Washington, D.C. 20549
Indicate by check-mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: ☒ Yes ☐ No
Indicate by check-mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐ Yes ☒ No
Indicate by check-mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check-mark whether the Registrant: has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). ☒ Yes ☐ No
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check-mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) ☐ Yes ☒ No
Portions of the Registrant’s definitive proxy statement to be issued in connection with its 20192021 annual meeting of shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.
JACOBS ENGINEERING GROUP INC.
Unless the context otherwise requires, all references herein to "Jacobs" or the "Registrant" are to Jacobs Engineering Group Inc. and its predecessors, and references to the "Company", "we", "us" or "our" are to Jacobs Engineering Group Inc. and its consolidated subsidiaries.
In terms of organic growth, our relationship-based business model is central to our sustained growth and profitability. We pursue the development of long-term relationships and alliances with our clients. By working with our clients to solve their challenges, we increase our understanding of their overall business needs, as well as the unique technical requirements of their specific projects. This increased understanding enables us to provide superior value to our clients. Our approach provides us with opportunities to market the following services to our clients:
Consulting;
System enhancements;
Pre-design phases of large projects, which include master planning, project permitting and project finance options;
Design phase; and
Construction, post-start-up and commissioning phases of a facility, including operations and maintenance services.
Our relationships with clients also present ongoing opportunities to expand into adjacent sectors. For example, clients operating in the mining and minerals market often have a need for our infrastructure and buildings capabilities. The same is true for clients operating in other sectors.
We market our servicesaim higher
We do not settle - always looking beyond to clients in a wide range of public, institutional, processraise the bar and industrial sectors.deliver with excellence. We are able to price contracts competitively and enhance overall profitability while delivering additional valuecommitted to our clients by integratingbringing innovative solutions that lead to profitable growth and bundling our servicesshared success. We take on some of the world’s biggest challenges, bringing a different way of thinking to everything we do, challenging the status quo and providing differentiated solutions. In complex economic times,questioning what others might accept.
We craft solutions that affect the way people live. From first-of-its-kind environmental cleanup efforts to digital twin technologies, from helping communities adapt and thrive to retrofitting vaccine facilities to protect public health, we believe we have the ability to evolve along with industry cycles worldwide. When opportunities decrease in a particular sector or geography, other opportunities often increase. Becausesolve for better, never losing sight of our responsibility to each other. We work with NASA scientists to leverage remotely-sensed data and images shot from 240 miles overhead on the International Space Station to provide critical disaster response aid, and help communities recover. And, we’re on the ground assisting with critical Federal Emergency Management Agency (FEMA) disaster-related operations throughout the U.S. and its territories.
The table below highlights examples of our key focus areas where we combine our deep domain knowledge with the latest advances in technology to deliver solutions to solve our customer's most complex challenges.
BeyondExcellence℠ is our global program focused industryon quality, performance excellence and recognizing those who set the new standard through our awards program.
We live inclusion
We put people at the heart of our business. We have an unparalleled focus on inclusion, with a diverse team of visionaries, thinkers and doers. We embrace all perspectives, collaborating to make a positive impact.
The aperture of inclusion is broader than lifestyle and culture. Joining, belonging and thriving - these are Jacobs’ key elements in retaining talent and developing a culture where people want to stay - a place where you can bring your whole self to work. Fiscal 2020 brought a lot of change for our people - a talent force of approximately 55,000 - and we doubled down on making sure talent, inclusion and diversity remained at the top of our priorities by focusing on the employee experience.
Our eight Jacobs Employee Networks (JENs) have nearly 23,000 members among them and work to promote inclusion and equality, not only within Jacobs but with our clients, potential recruits and with the communities that we believeserve. The JENs are entirely employee-led and organized, partnering with leadership to drive strategy and policy.
In 2020, we are well positionedlaunched our global Action Plan for Advancing Justice and Equality. Driven by members of our Black employee network, Harambee, in partnership with our Executive Leadership Team and Jacobs’ Board of Directors, the plan sets out actionable initiatives and measurable objectives to address a wide rangeembedded and systemic racial inequalities both within Jacobs and in communities across the world.
We tied inclusive behavior to our leaders’ performance review and compensation programs and delivered conscious inclusion training to nearly all (98%) of opportunities across many sectorsour people.
TogetherBeyond℠ is our approach to living inclusion every day and geographies, which helps us growenabling diversity and equality globally. It’s not just about numbers, statistics or quotas — it’s about every one of our business.people and the collective strength we take from their unique perspectives, ambitions and dreams.
The Role of Strategic Transactions in the Development of Our Business
We maintain agile and disciplined capital deployment
Consistent with our profitable growth strategy, Jacobs pursues acquisitions, divestitures and other transactions to drivemaximize long-term value by continuing to reshape its portfolio to higher value solutions.
On April 26, 2019, Jacobs completed the sale of its Energy, Chemicals and profitable growth by positioning usResources ("ECR") business to Worley Limited, a company incorporated in the most attractive sectorsAustralia ("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 geographies. When we review acquisition targets, we are conscious of the effect the acquisition may have on our client base. We favor acquisitions that are aligned with our growth strategy, which target enhancements of our capabilities and add value to our customers and shareholders. We do this by (i) expanding into a new client sector; (ii) enhancing the range of services we provide existing clients; and/or (iii) accessing new geographic areas in which our clients either already operate or plan to expand. By expanding into new geographic areas and adding to our existing technical and project management capabilities, we strive to position ourselves as a preferred, single-source provider of technical, professional,certain other items (the “ECR sale”). ECR provided engineering and construction services mainly for energy, chemicals and resources sectors. With the sale of ECR, the Company has exited direct hire construction and fixed price lump sum energy related construction.
The Company has deployed capital to our clients.
Seeaccelerate its profitable growth strategy through the following brief descriptionrecent acquisitions:
•On March 6, 2020, we acquired the nuclear consulting, remediation and program management business of some of our recent key acquisitions:John Wood Group ("John Wood Group" or "Wood Group"), a U.K.-based energy services company.
•On June 12, 2019, we acquired The KeyW Holding Corporation (“KeyW”), a U.S. based national security technology solutions provider to the intelligence, cyber, and counterterrorism communities
•On December 15, 2017, we acquired CH2M, HILL Companies, Ltd (CH2M) headquartered in Denver, Colorado. CH2M provides international engineering, construction and technical services.
On August 31, 2017, we acquired Blue Canopy, LLC headquartered in Reston, Virginia. Blue Canopy provides data analytics, cybersecurity and application development.
On January 27, 2017, we acquired Aquenta Consulting Pty Ltd. (“Aquenta”) headquartered in Sydney, Australia. Aquenta provides integrated project services.
On April 12, 2016, we acquired The Van Dyke Technology Group, Inc. (“Van Dyke”) headquartered in Columbia, Maryland. Van Dyke provides advanced cybersecurity services and solutions designed to protect sensitive information within classified networks, with a focus on supporting the U.S. Intelligence Community.
On December 7, 2015, we acquired J.L. Patterson & Associates (“JLP”) headquartered in Orange, California. JLP is aprovider of consulting and professionalother services engineering firm specializing in rail planning, environmental permitting, design and construction management. It provides services to numerous public transit agencies and is a major provider of professional consulting services to Class 1 railroads across the U.S.
In line with our strategy of driving long-term value and profitable growth, 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 Energy, Chemicals and Resource business (the "ECR Business") for an aggregate purchase price of $3.3 billion. The Transaction is expected to close in the first halfwater, environmental, transportation and nuclear remediation sectors.
During fiscal 2020 the Company repurchased $337.3 million of calendar year 2019.shares and paid $144.0 million in dividends to shareholders and noncontrolling interests.
For additional information regarding certain issues related to our acquisition strategy, please refer to Item 1A- Risk Factors below.
Impact of COVID-19 on Our Business
On March 11, 2020, the World Health Organization characterized the outbreak of the novel coronavirus (“COVID-19”) as a global pandemic and recommended certain containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and the vast majority of states and many municipalities declared public health emergencies or took similar actions. Along with these declarations, there were extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat outbreaks of COVID-19 in regions across the United States and around the world. These actions included quarantines and “stay-at-home” or “shelter-in-place” orders, social distancing measures, travel restrictions, school closures and similar mandates for many individuals in order to substantially restrict daily activities and orders for many businesses to curtail or cease normal operations unless their work is critical, essential or life-sustaining. Although certain jurisdictions have subsequently taken steps to lift or ease such restrictions to various degrees, many jurisdictions have subsequently reversed, or indicated they are considering reversing, such lifting or easing in response to increased cases of COVID-19. In addition, governments and central banks in the United States and other countries in which we operate have enacted fiscal and monetary stimulus and assistance measures to counteract the economic impacts of COVID-19.
As it became clear that the pandemic was unparalleled in the rate of community spread, we took early, decisive action to put people first, help flatten the curve and take care of our clients and communities. In early March, we swiftly restricted travel and established return protocols for both client-related and personal travel. In 10 days, we successfully transitioned more than 85% of our employees to a remote working environment to support physical distancing. Where the essential and mission-critical nature of our work requires us to maintain staff at certain sites or locations, we worked closely with our clients and established project-specific plans designed to ensure the safety of our people and the integrity of our operation. Using technology and optimizing our networks, we continue to offer flexible work scenarios for our people, and to deliver business continuity for and continued collaboration with our clients. Our Executive Leadership Team met daily for the first three months and weekly thereafter, focusing on transparency, agile response and business resiliency; and our global and regional crisis management teams continued to maintain consistent messaging and direct local responses. Regular global Town Halls, a weekly Chair and CEO email and short, self-produced leadership videos share open, transparent information to connect and unite our global community.
We are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with international, federal, state and local requirements to date, we continue to materially operate. In addition, demand for certain of our services, including those supporting health care relief efforts relating to COVID-19, has increased, and could continue to increase, as a result of COVID-19. Notwithstanding our continued critical operations, COVID-19 has negatively impacted our business, and may have further adverse impacts on our continued operations, including those listed and discussed in Item 1A, Risk Factors included in this Annual Report on Form 10-K. Accordingly, we have reduced spending broadly across the Company, only proceeding with operating and capital spending that is critical. We have also ceased all non-essential hiring and reduced discretionary expenses, including certain employee benefits and compensation. Looking ahead, we have developed contingency plans to reduce costs further if the situation further deteriorates or lasts longer than current expectations. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be necessary or appropriate for the health and safety of employees, contractors, customers, suppliers or others or as required by international, federal, state or local authorities.
Based on current estimates, we expect the impact of COVID-19 to continue in the first half of fiscal 2021, although to a lesser degree than what was seen in fiscal 2020. Although this business disruption is expected to be temporary, significant uncertainty exists concerning the magnitude, duration and impacts of the COVID-19 pandemic, including with regard to the effects on our customers and customer demand for our services. Accordingly, actual results for future fiscal periods could differ materially versus current expectations and current results and financial condition discussed herein may not be indicative of future operating results and trends.
For a discussion of risks and uncertainties related to COVID-19, including the potential impacts on our business, financial condition and results of operations, see Item 1A - Risk Factors.
Lines of Business
During the second quarter of fiscal 2018, we reorganized our operating and reporting structure around three global lines of business (“LOBs”), which also serve as the Company’s operating segments: (i) Aerospace, Technology, Environmental and Nuclear, (ii) Buildings, Infrastructure and Advanced Facilities, and (iii) Energy, Chemicals and Resources. 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 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. 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 Stock Incentive Plan (“1999 SIP”) have likewise been charged to the LOBs except for those amounts determined to relate to the business as a whole (which amounts remain in other corporate expenses).
Segments
As discussed above, the services we provide fall into the following threetwo lines of business (“LOB”)(LOB): (i) Aerospace, Technology, EnvironmentalCritical Mission Solutions (CMS) and Nuclear, (ii) Buildings, Infrastructure, and Advanced Facilities and (iii) Energy, Chemicals and ResourcesPeople & Places Solutions (P&PS) which are also the Company’s reportable segments.
For additional information regarding our segments, including information about our financial results by segment and financial results by geography, see Note 1719 - Segment Information of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.
Aerospace, Technology, EnvironmentalCritical Mission Solutions (CMS)
Our Critical Mission Solutions line of business provides a full spectrum of cyber, data analytics, systems and Nuclear (ATEN)
We provide an in-depth range of scientific,software application integration services and consulting, enterprise level operations and maintenance and mission IT, engineering construction, nuclear, environmental and design, enterprise operations and maintenance, program management, and other highly technical support servicesconsulting solutions to the aerospace, defense, technical and automotive industries in several countries. Long-termgovernment agencies as well as commercial customers. Our representative clients include the U.S. Department of Defense (DoD), the Combatant Commands, the U.S. Intelligence Community, NASA, the U.S. Department of Energy (DoE), Ministry of Defence in the U.K., the U.K. Nuclear Decommissioning Authority NASA, the U.S. Department of Energy ("DoE")(NDA), the U.S. Department of Defense (“DoD”), the U.S. Special Operations Command ("USSOCOM"), the U.S. Intelligence community and the Australian Department of Defence. SpecificDefence, as well as private sector customers mainly in the aerospace, automotive, energy and telecom sectors.
Serving mission-critical end markets
Critical Mission Solutions serves broad sectors, including U.S. government services, cyber, nuclear, commercial, and international sectors.
Fiscal Year 2020
The U.S. government is the world’s largest buyer of technical services, and in fiscal 2020, approximately 79% of CMS’s revenue was earned from serving the DoD, Intelligence Community and Federal Civilian governmental entities.
Trends affecting our government clients include information warfare, cyber, IT modernization, space exploration and intelligence, defense systems and intelligent asset management, which are driving demand for our highly technical solutions.
Another trend we are witnessing is an increase in the capabilities of unmanned aircraft and hypersonic weapons, which is impacting both offensive and defensive spending priorities among our clients and is a driver for next generation solutions such as C5ISR (command, control, communications, computer, combat systems, intelligence, surveillance and reconnaissance) and advanced aeronautical testing, respectively. We are also seeing an increase in space exploration initiatives both from the U.S. government, such as NASA’s Artemis program to return to the moon in 2024, as well as the commercial sector.
Within the nuclear sector, our customers have decades-long initiatives to manage, upgrade, decommission and remediate existing energy infrastructure and nuclear weapons.
Our international customers, which accounted for 13% of fiscal 2020 revenue, have also increased demand for our IT and cybersecurity solutions and nuclear projects, and the U.K. Ministry of Defence continues to focus on accelerating its strategic innovative and technology focused initiatives.
Leveraging our base market of offering valued technical services to U.S. government customers, CMS also serves commercial and international markets. In fiscal 2020, approximately 8% of CMS’s revenue was from various U.S. commercial sectors, including the telecommunications sector, which anticipates a large cellular infrastructure build-out from 4G to 5G technology. And like our government facility-based clients, our commercial manufacturing clients are seeking ways to reduce maintenance costs and optimize their facilities with network connected facilities and equipment to optimize operational systems, which we refer to as Intelligent Asset Management.
Leveraging strong domain expertise to deliver solutions
CMS brings domain-specific capability and cross-market innovations in each of the above sectors by leveraging six core capability groups.
•Information Technology Services. Across various business units in CMS, we provide a wide range of software development and enterprise IT solutions. We develop, integrate, modify and maintain software solutions and complex systems. These services include a broad array of lifecycle services, including requirements analysis, design, integration, testing, maintenance, quality assurance and documentation management. Our software activities support all major methodologies, including Agile, DevSecOps and other hybrid methodologies. For our enterprise IT capability, we develop, implement and sustain enterprise information technology systems, with a focus on improving mission performance, increasing security and reducing cost for our customers. Solutions typically include IT service management, data center consolidation, network operations, enterprise architecture, mobile computing, cloud computing and migration, software, infrastructure and platform as a service (SaaS, IaaS and PaaS), and data collection and analytics.
•Cyber and Data Analytics. Strongly enhanced by our recent acquisition of KeyW, CMS offers a full suite of cyber services for our government and commercial clients, including defensive cyber operations and training, offensive cyber operations, cloud and data analytics, threat intelligence, intelligence analysis, incident response and forensics, software and infrastructure security engineering, computer forensics and exploitation and information technology-operational technology (IT-OT) convergence services.
•C5ISR (Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance and Reconnaissance). CMS is a leader in the design, development, analysis, implementation and support of C5ISR systems and technology in any environment, including land, sea, air, space and cyber domains. We provide advanced solutions for collecting, processing, exploiting and disseminating geospatial intelligence for the U.S. and Allied Intelligence Communities and Special Forces organizations. Core capabilities include: imaging systems, radar systems, precision geo-location products, custom packaging and microelectronics and customizable tagging, tracking and locating devices.
•Technical Services. We provide a broad range of technical consulting services to our government and commercial clients, including: systems integration, specialized propulsion, avionics, electrical, materials, aerodynamics, manufacturing processes modeling and simulation, testing and evaluation, scientific research, intelligent asset management, program management and consulting. NASA is one of our major government customers in the U.S., iswhere we provide a wide range oftechnology services. For our abilitytelecommunications customers, we provide permitting, site planning and engineering to design, build, operateenable the development of wireline and maintain highly complex facilities relating to spacewireless communications including the development of 5G small cell sites.
•Facility Engineering and Operations. We provide services for advanced technical structures and systems, including test and evaluation facilities, flight/launch facilities, R&D facilities, test facilities and support infrastructure.military range facilities. Customers also engage us to operate, maintain and provide technical services for these facilities and systems over their lives. We also provide support to all phases of the nuclear life-cycle from initial planning through design, construction, commissioning, operationssustainment and decommissioning/decontamination on government sites within the U.S. and Canada
and on both government and commercial sites in the U.K. We provide environmental characterization and restorationtechnical services to commercial and government customers both in the U.S. and U.K. This includes designing, building and operating high hazard remediation systemsfor facility-oriented clients including for radiologically contaminated media.
In addition,the automotive industry where we design and buildprovide highly technical aerodynamic, climatic, altitude and acoustic solutions for our customer research and development operations.
•Nuclear Solutions. We provide support across the full nuclear life cycle, including new build, operational support, and decommissioning. Support includes project management, engineering, technical and R&D services, complemented by the full range of CMS’ other services. Customers include the U.S. DoE, the UK’s NDA, and commercial companies such as EDF Energy, the UK’s largest producer of low-carbon energy.
Applying internally-developed technology
Across multiple businesses within CMS we license internally developed technology such as:
•KeyRadar®: The acquisition of KeyW brought numerous internally developed technologies, including KeyRadar, a scalable, software-defined synthetic aperture radar that can be configured to address a variety of missions, ranging from foliage penetration to long-range maritime domain awareness or long-range moving target detection.
•Ginkgo: Ginkgo is the only virtual learning environment specifically created for cybersecurity training. Designed by experienced cyber instructors, Ginkgo offers a complete solution for implementing hands-on IT and cybersecurity training for both local and distance learning environments on desktops, tablets, and other mobile devices.
•ion©: ion© is our open architecture, multi-protocol Industrial Internet of Things (IIoT) software solution providing an integrated, secure, and scalable platform for data aggregation integration, analysis and visualization. Ion© is both licensed and delivered as-a-service (aas) to commercial customers around the globe to enable a host of operational solutions, ranging from worker monitoring and safety to industrial asset visibility and management to smart/connected construction. Most recently, Jacobs is using ion© to support Return to Work solutions that allow our pharmaceutical clients to return mission essential personnel to their advanced research and production facilities in supportdespite the ongoing COVID-19 pandemic.
People & Places Solutions (P&PS)
Jacobs' People & Places Solutions line of the automotive industry,business provides end-to-end solutions for our clients’ most complex projects - whether connected mobility, integrated water management, smart cities, advanced manufacturing or environmental stewardship. In doing so, we employ predictive analytics, artificial intelligence and automation, digital twin technology, IoT smart sensors, geospatial visualization and advanced delivery processes and tools for consulting, planning, architecture, design, engineering, and implementation, as well as provide a wide rangelong-term operation of services in the telecommunications market.
Our experience in the defense sector includes military systems acquisition management and strategic planning; operations and maintenance of test facilities and ranges; test and evaluation services in computer, laboratory, facility and range environments; test facility computer systems instrumentation and diagnostics; and test facility design and build.infrastructure. Solutions may be delivered as standalone engagements or through comprehensive program management that integrates disparate workstreams to yield additional benefits not attainable through project-by-project implementation. We also provide systems engineeringprogressive design-build and integration of complex weapons and space systems, as well as hardware and software design of complex flight and ground systems.construction management at-risk delivery for our P&PS clients.
We have provided advanced technology engineering services to the DoD for more than 50 years, and currently support major defense programs in the U.S. and internationally. We operate and maintain several DoD test centers and provide services and assist in the acquisition and development of systems and equipment for Special Operations Forces, as well as the development of biological, chemical, and nuclear detection and protection systems.
We maintain enterprise information systems for government and commercial clients worldwide, ranging from the operation of complex computational networks to the development and validation of specific software applications. We also support the DoD and the intelligence community in a number of information technology programs, including network design, integration, and support; command and control technology; development and maintenance of databases and customized applications; and cyber security solutions.
Buildings, Infrastructure and Advanced Facilities (BIAF)
We provide services to broad sectors including buildings, water, transportation (roads, rail, aviation and ports) and advanced facilities for life sciences, semiconductors, data centers, consumer products and other advanced manufacturing operations throughout North America, Europe, India, the Middle East, Australia and Asia. Our representative clients include national, state and local government departments/agencies in the U.S., Europe, U.K., Middle East, Australia, New Zealand and Asia, stateas well as multinational private sector clients throughout the world.
Fiscal Year 2020
Serving broad market sectors that support people and local departmentsplaces
Aging infrastructure; climate action; urbanization; water, food and energy security; global supply chains; pandemic preparedness and response; environmental, social, and corporate governance (ESG); and digital transformation are driving new challenges and opportunities for our clients. These drivers are highlighting the need for holistic, integrated technology solutions that draw on the domain knowledge resident in the multidisciplinary consulting and delivery expertise of transportation withinour global workforce. For example, an airport is no longer simply aviation infrastructure but is now a smart city with extensive operational, cybersecurity and autonomous mobility requirements, as well as the U.S.contactless travel requirements necessary to best manage COVID-19. Master planning for a city now requires advanced analytics to plan for climate adaption and private industry firms.next-generation mobility as well as revenue generating fiber infrastructure. Furthermore, the future of nearly all water infrastructure will be highly technology-enabled, leveraging solutions with digital twins, predictive analytics and smart metering technology to ensure we're giving communities, industries and regions the secure water resource they need to flourish and expand.
TypicalThis increase in technology requirements is a key factor in our organic growth strategy as well as our recent acquisitions and divestitures. Moreover, our business model is evolving to provision a broader spectrum of digital- and technology-enabled solutions to address our infrastructure clients' challenges with less exposure to craft construction services. Our focus on the five core sectors of Transportation, Water, Built Environment, Environmental and Advanced Facilities provides us with the ability to leverage our expansive domain expertise across all global markets, enabling truly end-to-end connected solutions for our clients' most complex major projects include providing development/rehabilitation plansand programs, including the London 2012 Olympic and Paralympic Games, Expo 2020 Dubai, and the LaGuardia Airport Redevelopment.
Today, we are executing complex solutions that pull expertise from all markets, fused with digital expertise, for highways, bridges,major developments in places like London, Dubai, Sydney, Singapore, Miami, Los Angeles and Toronto.
Leveraging our global platform to deliver integrated solutions to clients
One of our key differentiators is our global integrated delivery model, which harnesses deep domain expertise from our global Solutions and Technology organization that is leveraged with the benefits of scale when we focus the world’s best talent to deliver innovative solutions and value to our clients.
•Within transportation, we provide sustainable solutions to plan, develop, finance, design engineer, construct, operate and maintain next generation mobility across all modes, including highway, bridge, rail and transit, tunnels, airports, railroads, intermodal facilitiesaviation, port and maritime or port projects. Our interdisciplinary teams can work independently or as an extensioninfrastructure. For example, we do this by assessing the impact of autonomous vehicles on roadways and cities for transportation agencies, engineering and specifying vehicles for mass-transit; delivering consulting services for digital fare payment systems; providing program management of the client’s staff. We have experience with alternative financing methods, which have been usedlargest airport developments, designing cutting edge automated container terminals and ports infrastructure and utilizing big data to develop cross modal mobility solutions. Our clients encompass the world’s largest transportation agencies as well as private shipping and logistics companies worldwide, including the multi-modal Port Authority of New York and New Jersey, Transport for London, Highways England, Transport for New South Wales and Etihad Rail.
•Water is one of the most precious resources in Europe through the privatizationworld. Extreme weather events in the form of public infrastructure systems.
Ourdroughts, desertification and flooding are stressing water infrastructure group aids emerging economies, whichsupplies, at the same time as population growth and industrialization are investing heavily inincreasing demand. Addressing these challenges, we provide integrated solutions across water and wastewater systemstreatment, water reuse, and governments in North Americawater resources such as the deployment of next generation smart metering, digital twin technology and Europe, which are addressing the challengeshighly technical consulting, engineering, design-build and operation of drought and an aging infrastructure system.complex water systems. We develop or rehabilitate critical water resource systems, water/wastewater conveyance systems and flood defense projects. We provide full life cycle services including engineering design, construction management, design build and operations and maintenance.
We also plan, design and construct buildings for a variety ofsupport our clients and markets. We believe our global presence and understanding of contracting and delivery demands keep us well positioned to provide professional services worldwide. Our diversified client base encompasses both public and private sectors and relates primarily to institutional, commercial, government and corporate buildings, including projects at manyon some of the world's leading medicalworld’s largest water infrastructure projects such as California WaterFix, Thames Tideway, Houston Water and Singapore National Water Agency.
•For the built environment, we deliver full-service architecture, engineering, interiors, planning, urban design, landscape architecture and project delivery solutions for government, corporate, commercial, institutional and industrial clients across diverse sectors. Our technology-enabled expertise ranges from the future of work, transaction advisory and asset management to transportation hubs, urban developments, government, healthcare, higher education and science facilities, as well as sports and entertainment venues. We plan and deliver resilient, triple bottom line-based solutions that are connected, secure and smart, including the rebuild of Tyndall Air Force Base in Florida into a visionary Installation of the Future; the corporate headquarters and research centers,facility relocation of Spark Therapeutics in Philadelphia, Pennsylvania; and universities. We focusthe expanded Blacktown Mount Druitt Hospital in New South Wales, Australia.
•In our effortsenvironmental business, we utilize a multidisciplinary, systems-oriented approach to develop environmental planning for infrastructure development; data-driven site remediation and resources in two areas: where capital-spending initiatives drive demand,regeneration for per- and where changespolyfluoroalkyl substances (PFAS) and advances in
technology require innovative, value-adding solutions.other known and emerging contaminants; environmental health & safety (EHS) operational excellence and information management; and climate action solutions that incorporate sustainability and resiliency principles as essential to the well-being of all people and of our planet. We also provide integrated facility managementpost-disaster response and recovery services (sometimes through joint ventures with third parties)in support of the Federal Emergency Management Agency’s mission throughout the U.S. In addition to providing end-to-end technology-enabled solutions for which we assume responsibilitymultinational oil & gas, chemical and life sciences, mining, manufacturing and energy clients, Jacobs provides comprehensive environmental services for the ongoing operationU.S. Department of Defense, the U.S. Environmental Protection Agency, NASA and maintenanceother civilian agencies, the UK Environment Agency, and the Australian Department of entire commercial or industrial complexes on behalf of clients.Defense.
We have specific capabilities in energy and power, master planning, and commissioning of office headquarters, aviation•Within advanced facilities mission-critical facilities, municipal and civic buildings, courts and correctional facilities, mixed-use and commercial centers, healthcare and education campuses and recreational complexes. For advanced technology clients, who require, we provide fully integrated solutions for highly specialized buildingsfacilities in the fields of medical research, nano science,sustainable manufacturing, nanoscience, biotechnology, semiconductor and laser sciences, we offer total integrated designdata centers. Our services span the full range of facility work, from early planning and site selection through architecture, engineering, construction management solutions. We also have global capabilities in the pharma-bio, data center, government
intelligence, corporate headquarters/interiors and science and technology-based education markets. Our government building projects include large, multi-year programs in the U.S. and Europe supporting various U.S. and U.K. government agencies.
We provide our Life Sciences clients single-point consulting, engineering, procurement, construction management and validation project delivery, enabling usfacility operations, all tailored to execute capital programs on a single-responsibility basis. Typical projectsspecific client needs in the life sciences sector include laboratories, research and development facilities, pilot plants, bulk active pharmaceutical, ingredient production facilities, full-scale biotechnology production facilitiesspecialty manufacturing, microelectronics and tertiary manufacturing facilities. Our manufacturing business areas includedata intensive industries. As the Food & Beverage, Consumer Productslargest professional services provider to the biopharmaceutical industry, we are working with our multinational clients to rapidly increase capacity for vaccines and Pulp & Paper markets.
We provide services relating to modular construction,therapeutics, as well as other consultingreshoring manufacturing facilities, in response to the COVID-19 pandemic. Representative projects include the retrofit of AstraZeneca’s West Chester, Ohio manufacturing facility to deliver a potential COVID-19 vaccine;
the Mountbatten Nanotechnology Electronics Research Complex, University of Southampton, U.K.; and strategic planningthe Procter & Gamble, Singapore Innovation Center.
Applying internally developed technology
A strong foundation of data-rich innovative solutions is woven into every project that we deliver. This may include Jacobs-developed proprietary software that employs an array of technical expertise to enable the most efficient, effective and predictable solutions for our clients. Examples of these technologies include:
•TrackRecord is a workflow automation and compliance management platform for the delivery of major projects.
•AquaDNA is a predictive analytics platform that integrates innovative technologies for wastewater asset management through an AI learning platform, facilitating a move from reactive to proactive maintenance and reduced operation and maintenance costs.
•Travel Service Optimisation (TSO) is Jacobs' travel sharing solution for Special Education needs children which centers on the children’s ability to travel together rather than focusing on their disability.
•SafetyWeb is a site hazard management and compliance tool.
•ProjectMapper is a web based geospatial mapping and project visualization software platform.
•Flood Modeller provides proactive decision-making to help manage our clients complete capital projects fasterenvironment and more efficiently.the challenges associated with flood risk. It is suitable for a wide range of engineering and environmental applications, from calculating simple backwater profiles and modeling entire catchments to mapping potential flood risk for entire countries.
In addition, we offer services•ion© is an Industrial Internet of Things (IoT) multi-protocol wireless application networking system which provides an open, integrated, secure and scalable system for data aggregation and viewing.
•Replica™ is Jacobs’ digital twin solution software platform and consists of the following capabilities:
Replica Parametric Design™ (formerly CPES™) provides outputs on construction quantities and costs, life cycle quantities and costs, and estimates of environmental impacts. Rapid process design in containment, barrier technology, locally controlled environments, building systems automationReplica Process and off-the-site designthe resulting development of the Replica Parametric Designs allows for thorough alternatives analysis and fabricationenhanced team communication.
Replica Preview™ is used for early stage visualization of facility modules,designs. This software rapidly creates scaled three-dimensional designs, which can be placed on Google Earth®. Rapid design development in Replica Parametric Design and visualization with Replica Preview allows for informed analysis of many alternatives and sound decision-making.
Replica Systems Analysis™ (formerly Voyage™) is a flexible platform that can simulate resource systems dynamically, over time. Examples of modeled systems include water resources, energy, solid waste and traffic. The ability to connect complex systems together in a single interface that is visually intuitive leads to informed team collaboration and creative solutions.
Replica Process™ allows Jacobs' world-renowned expertise in water treatment to be simulated both statically and dynamically over time in Replica Process™ software. Much of the process predictive capabilities in Replica Process are founded on the Jacobs' Pro2D2™ and Source™ software. Informed decisions are founded on the ability of Replica Process to provide details on system performance among many alternatives, very quickly.
Replica Hydraulics™ was designed to simulate all pressurized and gravity flow hydraulics of a system, simultaneously. Replica’s hydraulic blocks were built on accepted engineering practice equations and have been successfully verified on hundreds of projects. The Replica Hydraulics library is the foundation for complete, dynamic water system analysis and can be used exclusively for hydraulic analysis of a system or in conjunction with Replica Process, Replica Controls and/or Replica Air.
