to improve operational efficiency, reduce costs and better position itself to drive growth of the business in the future. We referreferred to these initiatives, in the aggregate, as the “2015 Restructuring”. During fiscal 2017, the Company entered into strategic business restructuring activities associated with realignment of its Europe, United Kingdom ("U.K.") and Middle East regional operations in our PPS segment. These activities evolved and developed over time as management identified and evaluated opportunities for changes in the Company’s operations (and related areas of potential cost savings), as economic conditions changed and as the realignment of the Company’s operations into its four global LOBs was implemented. Actions related to the 2015 Restructuring included involuntary terminations, the abandonment of certain leased offices, combining operational organizations, and the colocation of employees into other existing offices. These activities did not involve the exit of any service types or client end-markets. The 2015 Restructuring waswere completed in fiscal 2017, although cash payments continue to be made under the related accruals recorded in connection with these activities.2017.
Collectively, the above mentionedabove-mentioned restructuring activities are referred to as “Restructuring and other charges.”charges”. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the impacts of the Restructuring and other charges (or recoveries, which primarily relate to the reversals of lease abandonment accruals related to previously vacated facilities which are now planned to be utilized) by line of businessLOB in connection with the CH2M and KeyW acquisitions and the ECR sale for the year ended September 27, 2019, the CH2M acquisition for the year ended September 28, 2018 and the 2015 Restructuring and realignment of the Company's Europe, U.K. and Middle East regional operations for the year ended September 29, 2017 (in thousands): JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Critical Mission Solutions | $ | 17,989 |
| | $ | 20,254 |
| | 2,356 |
| People & Places Solutions | 108,835 |
| | 56,238 |
| | 47,743 |
| Corporate (1) | 184,646 |
| | 77,148 |
| | 42,781 |
| Continuing Operations | 311,470 |
| | 153,640 |
| | 92,880 |
| Energy, Chemicals and Resources (included in Discontinued Operations) | (138 | ) | | 37,166 |
| | 42,558 |
| Total | $ | 311,332 |
| | $ | 190,806 |
| | $ | 135,438 |
|
| | | | | | | | | | | | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Aerospace, Technology, Environmental and Nuclear | $ | 20,254 |
| | $ | 2,356 |
| | 8,210 |
| Buildings, Infrastructure and Advanced Facilities | 56,238 |
| | 47,743 |
| | 24,566 |
| Energy, Chemicals and Resources | 37,166 |
| | 42,558 |
| | 113,315 |
| Corporate | 77,148 |
| | 42,781 |
| | 41,816 |
| Total | $ | 190,806 |
| | $ | 135,438 |
| | $ | 187,907 |
|
Restructuring and other charges are primarily reflected in Selling, general and administrative expenses in the accompanying Consolidated Statement of Earnings.
| | (1) | Includes $35.0 million in pre-tax gains associated with the Company's CH2M retiree medical plan settlement during the year ended September 27, 2019. |
The activity in the Company’s accrual for the Restructuring and other charges, other than the 2015 Restructuring and the realignment of the Company's Europe, U.K. and Middle East regional operations, as these are no longer active programs, for the year ended September 28, 201827, 2019 is as follows (in thousands): | | | | | Balance at Balance at September 29, 2017 | $ | 142,767 |
| CH2M Acquisition Assumed Liabilities | 31,576 |
| CH2M Charges | 190,806 |
| Payments & Usage | (189,673 | ) | Balance at September 28, 2018 | $ | 175,476 |
|
| | | | | Balance at Balance at September 28, 2018 | $ | 102,297 |
| ECR Sale Transfer | (6,884 | ) | Net Charges (1) | 311,470 |
| Payments & Usage | (244,181 | ) | Balance at September 27, 2019 | $ | 162,702 |
|
| | (1) | Includes $35.0 million in pre-tax gains associated with the Company's CH2M retiree medical plan settlement during the year ended September 27, 2019. |
The following table summarizes the Restructuring and other charges by major type of costs in connection with the CH2M and KeyW acquisitions and the ECR sale for the year ended September 27, 2019, the CH2M acquisition for the yearsyear ended September 28, 2018 and the 2015 Restructuring and realignment of the Company's Europe, U.K. and Middle East regional operations for the yearsyear ended September 29, 2017 and September 30, 2016 (in thousands): | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Lease Abandonments | $ | 53,914 |
| | $ | 55,647 |
| | $ | 92,643 |
| $ | 99,976 |
| | $ | 61,526 |
| | $ | 40,575 |
| Involuntary Terminations | 37,063 |
| | 43,667 |
| | 85,599 |
| 33,742 |
| | 29,056 |
| | 34,797 |
| Outside Services | 36,308 |
| | 4,236 |
| | 7,398 |
| 133,148 |
| | 35,987 |
| | 4,236 |
| Other (1) | 63,521 |
| | 31,888 |
| | 2,267 |
| 44,604 |
| | 27,071 |
| | 13,272 |
| Total | $ | 190,806 |
| | $ | 135,438 |
| | $ | 187,907 |
| $ | 311,470 |
| | $ | 153,640 |
| | $ | 92,880 |
|
| | (1) | Includes $35.0 million in pre-tax gains associated with the Company's CH2M retiree medical plan settlement during the year ended September 27, 2019. |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES (1) Includes $21.0 million in the fourth quarter of fiscal 2018 relating to the loss on the sale of our Guimar joint venture investment recognized in other income (expense).NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cumulative amounts incurred to date for Restructuring and other charges by each major type of cost, other than the 2015 Restructuring and the realignment of the Company's Europe, U.K. and Middle East regional operations, as these are no longer active programs, as of September 28, 201827, 2019 are as follows (in thousands): | | | | | Lease Abandonments | $ | 161,501 |
| Involuntary Terminations | 75,678 |
| Outside Services | 169,135 |
| Other (1) | 71,428 |
| Total | $ | 477,742 |
|
| | | | | Lease Abandonments | $ | 292,773 |
| Involuntary Terminations | 221,642 |
| Outside Services | 60,677 |
| Other | 96,252 |
| Total | $ | 671,344 |
|
| | (1) | Includes $35.0 million in pre-tax gains associated with the Company's CH2M retiree medical plan settlement during the year ended September 27, 2019. |
9.10. Borrowings
Short-Term Credit ArrangementsDebt The Company maintainsAt September 27, 2019, short-term debt consisted of a bilateral term loan facility and uncommitted credit arrangements with several banks providingshort-termproviding short-term borrowing capacity and overdraft protection. There were borrowingsprotection with an aggregate principal balance of $5.0$200.0 million. Offset from the term loan are deferred financing fees of $0.1 million.
On June 12, 2019, Jacobs entered into a $200.0 million bilateral term loan facility. This facility incurs interest at LIBOR plus a margin of 1% and matures in June 2020. Amounts outstanding under these short-term credit facilitiesthe bilateral term loan facility may be prepaid at a weighted average interest ratethe option of 4.47%the Company without premium or penalty, subject to customary breakage fees in connection with the prepayment of eurocurrency loans. The Company was in compliance with the covenants under the bilateral term loan facility at September 28, 2018. There were borrowings of $3.1 million outstanding under these short-term credit facilities at September 29, 2017.27, 2019. Long-term Debt JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents certain information regarding the Company’s long-term debt at September 28, 201827, 2019 and September 29, 201728, 2018 (dollars in thousands): | | | Interest Rate | | Maturity | | September 28, 2018 | | September 29, 2017 | Interest Rate | | Maturity | | September 27, 2019 | | September 28, 2018 | New Credit Agreement | | LIBOR + applicable margin (1) | | March 2024 | | $ | 303,780 |
| | $ | — |
| Revolving Credit Facility | LIBOR + applicable margin (1) | | February 2020 | | $ | 149,129 |
| | $ | 235,000 |
| LIBOR + applicable margin (2) | | February 2020 | | — |
| | 149,129 |
| Term Loan Facility | LIBOR + applicable margin (2) | | December 2020 | | 1,500,000 |
| | — |
| LIBOR + applicable margin (3) | | December 2020 | | 400,000 |
| | 1,500,000 |
| Fixed-rate notes due: | |
|
| | | |
|
| | | Senior Notes, Series A | 4.27% | | May 2025 | | 190,000 |
| | — |
| 4.27% | | May 2025 | | 190,000 |
| | 190,000 |
| Senior Notes, Series B | 4.42% | | May 2028 | | 180,000 |
| | — |
| 4.42% | | May 2028 | | 180,000 |
| | 180,000 |
| Senior Notes, Series C | 4.52% | | May 2030 | | 130,000 |
| | — |
| 4.52% | | May 2030 | | 130,000 |
| | 130,000 |
| Less: Deferred Financing Fees | | (4,998 | ) | | — |
| | (2,535 | ) | | (4,998 | ) | Other | Varies | | Varies | | 2,746 |
| | — |
| Varies | | Varies | | — |
| | 36 |
| Total Long-term debt, net | | $ | 2,146,877 |
| | $ | 235,000 |
| | $ | 1,201,245 |
| | $ | 2,144,167 |
| | | | | | |
| | (1) | Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the New Credit Agreement (defined below)), borrowings under the New Credit Agreement 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%. The applicable LIBOR rate, including applicable margin, at September 27, 2019 was approximately 1.00%. |
| | (2) | Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the Revolving Credit Facility), borrowings under the Revolving Credit Facility bear interest at either a eurocurrency rate plus a margin of between 1.0% and 1.5% or a base rate plus a margin of between 0% and 0.5%. The applicable LIBOR rates, including applicable margin, at September 28, 2018 and September 29, 2017 were approximately 1.38% to 3.47% and 1.0% to 2.23%, respectively.. |
| | (2)(3) | Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the Term Loan Facility), borrowings under the Term Loan Facility bear interest at either a eurocurrency rate plus a margin of between 1.0% and 1.5% or a base rate plus a margin of between 0% and 0.5%. The applicable LIBOR rate, including applicable margin, at September 27, 2019 and September 28, 2018 was approximately 3.05% and 3.71%., respectively. |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 “Revolving Credit Facility”) with a syndicate of large U.S. and international banks and financial institutions. TheOn March 27, 2019, the Company entered into a second amended and restated credit agreement (the "New Credit Agreement") which amended and restated the Revolving Credit Facility providesby, 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 lendersfinancial covenants to (i) increase the facility amount to $2.1 billion. On September 28, 2017,Consolidated Leverage Ratio test until the Company entered into a Second Amendment toclosing of the Revolving Credit Facility, which provides for, among other things, an amendment to certain financial definitions used inECR sale and (ii) eliminate the Revolving Credit Facility, including “Consolidated EBITDA” and increases the permitted leverage ratio on a short-term basis in relation to the acquisition of CH2M and future permitted material acquisitions. This Second Amendment was effectivenet worth covenant upon the consummationremoval of the acquisition of CH2Msame covenant from the Company’s existing Note Purchase Agreement (defined below). The Company was in December 2017.compliance with the covenants under the New Credit Agreement at September 27, 2019. The RevolvingNew Credit FacilityAgreement 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 RevolvingNew Credit Facility.Agreement. The RevolvingNew Credit FacilityAgreement also provides for a financial letter of credit sub facility of $300$400.0 million, permits performance letters of credit, and provides for a $50$50.0 million sub facility for swing line loans. Letters of credit are subject to fees based on the Company’s Consolidated Leverage Ratio at the time any such letter of credit is issued.Ratio. The Company pays a facility fee of between 0.10%0.08% and 0.25%0.20% per annum depending on the Company’s Consolidated Leverage Ratio. Amounts outstanding under the Revolving Credit Facility may be prepaid at the option of the Company without premium or penalty, subject to customary breakage fees in connection with the prepayment of euro currency loans. Any prepayments made under the Revolving Credit Facility are available for re-borrowing subject to the terms and conditions therein. The Revolving Credit Facility contains affirmative, negative, and financial covenants customary for financings of this type including, among other things, limitations on certain other indebtedness, investments, liens, acquisitions, dispositions, fundamental changes and transactions with affiliates.In addition, the Revolving Credit Facility contains customary events of default. We were in compliance with the covenants under the Revolving Credit Facility at September 28, 2018. On September 28, 2017, the Company entered into a $1.5 billion unsecured delayed-draw term loan facility (the(as amended, the “Term Loan Facility”) with a syndicate of financial institutions as lenders.lenders and letter of credit issuers. We incurred loans under the Term Loan Facility on December 15, 2017 in connection with the closing of the CH2M acquisition in order to pay cash consideration for the acquisition, and to pay fees and expenses related to the acquisition and the Term Loan Facility. Amounts outstanding under the Term Loan Facility may be prepaid at the option of the Company without premium or penalty, subject to customary breakage fees in connection with the prepayment of eurocurrency loans. Any prepayments made underOn November 30, 2018, the Company entered into a First Amendment to the Term Loan Facility, are not availablewhich provides for, re-borrowing.among other things, the amendment of certain provisions of the Term Loan Facility to permit the ECR Disposition. The Term Loan Facility contains affirmative, negative and financial covenants customary for financings of this type, including, among other things, limitations on certain other indebtedness, investments, liens, acquisitions, dispositions fundamental changes and transactions with affiliates. In addition, the Term Loan Facility contains customary events of default. We wereThe Company was in compliance with the covenants under the Term Loan Facility at September 28, 2018. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
27, 2019.
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 indebtedness, liens, mergers, dispositions and transactions with affiliates. In addition, the Note Purchase Agreement contains customary events of default. We wereThe Company was in compliance with the covenants under the Note Purchase Agreement at September 28, 2018. In conjunction with the acquisition of CH2M, the Company assumed certain long-term financing that was incurred by CH2M prior to the acquisition. The total balance included in long-term debt as of September 28, 2018 was $2.7 million, which is primarily comprised of equipment financing, bearing interest rates ranging from 0.22% to 3.29% due in monthly installments through September 2021.27, 2019.