Replica Controls™ allows for dynamic simulation of system instrumentation such as flow meters, indicator transmitters, limit switches and stream analyzers as well as vaccine productionthe logic objects including PID controllers, sequencers, units, controller and purificationalarms. The software's controls capabilities and aseptic processing.functionality align with industry design standards and its ability to predict full scale performance is unmatched due to the connectivity with Replica Hydraulics.
Replica Air™ simulates all aspects of a compressible fluid (e.g. air) supply system, including pipes, valves, diffusers and blowers. The ability to couple Replica Air with Replica Controls in a single simulation allows for the development of unique and robust designs that reduce energy use and life cycle costs.
Energy, Chemicals and Resources (ECR)
ECR Disposition
On April 26, 2019, Jacobs completed the sale of its Energy, Chemicals and Resources (ECR) business to Worley Limited, a company incorporated in Australia (Worley), for a purchase price of $3.4 billion consisting of (i) $2.8 billion in cash plus (ii) 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the ECR sale).
As a result of the ECR sale, substantially all ECR-related assets and liabilities were sold (the "Disposal Group"). We servedetermined 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, assets and liabilities of the ECR business were reflected as held-for-sale in the Consolidated Balance Sheets through September 27, 2019. As of the year ended October 2, 2020, all of the ECR business to be sold under the terms of the sale has been conveyed to Worley and as such, no amounts remain held for sale. For further discussion see Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business to the consolidated financial statements.
Prior to the sale, the ECR business served the energy, chemicals and resources sectors, including upstream, midstream and downstream oil, gas, refining, chemicals and mining and minerals industries. We provideThe ECR business provided integrated delivery of complex projects for our Oil and Gas, Refining, and Petrochemicals clients. Bridging the upstream, midstream and downstream industries, ourECR's services encompassencompassed consulting, engineering, procurement, construction, maintenance and project management.
We provide services relating to onshore and offshore oil and gas production facilities, including fixed and floating platforms and subsea tie-backs, as well as full field development solutions, including processing facilities, gathering systems, transmission pipelines and terminals. Our heavy oil experience makes us a leader in upgrading, steam-assisted gravity drainage and in-situ oil sands projects. We have developed modular well pad and central processing facility designs. We also provide fit-for-purpose and standardized designs in the onshore conventional and unconventional space, paying particular attention to water and environmental issues.
In addition, we provide our refining customers with feasibility/economic studies, technology evaluation and conceptual engineering, front end loading (FEED), detailed engineering, procurement, construction, maintenance and commissioning services. We deliver installed engineering, procurement and construction (EPC) solutions as to grass root plants, expansions and revamps of existing units. We have engineering alliances and maintenance programs that span decades with core clients. With the objective of driving our clients’ total installed costs down, we endeavor to leverage emerging market sourcing and high value engineering. Our Comprimo Sulfur Solutions® is a significant technology for gas treatment and sulfur recovery plants around the world.
We provide services to technically complex petrochemical facilities, from new manufacturing complexes to expansions and modifications and management of plant relocations. We have experience with many licensed technologies, integrated basic petrochemicals, commodity and specialty chemicals projects and olefins, aromatics, synthesis gas and their respective derivatives.
Our mining and minerals business targets the non-ferrous and ferrous metal markets, precious metals, energy minerals (uranium, coal, oil sands), and industrial and fertilizer minerals (borates, trona, phosphates and potash). We work with many resource companies undertaking new and existing facility upgrades, process plant and underground and surface material handling and infrastructure developments.
We offer project management, front-end studies, full engineering, procurement and construction management (“EPCM”), and engineering, procurement and construction (“EPC”) capabilities and completions, commissioning and start-up services specializing in new plant construction, brownfield expansions and sustaining capital and maintenance projects. We are also able to deliver value to our mining clients by providing distinctive adjacent large infrastructure capabilities to support their mining operations.
We provide a wide range of services, technology and manufactured equipment through our specialty chemicals group, where we own and license our proprietary technology. Our specialty chemicals areas are focused on sulfuric acid, sulphur, bleaching chemicals for pulp & paper and synthetic chemicals and manufactured equipment.
Our global Field Services unit supports construction and operations and maintenance (“O&M”) across the company and performs our direct hire services.
Our construction activities include providing both construction management services and traditional field construction services to our clients. Historically, our field construction activities focused primarily on those construction projects where we perform much of the related engineering and design work (EPC/EPCM). However, we deliver construction-only projects when we
have negotiated pricing and other contract terms we deem acceptable and which result in a fair return for the degree of risk we assume.
In our O&M business, we provide all services required to operate and maintain large, complex facilities on behalf of clients including asset management, direct hire maintenance and operations, complex turn-around planning and execution and small capital programs. We provide key management and support services over all aspects of the operations of a facility, including managing subcontractors and other on-site personnel.
Backlog
Backlog is not a defined measure and our methodology for determining backlog may vary from the methodology used by other companies. Currently, we report a combined backlog number based upon the legacy reporting methodologies used by Jacobs and the acquired business of CH2M prior to the acquisition while we work to harmonize these reporting methodologies as part of the Company's integration activities underway.
We include in backlog the total dollar amount of revenues we expect to record in the future as a result of performing work under contracts that have been awarded to us. Our policy with respect to O&M contracts, however, is to include in backlog the amount of revenues we expect to receive for one succeeding year, regardless of the remaining life of the contract. For national government programs (other than national government O&M contracts, which are subject to the same policy applicable to all other O&M contracts), our policy is to include in backlog the full contract award, whether funded or unfunded, excluding option periods. Because of variations in the nature, size, expected duration, funding commitments and the scope of services required by our contracts, the timing of when backlog will be recognized as revenues can vary greatly between individual contracts.
Consistent with industry practice, substantially all of our contracts are subject to cancellation or termination at the option of the client, including our U.S government work. While management uses all information available to it to determine backlog, at any given time our backlog is subject to changes in the scope of services to be provided as well as increases or decreases in costs relating to the contracts included therein. Backlog is not necessarily an indicator of future revenues.
Because certain contracts (e.g., contracts relating to large EPC projects as well as national government programs) can cause large increases to backlog in the fiscal period in which we recognize the award, and because many of our contracts require us to provide services that span over a number of fiscal quarters (and sometimes over fiscal years), we evaluate our backlog on a year-over-year basis, rather than on a sequential, quarter-over-quarter basis.
The following table summarizes our backlog for the years ended September 28, 2018, September 29, 2017 and September 30, 2016 (in millions):
|
| | | | | | | | | | | | |
| | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 |
| Aerospace, Technology, Environmental and Nuclear | | $ | 8,857 |
| | $ | 6,358 |
| | $ | 4,472 |
|
| Buildings, Infrastructure and Advanced Facilities | | 11,376 |
| | 6,789 |
| | 7,063 |
|
| Energy, Chemicals and Resources | | 7,066 |
| | 6,642 |
| | 7,226 |
|
| Total | | $ | 27,299 |
| | $ | 19,789 |
| | $ | 18,761 |
|
For additional information regarding our backlog including those risk factors specific to backlog, please refer to Item 1A - Risk Factors, and Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations below. Subject to the factors discussed in Item 1A - Risk Factors, we estimate that approximately $10 billion, or 36%, of total backlog at September 28, 2018 will be realized as revenues within the next fiscal year.
Significant Customers
The following table sets forth the percentage of total revenues earned directly or indirectly from agencies of the U.S. federal government for each of the last fivethree fiscal years:
|
| | | | | | | | |
| 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| 23% | | 19% | | 21% | | 22% | | 18% |
Given the percentage of total revenue derived directly from the U.S. federal government, the loss of U.S. federal government agencies as customers would have a material adverse effect on the Company. In addition, any or all of our government contracts could be terminated, we could be suspended or debarred from all government contract work, or payment of our costs could be disallowed. Approximately 94%80% of revenue derived directly from the U.S. federal government is in the ATENCMS segment. For more information on risks relating to our government contracts, see Item 1A - Risk Factors.
Financial Information About Geographic Areas
Selected financial information regarding the geographic areas in which we operate is included in Note 17 - Segment Information of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K and is incorporated herein by reference. For fiscal 2018, approximately 36% of our revenues were earned from clients outside the United States. Our international operations are subject to a variety of risks, which are described under Item 1A - Risk Factors below.
Contracts
While there is considerable variation in the pricing provisions of the contracts we undertake, our contracts generally fall into two broad categories: cost-reimbursable and fixed-price. The following table sets forth the percentages of total revenues represented by these types of contracts for each of the last fivethree fiscal years:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Cost-reimbursable | 76% | | 76% | | 74% |
| Fixed-price, limited risk | 17% | | 18% | | 19% |
| Fixed-price, at risk | 7% | | 6% | | 7% |
|
| | | | | | | | | |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Cost-reimbursable | 76% | | 81% | | 82% | | 83% | | 83% |
| Fixed-price | 24% | | 19% | | 18% | | 17% | | 17% |
In accordance with industry practice, most of our contracts (including those with the U.S. federal government) are subject to termination at the discretion of the client, which is discussed in greater detail in Item 1A - Risk Factors. In such situations, our contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of termination.
When we are directly responsible for engineering, design, procurement and construction of a project or the maintenance of a client’s plant or facility, we reflect the costs of materials, equipment and subcontracts in both revenues and costs. The following table sets forth the approximate amount of such pass-through costs included in revenues for each of the last five fiscal years (in millions of dollars):
|
| | | | | | | | | | | | | | | | | | |
| 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| $ | 3,058.6 |
| | $ | 2,539.3 |
| | $ | 2,489.9 |
| | $ | 2,602.6 |
| | $ | 2,954.9 |
|
On other projects, where the client elects to pay for such items directly and we have no associated responsibility for such items, these amounts are not reflected in either revenues or costs.
Cost-Reimbursable Contracts
Cost-reimbursable contracts generally provide for reimbursement of costs incurred plus an amount of profit. The profit element may be in the form of a simple mark-up applied to the labor costs incurred or it may be in the form of a fee, or a combination of a mark-up and a fee. The fee element can also take several forms. The fee may be a fixed amount; it may be an amount based on a percentage of the costs incurred; or it may be an incentive fee based on targets, milestones, or performance factors defined in the contract. In general, we prefer cost-reimbursable contracts because we believe the primary reason for awarding a contract to us should be our technical expertise and professional qualifications rather than price.
Fixed-Price Contracts
Fixed-price contracts include both “lump sum bid” contracts and “negotiated fixed-price” contracts. Under lump sum bid contracts, we typically bid against other contractorscompetitors based on client-furnished specifications. This type of pricing presents certain inherent risks, including the possibility of ambiguities in the specifications received, problems with new technologies, and economic and other changes that may occur over the contract period. Additionally, it is not unusual for lump sum bid contracts to lead to an adversarial relationship with clients, which is contrary to our relationship-based business model. Accordingly, lump sum bid contracts are not our preferred form of contract, and, as such, the Company has rarely entered into individual lump sum bid contracts that are material to its financial results.contract. In contrast, under a negotiated fixed-price contract, we are selected as the contractor first and then we negotiate a price with our client. Negotiated fixed-price contracts frequently exist in single-responsibility arrangements where we perform some portion of the work before negotiating the total price of the project. Thus,
although both types of contracts involve a firm price for the client, the lump sum bid contract provides the greater degree of risk to us.us in our services contracts as well as construction. However, because of economies that may be realized during the contract term, both negotiated fixed-price and lump sum bid contracts may offer greater profit potential than other types of contracts. The Company carefully manages the risk inherent in these types of contracts. In recent years, most of our fixed-price work has been either negotiated fixed-price contracts or lump sum bid contracts for design and/or project services, rather than turnkey construction.
Competition
We compete with a large number of companies across the world.world including technology consulting, federal IT services, aerospace, defense and engineering firms. Typically, no single company or companies dominate the marketmarkets in which we provide services.services and in many cases we partner with our competitors or other companies to jointly pursue projects. AECOM, Booz Allen, CACI, KBR, Leidos, Parsons, SAIC, Tetra Tech, WSP, General Dynamics and Northrop Grumman are some of our competitors. We compete based on the following factors, among others: price of services, technical capabilities, reputation for quality, price of services, safety record, availability of qualified personnel, and ability to timely perform work and willingnesscontract terms.
Human Capital Management
At Jacobs, our people are the heart of our business. With our culture of caring and inclusion as our foundation, we celebrate the differences that drive our collective strength and encourage our employees that there is no limit to accept project-related risk. For more information regardingwho they can be and what we can achieve. Together we deliver extraordinary solutions for a better tomorrow and live by our employee value statement: Jacobs. A world where you can.
As of October 2, 2020, we had a workforce of approximately 55,000 people worldwide, including a contingent workforce of approximately 3,000 people. The breakdown of our employees by region is as follows:
| | | | | | | | |
| Region | | Percentage of Global Workforce(1) |
| Americas | | 62 | % |
| Europe (including U.K) | | 23 | % |
| Asia Pacific (including India) | | 12 | % |
| Middle East and Africa | | 3 | % |
| | |
| (1) Excludes contingent workforce |
Hiring, Training and Developing our Workforce
The success of Jacobs is dependent on our ability to hire, retain, engage and leverage highly qualified employees, including engineers, architects, designers, digital specialists, craft employees and corporate professionals. We put the competitive conditions
spotlight on ensuring that Jacobs is an employer of choice in every way: we aspire to be a merit-based organization that is inclusive and diverse; we are building an inclusive culture where all employees feel they belong. Our culture is the foundation for selecting, developing and retaining the best and brightest minds at Jacobs. Our eight Jacobs Employee Networks (JENs) play a critical role in attracting new talent into our business, please referhelping to Item 1A - Risk Factors below.shape our recruiting strategies and policies, our science, technology, engineering, arts and math programs, and our accessibility practices. In fiscal 2020, more than1,300 graduates, interns and apprentices were welcomed to our global team.
EmployeesIn fiscal 2020, we launched our new employee experience e3: engage. excel. elevate. From a talent profile for every employee to providing continuous celebrations and feedback, and learning new skills and driving performance, e3 is our unique approach to ensuring every employee can engage, excel in their role and elevate their career. We also introduced GlobalShare to enhance our ability to resolve short-term staffing needs and enable employees to pursue opportunities across Jacobs. We also made enhancements to some of our policies to deliver greater work-day flexibility to employees. Additionally, we undertook several new initiatives related to our Total Rewards Program, including implementing our Global Career Structure framework, combining career planning and development resources and tools within a consistent career structure, and a global pay equity review of our pay systems and processes to make pay equity a lasting reality at Jacobs.
Focus on Inclusion and Diversity
At September 28, 2018,Jacobs we have an unparalleled focus on inclusion, with a diverse team of visionaries, thinkers and doers. We embrace all perspectives, collaborating to make a positive impact. The aperture of inclusion is broader than lifestyle and culture. Joining, belonging and thriving are Jacobs’ key elements in retaining talent and developing a culture where people want to stay – and a place where you can bring your best, whole self to work.
TogetherBeyond℠ is our approach to living inclusion every day and enabling diversity and equality globally – it is not just about numbers and statistics, but about every one of our people and the collective strength we take from their unique perspectives and ambitions.
Having a culture of belonging where everyone can join in and thrive allows us to recruit and retain the best global talent and drive innovative solutions for our business, clients and communities. “We live inclusion” is supported by the strength of tangible leadership commitment and accountability at Jacobs. In that regard, we have tied inclusive behavior to our leaders’ performance review and compensation programs and delivered conscious inclusion training to nearly all (98%) of our people.
As of October 2, 2020, our U.S. employees had approximately 74,400 full-time, staffthe following race and ethnicity demographics:
| | | | | | | | |
| | October 2, 2020 |
| | All U.S. Employees (1) |
| White | | 71.4 | % |
| Hispanic / Latino | | 8.9 | % |
| Black | | 8.5 | % |
| Asian | | 6.8 | % |
| Multiracial | | 2.0 | % |
| American Indian or Alaska Native | | 0.4 | % |
| Native Hawaiian / Other Pacific Islander | | 0.3 | % |
| Not provided | | 1.7 | % |
| | |
| (1) Includes U.S. employee population only (excluding approximately 2,000 craft employees) |
Over the last year, we have seen tangible examples of progress resulting from our approach to inclusion. In fiscal 2020, we launched our global Action Plan for Advancing Justice and Equality. Driven by members of our Black employee network, Harambee, in partnership with our Executive Leadership Team and Jacobs’ Board of Directors, the Action Plan sets out actionable initiatives and measurable objectives to address advance equality within the company and around the communities where we work.
As of October 2, 2020, our global employees (including contract staff). Additionally,had the following gender demographics:
| | | | | | | | | | | |
| October 2, 2020 |
| Women | | Men |
| All employees | 29.5% | | 70.5% |
Looking ahead, we will continue to focus on inclusion and diversity by:
•Following through on our global Action Plan for Advancing Justice and Equality
•Striving to achieve our aspirational goals of creating a more gender-balanced and racially/ethnically diverse workforce around the globe to more appropriately reflect the labor markets and communities in which we live and serve
•Amplifying our culture of belonging
•Measuring employee sense of inclusion and belonging through a global survey
•Identifying, developing and promoting allies across Jacobs
We know we have more to do when it comes to increasing the representation of historically underrepresented groups within our global workforce, and we are committed to taking action and ensuring Jacobs is, and remains, an employer of choice.
Our Employees’ Safety and Wellbeing
BeyondZero® is our approach to the health, safety and security of our people, the protection of the environment and the resilience of Jacobs. In fiscal 2020, we continued to demonstrate safety excellence with another year of zero employee fatalities at work, a 25% reduction in employee recordable incidents from fiscal 2019, and a total recordable incident rate of 0.17 (recorded in accordance with OSHA record keeping requirements) as of September 28, 2018, there were approximately 6,400 persons employed in the field on a project basis. The number of field employees varies in relationOctober 2, 2020 – compared to the numberNorth American Industry Classification System’s most recently reported aggregate rate of 0.60.
While our BeyondZero journey started with safety, as we continued to drive our injury rates down, we also expanded our thinking to our broader culture of caring and sizeparticularly mental health. It was this strong foundation that helped us act swiftly at the start of the maintenanceCOVID-19 pandemic. The foundation elements of our existing “Mental Health Matters” program enabled us to respond quickly to launch our “Mental Health Matters Resiliency” program and construction projectsto promote our suicide awareness campaign in progress at any particular time.fiscal 2020.
In fiscal 2020, almost 2,000 Positive Mental Health Champions (an 11% increase from fiscal 2019) trained to support the mental wellbeing of our employees and one in every 29 employees trained as a Positive Mental Health Champion. In addition, 100% of Jacobs’ Executive Leadership Team participated in Positive Mental Health training.
Information About Our Executive Officers of the Registrant
The information required by Paragraph (a), and Paragraphs (c) through (g) of Item 401 of Regulation S-K (except for information required by Paragraph (e) of that Item to the extent the required information pertains to our executive officers) and Item 405 of Regulation S-K is set forth under the captions “Members of the Board of Directors” and “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year and is incorporated herein by reference.
The following table presents the information required by Paragraph (b) of Item 401 of Regulation S-K.
| | | Name | | Age | | Position with the Company | | Year Joined the Company | Name | | Age | | Position with the Company | | Year Joined the Company |
| Steven J. Demetriou | | 60 |
| | Chairman and Chief Executive Officer | | 2015 | Steven J. Demetriou | | 62 | | | Chair and Chief Executive Officer | | 2015 |
| Kevin C. Berryman | | 59 |
| | Executive Vice President and Chief Financial Officer | | 2014 | Kevin C. Berryman | | 61 | | | President and Chief Financial Officer | | 2014 |
| Terence D. Hagen | | 54 |
| | Chief Operating Officer | | 1987 | |
| Robert V. Pragada | | 50 |
| | Chief Operating Officer | | 2016 | Robert V. Pragada | | 52 | | | President and Chief Operating Officer | | 2016 |
| Vinayak R. Pai | | 52 |
| | President, Energy, Chemicals and Resources | | 2013 | |
| Joanne Caruso | | 58 |
| | Chief Legal and Administration Officer | | 2012 | |
| Dawne S. Hickton | | Dawne S. Hickton | | 63 | | | Executive Vice President and COO Critical Mission Solutions | | 2019 |
| Joanne E. Caruso | | Joanne E. Caruso | | 60 | | | Executive Vice President, Chief Legal and Administrative Officer | | 2012 |
| William B. Allen, Jr. | | 54 |
| | Senior Vice President and Chief Accounting Officer | | 2016 | William B. Allen, Jr. | | 56 | | | Senior Vice President, Chief Accounting Officer | | 2016 |
| Michael R. Tyler | | 62 |
| | Senior Vice President, General Counsel and Chief Compliance Officer | | 2013 | Michael R. Tyler | | 64 | | | Senior Vice President, General Counsel and Chief Compliance Officer | | 2013 |
All of the officers listed in the preceding table serve in their respective capacities at the pleasure of the Board of Directors of the Company.
Mr. Demetriou joined the Company in August 2015. Mr. Demetriou served as Chairman and CEO of Aleris Corporation for 14 years, a global downstream aluminum producer based in Cleveland, Ohio. Over the course of his career, he has gained broad experience with companies in a range of industries including metals, specialty chemicals, oil & gas, manufacturing and fertilizers.
Mr. Berryman joined the Company in December 2014. Mr. Berryman served as EVP and CFO for five years at International Flavors and Fragrances Inc., an S&P 500 company and leading global creator of flavors and fragrances used in a wide variety of consumer products. Prior to that, he spent 25 years at Nestlé in a number of finance roles including treasury, mergers & acquisitions, strategic planning and control.
Mr. Hagen joined the Company in 1987. Mr. Hagen has worked in a number of the Company’s market sectors in both senior operational and sales roles. Prior to becoming Chief Operating Officer, Mr. Hagen served as President of Aerospace, Technology, Environmental and Nuclear (ATEN) and as Executive Vice President, Global Sales and Marketing.
Mr. Pragada rejoined the Company in February 2016 after serving as President and Chief Executive Officer of The Brock Group since August 2014. From March 2006 to August 2014 Mr. Pragada served in executive and senior managementleadership capacities with the Company.
Mr. PaiMs. Hickton joined the Company as Chief Operating Officer and President of Critical Mission Solutions in 2013.2019. Prior to becoming Presidentthis role, Ms. Hickton served as a member of Energy, Chemicalsthe Board of Directors of the Company and Resources (ECR)was previously the Vice Chair and Chief Executive Officer for eight years at RTI International Metals, Inc., a global supplier of advanced titanium products and services in December 2017, Mr. Pai was a Senior Vice President, holding various executivecommercial aerospace, defense, propulsion, medical device and senior management positions within ECR.energy markets.
Ms. Caruso joined the Company in 2012. Prior to becoming Executive Vice President, Chief Legal and AdministrationAdministrative Officer, Ms. Caruso was Senior Vice President, Chief Administrative Officer, and previously held the positions of Senior Vice President, Global Human Resources and previously Senior Vice President, Global Litigation. Prior to joining the Company, Ms. Caruso was a partner in two international law firms, Howrey LLP and Baker & Hostetler LLP.
Mr. Allen joined the Company in October 2016. Mr. Allen served as Vice President, Finance and Principal Accounting Officer at Lyondellbasell Industries, N.V. from 2013 to 2016. Prior to that, he was with Albemarle Corporation, where he served as Vice President, Corporate Controller and Chief Accounting Officer from 2009 to 2013 after serving in CFO roles for their Catalysts and Fine Chemistry businesses from 2005 to 2009.
Mr. Tyler joined the Company in June 2013. He previously served as Executive Vice President, General Counsel and Secretary of Sanmina Corporation, a global electronics manufacturing services provider from April 2007 to June 2013, and Chief Legal and Administrative Officer of Gateway, Inc., a computer hardware company, from January 2004 to April 2007.
Additional Information
Jacobs was founded in 1947 and incorporated as a Delaware corporation in 1987. We are headquartered in Dallas, Texas, USA. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room located at 100 F Street N.E., Washington, D.C. 20549. In order to obtain information about the operation of the Public Reference Room, a person may call the SEC at 1-800-732-0330. The SEC also maintains a site on the Internet that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s website is http://www.sec.gov. You may also read and download the various reports we file with, or furnish to, the SEC free of charge from our website at www.jacobs.com.
Item 1A. RISK FACTORS
We operate in a changing global environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect our business, financial condition and results of operations. The risks described below highlight some of the factors that have affected and could affect us in the future. We may also be affected by unknown risks or risks that we currently think are immaterial. If any such events actually occur, our business, financial condition and results of operations could be materially adversely affected.
Construction
Summary Risk Factors
The following is a summary of some of the risks and maintenanceuncertainties that could materially adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.
Risks Related to Our Operations
•The COVID-19 pandemic, including the measures that international, federal, state and local public health and other governmental authorities implement to address it, have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations.
•Project sites are inherently dangerous workplaces. If we, the owner, or others working at the project site fail to maintain safe work sites, and our employees or others become injured, disabled or even lose their lives, we can be exposed to significant financial losses and reputational harm, as well as civil and criminal liabilities.
•Our results of operations depend on the award of new contracts and the timing of the performance of these contracts.
•We engage in a highly competitive business. If we are unable to compete effectively, we could lose market share and our business and results of operations could be negatively impacted.
•The nature of our contracts, particularly those that are fixed-price, subjects us to risks of cost overruns. We may experience reduced profits or, in some cases, losses if costs increase above budgets or estimates or if the project experiences schedule delays.
•The contracts in our backlog may be adjusted, canceled or suspended by our clients and, therefore, our backlog is not necessarily indicative of our future revenues or earnings. Additionally, even if fully performed, our backlog is not a good indicator of our future gross margins.
•Contracts with the U.S. federal government and other governments and their agencies pose additional risks relating to future funding and compliance. Our project execution activities may result in liability for faulty services.
•Our project execution activities may result in liability for faulty services.
•The outcome of pending and future claims and litigation could have a material adverse impact on our business, financial condition, and results of operations.
•Our use of joint ventures and partnerships exposes us to risks and uncertainties, many of which are outside of our control
•Employee, agent or partner misconduct or our overall failure to comply with laws or regulations could weaken our ability to win contracts, which could result in reduced revenues and profits.
•Our international operations are exposed to additional risks and uncertainties, including unfavorable political developments and weak foreign economies.
•Cyber security or privacy breaches, or systems and information technology interruption or failure could adversely impact our ability to operate or expose us to significant financial losses and reputational harm.
•We are subject to professional standards, duties and statutory obligations on professional reports and opinions we issue, which could subject us to monetary damages.
•If we do not have adequate indemnification for our nuclear services, it could adversely affect our business, financial condition and results of operations.
•Our actual results could differ from the estimates and assumptions used to prepare our financial statements.
•An impairment charge on our goodwill could have a material adverse impact on our financial position and results of operations.
•We may be required to contribute additional cash to meet any underfunded benefit obligations associated with retirement and post-retirement benefit plans we manage.
•Demand for our services is cyclical as the sectors and industries in which our clients operate are impacted by economic downturns, reductions in government or private spending and times of political uncertainty.
•Rising inflation, interest rates, and/or construction costs could reduce the demand for our services as well as decrease our profit on our existing contracts, in particular with respect to our fixed-price contracts.
•Our global presence could give rise to material fluctuations in our income tax rates.
•Our businesses could be materially and adversely affected by events outside of our control.
•Climate change and related environmental issues could have a material adverse impact on our business, financial condition and results of operations.
•Our continued success is dependent upon our ability to hire, retain, and utilize qualified personnel.
•Our business strategy relies in part on acquisitions to sustain our growth. Acquisitions of other companies present certain risks and uncertainties.
Risks Related to Regulatory Compliance
•Past and future environmental, health, and safety laws could impose significant additional costs and liabilities.
•If we fail to comply with federal, state, local or foreign governmental requirements, our business may be adversely affected.
•We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.
•We may be affected by market or regulatory responses to climate change.
Risks Related to Our Indebtedness
•We rely on cash provided by operations and liquidity under our credit facilities to fund our business. Negative conditions in the credit and financial markets and delays in receiving client payments could adversely affect our cost of borrowing and our business.
•Maintaining adequate bonding and letter of credit capacity is necessary for us to successfully bid on and win some contracts.
Risks Related to Our Common Stock
•Our quarterly results may fluctuate significantly, which could have a material negative effect on the price of our common stock.
•There can be no assurance that we will pay dividends on our common stock.
•In the event we issue stock as consideration for certain acquisitions we may make, we could dilute share ownership, and if we receive stock in connection with a divestiture, the value of stock is subject to fluctuation.
•Delaware law and our charter documents may impede or discourage a takeover or change of control.
Risks Related to Our Operations
The COVID-19 pandemic, including the measures that international, federal, state and local public health and other governmental authorities implement to address it, have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations.
On March 11, 2020, the World Health Organization characterized the outbreak of the novel coronavirus (“COVID-19”) as a global pandemic and recommended certain containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and the vast majority of states and many municipalities declared public health emergencies or taken similar actions. Since then, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak of COVID-19 in regions across the United States and around the world. These actions include quarantines and “stay-at-home” or “shelter-in-place” orders, social distancing measures, travel restrictions, school closures and similar mandates for many individuals in order to substantially restrict daily activities and orders for many businesses to curtail or cease normal operations unless their work is critical, essential or life-
sustaining. Although certain jurisdictions have taken steps to lift or ease such restrictions to various degrees, some jurisdictions have subsequently reversed such lifting or easing in response to increased cases of COVID-19.
The COVID-19 pandemic has adversely affected, and may continue to adversely affect, certain elements of our business, including, but not limited to, the following:
•We have experienced, and may continue to experience, reductions in demand for certain of our services and the delay or abandonment of ongoing or anticipated projects due to our clients’, suppliers’ and other third parties’ diminished financial conditions or financial distress, as well as governmental budget constraints. These impacts are expected to continue or worsen if “stay-at-home”, “shelter-in-place”, social distancing, travel restrictions and other similar orders, measures or restrictions remain in place for an extended period of time or are re-imposed after being lifted or eased. Although we have experienced, and may continue to experience, an increase in demand for certain of our services as a result of new projects that have arisen in response to the COVID-19 pandemic, there can be no assurance that any such increased demand would be sufficient to offset lost or delayed demand.
•Government-sponsored stimulus or assistance programs enacted to-date in the United States and in the foreign countries in which we operate in response to the COVID-19 pandemic have only been available to us or our customers or suppliers on a limited basis and are insufficient to address the full impact of the COVID-19 pandemic. For example, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) contains provisions that authorize Federal Agencies to pay contractors to retain key workers where regular work schedules are not possible due to quarantines or other social isolation measures. We have pursued payment for these alternative work arrangements with applicable Federal Agencies or contracting officials and will continue to assess the availability of such subsidies on a contract-by-contract basis. Certain foreign governments are also permitting contracting authorities to revise the terms of government contracts and/or providing various forms of subsidies to compensate companies who maintain their workforce rather than impose layoffs or furloughs. Certain other governments have provided partial expense reimbursement for furloughed employees and also provided for the deferral of payroll taxes. Although we expect to recover a significant portion of COVID-19 related labor costs, we do not expect to recover the full amount of either our labor cost or associated fee. Additionally, these and other government-sponsored assistance and stimulus programs are subject to renewal, modification or termination by the applicable governing bodies. If any government-sponsored program from which we receive benefits is modified or terminated, our benefits thereunder could decline or cease altogether, which could have a material adverse effect on our business, financial position, results of operations, and/or cash flows.
•Our clients may be unable to meet their payment obligations to us in a timely manner, including as a result of deteriorating financial condition or bankruptcy resulting from the COVID-19 pandemic and resulting economic impacts. Further, other third parties, such as suppliers, subcontractors, joint venture partners and other outside business partners, may experience significant disruptions in their ability to satisfy their obligations with respect to us, or they may be unable to do so altogether.
•Many employers, including us, and governments continue to require all or a significant portion of employees to work from home or not go into their offices. While many of our employees can effectively perform their responsibilities while working remotely, some work is not well-suited for remote work, and that work may not be completed as efficiently as if it were performed on site. Additionally, we may be exposed to unexpected cybersecurity risks and additional information technology-related expenses as a result of these remote working requirements.