We believe the carrying value of the RevolvingNew Credit Facility,Agreement, the Term Loan Facility, the Bilateral Term Loan 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 $491.7$532.9 million at September 28, 2018,27, 2019, 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. The Company has issued $2.5$2.3 million in letters of credit under the RevolvingNew Credit Facility,Agreement, leaving $1.4$1.94 billion of available borrowing capacity under the RevolvingNew Credit FacilityAgreement at September 28, 2018.27, 2019. In addition, the Company had issued $444.1$259.9 million under separate, committed and uncommitted letter-of-credit facilities for total issued letters of credit of $446.6$262.2 million at September 28, 2018. 27, 2019. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents the amount of interest paid by the Company during September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | For the Years Ended | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | $81,582 | | $68,467 | | $12,862 |
| | | | | | For the Years Ended | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | $68,467 | | $12,862 | | $13,282 |
10.11. Revenue Accounting for Contracts and Adoption of ASC Topic 606
On September 29, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, including the subsequent ASUs that amended and clarified the related guidance. The Company adopted ASC Topic 606 using the modified retrospective method, and accordingly the new guidance was applied retrospectively to contracts that were not completed or substantially completed as of September 29, 2018 (the date of initial application). As a result, the Company recorded a cumulative effect adjustment of $37.2 million which is net of $10.3 million of tax. The entry decreased retained earnings related to continuing operations by $21.2 million (net of tax) and retained earnings related to discontinued operations by $16.0 million (net of tax) as of September 29, 2018. Additionally, the following cumulative effect adjustments were recorded: Continuing operations An increase to Deferred Income Tax Assets included within miscellaneous assets of $5.4 million; An increase to Contract liabilities of $15.2 million; A decrease to Receivables of $11.4 million; Discontinued operations An increase to Current liabilities held for sale of $0.6 million; A decrease to Current assets held for sale of $15.4 million; The decrease in retained earnings primarily resulted from a change in the manner in which the Company determines the performance obligations for its projects. Prior to the adoption of ASC 606, the Company typically segmented contracts that contained multiple services by service type - for instance, engineering, procurement and construction services - for purposes of revenue and margin recognition. Under ASC 606, multiple-service contracts where the Company is responsible for providing a single deliverable (e.g. a constructed asset) will be treated as a single performance obligation for purposes of revenue recognition and thus no longer will be segmented if the individual service types are not identified as distinct performance obligations under the contract. Typically, this will occur when the Company is contracted to perform both engineering and construction on a project. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents how the adoption of ASC Topic 606 affected certain line items in the Consolidated Statements of Earnings: | | | | | | | | | | | | | | Year Ended | | September 27, 2019 | (in thousands) | Recognition Under Previous Guidance | | Impact of the Adoption of ASC Topic 606 | | Recognition Under ASC Topic 606 | Revenues | $ | 12,714,710 |
| | $ | 23,158 |
| | $ | 12,737,868 |
| Direct costs of contracts | (10,260,840 | ) | | — |
| | (10,260,840 | ) | Gross profit | 2,453,870 |
| | 23,158 |
| | 2,477,028 |
| Selling, general and administrative expenses | (2,072,177 | ) | | — |
| | (2,072,177 | ) | Operating Profit | 381,693 |
| | 23,158 |
| | 404,851 |
| Earnings from Continuing Operations Before Taxes | 327,801 |
| | 23,158 |
| | 350,959 |
| Income tax expense for Continuing Operations | (32,308 | ) | | (4,646 | ) | | (36,954 | ) | Net Earnings of the Group from Continuing Operations | 295,493 |
| | 18,512 |
| | 314,005 |
| Net Earnings of the Group from Discontinued Operations | 554,464 |
| | 4,750 |
| | 559,214 |
| Net Earnings of the Group | 849,957 |
| | 23,262 |
| | 873,219 |
| Net Earnings Attributable to Jacobs from Continuing Operations | 272,448 |
| | 18,512 |
| | 290,960 |
| Net Earnings Attributable to Jacobs from Discontinued Operations | 552,269 |
| | 4,750 |
| | 557,019 |
| Net Earnings Attributable to Jacobs | $ | 824,717 |
| | $ | 23,262 |
| | $ | 847,979 |
|
The following table presents how the adoption of ASC Topic 606 affected certain line items in the Consolidated Balance Sheets: | | | | | | | | | | | | | | September 27, 2019 | (in thousands) | Recognition Under Previous Guidance | | Impact of the Adoption of ASC Topic 606 | | Recognition Under ASC Topic 606 | Receivables and contract assets (previously presented as Receivables) | $ | 2,839,813 |
| | $ | 396 |
| | $ | 2,840,209 |
| Current assets held for sale | $ | 952 |
| | $ | — |
| | $ | 952 |
| Miscellaneous noncurrent assets | $ | 917,448 |
| | $ | 754 |
| | $ | 918,202 |
| Contract Liabilities (previously presented as Billings in excess of costs) | $ | 410,464 |
| | $ | 3,744 |
| | $ | 414,208 |
| Current liabilities held for sale | $ | 2,573 |
| | $ | — |
| | $ | 2,573 |
|
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. 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 and for a disaggregation of our revenue by geographic area. Contract Liabilities Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. Amounts classified as “Billings in excess of costs” on the Consolidated Balance Sheets of our 2018 Form 10-K have been renamed to “Contract liabilities” on the Consolidated Balance Sheets. The increase in contract liabilities was a result of normal business activity and not materially impacted by any other factors. Revenue recognized for the year ended September 27, 2019 that was included in the contract liability balance on September 28, 2018 was $350.3 million. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Remaining Performance Obligations The Company’s remaining performance obligations as of September 27, 2019 represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The Company had approximately $13.4 billion in remaining performance obligations as of September 27, 2019. The Company expects to recognize 48.0% of our remaining performance obligations within the next twelve months and the remaining 52.0% 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. 12. Pension and Other Postretirement Benefit Plans Company-Only Sponsored Plans We sponsor various defined benefit pension and other post retirement plans covering employees of certain U.S. and international subsidiaries. The pension plans provide pension benefits that are based on the employee’s compensation and years of service. Our funding policy varies by country and plan according to applicable local funding requirements and plan-specific funding agreements. In connection with the acquisition of CH2M on December 15, 2017, the Company acquired CH2M’s pension plan assets and liabilities, which are reflected in the amounts disclosed for the year ended September 28, 2018 below. The accounting for pension and other post-retirement benefit plans requires the use of assumptions and estimates in order to calculate periodic benefit cost and the value of the plans’ assets and benefit obligations. These assumptions include discount rates, investment returns, and projected salary increases, among others. The discount rates used in valuing the plans' benefit obligations were determined with reference to high quality corporate and government bonds that are appropriately matched to the duration of each plan's obligations. The expected long-term rate of return on plan assets is generally based on using country-specific simulation models which select a single outcome for expected return based on the target asset allocation. The expected long-term rates of return used in the valuation are the annual average returns generated by these assumptions over a 20-year period for each asset class based on the expected long-term rate of return of the underlying assets. As a result of the ECR sale, ECR-related pension assets and liabilities that have been sold are reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations. However, the 2018 Non-U.S Plans balances have not been restated to exclude ECR pension plan activity, rather activity for the two years is shown in the appropriate rows and the balances as of the sale date are shown in the Disposition of ECR Plans rows below. The following table sets forth the changes in the plans’ combined net benefit obligation (segregated between plans existing within and outside the U.S.) for the years ended September 27, 2019 and September 28, 2018 and September 29, 2017 (in thousands): | | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans(1) | | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | Net benefit obligation at the beginning of the year | $ | 448,402 |
| | $ | 169,942 |
| | $ | 2,149,246 |
| | $ | 1,306,807 |
| Service cost | 2,784 |
| | 4,765 |
| | 7,171 |
| | 8,269 |
| Interest cost | 16,697 |
| | 13,778 |
| | 52,627 |
| | 49,324 |
| Participants’ contributions | 243 |
| | 839 |
| | 367 |
| | 451 |
| Actuarial (gains)/losses | 52,720 |
| | (30,730 | ) | | 314,889 |
| | (43,595 | ) | Benefits paid | (30,648 | ) | | (27,914 | ) | | (72,453 | ) | | (75,711 | ) | Curtailments/settlements/plan amendments | (39,388 | ) | | (9,434 | ) | | 30,124 |
| | (6,136 | ) | Acquisition of CH2M Plans | — |
| | 327,156 |
| | — |
| | 924,233 |
| Disposition of ECR Plans | — |
| | — |
| | (99,504 | ) | | — |
| Effect of exchange rate changes and other, net | (2,270 | ) | | — |
| | (124,338 | ) | | (14,396 | ) | Net benefit obligation at the end of the year | $ | 448,540 |
| | $ | 448,402 |
| | $ | 2,258,129 |
| | $ | 2,149,246 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans | | September 28, 2018 | | September 29, 2017 | | September 28, 2018 | | September 29, 2017 | Net benefit obligation at the beginning of the year | $ | 169,942 |
| | $ | 185,664 |
| | $ | 1,306,807 |
| | $ | 1,363,782 |
| Service cost | 4,765 |
| | 1,000 |
| | 8,269 |
| | 7,509 |
| Interest cost | 13,778 |
| | 5,757 |
| | 49,324 |
| | 31,205 |
| Participants’ contributions | 839 |
| | — |
| | 451 |
| | 250 |
| Actuarial (gains)/losses | (30,730 | ) | | (9,922 | ) | | (43,595 | ) | | (142,273 | ) | Benefits paid | (27,914 | ) | | (14,338 | ) | | (75,711 | ) | | (40,208 | ) | Curtailments/settlements/plan amendments | (9,434 | ) | | — |
| | (6,136 | ) | | (1,375 | ) | Acquisition of CH2M Plans | 327,156 |
| | — |
| | 924,233 |
| | — |
| Effect of exchange rate changes and other, net | — |
| | 1,781 |
| | (14,396 | ) | | 87,917 |
| Net benefit obligation at the end of the year | $ | 448,402 |
| | $ | 169,942 |
| | $ | 2,149,246 |
| | $ | 1,306,807 |
|
The following table sets forth the changes in the combined Fair Value of the plans’ assets (segregated between plans existing within and outside the U.S.) for the years ended September 28, 201827, 2019 and September 29, 201728, 2018 (in thousands): | | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans(1) | | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | Fair value of plan assets at the beginning of the year | $ | 390,829 |
| | $ | 147,788 |
| | $ | 1,867,481 |
| | $ | 1,076,928 |
| Actual return on plan assets | 31,140 |
| | 9,891 |
| | 280,785 |
| | (19,883 | ) | Employer contributions | 10,668 |
| | 58,097 |
| | 32,063 |
| | 31,556 |
| Participants’ contributions | 243 |
| | 839 |
| | 367 |
| | 451 |
| Gross benefits paid | (30,648 | ) | | (27,914 | ) | | (72,453 | ) | | (75,711 | ) | Curtailments/settlements/plan amendments | (9,751 | ) | | (9,434 | ) | | (5,814 | ) | | (5,496 | ) | Acquisition of CH2M Plans | — |
| | 211,562 |
| | — |
| | 869,414 |
| Disposition of ECR Plans | — |
| | — |
| | (76,111 | ) | | — |
| Effect of exchange rate changes and other, net | (2,271 | ) | | — |
| | (109,681 | ) | | (9,778 | ) | Fair value of plan assets at the end of the year | $ | 390,210 |
| | $ | 390,829 |
| | $ | 1,916,637 |
| | $ | 1,867,481 |
|
| | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans | | September 28, 2018 | | September 29, 2017 | | September 28, 2018 | | September 29, 2017 | Fair value of plan assets at the beginning of the year | $ | 147,788 |
| | $ | 142,464 |
| | $ | 1,076,928 |
| | $ | 1,003,911 |
| Actual return on plan assets | 9,891 |
| | 18,662 |
| | (19,883 | ) | | 16,789 |
| Employer contributions | 58,097 |
| | 1,000 |
| | 31,556 |
| | 21,005 |
| Participants’ contributions | 839 |
| | — |
| | 451 |
| | 250 |
| Gross benefits paid | (27,914 | ) | | (14,338 | ) | | (75,711 | ) | | (40,208 | ) | Curtailments/settlements/plan amendments | (9,434 | ) | | — |
| | (5,496 | ) | | (228 | ) | Acquisition of CH2M Plans | 211,562 |
| | — |
| | 869,414 |
| | — |
| Effect of exchange rate changes and other, net | — |
| | — |
| | (9,778 | ) | | 75,409 |
| Fair value of plan assets at the end of the year | $ | 390,829 |
| | $ | 147,788 |
| | $ | 1,867,481 |
| | $ | 1,076,928 |
|
During fiscal 2019, the Company incurred combined curtailment and settlement gains on our defined benefit plans of approximately $33.1 million primarily related to our CH2M retiree medical (further discussed below) and Ireland. During fiscal 2018, the Company incurred combined curtailment and settlement losses on its defined benefit plans of approximately $5.4 million primarily related to its Sverdrup and Ireland pension plans. During fiscal 2017, we curtailed the pension plan in Ireland. The following table reconciles the combined funded statuses of the plans recognized in the accompanying Consolidated Balance Sheets at September 28, 201827, 2019 and September 29, 201728, 2018 (segregated between plans existing within and outside the U.S.) (in thousands): | | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans (1) | | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | Net benefit obligation at the end of the year | $ | 448,540 |
| | $ | 448,402 |
| | $ | 2,258,129 |
| | $ | 2,149,246 |
| Fair value of plan assets at the end of the year | 390,210 |
| | 390,829 |
| | 1,916,637 |
| | 1,867,481 |
| Under funded amount recognized at the end of the year | $ | 58,330 |
| | $ | 57,573 |
| | $ | 341,492 |
| | $ | 281,765 |
|
| | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans | | September 28, 2018 | | September 29, 2017 | | September 28, 2018 | | September 29, 2017 | Net benefit obligation at the end of the year | $ | 448,402 |
| | $ | 169,942 |
| | $ | 2,149,246 |
| | $ | 1,306,807 |
| Fair value of plan assets at the end of the year | 390,829 |
| | 147,788 |
| | 1,867,481 |
| | 1,076,928 |
| Under funded amount recognized at the end of the year | $ | 57,573 |
| | $ | 22,154 |
| | $ | 281,765 |
| | $ | 229,879 |
|
The following table presents the accumulated benefit obligation at September 28, 201827, 2019 and September 29, 201728, 2018 (segregated between plans existing within and outside the U.S.) (in thousands): | | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans (1) | | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | Accumulated benefit obligation at the end of the year | $ | 447,609 |
| | $ | 447,549 |
| | $ | 2,244,710 |
| | $ | 2,123,839 |
|
The following table presents the amounts recognized in the accompanying Consolidated Balance Sheets at September 27, 2019 and September 28, 2018 (segregated between plans existing within and outside the U.S.) (in thousands): JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans (1) | | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | Prepaid benefit cost included in noncurrent assets | $ | — |
| | $ | — |
| | $ | 2,939 |
| | $ | 19,736 |
| Accrued benefit cost included in current liabilities | 85 |
| | 2,548 |
| | 4,177 |
| | 3,671 |
| Accrued benefit cost included in noncurrent liabilities | 58,245 |
| | 55,025 |
| | 340,254 |
| | 297,830 |
| Net amount recognized at the end of the year | $ | 58,330 |
| | $ | 57,573 |
| | $ | 341,492 |
| | $ | 281,765 |
|
| | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans | | September 28, 2018 | | September 29, 2017 | | September 28, 2018 | | September 29, 2017 | Accumulated benefit obligation at the end of the year | $ | 447,549 |
| | $ | 169,942 |
| | $ | 2,123,839 |
| | $ | 1,291,600 |
|
The following table presents the amounts recognized in the accompanying Consolidated Balance Sheets at September 28, 2018 and September 29, 2017 (segregated between plans existing within and outside the U.S.) (in thousands):
| | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans | | September 28, 2018 | | September 29, 2017 | | September 28, 2018 | | September 29, 2017 | Prepaid benefit cost included in noncurrent assets | $ | — |
| | $ | — |
| | $ | 19,736 |
| | $ | 3,035 |
| Accrued benefit cost included in current liabilities | 2,548 |
| | — |
| | 3,671 |
| | 585 |
| Accrued benefit cost included in noncurrent liabilities | 55,025 |
| | 22,154 |
| | 297,830 |
| | 232,329 |
| Net amount recognized at the end of the year | $ | 57,573 |
| | $ | 22,154 |
| | $ | 281,765 |
| | $ | 229,879 |
|
The following table presents the significant actuarial assumptions used in determining the funded statuses and the following year's benefit cost of the Company’s U.S. plans for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016:2017: | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Discount rates | 2.8% to 3.1% | | 3.9% to 4.2% | | 3.5 | % | Rates of compensation increases | 3.5% | | 3.5% | | — | % | Return on Assets | 5.1% | | 5.8% to 5.9% | | 7.5 | % |
| | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Discount rates | 3.9% to 4.2% | | 3.5 | % | | 3.2 | % | Rates of compensation increases | 3.5% | | — | % | | — | % | Return on Assets | 5.8% to 5.9% | | 7.5 | % | | 7.4 | % |
The following table presents the significant actuarial assumptions used in determining the funded statuses and the following year's benefit cost of the Company’s non-U.S. plans for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016:2017: | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Discount rates | 0.2% to 7.1% | | 1.3% to 8.1% | | 1.3% to 7.0% | | 0.7% to 7.0% | Rates of compensation increases | 2.5%3.7% to 7.5% | | 2.5%3.8% to 7.5% | | 2.5%5.5% to 7.5% | Expected long-term rates of return on assets | 2.9%2.3% to 7.5% | | 3.5%3.8% to 8.5%7.5% | | 3.5%5.3% to 8.5% |
The following table presents certain amounts relating to our U.S. plans recognized in accumulated other comprehensive (gain) loss at September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | | | | | | | | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Arising during the period: | |
| | |
| | |
| Net actuarial (gain) loss | $ | 36,108 |
| | $ | (7,514 | ) | | $ | (11,372 | ) | Reclassification adjustments: | |
| | |
| | |
| Net actuarial losses | (2,282 | ) | | (2,913 | ) | | (2,431 | ) | Total | $ | 33,826 |
| | $ | (10,427 | ) | | $ | (13,803 | ) |
| | | | | | | | | | | | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Arising during the period: | |
| | |
| | |
| Net actuarial (gain) loss | $ | (7,514 | ) | | $ | (11,372 | ) | | $ | 4,337 |
| Reclassification adjustments: | |
| | |
| | |
| Net actuarial losses | (2,913 | ) | | (2,431 | ) | | (2,312 | ) | Total | $ | (10,427 | ) | | $ | (13,803 | ) | | $ | 2,025 |
|
The following table presents certain amounts relating to our non-U.S. plans recognized in accumulated other comprehensive (gain) loss at September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Arising during the period: | |
| | |
| | |
| Net actuarial (gain) loss | $ | 83,368 |
| | $ | 59,827 |
| | $ | (76,860 | ) | Net (gain) loss on Sale of ECR | (12,520 | ) | | — |
| | — |
| Prior service cost (benefit) | 29,829 |
| | 215 |
| | 119 |
| Total | 100,677 |
| | 60,042 |
| | (76,741 | ) | Reclassification adjustments: | |
| | |
| | |
| Net actuarial losses | (6,546 | ) | | (5,507 | ) | | (8,732 | ) | Prior service cost | (1,075 | ) | | 181 |
| | 229 |
| Total | (7,621 | ) | | (5,326 | ) | | (8,503 | ) | Total | $ | 93,056 |
| | $ | 54,716 |
| | $ | (85,244 | ) |
| | | | | | | | | | | | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Arising during the period: | |
| | |
| | |
| Net actuarial (gain) loss | $ | 59,827 |
| | $ | (76,860 | ) | | $ | 102,925 |
| Prior service cost (benefit) | 215 |
| | 119 |
| | 580 |
| Total | 60,042 |
| | (76,741 | ) | | 103,505 |
| Reclassification adjustments: | |
| | |
| | |
| Net actuarial losses | (5,507 | ) | | (8,732 | ) | | (7,508 | ) | Prior service cost | 181 |
| | 229 |
| | 163 |
| Total | (5,326 | ) | | (8,503 | ) | | (7,345 | ) | Total | $ | 54,716 |
| | $ | (85,244 | ) | | $ | 96,160 |
|
The following table presents certain amounts relating to our plans recorded in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost at September 28, 201827, 2019 and September 29, 201728, 2018 (segregated between U.S. and non-U.S. plans) (in thousands): | | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans | | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | Net actuarial loss | $ | 71,083 |
| | $ | 37,255 |
| | $ | 365,661 |
| | $ | 273,312 |
| Prior service cost | — |
| | — |
| | 28,346 |
| | (700 | ) | Total | $ | 71,083 |
| | $ | 37,255 |
| | $ | 394,007 |
| | $ | 272,612 |
|
| | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans | | September 28, 2018 | | September 29, 2017 | | September 28, 2018 | | September 29, 2017 | Net actuarial loss | $ | 37,255 |
| | $ | 47,681 |
| | $ | 273,312 |
| | $ | 218,752 |
| Prior service cost | — |
| | — |
| | (700 | ) | | (855 | ) | Total | $ | 37,255 |
| | $ | 47,681 |
| | $ | 272,612 |
| | $ | 217,897 |
|
The following table presents the amount of accumulated comprehensive income that will be amortized against earnings as part of our net periodic benefit cost in fiscal 20192020 based on 20182019 exchange rates (segregated between U.S. and non-U.S. plans) (in thousands): | | | | | | | | | | U.S. Plans | | Non-U.S. Plans | Unrecognized net actuarial loss | $ | 3,546 |
| | $ | 7,500 |
| Unrecognized prior service cost | — |
| | 1,392 |
| Accumulated comprehensive loss to be recorded against earnings | $ | 3,546 |
| | $ | 8,892 |
|
| | | | | | | | | | U.S. Plans | | Non-U.S. Plans | Unrecognized net actuarial loss | $ | 2,925 |
| | $ | 8,616 |
| Unrecognized prior service cost | — |
| | (258 | ) | Accumulated comprehensive loss to be recorded against earnings | $ | 2,925 |
| | $ | 8,358 |
|
We consider various factors in developing the estimates for the expected, long-term rates of return on plan assets. These factors include the projected, long-term rates of returns on the various types of assets in which the plans invest, as well as historical returns. In general, investment allocations are determined by each plan’s trustees and/or investment committees. The objectives of the plans’ investment policies are to (i) maximize returns while preserving capital; (ii) provide returns sufficient to meet the current and long-term obligations of the plan as the obligations become due; and (iii) maintain a diversified portfolio of assets so as to reduce the risk associated with having a disproportionate amount of the plans’ total assets invested in any one type of asset, issuer or geography. None of our pension plans hold Jacobs common stock directly (although some plans may hold shares indirectly through investments in mutual funds). The plans’ weighted average asset allocations at September 28, 201827, 2019 and September 29, 201728, 2018 (the measurement dates used in valuing the plans’ assets and liabilities) were as follows: | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Pans | | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | Equity securities | 3 | % | | 27 | % | | 20 | % | | 24 | % | Debt securities | 58 | % | | 39 | % | | 52 | % | | 49 | % | Real estate investments | — | % | | — | % | | 7 | % | | 8 | % | Other | 39 | % | | 34 | % | | 21 | % | | 19 | % |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Pans | | September 28, 2018 | | September 29, 2017 | | September 28, 2018 | | September 29, 2017 | Equity securities | 27 | % | | 70 | % | | 24 | % | | 24 | % | Debt securities | 39 | % | | 23 | % | | 49 | % | | 32 | % | Real estate investments | — | % | | — | % | | 8 | % | | 5 | % | Other | 34 | % | | 7 | % | | 19 | % | | 39 | % |
The following table presents the Fair Value of the Company’s Domestic U.S. plan assets at September 27, 2019, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands): | | | | | | | | | | | | | | | | | | | | | | September 27, 2019 | | Fair Value, Determined Using Fair Value Measurement Inputs | | Level 1 | | Level 2 | | Level 3 | | Investments measured at Net Asset Value | | Total | Domestic equities | $ | 10,890 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,890 |
| Overseas equities | — |
| | — |
| | — |
| | — |
| | — |
| Domestic bonds | 65,490 |
| | 134,594 |
| | — |
| | — |
| | 200,084 |
| Overseas bonds | — |
| | 20,020 |
| | — |
| | — |
| | 20,020 |
| Cash and equivalents | 28,972 |
| | — |
| | — |
| | — |
| | 28,972 |
| Mutual funds | 130,244 |
| | — |
| | — |
| | — |
| | 130,244 |
| Hedge funds | — |
| | — |
| | — |
| | — |
| | — |
| Total | $ | 235,596 |
| | $ | 154,614 |
| | $ | — |
| | $ | — |
| | $ | 390,210 |
|
The following table presents the Fair Value of the Company’s non-U.S. plan assets at September 27, 2019, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands): | | | | | | | | | | | | | | | | | | | | | | September 27, 2019 | | Fair Value, Determined Using Fair Value Measurement Inputs | | Level 1 | | Level 2 | | Level 3 | | Investments measured at Net Asset Value | | Total | Domestic equities | $ | — |
| | $ | 17,255 |
| | $ | — |
| | $ | 19,413 |
| | $ | 36,668 |
| Overseas equities | — |
| | 182,600 |
| | — |
| | 50,127 |
| | 232,727 |
| Domestic bonds | — |
| | 306,225 |
| | — |
| | 34,408 |
| | 340,633 |
| Overseas bonds | — |
| | 728,616 |
| | — |
| | 39,292 |
| | 767,908 |
| Cash and equivalents | 37,811 |
| | (16 | ) | | — |
| |
|
| | 37,795 |
| Real estate | — |
| | 24,735 |
| | 97,539 |
| | 15,198 |
| | 137,472 |
| Insurance contracts | — |
| | 4,478 |
| | 72,788 |
| |
|
| | 77,266 |
| Derivatives | — |
| | — |
| | — |
| |
|
| | — |
| Hedge funds | — |
| | — |
| | 130,200 |
| | 7,156 |
| | 137,356 |
| Mutual funds | — |
| | 148,812 |
| | — |
| | — |
| | 148,812 |
| Total | $ | 37,811 |
| | $ | 1,412,705 |
| | $ | 300,527 |
| | $ | 165,594 |
| | $ | 1,916,637 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents the Fair Value of the Company’s U.S. plan assets at September 28, 2018, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands): JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | | September 28, 2018 | | Fair Value, Determined Using Fair Value Measurement Inputs | | Level 1 | | Level 2 | | Level 3 | | Investments measured at Net Asset Value | | Total | Domestic equities | $ | 13,861 |
| | $ | 63,937 |
| | $ | — |
| | $ | — |
| | $ | 77,798 |
| Overseas equities | 26,699 |
| | — |
| | — |
| | — |
| | 26,699 |
| Domestic bonds | 84,894 |
| | 58,229 |
| | — |
| | — |
| | 143,123 |
| Overseas bonds | 938 |
| | 9,570 |
| | — |
| | — |
| | 10,508 |
| Cash and equivalents | 6,631 |
| | — |
| | — |
| | — |
| | 6,631 |
| Mutual funds | 126,042 |
| | — |
| | — |
| | — |
| | 126,042 |
| Hedge funds | — |
| | — |
| | — |
| | 28 |
| | 28 |
| Total | $ | 259,065 |
| | $ | 131,736 |
| | $ | — |
| | $ | 28 |
| | $ | 390,829 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | | | | | | | | | | | September 28, 2018 | | Fair Value, Determined Using Fair Value Measurement Inputs | | Level 1 | | Level 2 | | Level 3 | | Investments measured at Net Asset Value | | Total | U.S. Domestic equities | $ | 13,861 |
| | $ | 63,937 |
| | $ | — |
| | $ | — |
| | $ | 77,798 |
| Overseas equities | 26,699 |
| | — |
| | — |
| | — |
| | 26,699 |
| U.S. Domestic bonds | 84,894 |
| | 58,229 |
| | — |
| | — |
| | 143,123 |
| Overseas bonds | 938 |
| | 9,570 |
| | — |
| | — |
| | 10,508 |
| Cash and equivalents | 6,631 |
| | — |
| | — |
| | — |
| | 6,631 |
| Mutual funds | 126,042 |
| | — |
| | — |
| | — |
| | 126,042 |
| Hedge funds | $ | — |
| | $ | — |
| | $ | — |
| | 28 |
| | 28 |
| Total | $ | 259,065 |
| | $ | 131,736 |
| | $ | — |
| | $ | 28 |
| | $ | 390,829 |
|
The following table presents the Fair Value of the Company’s non-U.S. plan assets at September 28, 2018, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands): | | | | | | | | | | | | | | | | | | | | | | September 28, 2018 | | Fair Value, Determined Using Fair Value Measurement Inputs | | Level 1 | | Level 2 | | Level 3 | | Investments measured at Net Asset Value | | Total | Domestic equities | $ | — |
| | $ | 31,868 |
| | — |
| | 36,642 |
| | $ | 68,510 |
| Overseas equities | — |
| | 327,309 |
| | — |
| | 44,675 |
| | 371,984 |
| Domestic bonds | 252 |
| | 222,282 |
| | — |
| | 1,080 |
| | 223,614 |
| Overseas bonds | — |
| | 641,966 |
| | — |
| | 60,804 |
| | 702,770 |
| Cash and equivalents | 33,482 |
| | 7,822 |
| | — |
| |
|
| | 41,304 |
| Real estate | — |
| | 26,987 |
| | 99,587 |
| | 17,568 |
| | 144,142 |
| Insurance contracts | — |
| | 4,188 |
| | 95,782 |
| |
|
| | 99,970 |
| Derivatives | 69 |
| | (26,656 | ) | | — |
| |
|
| | (26,587 | ) | Hedge funds | — |
| | — |
| | 135,786 |
| | 8,047 |
| | 143,833 |
| Mutual funds | — |
| | 97,941 |
| | — |
| |
|
| | 97,941 |
| Total | $ | 33,803 |
| | $ | 1,333,707 |
| | $ | 331,155 |
| | $ | 168,816 |
| | $ | 1,867,481 |
|
| | | | | | | | | | | | | | | | | | | | | | September 28, 2018 | | Fair Value, Determined Using Fair Value Measurement Inputs | | Level 1 | | Level 2 | | Level 3 | | Investments measured at Net Asset Value | | Total | Domestic equities | $ | — |
| | 31,868 |
| | $ | — |
| | 36,642 |
| | $ | 68,510 |
| Overseas equities | — |
| | 327,309 |
| | — |
| | 44,675 |
| | 371,984 |
| Domestic bonds | 252 |
| | 222,282 |
| | — |
| | 1,080 |
| | 223,614 |
| Overseas bonds | — |
| | 641,966 |
| | — |
| | 60,804 |
| | 702,770 |
| Cash and equivalents | 33,482 |
| | 7,822 |
| | — |
| | — |
| | 41,304 |
| Real estate | — |
| | 26,987 |
| | 99,587 |
| | 17,568 |
| | 144,142 |
| Insurance contracts | — |
| | 4,188 |
| | 95,782 |
| | — |
| | 99,970 |
| Derivatives | — |
| | (26,656 | ) | | — |
| | — |
| | $ | (26,656 | ) | Hedge funds | — |
| | — |
| | 135,786 |
| | 8,047 |
| | $ | 143,833 |
| Mutual funds | 69 |
| | 97,941 |
| |
|
| | — |
| | 98,010 |
| Total | $ | 33,803 |
| | $ | 1,333,707 |
| | $ | 331,155 |
| | $ | 168,816 |
| | $ | 1,867,481 |
|
The following table presents the Fair Value of the Company’s U.S. plan assets at September 29, 2017, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands):
| | | | | | | | | | | | | | September 29, 2017 | | Fair Value, Determined Using Fair Value Measurement Inputs | | Level 1 | | Level 3 | | Total | U.S. Domestic equities | $ | 103,760 |
| | $ | — |
| | $ | 103,760 |
| U.S. Domestic bonds | 33,404 |
| | — |
| | 33,404 |
| Cash and equivalents | 4,448 |
| | — |
| | 4,448 |
| Hedge funds | — |
| | 6,176 |
| | 6,176 |
| Total | $ | 141,612 |
| | $ | 6,176 |
| | $ | 147,788 |
|
The following table presents the Fair Value of the Company’s non-U.S. plan assets at September 29, 2017, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands):
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | | | September 29, 2017 | | Fair Value, Determined Using Fair Value Measurement Inputs | | Level 1 | | Level 3 | | Total | Domestic equities | $ | 30,916 |
| | $ | — |
| | $ | 30,916 |
| Overseas equities | 229,205 |
| | — |
| | 229,205 |
| Domestic bonds | 263,145 |
| | — |
| | 263,145 |
| Overseas bonds | 77,682 |
| | — |
| | 77,682 |
| Cash and equivalents | 38,924 |
| | — |
| | 38,924 |
| Real estate | — |
| | 58,974 |
| | 58,974 |
| Insurance contracts | — |
| | 74,353 |
| | 74,353 |
| Other | — |
| | 303,729 |
| | 303,729 |
| Total | $ | 639,872 |
| | $ | 437,056 |
| | $ | 1,076,928 |
|
The following table summarizes the changes in the Fair Value of the Company’s U.S. plans’ Level 3 assets for the yearyears ended September 28, 2018andSeptember 27, 2019 (in thousands): | | | Hedge Funds | Hedge Funds | Balance at September 29, 2017 | $ | 6,176 |
| $ | 6,176 |
| Purchases, sales, and settlements | (6,176 | ) | | Purchases, sales and settlements | | (6,176 | ) | Realized and unrealized gains | — |
| — |
| Balance at September 28, 2018 | $ | — |
| $ | — |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the changes in the Fair Value of the Company’s non-U.S. Pension Plans’ Level 3 assets for the yearyears ended September 28, 2018 andSeptember 27, 2019 (in thousands): | | | | | | | | | | | | | | Real Estate | | Insurance Contracts | | Hedge Funds | Balance at Balance at September 29, 2017 | $ | 58,974 |
| | $ | 74,353 |
| | $ | 303,729 |
| Purchases, sales, and settlements | 42,711 |
| | 21,626 |
| | (154,446 | ) | Realized and unrealized gains | (784 | ) | | 1,551 |
| | (6,650 | ) | Effect of exchange rate changes | (1,314 | ) | | (1,748 | ) | | (6,847 | ) | Balance at September 28, 2018 | $ | 99,587 |
| | $ | 95,782 |
| | $ | 135,786 |
| Purchases, sales, and settlements | (17,902 | ) | | (5,126 | ) | | (26,591 | ) | Realized and unrealized gains (losses) | 21,838 |
| | 9,134 |
| | 29,161 |
| Disposition of ECR Assets | — |
| | (22,885 | ) | | — |
| Effect of exchange rate changes | (5,984 | ) | | (4,117 | ) | | (8,156 | ) | Balance at September 27, 2019 | $ | 97,539 |
| | $ | 72,788 |
| | $ | 130,200 |
|
| | | | | | | | | | | | | | Real Estate | | Insurance Contracts | | Hedge Funds | Balance at September 29, 2017 | $ | 58,974 |
| | $ | 74,353 |
| | $ | 303,729 |
| Purchases, sales, and settlements | 42,711 |
| | 21,626 |
| | (154,446 | ) | Realized and unrealized gains (losses) | (784 | ) | | 1,551 |
| | (6,650 | ) | Transfers | — |
| | — |
| | — |
| Effect of exchange rate changes | (1,314 | ) | | (1,748 | ) | | (6,847 | ) | Balance at September 28, 2018 | $ | 99,587 |
| | $ | 95,782 |
| | $ | 135,786 |
|
The following table summarizes the changes in the Fair Value of the Company’s U.S. plans’ Level 3 assets for the year ended September 29, 2017 (in thousands):
| | | | | | | | | | Real Estate | | Hedge Funds | Balance at September 30, 2016 | $ | 3,477 |
| | $ | 5,715 |
| Purchases | (3,477 | ) | | (557 | ) | Realized and unrealized gains | — |
| | 1,018 |
| Balance at September 29, 2017 | $ | — |
| | $ | 6,176 |
|
The following table summarizes the changes in the Fair Value of the Company’s non-U.S. plans’ Level 3 assets for the year ended September 29, 2017 (in thousands):
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | | | Real Estate | | Insurance Contracts | | Hedge Funds | Balance at September 30, 2016 | $ | 55,665 |
| | $ | 39,473 |
| | $ | 272,517 |
| Purchases, sales, and settlements | (1,199 | ) | | 422 |
| | (9,022 | ) | Realized and unrealized gains | 2,642 |
| | (7,572 | ) | | 19,662 |
| Transfers | — |
| | 40,031 |
| | 11,758 |
| Effect of exchange rate changes | 1,866 |
| | 1,999 |
| | 8,814 |
| Balance at September 29, 2017 | $ | 58,974 |
| | $ | 74,353 |
| | $ | 303,729 |
|
The following table presents the amount of cash contributions we anticipate making into the plans during fiscal 20192020 (in thousands): | | | | | | | | | | U.S. Plans | | Non-U.S. Plans | Anticipated cash contributions | $ | — |
| | $ | 28,282 |
|
| | | | | | | | | | U.S. Plans | | Non-U.S. Plans | Anticipated cash contributions | $ | 2,601 |
| | $ | 31,549 |
|
The following table presents the total benefit payments expected to be paid to plan participants during each of the next five fiscal years, and in total for the five years thereafter (in thousands): | | | | | | | | | | U.S. Plans | | Non-U.S. Pans | 2020 | $ | 35,064 |
| | $ | 65,131 |
| 2021 | 33,225 |
| | 64,968 |
| 2022 | 32,230 |
| | 66,765 |
| 2023 | 31,594 |
| | 68,097 |
| 2024 | 30,431 |
| | 68,636 |
| For the periods 2025 through 2029 | 137,252 |
| | 388,015 |
|
| | | | | | | | | | U.S. Plans | | Non-U.S. Pans | 2019 | $ | 31,785 |
| | $ | 70,313 |
| 2020 | 31,270 |
| | 71,337 |
| 2021 | 31,740 |
| | 74,906 |
| 2022 | 31,818 |
| | 78,097 |
| 2023 | 31,857 |
| | 81,569 |
| For the periods 2024 through 2028 | 154,755 |
| | 448,246 |
|
The following table presents the components of net periodic benefit cost for the Company’s U.S. plans recognized in the accompanying Consolidated Statements of Earnings for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | | | | | | | | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Service cost | $ | 2,784 |
| | $ | 4,765 |
| | $ | 1,000 |
| Interest cost | 16,697 |
| | 13,778 |
| | 5,757 |
| Expected return on plan assets | (21,508 | ) | | (19,663 | ) | | (9,942 | ) | Actuarial loss | 3,026 |
| | 3,845 |
| | 3,985 |
| Prior service cost | — |
| | — |
| | — |
| Net pension cost, before special items | $ | 999 |
| | $ | 2,725 |
| | $ | 800 |
| Curtailment expense/Settlement (gain) loss | (35,020 | ) | | 4,146 |
| | 1,781 |
| Total net periodic pension cost recognized | $ | (34,021 | ) | | $ | 6,871 |
| | $ | 2,581 |
|
| | | | | | | | | | | | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Service cost | $ | 4,765 |
| | $ | 1,000 |
| | $ | 9,875 |
| Interest cost | 13,778 |
| | 5,757 |
| | 16,746 |
| Expected return on plan assets | (19,663 | ) | | (9,942 | ) | | (22,368 | ) | Actuarial loss | 3,845 |
| | 3,985 |
| | 7,512 |
| Prior service cost | — |
| | — |
| | (176 | ) | Net pension cost, before special items | 2,725 |
| | 800 |
| | 11,589 |
| Contractual expense/Settlement loss | 4,146 |
| | 1,781 |
| | 8,061 |
| Total net periodic pension cost recognized | $ | 6,871 |
| | $ | 2,581 |
| | $ | 19,650 |
|
The following table presents the components of net periodic benefit cost for the Company’s Non-U.S. plans recognized in the accompanying Consolidated Statements of Earnings for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Service cost | $ | 7,171 |
| | $ | 8,269 |
| | $ | 7,509 |
| Interest cost | 52,627 |
| | 49,324 |
| | 31,205 |
| Expected return on plan assets | (82,274 | ) | | (83,328 | ) | | (56,269 | ) | Actuarial loss | 7,854 |
| | 6,655 |
| | 10,616 |
| Prior service cost | 1,263 |
| | (257 | ) | | (329 | ) | Net pension cost, before special items | $ | (13,359 | ) | | $ | (19,337 | ) | | $ | (7,268 | ) | Curtailment expense/Settlement (gain) loss | 1,933 |
| | 1,268 |
| | (298 | ) | Total net periodic pension (income) cost recognized | $ | (11,426 | ) | | $ | (18,069 | ) | | $ | (7,566 | ) | Total net periodic pension (income) cost recognized from Discontinued Operations | $ | 2,282 |
| | $ | 3,606 |
| | $ | 3,279 |
| Total net periodic pension (income) cost recognized from Continuing Operations | $ | (13,708 | ) | | $ | (21,675 | ) | | $ | (10,845 | ) |
| | | | | | | | | | | | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Service cost | $ | 8,269 |
| | $ | 7,509 |
| | $ | 14,378 |
| Interest cost | 49,324 |
| | 31,205 |
| | 38,892 |
| Expected return on plan assets | (83,328 | ) | | (56,269 | ) | | (50,190 | ) | Actuarial loss | 6,655 |
| | 10,616 |
| | 9,092 |
| Prior service cost | (257 | ) | | (329 | ) | | (260 | ) | Net pension cost, before special items | (19,337 | ) | | (7,268 | ) | | 11,912 |
| Curtailment expense/Settlement loss | 1,268 |
| | (298 | ) | | (7,512 | ) | Total net periodic pension (income) cost recognized | $ | (18,069 | ) | | $ | (7,566 | ) | | $ | 4,400 |
|
DuringAs a result of the adoption of ASU 2017-07, Compensation- Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost in the first quarter of fiscal 2019, the service cost component of net periodic pension expense has been 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 have been reclassified from selling, general and administrative expense and direct cost of contracts and instead presented in miscellaneous income (expense), net on the Consolidated Statements of Earnings for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 in the amounts of $24.4 million, $24.2 million and $13.5 million, respectively.