•Illness, travel restrictions or other workforce disruptions could adversely affect our supply chain, our ability to timely and satisfactorily complete our clients’ projects, our ability to provide services to our clients or our other business processes. Even after the COVID-19 pandemic subsides, we could experience a longer-term impact on our operating expenses, including, for example, due to the need for enhanced health and hygiene requirements or the periodic revival of social distancing or other measures in one or more regions in attempts to counteract future outbreaks.
•We have furloughed certain employees and may need to further furlough or reduce the number of employees that we employ. We may experience difficulties associated with hiring additional employees or replacing employees, in particular with respect to roles that require security clearances or other special qualifications that may be limited or difficult to obtain. Increased turnover rates of our employees could increase operating costs and create challenges for us in maintaining high levels of employee awareness of
and compliance with our internal procedures and external regulatory compliance requirements, in addition to increasing our recruiting, training and supervisory costs.
•In addition to existing travel restrictions implemented in response to the COVID-19 pandemic, jurisdictions may continue to close borders, impose prolonged quarantines and further restrict travel and business activity, which could materially impair our ability to support our operations and clients (both domestic and international), to source supplies through the global supply chain and to identify, pursue and capture new business opportunities, and which could continue to restrict the ability of our employees to access their workplaces. We also face the possibility of increased overhead or other expenses resulting from compliance with any future government orders or other measures enacted in response to the COVID-19 pandemic.
•The COVID-19 pandemic has increased volatility and pricing in the capital markets, and that increased volatility is likely to continue. While we entered into a new $1 billion term loan facility in the second quarter of fiscal 2020, we might not be able to access further sources of liquidity on acceptable pricing or borrowing terms if at all. Our credit facilities contain customary covenants restricting, among other things, our ability to incur certain liens and indebtedness. We are also subject to certain financial covenants, including maintenance of a maximum consolidated leverage ratio. A breach of any covenant or our inability to comply with the required financial ratios, whether as a result of the impact of the COVID-19 pandemic on our business or otherwise, could result in a default under one or more of our credit facilities and limit our ability to do further borrowing. Any inability to obtain additional liquidity as and when needed, or to maintain compliance with the instruments governing our indebtedness, could have a material adverse effect on our business, financial condition and results of operations.
•We operate in many countries around the world, and certain of those countries’ governments may be unable to effectively mitigate the financial or other impacts of the COVID-19 pandemic on their economies and workforces and our operations therein.
The continued global spread of the COVID-19 pandemic and the responses thereto are complex and rapidly evolving, and the extent to which the pandemic impacts our business, financial condition and results of operations, including the duration and magnitude of such impacts, will depend on numerous evolving factors that we may not be able to accurately predict or assess. COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, as well as reactions to future pandemics or resurgences of COVID-19, could also precipitate or aggravate the other risk factors that we identify in in this Annual Report on Form 10-K, which in turn could materially adversely affect our business, financial condition and results of operations. There may be other adverse consequences to our business, financial condition and results of operations from the spread of COVID-19 that we have not considered or have not become apparent. As a result, we cannot assure you that if COVID-19 continues to spread, it would not have a further adverse impact on our business, financial condition and results of operations.
Project sites are inherently dangerous workplaces. If we, the owner, or others working at the project site fail to maintain safe work sites, and our employees or others become injured, disabled or even lose their lives, we can be exposed to significant financial losses and reputational harm, as well as civil and criminal liabilities.
Construction and maintenanceProject sites often put our employees and others in close proximity with large pieces of mechanized equipment, moving vehicles, chemical and manufacturing processes and highly regulated materials, in a challenging environment and often in geographically remote locations. If we, or others working at such sites, fail to implement such procedures or if the procedures we implement are ineffective, or if others working at the site fail to implement and follow appropriate safety procedures, our employees and others may become injured, disabled or even lose their lives, the completion or commencement of our projects may be delayed and we may be exposed to litigation or investigations. Unsafe work sites also have the potential to increase employee turnover, increase the cost of a project to our clients and raise our operating and insurance costs. Any of the foregoing could result in financial losses or reputational harm, which could have a material adverse impact on our business, financial condition and results of operations.
In addition, our projects can involve the handling of hazardous and other highly regulated materials, which, if improperly handled or disposed of, could subject us to civil and/or criminal liabilities. We are also subject to regulations dealing with occupational health and safety. Although we maintain functional groups whose primary purpose is to ensure we implement effective health, safety and environmental (“HSE”) work procedures throughout our organization, including constructionproject sites and
maintenance sites, the failure to comply with such regulations could subject
us to liability. In addition, despite the work of our functional groups, we cannot guarantee the safety of our personnel or that there will be no damage to or loss of our work, equipment or supplies.
Our safety record is critical to our reputation. Many of our clients require that we meet certain safety criteria to be eligible to bid for contracts and many contracts provide for automatic termination or forfeiture of some or all of our contract fees or profit in the event we fail to meet certain measures. Accordingly, if we fail to maintain adequate safety standards, we could suffer reduced profitability or the loss of projects or clients, which could have a material adverse impact on our business, financial condition and results of operations.
Demand for our services is cyclical as the sectors and industries in which our clients operate are impacted by economic downturns, reductions in government or private spending and times of political uncertainty.
We provide technical, professional, construction and O&M services to clients operating in a number of sectors and industries, including oil and gas exploration, production and refining; programs for various national governments, including the U.S. federal government; chemicals and polymers; mining and minerals; pharmaceuticals and biotechnology; infrastructure; buildings; power; water; transportation; and other general industrial and consumer businesses and markets (such as technology and manufacturing; pulp and paper; and food and consumer products). These sectors and industries and the resulting demand for our services have been, and we expect will continue to be, cyclical and subject to significant fluctuations due to a variety of factors beyond our control, including economic conditions and changes in client spending, particularly during periods of economic or political uncertainty.
Uncertain global economic and political conditions may negatively impact our clients’ ability and willingness to fund their projects, including their ability to raise capital and pay, or timely pay, our invoices. They may also cause our clients to reduce their capital expenditures, alter the mix of services purchased, seek more favorable price and other contract terms and otherwise slow their spending on our services. For example, in the public sector, declines in state and local tax revenues as well as other economic declines may result in lower state and local government spending. In addition, under such conditions, many of our competitors may be more inclined to take greater or unusual risks or accept terms and conditions in contracts that we might not deem acceptable. These conditions may reduce the demand for our services, which may have a material adverse impact on our business, financial condition and results of operations.
Additionally, uncertain economic and political conditions may make it difficult for our clients, our vendors, and us to accurately forecast and plan future business activities. For example, recent changes to U.S. policies related to global trade and tariffs have resulted in uncertainty surrounding the future of the global economy as well as retaliatory trade measures implemented by other countries. The increasing cost of steel and aluminum may impact client spending. We cannot predict the outcome of these changing trade policies or other unanticipated political conditions, nor can we predict the timing, strength or duration of any economic recovery or downturn worldwide or in our clients’ markets. In addition, our business has traditionally lagged recoveries in the general economy and, therefore, may not recover as quickly as the economy at large. Weak economic conditions, a failure to obtain expected benefits from any increased infrastructure spending, or a reduction in government spending could have a material adverse impact on our business, financial condition and results of operations. Furthermore, if a significant portion of our clients or projects are concentrated in a specific geographic area or industry, our business may be disproportionately affected by negative trends or economic downturns in those specific geographic areas or industries.
Regardless of economic or market conditions, investment decisions by our customers may vary by location or as a result of other factors like the availability of labor or relative construction cost. Because we are dependent on the timing and funding of new awards, we are therefore vulnerable to changes in our clients’ markets and investment decisions. As a result, our past results have varied and may continue to vary depending upon the demand for future projects in the markets and the locations in which we operate.
Fluctuations in commodity prices may affect our customers’ investment decisions and therefore subject us to risks of cancellation, delays in existing work, or changes in the timing and funding of new awards.
Commodity prices can affect our customers in a number of ways. For example, for those customers that produce commodity products such as oil, gas, copper, or fertilizers, fluctuations in price can have a direct effect on their profitability and cash flow and, therefore, their willingness to continue to invest or make new capital investments. Furthermore, declines in commodity prices can negatively impact our business in regions whose economies are substantially dependent on commodity prices, such as the Middle East. To the extent commodity prices decline or fluctuate and our customers defer new investments or cancel or delay existing projects, the demand for our services decreases, which may have a material adverse impact on our business, financial condition and results of operations.
Commodity prices can also strongly affect the costs of projects. Rising commodity prices can negatively impact the potential returns on investments that are planned, as well as those in progress, and result in customers deferring new investments or canceling or delaying existing projects. Cancellations and delays have affected our past results and may continue to do so in significant and unpredictable ways and could have a material adverse impact on our business, financial condition and results of operations.
Our project execution activities may result in liability for faulty services.
If we fail to provide our services in accordance with applicable professional standards or contractual requirements, we could be exposed to significant monetary damages or even criminal violations. Our engineering practice, for example, involves professional judgments regarding the planning, design, development, construction, operations and management of industrial facilities and public infrastructure projects. While we do not generally accept liability for consequential damages in our contracts, and although we have adopted a range of insurance, risk management and risk avoidance programs designed to reduce potential liabilities, a catastrophic event at one of our project sites or completed projects resulting from the services we have performed could result in significant professional or product liability and warranty or other claims against us as well as reputational harm, especially if public safety is impacted. These liabilities could exceed our insurance limits or the fees we generate, may not be covered by insurance at all due to various exclusions in our coverage and could impact our ability to obtain insurance in the future. Further, even where coverage applies, the policies have deductibles, which result in our assumption of exposure for certain amounts with respect to any claim filed against us. In addition, clients or subcontractors who have agreed to indemnify us against any such liabilities or losses might refuse or be unable to pay us. An uninsured claim, either in part or in whole, as well as any claim covered by insurance but subject to a high deductible, if successful and of a material magnitude, could have a material adverse impact on our business, financial condition and results of operations.
Our continued success is dependent upon our ability to hire, retain, and utilize qualified personnel.
The success of our business is dependent upon our ability to hire, retain and utilize qualified personnel, including engineers, architects, designers, craft personnel and corporate management professionals who have the required experience and expertise at a reasonable cost. The market for these and other personnel is competitive. From time to time, it may be difficult to attract and retain qualified individuals with the expertise, and in the timeframe, demanded by our clients, or to replace such personnel when needed in a timely manner. In certain geographic areas, for example, we may not be able to satisfy the demand for our services because of our inability to successfully hire and retain qualified personnel. Furthermore, some of our personnel hold government granted clearance that may be required to obtain government projects. If we were to lose some or all of these personnel, they would be difficult to replace. Loss of the services of, or failure to recruit, qualified technical and management personnel could limit our ability to successfully complete existing projects and compete for new projects.
In addition, in the event that any of our key personnel retire or otherwise leave the Company, we need to have appropriate succession plans in place and to successfully implement such plans, which requires devoting time and resources toward identifying and integrating new personnel into leadership roles and other key positions. If we cannot attract and retain qualified personnel or effectively implement appropriate succession plans, it could have a material adverse impact on our business, financial condition and results of operations.
The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. For example, the uncertainty of contract award timing can present difficulties in matching our workforce size with our contracts. If an expected contract award is delayed or not received, we could incur costs resulting from excess staff, reductions in staff, or redundancy of facilities that could have a material adverse impact on our business, financial conditions and results of operations.
If we do not have adequate indemnification for our nuclear services, it could adversely affect our business and financial condition.
The Price-Anderson Nuclear Industries Indemnity Act, commonly called the Price-Anderson Act (“PAA”), is a U.S. federal law, which, among other things, regulates radioactive materials and the nuclear energy industry, including liability and compensation in the event of nuclear related incidents. The PAA provides certain protections and indemnification to nuclear energy plant operators and U.S. Department of Energy (“DOE”) contractors. The PAA protections and indemnification apply to us as part of our services to the U.S. nuclear energy industry and DOE for new facilities, maintenance, modification, decontamination and decommissioning of nuclear energy, weapons and research facilities.
We offer similar services in other jurisdictions outside the U.S. For those jurisdictions, varying levels of nuclear liability protection is provided by international treaties, and/or domestic laws, such as the Nuclear Liability and Compensation Act of Canada and the Nuclear Installations Act of the United Kingdom, insurance and/or assets of the nuclear installation operators
(some of which are backed by governments) as well as under appropriate enforceable contractual indemnifications and hold-harmless provisions. These protections and indemnifications, however, may not cover all of our liability that could arise in the performance of these services. To the extent the PAA or other protections and indemnifications do not apply to our services, our business could be adversely affected because of the cost of losses associated with liability not covered by the available protections and indemnifications, or by virtue of our loss of business because of these added costs.
We engage in a highly competitive business. If we are unable to compete effectively, we could lose market share and our business and results of operations could be negatively impacted.
We face intense competition to provide technical, professional and construction services to clients. The markets we serve are highly competitive and we compete against a large number of regional, national and multinational companies.
The extent and type of our competition varies by industry, geographic area and project type. For example, with respect to our construction, operations and maintenance services, clients generally award large projects to large contractors, which may give our larger competitors an advantage when bidding for these projects. Conversely, with respect to our engineering, design, architectural and consulting services, low barriers of entry can result in competition with smaller, newer competitors.
Our projects are frequently awarded through a competitive bidding process, which is standard in our industry. We are constantly competing for project awards based on pricing, schedule and the breadth and technical sophistication of our services. Competition can place downward pressure on our contract prices and profit margins, which may force us to accept contractual terms and conditions that are less favorable to us, thereby increasing the risk that, among other things, we may not realize profit margins at the same rates as we have seen in the past or may become responsible for costs or other liabilities we have not accepted in the past. If we are unable to compete effectively, we may experience a loss of market share or reduced profitability or both, which if significant, could have a material adverse impact on our business, financial condition and results of operations.
Our results of operations depend on the award of new contracts and the timing of the performance of these contracts.
Our revenues are derived from new contract awards. Delays in the timing of the awards or cancellations of such projects as a result of economic conditions, material and equipment pricing and availability or other factors could impact our long-term projected results. It is particularly difficult to predict whether or when we will receive large-scale projects as these contracts frequently involve a lengthy and complex bidding and selection process, which is affected by a number of factors, such as market conditions or governmental and environmental approvals. Since a significant portion of our revenues is generated from such projects, our results of operations and cash flows can fluctuate significantly from quarter to quarter depending on the timing of our contract awards and the commencement or progress of work under awarded contracts. Furthermore, many of these contracts are subject to financing contingencies and, as a result, we are subject to the risk that the customer will not be able to secure the necessary financing for the project.
In addition, many of our contracts require us to satisfy specific progress or performance milestones in order to receive payment from the customer. As a result, we may incur significant costs for engineering, materials, components, equipment, labor or subcontractors prior to receipt of payment from a customer.
The uncertainty of our contract award timing can also present difficulties in matching workforce size with contract needs. In some cases, we maintain and bear the cost of a ready workforce that is larger than necessary under existing contracts in anticipation of future workforce needs for expected contract awards. If an expected contract award is delayed or not received, we may incur additional costs resulting from reductions in staff or redundancy of facilities, which could have a material adverse effect on our business, financial condition and results of operations.
We engage in a highly competitive business. If we are unable to compete effectively, we could lose market share and our business and results of operations could be negatively impacted.
We face intense competition to provide technical, professional and construction management services to clients. The markets we serve are highly competitive and we compete against a large number of regional, national and multinational companies. The extent and type of our competition varies by industry, geographic area and project type.
Our projects are frequently awarded through a competitive bidding process, which is standard in our industry. We are constantly competing for project awards based on pricing, schedule and the breadth and technical sophistication of our services. Competition can place downward pressure on our contract prices and profit margins, which may force us to accept contractual terms and conditions that are less favorable to us, thereby increasing the risk that, among other things, we may not realize profit margins at the same rates as we have seen in the past or may become responsible for costs or other liabilities we have not accepted in the past. If we are unable to compete effectively, we may experience a loss of market share or reduced profitability or both, which if significant, could have a material adverse impact on our business, financial condition and results of operations.
The nature of our contracts, particularly those that are fixed-price, subjects us to risks of cost overruns. We may experience reduced profits or, in some cases, losses if costs increase above budgets or estimates or if the project experiences schedule delays.
For fiscal 2020, approximately 24% of our revenues were earned under fixed-price contracts. Both fixed-price and many cost reimbursable contracts require us to estimate the total cost of the project in advance of our performance. For fixed-price contracts, we may benefit from any cost-savings, but we bear greater risk of paying some, if not all, of any cost overruns. Fixed-price contracts are established in part on partial or incomplete designs, cost and scheduling estimates that are based on a number of assumptions, including those about future economic conditions, commodity and other materials pricing and availability of labor, equipment and materials and other exigencies. If the
design or the estimates prove inaccurate or if circumstances change due to, among other things, unanticipated technical problems, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather or other delays beyond our control, changes in the costs of equipment or raw materials, our vendors’ or subcontractors’ inability or failure to perform, or changes in general economic conditions, then cost overruns may occur and we could experience reduced profits or, in some cases, a loss for that project. These risks are exacerbated for projects with long-term durations because there is an increased risk that the circumstances on which we based our original estimates will change in a manner that increases costs. If the project is significant, or there are one or more issues that impact multiple projects, costs overruns could have a material adverse impact on our business, financial condition and results of operations.
Our contracts that are fundamentally cost reimbursable in nature may also present a risk to the extent the final cost on a project exceeds the amount the customer expected or budgeted. Like fixed-price contracts, the expected cost of cost-reimbursable projects are based in part on partial design and our estimates of the resources and time necessary to perform such contracts. A portion of the fee is often linked to these estimates and the related final cost and schedule objectives, and if for whatever reason these objectives are not met, the project may be less profitable than we expect or even result in losses.
The loss of or a significant reduction in business from one or a few customers could have a material adverse impact on us.
A few clients have in the past and may in the future account for a significant portion of our revenue and/or backlog in any one year or over a period of several consecutive years. For example, in fiscal 2020, 2019 and 2018, approximately 33%, 27% and 32%, respectively, of our revenue was earned directly or indirectly from agencies of the U.S. federal government. Although we have long-standing relationships with many of our significant clients, our clients may unilaterally reduce, delay or cancel their contracts at any time. Our loss of or a significant reduction in business from a significant client could have a material adverse impact on our business, financial condition, and results of operations.
The contracts in our backlog may be adjusted, canceled or suspended by our clients and, therefore, our backlog is not necessarily indicative of our future revenues or earnings. Additionally, even if fully performed, our backlog is not a good indicator of our future gross margins.
Backlog represents the total dollar amount of revenues we expect to record in the future as a result of performing work under contracts that have been awarded to us. As of the end of fiscal 2020, our backlog totaled approximately $23.8 billion. There is no assurance that backlog will actually be realized as revenues in the amounts reported or, if realized, will result in profits. In accordance with industry practice, substantially all of our contracts are subject to cancellation, termination, or suspension at the discretion of the client, including our U.S. government work. In the event of a project cancellation, we would generally have no contractual right to the total revenue reflected in our backlog. Projects can remain in backlog for extended periods of time because of the nature of the project and the timing of the particular services required by the project. The risk of contracts in backlog being canceled or suspended generally increases during periods of widespread economic slowdowns or in response to changes in commodity prices.
The contracts in our backlog are subject to changes in the scope of services to be provided as well as adjustments to the costs relating to the contracts. The revenue for certain contracts included in backlog is based on estimates. Additionally, the way we perform on our individual contracts can affect greatly our gross margins and hence, future profitability.
In some markets, there is a continuing trend towards cost-reimbursable contracts with incentive-fee arrangements. Typically, our incentive fees are based on such things as achievement of target completion dates or target costs, overall safety performance, overall client satisfaction and other performance criteria. If we fail to meet such targets or achieve the expected performance standards, we may receive a lower, or even zero, incentive fee resulting in lower gross margins. Accordingly, there is no assurance that the contracts in backlog, assuming they produce the revenues currently expected, will generate gross margins at the rates we have realized in the past.
Contracts with the U.S. federal government and other governments and their agencies pose additional risks relating to future funding and compliance.
Contracts with the U.S. federal government and other governments and their agencies, which are a significant source of our revenue and profit, are subject to various uncertainties, restrictions, and regulations including oversight
audits by various government authorities as well as profit and cost controls, which could result in withholding or delay of payments to us. Government contracts are also exposed to uncertainties associated with funding such as sequestration and budget deficits. Contracts with the U.S. federal government, for example, are subject to the uncertainties of Congressional funding. U.S. government shutdowns or any related under-staffing of the government departments or agencies that interact with our business could result in program cancellations, disruptions and/or stop work orders, could limit the government’s ability to effectively progress programs and make timely payments, and could limit our ability to perform on our existing U.S. government contracts and successfully compete for new work. Governments are typically under no obligation to maintain funding at any specific level, and funds for government programs may even be eliminated. Legislatures typically appropriate funds on a year-by-year basis, while contract performance may take more than one year. As a result, contracts with government agencies may be only partially funded or may be terminated, and we may not realize all of the potential revenue and profit from those contracts.
Our government clients may reduce the scope of or terminate our contracts for convenience or decide not to renew our contracts with little or no prior notice. Since government contracts represent a significant percentage of our revenues (for example, those with the U.S. federal government represented approximately 33% of our total revenue in fiscal 2020), a significant reduction in government funding or the loss of such contracts could have a material adverse impact on our business, financial condition, and results of operations.
Most government contracts are awarded through a rigorous competitive process. The U.S. federal government has increasingly relied upon multiple-year contracts with multiple contractors that generally require those contractors to engage in an additional competitive bidding process for each task order issued under a contract. This process may result in us facing significant additional pricing pressure and uncertainty and incurring additional costs. Moreover, we may not be awarded government contracts because of existing policies designed to protect small businesses and under-represented minorities. Our inability to win new contracts or be awarded work under existing contracts could have a material adverse impact on our business, financial condition and results of operations.
In addition, government contracts are subject to specific procurement regulations and a variety of other socio-economic requirements, which affect how we transact business with our clients and, in some instances, impose additional costs on our business operations. For example, for contracts with the U.S. federal government, we must comply with the Federal Acquisition Regulation, the Truth in Negotiations Act, the Cost Accounting Standards, and numerous regulations governing environmental protection and employment practices. Government contracts also contain terms that expose us to heightened levels of risk and potential liability than non-government contracts. This includes, for example, unlimited indemnification obligations.
We also are subject to government audits, investigations, and proceedings. For example, government agencies such as the U.S. Defense Contract Audit Agency routinely review and audit us to determine the adequacy of and our compliance with our internal control systems and policies and whether allowable costs are in accordance with applicable regulations. These audits can result in a determination that a rule or regulation has been violated or that adjustments are necessary to the amount of contract costs we believe are reimbursable by the agencies and the amount of our overhead costs allocated to the agencies.
If we violate a rule or regulation, fail to comply with a contractual or other requirement or do not satisfy an audit, a variety of penalties can be imposed on us including monetary damages and criminal and civil penalties. For example, in so-called “qui tam” actions brought by individuals or the government under the U.S. Federal False Claims Act or under similar state and local laws, treble damages can be awarded. In addition, any or all of our government contracts could be terminated, we could be suspended or debarred from all government contract work, or payment of our costs could be disallowed. The occurrence of any of these actions could have a material adverse impact on our business, financial condition and results of operations.
Many of our federal government contracts require us to have security clearances, which can be difficult and time consuming to obtain. If our employees or our facilities are unable to obtain or retain the necessary security clearances, our clients could terminate or not renew existing contracts or award us new contracts, which could have a material adverse impact on our business, financial condition and results of operations could be negatively impacted.
Our project execution activities may result in liability for faulty services.
If we fail to provide our services in accordance with applicable professional standards or contractual requirements, we could be exposed to significant monetary damages or even criminal violations. Our engineering practice, for example, involves professional judgments regarding the planning, design, development, construction,
operations and management of industrial facilities and public infrastructure projects. While we do not generally accept liability for consequential damages in our contracts, and although we have adopted a range of insurance, risk management and risk avoidance programs designed to reduce potential liabilities, a catastrophic event at one of our project sites or completed projects resulting from the services we have performed could result in significant professional or product liability and warranty or other claims against us as well as reputational harm, especially if public safety is impacted. These liabilities could exceed our insurance limits or the fees we generate, may not be covered by insurance at all due to various exclusions in our coverage and could impact our ability to obtain insurance in the future. Further, even where coverage applies, the policies have deductibles, which result in our assumption of exposure for certain amounts with respect to any claim filed against us. In addition, clients or subcontractors who have agreed to indemnify us against any such liabilities or losses might refuse or be unable to pay us. An uninsured claim, either in part or in whole, as well as any claim covered by insurance but subject to a high deductible, if successful and of a material magnitude, could have a material adverse impact on our business, financial condition and results of operations.
The outcome of pending and future claims and litigation could have a material adverse impact on our business, financial condition, and results of operations.
We are a party to claims and litigation in the normal course of business.business, including litigation inherited through acquisitions. Since we engage in engineering and construction activities for large facilities and projects where design, construction or systems failures can result in substantial injury or damage to employees or others, we are exposed to substantial claims and litigation and investigations if there is a failure at any such facility or project. Such claims could relate to, among other things, personal injury, loss of life, business interruption, property damage, pollution and environmental damage and be brought by our clients or third parties, such as those who use or reside near our clients’ projects. We can also be exposed to claims if we agreed that a project will achieve certain performance standards or satisfy certain technical requirements and those standards or requirements are not met. In many of our contracts with clients, subcontractors and vendors, we agree to retain or assume potential liabilities for damages, penalties, losses and other exposures relating to projects
that could result in claims that greatly exceed the anticipated profits relating to those contracts. In addition, while clients and subcontractors may agree to indemnify us against certain liabilities, such third parties may refuse or be unable to pay us.
With a workforce of approximately 80,00055,000 people globally, we are also party to labor and employment claims in the normal course of business. Such claims could relate to allegations of harassment and discrimination, pay equity, denial of benefits, wage and hour violations, whistleblower protections, concerted protected activity, and other employment protections, and may be pursued on an individual or class action basis depending on applicable laws and regulations. Some of such claims may be insurable, while other such claims may not.
We maintain insurance coverage for various aspects of our business and operations. Our insurance programs have varying coverage limits as well as exclusions for matters such as fraud, and insurance companies may attempt to deny claims for which we seek coverage. In addition, we have elected to retain a portion of losses that may occur through the use of various deductibles, retentions and limits under these programs. As a result, we may be subject to future liability for which we are only partially insured, or completely uninsured.
Although in the past we have been generally able to cover our insurance needs, there can be no assurances that we can secure all necessary or appropriate insurance in the future, or that such insurance can be economically secured. For example, catastrophic events can result in decreased coverage limits, coverage that is more limited, or increased premium costs or higher deductibles. We monitor the financial health of the insurance companies from which we procure insurance, which is one of the factors we take into account when purchasing insurance. Our insurance is purchased from a number of the world's leading providers, often in layered insurance or quota share arrangements. If any of our third party insurers fail, abruptly cancel our coverage or otherwise cannot satisfy their insurance requirements to us, then our overall risk exposure and operational expenses could be increased and our business operations could be interrupted.
In addition, the nature of our business sometimes results in clients, subcontractors and vendors presenting claims to us for, among other things, recovery of costs related to certain projects. Similarly, we occasionally present change orders and claims to our clients, subcontractors and vendors for, among other things, additional costs exceeding the original contract price. If we fail to document properly the nature of our claims and change orders or are otherwise unsuccessful in negotiating reasonable settlements with our clients, subcontractors and vendors, we could incur cost overruns, reduced profits or, in some cases, a loss for a project. Further, these claims can be the subject of lengthy negotiations, arbitration or litigation proceedings, which could result in the investment of significant amounts
of working capital pending the resolution of the relevant change orders and claims. A failure to promptly recover on these types of claims could have a material adverse impact on our liquidity and financial results. Additionally, irrespective of how well we document the nature of our claims and change orders, the cost to prosecute and defend claims and change orders can be significant.
Litigation and regulatory proceedings are subject to inherent uncertainties and unfavorable rulings can and do occur. Pending or future claims against us could result in professional liability, product liability, criminal liability, warranty obligations, default under our credit agreements and other liabilities which, to the extent we are not insured against a loss or our insurer fails to provide coverage, could have a material adverse impact on our business, financial condition, and results of operations.
The nature of our contracts, particularly those that are fixed-price, subjects us to risks of cost overruns. We may experience reduced profits or, in some cases, losses if costs increase above budgets or estimates or if the project experiences schedule delays.
For fiscal 2018, approximately 24% of our revenues were earned under fixed-price contracts. Both fixed-price and many cost reimbursable contracts require us to estimate the total cost of the project in advance of our performance. For fixed-price contracts, we may benefit from any cost-savings, but we bear greater risk of paying some, if not all, of any cost overruns. Fixed-price contracts are established in part on partial or incomplete designs, cost and scheduling estimates that are based on a number of assumptions, including those about future economic conditions, commodity and other materials pricing and availability of labor, equipment and materials and other exigencies. If the design or the estimates prove inaccurate or if circumstances change due to, among other things, unanticipated technical problems, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather or other delays beyond our control, changes in the costs of equipment or raw materials, our vendors’ or subcontractors’ inability or failure to perform, or changes in general economic conditions, then cost overruns may occur and we could experience reduced profits or, in some cases, a loss for that project. These risks are exacerbated for projects with long-term durations because there is an increased risk that the circumstances on which we based our original estimates will change in a manner that increases costs. If the project is significant, or there are one or more issues that impact multiple projects, costs overruns could have a material adverse impact on our business, financial condition and results of operations.
Our contracts that are fundamentally cost reimbursable in nature may also present a risk to the extent the final cost on a project exceeds the amount the customer expected or budgeted. Like fixed-price contracts, the expected cost of cost-reimbursable projects are based in part on partial design and our estimates of the resources and time necessary to perform such contracts. A portion of the fee is often linked to these estimates and the related final cost and schedule objectives, and if for whatever reason these objectives are not met, the project may be less profitable than we expect or even result in losses.
The contracts in our backlog may be adjusted, canceled or suspended by our clients and, therefore, our backlog is not necessarily indicative of our future revenues or earnings. Additionally, even if fully performed, our backlog is not a good indicator of our future gross margins.
Backlog represents the total dollar amount of revenues we expect to record in the future as a result of performing work under contracts that have been awarded to us. As of the end of fiscal 2018, our backlog totaled approximately $27.3 billion. There is no assurance that backlog will actually be realized as revenues in the amounts reported or, if realized, will result in profits. In accordance with industry practice, substantially all of our contracts are subject to cancellation, termination, or suspension at the discretion of the client, including our U.S. government work. In the event of a project cancellation, we would generally have no contractual right to the total revenue reflected in our backlog. Projects can remain in backlog for extended periods of time because of the nature of the project and the timing of the particular services required by the project. The risk of contracts in backlog being canceled or suspended generally increases during periods of widespread economic slowdowns or in response to changes in commodity prices.
The contracts in our backlog are subject to changes in the scope of services to be provided as well as adjustments to the costs relating to the contracts. The revenue for certain contracts included in backlog is based on estimates. Additionally, the way we perform on our individual contracts can affect greatly our gross margins and hence, future profitability.
In some markets, there is a continuing trend towards cost-reimbursable contracts with incentive-fee arrangements. Typically, our incentive fees are based on such things as achievement of target completion dates or target costs, overall safety performance, overall client satisfaction and other performance criteria. If we fail to meet such targets or achieve the expected performance standards, we may receive a lower, or even zero, incentive fee resulting in lower gross margins. Accordingly, there is no assurance that the contracts in backlog, assuming they produce the revenues currently expected, will generate gross margins at the rates we have realized in the past.
Contracts with the U.S. federal government and other governments and their agencies pose additional risks relating to future funding and compliance.