In the first quarter of fiscal 2019, the Company incurredelected to discontinue the CH2M Hill Retiree Medical Plan and the OMI Retiree Medical Plan, effective December 31, 2018. Lump sum payments were made to participants in fiscal 2019, resulting in a plan settlement and related settlement gain of $35.0 million recognized in fiscal 2019. On January 1, 2019, the CH2M Hill Pension Plan and the CH2M Hill IDC Pension Plan merged into the Company's Sverdrup Pension Plan. The newly combined curtailment and settlement losses on its defined benefit plans primarily relatedplan is called the Jacobs Consolidated Pension Plan. Due to its Sverdrup and Ireland pension plans. During fiscal 2017, we curtaileda recent ruling by the pension plan in Ireland. The fiscal 2016 settlement loss includedHigh Court in the U.S.United Kingdom regarding equalization between men and women of a tranche of pension plan(the Guaranteed Minimum Pension) accrued between 1990 and 1997, Jacobs measured the estimated impact of this ruling in its consolidated financial statements, resulting in an increase of approximately $38.2 million in the ASC 715 balance sheet liability in fiscal 2019, with an offset to other comprehensive income, net of tax. Additionally, the Company has recognized an additional $1.5 million in additional net periodic benefit cost table above related toduring the transfer ofyear ended September 27, 2019 as a U.S. pension plan to a new service provider. The fiscal 2016 settlement loss included in the Non-U.S. pension plan net periodic benefit cost table above related to the saleresult of the Company’s French subsidiary. ruling. Multiemployer Plans In Canada and the U.S., we contribute to various trusteed pension plans covering hourly construction employees under industry-wide agreements. We also contribute to various trusteed plans in Australia and certain countries in Europe covering both hourly and certain salaried employees. Contributions are based on the hours worked by employees covered under these agreements and are charged to direct costs of contracts on a current basis. The majority of the contributions the Company makes to multiemployer pension plans are outside the U.S. With respect to these multiemployer plans, the Company's liability to fund these plans is generally limited to the contributions we are required to make under collective bargaining agreements. Based on our review of our multiemployer pension plans under the guidance provided in ASU 2011-09— Compensation-Retirement Benefits-Multiemployer Plans, we have concluded that none of the multiemployer pension plans into which we contribute are individually significant to our Consolidated Financial Statements. The following table presents the Company’s contributions to these multiemployer plans for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | | | | | | | | | | | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Canada | $ | 36,354 |
| | $ | 35,182 |
| | $ | 44,912 |
| Europe | $ | 10,677 |
| | $ | 6,212 |
| | $ | 8,771 |
| United States | $ | 9,536 |
| | $ | 4,548 |
| | $ | 5,058 |
| Contributions to multiemployer pension plans | $ | 56,567 |
| | $ | 45,942 |
| | $ | 58,741 |
|
| | | | | | | | | | | | | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Canada | $ | 16,625 |
| | $ | 36,354 |
| | $ | 35,182 |
| Europe | 9,413 |
| | 10,677 |
| | 6,212 |
| United States | 7,149 |
| | 9,536 |
| | 4,548 |
| Contributions to multiemployer pension plans | $ | 33,187 |
| | $ | 56,567 |
| | $ | 45,942 |
|
Other Benefit Plans During the second fiscal quarter of 2017, the Company restructured certain employee welfare trust plans benefiting certain of its employees within its India operations by moving these plans under the legal ownership and operation of the Company’s legal entity structure in the region. Historically, the Company structured these plans as separate, stand-alone entities outside of the Company’s consolidated legal entity framework. As a result of these changes, the Company has recorded a one-time, non-cash benefit of $9.9 million reported in selling, general and administrative expense in its Consolidated Statement of Earnings for the year ended September 29, 2017, with corresponding assets in the plans associated with restricted investments of $7.7 million and employee loans receivable of $2.2 million and both recorded in Total other non-current assets in our Consolidated Balance Sheet at September 29, 2017. 11.13. Savings and Deferred Compensation Plans
Savings Plans JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
We sponsor various defined contribution savings plans which allow participants to make voluntary contributions by salary deduction. Such plans cover substantially all of our domestic, nonunion employees in the U.S. and are qualified under Section 401(k) of the U.S. Internal Revenue Code. Similar plans outside the U.S. cover various groups of employees of our international subsidiaries and affiliates. Several of these plans allow the Company to match, on a voluntary basis, a portion of the employee contributions. The following table presents the Company’s contributions to these savings plans for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | | | | | | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | $ | 103,375 |
| | $ | 113,135 |
| | $ | 82,882 |
|
| | | | | | | | | | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | $ | 113,135 |
| | $ | 82,882 |
| | $ | 89,966 |
|
Deferred Compensation Plans Our Executive Security Plan, Executive Deferral Plans, Directors Deferral Plan, legacy CH2M Supplemental Executive Retirement and Retention Plan and legacy CH2M Deferred Compensation Plan are non-qualified deferred compensation programs that provide benefits payable to directors, officers, and certain key employees or their designated beneficiaries at specified future dates, upon retirement, or death. The plans are unfunded; therefore, benefits are paid from the general assets of the Company. Participants' cash deferrals earn a return based on the participants' selection of investments in several hypothetical investment options. Participants are also able to defer stock based compensation in the plans, which must remain invested in Company stock and are distributed in shares of Jacobs common stock. Since no investment diversification is permitted, changes in the fair value of Jacobs' common stock are not recognized. For the deferred compensation held in company stock, the number of shares needed to settle the liability is included in the denominator in both the basic and diluted earnings per share calculations. The following table presents the amount charged to expense for the Company’s deferred compensation plans for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | | | | | | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | $ | 2,395 |
| | $ | 4,445 |
| | $ | 4,368 |
|
| | | | | | | | | | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | $ | 4,445 |
| | $ | 4,368 |
| | $ | 5,792 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | 12.14. | Accumulated Other Comprehensive Income |
The following table presents the Company's roll forward of accumulated income (loss) after-tax for the years ended September 28, 201827, 2019 and September 29, 201728, 2018 (in thousands): | | | | | | | | | | | | | | | | | | Change in Pension and Retiree Medical Plan Liabilities | | Foreign Currency Translation Adjustment | | Gain/(Loss) on Cash Flow Hedges | | Total | Balance at September 29, 2017 | $ | (265,578 | ) | | $ | (386,140 | ) | | $ | (1,796 | ) | | $ | (653,514 | ) | Other comprehensive income (loss) | (52,528 | ) | | (119,070 | ) | | 618 |
| | (170,980 | ) | Reclassifications from other comprehensive income (loss) | 8,239 |
| | 9,193 |
| | 359 |
| | 17,791 |
| Balance at September 28, 2018 | $ | (309,867 | ) | | $ | (496,017 | ) | | $ | (819 | ) | | $ | (806,703 | ) | Other comprehensive income (loss) | (104,434 | ) | | (84,456 | ) | | 990 |
| | (187,900 | ) | Reclassifications from other comprehensive income (loss) | (22,448 | ) | | 100,428 |
| | (189 | ) | | 77,791 |
| Balance at September 27, 2019 | $ | (436,749 | ) | | $ | (480,045 | ) | | $ | (18 | ) | | $ | (916,812 | ) |
| | | | | | | | | | | | | | | | | | Change in Pension Liabilities | | Foreign Currency Translation Adjustment | | Gain/(Loss) on Cash Flow Hedges | | Total | Balance at September 30, 2016 | $ | (364,625 | ) | | $ | (245,613 | ) | | $ | (356 | ) | | $ | (610,594 | ) | Other comprehensive income (loss) | 88,113 |
| | (140,527 | ) | | 834 |
| | (51,580 | ) | Reclassifications from other comprehensive income (loss) | 10,934 |
| | — |
| | (2,274 | ) | | 8,660 |
| Balance at September 29, 2017 | (265,578 | ) | | (386,140 | ) | | (1,796 | ) | | (653,514 | ) | Other comprehensive income (loss) | (52,528 | ) | | (119,070 | ) | | 618 |
| | (170,980 | ) | Reclassifications from other comprehensive income (loss) | 8,239 |
| | 9,193 |
| | 359 |
| | 17,791 |
| Balance at September 28, 2018 | $ | (309,867 | ) | | $ | (496,017 | ) | | $ | (819 | ) | | $ | (806,703 | ) |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Income Taxes
The following table presents the components of our consolidated income tax expense for continuing operations for years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Current income tax (benefit) expense from continuing operations: | |
| | |
| | |
| Federal | $ | 25,549 |
| | $ | 49,829 |
| | $ | 22,825 |
| State | 6,639 |
| | (1,546 | ) | | 7,481 |
| Foreign | 57,156 |
| | 20,858 |
| | 9,194 |
| Total current tax expense from continuing operations | 89,344 |
| | 69,141 |
| | 39,500 |
| Deferred income tax expense (benefit) from continuing operations: | |
| | |
| | |
| Federal | 6,607 |
| | 230,358 |
| | 22,854 |
| State | 20,408 |
| | 17,318 |
| | 1,832 |
| Foreign | (79,405 | ) | | 8,815 |
| | 8,917 |
| Total deferred tax expense (benefit) from continuing operations | $ | (52,390 | ) | | $ | 256,491 |
| | $ | 33,603 |
| Consolidated income tax expense from continuing operations | $ | 36,954 |
| | $ | 325,632 |
| | $ | 73,103 |
|
| | | | | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Current income tax expense: | |
| | |
| | |
| Federal | $ | 34,145 |
| | $ | 29,297 |
| | $ | 36,020 |
| State | (597 | ) | | 8,535 |
| | 11,336 |
| Foreign | 59,889 |
| | 31,347 |
| | 52,259 |
| Total current tax expense | 93,437 |
| | 69,179 |
| | 99,615 |
| Deferred income tax expense (benefit): | |
| | |
| | |
| Federal | 252,730 |
| | 29,390 |
| | 6,439 |
| State | 15,485 |
| | 3,407 |
| | 485 |
| Foreign | 19,911 |
| | 3,866 |
| | (34,331 | ) | Total deferred tax expense (benefit) | 288,126 |
| | 36,663 |
| | (27,407 | ) | Consolidated income tax expense | $ | 381,563 |
| | $ | 105,842 |
| | $ | 72,208 |
|
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted in the United States. The Act reducedStates and significantly revised the topU.S. corporate U.S. federal statutoryincome tax rate from 35% to 21% starting on January 1, 2018, resulting in a blended statutory tax rate for fiscal year filers. It also requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries, places limitations and exclusions on varied tax deductions and creates new taxes on certain foreign sourced earnings. The majority of the tax provisions, excluding the change in corporate tax rates, are effective for the first tax year beginning after January 1, 2018, which will be the Company’s taxable year beginning fiscal 2019. laws. Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar tolike that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed. SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Act.
As of September 28,December 22, 2018, the Company has notwe have completed theour accounting for the tax effects of the enactment of the Act. However,For the Company has made a provisional estimate of the effects of the statutory tax rate reduction impact on our existing deferred tax balances, we remeasured the U.S. deferred tax assets and liabilities based on global intangible low-taxedthe rates at which they are expected to reverse in the future, which is generally 21%. The Company’s revised remeasurement resulted in cumulative charges to income andtax expense of $144.4 million attributable to fiscal year 2018. Additionally, in fiscal year 2019, the one-time transition tax.Company recorded $24.4 million of tax expense associated with the revaluation of U.S. net operating losses that were expected to be recovered at 35%, but were actually utilized at 21%. The Act calls for a one-time tax on deemed repatriation of foreign earnings. This one-time transition tax is based on the Company'sour total post-1986 earnings and profits (E&P) of certain of our foreign subsidiaries. The Company has made a revised provisional estimate of the transition tax. Based upon our review of the Company’s historical foreign tax credit position and post-1986 E&P, it is estimated at this time thatIn fiscal 2019, the Company will incur approximately $14.3 millionfiled its tax return which reflected the transition tax. The net tax expense net of foreign tax credits. The Company is still in the process of completing our calculation of the total post-1986 E&P. The estimate may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets.
The Company has also recorded a provisional expense of $104.2 millionliability after consideration for valuation allowance with respect to certainconsidering foreign tax credits asresulted in a resulttax liability of integration impacts.$0.8 million.