Contracts with the U.S. federal government and other governments and their agencies, which are a significant source of our revenue and profit, are subject to various uncertainties, restrictions, and regulations including oversight audits by various government authorities as well as profit and cost controls, which could result in withholding or delay of payments to us. Government contracts are also exposed to uncertainties associated with funding such as sequestration and budget deficits. Contracts with the U.S. federal government, for example, are subject to the uncertainties of Congressional funding. Governments are typically under no obligation to maintain funding at any specific level, and funds for government programs may even be eliminated. Legislatures typically appropriate funds on a year-by-year basis, while contract performance may take more than one year. As a result, contracts with government agencies may be only partially funded or may be terminated, and we may not realize all of the potential revenue and profit from those contracts.
Our government clients may reduce the scope of or terminate our contracts for convenience or decide not to renew our contracts with little or no prior notice. Since government contracts represent a significant percentage of our revenues (for example, those with the U.S. federal government represented approximately 23% of our total revenue in fiscal 2018), a significant reduction in government funding or the loss of such contracts could have a material adverse impact on our business, financial condition, and results of operations.
Most government contracts are awarded through a rigorous competitive process. The U.S. federal government has increasingly relied upon multiple-year contracts with multiple contractors that generally require those contractors to engage in an additional competitive bidding process for each task order issued under a contract. This process may result in us facing significant additional pricing pressure and uncertainty and incurring additional costs. Moreover, we may not be awarded government contracts because of existing policies designed to protect small businesses and under-represented minorities. Our inability to win new contracts or be awarded work under existing contracts could have a material adverse impact on our business, financial condition and results of operations.
In addition, government contracts are subject to specific procurement regulations and a variety of other socio-economic requirements, which affect how we transact business with our clients and, in some instances, impose additional costs on our business operations. For example, for contracts with the U.S. federal government, we must comply with the Federal Acquisition Regulation, the Truth in Negotiations Act, the Cost Accounting Standards, and numerous regulations governing environmental protection and employment practices. Government contracts also contain terms that expose us to heightened levels of risk and potential liability than non-government contracts. This includes, for example, unlimited indemnification obligations.
We also are subject to government audits, investigations, and proceedings. For example, government agencies such as the U.S. Defense Contract Audit Agency routinely review and audit us to determine the adequacy of and our compliance with our internal control systems and policies and whether allowable costs are in accordance with applicable regulations. These audits can result in a determination that a rule or regulation has been violated or that adjustments are necessary to the amount of contract costs we believe are reimbursable by the agencies and the amount of our overhead costs allocated to the agencies.
If we violate a rule or regulation, fail to comply with a contractual or other requirement or do not satisfy an audit, a variety of penalties can be imposed on us including monetary damages and criminal and civil penalties. For example, in so-called “qui tam” actions brought by individuals or the government under the U.S. Federal False Claims Act or under similar state and local laws, treble damages can be awarded. In addition, any or all of our government contracts could be terminated, we could be suspended or debarred from all government contract work, or payment of our costs could be disallowed. The occurrence of any of these actions could harm our reputation and have a material adverse impact on our business, financial condition and results of operations.
Many of our federal government contracts require us to have security clearances, which can be difficult and time consuming to obtain. If our employees or our facilities are unable to obtain or retain the necessary security clearances, our clients could terminate or not renew existing contracts or award us new contracts, which could have a material adverse impact on our business, financial condition and results of operations could be negatively impacted.
Our use of joint ventures and partnerships exposes us to risks and uncertainties, many of which are outside of our control.
As is common in our industry, we perform certain contracts as a member of joint ventures, partnerships, and similar arrangements. This situation exposes us to a number of risks, including the risk that our partners may be unable to fulfill their obligations to us or our clients.
Further, we have limited ability to control the actions of our joint venture partners, including with respect to nonperformance, default, bankruptcy or legal or regulatory compliance. Our partners may be unable or unwilling to provide the required levels of financial support to the partnerships. If these circumstances occur, we may be liable for claims and losses attributable to the partner by operation of law or contract. These circumstances could also lead to disputes and litigation with our partners or clients, all of which could have a material adverse impact on our reputation, business, financial condition and results of operations.
We depend on the management effectiveness of our joint venture partners. Differences in views among the joint venture participants may result in delayed decisions or in failures to agree on major issues, which could materially affect the business and operations of these ventures. In addition, in many of the countries in which we engage in joint ventures, it may be difficult to enforce our contractual rights under the applicable joint venture agreement. If we are not able to enforce our contractual rights, we may not be able to realize the benefits of the joint venture or we may be subject to additional liabilities.
We participate in joint ventures and similar arrangements in which we are not the controlling partner. In these cases, we have limited control over the actions of the joint venture. These joint ventures may not be subject to the same requirements regarding internal controls and internal control over financial reporting that we follow. To the extent the controlling partner makes decisions that negatively impact the joint venture or internal control problems arise within the joint venture, it could have a material adverse impact on our business, financial condition and results of operations.
The failure by a joint venture partner to comply with applicable laws, regulations or client requirements could negatively impact our business and, for government clients, could result in fines, penalties, suspension or even debarment being imposed on us, which could have a material adverse impact on our business, financial condition and results of operations.
We are dependent on third parties to complete many of our contracts.
Third-party subcontractors we hire perform mucha significant amount of the work performed under our contracts. We also rely on third-party equipment manufacturers or suppliers to provide much of the equipment and materials used for projects. If we are unable to hire
qualified subcontractors or find qualified equipment manufacturers or suppliers, our ability to successfully complete a project could be impaired. If we are not able to locate qualified third-party subcontractors or the amount we are required to pay for subcontractors or equipment and supplies exceeds what we have estimated, especially in a lump sum or a fixed-price contract, we may suffer losses on these contracts. If a subcontractor, supplier, or manufacturer fails to provide services, supplies or equipment as required under a contract for any reason, we may be required to source these services, equipment or supplies to other third parties on a delayed basis or on less favorable terms, which could impact contract profitability. There is a risk that we may have disputes with our subcontractors relating to, among other things, the quality and timeliness of work performed, customer concerns about the subcontractor, or our failure to extend existing task orders or issue new task orders under a contract. In addition, faulty workmanship, equipment or materials could impact the overall project, resulting in claims against us for failure to meet required project specifications.
In an uncertain or downturn economic environment, third parties may find it difficult to obtain sufficient financing to help fund their operations. The inability to obtain financing could adversely affect a third party’s ability to provide materials, equipment or services which could have a material adverse impact on our business, financial condition, and results of operations. In addition, a failure by a third party subcontractor, supplier or manufacturer to comply with applicable laws, regulations or client requirements could negatively impact our business and, for government clients, could result in fines, penalties, suspension or even debarment being imposed on us, which could have a material adverse impact on our business, financial condition, and results of operations.
Employee, agent or partner misconduct or our overall failure to comply with laws or regulations could weaken our ability to win contracts, which could result in reduced revenues and profits.
Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of our employees, agents or partners could have a significant negative impact on our business and reputation. Such misconduct could include the failure to comply with government procurement regulations, regulations regarding the protection of classified information, regulations prohibiting bribery and other corrupt practices, regulations regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls over financial reporting, regulations pertaining to export control, environmental laws, employee wages, pay and benefits, and any other applicable laws or regulations. For example, we routinely provide services that may be highly sensitive or that relate to critical national security matters; if a security breach were to occur, our ability to procure future government contracts could be severely limited. The precautions we take to prevent and detect these activities may not be effective and we could face unknown risks or losses. Our failure to comply with applicable laws or regulations, or acts of misconduct, could subject us to fines and penalties, cancellation of contracts, loss of security clearance and suspension or debarment from contracting, which could weaken our ability to win contracts and result in reduced revenues and profits and could have a material adverse impact on our business, financial condition and results of operations.
Our international operations are exposed to additional risks and uncertainties, including unfavorable political developments and weak foreign economies.
For fiscal 2020, approximately 25% of our revenue was earned from clients outside the U.S. Our business is dependent on the continued success of our international operations, and we expect our international operations to continue to account for a significant portion of our total revenues. Our international operations are subject to a variety of risks, including:
•Recessions and other economic crises in other regions, such as Europe, or specific foreign economies and the impact on our costs of doing business in those countries;
•Difficulties in staffing and managing foreign operations, including logistical and communication challenges;
•Unexpected changes in foreign government policies and regulatory requirements;
•Potential non-compliance with a wide variety of laws and regulations, including anti-corruption, export control and anti-boycott laws and similar non-U.S. laws and regulations;
•Potential non-compliance with regulations and evolving industry standards regarding consumer protection and data use and security, including the General Data Protection Regulation approved by the European Union;
•Lack of developed legal systems to enforce contractual rights;
•Expropriation and nationalization of our assets in a foreign country;
•Renegotiation or nullification of our existing contracts;
•The adoption of new, and the expansion of existing, trade or other restrictions;
•Embargoes, duties, tariffs or other trade restrictions, including sanctions;
•Changes in labor conditions;
•Acts of war, civil unrest, force majeure, and terrorism;
•The ability to finance efficiently our foreign operations;
•Social, political, and economic instability;
•Changes to tax policy;
•Currency exchange rate fluctuations;
•Limitations on the ability to repatriate foreign earnings; and
•U.S. government policy changes in relation to the foreign countries in which we operate.
The lack of a well-developed legal system in some of these countries may make it difficult to enforce our contractual rights. In addition, military action, geopolitical shifts or continued unrest, particularly in the Middle East, could impact the supply or pricing of oil, disrupt our operations in the region and elsewhere and increase our security costs. To the extent our international operations are affected by unexpected or adverse economic, political and other conditions, our business, financial condition and results of operations may be adversely affected.
We work in international locations where there are high security risks, which could result in harm to our employees or unanticipated cost.
Some of our services are performed in high-risk locations, where the country or location is subject to political, social or economic risks, or war, terrorism or civil unrest. In those locations where we have employees or operations, we may expend significant efforts and incur substantial security costs to maintain the safety of our personnel. Despite these activities, in these locations, we cannot guarantee the safety of our personnel and we may suffer future losses of employees and subcontractors. Acts of terrorism and threats of armed conflicts in or around various areas in which we operate could limit or disrupt markets and our operations, including disruptions resulting from the evacuation of personnel, cancellation of contracts, or the loss of key employees, contractors or assets.
Cyber security or privacy breaches, or systems and information technology interruption or failure could adversely impact our ability to operate or expose us to significant financial losses and reputational harm.
We rely heavily on computer, information and communications technology and related systems in order to properly operate our business. From time to time, we experience occasional system interruptions and delays. In the event we are unable to regularly deploy software and hardware, effectively upgrade our systems and network infrastructure and take other steps to maintain or improve the efficiency and efficacy of our systems, the operation of such systems could be interrupted or result in the loss, corruption, or release of data. In addition, our computer and communication systems and operations could be damaged or interrupted by natural disasters, force majeure events, telecommunications failures, power loss, acts of war or terrorism, computer viruses, malicious code, physical or electronic security breaches, intentional or inadvertent user misuse or error or similar events or disruptions. Any of these or other events could cause interruptions, delays, loss of critical and/or sensitive data or similar effects, which could have a material adverse impact on our business, financial condition, protection of intellectual property and results of operations, as well as those of our clients.
In addition, we face the threat to our computer systems of unauthorized access, computer hackers, computer viruses, malicious code, ransomware, phishing, organized cyber-attacks and other security problems and system disruptions, including possible unauthorized access to and disclosure of our and our clients’ proprietary or classified information. In addition, such tactics may also seek to cause payments due to or from the Company to be misdirected to fraudulent accounts, which may not be recoverable by the Company.
While we have security measures and technology in place to protect our and our clients’ proprietary or classified information, if these measures fail as a result of a cyber-attack, other third-party action, employee error, malfeasance or otherwise, and someone obtains unauthorized access to our or our clients’ information, our reputation could be damaged, our business may suffer and we could incur significant liability. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As a result, we may be required to expend significant resources to protect against the threat of system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches. Any of these events could damage our reputation and have a material adverse effect on our business, financial condition and results of operations.
In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information, including the European Union General Data Protection Regulation and the California Consumer Privacy
Act, pose increasingly complex compliance challenges and potentially elevate costs, and any failure to comply with these laws and regulations could result in significant penalties and legal liability.
We continuously evaluate the need to upgrade and/or replace our systems and network infrastructure to protect our computing environment, to stay current on vendor supported products and to improve the efficiency of our systems and for other business reasons. The implementation of new systems and information technology could adversely impact our operations by imposing substantial capital expenditures, demands on management time and risks of delays or difficulties in transitioning to new systems. In addition, our systems implementations may not result in productivity improvements at the levels anticipated. Systems implementation disruption and any other information technology disruption, if not anticipated and appropriately mitigated, could have an adverse effect on our business.
We are subject to professional standards, duties and statutory obligations on professional reports and opinions we issue, which could subject us to monetary damages.
We issue reports and opinions to clients based on our professional engineering expertise as well as our other professional credentials that subject us to professional standards, duties and obligations regulating the performance of our services. For example, we issue opinions and reports to government clients in connection with securities offerings. If a client or another third party alleges that our report or opinion is incorrect or it is improperly relied upon and we are held responsible, we could be subject to significant monetary damages. In addition, our reports and other work product may need to comply with professional standards, licensing requirements, securities regulations and other laws and rules governing the performance of professional services in the jurisdiction where the services are performed. We could be liable to third parties who use or rely upon our reports and other work product even if we are not contractually bound to those third parties. These events could in turn result in monetary damages and penalties.
We may not be able to protect our intellectual property or that of our clients.
Our technology and intellectual property provide us, in certain instances, with a competitive advantage. Although we protect our property through registration, licensing, contractual arrangements, security controls and similar mechanisms, we may not be able to successfully preserve our rights and they could be invalidated, circumvented, challenged or become obsolete. Trade secrets are generally difficult to protect. Our employees and contractors are subject to confidentiality obligations, but this protection may be inadequate to deter or prevent misappropriation of our confidential information and/or infringement of our intellectual property. In addition, the laws of some foreign countries in which we operate do not protect intellectual property rights to the same extent as the U.S. If we are unable to protect and maintain our intellectual property rights or if there are any successful intellectual property challenges or infringement proceedings against us, our ability to differentiate our service offerings could be reduced. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert leadership’s attention away from other aspects of our business.
We also hold licenses from third parties which may be utilized in our business operations. If we are no longer able to license such technology on commercially reasonable terms or otherwise, our business and financial performance could be adversely affected.
If our intellectual property rights or work processes become obsolete, we may not be able to differentiate our service offerings and some of our competitors may be able to offer more attractive services to our customers. Our competitors may independently attempt to develop or obtain access to technologies that are similar or superior to our technologies.
Our clients or other third parties may also provide us with their technology and intellectual property. There is a risk we may not sufficiently protect our or their information from improper use or dissemination and, as a result, could be subject to claims and litigation and resulting liabilities, loss of contracts or other consequences that could have a material adverse impact on our business, financial condition and results of operations.
If we do not have adequate indemnification for our nuclear services, it could adversely affect our business, financial condition and results of operations.
The Price-Anderson Nuclear Industries Indemnity Act, commonly called the Price-Anderson Act (“PAA”), is a U.S. federal law, which, among other things, regulates radioactive materials and the nuclear energy industry, including liability and compensation in the event of nuclear related incidents. The PAA provides certain protections and indemnification to nuclear energy plant operators and U.S. Department of Energy (“DOE”) contractors. The PAA
protections and indemnification apply to us as part of our services to the U.S. nuclear energy industry and DOE for new facilities, maintenance, modification, decontamination and decommissioning of nuclear energy, weapons and research facilities.
We offer similar services in other jurisdictions outside the U.S. For those jurisdictions, varying levels of nuclear liability protection is provided by international treaties, and/or domestic laws, such as the Nuclear Liability and Compensation Act of Canada and the Nuclear Installations Act of the United Kingdom, insurance and/or assets of the nuclear installation operators (some of which are backed by governments) as well as under appropriate enforceable contractual indemnifications and hold-harmless provisions. These protections and indemnifications, however, may not cover all of our liability that could arise in the performance of these services. To the extent the PAA or other protections and indemnifications do not apply to our services, the cost of losses associated with liability not covered by the available protections and indemnifications, or by virtue of our loss of business because of these added costs could have a material adverse impact on our business, financial condition and results of operations.
Our actual results could differ from the estimates and assumptions used to prepare our financial statements.
In preparing our financial statements, our leadership is required under U.S. GAAP to make estimates and assumptions as of the date of the financial statements. These estimates and assumptions affect the reported values of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities. Areas requiring significant estimates by our leadership include:
•Recognition of contract revenue, costs, profit or losses in applying the principles of percentage of completion accounting;
•Estimated amounts for expected project losses, warranty costs, contract close-out or other costs;
•Recognition of recoveries under contract change orders or claims;
•Collectability of billed and unbilled accounts receivable and the need and amount of any allowance for doubtful accounts;
•Estimates of other liabilities, including litigation and insurance revenues/reserves and reserves necessary for self-insured risks;
•Accruals for estimated liabilities, including litigation reserves;
•Valuation of assets acquired, and liabilities, goodwill, and intangible assets assumed, in acquisitions and ongoing assessment of impairment;
•Valuation of stock-based compensation;
•The determination of liabilities under pension and other post-retirement benefit programs;
•Income tax provisions and related valuation allowances; and
•Valuation of investment in Worley stock.
Our actual business and financial results could differ from our estimates of such results, which could have a material adverse impact on our financial condition and results of operations.
An impairment charge on our goodwill or intangible assets could have a material adverse impact on our financial position and results of operations.
Because we have grown in part through acquisitions, goodwill and intangible assets represent a substantial portion of our assets. Under U.S. GAAP, we are required to test goodwill carried in our Consolidated Balance Sheets for possible impairment on an annual basis based upon a fair value approach. We also assess the recoverability of the unamortized balance of our intangible assets when indications of impairment are present based on expected future probability and undiscounted expected cash flows and their contribution to our overall operations. As of October 2, 2020, we had $5.64 billion of goodwill, representing 45.6% of our total assets of $12.35 billion. We have chosen to perform our annual impairment reviews of goodwill at the beginning of the fourth quarter of our fiscal year. We also are required to test goodwill for impairment between annual tests if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in a reporting unit’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, potential government actions toward our facilities and other factors.
If our market capitalization drops significantly below the amount of net equity recorded on our balance sheet, it might indicate a decline in our fair value and would require us to further evaluate whether our goodwill has been impaired. If the fair value of our reporting units is less than their carrying value, we could be required to record an impairment charge. The amount of any impairment could be significant and could have a material adverse impact on our financial position and results of operations for the period in which the charge is taken. For a further discussion of goodwill impairment testing, please see Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations below.
Impairment of long-lived assets or restructuring activities may require us to record a significant charge to earnings.
Our long-lived assets, including our lease right-of-use assets, equity investments and other, are subject to periodic testing for impairment. Failure to achieve sufficient levels of cash flow at the asset group level could result in impairment of our long-lived assets. Further changes in the business environment could lead to changes in the scope of operations of our business. These changes, including the closure of one or more offices, could result in restructuring and/or asset impairment charges. The COVID-19 pandemic raises the possibility of an extended global economic downturn which increase the risk of long-lived asset impairment charges.
We may be required to contribute additional cash to meet any underfunded benefit obligations associated with retirement and post-retirement benefit plans we manage.
We have various employee benefit plan obligations that require us to make contributions to satisfy, over time, our underfunded benefit obligations, which are generally determined by calculating the projected benefit obligations minus the fair value of plan assets. For example, as of October 2, 2020 and September 27, 2019, our defined benefit pension and post-retirement benefit plans were underfunded by $400.4 million and $399.8 million, respectively. See Note 13- Pension and Other Postretirement Benefit Plans in the Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K for additional disclosure. In the future, our benefit plan obligations may increase or decrease depending on changes in the levels of interest rates, pension plan asset performance and other factors. If we are required to contribute a significant amount of the deficit for underfunded benefit plans, our cash flows could be materially and adversely affected.
Negotiations with labor unions and possible work actions could disrupt operations and increase labor costs and operating expenses.
A certain portion of our work force has entered, or may in the future enter, into collective bargaining agreements, which on occasion may require renegotiation. The outcome of future negotiations relating to union representation or collective bargaining agreements may not be favorable to the Company in that they may increase our operating expenses and lower our net income as a result of higher wages or benefit expenses. In addition, negotiations with unions could divert management attention and disrupt operations, which may adversely affect our results of operations. If we are unable to negotiate acceptable collective bargaining agreements, we may have to address the threat of union-initiated work actions, including strikes. Depending on the nature of the threat or the type and duration of any work action, these actions could have a material adverse impact on our business, financial condition and results of operations.
Demand for our services is cyclical as the sectors and industries in which our clients operate are impacted by economic downturns, reductions in government or private spending and times of political uncertainty.
We provide full spectrum technical and professional solutions to clients operating in a number of sectors and industries, including programs for various national governments, including the U.S. federal government; aerospace; automotive; pharmaceuticals and biotechnology; infrastructure; environmental and nuclear; buildings; smart cities; power; water; transportation; telecom and other general industrial and consumer businesses and sectors. These sectors and industries and the resulting demand for our services have been, and we expect will continue to be, cyclical and subject to significant fluctuations due to a variety of factors beyond our control, including economic conditions and changes in client spending, particularly during periods of economic or political uncertainty.
Uncertain global economic and political conditions may negatively impact our clients’ ability and willingness to fund their projects, including their ability to raise capital and pay, or timely pay, our invoices. They may also cause our clients to reduce their capital expenditures, alter the mix of services purchased, seek more favorable price and other contract terms and otherwise slow their spending on our services. For example, in the public sector, declines in state and local tax revenues as well as other economic declines may result in lower state and local government spending. In addition, under such conditions, many of our competitors may be more inclined to take greater or unusual risks or accept terms and conditions in contracts that we might not deem acceptable. These conditions may reduce the demand for our services, which may have a material adverse impact on our business, financial condition and results of operations.
Additionally, uncertain economic and political conditions may make it difficult for our clients, our vendors, and us to accurately forecast and plan future business activities. For example, recent changes to U.S. policies related to global trade and tariffs have resulted in uncertainty surrounding the future of the global economy as well as retaliatory trade measures implemented by other countries. The increasing cost of steel and aluminum may impact client spending. We cannot predict the outcome of these changing trade policies or other unanticipated political conditions, nor can we predict the timing, strength or duration of any economic recovery or downturn worldwide or in our clients’ markets. In addition, our business has traditionally lagged recoveries in the general economy and, therefore, may not recover as quickly as the economy at large. Weak economic conditions, a failure to obtain expected benefits from any increased infrastructure spending, or a reduction in government spending could have a material adverse impact on our business, financial condition and results of operations. Furthermore, if a significant portion of our clients or projects are concentrated in a specific geographic area or industry, our business may be disproportionately affected by negative trends or economic downturns in those specific geographic areas or industries.
Regardless of economic or market conditions, investment decisions by our customers may vary by location or as a result of other factors like the availability of labor or relative construction cost. Because we are dependent on the timing and funding of new awards, we are therefore vulnerable to changes in our clients’ markets and investment decisions. As a result, our past results have varied and may continue to vary depending upon the demand for future projects in the markets and the locations in which we operate.
Our operations may be impacted by the United Kingdom’s exit from the European Union.
In June 2016, the U.K. held a referendum in which voters approved an exit from the E.U., commonly referred to as “Brexit.” The U.K. formally exited the E.U. on January 30, 2020, pursuant to a withdrawal agreement between the U.K. government and the E.U. The withdrawal agreement provides for a transition period from February through December 2020 to allow time for a future trade deal to be agreed upon. As a result of the U.K.’s exit from the E.U., there may be greater restrictions on imports and exports between the U.K. and E.U. countries and increased regulatory complexities. These changes may adversely affect our relationships with our existing and future customers, suppliers, employees, and subcontractors, or otherwise have an adverse effect on our business, financial condition and results of operations. The ongoing negotiations between the U.K. and the E.U. as to the terms upon which the U.K. will exit from the E.U. and the uncertainty as to their future trade agreement continues to create economic uncertainty, which may cause our customers to closely monitor their costs, terminate or reduce the scope of existing contracts, decrease or postpone currently planned contracts, or negotiate for more favorable deal terms, each of which may have a negative impact on our business, financial condition and results of operations.
Rising inflation, interest rates, and/or construction costs could reduce the demand for our services as well as decrease our profit on our existing contracts, in particular with respect to our fixed-price contracts.
Rising inflation, interest rates, or construction costs could reduce the demand for our services. In addition, we bear all of the risk of rising inflation with respect to those contracts that are fixed-price. Because a significant portion of our revenues are earned from cost-reimbursable type contracts (approximately 76% during fiscal 2020), the effects of inflation on our financial condition and results of operations over the past few years have been generally minor. However, if we expand our business into markets and geographic areas where fixed-price and lump-sum work is more prevalent, inflation may have a larger impact on our results of operations in the future. Therefore, increases in inflation, interest rates or construction costs could have a material adverse impact on our business, financial condition and results of operations.
Foreign exchange risks may affect our ability to realize a profit from certain projects.
Our reported financial condition and results of operations are exposed to the effects (both positive and negative) that fluctuating exchange rates have on the process of translating the financial statements of our international operations, which are denominated in currencies other than the U.S. dollar, into the U.S. dollar. While we generally attempt to denominate our contracts in the currencies of our expenditures, we do enter into contracts that expose us to currency risk, particularly to the extent contract revenue is denominated in a currency different than the contract costs. We attempt to minimize our exposure from currency risks by obtaining escalation provisions for projects in inflationary economies or entering into derivative (hedging) instruments, when there is currency risk exposure that is not naturally mitigated via our contracts. These actions, however, may not always eliminate currency risk exposure. The governments of certain countries have or may in the future impose restrictive exchange controls on local currencies and it may not be possible for us to engage in effective hedging transactions to mitigate the risks associated with fluctuations in a particular currency. Based on fluctuations in currency, the U.S. dollar value of our backlog may from time to time increase or decrease significantly. We may also be exposed to limitations on our ability to reinvest earnings from operations in one country to fund the financing requirements of our operations in other countries.
Our global presence could give rise to material fluctuations in our income tax rates.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities. Although we believe that our tax estimates and tax positions are reasonable, they could be materially affected by many factors including the final outcome of tax audits and related litigation, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, the realizability of deferred tax assets and changes in uncertain tax positions. An increase or decrease in our effective tax rate, or an ultimate determination that the Company owes more taxes than the amounts previously accrued, could have a material adverse impact on our financial condition and results of operations.
Our businesses could be materially and adversely affected by events outside of our control.
Extraordinary or force majeure events beyond our control, such as natural or man-made disasters, could negatively impact our ability to operate. As an example, from time to time we face unexpected severe weather conditions which may result in weather-related delays that are not always reimbursable under a fixed-price contract; evacuation of personnel and curtailment of services; increased labor and material costs in areas resulting from weather-related damage and subsequent increased demand for labor and materials for repairing and rebuilding; inability to deliver materials, equipment and personnel to job sites in accordance with contract schedules; and loss of productivity. We may remain obligated to perform our services after any such natural or man-made event, unless a force majeure clause or other contractual provision provides us with relief from our contractual obligations. If we are not able to react quickly to such events, or if a high concentration of our projects are in a specific geographic region that suffers from a natural or man-made catastrophe, our operations may be significantly affected, which could have a material adverse impact on our operations. In addition, if we cannot complete our contracts on time, we may be subject to potential liability claims by our clients which may reduce our profits.
Climate change and related environmental issues could have a material adverse impact on our business, financial condition and results of operations.
In 2020, the World Economic Forum identified failure to act on climate change and related environmental issues as one of the top ten risks in terms of impact and likelihood for the first time. In 2017, the Task-force on Climate-related Financial Disclosures (TCFD),which is an industry-led group tasked within bringing climate related financial reporting into the mainstream, estimated that the value of the global stock of manageable assets at risk from climate change between now and the year 2100 could be up to $43 trillion USD. The risk framework put forward by the TCFD encourages organizations to consider climate risks and their materiality in four domains (Market/technology; Reputation; Policy/legal; Physical) and across two climate scenarios (“Paris Agreement”, or low carbon scenario; and “Business As Usual (BAU)”, or high carbon scenario). As further described below, each domain could pose a material risk to the Company at a business and/or project level and could have a material adverse impact on our business, financial condition and results of operations:
•Market and technological shifts: We expect that climate-related market and technological shifts will likely be driven by urban development, population growth, quality of life expectations of an emerging middle class in historically developing countries and developments in digital technologies. This could create demand for: low and zero carbon energy, industrial processes and infrastructure; resilience services for natural environments, infrastructure and communities; and the application of “smart”, data-driven technologies.
•Reputation: Our reputation is influenced by our delivery performance, client engagement, innovation, price (of our labor and projects), regulatory compliance and risk management. We anticipate, particularly under our Paris Agreement (1.5°C) scenario, that our reputation with external and internal stakeholders could also be increasingly influenced by our values and practices regarding low/zero carbon transformation.
•Policy and legal: Policy and legal environments are expected to diverge sharply between our 4°C (BAU) and 1.5°C (Paris Agreement) scenarios, with the divergence mainly relating to greenhouse gas emissions and the extent to which low/zero carbon transitions are driven. We expect that some national and sub-national jurisdictions and some of our clients may advocate for the transition, regardless of the extent to which there is global alignment with the Paris Agreement. In contrast, both scenarios are expected to converge on climate change-related litigation and policy advocacy and regulatory support for climate resilience.
•Physical risks: There could be significant physical risks from climate change under both our 4°C and 1.5°C scenarios. These risks could be driven by increased temperature, increased storm intensities, sea level rise and changes in rainfall amount, seasonality and the intensity of extreme events. The types of change are similar under the two scenarios, but their expressions could be much more severe under the 4°C scenario.
Fluctuations in commodity prices may affect our customers’ investment decisions and therefore subject us to risks of cancellation, delays in existing work, or changes in the timing and funding of new awards.
Commodity prices can affect our customers in a number of ways. For example, for those customers that produce commodity products such as oil, gas, copper, or fertilizers, fluctuations in price can have a direct effect on their profitability and cash flow and, therefore, their willingness to continue to invest or make new capital investments. Furthermore, declines in commodity prices can negatively impact our business in regions whose economies are substantially dependent on commodity prices, such as the Middle East. To the extent commodity prices decline or fluctuate and our customers defer new investments or cancel or delay existing projects, the demand for our services decreases, which may have a material adverse impact on our business, financial condition and results of operations.
Commodity prices can also strongly affect the costs of projects. Rising commodity prices can negatively impact the potential returns on investments that are planned, as well as those in progress, and result in customers deferring new investments or canceling or delaying existing projects. Cancellations and delays have affected our past results and may continue to do so in significant and unpredictable ways and could have a material adverse impact on our business, financial condition and results of operations.
Our continued success is dependent upon our ability to hire, retain, and utilize qualified personnel.
The success of our business is dependent upon our ability to hire, retain and utilize qualified personnel, including engineers, architects, designers, craft personnel and corporate leadership professionals who have the required experience and expertise at a reasonable cost. The market for these and other personnel is competitive. From time to time, it may be difficult to attract and retain qualified individuals with the expertise, and in the timeframe, demanded by our clients, or to replace such personnel when needed in a timely manner. In certain geographic areas, for example, we may not be able to satisfy the demand for our services because of our inability to successfully hire and retain qualified personnel. Furthermore, some of our personnel hold government granted clearance that may be required to obtain government projects. If we were to lose some or all of these personnel, they would be difficult to replace. Loss of the services of, or failure to recruit, qualified technical and leadership personnel could limit our ability to successfully complete existing projects and compete for new projects.
In addition, in the event that any of our key personnel retire or otherwise leave the Company, we need to have appropriate succession plans in place and to successfully implement such plans, which requires devoting time and resources toward identifying and integrating new personnel into leadership roles and other key positions. If we cannot attract and retain qualified personnel or effectively implement appropriate succession plans, it could have a material adverse impact on our business, financial condition and results of operations.
The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. For example, the uncertainty of contract award timing can present difficulties in matching our workforce size with our contracts. If an expected contract award is delayed or not received, we could incur costs resulting from excess staff, reductions in staff, or redundancy of facilities that could have a material adverse impact on our business, financial condition and results of operations.
Our business strategy relies in part on acquisitions to sustain our growth. Acquisitions of other companies present certain risks and uncertainties.
Our business strategy involves growth through, among other things, the acquisition of other companies. Acquiring companies, including CH2M HILL Companies, Ltd., which we acquired in December 2017, KeyW, which we acquired in June 2019, and John Wood Group’s nuclear business, which we acquired in March 2020, presents a number of risks, including:
•Assumption of liabilities of an acquired business, including liabilities that were unknown at the time the acquisition was negotiated;
•Failure of the acquired business to comply with U.S. federal, state, local and foreign laws and regulations and/or contractual requirements with government clients;
•Valuation methodologies may not accurately capture the value of the acquired business;
•Failure to realize anticipated benefits, such as cost savings, synergies, business opportunities and growth opportunities;
•The loss of key customers or suppliers, including as a result of any actual or perceived conflicts of interest;
•Difficulties or delays in obtaining regulatory approvals, licenses and permits;
•Difficulties relating to combining previously separate entities into a single, integrated, and efficient business;
•The effects of diverting leadership’s attention from day-to-day operations to matters involving the integration of acquired companies;
•Potentially substantial transaction costs associated with business combinations;
•Potential impairment resulting from the overpayment for an acquisition or post-acquisition deterioration in an acquired business;
•Difficulties relating to assimilating the leadership, personnel, benefits, services, and systems of an acquired business and to assimilating marketing and other operational capabilities;
•Difficulties retaining key personnel of an acquired business;
•Increased burdens on our staff and on our administrative, internal control and operating systems, which may hinder our legal and regulatory compliance activities;
•Difficulties in applying and integrating our system of internal controls to an acquired business;
•Increased financial and accounting challenges and complexities in areas such as tax planning, treasury management, financial reporting and internal controls;
•The potential requirement for additional equity or debt financing, which may not be available, or if available, may not have favorable terms; and
•The risks discussed in this Item 1A. Risk Factors that may relate to the activities of the acquired business prior to the acquisition.
While we may obtain indemnification rights from the sellers of acquired businesses and/or insurance that could mitigate certain of these risks, such rights may be difficult to enforce, the losses may exceed any dedicated escrow funds and the indemnitors may not have the ability to financially support the indemnity, or the insurance coverage may be unavailable or insufficient to cover all losses.
If our leadership is unable to successfully integrate acquired companies or implement our growth strategy, our operating results could be harmed. In addition, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of an acquisition, including the synergies, cost savings, or sales or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all. Moreover, we cannot assure that we will continue to successfully expand or that growth or expansion will result in profitability.
In addition, there is no assurance that we will continue to locate suitable acquisition targets or that we will be able to consummate any such transactions on terms and conditions acceptable to us. Existing cash balances and cash flow from operations, together with borrowing capacity under our credit facilities, may be insufficient to make acquisitions. Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on attractive terms, or at all. Acquisitions may also bring us into businesses we have not previously conducted and expose us to additional business risks that are different than those we have traditionally experienced.
Acquisitions and divestitures create various business risks and uncertainties during the pendency of the transaction.
Consummation of any merger or divestiture is subject to the satisfaction of customary conditions, including one or more of the following: (i) due diligence and its associated time and cost commitments, (ii) board and shareholder approval, (iii) regulatory approvals, (iv) the absence of any legal restraint that would prevent the consummation of the transaction, (v) the absence of material adverse conditions which can prevent the consummation of the transaction, and (vi) compliance with covenants and the accuracy of representations and warranties contained in the transaction agreement, among others. One or more of these conditions may not be fulfilled and, accordingly, the transaction may not be consummated or may be significantly delayed. In such case, our ongoing business, financial condition and results of operations may be materially adversely affected and the market price of our common stock
may decline, particularly to the extent that the market price reflects a market assumption that the transaction will be consummated or will be consummated within a particular timeframe.
Furthermore, most transactions require the Company to incur substantial expense associated with closing and if the transaction is not consummated, we will incur these expenses without realizing the expected benefits. The pursuit of the transaction will also require management attention and use of internal resources that would otherwise be focused on general business operations. In addition, customers’ uncertainty about the effect of the transaction may have an adverse effect on the ability to win customer contracts, or could cause existing clients to seek to change existing business relationships. Employee morale due to the uncertainties associated with the transaction could also be negatively affected. Any of the foregoing, or other risks arising in connection with a failure or delay in consummating a transaction, including the diversion of management attention or loss of other opportunities during the pendency of the transaction, could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Regulatory Compliance
Past and future environmental, health, and safety laws could impose significant additional costs and liabilities.
We are subject to a variety of environmental, health, and safety laws and regulations governing, among other things, discharges to air and water, the handling, storage and disposal of hazardous or waste materials and the remediation of contamination associated with the releases of hazardous substances, and human health and safety. These laws and regulations and the risk of attendant litigation can cause significant delays to a project and add significantly to its cost. Violations of these regulations could subject us and our management to civil and criminal penalties and other liabilities.
Various U.S. federal, state, local and foreign environmental laws and regulations may impose liability for property damage and costs of investigation and cleanup of hazardous or toxic substances on property currently or previously owned by us or arising out of our waste management or environmental remediation activities. These laws may impose responsibility and liability without regard to knowledge of or causation of the presence of contaminants. The liability under these laws may be joint and several. We have potential liabilities associated with our past waste management and other activities and with our current and prior ownership of various properties. The discovery of additional contaminants or the imposition of unforeseen clean-up obligations at these or other sites could have a material adverse impact on our financial condition and results of operations.
When we perform our services, our personnel and equipment may be exposed to radioactive and hazardous materials and conditions. We may be subject to liability claims by employees, customers and third parties as a result of such exposures. In addition, we may be subject to fines, penalties or other liabilities arising under environmental or safety laws. A claim, if not covered or only partially covered by insurance, could have a material adverse impact on our results of operations and financial condition.
Health, safety, and environmental laws and regulations and policies are reviewed periodically and any changes thereto could affect us in substantial and unpredictable ways. Such changes could, for example, relax or repeal laws and regulations relating to the environment, which could result in a decline in the demand for our environmental services and, in turn, could negatively impact our revenue. Changes in the environmental laws and regulations, remediation obligations, enforcement actions, stricter interpretations of existing requirements, future discovery of contamination or claims for damages to persons, property, natural resources or the environment could result in material costs and liabilities that we currently do not anticipate. If we fail to comply with any environmental, health, or safety laws or regulations, whether actual or alleged, we could be exposed to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could adversely affect our business, financial condition and results of operations.
In addition, we and many of our clients operate in highly regulated environments, which may require us or our clients to obtain, and to comply with, federal, state and local government permits and approvals. Any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with, or the loss or modification of, the conditions of permits or approvals may subject us to penalties or other liabilities, which could have a material adverse impact on our business, financial condition and result of operations.
If we fail to comply with federal, state, local or foreign governmental requirements, our business may be adversely affected.
We are subject to U.S. federal, state, local and foreign laws and regulations that affect our business. For example, our global operations require importing and exporting goods and technology across international borders which requires full compliance with both export regulatory laws and International Trafficking in Arms Regulations (“ITAR”). Although we have policies and procedures to comply with U.S. and foreign international trade laws, the violation of such laws could subject the Company and its employees to civil or criminal penalties, including substantial monetary fines, or other adverse actions including denial of import or export privileges or debarment from participation in U.S. government contracts, and could damage our reputation and our ability to do business.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.
The U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act of 2010, and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws, including the requirements to maintain accurate information and internal controls. We operate in many parts of the world that have experienced governmental corruption to some degree and in certain circumstances; strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our training and compliance programs, there is no assurance that our internal control policies and procedures will protect us from acts committed by our employees or agents. If we are found to be liable for FCPA or other violations (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from civil and criminal penalties or other sanctions, including contract cancellations or debarment and loss of reputation, any of which could have a material adverse impact on our business, financial condition and results of operations.
We may be affected by market or regulatory responses to climate change.
Growing concerns about climate change may result in the imposition of additional environmental regulations. Legislation, international protocols, regulation or other restrictions on emissions could result in increased compliance costs for us and our clients and have other impacts on our clients, including those who are involved in the exploration, production or refining of fossil fuels, emit greenhouse gases through the combustion of fossil fuels or emit greenhouse gases through the mining, manufacture, utilization or production of materials or goods. Such policy changes could increase the costs of projects for our clients or, in some cases, prevent a project from going forward, thereby potentially reducing the need for our services, which would in turn have a material adverse impact on our business, financial condition and results of operations. However, these changes could also increase the pace of projects, such as carbon capture or storage projects, that could have a positive impact on our business. We cannot predict when or whether any of these various proposals may be enacted or what their effect will be on us or on our customers.
Risks Related to Our Indebtedness
We rely on cash provided by operations and liquidity under our credit facilities to fund our business. Negative conditions in the credit and financial markets and delays in receiving client payments could result in liquidity problems, adversely affectingaffect our cost of borrowing and our business.
Although we finance much of our operations using cash provided by operations, at times we depend on the availability of credit to grow our business and to help fund business acquisitions. We are currently a borrower under several credit facilities. These facilities all contain customary covenants restricting, among other things, our ability to incur certain liens and indebtedness. We are also subject to certain financial covenants, including maintenance of a maximum consolidated leverage ratio. A breach of any covenant or our inability to comply with the required financial ratios could result in a default under one or more of our credit facilities and limit our ability to do further borrowing. Instability in the credit markets in the U.S. or abroad could cause the availability of credit to be relatively difficult or expensive to obtain at competitive rates, on commercially reasonable terms or in sufficient amounts. This situation could make it more difficult or more expensive for us to access funds, refinance our existing indebtedness, enter into agreements for new indebtedness, or obtain funding through the issuance of securities or such additional capital may not be available on terms acceptable to us, or at all. We may also enter into business acquisition agreements that require us to access credit, which if not available at the closing of the acquisition could result in a breach of the acquisition agreement and a resulting claim for damages by the sellers of such business. In addition, market conditions
could negatively impact our clients’ ability to fund their projects and, therefore, utilize our services, which could have a material adverse impact on our business, financial condition, and results of operations.
In addition, we are subject to the risk that the counterparties to our credit agreements may go bankrupt if they suffer catastrophic demand on their liquidity that will prevent them from fulfilling their contractual obligations to us. We also routinely enter into contracts with counterparties including vendors, suppliers and subcontractors that may be negatively impacted by events in the credit markets. If those counterparties are unable to perform their obligations to us or our clients, we may be required to provide additional services or make alternate arrangements on less favorable terms with other parties to ensure adequate performance and delivery of services to our clients. These circumstances could also lead to disputes and litigation with our partners or clients, which could have a material adverse impact on our reputation, business, financial condition and results of operations.
Some of our customers, suppliers and subcontractors depend on access to commercial financing and capital markets to fund their operations. Disruptions of the credit or capital markets could adversely affect our clients’ ability to finance projects and could result in contract cancellations or suspensions, project delays and payment delays or defaults by our clients. In addition, clients may be unable to fund new projects, may choose to make fewer capital expenditures or otherwise slow their spending on our services or to seek contract terms more favorable to them. Our government clients may face budget deficits that prohibit them from funding proposed and existing projects or that cause them to exercise their right to terminate our contracts with little or no prior notice. In addition, any financial difficulties suffered by our subcontractors or suppliers could increase our cost or adversely impact project schedules. These disruptions could materially impact our backlog and have a material adverse impact on our business, financial condition and results of operations.
In addition, we typically bill our clients for our services in arrears and are, therefore, subject to our clients delaying or failing to pay our invoices after we have already committed resources to their projects. In weak economic environments, we may experience increased delays and failures due to, among other reasons, our clients’ unwillingness to pay for alleged poor performance or to preserve their own working capital. If one or more clients delays in paying or fails to pay us a significant amount of our outstanding receivables, it could have a material adverse impact on our liquidity, financial condition and results of operations.
Furthermore, our cash balances and short-term investments are maintained in accounts held by major banks and financial institutions located primarily in North America, Europe, South America, Australia and Asia. Some of our accounts hold deposits in
amounts that exceed available insurance. Although none of the financial institutions in which we hold our cash and investments have gone into bankruptcy or forced receivership, or have been seized by their governments, there is a risk that such events may occur in the future. If any such events were to occur, we would be at risk of not being able to access our cash, which may result in a temporary liquidity crisis that could impede our ability to fund our operations, which could have a material adverse impact on our business, financial condition and results of operations.
Maintaining adequate bonding and letter of credit capacity is necessary for us to successfully bid on and win some contracts.
In line with industry practice, we are often required to provide performance or payment bonds or letters of credit to our customers. These instruments indemnify the customer should we fail to perform our obligations under the contract. If a bond or a letter of credit is required for a particular project and we are unable to obtain an appropriate bond or letter of credit, we cannot pursue that project. Historically, we have had adequate bonding and letter of credit capacity but, as is typically the case, the issuance of a bond is at the surety’s sole discretion and the issuance of a letter of credit is based on the Company's credit-worthiness. Because of an overall lack of worldwide bonding capacity, we may find it difficult to find sureties who will provide required levels of bonding or such bonding may only be available at significant additional cost. There can be no assurance that our bonding capacity will continue to be available to us on reasonable terms. In addition, future projects may require us to obtain letters of credit that extend beyond the term of our existing credit facilities. Our inability to obtain adequate bonding and, as a result, to bid on new contracts that require such bonding or letter of credit could have a material adverse impact on our business, financial condition and results of operationsoperations.
Risks Related to Our Common Stock
Our quarterly results may fluctuate significantly, which could have a material negative effect on the price of our common stock.
Our quarterly operating results may fluctuate significantly or fall below the expectations of securities analysts, which could have a material adverse impact on the price of our common stock. Fluctuations are caused by a number of factors, including:
•Legal proceedings, disputes and/or government investigations;
•Fluctuations in the spending patterns of our government and cash flows.commercial customers;
•The number and significance of projects executed during a quarter;
•Unanticipated changes in contract performance, particularly with contracts that have funding limits;
•The timing of resolving change orders, requests for equitable adjustments, and other contract adjustments;
•Delays incurred in connection with a project;
•Changes in prices of commodities or other supplies;
•Changes in foreign currency exchange rates;
•Weather conditions that delay work at project sites;
•The timing of expenses incurred in connection with acquisitions or other corporate initiatives;
•The decision by the Board of Directors to begin or cease paying a dividend, and the expectation that if the Company pays dividends, it would declare dividends at the same or higher levels in the future;
•Natural disasters or other crises;
•Staff levels and utilization rates;
•Changes in prices of services offered by our competitors; and
•General economic and political conditions.
There can be no assurance that we will pay dividends on our common stock.
Our Board of Directors initiated a quarterly cash dividend program in fiscal 2017 under which we have paid, and intend to continue paying, regular quarterly dividends. The declaration, amount and timing of such dividends are subject to capital availability and determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws and applicable agreements. Our ability to pay dividends will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, including acquisitions, debt service requirements, results of operations, financial condition and other factors that our Board of Directors may deem relevant. A reduction in or elimination of our dividend payments and/or our dividend program could have a material negative effect on our stock price.
Past and future environmental, health, and safety laws could impose significant additional costs and liabilities.
We are subject to a variety of environmental, health, and safety laws and regulations governing, among other things, discharges to air and water, the handling, storage and disposal of hazardous or waste materials and the remediation of contamination associated with the releases of hazardous substances, and human health and safety. These laws and regulations and the risk of attendant litigation can cause significant delays to a project and add significantly to its cost. Violations of these regulations could subject us and our management to civil and criminal penalties and other liabilities.
Various U.S. federal, state, local and foreign environmental laws and regulations may impose liability for property damage and costs of investigation and cleanup of hazardous or toxic substances on property currently or previously owned by us or arising out of our waste management or environmental remediation activities. These laws may impose responsibility and liability without regard to knowledge of or causation of the presence of contaminants. The liability under these laws may be joint and several. We have potential liabilities associated with our past waste management and other activities and with our current and prior ownership of various properties. The discovery of additional contaminants or the imposition of unforeseen clean-up obligations at these or other sites could have a material adverse impact on our financial condition and results of operations.
When we perform our services, our personnel and equipment may be exposed to radioactive and hazardous materials and conditions. We may be subject to liability claims by employees, customers and third parties as a result of such exposures. In addition, we may be subject to fines, penalties or other liabilities arising under environmental or safety laws. A claim, if not covered or only partially covered by insurance, could have a material adverse impact on our results of operations and financial condition.
Health, safety, and environmental laws and regulations and policies are reviewed periodically and any changes thereto could affect us in substantial and unpredictable ways. Such changes could, for example, relax or repeal laws and regulations relating to the environment, which could result in a decline in the demand for our environmental services and, in turn, could negatively impact our revenue. Changes in the environmental laws and regulations, remediation obligations, enforcement actions, stricter interpretations of existing requirements, future discovery of contamination or claims for damages to persons, property, natural resources or the environment could result in material costs and liabilities that we currently do not anticipate. If we fail to
comply with any environmental, health, or safety laws or regulations, whether actual or alleged, we could be exposed to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could adversely affect our business, financial condition and results of operations.
In addition, we and many of our clients operate in highly regulated environments, which may require us or our clients to obtain, and to comply with, federal, state and local government permits and approvals. Any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with, or the loss or modification of, the conditions of permits or approvals may subject us to penalties or other liabilities, which could have a material adverse impact on our business, financial condition and result of operations.
If we fail to comply with federal, state, local or foreign governmental requirements, our business may be adversely affected.
We are subject to U.S. federal, state, local and foreign laws and regulations that affect our business. For example, our global operations require importing and exporting goods and technology across international borders which requires full compliance with both export regulatory laws and International Trafficking in Arms Regulations (“ITAR”). Although we have policies and procedures to comply with U.S. and foreign international trade laws, the violation of such laws could subject the Company and its employees to civil or criminal penalties, including substantial monetary fines, or other adverse actions including denial of import or export privileges or debarment from participation in U.S. government contracts, and could damage our reputation and our ability to do business.
Employee, agent or partner misconduct or our overall failure to comply with laws or regulations could weaken our ability to win contracts, which could result in reduced revenues and profits.
Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of our employees, agents or partners could have a significant negative impact on our business and reputation. Such misconduct could include the failure to comply with government procurement regulations, regulations regarding the protection of classified information, regulations prohibiting bribery and other corrupt practices, regulations regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls over financial reporting, regulations pertaining to export control, environmental laws, employee wages, pay and benefits, and any other applicable laws or regulations. For example, we routinely provide services that may be highly sensitive or that relate to critical national security matters; if a security breach were to occur, our ability to procure future government contracts could be severely limited. The precautions we take to prevent and detect these activities may not be effective and we could face unknown risks or losses. Our failure to comply with applicable laws or regulations, or acts of misconduct, could subject us to fines and penalties, cancellation of contracts, loss of security clearance and suspension or debarment from contracting, which could weaken our ability to win contracts and result in reduced revenues and profits and could have a material adverse impact on our business, financial condition and results of operations.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.
The U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act of 2010, and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws, including the requirements to maintain accurate information and internal controls. We operate in many parts of the world that have experienced governmental corruption to some degree and in certain circumstances; strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our training and compliance programs, there is no assurance that our internal control policies and procedures will protect us from acts committed by our employees or agents. If we are found to be liable for FCPA or other violations (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from civil and criminal penalties or other sanctions, including contract cancellations or debarment and loss of reputation, any of which could have a material adverse impact on our business, financial condition and results of operations.
The loss of or a significant reduction in business from one or a few customers could have a material adverse impact on us.
A few clients have in the past and may in the future account for a significant portion of our revenue and/or backlog in any one year or over a period of several consecutive years. For example, in fiscal 2018, 2017 and 2016, approximately 23%, 19% and 21%, respectively, of our revenue was earned directly or indirectly from agencies of the U.S. federal government. Although we have long-standing relationships with many of our significant clients, our clients may unilaterally reduce, delay or cancel their contracts at any time. Our loss of or a significant reduction in business from a significant client could have a material adverse impact on our business, financial condition, and results of operations.
Our international operations are exposed to additional risks and uncertainties, including unfavorable political developments and weak foreign economies.
For fiscal 2018, approximately 36% of our revenue was earned from clients outside the U.S. Our business is dependent on the continued success of our international operations, and we expect our international operations to continue to account for a significant portion of our total revenues. Our international operations are subject to a variety of risks, including:
Recessions and other economic crises in other regions, such as Europe, or specific foreign economies and the impact on our costs of doing business in those countries;
Difficulties in staffing and managing foreign operations, including logistical and communication challenges;
Unexpected changes in foreign government policies and regulatory requirements;
Potential non-compliance with a wide variety of laws and regulations, including anti-corruption, export control and anti-boycott laws and similar non-U.S. laws and regulations;
Potential non-compliance with regulations and evolving industry standards regarding consumer protection and data use and security, including the General Data Protection Regulation approved by the European Union;
Lack of developed legal systems to enforce contractual rights;
Expropriation and nationalization of our assets in a foreign country;
Renegotiation or nullification of our existing contracts;
The adoption of new, and the expansion of existing, trade or other restrictions;
Embargoes, duties, tariffs or other trade restrictions, including sanctions;
Changes in labor conditions;
Acts of war, civil unrest, force majeure, and terrorism;
The ability to finance efficiently our foreign operations;
Social, political, and economic instability;
Expropriation of property;
Changes to tax policy;
Currency exchange rate fluctuations;
Limitations on the ability to repatriate foreign earnings; and
U.S. government policy changes in relation to the foreign countries in which we operate.
The lack of a well-developed legal system in some of these countries may make it difficult to enforce our contractual rights. In addition, military action, geopolitical shifts or continued unrest, particularly in the Middle East, could impact the supply or pricing of oil, disrupt our operations in the region and elsewhere and increase our security costs. To the extent our international operations are affected by unexpected or adverse economic, political and other conditions, our business, financial condition and results of operations may be adversely affected.
We work in international locations where there are high security risks, which could result in harm to our employees or unanticipated cost.
Some of our services are performed in high-risk locations, where the country or location is subject to political, social or economic risks, or war, terrorism or civil unrest. In those locations where we have employees or operations, we may expend significant efforts and incur substantial security costs to maintain the safety of our personnel. Despite these activities, in these locations, we cannot guarantee the safety of our personnel and we may suffer future losses of employees and subcontractors. Acts of terrorism and threats of armed conflicts in or around various areas in which we operate could limit or disrupt markets and our operations, including disruptions resulting from the evacuation of personnel, cancellation of contracts, or the loss of key employees, contractors or assets.
Foreign exchange risks may affect our ability to realize a profit from certain projects.
Our reported financial condition and results of operations are exposed to the effects (both positive and negative) that fluctuating exchange rates have on the process of translating the financial statements of our international operations, which are denominated in currencies other than the U.S. dollar, into the U.S. dollar. While we generally attempt to denominate our contracts in the currencies of our expenditures, we do enter into contracts that expose us to currency risk, particularly to the extent contract revenue is denominated in a currency different than the contract costs. We attempt to minimize our exposure from currency risks by obtaining escalation provisions for projects in inflationary economies or entering into derivative (hedging) instruments, when
there is currency risk exposure that is not naturally mitigated via our contracts. These actions, however, may not always eliminate currency risk exposure. The governments of certain countries have or may in the future impose restrictive exchange controls on local currencies and it may not be possible for us to engage in effective hedging transactions to mitigate the risks associated with fluctuations in a particular currency. Based on fluctuations in currency, the U.S. dollar value of our backlog may from time to time increase or decrease significantly. We may also be exposed to limitations on our ability to reinvest earnings from operations in one country to fund the financing requirements of our operations in other countries.
Our operations may be impacted by the United Kingdom’s proposed exit from the European Union.
In June 2016, the U.K. held a referendum in which voters approved an exit from the E.U., commonly referred to as “Brexit.” As a result of the U.K.’s exit from the E.U., there may be greater restrictions on imports and exports between the U.K. and E.U. countries and increased regulatory complexities. These changes may adversely affect our relationships with our existing and future customers, suppliers, employees, and subcontractors, or otherwise have an adverse effect on our business, financial condition and results of operations. The ongoing negotiations between the U.K. and the E.U. as to the terms upon which the U.K. will exit from the E.U. and the uncertainty as to their future trade agreement continues to create economic uncertainty, which may cause our customers to closely monitor their costs, terminate or reduce the scope of existing contracts, decrease or postpone currently planned contracts, or negotiate for more favorable deal terms, each of which may have a negative impact on our business, financial condition and results of operations.
Our business strategy relies in part on acquisitions to sustain our growth. Acquisitions of other companies present certain risks and uncertainties.
Our business strategy involves growth through, among other things, the acquisition of other companies. Acquiring companies, including CH2M HILL Companies, Ltd., which we acquired in December 2017, presents a number of risks, including:
Assumption of liabilities of an acquired business, including liabilities that were unknown at the time the acquisition was negotiated;
Failure of the acquired business to comply with U.S. federal, state, local and foreign laws and regulations and/or contractual requirements with government clients;
Valuation methodologies may not accurately capture the value of the acquired business;
Failure to realize anticipated benefits, such as cost savings, synergies, business opportunities and growth opportunities;
The loss of key customers or suppliers, including as a result of any actual or perceived conflicts of interest;
Difficulties or delays in obtaining regulatory approvals, licenses and permits;
Difficulties relating to combining previously separate entities into a single, integrated, and efficient business;
The effects of diverting management’s attention from day-to-day operations to matters involving the integration of acquired companies;
Potentially substantial transaction costs associated with business combinations;
Potential impairment resulting from the overpayment for an acquisition or post-acquisition deterioration in an acquired business;
Difficulties relating to assimilating the management, personnel, benefits, services, and systems of an acquired business and to assimilating marketing and other operational capabilities;
Difficulties retaining key personnel of an acquired business;
Increased burdens on our staff and on our administrative, internal control and operating systems, which may hinder our legal and regulatory compliance activities;
Difficulties in applying and integrating our system of internal controls to an acquired business;
Increased financial and accounting challenges and complexities in areas such as tax planning, treasury management, financial reporting and internal controls;
The potential requirement for additional equity or debt financing, which may not be available, or if available, may not have favorable terms; and
The risks discussed in this Item 1A. Risk Factors that may relate to the activities of the acquired business prior to the acquisition.
While we may obtain indemnification rights from the sellers of acquired businesses and/or insurance that could mitigate certain of these risks, such rights may be difficult to enforce, the losses may exceed any dedicated escrow funds and the
indemnitors may not have the ability to financially support the indemnity, or the insurance coverage may be unavailable or insufficient to cover all losses.
If our management is unable to successfully integrate acquired companies or implement our growth strategy, our operating results could be harmed. In addition, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of an acquisition, including the synergies, cost savings, or sales or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all. Moreover, we cannot assure that we will continue to successfully expand or that growth or expansion will result in profitability.
In addition, there is no assurance that we will continue to locate suitable acquisition targets or that we will be able to consummate any such transactions on terms and conditions acceptable to us. Existing cash balances and cash flow from operations, together with borrowing capacity under our credit facilities, may be insufficient to make acquisitions. Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on attractive terms, or at all. Acquisitions may also bring us into businesses we have not previously conducted and expose us to additional business risks that are different than those we have traditionally experienced.
In the event we issue stock as consideration for certain acquisitions we may make, we could dilute share ownership.ownership, and if we receive stock in connection with a divestiture, the value of stock is subject to fluctuation.
One method of acquiring companies or otherwise funding our corporate activities is through the issuance of additional equity securities. If we issue additional equity securities, such issuances could have the effect of diluting our earnings per share as well as our existing shareholders’ individual ownership percentages in the Company.
In addition, if we receive stock or other equity securities in connection with a material weaknesssale or divestiture of a business, the value of such stock will fluctuate and/or be subject to trading restrictions. Stock price changes may result from, among other things, changes in our internalthe business, operations or prospects of the issuer prior to or following the transaction, litigation or regulatory considerations, general business, market, industry or economic conditions, the ability to sell all or a portion of the stock based on current market conditions, and other factors both within and beyond the control over financial reporting which,of the Company. In addition, if not timely remediated, may adversely affect the accuracy and reliabilitystock received is valued in a currency other than U.S. dollars, the value of our financial statements, and our reputation, business and the price of our commonsuch stock as well as lead to a loss of investor confidence in us.
As described under Item 9A. “Controls and Procedures” below, management has concluded that a material weakness in our internal control over financial reporting, specifically regarding the accounting for income taxeswill also fluctuate based on foreign currency rates. For example, in connection with the CH2M business combination, existedECR sale, the Company still holds 51.3 million ordinary shares of Worley received as a portion of September 28, 2018 and, accordingly, internal control over financial reporting and our disclosure controls and procedures were not effective asthe purchase price. The value of such date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statementsshares will not be prevented or detectedfluctuate based on a timely basis.
We will take immediate action to remediate this material weakness. While we believe the steps described under Item 9A below will improve the effectiveness of our internal control over financial reporting and remediate the identified deficiencies, if our remediation efforts are insufficient to address the material weakness or we identify additional material weaknesses in our internal control over financial reporting in the future, our ability to analyze, record and report financial information accurately, to prepare our financial statements within the time periods specified by the rules and formstrading price of the SEC and to otherwise comply with our reporting obligations under the federal securities laws and our long-term debt agreements will likely be adversely affected. The occurrence of, or failure to remediate, this material weakness and any future material weaknesses in our internal control over financial reporting may adversely affect the accuracy and reliability of our financial statements and have other consequences that could materially and adversely affect our business, including an adverse impactWorley shares on the market price of our common stock, potential actions or investigations by the SEC or other regulatory authorities, possible defaults under our debt agreements, shareholder lawsuits, a loss of investor confidence and damage to our reputation.
Our quarterly results may fluctuate significantly, which could have a material negative effect on the price of our common stock.
Our quarterly operating results may fluctuate significantly or fall below the expectations of securities analysts, which could have a material adverse impact on the price of our common stock. Fluctuations are caused by a number of factors, including:
Legal proceedings, disputes and/or government investigations;
Fluctuations in the spending patterns of our government and commercial customers;
The number and significance of projects executed during a quarter;
Unanticipated changes in contract performance, particularly with contracts that have funding limits;
The timing of resolving change orders, requests for equitable adjustments, and other contract adjustments;
Delays incurred in connection with a project;
Changes in prices of commodities or other supplies;
Changes in foreign currency exchange rates;
Weather conditions that delay work at project sites;
The timing of expenses incurred in connection with acquisitions or other corporate initiatives;
The decision by the Board of Directors to begin or cease paying a dividend,Australian Securities Exchange and the expectation that if the Company pays dividends, it would declare dividends at the same or higher levels in the future;
Natural disasters or other crises;
Staff levels and utilization rates;
Changes in prices of services offered by our competitors; and
General economic and political conditions.
Our actual results could differ from the estimates and assumptions used to prepare our financial statements.
In preparing our financial statements, our management is required under U.S. GAAP to make estimates and assumptions asexchange rate of the date of the financial statements. These estimates and assumptions affect the reported values of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities. Areas requiring significant estimates by our management include:
Recognition of contract revenue, costs, profit or losses in applying the principles of percentage of completion accounting;
Estimated amounts for expected project losses, warranty costs, contract close-out or other costs;
Recognition of recoveries under contract change orders or claims;
Collectability of billed and unbilled accounts receivable and the need and amount of any allowance for doubtful accounts;
Estimates of other liabilities, including litigation and insurance revenues/reserves and reserves necessary for self-insured risks;
Accruals for estimated liabilities, including litigation reserves;
Valuation of assets acquired, and liabilities, goodwill, and intangible assets assumed, in acquisitions;
Valuation of stock-based compensation;
The determination of liabilities under pension and other post-retirement benefit programs; and
Income tax provisions and related valuation allowances.
Our actual business and financial results could differ from our estimates of such results, which could have a material adverse impact on our financial condition and results of operations.
An impairment charge on our goodwill could have a material adverse impact on our financial position and results of operations.
Because we have grown in part through acquisitions, goodwill and intangible assets represent a substantial portion of our assets. Under U.S. GAAP, we are required to test goodwill carried in our Consolidated Balance Sheets for possible impairment on an annual basis based upon a fair value approach. As of September 28, 2018, we had $6.10 billion of goodwill, representing 48.3% of our total assets of $12.65 billion. We have chosen to perform our annual impairment reviews of goodwill at the end of the third quarter of our fiscal year. We also are required to test goodwill for impairment between annual tests if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in a reporting unit’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, potential government actions toward our facilities and other factors.