In the currentprior fiscal year, the Company adopted ASU No 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The guidance gives entities the option to reclassify to retained earnings tax effects related to items in accumulated other comprehensive income that the FASB refers JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
to as having been stranded in accumulated other comprehensive income as a result of tax reform. As a result of adoption of ASU 2018-02, the Company reclassified $10.2 million in accumulated other comprehensive income to retained earnings relating to the currentfiscal 2018 year deferred tax activity for its U.S. pension plans resulting from the Act. Deferred taxes reflect the tax effects of temporary differences between the amounts recorded as assets and liabilities for financial reporting purposes and the comparable amounts recorded for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents the components of our net deferred tax assets at September 28, 201827, 2019 and September 29, 201728, 2018 (in thousands): | | | | | | | | | | September 27, 2019 | | September 28, 2018 | Deferred tax assets: | |
| | |
| Obligations relating to: | |
| | |
| Defined benefit pension plans | $ | 56,854 |
| | $ | 39,777 |
| Other employee benefit plans | 149,276 |
| | 135,713 |
| Net operating losses | 241,033 |
| | 149,256 |
| Foreign tax credit | 84,553 |
| | 145,931 |
| Other credits | 13,881 |
| | 13,972 |
| Contract revenues and costs | 62,318 |
| | 144,383 |
| Deferred rent | 21,847 |
| | 5,654 |
| Restructuring | 8,205 |
| | 5,289 |
| Other | 3,821 |
| | — |
| Valuation allowance | (153,257 | ) | | (256,948 | ) | Gross deferred tax assets | 488,531 |
| | 383,027 |
| Deferred tax liabilities: | |
| | |
| Depreciation and amortization | (177,002 | ) | | (159,312 | ) | Self-insurance programs |
|
| | — |
| Unremitted earnings | (29,761 | ) | | (48,578 | ) | Other, net | (246 | ) | | (8,345 | ) | Gross deferred tax liabilities | (207,009 | ) | | (216,235 | ) | Net deferred tax assets | $ | 281,522 |
| | $ | 166,792 |
|
| | | | | | | | | | September 28, 2018 | | September 29, 2017 | Deferred tax assets: | |
| | |
| Obligations relating to: | |
| | |
| Defined benefit pension plans | $ | 30,483 |
| | $ | 52,299 |
| Other employee benefit plans | 190,548 |
| | 192,299 |
| Net Operating Losses | 167,424 |
| | 136,783 |
| Foreign Tax Credit | 145,931 |
| | — |
| Other Credits | 8,764 |
| | | Self-insurance programs | — |
| | 489 |
| Contract revenues and costs | 130,116 |
| | (18,374 | ) | Deferred Rent | 5,454 |
| | 25,654 |
| Restructuring | 14,515 |
| | 18,258 |
| Other | 3,533 |
| | 19,389 |
| Valuation Allowance | (264,944 | ) | | (58,097 | ) | Gross deferred tax assets | 431,824 |
| | 368,700 |
| Deferred tax liabilities: | |
| | |
| Depreciation and amortization | (206,705 | ) | | (176,327 | ) | Self-insurance programs | (3,513 | ) | | — |
| Unremitted earnings | (79,418 | ) | | — |
| Other, net | — |
| | (1,438 | ) | Gross deferred tax liabilities | (289,636 | ) | | (177,765 | ) | Net deferred tax assets | $ | 142,188 |
| | $ | 190,935 |
|
We remeasured the U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The Company’s provisional remeasurement resulted in a $139.8 million net unfavorable charge to income tax expense for the year ended September 28, 2018. The Company is still analyzing purchase accounting related to CH2M Hill and refining the calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax assets and liabilities.
A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. The valuation allowance was $264.9$153.3 million at September 27, 2019 and $256.9 million at September 28, 2018 and $58.12018. Of the $103.7 million at September 29, 2017.decrease in the valuation allowance, $85.4 million relates to the direct net write-off of the gross deferred tax asset which has no impact on income tax expense. The remaining decrease includes $29.1 million related to a change in judgment in the realizability of certain deferred tax assets in the current year which resulted in a benefit recorded to income tax expense, offset by a $10.9 million increase associated with acquisitions. Net operating loss carry forwards of foreign subsidiaries at September 27, 2019 and September 28, 2018 and September 29, 2017 totaled $662.4$710.5 million and $490.9$470.4 million, respectively. If unused, foreignIn addition, as of September 27, 2019, the Company has U.S. federal net operating loss carryforwards of $234.6 million. The Company's net operating losses have various expiration periods between 2020 and indefinite periods. At September 27, 2019, the Company has foreign tax and research credit carryforwards of $168.1$84.6 million will expireand $6.1 million, respectively, expiring between 20192022 and 2038. Net operating losses of $494.3 million can be carried forward indefinitely.2037. The following table presents the income tax benefits from continuing operations realized from the exercise of non-qualified stock options and disqualifying dispositions of stock sold under our employee stock purchase plans for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in millions): | | | | | | | | | | | | For the Years Ended | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | $ | 7.9 |
| | $ | 2.2 |
| | $ | 1.8 |
|
The Company’s consolidated effective income tax rate is lower than the US statutory rate of 21.0% primarily due to a $29.1 million benefit from foreign valuation allowance releases, $15.7 million of foreign tax and other credits generated in the current year, a benefit of $17.9 million from foreign deferred adjustments and a reduction in uncertain tax positions of $6.9 million. The decreases in tax expense were offset by a $36.6 million charge from the remeasurement of net deferred tax assets and other miscellaneous U.S. tax reform charges. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | | | For the Years Ended | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | $ | 4.7 |
| | $ | 5.2 |
| | $ | 1.5 |
|
The Company’s consolidated effective income tax rate is higher than the US statutory rate of 24.6% primarily due to a $139.8 million detriment from the provisional remeasurement of the deferred tax items in the U.S. from the reduction in the U.S. statutory rate, as well as a charge for valuation allowance related to foreign tax credits of $104.2 million. In addition, there was an increase due to the difference in foreign tax rates compared to the new U.S. statutory rate of $9.9 million. The unfavorable charges were partially offset by a $5.7 million benefit related to a federal hurricane credit and $4.5 million benefit related to the Internal Revenue Code section 179D deduction for the design of energy efficient facilities.
The following table reconciles total income tax expense from continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense for continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | % | | September 28, 2018 | | % | | September 29, 2017 | | % | Statutory amount | $ | 73,701 |
| | 21.0 | % | | $ | 81,421 |
| | 24.6 | % | | $ | 85,104 |
| | 35 | % | State taxes, net of the federal benefit | 10,183 |
| | 2.9 | % | | 15,772 |
| | 4.8 | % | | 6,983 |
| | 2.9 | % | Exclusion of tax on non-controlling interests | (4,839) |
| | (1.4 | )% | | (2,389 | ) | | (0.7 | )% | | 2,223 |
| | 0.9 | % | Foreign: | | | | | |
| | |
| | |
| | |
| Difference in tax rates of foreign operations | 1,083 |
| | 0.3 | % | | 2,815 |
| | 0.9 | % | | (880 | ) | | (0.4 | )% | Benefit from foreign valuation allowance release | (29,125) |
| | (8.3 | )% | | (5,088 | ) | | (1.5 | )% | | (3,085 | ) | | (1.3 | )% | Nontaxable income from foreign affiliate | — |
| | — | % | | — |
| | — | % | | (1,320 | ) | | (0.5 | )% | U.S. tax cost (benefit) of foreign operations | (17,760 | ) | | (5.1 | )% | | 4,030 |
| | 1.2 | % | | 10,147 |
| | 4.2 | % | Tax differential on foreign earnings | (45,802 | ) | | (13.1 | )% | | 1,757 |
| | 0.6 | % | | 4,862 |
| | 2.0 | % | Foreign tax credits | (15,682) |
| | (4.5 | )% | | (21,735 | ) | | (6.6 | )% | | (16,337 | ) | | (6.7 | )% | Tax reform | 36,674 |
| | 10.4 | % | | 155,756 |
| | 47.1 | % | | — |
| | — |
| Valuation allowance | (207) |
| | (0.1 | )% | | 104,221 |
| | 31.5 | % | | — |
| | — |
| Uncertain tax positions | (6,883) |
| | (2.0 | )% | | (1,402 | ) | | (0.4 | )% | | (5,624 | ) | | (2.3 | )% | Other items: | | | | | | | | | | | | IRS §179D deduction | (2,957) |
| | (0.8 | )% | | (4,557 | ) | | (1.4 | )% | | (2,613 | ) | | (1.1 | )% | IRS §199D deduction | — |
| | — |
| | — |
| | — | % | | (1,647 | ) | | (0.7 | )% | Disallowed officer compensation | 5,568 |
| | 1.6 | % | | 1,510 |
| | 0.5 | % | | 1,255 |
| | 0.5 | % | Stock compensation | (7,864) |
| | (2.2 | )% | | (2,158 | ) | | (0.7 | )% | | (1,783 | ) | | (0.7 | )% | Foreign partnership income/(loss) | — |
| | — | % | | (3,678 | ) | | (1.1 | )% | | (725 | ) | | (0.3 | )% | Other items – net | (4,938) |
| | (1.4 | )% | | 1,114 |
| | 0.3 | % | | 1,405 |
| | 0.6 | % | Total other items | (10,191) |
| | (2.8 | )% | | (7,769 | ) | | (2.4 | )% | | (4,108 | ) | | (1.7 | )% | Taxes on income from continuing operations | $ | 36,954 |
| | 10.5 | % | | $ | 325,632 |
| | 98.4 | % | | $ | 73,103 |
| | 30.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | For the Years Ended | | September 28, 2018 | | % | | September 29, 2017 | | % | | September 30, 2016 | | % | Statutory amount | $ | 136,458 |
| | 24.6 | % | | $ | 137,626 |
| | 35.0 | % | | $ | 100,353 |
| | 35.0 | % | State taxes, net of the federal benefit | 7,587 |
| | 1.4 | % | | 8,955 |
| | 2.3 | % | | 7,853 |
| | 2.7 | % | Exclusion of tax on non-controlling interests | (2,389) |
| | (0.4 | )% | | 2,223 |
| | 0.6 | % | | (1,418 | ) | | (0.5 | )% | Foreign: | |
| | | | |
| | |
| | |
| | |
| Difference in tax rates of foreign operations | 9,860 |
| | 1.8 | % | | (16,987 | ) | | (4.3 | )% | | (17,184 | ) | | (6.0 | )% | Benefit from foreign valuation allowance release | (5,105) |
| | (0.9 | )% | | (3,085 | ) | | (0.8 | )% | | (11,182 | ) | | (3.9 | )% | U.K. tax rate change on deferred tax assets | — |
| | — |
| | — |
| | — | % | | 8,853 |
| | 3.1 | % | Nontaxable income from foreign affiliate | — |
| | — |
| | (3,280 | ) | | (0.8 | )% | | — |
| | — |
| U.S. tax cost of foreign operations | 6,577 |
| | 1.2 | % | | 18,612 |
| | 4.7 | % | | 30,850 |
| | 10.9 | % | Tax differential on foreign earnings | 11,332 |
| | 2.0 | % | | (4,740 | ) | | (1.2 | )% | | 11,337 |
| | 4.1 | % | Foreign tax credits | (21,729) |
| | (3.9 | )% | | (20,454 | ) | | (5.2 | )% | | (44,018 | ) | | (15.4 | )% | Tax Reform | 154,150 |
| | 27.8 | % | | — |
| | — |
| | — |
| | — |
| Valuation Allowance | 104,221 |
| | 18.8 | % | | — |
| | — |
| | — |
| | — |
| Uncertain tax positions | (1,297) |
| | (0.2 | )% | | (5,779 | ) | | (1.5 | )% | | 1,449 |
| | 0.5 | % | Other items: | |
| | | | |
| | |
| | |
| | |
| IRS §179D deduction | (4,520) |
| | (0.8 | )% | | (3,351 | ) | | (0.8 | )% | | (2,153 | ) | | (0.8 | )% | IRS §199D deduction | — |
| | — |
| | (2,113 | ) | | (0.5 | )% | | (2,800 | ) | | (1.0 | )% | Foreign partnership income/(loss) | (3,990) |
| | (0.7 | )% | | (9,861 | ) | | (2.5 | )% | | (2,658 | ) | | (0.9 | )% | Other items – net | 1,740 |
| | 0.3 | % | | 3,336 |
| | 0.7 | % | | 4,263 |
| | 1.5 | % | Total other items | (6,770) |
| | (1.2 | )% | | (11,989 | ) | | (3.1 | )% | | (3,348 | ) | | (1.2 | )% | Taxes on income | $ | 381,563 |
| | 68.9 | % | | $ | 105,842 |
| | 26.9 | % | | $ | 72,208 |
| | 25.2 | % |
The Company’s consolidated effective income tax rate for continuing operations for the year ended September 27, 2019 decreased to 10.5% from 98.4% for fiscal 2018. Key drivers for this year over year decrease in the effective tax rate include a reduction of $119.1 million associated with remeasurement of U.S. deferred tax items due to tax reform and a decrease in the amount charged for valuation allowance related to foreign tax credits of $104.2 million. The Company’s consolidated effective income tax rate for continuing operations for the year ended September 28, 2018 increased to 68.9%98.4% from 26.9%30.1% for fiscal 2017. Key drivers for this year over year increase include the reduction in the U.S. statutory tax rate in fiscal year 2018 causing a detriment for provisional remeasurement of the deferred tax items in the U.S. of $139.8 million, as well as a charge for valuation allowance related to foreign tax credits of $104.2 million. In addition, there was an increase due to the difference in foreign tax rates compared to the new U.S. statutory rate of $26.8$19.8 million. These detriments were partially offset by a $4.5$4.6 million benefit related to internal revenue service code section 179D, a nonrecurring benefit of $2.8 million related to tax accounting method changes and a $5.7 million federal hurricane credit. The Company’s consolidated effectivefollowing table presents income tax rate forpayments made during the yearyears ended September 27, 2019, September 28, 2018 and September 29, 2017 increased to 26.9% from 25.2% for fiscal 2016. Key drivers for this year over year increase included the impacts of lower foreign tax credit benefits and lower benefits from valuation allowance releases on foreign deferred tax assets, partly offset by favorable impacts of U.S. tax cost of foreign operations, the non-recurrence of 2016 tax rate change impacts on deferred income tax assets in the UK and favorable impacts from change in uncertain tax positions.(in millions): | | | | | | | | | | | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | $ | 291.7 |
| | $ | 44.3 |
| | $ | 78.4 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents income tax payments made during the years ended September 28, 2018, September 29, 2017 and September 30, 2016 (in millions):
| | | | | | | | | | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | $ | 44.29 |
| | $ | 78.39 |
| | $ | 116.30 |
|
The following table presents the components of our consolidated earnings from continuing operations before taxes for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | United States earnings | $ | 225,898 |
| | $ | 263,991 |
| | $ | 177,599 |
| Foreign earnings | 125,061 |
| | 66,990 |
| | 65,555 |
| | $ | 350,959 |
| | $ | 330,981 |
| | $ | 243,154 |
|
| | | | | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | United States earnings | $ | 282,123 |
| | $ | 232,342 |
| | $ | 206,159 |
| Foreign earnings | 272,582 |
| | 160,875 |
| | 80,564 |
| | $ | 554,705 |
| | $ | 393,217 |
| | $ | 286,723 |
|
The tax cost, net of applicable credits, have been provided on the undistributed earnings of the Company’s foreign subsidiaries. As of September 28, 2018,27, 2019, the provisional estimate of repatriating earnings to the United States is estimated at $93.0$29.8 million. The Company does not assert any earnings to be permanently reinvested. The Company accounts for unrecognized tax benefits in accordance with ASC Topic 740, Income Taxes. It accounts for interest and penalties on unrecognized tax benefits as interest and penalties (i.e., not as part of income tax expense). The Company’s liability for gross unrecognized tax benefits was $76.7$85.2 million and $38.6$76.7 million at September 28, 201827, 2019 and September 29, 2017,28, 2018, respectively, all of which, if recognized, would affect the Company’s consolidated effective income tax rate. The Company had $56.3$51.1 million and $36.6$56.3 million in accrued interest and penalties at September 28, 201827, 2019 and September 29, 2017,28, 2018, respectively. The Company estimates that, within twelve months, we may realize a decrease in our uncertain tax positions of approximately $6.5$4.3 million as a result of concluding various tax audits and closing tax years. As of September 28, 2018,27, 2019, the Company’s U.S. federal income tax returns for tax years 20092010 and forward remain subject to examination. The following table presents the reconciliation of the beginning and ending amount of unrecognized tax benefits for both continuing and discontinued operations, with ECR-sale related impacts removed in the current year Acquisitions/Divestitures row, for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Balance, beginning of year | $ | 179,140 |
| | $ | 38,580 |
| | $ | 44,167 |
| Acquisitions/Divestitures | (31,004 | ) | | 137,912 |
| | — |
| Additions based on tax positions related to the current year | 7,455 |
| | 9,780 |
| | 5,900 |
| Additions for tax positions of prior years | 1,994 |
| | 5,561 |
| | 237 |
| Reductions for tax positions of prior years | (49,849 | ) | | (8,962 | ) | | (4,524 | ) | Settlement | (3,381 | ) | | (3,731 | ) | | (7,200 | ) | Balance, end of year | $ | 104,355 |
| | $ | 179,140 |
| | $ | 38,580 |
|
| | | | | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Balance, beginning of year | $ | 38,580 |
| | $ | 44,167 |
| | $ | 42,666 |
| Acquisition of CH2M | 137,912 |
| | — |
| | — |
| Additions based on tax positions related to the current year | 9,780 |
| | 5,900 |
| | 5,670 |
| Additions for tax positions of prior years | 5,561 |
| | 237 |
| | 367 |
| Reductions for tax positions of prior years | (8,962 | ) | | (4,524 | ) | | (2,451 | ) | Settlement | (3,731 | ) | | (7,200 | ) | | (2,085 | ) | Balance, end of year | $ | 179,140 |
| | $ | 38,580 |
| | $ | 44,167 |
|
On June 12, 2019, the Company completed the acquisition of KeyW and on December 15, 2017 the Company completed the acquisition of CH2M. For income tax purposes, the transaction wastransactions were accounted for as a stock purchase.purchases. As a result of the acquisition,acquisitions, the Company adjusted its U.S. GAAP opening balance sheet of KeyW and CH2M to reflect preliminary estimates of the fair value of the net assets acquired. For income tax purposes, the tax attributes and basis of net assets acquired carryover without any step-up to fair value. TheFor KeyW, the Company has made preliminary estimates and recorded deferred taxes associated with the purchase accounting. It is expected that the Company will make adjustments to the purchase accounting over the relevant measurement period as allowed by ASC 805. For CH2M, the Company completed its purchase accounting in the first quarter of the current fiscal year. | | 14. | Commitments and Contingencies and Derivative Financial Instruments |
Commitments Under Operating Leases
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | 16. | Commitments and Contingencies and Derivative Financial Instruments |
Commitments Under Operating Leases We lease certain of our facilities and equipment under operating leases with net aggregate future lease payments at September 28, 2018,27, 2019, payable as follows (in thousands): | | | | | In fiscal years, | | 2020 | $ | 190,287 |
| 2021 | 172,017 |
| 2022 | 151,452 |
| 2023 | 131,250 |
| 2024 | 116,381 |
| Thereafter | 352,194 |
| | 1,113,581 |
| Amounts representing sublease income | (31,884 | ) | | $ | 1,081,697 |
|
| | | | | In fiscal years, | | 2019 | $ | 215,375 |
| 2020 | 187,228 |
| 2021 | 158,781 |
| 2022 | 135,991 |
| 2023 | 115,614 |
| Thereafter | 344,120 |
| | 1,157,109 |
| Amounts representing sublease income | (19,443 | ) | | $ | 1,137,666 |
|
We recognize rent expense, inclusive of landlord concessions and tenant allowances, over the lease term on a straight-line basis. We also recognize rent expense on a straight-line basis for leases containing fixed escalation clauses and rent holidays. Contingent rentals are included in rent expense as incurred. Operating leases relating to many of our major offices generally contain renewal options and provide for additional rental based on escalation in operating expenses and real estate taxes. The following table presents rent expense and sublease income offsetting the Company’s rent expense for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 and September 30, 2016 (in thousands): | | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 |
| September 28, 2018 |
| September 29, 2017 | Rent expense | $ | 167,365 |
| | $ | 169,931 |
| | $ | 96,875 |
| Sublease income | (11,514 | ) | | (5,087 | ) | | (3,160 | ) | Net rent expense | $ | 155,851 |
| | $ | 164,844 |
| | $ | 93,715 |
|
| | | | | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Rent expense | $ | 217,550 |
| | $ | 145,344 |
| | $ | 151,539 |
| Sublease income | (5,514 | ) | | (7,052 | ) | | (7,212 | ) | Net rent expense | $ | 212,036 |
| | $ | 138,292 |
| | $ | 144,327 |
|
Synthetic Lease Guarantee
We are party to a synthetic lease agreement involving certain real and personal property located in Houston, Texas that we use in our operations. A synthetic lease is a type of off-balance sheet transaction which provides us with certain tax and other financial benefits. Significant terms of the lease are as follows:
| | | | | End of lease term | 2025 |
| End of term purchase option (in thousands) | $ | 76,950 |
| Residual value guarantee (in thousands) | $ | 62,412 |
|
The Company refinanced the synthetic lease agreement effective July 28, 2015 with a 10-year term. The new lease agreement continues to gives us the right to request an extension of the lease term. We may also assist the owner in selling the property at the end of the lease term, the proceeds from which would be used to reduce our residual value guarantee. The minimum lease payments required by the lease agreement is included in the above lease payment schedule. We have determined that the estimated Fair Value of the aforementioned financial guarantee was not significant at September 28, 2018.
Derivative Financial Instruments In situations where our operations incur contract costs in currencies other than their functional currency, we attempt to have a portion of the related contract revenues denominated in the same currencies as the costs. In those situations where revenues and costs are transacted in different currencies, we sometimes enter into foreign exchange contracts in order to limit our exposure to fluctuating foreign currencies. The Company does not currently have exchange rate sensitive instrumentsoutstanding foreign currency derivatives that would have a material effect on our consolidated financial statements or results of operations. Letters of Credit JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At September 28, 2018,27, 2019, the Company had issued and outstanding approximately $446.6$262.2 million in LOCs and $870.3 million$2.0 billion in surety bonds. Of the outstanding LOC amount, $2.5$2.3 million has been issued under the RevolvingNew Credit FacilityAgreement and $444.1$259.9 million are issued under separate, committed and uncommitted letter-of-credit facilities. | | 15. | 17. Contractual Guarantees, Litigation, Investigations 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 primarily includes personal injury claims, professional liability claims and breach of contract claims. In most cases, we are the defendant. 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") (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 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. See Note 14- 16- Commitments and Contingencies and Derivative Financial Instruments for more information surrounding LOCs and 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 the Company brings. We have also elected to retain a portion of losses and liabilities that occur through the use of 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 U.S., as well as by various government agencies representing jurisdictions outside the U.S. 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, and 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. 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.statements, beyond amounts currently accrued. On September 30, 2015, Nui Phao Mining Company Limited (“NPMC”) commenced arbitration proceedings against Jacobs E&C Australia Pty Limited (“Jacobs E&C”). The arbitration is pending in Singapore before the Singapore International Arbitration Centre. In March 2011, Jacobs E&C was engaged by NPMC for the provision of management, design, engineering, and procurement services for thea Nui Phao mine/mineral processing project in Vietnam. InVietnam as part of the NoticeCompany’s Energy, Chemicals & Resources (“ECR”) line of Arbitration and in a subsequently filed Statement of Claim and Supplementary Statement of Claim dated February 1, 2016 and February 26, 2016, respectively, NPMC asserts various causes of action and alleges that the quantum of its claim exceeds $167.0 million. Jacobs has denied liability and is vigorously defending this claim.business. A three weekthree-week hearing on the merits concluded on December 15, 2017 and2017. On March 28, 2019, the arbitration panel issued a decision is expected as soon as later this calendar year.finding against Jacobs E&C and awarding damages to NPMC of approximately $95.0 million. NPMC subsequently asserted an additional claim for interest, costs and attorneys' fees for approximately $70.0 million, which the Company disputed. On June 28, 2019, the Company filed an application in Singapore to set aside the award. In addition, NPMC filed an application to enforce the award in Australia. On August 30, 2019, NPMC and Jacobs E&C settled all of the foregoing proceedings. Under the terms of the settlement, Jacobs E&C made a payment to NPMC in the amount of $130.0 million. The settlement otherwise remains confidential. The Company doesexpects that a portion of the settlement amount is subject to recovery from insurance; however, the Company currently has not expectrecognized any income for related insurance recoveries. Under the resolutionterms of the sale of the Company’s ECR business to Worley on April 26, 2019, the Company has retained liability with respect to this matter to have a material adverse effect on its financial condition, results of operations and/or cash flows.matter. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In 2012, CH2M HILL Australia Pty Limited, a subsidiary of CH2M, entered into a 50/50 /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 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 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 forand is seeking compensatory damages in the amount of $665.5approximately $530.0 million for repudiatory breach or, in the alternative, seeking damages for unresolved contract claims and change orders. JKC has provided a preliminary estimate of the monetary value of its claims, which we believe will result in alleged damages in excess of $1.7 billion, and has drawn on bonds. This draw on bonds does not impact the Company's ultimate liability. A decision inhearing on this matter is notscheduled to begin in February 2020 and no decision is expected before 2020.2021. 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 on March 12 and 13, 2019, and a decision in favor of the Consortium was issued. JKC has appealed the decision. If the Consortium is found liable, this matterthese matters could have a material adverse effect on the Company’s business, financial condition, results of operations and /or cash flows, particularly in the short term. However, the Consortium has denied liability and is vigorously defending these claims and pursuing its affirmative claims against JKC, and 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.flows, in excess of the current reserve for this matter. See Note 5-Business Combinations for further information relating 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. There are currently 6 separate cases, the primary case, Greg Adkisson, ET AL v. Jacobs Engineering Group Inc., case No. 3:13-CV-505-TAV-HBG in the US 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. The cases are at various stages of litigation, and several of the cases are currently stayed by the court pending resolution of other cases. In May 2019, Roane County filed a claim against TVA and the Company alleging that they misled the public about risks associated with the released fly ash. This matter is scheduled for trial in 2021. In addition, in November 2019, a resident of Roane County filed a purported class action against TVA and the Company alleging they failed to adequately warn local residents about risks associated with the released fly ash. 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 cases. The Company disputes the claims asserted in all of the above matters and is vigorously defending these claims.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | 16.18. | Other Financial Information |
Receivables and contract assets The following table presents the components of “Receivables” as shownreceivables appearing in the accompanying Consolidated Balance Sheets at September 28, 201827, 2019 and September 29, 201728, 2018 as well as certain other related information (in thousands): | | | | | | | | | | September 27, 2019 | | September 28, 2018 | Components of receivables: | | | | Amounts billed, net | $ | 1,222,339 |
| | $ | 1,107,250 |
| Unbilled receivables and other | 1,216,028 |
| | 1,393,246 |
| Contract assets | 401,842 |
| | 13,438 |
| Total receivables and contract assets, net | $ | 2,840,209 |
| | $ | 2,513,934 |
| Other information about receivables: | |
| | |
| Amounts due from the United States federal government included above, net of advanced billings | $ | 630,975 |
| | $ | 472,846 |
|
| | | | | | | | | | September 28, 2018 | | September 29, 2017 | Components of receivables: | | | | Amounts billed, net | $ | 1,597,297 |
| | $ | 949,060 |
| Unbilled receivables and other | 1,933,000 |
| | 1,118,144 |
| Retentions receivable | 24,633 |
| | 35,339 |
| Total receivables, net | $ | 3,554,930 |
| | $ | 2,102,543 |
| Other information about receivables: | |
| | |
| Amounts due from the United States federal government included above, net of advanced billings | $ | 472,846 |
| | $ | 226,236 |
| Claims receivable | $ | — |
| | $ | 4,600 |
|
Billed receivables,Amounts billed, net consist of amounts invoiced to clients in accordance with the terms of the 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 retentions receivableother, which represent reimbursable costs and amounts earned and reimbursable under contracts in progress as of the respective balance sheet dates. Such amounts become billable accordingan unconditional right to the contract terms, which usually considerpayment 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 certain milestones or completion of the project.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. Claims receivableContract 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 includedtransferred to unbilled receivables when the right to consideration becomes unconditional and are transferred to amounts billed upon invoicing. The increase in receivables incontract assets was a result of the accompanying Consolidated Balance Sheetsadoption of ASC 606 and represent certain costs incurred on contracts to the extent it is probable that such claims will result in additional contract revenue and the amount of such additional revenue can be reliably estimated.was not materially impacted by any other factors.
Property, Equipment and Improvements, Net The following table presents the components of our property, equipment and improvements, net at September 28, 201827, 2019 and September 29, 201728, 2018 (in thousands): | | | | | | | | | | September 27, 2019 | | September 28, 2018 | Land | $ | 355 |
| | $ | 1,340 |
| Buildings | 14,331 |
| | 12,867 |
| Equipment | 533,804 |
| | 482,783 |
| Leasehold improvements | 247,660 |
| | 198,287 |
| Construction in progress | 8,781 |
| | 17,684 |
| | 804,931 |
| | 712,961 |
| Accumulated depreciation and amortization | (496,788 | ) | | (455,102 | ) | | $ | 308,143 |
| | $ | 257,859 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | | | | | | | | | September 28, 2018 | | September 29, 2017 | Land | $ | 19,327 |
| | $ | 17,197 |
| Buildings | 129,336 |
| | 93,313 |
| Equipment | 721,274 |
| | 627,609 |
| Leasehold improvements | 268,979 |
| | 220,295 |
| Construction in progress | 17,685 |
| | 21,300 |
| | 1,156,601 |
| | 979,714 |
| Accumulated depreciation and amortization | (698,895 | ) | | (629,803 | ) | | $ | 457,706 |
| | $ | 349,911 |
|
Miscellaneous Noncurrent Assets The following table presents the components of “Miscellaneous noncurrent assets” shown in the accompanying Consolidated Balance Sheets at September 28, 201827, 2019 and September 29, 201728, 2018 (in thousands): JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES | | | | | | | | | | September 27, 2019 | | September 28, 2018 | Deferred income taxes | $ | 514,633 |
| | $ | 319,405 |
| Deferred compensation arrangement investments | 219,948 |
| | 280,337 |
| Equity Method Investments | 157,919 |
| | 150,052 |
| Other | 25,702 |
| | 11,060 |
| Total | $ | 918,202 |
| | $ | 760,854 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | | | | | | | | | September 28, 2018 | | September 29, 2017 | Deferred income taxes | $ | 319,405 |
| | $ | 368,700 |
| Deferred compensation arrangement investments | 282,974 |
| | 142,522 |
| Equity Method Investments | 219,614 |
| | 131,400 |
| Notes receivable | 1,274 |
| | 17,839 |
| Other | 48,425 |
| | 31,561 |
| Total | $ | 871,692 |
| | $ | 692,022 |
|
Deferred compensation arrangement investments are comprised of the cash surrender value of life insurance policies and pooled-investment funds. The fair value of the pooled investment funds is derived using Level 2 inputs. Accrued Liabilities The following table presents the components of “Accrued liabilities” shown in the accompanying Consolidated Balance Sheets at September 28, 201827, 2019 and September 29, 201728, 2018 (in thousands): | | | | | | | | | | September 27, 2019 | | September 28, 2018 | Accrued payroll and related liabilities | $ | 677,313 |
| | $ | 633,404 |
| Project-related accruals | 58,835 |
| | 40,378 |
| Non project-related accruals | 258,312 |
| | 295,463 |
| Insurance liabilities | 83,968 |
| | 58,666 |
| Sales and other similar taxes | 34,390 |
| | 58,728 |
| Deferred rent | 68,914 |
| | 58,252 |
| Dividends payable | 23,439 |
| | 22,111 |
| Deferred gain on ECR disposition (1) | 179,208 |
| | — |
| Total | $ | 1,384,379 |
| | $ | 1,167,002 |
|
| | | | | | | | | | September 28, 2018 | | September 29, 2017 | Accrued payroll and related liabilities | $ | 864,670 |
| | $ | 572,946 |
| Project-related accruals | 45,349 |
| | 71,815 |
| Non project-related accruals | 349,384 |
| | 116,051 |
| Insurance liabilities | 64,976 |
| | 67,546 |
| Sales and other similar taxes | 83,151 |
| | 32,163 |
| Deferred rent | 58,988 |
| | 60,593 |
| Dividends payable | 22,111 |
| | 18,573 |
| Total | $ | 1,488,629 |
| | $ | 939,687 |
|
| | (1) | See Note 7- Sale of Energy, Chemicals and Resource ("ECR") Business for discussion regarding deferred gain. |
Other Deferred Liabilities The following table presents the components of “Other deferred liabilities” shown in the accompanying Consolidated Balance Sheets at September 28, 201827, 2019 and September 29, 201728, 2018 (in thousands): | | | | | | | | | | September 27, 2019 | | September 28, 2018 | Liabilities relating to defined benefit pension and early retirement plans | $ | 398,499 |
| | $ | 329,604 |
| Liabilities relating to nonqualified deferred compensation arrangements | 177,401 |
| | 216,068 |
| Deferred income taxes | 233,111 |
| | 152,613 |
| Miscellaneous | 609,994 |
| | 562,692 |
| Total | $ | 1,419,005 |
| | $ | 1,260,977 |
|
| | | | | | | | | | September 28, 2018 | | September 29, 2017 | Liabilities relating to defined benefit pension and early retirement plans | $ | 352,855 |
| | $ | 254,483 |
| Liabilities relating to nonqualified deferred compensation arrangements | 238,830 |
| | 114,616 |
| Deferred income taxes | 177,217 |
| | 177,765 |
| Miscellaneous | 639,969 |
| | 185,417 |
| Total | $ | 1,408,871 |
| | $ | 732,281 |
|
| | 17.19. | Segment Information |
During the second quarter of fiscal 2018, we reorganized our operating and reporting structure around three3 lines of business (“LOBs”), which also serve as the Company’s operating segments. This reorganization occurred in conjunction with the integration of CH2M into the Company's legacy businesses, and was intended to better serve our global clients, leverage our workforce, help streamline operations and provide enhanced growth opportunities. The threeAdditionally, in the first quarter of fiscal 2019, we further refined our operating segment structure to move the GES business from the CMS segment to the PPS segment to further align with the management and reporting structure of the business. As a result of the reorganization mentioned above and prior to the ECR sale, the 3 global LOBs are as follows: Aerospace, Technology, Environmental and NuclearCritical Mission Solutions ("ATEN"CMS"); Buildings, Infrastructure and Advanced FacilitiesPeople & Places Solutions ("BIAF"PPS"); and Energy, Chemicals and Resources ("ECR"). Previously,Because the Company operated itsresults from our ECR business around four operating segments: Petroleum & Chemicals, Buildings & Infrastructure, Aerospace & Technology and Industrial. Beginningformerly reported as a stand-alone segment are reflected in our JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
consolidated financial statements as discontinued operations for all periods presented, they are not reflected in the second quarterseparate segment disclosures below. For further information, refer to Note 7- Sale of fiscal 2018, management no longer views or manages our Industrial line of business as a separate, distinct operating segment. Therefore, the elements of our former Industrial business are now presented within each of the three current operating segments as appropriate. Energy, Chemicals and Resources ("ECR") Business. The Company’s LOB leadership and internal reporting structures report to the Chief Executive Officer, who is also the Chief Operating Decision Maker (“CODM”), and enable the CODM to 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 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
operating segments share similar economic characteristics and meet the aggregation criteria for reporting units in accordance with ASC 350, Intangibles-Goodwill and Other.