If our market capitalization drops significantly below the amount of net equity recorded on our balance sheet, it might indicate a decline in our fair value and would require us to further evaluate whether our goodwill has been impaired. If the fair value of our reporting units is less than their carrying value, we could be required to record an impairment charge. The amount of any impairment could be significant and could have a material adverse impact on our financial position and results of operations for the period in which the charge is taken. For a further discussion of goodwill impairment testing, please see Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations below.
We may be required to contribute additional cash to meet any underfunded benefit obligations associated with retirement and post-retirement benefit plans we manage.
We have various employee benefit plan obligations that require us to make contributions to satisfy, over time, our underfunded benefit obligations, which are generally determined by calculating the projected benefit obligations minus the fair value of plan assets. For example, as of September 28, 2018 and September 29, 2017, our defined benefit pension and post-retirement benefit plans were underfunded by $339.3 million and $252.0 million, respectively. See Note 10- Pension and Other Postretirement Benefit Plans in the Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K for additional disclosure. In the future, our benefit plan obligations may increase or decrease depending on changes in the levels of interest rates, pension plan asset performance and other factors. If we are required to contribute a significant amount of the deficit for underfunded benefit plans, our cash flows could be materially and adversely affected.
Rising inflation, interest rates, and/or construction costs could reduce the demand for our services as well as decrease our profit on our existing contracts, in particular with respect to our fixed-price contracts.
Rising inflation, interest rates, or construction costs could reduce the demand for our services. In addition, we bear all of the risk of rising inflation with respect to those contracts that are fixed-price. Because a significant portion of our revenues are earned from cost-reimbursable type contracts (approximately 76% during fiscal 2018), the effects of inflation on our financial condition and results of operations over the past few years have been generally minor. However, if we expand our business into markets and geographic areas where fixed-price and lump-sum work is more prevalent, inflation may have a larger impact on our results of operations in the future. Therefore, increases in inflation, interest rates or construction costs could have a material adverse impact on our business, financial condition and results of operations.
We may be affected by market or regulatory responses to climate change.
Growing concerns about climate change may result in the imposition of additional environmental regulations. Legislation, international protocols, regulation or other restrictions on emissions could result in increased compliance costs for us and our clients and have other impacts on our clients, including those who are involved in the exploration, production or refining of fossil fuels, emit greenhouse gases through the combustion of fossil fuels or emit greenhouse gases through the mining, manufacture, utilization or production of materials or goods. Such policy changes could increase the costs of projects for our clients or, in some cases, prevent a project from going forward, thereby potentially reducing the need for our services, which would in turn have a material adverse impact on our business, financial condition and results of operations. However, these changes could also increase the pace of projects, such as carbon capture or storage projects, that could have a positive impact on our business. We cannot predict when or whether any of these various proposals may be enacted or what their effect will be on us or on our customers.
Our effective tax rate may increase or decrease.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities. Although we believe that our tax estimates and tax positions are reasonable, they could be materially affected by many factors including the final outcome of tax audits and related litigation, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, the realizability of deferred tax assets and changes in uncertain tax positions. An increase or decrease in our effective tax rate, or an ultimate determination that the Company owes more taxes than the amounts previously accrued, could have a material adverse impact on our financial condition and results of operations.
Systems and information technology interruption or failure and data security or privacy breaches could adversely impact our ability to operate or expose us to significant financial losses and reputational harm.
We rely heavily on computer, information and communications technology and related systems in order to properly operate our business. From time to time, we experience occasional system interruptions and delays. In the event we are unable to regularly deploy software and hardware, effectively upgrade our systems and network infrastructure and take other steps to maintain or improve the efficiency and efficacy of our systems, the operation of such systems could be interrupted or result in the loss, corruption, or release of data. In addition, our computer and communication systems and operations could be damaged or interrupted by natural disasters, force majeure events, telecommunications failures, power loss, acts of war or terrorism, computer viruses, malicious code, physical or electronic security breaches, intentional or inadvertent user misuse or error or similar events or disruptions. Any of these or other events could cause interruptions, delays, loss of critical and/or sensitive data or similar effects, which could have a material adverse impact on our business, financial condition, protection of intellectual property and results of operations, as well as those of our clients.
In addition, we face the threat to our computer systems of unauthorized access, computer hackers, computer viruses, malicious code, ransomware, organized cyber-attacks and other security problems and system disruptions, including possible unauthorized access to and disclosure of our and our clients’ proprietary or classified information.
While we have security measures and technology in place to protect our and our clients’ proprietary or classified information, if these measures fail as a result of a cyber-attack, other third-party action, employee error, malfeasance or otherwise, and someone obtains unauthorized access to our or our clients’ information, our reputation could be damaged, our business may suffer and we could incur significant liability. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As a result, we may be required to expend significant resources to protect against the threat of system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches. Any of these events could damage our reputation and have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information, including the European Union General Data Protection Regulation, pose increasingly complex compliance challenges and potentially elevate costs, and any failure to comply with these laws and regulations could result in significant penalties and legal liability.
We continuously evaluate the need to upgrade and/or replace our systems and network infrastructure to protect our computing environment, to stay current on vendor supported products and to improve the efficiency of our systems and for other business reasons. The implementation of new systems and information technology could adversely impact our operations by imposing substantial capital expenditures, demands on management time and risks of delays or difficulties in transitioning to new systems. In addition, our systems implementations may not result in productivity improvements at the levels anticipated. Systems implementation disruption and any other information technology disruption, if not anticipated and appropriately mitigated, could have an adverse effect on our business.
We may not be able to protect our intellectual property or that of our clients.
Our technology and intellectual property provide us, in certain instances, with a competitive advantage. Although we protect our property through registration, licensing, contractual arrangements, security controls and similar mechanisms, we may not be able to successfully preserve our rights and they could be invalidated, circumvented, challenged or become obsolete. Trade secrets are generally difficult to protect. Our employees and contractors are subject to confidentiality obligations, but this protection may be inadequate to deter or prevent misappropriation of our confidential information and/or infringement of our intellectual property. In addition, the laws of some foreign countries in which we operate do not protect intellectual property rights to the same extent as the U.S. If we are unable to protect and maintain our intellectual property rights or if there are any successful intellectual property challenges or infringement proceedings against us, our ability to differentiate our service offerings could be reduced. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert management’s attention away from other aspects of our business.
We also hold licenses from third parties which may be utilized in our business operations. If we are no longer able to license such technology on commercially reasonable terms or otherwise, our business and financial performance could be adversely affected.
If our intellectual property rights or work processes become obsolete, we may not be able to differentiate our service offerings and some of our competitors may be able to offer more attractive services to our customers. Our competitors may independently attempt to develop or obtain access to technologies that are similar or superior to our technologies.
Our clients or other third parties may also provide us with their technology and intellectual property. There is a risk we may not sufficiently protect our or their information from improper use or dissemination and, as a result, could be subject to claims and litigation and resulting liabilities, loss of contracts or other consequences that could have a material adverse impact on our business, financial condition and results of operations.
Our businesses could be materially and adversely affected by events outside of our control.
Extraordinary or force majeure events beyond our control, such as natural or man-made disasters, could negatively impact our ability to operate. As an example, from time to time we face unexpected severe weather conditions which may result in weather-related delays that are not always reimbursable under a fixed-price contract; evacuation of personnel and curtailment of
services; increased labor and material costs in areas resulting from weather-related damage and subsequent increased demand for labor and materials for repairing and rebuilding; inability to deliver materials, equipment and personnel to job sites in accordance with contract schedules; and loss of productivity. We may remain obligated to perform our services after any such natural or man-made event, unless a force majeure clause or other contractual provision provides us with relief from our contractual obligations. If we are not able to react quickly to such events, or if a high concentration of our projects are in a specific geographic region that suffers from a natural or man-made catastrophe, our operations may be significantly affected, which could have a material adverse impact on our operations. In addition, if we cannot complete our contracts on time, we may be subject to potential liability claims by our clients which may reduce our profits.
We are subject to professional standards, duties and statutory obligations on professional reports and opinions we issue, which could subject us to monetary damages.
We issue reports and opinions to clients based on our professional engineering expertise as well as our other professional credentials that subject us to professional standards, duties and obligations regulating the performance of our services. For example, we issue opinions and reports to government clients in connection with securities offerings. If a client or another third party alleges that our report or opinion is incorrect or it is improperly relied upon and we are held responsible, we could be subject to significant monetary damages. In addition, our reports and other work product may need to comply with professional standards, licensing requirements, securities regulations and other laws and rules governing the performance of professional services in the jurisdiction where the services are performed. We could be liable to third parties who use or rely upon our reports and other work product even if we are not contractually bound to those third parties. These events could in turn result in monetary damages and penalties.Australian dollar.
Delaware law and our charter documents may impede or discourage a takeover or change of control.
We are a Delaware corporation. Certain anti-takeover provisions of the Delaware general corporation law impose restrictions on the ability of others to acquire control of us. In addition, certain provisions of our charter documents may impede or discourage a takeover. For example:
•Only our Board of Directors can fill vacancies on the board;
•There are various restrictions on the ability of a shareholder to nominate a director for election; and
•Our Board of Directors can authorize the issuance of preferred shares.
These types of provisions, as well as our ability to adopt a shareholder rights agreement in the future, could make it more difficult for a third party to acquire control of us, even if the acquisition would be beneficial to our shareholders. Accordingly, shareholders may be limited in the ability to obtain a premium for their shares.
Risks Relating to the Sale of Our ECR BusinessIf the sale of our ECR business to WorleyParsons Limited is not completed, we will have incurred substantial expenses without our stockholders realizing the expected benefits.
On October 21, 2018, we entered into a Stock and Asset Purchase Agreement (the “Purchase Agreement”) with WorleyParsons Limited, a company incorporated in Australia (“Buyer”), pursuant to which, subject to the satisfaction or waiver of the conditions therein, we will sell and assign to Buyer our energy, chemicals and resources businesses (the “ECR Business”). Completion of the transaction is subject to closing conditions including, but not limited to, various regulatory approvals. We currently expect that the transaction will be completed during the first half of calendar 2019. It is possible, however, that factors outside of our control including, but not limited to, Buyer’s ability to secure the financing it needs to complete the transaction, could require the parties to complete the transaction at a later time, or not to complete the transaction at all. In the event that the transaction is not consummated for any reason, we will be subject to certain risks, including the costs related to the transaction, such as legal, accounting and advisory fees, which must be paid even if the transaction is not completed. If the transaction is not consummated, the market price of our common stock could decline. We also could be subject to litigation related to any failure to complete the transaction or related to any enforcement proceeding commenced against us to perform our obligations under the Purchase Agreement. Additionally, if the transaction is not consummated, there may not be an alternative party interested in and able to purchase the ECR Business and if an alternative party is identified, such alternative transaction may not result in a comparable aggregate purchase price to what is proposed in this transaction.Item 1B. UNRESOLVED STAFF COMMENTS
We will be subject to business uncertainties and contractual restrictions while the transaction is pending.
The pursuit of the transaction and the preparation for the integration of the related assets with Buyer may place a significant burden on management and internal resources. Additionally, our continued success depends, in part, upon our ability to retain the talents and dedication of our employees and employees may decide not to remain with us while the transaction is pending. Any significant diversion of management and employee attention away from ongoing business, loss of employees and difficulties encountered in the transition and integration process could affect our financial results.
In addition, the Purchase Agreement generally requires that we operate the ECR Business in theordinary course of business and restricts us from taking certain actions, including selling any assets of the ECR Business, prior to the consummation of the transaction or termination of the Purchase Agreement without Buyer’s consent. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the transaction. Additionally, as a result of these business uncertainties, our current and potential business partners may decide to delay, defer or cancel entering into new business arrangements with us pending completion or termination of the transaction.
Regulatory approvals, including antitrust approval, necessary for closing the Purchase Agreement may not be received, may take longer than expected or impose conditions that are not presently anticipated.
Before the transaction may be completed, certain approvals or consents must be obtained from the various regulatory authorities in the United States and in certain foreign jurisdictions in which the ECR Business operates, including the expiration or termination of the waiting period applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), the approvals required pursuant to or in connection with the competition laws of certain foreign jurisdictions in which the ECR Business operates and the receipt of approval from the Committee on Foreign Investment in the United States (“CFIUS”). There can be no assurance as to whether regulatory approvals will be received or the timing of the approvals. Buyer is only required to take commercially reasonable efforts to assist us in obtaining regulatory approvals of the transaction.
Under the Purchase Agreement, we will be responsible for indemnifying Buyer with respect to certain liabilities in a manner that could have a material adverse effect on our financial condition.
We have agreed to indemnify Buyer for damages resulting from or arising out of any liabilities relating to the ECR Business not assumed by Buyer in the transaction and for certain other matters. Significant indemnification claims by Buyer could have a material adverse effect on our financial condition. Any event that results in a right for Buyer to seek indemnity from us under the Purchase Agreement could result in a substantial payment from us to Buyer and could adversely affect our results of operations.
We may be held liable to Buyer if we fail to perform certain services under the transition services agreement, and the performance of such services may negatively impact our business and operations.
We have agreed to enter into a transition services agreement with Buyer in connection with the transaction pursuant to which we will provide Buyer, on an interim, transitional basis, various services, including, but not limited to, executive consultation services, employee benefits administration, human resources and payroll services, tax services, financial and accounting services, information technology services, regulatory services, project management services for certain client contracts, general administrative services and other support services. If we do not satisfactorily perform our obligations under the agreement, we may be required to re-perform such services at no additional cost. In addition, during the transition services period, our management and employees may be required to divert their attention away from our business in order to provide services to Buyer, which could adversely affect our business.
Because the share consideration component of the purchase price is fixed and the market price of Buyer’s ordinary shares and the exchange rate between U.S. and Australian dollars may fluctuate, we cannot be sure of the value of Buyer’s ordinary shares that we will receive on the closing date or at the time we seek to sell the ordinary shares.
Upon completion of the transaction, we will receive 58,197,867 Buyer’s ordinary shares. The number of Buyer’s ordinary shares that we will receive in the transaction is fixed and will not be adjusted for changes in the market price of Buyer’s ordinary shares or for any changes in the exchange rate between U.S. and Australian dollars, which will both likely fluctuate before and after the completion of the transaction. Fluctuations in the value of the Buyer’s ordinary shares could result from changes in their business or the ECR Business’ operations or prospects, regulatory considerations, general market and economic conditions and other factors both within and beyond the control of us or Buyer prior to or following the closing of the transaction. Additionally, under the terms of the Purchase Agreement, the Buyer’s ordinary shares we receive will be subject to a six-month lock-up period following the transaction’s closing during which time we will be unable to sell the ordinary shares and during which time the market price of Buyer’s ordinary shares and the exchange rate between U.S. and Australian dollars will likely fluctuate for the
forgoing reasons, which could result in the ordinary shares we receive having a lower value compared to the value of the ordinary shares at the time we entered into the Purchase Agreement.
| |
Item 1B. | UNRESOLVED STAFF COMMENTS |
None.
Item 2. PROPERTIES
Our properties consist primarily of office space within general, commercial office buildings located in major cities primarily in the following countries: United States; Argentina; Armenia;Azerbaijan; Australia; Bahrain; Belgium; Brazil; Canada; Chile; China; Czech Republic; Egypt; France; Germany; Greenland; Hong Kong; India; Indonesia; Iraq; Ireland; Italy; Kazakhstan; Korea (Republic of); Malaysia; Mexico; The Netherlands; New Zealand; Oman; Peru; The Philippines; Poland; Qatar; Romania; Russian Federation; Saudi Arabia; Singapore; Slovakia; South Africa; Spain;South Korea; Sweden; Taiwan (Province of China); Thailand; Trinidad and Tobago; United Arab Emirates;Emirates and United Kingdom and Vietnam.Kingdom. We also lease smaller offices located in certain other countries. Such space is used for operations (providing technical, professional, and other home office services), sales and administration. Most of our properties are leased. In addition, we have fabrication facilities located in Canada in Pickering, Ontario; St. John, New Brunswick; and Edmonton, Alberta and Lamont, Alberta. The total amount of space usedleased by us for all of our operations is approximately 14.27.7 million square feet. We continue to evaluate our real estate needs in connection with changes in the Company's use of its leased space as a result of the COVID-19 pandemic, and as part of the integration of our prior acquisitions.
Item 3. LEGAL PROCEEDINGS
The information required by this Item 3 is included in Note 1518 — Contractual Guarantees, Litigation, Investigations and Insurance of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K and is incorporated herein by reference.
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Item 4. | MINE SAFETY DISCLOSURE |
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires domestic mine operators to disclose violations and orders issued under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) by the federal Mine Safety and Health Administration. Under the Mine Act, an independent contractor, such as Jacobs, that performs services or construction of a mine is included within the definition of a mining operator. We do not act as the owner of any mines.
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95.4. MINE SAFETY DISCLOSURE
None.
PART II
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Item 5. | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Jacobs’Our common stock is listed on the NYSE and tradesNew York Stock Exchange under the ticker symbol JEC. We provided to the NYSE, without qualification, the required annual certification of our Chief Executive Officer regarding compliance with the NYSE’s corporate governance listing standards. The following table sets forth the low and high sales prices of a share of our common stock during each of the fiscal quarters presented, based on the NYSE Composite Price History:
|
| | | | | | | | |
| | | Low Sales
Price | | High Sales
Price |
| Fiscal 2018: | | |
| | |
|
| First quarter | | $ | 57.21 |
| | $ | 69.35 |
|
| Second quarter | | $ | 55.42 |
| | $ | 72.18 |
|
| Third quarter | | $ | 55.21 |
| | $ | 66.72 |
|
| Fourth quarter | | $ | 62.79 |
| | $ | 77.91 |
|
| Fiscal 2017: | | |
| | |
|
| First quarter | | $ | 49.16 |
| | $ | 63.42 |
|
| Second quarter | | $ | 52.39 |
| | $ | 62.20 |
|
| Third quarter | | $ | 50.53 |
| | $ | 55.97 |
|
| Fourth quarter | | $ | 49.31 |
| | $ | 58.51 |
|
Shareholders
According to the records of our transfer agent, there were 3,684 shareholderswere 3,182 shareholders of record as of November 12, 2018.2020.
Dividend Policy
Our Board of Directors initiated a quarterly cash dividend program in fiscal 2017 under which we have paid, and intend to continue paying, regular quarterly dividends. The declaration, amount and timing of such dividends are subject to capital availability and determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws and applicable agreements. Our ability to pay dividends will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, including acquisitions, debt service requirements, results of operations, financial condition and other factors that our Board of Directors may deem relevant.
Share Repurchases
On July 23, 2015,January 17, 2019, the Company’s Board of Directors approvedauthorized a share repurchase program to repurchaseof up to $500.0 million$1.0 billion of the Company’s common stock, to expire on July 31, 2018. On July 19, 2018,January 16, 2022 (the "2019 Repurchase Authorization"). During fiscal 2019, the Company launched accelerated share repurchase programs by advancing a total of $500 million to two financial institutions in privately negotiated transactions (collectively, the "2019 ASR Programs"). The specific number of shares that the Company repurchased under the 2019 ASR Programs was determined based generally on a discount to the volume-weighted average price per share of the Company's Boardcommon stock during a calculation period which ended on June 5, 2019 for the first $250 million in repurchases and on December 4, 2019 for the second $250 million in repurchases. The purchases were recorded as share retirements for purposes of Directors authorized the continuation of this share repurchase program for an additional three years, to expire on July 31, 2021. calculating earnings per share.
The following table summarizes the activity under this programthe 2019 Repurchase Authorization during fiscal 2018:2020:
|
| | | | | |
| Average Price Per Share (1) | | Shares Repurchased | | Total Shares Retired |
| $500,000,000 | $60.77 | | 49,074 | | 49,074 |
| | | | | | | | | | | | | | | | | | | | |
Amount Authorized
(2019 Repurchase Authorization) | | Average Price Per Share (1) | | Shares Repurchased | | Total Shares Retired |
| $1,000,000,000 | | $81.68 | | 4,129,003 | | 4,129,003 |
(1)Includes commissions paid and calculated at the average price per share.share
As a precautionary measure in light of the COVID-19 pandemic, the Company temporarily suspended purchases under the share repurchase plan in March 2020, with such suspension remaining in effect through the fiscal third quarter of 2020. During the fourth fiscal quarter of 2020, the Company resumed share repurchases on a limited basis. As of October 2, 2020, the Company has$57.9 million remaining under the 2019 Repurchase Authorization.
On January 16, 2020, the Company’s Board of Directors authorized an additional share repurchase program of up to $1.0 billion of the Company’s common stock, to expire on January 15, 2023 (the "2020 Repurchase Authorization"). There have been no repurchases under the 2020 Repurchase Authorization as of October 2, 2020.
The share repurchase programs do not obligate the Company to purchase any shares. Share repurchases may be executed through various means including, without limitation, accelerated share repurchases, open market transactions, privately negotiated transactions, purchases pursuant to 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 programprograms may be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time. The timing, amount and manner of share repurchases may depend upon market conditions and economic circumstances, availability of investment opportunities, the availability and costs of financing, currency fluctuations, the market price of the Company's common stock, other uses of capital and other factors.
On December 1, 2016, the Company announced that the Board of Directors approved the initiation of a cash dividend program. In the fourth fiscal quarter of 2017, the Company declared a dividend of $0.15 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 that was paid on October 26, 2018 to shareholders of record on the close of business on September 28, 2018. Future dividend declarations are subject to review and approval by the Company’s Board of Directors.
Unregistered Sales of Equity Securities.
None.
Performance Graph
The following graph and table shows the changes over the five-year period ended September 28, 2018October 2, 2020 in the value of $100 as of the close of market on September 30, 2013October 2, 2015 in (1) the common stock of Jacobs Engineering Group Inc., (2) the Standard & Poor’s 500 Stock Index and (3) the Dow Jones Heavy Construction GroupStandard & Poor's 1500 IT Consulting & Other Services Index.
The values of each investment are based on share price appreciation, with reinvestment of all dividends, provided any were paid. The investments are assumed to have occurred at the beginning of the period presented. The stock performance included in this graph is not necessarily indicative of future stock price performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
| Jacobs Engineering Group Inc. | 100.00 | | | 138.18 | | | 156.97 | | | 208.45 | | | 251.00 | | | 256.72 | |
| S&P 500 | 100.00 | | | 115.43 | | | 136.91 | | | 161.43 | | | 168.30 | | | 193.80 | |
| S&P 1500 IT Consulting & Other Services | 100.00 | | | 114.30 | | | 125.05 | | | 146.93 | | | 142.84 | | | 146.88 | |
|
| | | | | | | | | | | | | | | | | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 |
| Jacobs Engineering Group Inc. | 100.00 |
| | 83.91 |
| | 64.33 |
| | 88.90 |
| | 100.99 |
| | 134.11 |
|
| S&P 500 | 100.00 |
| | 119.73 |
| | 119.00 |
| | 137.36 |
| | 162.92 |
| | 192.10 |
|
| Dow Jones US Heavy Construction | 100.00 |
| | 95.45 |
| | 70.89 |
| | 80.42 |
| | 86.92 |
| | 93.30 |
|
Note: The above information was provided by Research Data Group, Inc.Item 6. SELECTED FINANCIAL DATA
| |
Item 6. | SELECTED FINANCIAL DATA |
The following table presents selected financial data for each of the last five fiscal years. This selected financial data should be read in conjunction with the Consolidated Financial Statements and related notes beginning on page F-1 of this Annual Report on Form 10-K. On April 26, 2019, Jacobs completed the sale of its ECR business to Worley. As a result of the ECR sale, substantially all ECR-related assets and liabilities were sold (the "Disposal Group"). We determined that the Disposal Group should be reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations because their disposal represented a strategic shift that had a major effect on our operations and financial results. As such, the 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, for the year ended September 27, 2019, a portion of the ECR business remained held by Jacobs and was classified as held for sale as of fiscal year 2019 in accordance with U.S. GAAP. For further discussion see Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business to the consolidated financial statements. Dollar amounts are presented in thousands, except for per share information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 (a) | | 2019 (b) | | 2018 (c) | | 2017 (d) | | 2016 (e) |
| Results of Operations: | | | | | | | | | |
| Revenues | $ | 13,566,975 | | $ | 12,737,868 | | $ | 10,579,773 | | $ | 6,330,126 | | $ | 6,257,478 |
| Net Earnings (Loss) Attributable to Jacobs from Continuing Operations | $ | 353,861 | | $ | 290,960 | | $ | (4,185) | | $ | 170,167 | | $ | 159,998 |
| Financial Position: | | | | | | | | | |
| Current ratio | 1.54 to 1 | | 1.34 to 1 | | 1.45 to 1 | | 1.56 to 1 | | 1.61 to 1 |
| Working capital | $ | 1,598,002 | | $ | 1,038,062 | | $ | 1,410,891 | | $ | 1,069,953 | | $ | 1,081,784 |
| Current assets | $ | 4,539,599 | | $ | 4,111,768 | | $ | 4,556,584 | | $ | 2,996,180 | | $ | 2,864,470 |
| Total assets | $ | 12,354,353 | | $ | 11,462,711 | | $ | 12,645,795 | | $ | 7,380,859 | | $ | 7,360,022 |
| Cash | $ | 862,424 | | $ | 631,068 | | $ | 634,870 | | $ | 607,821 | | $ | 507,169 |
| Long-term debt | $ | 1,676,941 | | $ | 1,201,245 | | $ | 2,144,167 | | $ | 235,000 | | $ | 385,330 |
| Total Jacobs stockholders’ equity | $ | 5,815,712 | | $ | 5,714,691 | | $ | 5,854,345 | | $ | 4,428,352 | | $ | 4,265,276 |
| Return on average equity | 6.14% | | 5.03% | | (0.08)% | | 3.91% | | 3.74% |
| Backlog: | $ | 23,818 | | $ | 22,569 | | $ | 19,955 | | $ | 13,147 | | $ | 11,535 |
| Per Share Information: | | | | | | | | | |
| Basic Net Earnings (Loss) from Continuing Operations Per Share | $ | 2.69 | | $ | 2.11 | | $ | (0.03) | | $ | 1.41 | | $ | 1.33 |
| Diluted Net Earnings (Loss) from Continuing Operations Per Share | $ | 2.67 | | $ | 2.09 | | $ | (0.03) | | $ | 1.40 | | $ | 1.32 |
| Stockholders’ equity | $ | 43.82 | | $ | 41.05 | | $ | 42.21 | | $ | 36.78 | | $ | 35.26 |
| Average Number of Shares of Common Stock and Common Stock Equivalents Outstanding (Diluted) | 132,721 | | 139,206 | | 137,536 | | 120,147 | | 121,483 |
| Common Shares Outstanding At Year End | 129,748 | | 132,879 | | 142,218 | | 120,386 | | 120,951 |
| Cash Dividends Declared Per Common Share | $ | 0.76 | | $ | 0.68 | | $ | 0.60 | | $ | 0.60 | | $ | — |
(a)Includes after-tax costs of $248.2 million, or $1.87 per diluted share from continuing operations, related to the Company's restructuring, transactions, and other initiatives during fiscal 2020. Also includes amortization of intangible assets of $68.3 million, or $0.51 per diluted share from continuing operations, and $56.9 million, or $0.43 per diluted share from continuing operations 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
(b)Includes after-tax costs of $259.8 million, or $1.87 per diluted share from continuing operations, related to the Company's restructuring, transactions, and other initiatives during fiscal 2019. Also includes amortization of intangible assets of $59.0 million, or $0.42 per diluted share from continuing operations, and $48.1 million, or $0.34 per diluted share from continuing operations 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
(c)Includes after-tax costs of $112.8 million, or $0.81 per diluted share from continuing operations, related to the Company's restructuring and other initiatives during fiscal 2018. Also included in fiscal 2018 are after-tax charges of $60.7 million, or $0.44 per diluted share, in professional fees and related costs associated with the CH2M acquisition and pending ECR sale, $259.2 million, or $1.86 per diluted share from continuing operations, in charges related to tax reform and amortization of intangible assets of $51.5 million, or $0.37 per diluted share from continuing operations
|
| | | | | | | | | | | | | | | | | | | |
| | 2018 (a) | | 2017 (b) | | 2016 (c) | | 2015 (d) | | 2014 (e) |
| Results of Operations: | |
| | |
| | |
| | |
| | |
|
| Revenues | $ | 14,984,646 |
| | $ | 10,022,788 |
| | $ | 10,964,157 |
| | $ | 12,114,832 |
| | $ | 12,695,157 |
|
| Net earnings attributable to Jacobs | $ | 163,431 |
| | $ | 293,727 |
| | $ | 210,463 |
| | $ | 302,971 |
| | $ | 328,108 |
|
| Financial Position: | |
| | |
| | |
| | |
| | |
|
| Current ratio | 1.45 to 1 |
| | 1.56 to 1 |
| | 1.61 to 1 |
| | 1.58 to 1 |
| | 1.58 to 1 |
|
| Working capital | $ | 1,410,891 |
| | $ | 1,069,953 |
| | $ | 1,081,784 |
| | $ | 1,141,512 |
| | $ | 1,372,332 |
|
| Current assets | $ | 4,556,584 |
| | $ | 2,996,180 |
| | $ | 2,864,470 |
| | $ | 3,122,678 |
| | $ | 3,722,178 |
|
| Total assets | $ | 12,645,795 |
| | $ | 7,380,859 |
| | $ | 7,360,022 |
| | $ | 7,785,926 |
| | $ | 8,453,659 |
|
| Cash | $ | 793,358 |
| | $ | 774,151 |
| | $ | 655,716 |
| | $ | 460,859 |
| | $ | 732,647 |
|
| Long-term debt | $ | 2,146,877 |
| | $ | 235,000 |
| | $ | 385,330 |
| | $ | 584,434 |
| | $ | 764,075 |
|
| Total Jacobs stockholders’ equity | $ | 5,854,345 |
| | $ | 4,428,352 |
| | $ | 4,265,276 |
| | $ | 4,291,745 |
| | $ | 4,469,255 |
|
| Return on average equity | 3.18 | % | | 6.76 | % | | 4.92 | % | | 6.92 | % | | 7.56 | % |
| Backlog: | $ | 27,298,614 |
| | $ | 19,788,613 |
| | $ | 18,760,529 |
| | $ | 18,806,570 |
| | $ | 18,380,034 |
|
| Per Share Information: | |
| | |
| | |
| | |
| | |
|
| Basic earnings per share | $ | 1.18 |
| | $ | 2.43 |
| | $ | 1.75 |
| | $ | 2.42 |
| | $ | 2.51 |
|
| Diluted earnings per share | $ | 1.17 |
| | $ | 2.42 |
| | $ | 1.73 |
| | $ | 2.40 |
| | $ | 2.48 |
|
| Stockholders’ equity | $ | 42.21 |
| | $ | 36.78 |
| | $ | 35.26 |
| | $ | 34.85 |
| | $ | 33.92 |
|
| Average Number of Shares of Common Stock and Common Stock Equivalents Outstanding (Diluted) | 138,712 |
| | 120,147 |
| | 121,483 |
| | 126,110 |
| | 132,371 |
|
| Common Shares Outstanding At Year End | 142,218 |
| | 120,386 |
| | 120,951 |
| | 123,153 |
| | 131,753 |
|
| Cash Dividends Declared Per Common Share | $ | 0.60 |
| | $ | 0.60 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| |
(a) | Includes costs of $140.1 million, or $1.01 per diluted share, related to the Company's restructuring and other initiatives during fiscal 2018, which includes $21.0 million in loss related to the sale of the Company's investment in Guimar Engenharia Ltda. Also included in fiscal 2018 are after-tax charges of $60.7 million, or $0.44 per diluted share, in professional fees and related costs associated with the CH2M acquisition and pending ECR sale and $259.2 million, or $1.86 per diluted share, in benefits related to tax reform. |
| |
(b) | Includes costs of $87.9 million, or $0.73 per diluted share, related to the Company's restructuring and other initiatives during fiscal 2017. Also included in the fourth quarter of fiscal 2017 are after-tax charges of $10.6 million, or $0.09 per diluted share, respectively, in professional fees and related costs associated with the CH2M acquisition. |
| |
(c) | Includes costs of $135.6 million, or $1.12 per diluted share, related to the Company's restructuring initiatives during fiscal 2016. Also included in the fourth quarter of fiscal 2016 are (i) a loss on sale of our French subsidiary of $17.1 million or $0.14 per diluted share; and (ii) a non-cash write-off on an equity investment of $10.4 million or $0.09 per diluted share. |
| |
(d) | Includes costs of $107.9 million, or $0.86 per diluted share, related to the Company's restructuring initiatives during fiscal 2015. |
| |
(e) | Includes costs of $109.2 million, or $0.82 per diluted share, related to the Company's restructuring initiatives during fiscal 2014. |
(e)Includes after-tax costs of $75.2 million, or $0.62 per diluted share from continuing operations, related to the Company's restructuring initiatives during fiscal 2016. Also included in the fourth quarter of fiscal 2016 are (i) a loss on sale of our French subsidiary of $17.1 million or $0.14 per diluted share from continuing operations; and (ii) a non-cash write-off on an equity investment of $10.4 million or $0.09 per diluted share from continuing operations. Also includes amortization of intangible assets of $47.6 million, or $0.28 per diluted share from continuing operations. | |
Item 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
In order to better understand the changes that occur to key elements of our financial condition, results of operations and cash flows, a reader of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be aware of the critical accounting policies we apply in preparing our consolidated financial statements.
The consolidated financial statements contained in this report were prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and the financial statements of any business performing long-term professional services, engineering and construction-type contracts requires management to make certain estimates and judgments that affect both the entity’s results of operations and the carrying values of its assets and liabilities. Although our significant accounting policies are described in Note 2 - 2- Significant Accounting Policies of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K, the following discussion is intended to highlight and describe those accounting policies that are especially critical to the preparation of our consolidated financial statements.
Revenue Accounting for Contracts- We recognize
Engineering, 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 only 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. Estimated contract costs include the Company’s latest estimates using judgments with respect to labor hours and costs, materials, and subcontractor 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 associatedexpected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the 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 an anticipated contractagreed-upon contractual terms at periodic intervals (e.g., biweekly or monthly) and recoverability fromcustomer payments on are typically due within 30 to 60 days of billing, depending on the contract.
For service contracts, the Company recognizes revenue over time using the cost-to-cost percentage-of-completion method. Service contracts that contract is probable. Contractsinclude multiple performance obligations are generally segmented between types of services, such as engineering and construction, and accordingly, gross margin relatedservices. For contracts with multiple performance obligations, the Company allocates the transaction price to each activityperformance obligation using an estimate of the stand-alone selling price of each distinct service in the contract. In some instances where the Company is recognizedstanding ready to provide services, the Company recognizes revenue ratably over the service period. Under the typical payment terms of our service contracts, amounts are billed as those separate serviceswork progresses in accordance with agreed-upon contractual terms, and customer payments are rendered. For multipletypically due within 30 to 60 days of billing, depending on the contract.
Direct costs of contracts with a single customer we account for each contract separately.
The percentage-of-completion method of accounting is applied by comparing contractinclude all costs incurred in connection with and directly for the benefit of client contracts, including depreciation and amortization relating to date toassets used in providing 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 ofservices required by the related projects. The level of direct costs incurred.
Certain cost-reimbursableof contracts include incentive-fee arrangements. These incentive fees can be based onmay fluctuate between reporting periods due to 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 based on the terms and conditions of the individual contracts. In certain situations, we are allowed to bill a portion of the incentive fees over the performance period of the contract. In other situations, we are allowed to bill incentive fees only after the target criterion has been achieved. Incentive fees which have been recognized but not billed are included in receivables in 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 at 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 the terms of the contract, we estimateincluding the amount of such nonbillablepass-through costs and adjust our revenues accordingly.
Whenwe incur during a period. On those projects where we are directly responsibleacting as principal for subcontractorsubcontract labor or third-party materials and equipment, we reflect the costsamounts of such items in both revenues and costs (and we refer to such costs as “pass-through” costs)“pass-through costs”). On those projects where
Variable Consideration
The nature of the client electsCompany’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 variable consideration when it is probable that a significant reversal in the amount of cumulative 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 the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the 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 met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred and only up to the amount of cost incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such itemscost is probable and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied.
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 substantial completion of the Company’s work on the project. Historically, warranty claims have not resulted in material costs incurred 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 an 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 amount to which it has a right to invoice for services performed.
The Company does not adjust the contract price for the effects of 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 we have no associated responsibilitywhen the customer pays for such items, these amounts are not reflected in either revenuesthat service will be one year or costs.less.
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- 18- Contractual Guarantees, Litigation, Investigations and Insurance for further discussion.
Our unconsolidated joint ventures (including equity method investments) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable, and impairment losses are recognized for such investments if there is a decline in fair value below carrying value that is considered to be other-than-temporary.
Many of the joint ventures are deemed to be variable interest entities (“VIE”) because they lack sufficient equity to finance the activities of the joint venture. 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.
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 (withwith the exception of the value of awards containing an internal performance measure, such as EPS growth and ROIC, which areis 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).earned.
Accounting for Pension Plans-
The accounting for pension plans requires the use of assumptions and estimates in order to calculate periodic pension cost and the value of the plans’ assets and liabilities. These assumptions include discount rates, investment returns and projected salary increases, among others. The actuarial assumptions used in determining the funded statuses of the plans are provided in Note 1013 - Pension and Other Postretirement Benefit Plans of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.
The expected rates of return on plan assets range from 2.3% to 7.5% for fiscal 2019 range from 2.9%2020 and 1.8% to 7.5% and were 3.5% to 8.5% for7% fiscal 2018.2021. We believe the range of rates selected for fiscal 20192020 reflects the long-term returns expected on the plans’ assets, considering recent market conditions, projected rates of inflation, the diversification of the plans’ assets, and the expected real rates of market returns. The discount rates used to compute plan liabilities were changed from a range of 1.3% to 7.0% in fiscal 2017 todecreased year over year with a range of 1.3% to 8.1% in fiscal 2018.2019 and a range of 0.2% to 7.1% 2020. These assumptions represent the Company’s best estimate of the rates at which its pension obligations could be effectively settled.
Changes in the actuarial assumptions often have a material effect on the values assigned to plan assets and liabilities, and the associated pension expense. For example, if the discount rate used to value the net pension benefit obligation (“PBO”) at September 28, 2018,October 2, 2020 was higher by 0.5%, the PBO would have been lower at that date by approximately $180.2$212.4 million for non-U.S. plans, and by approximately $21.9$19.8 million forfor U.S. plans. If the expected return on plan assets was higher by 1.0%, the net periodic pension cost for fiscal 20182020 would be lower by approximately $18.7$20.3 million for non-U.S. plans, and by approximately $3.7$3.4 million for U.S. plans. Differences between actuarial assumptions and actual performance (i.e., actuarial gains and losses) that are not recognized as a component of net periodic pension cost in the period in which such differences arise are recorded to accumulated other comprehensivecomprehensive income (loss) and are recognized as part of net periodic pension cost in future periods in accordance with U.S. GAAP. Management monitors trends in the marketplace within which our pension plans operate in an effort to assure the fairness of the actuarial assumptions used.
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 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 also used as security for advance payments or in various other transactions. The guarantees have various expiration dates ranging from an arbitrary date to completion of our work (e.g., engineering only) to completion of the overall project. We record in the Consolidated Balance Sheets amounts representing our estimated liability relating to such guarantees, litigation and insurance claims. Guarantees are accounted for in accordance with ASC 460-10, Guarantees, at fair value at the inception of the guarantee.
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.,United States, as well as by various government agencies representing jurisdictions outside the U.S.
United States.
Our Consolidated Balance Sheets include amounts representing our probable estimated liability relating to such claims, guarantees, litigation, audits, and investigations. Our estimates of probable liabilities require us to make assumptions related to potential losses regarding our determination of amounts considered probable and estimable. We perform an analysis to determine the level of reserves to establish for insurance-related claims that are known and have been asserted against us, as well as for insurance-related claims that are believed to have been incurred based on actuarial analysis, but have not yet been reported to our claims administrators as of the respective balance sheet dates. We include any adjustments to such insurance reserves in our consolidated results of operations. Insurance recoveries are recorded as assets if recovery is probable and estimated liabilities are not reduced by expected insurance recoveries.
The Company believes, after consultation with counsel, that such guarantees, litigation, U.S. government contract-related audits, investigations and claims, and income tax audits and investigations should not have a material adverse effect on our consolidated financial statements, beyond amounts currently accrued.
Testing Goodwill for Possible Impairment-
The goodwill carried on our Consolidated Balance Sheets is tested annually for possible impairment, and on an interim basis if indicators of possible impairment exist. For purposes of impairment testing, goodwill is assigned to the applicable reporting units based on the current reporting structure. In performing the annual impairment test, we evaluate our goodwill at the reporting unit level. The Company performs the annual goodwill impairment test for the reporting units at the end of the third quarter of our fiscal year. However, 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 daybeginning of the fourth quarter. This voluntary change is expected to result in better alignment of the Company's annual impairment test with the Company’s strategic planning and forecasting process. The voluntary change in accounting principle related to the annual testing date will not delay, accelerate or avoid an impairment charge. It would be impracticable to apply this change retrospectively because retrospective application would require reliance on significant estimates and assumptions with the use of hindsight. Accordingly, this change will only be applied prospectively.
Additionally, during the second quarter of its fiscal 2018, we reorganized our operating and reporting structure around three global lines of business (“LOBs”), which also serve as the Company’s operating segments: (i) Aerospace, Technology, Environmental and Nuclear, (ii) Buildings, Infrastructure and Advanced Facilities, and (iii) Energy, Chemicals and Resources. 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 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 operating segments share similar economic characteristics and meet the aggregation criteria for reporting units in accordance with ASC 350, Intangibles-Goodwill and Other.year.
U.S. GAAP does not prescribe a specific valuation method for estimating the fair value of reporting units. Any valuation technique used to estimate the fair value of a reporting unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates and future market conditions, among others.
We used an income approachand market approaches to test our goodwill for possible impairment which requires us to make estimates and judgments. Under the income approach, fair value is determined by using the discounted cash flows of our reporting units. The Company’s discount rate reflects a weighted average cost of capital (“WACC”) for a peer group of companies representative of the Company’s respective reporting units. TheUnder the market approach, the fair values for eachof our reporting unit exceededunits are determined by reference to guideline companies that are reasonably comparable to our reporting units; the respective bookfair values ranging from 31% to 132%.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.
It is possible that changes in market conditions, economy, facts and circumstances, judgments and assumptions used in estimating the fair value could change, resulting in possible impairment of goodwill in the future. The fair values resulting from the valuation techniques used are not necessarily representative of the values we might obtain in a sale of the reporting units to willing third parties.
We have determined that the fair value of our reporting units substantially exceeded their respective carrying values for the Consolidated Balance Sheets presented.
Impairment of Long-Lived Assets Our long-lived assets other than goodwill principally consist of right-of-use lease assets, property, equipment and improvements, and finite-lived intangible assets. These long-lived assets are evaluated for impairment for each of our asset groups in accordance with ASC 360 by first identifying whether indicators of impairment exist. If such indicators are present, we assess long-lived asset groups for recoverability based on estimated future undiscounted cash flows. For asset groups where the recoverability test fails, the fair value of each asset group is then estimated and compared to its carrying amount. An impairment loss is recognized for the amount by which an asset group’s carrying value exceeds its fair value.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Fiscal Years Ended October 2, 2020, September 27, 2019 and September 28, 2018
(In thousands, except per share information)
| | | | | | | | | | | | | | | | | |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenues | $ | 13,566,975 | | | $ | 12,737,868 | | | $ | 10,579,773 | |
| Direct cost of contracts | (10,980,307) | | | (10,260,840) | | | (8,421,223) | |
| Gross profit | 2,586,668 | | | 2,477,028 | | | 2,158,550 | |
| Selling, general and administrative expenses | (2,050,695) | | | (2,072,177) | | | (1,771,107) | |
| Operating Profit | 535,973 | | | 404,851 | | | 387,443 | |
| Other Income (Expense): | | | | | |
| Interest income | 4,729 | | | 9,487 | | | 8,984 | |
| Interest expense | (62,206) | | | (83,847) | | | (76,760) | |
| Miscellaneous (expense) income, net | (37,293) | | | 20,468 | | | 11,314 | |
| Total other expense, net | (94,770) | | | (53,892) | | | (56,462) | |
| Earnings from Continuing Operations Before Taxes | 441,203 | | | 350,959 | | | 330,981 | |
| Income Tax Expense for Continuing Operations | (55,320) | | | (36,954) | | | (325,632) | |
| Net Earnings of the Group from Continuing Operations | 385,883 | | | 314,005 | | | 5,349 | |
| Net Earnings of the Group from Discontinued Operations | 137,984 | | | 559,214 | | | 167,793 | |
| Net Earnings of the Group | 523,867 | | | 873,219 | | | 173,142 | |
| Net Earnings Attributable to Noncontrolling Interests from Continuing Operations | (32,022) | | | (23,045) | | | (9,534) | |
| Net Earnings (Loss) Attributable to Jacobs from Continuing Operations | 353,861 | | | 290,960 | | | (4,185) | |
| Net Earnings Attributable to Noncontrolling Interests from Discontinued Operations | — | | | (2,195) | | | (177) | |
| Net Earnings Attributable to Jacobs from Discontinued Operations | 137,984 | | | 557,019 | | | 167,616 | |
| Net Earnings Attributable to Jacobs | $ | 491,845 | | | $ | 847,979 | | | $ | 163,431 | |
| Net Earnings (Loss) Per Share: | | | | | |
| Basic Net Earnings (Loss) from Continuing Operations Per Share | $ | 2.69 | | | $ | 2.11 | | | $ | (0.03) | |
| Basic Net Earnings from Discontinued Operations Per Share | $ | 1.05 | | | $ | 4.03 | | | $ | 1.21 | |
| Basic Earnings Per Share | $ | 3.74 | | | $ | 6.14 | | | $ | 1.18 | |
| | | | | |
| Diluted Net Earnings (Loss) from Continuing Operations Per Share | $ | 2.67 | | | $ | 2.09 | | | $ | (0.03) | |
| Diluted Net Earnings from Discontinued Operations Per Share | $ | 1.04 | | | $ | 4.00 | | | $ | 1.21 | |
| Diluted Earnings Per Share | $ | 3.71 | | | $ | 6.08 | | | $ | 1.18 | |
2020 Overview
COVID-19 Pandemic. There are many risks and uncertainties regarding the COVID-19 pandemic, including the anticipated duration of the pandemic and the extent of local and worldwide social, political, and economic disruption it may cause. The Company’s operations for the last three quarters of fiscal 2020 were adversely impacted by COVID-19. While certain business units of both Critical Mission Solutions and People & Places Solutions have experienced, and may continue to experience, an increase in demand for certain of their services regarding new projects that may arise in response to the COVID-19 pandemic, it is still expected that COVID-19 is likely to continue to have an adverse impact on each of Critical Missions Solutions and People & Places Solutions in fiscal 2021, although to a lesser degree than what was seen in 2020.
Please refer to Item 1A - Risk Factors, for a discussion of risks and uncertainties related to COVID-19, including the potential impacts on the Company’s business, financial condition and results of operations.
Net earnings attributable to the Company from continuing operations for fiscal 2020 were $353.9 million (or $2.67 per diluted share), an increase of $62.9 million, or 21.6%, from $291.0 million (or $2.09 per diluted share) for the prior year. Included in the Company’s operating results for the current year were $56.9 million (or $0.43 per share) in after tax fair value losses recorded in miscellaneous income (expense), net, associated with our investment in Worley stock (net of Worley stock dividend) and certain foreign currency revaluations relating to the ECR sale and $248.2 million in after-tax Restructuring and other charges and transaction costs associated in part with the Company's fourth quarter fiscal 2020 transformation initiatives relating to real estate and other staffing programs which are discussed in Note 16- Restructuring and Other Charges. Also, fiscal 2020 results were impacted by charges associated with the Company's acquisition of John Wood Groups' nuclear consulting, remediation and program management business along with charges relating to the integration of the KeyW and CH2M acquisitions and the sale of ECR. Our fiscal 2019 results included $259.8 million (or $1.86 per share) in after-tax Restructuring and other charges and transactions costs associated with the Company's KeyW and CH2M acquisitions and the ECR sale. Also included in the fiscal 2019 net earnings from continuing operations are $48.1 million in after-tax fair value losses associated with our investment in Worley stock (net of Worley stock dividend) and certain foreign currency revaluations relating to ECR sale proceeds. Income tax expense for continuing operations for fiscal 2020 was $55.3 million, an increase of $18.4 million, or 49.7%, from $37.0 million in the prior year. Key drivers for this year-over-year increase in the effective tax rate include a reduction in valuation allowance releases in fiscal year 2020, as well as an increase in tax on foreign earnings in the U.S.
Net earnings attributable to Jacobs from discontinued operations for fiscal 2020 were $138.0 million (or $1.04 per diluted share), a decrease of $419.0 million, or 75.2%, from $557.0 million (or $4.00 per diluted share) for the prior year. Included in net earnings attributable to the Company from discontinued operations for the current year was an expense reduction for the settlement of the Nui Phao ("NPMC") legal matter described in Note 17- Commitments and Contingencies and Derivative Financial Instruments that was reimbursed by insurance, the recognition of the deferred gain for the delayed conveyance of the international entities and for the delivery of the ECR IT assets, as discussed in Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business and adjustments for working capital and certain other items in connection with the ECR sale. Additionally, the year-over-year change was also driven by the gain on sale recognized in the fiscal 2019 period and the absence of normal operating results of the ECR business as reported in the prior year. Included in the current year results from discontinued operations is the pre-tax gain on sale of the ECR business of $110.2 million. Included in prior year results from discontinued operations is the pre-tax gain on the sale of the ECR business of $935.1 million, see Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business.
On March 6, 2020, a subsidiary of Jacobs completed the acquisition of the nuclear consulting, remediation and program management business of John Wood Group for an enterprise value of £246 million, or approximately $317.9 million, less cash acquired of $24.3 million. On June 12, 2019, we acquired KeyW, a U.S. based national security solutions provider to the intelligence, cyber, and counterterrorism communities. On December 15, 2017, we acquired CH2M, a provider of international engineering, construction and technical services.
Backlog at October 2, 2020 was $23.8 billion, up $1.2 billion, from $22.6 billion for the prior year. New prospects and new sales remain strong and the Company continues to have a positive outlook for many of the industry groups and sectors in which our clients operate.
Results of Operations
Fiscal 2020 Compared to Fiscal 2019
Revenues for the year ended October 2, 2020 were $13.57 billion, an increase of $829.1 million, or 6.5%, from $12.74 billion for the prior year. The increase in revenues was due primarily to the a full year of revenues in fiscal 2020 from the KeyW acquisition completed in June 2019, impacts from the March 2020 John Wood Group nuclear business acquisition and growth in our legacy People & Places Solutions businesses, offset in part by impacts from the COVID 19 pandemic. Also, our revenues were impacted by an extra week of activity in fiscal 2020, see Note 1- Description of Business and Basis of Presentation in the notes to the consolidated financial statements.
Pass-through costs included in revenues for the year ended October 2, 2020 were $2.61 billion in comparison to $2.54 billion in the prior year. In general, pass-through costs are more significant on projects that have a higher content of field services activities. Pass-through costs are generally incurred at specific points during the life cycle of a project and are highly dependent on the needs of our individual clients and the nature of the clients’ projects. However, because we have hundreds of projects which start at various times within a fiscal year, the effect of pass-through costs on the level of direct costs of contracts can vary between fiscal years without there being a fundamental or significant change to the underlying business.
Gross profit for the year ended October 2, 2020 was $2.59 billion, up $109.6 million, or 4.4%, from $2.48 billion for the prior year. Our gross profit margins were 19.1% and 19.4% for the years ended October 2, 2020 and September 27, 2019, respectively. The increase in our gross profit was attributable to favorable impacts from the KeyW and John Wood Group nuclear business acquisitions, also impacted by the extra week of activity in fiscal 2020. The slight differences in year over year gross margin trends were attributable mainly to legacy portfolio mix and lower overhead rate impacts on revenue, with partial offsets from favorable margin trends from our recent KeyW and John Wood Group nuclear business acquisitions and as well as year over year impacts from lower overhead reimbursement rates resulting from our ongoing cost reduction programs partially offset by COVID-19 cost mitigation efforts.
See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment level.
Selling, general & administrative expenses for the year ended October 2, 2020 were $2.05 billion, a decrease of $21.5 million, or 1.0%, from $2.07 billion for the prior year. The decrease in SG&A expenses as compared to the prior year was due primarily to less expense relating to the Transition Services Agreement (the "TSA") with Worley, which expired in April 2020, although the parties agreed to extend certain of the services beyond the initial term, and reductions in personnel related and other overhead costs resulting from our ongoing cost reduction programs as well as COVID-19 cost mitigation efforts, partially offset by incremental SG&A expenses from the KeyW and John Wood Group nuclear business acquisitions and the extra week of activity in fiscal 2020. Also, included in the current year results were $325.1 million of restructuring and other charges and transaction costs associated in part with the Company's fourth quarter fiscal 2020 transformation initiatives relating to real estate and other staffing programs, and the Company's acquisition of John Wood Groups' nuclear business. In comparison, the prior year included $350.3 million of restructuring and other charges and transaction costs. Favorable impacts on SG&A expenses from foreign exchange were $3.2 million for the current year.
Net interest expense for the year ended October 2, 2020 was $57.5 million, a decrease of $16.9 million from $74.4 million for the prior year. The decrease in net interest expense year over year is primarily due to the paydown of debt subsequent to the ECR sale in the prior year third quarter.
Miscellaneous income (expense), net for the year ended October 2, 2020 was $(37.3) million, a decrease of $57.8 million as compared to $20.5 million in income for the prior year. The decrease from the prior year was due primarily to $74.5 million in pre-tax unrealized losses associated with changes in the fair value of our investment in Worley stock (net of Worley stock dividend) and certain foreign currency revaluations relating to the ECR sale in the current year, compared to $64.8 million in the prior year. Also included in miscellaneous (expense) income during the current year is $15.8 million in TSA-related income associated with the ECR sale compared to $35.4 million in the prior year, as discussed in Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business. Further,miscellaneous income (expense), net for the year ended September 27, 2019 included a one-time gain on the settlement of the CH2M retiree medical plan of $35.0 million.
Net earnings attributable to Jacobs from discontinued operations for fiscal 2020 were $138.0 million (or $1.04 per diluted share), a decrease of $419.0 million, or 75.2%, from $557.0 million (or $4.00 per diluted share) for the prior year. Included in net earnings attributable to the Company from discontinued operations for the current year was an expense reduction for the settlement of the Nui Phao ("NPMC") legal matter described in Note 17- Commitments and Contingencies and Derivative Financial Instruments that was reimbursed by insurance, the recognition of the deferred gain
for the delayed conveyance of the international entities and for the delivery of the ECR IT assets, as discussed in Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business and adjustments for working capital and certain other items in connection with the ECR sale. Additionally, the year-over-year change was also driven by the gain on sale recognized in the fiscal 2019 period and the absence of normal operating results of the ECR business as reported in the prior year. Included in the current year results from discontinued operations is the pre-tax gain on sale of the ECR business of $110.2 million. Included in prior year results from discontinued operations is the pre-tax gain on the sale of the ECR business of $935.1 million, see Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business.
The Company’s consolidated effective income tax rate of 12.5% is lower than the U.S. statutory rate primarily due to a $16.9 million benefit from foreign valuation allowance releases, $26.5 million of foreign tax generated in the current year, a benefit of $7.3 million from the application of the Internal Revenue Code Section 179D, a reduction in uncertain tax positions of $11.3 million and benefits from tax rate changes and stock compensation. These decreases in tax expense were offset by $43.0 million of U.S. foreign inclusions within U.S. tax costs of foreign operations.
The following table reconciles total income tax expense on continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense on continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended October 2, 2020 and September 27, 2019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | October 2, 2020 | | % | | September 27, 2019 | | % |
| Statutory amount | $ | 92,652 | | | 21.0 | % | | $ | 73,701 | | | 21.0 | % |
| State taxes, net of the federal benefit | 7,254 | | 1.6 | % | | 10,183 | | | 2.9 | % |
| Exclusion of tax on non-controlling interests | (6,622) | | (1.5) | % | | (4,839) | | | (1.4) | % |
| Foreign: | | | | | | | |
| Difference in tax rates of foreign operations | (6,267) | | (1.4) | % | | 1,083 | | | 0.3 | % |
| Benefit from foreign valuation allowance release | (16,861) | | (3.8) | % | | (29,125) | | | (8.3) | % |
| | | | | | | |
| U.S. tax cost (benefit) of foreign operations | 42,992 | | | 9.7 | % | | (17,760) | | | (5.1) | % |
| Tax differential on foreign earnings | 19,864 | | | 4.5 | % | | (45,802) | | | (13.1) | % |
| Foreign tax credits | (26,471) | | (6.0) | % | | (15,682) | | | (4.5) | % |
| | | | | | | |
| Tax Rate Change | (6,811) | | | (1.5) | % | | — | | | — | |
| | | | | | | |
| Tax reform | — | | — | % | | 36,674 | | | 10.4 | % |
| Valuation allowance | — | | — | % | | (207) | | | (0.1) | % |
| Uncertain tax positions | (11,338) | | (2.6) | % | | (6,883) | | | (2.0) | % |
| Other items: | | | | | | | |
| IRS §179D deduction | (7,267) | | (1.6) | % | | (2,957) | | | (0.8) | % |
| Disallowed officer compensation | 5,081 | | 1.2 | % | | 5,568 | | | 1.6 | % |
| Stock compensation | (10,234) | | (2.3) | % | | (7,864) | | | (2.2) | % |
| Foreign partnership income/(loss) | — | | | — | % | | — | | | — | % |
| Other items – net | (788) | | (0.2) | % | | (4,938) | | | (1.4) | % |
| Total other items | (13,208) | | (3.0) | % | | (10,191) | | (2.8) | % |
| Taxes on income from continuing operations | $ | 55,320 | | | 12.5 | % | | $ | 36,954 | | | 10.5 | % |
The Company’s consolidated effective income tax rate for the year ended October 2, 2020 increased to 12.5% from 10.5% for fiscal 2019. Key drivers for this year over year increase in the effective tax rate include a reduction in valuation allowance releases in fiscal 2020, as well as an increase in tax on foreign earnings in the U.S.
Fiscal 2019 Compared to Fiscal 2018
Revenues for the year ended September 27, 2019, were $12.74 billion, an increase of $2.16 billion, or 20.4%, from $10.58 billion for the corresponding period in 2018. The increase in revenues was due primarily to the CH2M acquisition in December fiscal 2018 included in fiscal 2019 for the full year, impacts from the KeyW acquisition included in the fiscal 2019 results since closing in mid-June and growth in our legacy CMS and P&PS businesses.
Pass-through costs included in revenues for the year ended September 27, 2019 were $2.54 billion in comparison to $2.25 billion in the prior year. These year-over-year increases are due primarily to impacts from the CH2M acquisition included for the full year of fiscal 2019.
Gross profit for the year ended September 27, 2019 was $2.48 billion, an increase of $318.5 million, or 14.8% from $2.16 billion for the corresponding period in 2018. Our gross profit margins were 19.4% and 20.4% for the years ended September 27, 2019 and September 28, 2018, respectively. Revenue mix primarily drove the lower gross profit and margin for the year over year periods.
Selling, general & administrative expenses for the year ended September 27, 2019 were $2.07 billion, an increase of $0.30 billion, or 17.0%, from $1.77 billion for the corresponding period in 2018. The increase in SG&A expenses is due mainly to incremental SG&A expense from the CH2M and KeyW businesses acquired. Also, included in the 2019 results were $350.3 million of restructuring and other charges and transaction costs, as well as higher personnel related costs year over year due in part to costs to service the TSA with Worley. In comparison, the prior year included $230.5 million of restructuring and other charges and transaction costs.
Net interest expense for the year ended September 27, 2019 was $74.4 million, an increase of $6.6 million from $67.8 million for the corresponding period in 2018. The increase in net interest expense as compared to the corresponding period in 2018 was due primarily to higher levels of debt outstanding and our fixed rate notes having been outstanding for the full year of fiscal 2019 and only five months in fiscal 2018.
Miscellaneous income (expense), net for the year ended September 27, 2019 was $20.5 million, an increase of $9.2 million, as compared to $11.3 million for the corresponding period in 2018. The increase was due primarily to the gain on the settlement of the CH2M retiree medical plan of $35.0 million and income from the TSA with Worley of $35.4 million, offset by $64.8 million, net, relating to ECR related 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.
Net earnings of the group from discontinued operations was $559.2 million for the year ended September 27, 2019, an increase of $391.4 million from $167.8 million for the corresponding period in 2018. Included in 2019 was the pre-tax gain on the sale of the ECR business of $935.1 million, offset in part by a charge for the final settlement of the Nui Phao legal matter. The 2018 fiscal year included a $21.0 million loss associated with the disposal of the Company's equity investment in its Guimar joint venture.
The Company’s consolidated effective income tax rate was lower than the U.S. statutory rate of 21.0% primarily due to a $29.1 million benefit from foreign valuation allowance releases in fiscal 2019, $15.7 million of foreign tax and other credits generated in fiscal 2019 and a reduction in the tax contingency reserves of $6.9 million. The decreases in tax expense were offset by a $36.7 million charge from the remeasurement of net deferred tax assets and other miscellaneous U.S. tax reform changes. The following table reconciles total income tax expense on continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense on continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended September 27, 2019 and September 28, 2018 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | September 27, 2019 | | % | | September 28, 2018 | | % |
| Statutory amount | $ | 73,701 | | | 21.0 | % | | $ | 81,421 | | | 24.6 | % |
| State taxes, net of the federal benefit | 10,183 | | | 2.9 | % | | 15,772 | | | 4.8 | % |
| Exclusion of tax on non-controlling interests | (4,839) | | | (1.4) | % | | (2,389) | | | (0.7) | % |
| Foreign: | | | | | | | |
| Difference in tax rates of foreign operations | 1,083 | | | 0.3 | % | | 2,815 | | | 0.9 | % |
| Benefit from foreign valuation allowance release | (29,125) | | | (8.3) | % | | (5,088) | | | (1.5) | % |
| U.S. tax cost (benefit) of foreign operations | (17,760) | | | (5.1) | % | | 4,030 | | | 1.2 | % |
| Tax differential on foreign earnings | (45,802) | | | (13.1) | % | | 1,757 | | | 0.6 | % |
| Foreign tax credits | (15,682) | | | (4.5) | % | | (21,735) | | | (6.6) | % |
| 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) | % |
| Other items: | | | | | | | |
| IRS §179D deduction | (2,957) | | | (0.8) | % | | (4,557) | | | (1.4) | % |
| Disallowed officer compensation | 5,568 | | | 1.6 | % | | 1,510 | | | 0.5 | % |
| Stock compensation | (7,864) | | | (2.2) | % | | (2,158) | | | (0.7) | % |
| Other items – net | (4,938) | | | (1.4) | % | | (2,564) | | | (0.8) | % |
| Total other items | (10,191) | | | (2.8) | % | | (7,769) | | | (2.4) | % |
| Taxes on income from continuing operations | $ | 36,954 | | | 10.5 | % | | $ | 325,632 | | | 98.4 | % |
The Company’s consolidated effective income tax rate 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 $104.4 million.
Segment Financial Information
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 Restructuring, transaction and other charges (in thousands). Prior period information has been recast to reflect the current period presentation.