Under the new organization, each LOB has a president that reports directly to the CODM. The sales function is managed on an LOB basis, and accordingly, the associated cost is embedded in the new segments and reported to the respective LOB presidents. 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 Management Incentive Plan (“MIP”) and the expense associated with the Jacobs Engineering Group Inc. 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).
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. 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. On December 15, 2017, the Company completed the acquisition of CH2M. For purposes of the Company’s fiscal 2018 segment reporting, the operating financial information of CH2M has been categorized within the Company’s new LOB business structure, with its sales and operating profit results for the time period during which CH2M has been under the ownership of the Company being allocated to the Company’s ATEN, BIAF and ECR lines of business under a transitional business organization structure. The Company has not completed its final assessment of the CH2M purchase price allocation, including the fair value estimates of assets acquired and liabilities assumed.
The following tables present total revenues and segment operating profit 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 and expenses relating to the Restructuringrestructuring and other charges and transaction costs associated with the CH2M transaction and integration costs and the ECR sale (in thousands). Prior period information has been recast to reflect the current period presentation. | | | | | | | | | | | | | | For the Years Ended | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Revenues from External Customers: | | | | | | Aerospace, Technology, Environmental and Nuclear | $ | 4,372,008 |
| | $ | 2,464,363 |
| | $ | 2,845,913 |
| Buildings, Infrastructure and Advanced Facilities | 6,184,883 |
| | 3,830,697 |
| | 3,419,505 |
| Energy, Chemicals and Resources | 4,427,755 |
| | 3,727,728 |
| | 4,698,739 |
| Total | $ | 14,984,646 |
| | $ | 10,022,788 |
| | $ | 10,964,157 |
|
| | | | | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Revenues from External Customers: | | | | | | Critical Mission Solutions | $ | 4,551,162 |
| | $ | 3,725,365 |
| | $ | 2,467,501 |
| People & Places Solutions | 8,186,706 |
| | 6,854,408 |
| | 3,862,625 |
| Total | $ | 12,737,868 |
| | $ | 10,579,773 |
| | $ | 6,330,126 |
|
| | | | | | | | | | | | |
| For the Years Ended |
| September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Segment Operating Profit: | | | | | | Aerospace, Technology, Environmental and Nuclear (1) | $ | 311,871 |
| | $ | 200,179 |
| | $ | 215,119 |
| Buildings, Infrastructure and Advanced Facilities (2) | 482,277 |
| | 263,679 |
| | 217,412 |
| Energy, Chemicals and Resources | 218,109 |
| | 161,312 |
| | 153,797 |
| Total Segment Operating Profit | 1,012,257 |
| | 625,170 |
| | 586,328 |
| Other Corporate Expenses | (113,702 | ) | | (81,595 | ) | | (60,100 | ) | Restructuring and Other Charges | (170,148 | ) | | (134,206 | ) | | (187,630 | ) | Transaction Costs | (80,436 | ) | | (17,100 | ) | | — |
| Total U.S. GAAP Operating Profit | 647,971 |
| | 392,269 |
| | 338,598 |
| Gain (Loss) on disposal of business and investments | (20,967 | ) | | 10,880 |
| | (41,410 | ) | Total Other (Expense) Income, net (3) | (72,299 | ) | | (9,932 | ) | | (10,465 | ) | Earnings Before Taxes | $ | 554,705 |
| | $ | 393,217 |
| | $ | 286,723 |
|
| | | | | | | | | | | | |
| For the Years Ended | | |
| September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Segment Operating Profit: | | | | | | Critical Mission Solutions (1) | $ | 310,043 |
| | $ | 255,718 |
| | $ | 197,196 |
| People & Places Solutions (2) | 714,394 |
| | 527,900 |
| | 265,928 |
| Total Segment Operating Profit | 1,024,437 |
| | 783,618 |
| | 463,124 |
| Other Corporate Expenses (3) | (264,351 | ) | | (161,788 | ) | | (110,234 | ) | Restructuring and Other Charges | (337,066 | ) | | (153,951 | ) | | (91,648 | ) | Transaction Costs | (18,169 | ) | | (80,436 | ) | | (17,100 | ) | Total U.S. GAAP Operating Profit | 404,851 |
| | 387,443 |
| | 244,142 |
| Total Other (Expense) Income, net (4) | (53,892 | ) | | (56,462 | ) | | (988 | ) | Earnings from Continuing Operations Before Taxes | $ | 350,959 |
| | $ | 330,981 |
| | $ | 243,154 |
|
(1) Includes $15.0 million in charges during the year ended September 28, 2018 associated with a legal matter.
| | (1) | Includes $15.0 million in charges during the year ended September 28, 2018 associated with a legal matter. |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | (2) | Includes $25.0 million in charges associated with a certain project for the year ended September 27, 2019. Excludes $23.8 million in restructuring and other charges for the year ended September 29, 2017. See Note 8, 9, Restructuring and Other Charges. |
| | (3) | Other corporate expenses include costs that were previously allocated to the ECR segment prior to discontinued operations presentation in connection with the ECR sale in the approximate amount of $14.8 million, $25.6 million and $29.1 million for the years ended September 27, 2019, September 28, 2018 and September 29, 2017, respectively. Other corporate expenses also include intangibles amortization of $79.1 million, $68.1 million and $33.5 million for the years ended September 27, 2019, September 28, 2018 and September 29, 2017, respectively. |
| | (4) | Includes gain on the settlement of the CH2M retiree medical plans of $35.0 million and the amortization of deferred financing fees related to the CH2M acquisition of $3.2 million and $1.8 million for the years ended September 27, 2019 and September 28, 2018 respectively. Also includes revenues under the Company's TSA agreement with Worley of $35.4 million offset by $64.8 million for fair value adjustments (unrealized losses) and dividend income related to our investment in Worley stock and certain foreign currency revaluations relating to ECR sale proceeds for the year ended September 28, 2018. Also, includes $1.2 million and $277 thousand of restructuring and other charges for the years ended September 29, 2017 and September 30, 2016, respectively.27, 2019. |
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 the Management Incentive Plan and the 1999 SIP 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” includes adjustments to contract margins (both positive and negative) associated with projects where it has been determined, in the opinion of management, that such adjustments are not indicative of the performance of the related LOB and therefore should not be attributed to the LOB. Included in gain (loss) on disposal of business and investments for the year ended September 28, 2018 was a loss on the sale of the Company’s ownership interest in the Company's Guimar Engenharia LTDA ("Guimar") joint venture. Included in gain (loss) on disposal of business and investments for the year ended September 29, 2017 was a gain on the sale of the Company’s ownership interest in the Neste Jacobs joint venture. Included in gain (loss) on disposal of business and investments for the year ended September 30, 2016 was the loss associated with the sale of the Company’s French subsidiary and a non-cash write-off on an equity investment.
We provide a broad range of technical, professional and construction services including 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. The following tabletables presents certain financial information by geographic area (in thousands): | | | | | | | | | | | | |
| For the Years Ended |
| September 27, 2019 | | September 28, 2018 | | September 29, 2017 | Revenues: | | | | | | United States | $ | 9,006,730 |
| | $ | 6,908,988 |
| | $ | 3,881,696 |
| Europe | 2,242,976 |
| | 2,495,805 |
| | 1,754,036 |
| Canada | 213,172 |
| | 189,865 |
| | 6,531 |
| Asia | 195,023 |
| | 163,761 |
| | 111,646 |
| India | 62,543 |
| | 52,533 |
| | 40,469 |
| Australia and New Zealand | 533,251 |
| | 578,108 |
| | 519,575 |
| South America and Mexico | 7,416 |
| | 17,656 |
| | 244 |
| Middle East and Africa | 476,757 |
| | 173,057 |
| | 15,929 |
| Total | $ | 12,737,868 |
| | $ | 10,579,773 |
| | $ | 6,330,126 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | | | | | | | | | | | |
| For the Years Ended |
| September 28, 2018 | | September 29, 2017 | | September 30, 2016 | Revenues: | | | | | | United States | $ | 9,519,085 |
| | $ | 5,822,843 |
| | $ | 6,247,448 |
| Europe | 2,768,739 |
| | 2,262,092 |
| | 2,346,224 |
| Canada | 863,531 |
| | 590,604 |
| | 927,942 |
| Asia | 316,339 |
| | 253,167 |
| | 299,952 |
| India | 211,983 |
| | 165,295 |
| | 187,929 |
| Australia and New Zealand | 719,566 |
| | 628,945 |
| | 436,670 |
| South America and Mexico | 159,700 |
| | 73,456 |
| | 125,610 |
| Middle East and Africa | 425,703 |
| | 226,386 |
| | 392,382 |
| Total | $ | 14,984,646 |
| | $ | 10,022,788 |
| | $ | 10,964,157 |
| Property, equipment and improvements, net: | | | | | | United States | $ | 316,633 |
| | $ | 220,416 |
| | $ | 195,392 |
| Europe | 59,019 |
| | 46,108 |
| | 37,163 |
| Canada | 21,559 |
| | 18,435 |
| | 21,464 |
| Asia | 3,588 |
| | 2,793 |
| | 3,069 |
| India | 19,446 |
| | 19,191 |
| | 13,350 |
| Australia and New Zealand | 16,151 |
| | 18,692 |
| | 18,888 |
| South America and Mexico | 4,562 |
| | 4,619 |
| | 5,621 |
| Middle East and Africa | 16,748 |
| | 19,657 |
| | 24,726 |
| Total | $ | 457,706 |
| | $ | 349,911 |
| | $ | 319,673 |
|
Revenues were earned from unaffiliated clients located primarily within the various and respective geographic areas shown. JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES | | | | | | | | | | For the Years Ended | | September 27, 2019 | | September 28, 2018 | Property, equipment and improvements, net: | | | | United States | $ | 230,476 |
| | $ | 118,073 |
| Europe | 52,775 |
| | 58,739 |
| Canada | 3,199 |
| | 21,559 |
| Asia | 5,652 |
| | 3,588 |
| India | 2,379 |
| | 19,446 |
| Australia and New Zealand | 12,091 |
| | 16,151 |
| South America and Mexico | — |
| | 3,650 |
| Middle East and Africa | 1,571 |
| | 16,653 |
| Total | $ | 308,143 |
| | $ | 257,859 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents the revenues earned directly or indirectly from the U.S. federal government and its agencies, expressed as a percentage of total revenues: | | | | | | For the Years Ended | September 27, 2019 |
| September 28, 2018 |
| September 29, 2017 | 27% | | 32% | | 30% |
| | | | | | For the Years Ended | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | 23% | | 19% | | 21% |
18.JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
0. Selected Quarterly Information — Unaudited The following table presents selected quarterly financial information. (in thousands, except for per share amounts): | | | | | | | | | | | | | | | | | | | | | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year | September 28, 2018 | |
| | |
| | |
| | |
| | |
| Revenues | $ | 2,750,311 |
| | $ | 3,935,028 |
| | $ | 4,156,663 |
| | $ | 4,142,644 |
| | $ | 14,984,646 |
| Operating profit (a) | $ | 47,644 |
| (e) | $ | 146,286 |
| (e) | $ | 212,729 |
| (e) | $ | 241,312 |
| (e) | $ | 647,971 |
| Earnings before taxes | $ | 41,916 |
| | $ | 122,167 |
| | $ | 192,783 |
| | $ | 197,839 |
| | $ | 554,705 |
| Net earnings of the Group | $ | 2,561 |
| | $ | 51,932 |
| | $ | 150,071 |
| | $ | (31,422 | ) | | $ | 173,142 |
| Net earnings attributable to Jacobs | $ | 2,163 |
| (e) | $ | 48,587 |
| (e) | $ | 150,222 |
| (e) | $ | (37,541 | ) | (e) | $ | 163,431 |
| Earnings per share: | |
| | |
| | |
| | |
| | |
| Basic | $ | 0.02 |
| (e) | $ | 0.34 |
| (e) | $ | 1.05 |
| (e) | $ | (0.26 | ) | (e) | $ | 1.18 |
| Diluted | $ | 0.02 |
| (e) | $ | 0.34 |
| (e) | $ | 1.05 |
| (e) | $ | (0.26 | ) | (e) | $ | 1.17 |
| September 29, 2017 | | | | | | | | | | Revenues | $ | 2,551,604 |
| | $ | 2,302,567 |
| (c) | $ | 2,514,751 |
| (c) | $ | 2,653,866 |
| | $ | 10,022,788 |
| Operating profit (a) | $ | 88,628 |
| | $ | 68,173 |
| (c) | $ | 128,475 |
| (c) | $ | 106,993 |
| | $ | 392,269 |
| Earnings before taxes | $ | 85,880 |
| | $ | 60,491 |
| | $ | 127,396 |
| | $ | 119,450 |
| | $ | 393,217 |
| Net earnings of the Group | $ | 61,153 |
| | $ | 44,165 |
| | $ | 88,629 |
| | $ | 93,428 |
| | $ | 287,375 |
| Net earnings attributable to Jacobs | $ | 60,536 |
| (c) | $ | 50,018 |
| (c) | $ | 89,032 |
| (c) | $ | 94,141 |
| (c)(d) | $ | 293,727 |
| Earnings per share: | |
| | |
| | |
| | |
| | |
| Basic | $ | 0.50 |
| (c) | $ | 0.41 |
| (c) | $ | 0.74 |
| (c) | $ | 0.78 |
| (c)(d) | $ | 2.43 |
| Diluted | $ | 0.50 |
| (c) | $ | 0.41 |
| (c) | $ | 0.74 |
| (c) | $ | 0.78 |
| (c)(d) | $ | 2.42 |
| September 30, 2016 | |
| | |
| | |
| | |
| | |
| Revenues | $ | 2,847,934 |
| | $ | 2,781,763 |
| | $ | 2,693,873 |
| | $ | 2,640,587 |
| | $ | 10,964,157 |
| Operating profit (a) | $ | 59,450 |
| | $ | 86,781 |
| | $ | 109,556 |
| | $ | 82,811 |
| | $ | 338,598 |
| Earnings before taxes | $ | 57,787 |
| | $ | 90,456 |
| | $ | 102,807 |
| | $ | 35,673 |
| | $ | 286,723 |
| Net earnings of the Group | $ | 50,306 |
| | $ | 63,389 |
| | $ | 70,937 |
| | $ | 29,883 |
| | $ | 214,515 |
| Net earnings attributable to Jacobs | $ | 46,514 |
| (b) | $ | 65,250 |
| (b) | $ | 69,055 |
| (b) | $ | 29,644 |
| (b) | $ | 210,463 |
| Earnings per share: | |
| | |
| | |
| | |
| | |
| Basic | $ | 0.38 |
| (b) | $ | 0.54 |
| (b) | $ | 0.58 |
| (b) | $ | 0.25 |
| (b) | $ | 1.75 |
| Diluted | $ | 0.38 |
| (b) | $ | 0.54 |
| (b) | $ | 0.57 |
| (b) | $ | 0.24 |
| (b) | $ | 1.73 |
|
| | | | | | | | | | | | | | | | | | | | | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year | September 27, 2019 | |
| | |
| | |
| | |
| | |
| Revenues | $ | 3,083,788 |
| | $ | 3,091,596 |
| | $ | 3,169,622 |
| | $ | 3,392,862 |
| | $ | 12,737,868 |
| Operating profit (a) | $ | 113,130 |
| (b) | $ | 102,681 |
| (b) | $ | 89,954 |
| (b) | $ | 99,086 |
| (b) | $ | 404,851 |
| Earnings from Continuing Operations Before Taxes | $ | 92,191 |
| | $ | 111,832 |
| | $ | 93,399 |
| | $ | 53,537 |
| | $ | 350,959 |
| Net earnings of the Group from Continuing Operations | $ | 69,433 |
| | $ | 119,779 |
| | $ | 95,380 |
| | $ | 29,413 |
| | $ | 314,005 |
| Net earnings Attributable to Jacobs from Continuing Operations | $ | 64,894 |
| (b) | $ | 114,755 |
| (b) | $ | 89,365 |
| (b) | $ | 21,946 |
| (b) | $ | 290,960 |
| Net Earnings Attributable to Jacobs | $ | 124,296 |
| (b) | $ | 56,917 |
| (b) | $ | 524,442 |
| (b) | $ | 142,324 |
| (b) | $ | 847,979 |
| Earnings per share: | |
| | |
| | |
| | |
| | |
| Basic Net Earnings from Continuing Operations Per Share | $ | 0.45 |
| | $ | 0.83 |
| | $ | 0.65 |
| | $ | 0.16 |
| | $ | 2.11 |
| Basic Net Earnings (Loss) from Discontinued Operations Per Share | $ | 0.42 |
| | $ | (0.42 | ) | | $ | 3.18 |
| | $ | 0.89 |
| | $ | 4.03 |
| Basic Earnings Per Share | $ | 0.87 |
| | $ | 0.41 |
| | $ | 3.83 |
| | $ | 1.06 |
| | $ | 6.14 |
| Diluted Net Earnings from Continuing Operations Per Share | $ | 0.45 |
| (b) | $ | 0.82 |
| (b) | $ | 0.65 |
| (b) | $ | 0.16 |
| (b) | $ | 2.09 |
| Diluted Net Earnings (Loss) from Discontinued Operations Per Share | $ | 0.41 |
| | $ | (0.41 | ) | | $ | 3.15 |
| | $ | 0.88 |
| (c) | $ | 4.00 |
| Diluted Earnings Per Share | $ | 0.86 |
| | $ | 0.41 |
| | $ | 3.80 |
| | $ | 1.04 |
| | $ | 6.08 |
| September 28, 2018 | | | | | | | | | | Revenues | $ | 1,783,999 |
| | $ | 2,870,295 |
|
| $ | 2,933,623 |
|
| $ | 2,991,856 |
| | $ | 10,579,773 |
| Operating profit (Loss) (a) | $ | (4,670 | ) | (d) | $ | 68,755 |
| (d) | $ | 162,512 |
| (d) | $ | 160,846 |
| (d) | $ | 387,443 |
| Earnings (Loss) from Continuing Operations Before Taxes | $ | (6,703 | ) | | $ | 48,651 |
| | $ | 146,633 |
| | $ | 142,400 |
| | $ | 330,981 |
| Net Earnings (Loss) of the Group from Continuing Operations | $ | (33,903 | ) | | $ | (3,205 | ) | | $ | 115,459 |
| | $ | (73,002 | ) | | $ | 5,349 |
| Net Earnings (Loss) Attributable to Jacobs from Continuing Operations | $ | (34,234 | ) | (d) | $ | (6,290 | ) | (d) | $ | 113,336 |
| (d) | $ | (76,997 | ) | (d) | $ | (4,185 | ) | Net Earnings (Loss) Attributable to Jacobs | $ | 2,163 |
| (d) | $ | 48,587 |
| (d) | $ | 150,222 |
| (d) | $ | (37,541 | ) | (d) | $ | 163,431 |
| Earnings per share: | |
| | |
| | |
| | |
| | |
| Basic Net Earnings (Loss) from Continuing Operations Per Share | $ | (0.27 | ) | | $ | (0.04 | ) | | $ | 0.79 |
| | $ | (0.54 | ) | | $ | (0.03 | ) | Basic Net Earnings from Discontinued Operations Per Share | $ | 0.29 |
| | $ | 0.39 |
| | $ | 0.26 |
| | $ | 0.28 |
| | $ | 1.21 |
| Basic Earnings (Loss) Per Share | $ | 0.02 |
| | $ | 0.34 |
| | $ | 1.05 |
| | $ | (0.26 | ) | | $ | 1.18 |
| Diluted Net Earnings (Loss) from Continuing Operations Per Share | $ | (0.27 | ) | (d) | $ | (0.04 | ) | (d) | $ | 0.79 |
| (d) | $ | (0.54 | ) | (d) | $ | (0.03 | ) | Diluted Net Earnings from Discontinued Operations Per Share | $ | 0.29 |
| | $ | 0.39 |
| | $ | 0.26 |
| | $ | 0.28 |
| | $ | 1.21 |
| Diluted Earnings (Loss) Per Share | $ | 0.02 |
| | $ | 0.34 |
| | $ | 1.05 |
| | $ | (0.26 | ) | | $ | 1.18 |
|
| | (a) | Operating profit represents revenues less (i) direct costs of contracts and (ii) selling, general and administrative expenses. |
| | (b) | Includes costs of $48.1$47.2 million in operating profit and $46.8 million in net earnings from continuing operations attributable to Jacobs, or $0.39$0.33 per diluted share from continuing operations in the first quarter of fiscal 2016, $25.72019; includes $119.0 million in operating profit, $50.8 million in net earnings from continuing operations attributable to Jacobs, or $0.21$0.36 per diluted share from continuing operations in the second quarter of fiscal 2016, $25.82019; includes $142.8 million in operating profit and $103.8 million in net earnings from continuing operations attributable to Jacobs, or $0.21$0.75 per diluted share from continuing operations in the third quarter of fiscal 2019; includes $154.2 million in operating profit, $179.3 million in both net earnings from continuing operations attributable to Jacobs, and $36.0 millionnet earnings attributable to Jacobs, or $0.3$1.32 per diluted share in the fourth quarter of fiscal 2016, in each case, related to the 2015 Restructuring. Also included in the fourth quarter of fiscal 2016 were $17.1 million, or $0.14 per diluted share related to the loss on sale of our French subsidiary; and $10.4 million, or $0.09 per diluted share related to the non-cash write-off on an equity investment. |
| | (c) | Includes costs of $31.7 million, or $0.18 per diluted share, in the first quarter of fiscal 2017; includes $16.5 million in revenue, $72.2 million in operating profit, $45.2 million in net earnings attributable to Jacobs, or $0.37 per diluted share, in the second quarter of fiscal 2017; includes $1 million in revenue, $10.7 million in operating profit and $6.3 million in net earnings attributable to Jacobs, or $0.05 per diluted share, in the third quarter of fiscal 2017; includes $19.5 million in operating profit, $13.6 million in net earnings attributable to Jacobs, or $0.11 per diluted share, in the fourth quarter of fiscal 2017, in each case,2019 related to restructuring and other charges.charges, transaction costs, amortization of intangibles and fair value adjustments and dividend income related to our investment in Worley stock and certain foreign currency revaluations relating to ECR sale proceeds. On a year to date basis, impacts on net earnings from continuing operations attributable to Jacobs were (i) $243.7 million in restructuring and other charges, (ii) $16.1 million in transaction costs, (iii) $59.0 million of intangible asset amortization and (iv) $48.6 million in fair value adjustments partly offset by dividend income related to our investment in Worley stock and certain foreign currency revaluations relating to ECR sale proceeds. |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| | (c) | For the three-month period ended September 27, 2019, diluted net earnings (loss) per share from discontinued operations included $89.7 million related to revisions to previous income tax expense estimates, $17.4 million in finalization of the pre-tax gain on the sale of our ECR business and $9.8 million related to the difference between Nui Phao loss contingency as originally recorded and fourth quarter 2019 settlement amount. |
| | (d) | Includes costs of $10.6 million, or $0.09 per diluted share, in the fourth quarter of fiscal 2017 related to professional fees and integration costs for the CH2M acquisition. |
| | (e) | Includes $87.0$83.4 million in operating profit, $94.8$92.1 million in net earnings attributable to Jacobs, or $0.75$0.73 per diluted share from continuing operations in the first quarter of fiscal 2018; includes $73.7$105.9 million in operating profit, $95.4$130.3 million in net earnings attributable to Jacobs, or $0.66$0.91 per diluted share in the second quarter of fiscal 2018; includes $51.3$60.7 million in operating profit and $43.9$64.8 million in net earnings from continuing operations attributable to Jacobs, or $0.31$0.45 per diluted share from continuing operations in the third quarter of fiscal 2018; includes $38.5$60.2 million in operating profit, $225.9$241.8 million in net earnings from continuing operations attributable to Jacobs, or $1.57$1.67 per diluted share from continuing operations in the fourth quarter of fiscal 2018 in each case, related to restructuring and other charges, transaction costs, amortization of intangibles and charges relatingUS tax reform charges. On a year to U.S. tax reform. During the fourth quarter, the $225.9date basis, impacts on net earnings from continuing operations attributable to Jacobs were (i) $112.8 million in restructuring and other charges, included(ii) $60.7 million in net earnings attributable to Jacobs includes $21.0transaction costs, (iii) $51.5 million related to the loss on the sale of our Guimar joint venture investment.intangible asset amortization and (iv) $259.2 million in US tax reform charges. |
19. Subsequent Events
On October 21, 2018, Jacobs and WorleyParsons Limited, a company incorporated in Australia (“Buyer”), entered into a Stock and Asset Purchase Agreement pursuant to which Buyer agreed to acquire the Company’s ECR business for a purchase price of $3.3 billion consisting of (i) $2.6 billion in cash plus (ii) ordinary shares of the Buyer equal to $700 million, subject to adjustments for changes in working capital and certain other items (the “Transaction”). The Transaction, which has been approved by the boards of directors of the Company and Buyer, is expected to close in the first half of calendar year 2019.
The completion of the Transaction is subject to certain customary closing conditions, including, but not limited to, (i) the absence of any law or order prohibiting the consummation of the Transaction, (ii) the expiration or termination of the waiting period (and any extensions thereof) applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (iii) the expiration or termination of all applicable waiting periods and the receipt of all applicable approvals required pursuant to or in connection with the competition laws of certain foreign jurisdictions in which the Business operates, (iv) the receipt of approval from the Committee on Foreign Investment in the United States (“CFIUS”), (v) the completion of a certain number of agreed upon steps of the Reorganization (as defined in the Purchase Agreement) and (vi) the transfer of certain owned real property of the Business.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Jacobs Engineering Group Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Jacobs Engineering Group Inc. and subsidiaries (the Company) as of September 28, 201827, 2019 and September 29, 2017,28, 2018, the related consolidated statements of earnings, comprehensive income, stockholders’stockholders' equity and cash flows for each of the three fiscal years in the period ended September 28, 2018,27, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 27, 2019 and September 28, 2018, and September 29, 2017, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended September 28, 2018,27, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 28, 2018,27, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework),and our report dated November 21, 201825, 2019 expressed an adverseunqualified opinion thereon. Adoption of ASU No. 2014-09 (Topic 606)
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue recognition on contracts with customers in the 2019 financial statements to reflect the accounting method change due to the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| | | | | | Revenue Recognition for Fixed-Price Engineering, Procurement and Construction Contracts | Description of the Matter | | As explained in Note 2 to the consolidated financial statements, the Company recognizes engineering, procurement and construction contract revenue over time, as performance obligations are satisfied, using the percentage-of-completion method (an input method) based primarily on contract costs incurred to date compared to total estimated contract costs. Revenue recognition under this method is judgmental, as it requires the Company to prepare estimates of total contract revenue and total contract costs, including costs to complete in-process contracts. Auditing the Company’s estimates of total contract revenue and costs used to recognize revenue on fixed-price engineering, procurement and construction contracts involved significant auditor judgment, as it required the evaluation of subjective factors, such as assumptions related to estimated labor, forecasted material and subcontractor costs and variable consideration estimates related to incentive fees and unpriced change orders. These assumptions involved significant management judgment, which affects the measurement of revenue recognized by the Company. | How We Addressed the Matter in Our Audit | | We tested certain of the Company’s controls over the estimation process that affect revenue recognized on fixed-price engineering, procurement and construction contracts. For example, we tested controls over management’s monitoring and review of project cost and variable consideration estimates, including the Company’s procedures to validate the completeness and accuracy of the data used to determine the estimates. To test the Company’s contract estimates related to revenues recognized on fixed-price engineering, procurement, and construction projects, our audit procedures included selecting a sample of projects and, among other procedures, we obtained and inspected related contract agreements, amendments, and change orders to test the existence of customer arrangements and understand the scope and pricing of the related projects; observed selected project team status meetings at the Company and interviewed project team personnel to obtain an understanding of the status of operational performance and progress on the related projects; evaluated the reasonableness of the Company’s estimated costs to complete by obtaining and analyzing supporting documentation for a sample of cost estimate components; and compared contract profitability estimates in the current year to historical estimates and actual performance for the same projects. | | | Accounting for Discontinued Operations and Related Gain Recognition | Description of the Matter | | As discussed in Notes 1 and 7 to the consolidated financial statements, on April 26, 2019, the Company completed the sale of its Energy, Chemicals and Resources (“ECR”) business to WorleyParsons Limited (“WorleyParsons”) for proceeds that included $2.8 billion in cash and 58.2 million ordinary shares of WorleyParsons stock. In connection with the sale of the ECR business, the Company recognized a pre-tax gain of $935.1 million in discontinued operations. The Company also retained a noncontrolling interest (with significant influence) in one legal entity that is now controlled and consolidated by WorleyParsons. The fair value of the Company’s retained interest in the net assets and liabilities of this entity was estimated at $33.0 million. Auditing the Company’s discontinued operations was complex and judgmental due to the non-routine process to identify and compile the specific assets and liabilities included within the scope of the divestiture and the required measurement and accounting for the multiple elements of the transaction, including the retained noncontrolling interest. Management’s assumptions with respect to the valuation of the multiple elements of the transaction including the retained noncontrolling interest involved significant management judgments that had a significant effect on the pre-tax gain recognized on the sale. |
| | | | How We Addressed the Matter in Our Audit | | We tested the Company’s controls over the process to account for the sale and related gain recognition. For example, we tested controls over management’s review of the calculation of the gain on the sale of the ECR business, including controls over management’s review of the significant assumptions and other inputs used to estimate the fair value of the Company’s retained noncontrolling interest. To test the pre-tax gain recognized in discontinued operations, we performed audit procedures that included, among others, testing the existence and valuation of cash and equity proceeds received; inspecting the related sale agreement to obtain an understanding of the assets, liabilities and legal entities included in the scope of the sale transaction; testing the completeness and accuracy of assets and liabilities included in the gain calculation on a sample basis by comparing amounts to the Company’s accounting records; and testing the Company’s fair value estimate related to the retained noncontrolling interest, which the Company valued using a discounted cash flow method. We tested the key assumptions used in connection with discounted cash flows which included assessing the reasonableness of estimates of revenue growth rates and profitability. To test the revenue growth rates and estimates of profitability, we compared the Company’s assumptions with historical results. In addition, with the assistance of our valuation specialists, we assessed the discount rate by comparing the rate to business and other industry benchmarks. | | | Income Taxes - Accrued Uncertain Tax Positions | Description of the Matter | | As more fully described in Note 15 to the consolidated financial statements, the Company is subject to income taxes in multiple tax jurisdictions, including the United States and international jurisdictions. The Company uses significant judgment to (1) determine whether, based on the technical merits, a tax position is more likely than not to be sustained and (2) measure the amount of tax benefit that qualifies for recognition. At September 27, 2019, the Company’s accrued liability for unrecognized tax benefits was $155.5 million, which includes potential payments related to income taxes as well as interest and penalties for various tax positions. Auditing the Company’s uncertain tax positions involved challenging auditor judgment because management’s estimates are complex, highly judgmental and based on interpretations of tax laws, and includes significant assumptions related to transfer pricing in connection with intercompany transactions. | How We Addressed the Matter in Our Audit | | We tested certain of the Company’s controls over the realization and measurement of uncertain tax positions. For example, we tested the Company’s controls related to management’s review of its open tax positions and its assessment of whether it is more likely than not that uncertain tax positions will be sustained. We involved our tax professionals to assess the technical merits of the Company’s tax positions. We evaluated the appropriateness of the Company’s accounting for its tax positions taking into consideration relevant international and local income tax laws. We also evaluated the Company’s assumptions used to determine the amount of tax benefit to recognize and tested the completeness and accuracy of data used in the calculations. For certain tax positions related to intercompany transactions, we assessed the assumptions and pricing method used in setting arm’s length prices and the documentation to support the pricing. We also evaluated the adequacy of the Company’s financial statement disclosures related to these tax matters. | | | Legal Contingencies | Description of the Matter | | As described in Note 17 to the consolidated financial statements, the Company is subject to litigation and arbitration proceedings, including a material legal contingency related to a dispute with JKC Australia LNG Pty Limited. Auditing the Company’s estimates related to legal contingencies was especially subjective due to the judgment required to evaluate information used by management to determine whether a probable loss exists and whether a loss can be reasonably estimated, and if so, the assumptions used by management to estimate the potential range of losses. Management’s assumptions had a significant effect on loss contingency accruals recorded. |
| | | | How We Addressed the Matter in Our Audit | | We tested the Company’s controls over the identification and evaluation of the completeness and valuation of contingent liabilities related to legal matters. For example, we tested controls over the Company’s assessment and valuation of loss contingencies, including their evaluation of whether a loss is probable, and measurement of the contingent liability associated with probable losses. To test the Company’s accounting and disclosure for legal contingencies, we performed audit procedures that included, among others, inspecting legal claim documentation submitted by counterparties, assessing management’s assumptions regarding cost estimates related to potential loss contingencies, inspecting minutes of meetings of the board of directors, and obtaining audit inquiry responses from external and internal legal counsel related to loss contingencies. |
/s/ Ernst & Young LLP
We have served as the Company’sCompany's auditor since 1987.
Dallas, Texas November 21, 201825, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Jacobs Engineering Group Inc.
Opinion on Internal Control overOver Financial Reporting
We have audited Jacobs Engineering Group Inc. and subsidiaries’ internal control over financial reporting as of September 28, 2018,27, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below based on the achievement of the objectives of the control criteria, Jacobs Engineering Group Inc. and subsidiaries (the Company) has not maintained, in all material respects, effective internal control over financial reporting as of September 28, 2018,27, 2019, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the CH2M HILL Companies, Ltd. (CH2M) acquired on December 15, 2017,KeyW, which is included in the 20182019 consolidated financial statements of the Company and constituted 42%9% of total assets as of September 28, 2018, 25%27, 2019 and 1% of revenues and 30% of operating profit for the fiscal year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of CH2M.KeyW.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in controls related to the Company’s accounting for income taxes in connection with the CH2M business combination.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 28, 201827, 2019 and September 29, 2017,28, 2018, the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for each of the three fiscal years in the period ended September 28, 2018,27, 2019, and the related notes. This material weakness was considered in determining the nature, timingnotes and extent of audit tests applied in our audit of the 2018 consolidated financial statements, and this report does not affect our report dated November 21, 2018, which25, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, Texas
November 21, 201825, 2019
|