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenues from External Customers: | | | | | |
| Critical Mission Solutions | $ | 4,965,952 | | | $ | 4,551,162 | | | $ | 3,725,365 | |
| People & Places Solutions | 8,601,023 | | | 8,186,706 | | | 6,854,408 | |
| Total | $ | 13,566,975 | | | $ | 12,737,868 | | | $ | 10,579,773 | |
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Segment Operating Profit: | | | | | |
| Critical Mission Solutions (1) | $ | 372,070 | | | $ | 310,043 | | | $ | 255,718 | |
| People & Places Solutions (2) | 740,707 | | | 714,394 | | | 527,900 | |
| Total Segment Operating Profit | 1,112,777 | | | 1,024,437 | | | 783,618 | |
| Other Corporate Expenses (3) | (249,391) | | | (264,351) | | | (161,788) | |
| Restructuring, Transaction and Other Charges | (327,413) | | | (355,235) | | | (234,387) | |
| Total U.S. GAAP Operating Profit | 535,973 | | | 404,851 | | | 387,443 | |
| | | | | |
| Total Other (Expense) Income, net (4) | (94,770) | | | (53,892) | | | (56,462) | |
| Earnings from Continuing Operations Before Taxes | $ | 441,203 | | | $ | 350,959 | | | $ | 330,981 | |
(1)Includes $15.0 million in charges during the year ended September 28, 2018 associated with a legal matter.
(2)Includes $25.0 million in charges associated with a certain project for the year ended September 27, 2019.
(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 $— million, $14.8 million and $25.6 million for the years ended October 2, 2020, September 27, 2019 and September 28, 2018, respectively. Also includes intangibles amortization of $90.6 million, $79.1 million and $68.1 million for the years ended October 2, 2020, September 27, 2019 and September 28, 2018, respectively.
(4)For the years ended October 2, 2020 and September 27, 2019, other expenses includes revenues under the Company's TSA with Worley of $15.8 million and $35.4 million, respectively, $74.3 million and $64.8 million in fair value adjustments related to our investment in Worley stock (net of Worley Stock dividends) and certain foreign currency revaluations relating to ECR sale proceeds, respectively. Also included for the years ended October 2, 2020, September 27, 2019 and September 28, 2018 is amortization of deferred financing fees related to the CH2M acquisition of $0.7 million, $3.2 million and $1.8 million respectively. Lastly, includes loss on settlement of U.S. pension plan of $2.7 million for the year ended October 2, 2020 and includes gain on settlement of the CH2M retiree medical plans of $35.0 million for the year ended September 27, 2019.
In evaluating the Company’s performance by operating segment, the CODM reviews various metrics and statistical data for each Line Of Business ("LOB") but focuses primarily on revenues and operating profit. As discussed above, segment operating profit includes not only local SG&A expenses but the SG&A expenses of the Company’s support groups that have been allocated to the segments. In addition, the Company attributes each LOB’s specific incentive compensation plan costs to the LOBs. The revenues of the People & Places Solutions LOB are more affected by pass-through revenues than the Critical Mission Solutions LOB. The methods for recognizing revenue, incentive fees, project losses and change orders are consistent among the LOBs.
Critical Mission Solutions
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenue | $ | 4,965,952 | | | $ | 4,551,162 | | | $ | 3,725,365 | |
| Operating Profit | $ | 372,070 | | | $ | 310,043 | | | $ | 255,718 | |
Fiscal 2020 vs. 2019
Critical Mission Solutions (CMS) segment revenues for the year ended October 2, 2020 were $4.97 billion, up $414.8 million, or 9.1%, from $4.55 billion for the prior year. Our increase in revenue was primarily attributable to incremental revenue from the KeyW and John Wood Group nuclear business acquisitions, along with the extra week of activity in fiscal 2020. These favorable impacts more than offset unfavorable COVID-19 related revenue impacts mainly due to challenges from physical distancing requirements, client scheduling changes and other related factors. Impacts on revenues from unfavorable foreign currency translation were approximately $4.5 million for the year ended October 2, 2020.
Operating profit for the segment was $372.1 million for the year ended October 2, 2020, up $62.0 million, or 20.0%, from $310.0 million for the prior year. The increases from the prior year were primarily attributable to incremental operating profit from the KeyW and John Wood Group nuclear business acquisitions, the extra week of activity in fiscal 2020 and the favorable close out of a large program management contract in the first fiscal quarter of 2020. Impacts on operating profit from unfavorable foreign currency translation were approximately $0.4 million for the year ended October 2, 2020. Unfavorable revenue impacts from COVID-19 mentioned above were largely offset by the Company’s mitigating actions in discretionary operating spend and benefits costs, government assistance programs and other areas of improved operating performance.
Fiscal 2019 vs. 2018
CMS segment revenues for the year ended September 27, 2019 were $4.55 billion, up $825.8 million, or 22.2%, from $3.73 billion for the corresponding period in 2018. The increase in revenues was due in large part to nuclear services sector revenue resulting from the CH2M acquisition included for the full year of fiscal 2019 and also incremental revenues from the KeyW acquisition. Also, our CMS revenues were positively impacted by year-over-year revenue volume growth across the legacy portfolio, highlighted by increased spending by customers in the U.S. government business. Impacts on revenues from unfavorable foreign currency were approximately $29.7 million for fiscal year 2019.
Operating profit for the CMS segment was $310.0 million for the year ended September 27, 2019, up $54.3 million, or 21.2%, from $255.7 million for the corresponding period in 2018. In addition to incremental operating profit benefits from the CH2M and KeyW acquisitions, the increase from the prior year was primarily attributable to continued growth in profits from our U.S. governmental business. SG&A for the CMS segment increased for fiscal 2019 attributable mainly to incremental SG&A associated with the CH2M and KeyW acquisitions. Fiscal 2018 included charges of $15.0 million associated with a legal matter.
People & Places Solutions
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenue | $ | 8,601,023 | | | $ | 8,186,706 | | | $ | 6,854,408 | |
| Operating Profit | $ | 740,707 | | | $ | 714,394 | | | $ | 527,900 | |
Fiscal 2020 vs. 2019
Revenues for the People & Places Solutions (P&PS) segment for the year ended October 2, 2020 were $8.60 billion, up $414.3 million, or 5.1%, from $8.19 billion for the prior year. The increases in revenue were due in part to portfolio growth across our businesses, highlighted by strong investment in advanced facilities, water and transport infrastructure and project management/construction management ("PMCM") sectors, along with the extra week of activity in fiscal 2020. These favorable performance trends more than offset unfavorable COVID-19 related revenue impacts mainly due to challenges from physical distancing requirements, client scheduling changes and other related factors. Impacts on revenues from unfavorable foreign currency translation were approximately $26.2 million for fiscal 2020.
Operating profit for the segment for the year ended October 2, 2020 was $740.7 million, an increase of $26.3 million, or 3.7%, from $714.4 million for the comparative period in 2019. The year-over-year increase in operating profit was due primarily to positive impacts from the higher year-over-year revenues for the segment, along with the extra week of activity in fiscal 2020 and reductions in costs related to COVID-19 impacts and mitigation efforts. Impacts on operating profit from unfavorable foreign currency translation were approximately $6.1 million for fiscal 2020. Unfavorable revenue impacts from COVID-19 mentioned above were largely offset by the Company’s mitigating actions in discretionary operating spend and benefits costs, government assistance programs and other areas of improved operating performance.
Fiscal 2019 vs. 2018
Revenues for the P&PS segment for the year ended September 27, 2019 were $8.19 billion, an increase of $1.34 billion, or 19.6%, from $6.85 billion for the corresponding period in 2018. The increase in revenues was due in part to favorable impacts resulting from the CH2M acquisition included for the full year of fiscal 2019 together with revenue increases across all our businesses given the strong investment by customers in Life Sciences, Electronics, Water and Transport Infrastructure sectors. Impacts on revenues from unfavorable foreign currency were approximately $57.8 million for fiscal 2019.
Operating profit for the segment for the year ended September 27, 2019 was $714.4 million, up $186.5 million, or 35.3%, compared to $527.9 million for the corresponding period in 2018. The increase in operating profit was in part due to favorable impacts from the CH2M acquisition, together with positive impacts from the higher year over year revenues for the segment. Included in fiscal 2019 results was a $25.0 million charge associated with a project. SG&A for the P&PS segment increased for fiscal 2019, with this increase being attributable mainly to incremental SG&A
associated with the CH2M acquisition in December of fiscal 2018.
Other Corporate Expenses
Other corporate expenses were $249.4 million, $264.4 million and $161.8 million for the years ended October 2, 2020, September 27, 2019 and September 28, 2018, respectively. The decrease from fiscal 2019 to fiscal 2020 was due primarily to cost-reduction programs implemented through prior restructuring initiatives and the current year COVID-19 pandemic response. The increase from fiscal 2018 to fiscal 2019 was due primarily to higher intangible amortization expense from the KeyW and John Wood Group nuclear business acquisitions, as well as impacts from company benefit program enhancements. These increases were partly offset by employee related and other cost reductions across the Company's corporate functions. Fiscal 2019 also included approximately $70.2 million of year-to-date other current year cost allocation realignments that occurred in the first quarter of fiscal 2019 in conjunction with the CH2M acquisition. Prior periods were not restated for the cost allocation realignments.
Included in other corporate expenses in the above table are costs and expenses that relate to general corporate activities as well as corporate-managed benefit and insurance programs. Such costs and expenses include: (i) those elements of SG&A expenses relating to the business as a whole; (ii) those elements of our incentive compensation plans relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of business combinations; (iv) the quarterly variances between the Company’s actual costs of certain of its self-insured integrated risk and employee benefit programs and amounts charged to the LOBs; and (v) certain adjustments relating to costs associated with the Company’s international defined benefit pension plans. In addition, other corporate expenses may also include from time to time certain adjustments to contract margins (both positive and negative) associated with projects, as well as other items, where it has been determined that such adjustments are not indicative of the performance of the related LOB.
The Company currently holds a 24.5% interest in AWE Management Ltd (AWE ML) that is accounted for under the equity method, and the carrying value of the Company’s investment as of October 2, 2020 was approximately $38 million. As of October 2, 2020, AWE ML was under a contractual operating arrangement with the UK Ministry of Defence (MoD) with multiple years remaining under the arrangement. Subsequent to year end, on November 2, 2020, the MoD unexpectedly announced plans to change its current operating agreements with AWE ML that would result in the early termination of the current contract in 2021. The Company is currently evaluating this subsequent development, including the potential impact on our accounting for this equity method investment in future quarters.
RestructuringResults of Operations
Fiscal 2020 Compared to Fiscal 2019
Revenues for the year ended October 2, 2020 were $13.57 billion, an increase of $829.1 million, or 6.5%, from $12.74 billion for the prior year. The increase in revenues was due primarily to the a full year of revenues in fiscal 2020 from the KeyW acquisition completed in June 2019, impacts from the March 2020 John Wood Group nuclear business acquisition and Other Chargesgrowth in our legacy People & Places Solutions businesses, offset in part by impacts from the COVID 19 pandemic. Also, our revenues were impacted by an extra week of activity in fiscal 2020, see Note 1- Description of Business and Basis of Presentation in the notes to the consolidated financial statements.
DuringPass-through costs included in revenues for the fourthyear ended October 2, 2020 were $2.61 billion in comparison to $2.54 billion in the prior year. In general, pass-through costs are more significant on projects that have a higher content of field services activities. Pass-through costs are generally incurred at specific points during the life cycle of a project and are highly dependent on the needs of our individual clients and the nature of the clients’ projects. However, because we have hundreds of projects which start at various times within a fiscal quarteryear, the effect of 2017,pass-through costs on the Company implementedlevel of direct costs of contracts can vary between fiscal years without there being a fundamental or significant change to the underlying business.
Gross profit for the year ended October 2, 2020 was $2.59 billion, up $109.6 million, or 4.4%, from $2.48 billion for the prior year. Our gross profit margins were 19.1% and 19.4% for the years ended October 2, 2020 and September 27, 2019, respectively. The increase in our gross profit was attributable to favorable impacts from the KeyW and John Wood Group nuclear business acquisitions, also impacted by the extra week of activity in fiscal 2020. The slight differences in year over year gross margin trends were attributable mainly to legacy portfolio mix and lower overhead rate impacts on revenue, with partial offsets from favorable margin trends from our recent KeyW and John Wood Group nuclear business acquisitions and as well as year over year impacts from lower overhead reimbursement rates resulting from our ongoing cost reduction programs partially offset by COVID-19 cost mitigation efforts.
See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment level.
Selling, general & administrative expenses for the year ended October 2, 2020 were $2.05 billion, a decrease of $21.5 million, or 1.0%, from $2.07 billion for the prior year. The decrease in SG&A expenses as compared to the prior year was due primarily to less expense relating to the Transition Services Agreement (the "TSA") with Worley, which expired in April 2020, although the parties agreed to extend certain of the services beyond the initial term, and reductions in personnel related and other overhead costs resulting from our ongoing cost reduction programs as well as COVID-19 cost mitigation efforts, partially offset by incremental SG&A expenses from the KeyW and John Wood Group nuclear business acquisitions and the extra week of activity in fiscal 2020. Also, included in the current year results were $325.1 million of restructuring and pre-integration plansother charges and transaction costs associated in part with the Company's fourth quarter fiscal 2020 transformation initiatives relating to real estate and other staffing programs, and the Company's acquisition of John Wood Groups' nuclear business. In comparison, the prior year included $350.3 million of restructuring and other charges and transaction costs. Favorable impacts on SG&A expenses from foreign exchange were $3.2 million for the current year.
Net interest expense for the year ended October 2, 2020 was $57.5 million, a decrease of $16.9 million from $74.4 million for the prior year. The decrease in net interest expense year over year is primarily due to the paydown of debt subsequent to the ECR sale in the prior year third quarter.
Miscellaneous income (expense), net for the year ended October 2, 2020 was $(37.3) million, a decrease of $57.8 million as compared to $20.5 million in income for the prior year. The decrease from the prior year was due primarily to $74.5 million in pre-tax unrealized losses associated with changes in the fair value of our investment in Worley stock (net of Worley stock dividend) and certain foreign currency revaluations relating to the ECR sale in the current year, compared to $64.8 million in the prior year. Also included in miscellaneous (expense) income during the current year is $15.8 million in TSA-related income associated with the closingECR sale compared to $35.4 million in the prior year, as discussed in Note 15- Sale of its acquisition of CH2M, which occurredEnergy, Chemicals and Resources ("ECR") Business. Further,miscellaneous income (expense), net for the year ended September 27, 2019 included a one-time gain 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 acquisition integration management efforts.
Following the closingsettlement of the CH2M retiree medical plan of $35.0 million.
Net earnings attributable to Jacobs from discontinued operations for fiscal 2020 were $138.0 million (or $1.04 per diluted share), a decrease of $419.0 million, or 75.2%, from $557.0 million (or $4.00 per diluted share) for the prior year. Included in net earnings attributable to the Company from discontinued operations for the current year was an expense reduction for the settlement of the Nui Phao ("NPMC") legal matter described in Note 17- Commitments and Contingencies and Derivative Financial Instruments that was reimbursed by insurance, the recognition of the deferred gain
for the delayed conveyance of the international entities and for the delivery of the ECR IT assets, as discussed in Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business and adjustments for working capital and certain other items in connection with the ECR sale. Additionally, the year-over-year change was also driven by the gain on sale recognized in the fiscal 2019 period and the absence of normal operating results of the ECR business as reported in the prior year. Included in the current year results from discontinued operations is the pre-tax gain on sale of the ECR business of $110.2 million. Included in prior year results from discontinued operations is the pre-tax gain on the sale of the ECR business of $935.1 million, see Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business.
The Company’s consolidated effective income tax rate of 12.5% is lower than the U.S. statutory rate primarily due to a $16.9 million benefit from foreign valuation allowance releases, $26.5 million of foreign tax generated in the current year, a benefit of $7.3 million from the application of the Internal Revenue Code Section 179D, a reduction in uncertain tax positions of $11.3 million and benefits from tax rate changes and stock compensation. These decreases in tax expense were offset by $43.0 million of U.S. foreign inclusions within U.S. tax costs of foreign operations.
The following table reconciles total income tax expense on continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense on continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended October 2, 2020 and September 27, 2019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | October 2, 2020 | | % | | September 27, 2019 | | % |
| Statutory amount | $ | 92,652 | | | 21.0 | % | | $ | 73,701 | | | 21.0 | % |
| State taxes, net of the federal benefit | 7,254 | | 1.6 | % | | 10,183 | | | 2.9 | % |
| Exclusion of tax on non-controlling interests | (6,622) | | (1.5) | % | | (4,839) | | | (1.4) | % |
| Foreign: | | | | | | | |
| Difference in tax rates of foreign operations | (6,267) | | (1.4) | % | | 1,083 | | | 0.3 | % |
| Benefit from foreign valuation allowance release | (16,861) | | (3.8) | % | | (29,125) | | | (8.3) | % |
| | | | | | | |
| U.S. tax cost (benefit) of foreign operations | 42,992 | | | 9.7 | % | | (17,760) | | | (5.1) | % |
| Tax differential on foreign earnings | 19,864 | | | 4.5 | % | | (45,802) | | | (13.1) | % |
| Foreign tax credits | (26,471) | | (6.0) | % | | (15,682) | | | (4.5) | % |
| | | | | | | |
| Tax Rate Change | (6,811) | | | (1.5) | % | | — | | | — | |
| | | | | | | |
| Tax reform | — | | — | % | | 36,674 | | | 10.4 | % |
| Valuation allowance | — | | — | % | | (207) | | | (0.1) | % |
| Uncertain tax positions | (11,338) | | (2.6) | % | | (6,883) | | | (2.0) | % |
| Other items: | | | | | | | |
| IRS §179D deduction | (7,267) | | (1.6) | % | | (2,957) | | | (0.8) | % |
| Disallowed officer compensation | 5,081 | | 1.2 | % | | 5,568 | | | 1.6 | % |
| Stock compensation | (10,234) | | (2.3) | % | | (7,864) | | | (2.2) | % |
| Foreign partnership income/(loss) | — | | | — | % | | — | | | — | % |
| Other items – net | (788) | | (0.2) | % | | (4,938) | | | (1.4) | % |
| Total other items | (13,208) | | (3.0) | % | | (10,191) | | (2.8) | % |
| Taxes on income from continuing operations | $ | 55,320 | | | 12.5 | % | | $ | 36,954 | | | 10.5 | % |
The Company’s consolidated effective income tax rate for the year ended October 2, 2020 increased to 12.5% from 10.5% for fiscal 2019. Key drivers for this year over year increase in the effective tax rate include a reduction in valuation allowance releases in fiscal 2020, as well as an increase in tax on foreign earnings in the U.S.
Fiscal 2019 Compared to Fiscal 2018
Revenues for the year ended September 27, 2019, were $12.74 billion, an increase of $2.16 billion, or 20.4%, from $10.58 billion for the corresponding period in 2018. The increase in revenues was due primarily to the CH2M acquisition these activities have continued intoin December fiscal 2018 included in fiscal 2019 for the full year, impacts from the KeyW acquisition included in the fiscal 2019 results since closing in mid-June and growth in our legacy CMS and P&PS businesses.
Pass-through costs included in revenues for the year ended September 27, 2019 were $2.54 billion in comparison to $2.25 billion in the prior year. These year-over-year increases are due primarily to impacts from the CH2M acquisition included for the full year of fiscal 2019.
Gross profit for the year ended September 27, 2019 was $2.48 billion, an increase of $318.5 million, or 14.8% from $2.16 billion for the corresponding period in 2018. Our gross profit margins were 19.4% and 20.4% for the years ended September 27, 2019 and September 28, 2018, respectively. Revenue mix primarily drove the lower gross profit and margin for the year over year periods.
Selling, general & administrative expenses for the year ended September 27, 2019 were $2.07 billion, an increase of $0.30 billion, or 17.0%, from $1.77 billion for the corresponding period in 2018. The increase in SG&A expenses is due mainly to incremental SG&A expense from the CH2M and KeyW businesses acquired. Also, included in the 2019 results were $350.3 million of restructuring and other charges and transaction costs, as well as higher personnel related costs year over year due in part to costs to service the TSA with Worley. In comparison, the prior year included $230.5 million of restructuring and other charges and transaction costs.
Net interest expense for the year ended September 27, 2019 was $74.4 million, an increase of $6.6 million from $67.8 million for the corresponding period in 2018. The increase in net interest expense as compared to the corresponding period in 2018 was due primarily to higher levels of debt outstanding and our fixed rate notes having been outstanding for the full year of fiscal 2019 and only five months in fiscal 2018.
Miscellaneous income (expense), net for the year ended September 27, 2019 was $20.5 million, an increase of $9.2 million, as compared to $11.3 million for the corresponding period in 2018. The increase was due primarily to the gain on the settlement of the CH2M retiree medical plan of $35.0 million and income from the TSA with Worley of $35.4 million, offset by $64.8 million, net, relating to ECR related 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.
Net earnings of the group from discontinued operations was $559.2 million for the year ended September 27, 2019, an increase of $391.4 million from $167.8 million for the corresponding period in 2018. Included in 2019 was the pre-tax gain on the sale of the ECR business of $935.1 million, offset in part by a charge for the final settlement of the Nui Phao legal matter. The 2018 fiscal year included a $21.0 million loss associated with the disposal of the Company's equity investment in its Guimar joint venture.
The Company’s consolidated effective income tax rate was lower than the U.S. statutory rate of 21.0% primarily due to a $29.1 million benefit from foreign valuation allowance releases in fiscal 2019, $15.7 million of foreign tax and other credits generated in fiscal 2019 and a reduction in the tax contingency reserves of $6.9 million. The decreases in tax expense were offset by a $36.7 million charge from the remeasurement of net deferred tax assets and other miscellaneous U.S. tax reform changes. The following table reconciles total income tax expense on continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense on continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended September 27, 2019 and September 28, 2018 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | September 27, 2019 | | % | | September 28, 2018 | | % |
| Statutory amount | $ | 73,701 | | | 21.0 | % | | $ | 81,421 | | | 24.6 | % |
| State taxes, net of the federal benefit | 10,183 | | | 2.9 | % | | 15,772 | | | 4.8 | % |
| Exclusion of tax on non-controlling interests | (4,839) | | | (1.4) | % | | (2,389) | | | (0.7) | % |
| Foreign: | | | | | | | |
| Difference in tax rates of foreign operations | 1,083 | | | 0.3 | % | | 2,815 | | | 0.9 | % |
| Benefit from foreign valuation allowance release | (29,125) | | | (8.3) | % | | (5,088) | | | (1.5) | % |
| U.S. tax cost (benefit) of foreign operations | (17,760) | | | (5.1) | % | | 4,030 | | | 1.2 | % |
| Tax differential on foreign earnings | (45,802) | | | (13.1) | % | | 1,757 | | | 0.6 | % |
| Foreign tax credits | (15,682) | | | (4.5) | % | | (21,735) | | | (6.6) | % |
| 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) | % |
| Other items: | | | | | | | |
| IRS §179D deduction | (2,957) | | | (0.8) | % | | (4,557) | | | (1.4) | % |
| Disallowed officer compensation | 5,568 | | | 1.6 | % | | 1,510 | | | 0.5 | % |
| Stock compensation | (7,864) | | | (2.2) | % | | (2,158) | | | (0.7) | % |
| Other items – net | (4,938) | | | (1.4) | % | | (2,564) | | | (0.8) | % |
| Total other items | (10,191) | | | (2.8) | % | | (7,769) | | | (2.4) | % |
| Taxes on income from continuing operations | $ | 36,954 | | | 10.5 | % | | $ | 325,632 | | | 98.4 | % |
The Company’s consolidated effective income tax rate 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 restructuring activities amountinga reduction of $119.1 million associated with remeasurement of U.S. deferred tax items due to approximately $101.7tax reform and a decrease in the amount charged for valuation allowance related to foreign tax credits of $104.4 million.
Segment Financial Information
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 Restructuring, transaction and other charges (in thousands). Prior period information has been recast to reflect the current period presentation.
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenues from External Customers: | | | | | |
| Critical Mission Solutions | $ | 4,965,952 | | | $ | 4,551,162 | | | $ | 3,725,365 | |
| People & Places Solutions | 8,601,023 | | | 8,186,706 | | | 6,854,408 | |
| Total | $ | 13,566,975 | | | $ | 12,737,868 | | | $ | 10,579,773 | |
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Segment Operating Profit: | | | | | |
| Critical Mission Solutions (1) | $ | 372,070 | | | $ | 310,043 | | | $ | 255,718 | |
| People & Places Solutions (2) | 740,707 | | | 714,394 | | | 527,900 | |
| Total Segment Operating Profit | 1,112,777 | | | 1,024,437 | | | 783,618 | |
| Other Corporate Expenses (3) | (249,391) | | | (264,351) | | | (161,788) | |
| Restructuring, Transaction and Other Charges | (327,413) | | | (355,235) | | | (234,387) | |
| Total U.S. GAAP Operating Profit | 535,973 | | | 404,851 | | | 387,443 | |
| | | | | |
| Total Other (Expense) Income, net (4) | (94,770) | | | (53,892) | | | (56,462) | |
| Earnings from Continuing Operations Before Taxes | $ | 441,203 | | | $ | 350,959 | | | $ | 330,981 | |
(1)Includes $15.0 million in pre-tax charges during the year ended September 28, 2018. Combined2018 associated with $89.2a legal matter.
(2)Includes $25.0 million in integration activitiescharges associated with a certain project for the same period,year ended September 27, 2019.
(3)Other corporate expenses include costs that were previously allocated to the total costECR segment prior to discontinued operations presentation in connection with the ECR sale in the approximate amount of these restructuring$— million, $14.8 million and integration activities approximated$25.6 million for the years ended October 2, 2020, September 27, 2019 and September 28, 2018, respectively. Also includes intangibles amortization of $90.6 million, $79.1 million and $68.1 million for the years ended October 2, 2020, September 27, 2019 and September 28, 2018, respectively.
(4)For the years ended October 2, 2020 and September 27, 2019, other expenses includes revenues under the Company's TSA with Worley of $190.815.8 million and $35.4 million, respectively, $74.3 million and $64.8 million in fair value adjustments related to our investment in Worley stock (net of Worley Stock dividends) and certain foreign currency revaluations relating to ECR sale proceeds, respectively. Also included for the years ended October 2, 2020, September 27, 2019 and September 28, 2018 is amortization of deferred financing fees related to the CH2M acquisition of $0.7 million, $3.2 million and $1.8 million respectively. Lastly, includes loss on settlement of U.S. pension plan of $2.7 million for the year ended October 2, 2020 and includes gain on settlement of the CH2M retiree medical plans of $35.0 million for the year ended September 28, 2018. These activities are expected27, 2019.
In evaluating the Company’s performance by operating segment, the CODM reviews various metrics and statistical data for each Line Of Business ("LOB") but focuses primarily on revenues and operating profit. As discussed above, segment operating profit includes not only local SG&A expenses but the SG&A expenses of the Company’s support groups that have been allocated to continue through fiscal 2019. These activities are not expected to involve the exit of any service types or client end-markets. Also during fiscal 2018segments. In addition, the Company disposedattributes each LOB’s specific incentive compensation plan costs to the LOBs. The revenues of its investmentthe People & Places Solutions LOB are more affected by pass-through revenues than the Critical Mission Solutions LOB. The methods for recognizing revenue, incentive fees, project losses and change orders are consistent among the LOBs.
Critical Mission Solutions
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenue | $ | 4,965,952 | | | $ | 4,551,162 | | | $ | 3,725,365 | |
| Operating Profit | $ | 372,070 | | | $ | 310,043 | | | $ | 255,718 | |
Fiscal 2020 vs. 2019
Critical Mission Solutions (CMS) segment revenues for the year ended October 2, 2020 were $4.97 billion, up $414.8 million, or 9.1%, from $4.55 billion for the prior year. Our increase in Guimar in orderrevenue was primarily attributable to resolve potential conflicts arisingincremental revenue from the CH2M acquisition, which resultedKeyW and John Wood Group nuclear business acquisitions, along with the extra week of activity in fiscal 2020. These favorable impacts more than offset unfavorable COVID-19 related revenue impacts mainly due to challenges from physical distancing requirements, client scheduling changes and other related factors. Impacts on revenues from unfavorable foreign currency translation were approximately $4.5 million for the year ended October 2, 2020.
Operating profit for the segment was $372.1 million for the year ended October 2, 2020, up $62.0 million, or 20.0%, from $310.0 million for the prior year. The increases from the prior year were primarily attributable to incremental operating profit from the KeyW and John Wood Group nuclear business acquisitions, the extra week of activity in fiscal 2020 and the favorable close out of a loss as discussed below.
Duringlarge program management contract in the secondfirst fiscal quarter of 2017,2020. Impacts on operating profit from unfavorable foreign currency translation were approximately $0.4 million for the year ended October 2, 2020. Unfavorable revenue impacts from COVID-19 mentioned above were largely offset by the Company entered into strategic business restructuring activities associated with realignment of its Europe, United Kingdom ("U.K.")Company’s mitigating actions in discretionary operating spend 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 severancebenefits costs, of $1.4 milliongovernment assistance programs 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 refer to these initiatives, in the aggregate, as the “2015 Restructuring”. 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 global LOB structure 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 was completed in fiscal 2017, although cash payments continue to be made under the related accruals recorded in connection with these activities.improved operating performance.
Collectively, the above mentioned restructuring activities are referred to as “Restructuring and other charges”.Fiscal 2019 vs. 2018
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) on the Company's reportableCMS segment income by line of business in connection with the CH2M acquisitionrevenues for the year ended September 28, 2018 and the 2015 Restructuring and realignment of the Company's BIAF Europe, U.K. and Middle East regional operations27, 2019 were $4.55 billion, up $825.8 million, or 22.2%, from $3.73 billion for the years ended September 29, 2017corresponding period in 2018. The increase in revenues was due in large part to nuclear services sector revenue resulting from the CH2M acquisition included for the full year of fiscal 2019 and September 30, 2016 (in thousands): |
| | | | | | | | | | | |
| 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 |
|
The activityalso incremental revenues from the KeyW acquisition. Also, our CMS revenues were positively impacted by year-over-year revenue volume growth across the legacy portfolio, highlighted by increased spending by customers in the Company’s accrualU.S. government business. Impacts on revenues from unfavorable foreign currency were approximately $29.7 million for fiscal year 2019.
Operating profit for the Restructuring and other chargesCMS segment was $310.0 million for the year ended September 28, 2018 is as follows (in thousands):
|
| | | |
| 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 |
|
The following table summarizes27, 2019, up $54.3 million, or 21.2%, from $255.7 million for the Restructuringcorresponding period in 2018. In addition to incremental operating profit benefits from the CH2M and other charges by major type of costsKeyW acquisitions, the increase from the prior year was primarily attributable to continued growth in connectionprofits from our U.S. governmental business. SG&A for the CMS segment increased for fiscal 2019 attributable mainly to incremental SG&A associated with the CH2M acquisitionand KeyW acquisitions. Fiscal 2018 included charges of $15.0 million associated with a legal matter.
People & Places Solutions
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenue | $ | 8,601,023 | | | $ | 8,186,706 | | | $ | 6,854,408 | |
| Operating Profit | $ | 740,707 | | | $ | 714,394 | | | $ | 527,900 | |
Fiscal 2020 vs. 2019
Revenues for the People & Places Solutions (P&PS) segment for the year ended October 2, 2020 were $8.60 billion, up $414.3 million, or 5.1%, from $8.19 billion for the prior year. The increases in revenue were due in part to portfolio growth across our businesses, highlighted by strong investment in advanced facilities, water and transport infrastructure and project management/construction management ("PMCM") sectors, along with the extra week of activity in fiscal 2020. These favorable performance trends more than offset unfavorable COVID-19 related revenue impacts mainly due to challenges from physical distancing requirements, client scheduling changes and other related factors. Impacts on revenues from unfavorable foreign currency translation were approximately $26.2 million for fiscal 2020.
Operating profit for the segment for the year ended October 2, 2020 was $740.7 million, an increase of $26.3 million, or 3.7%, from $714.4 million for the comparative period in 2019. The year-over-year increase in operating profit was due primarily to positive impacts from the higher year-over-year revenues for the segment, along with the extra week of activity in fiscal 2020 and reductions in costs related to COVID-19 impacts and mitigation efforts. Impacts on operating profit from unfavorable foreign currency translation were approximately $6.1 million for fiscal 2020. Unfavorable revenue impacts from COVID-19 mentioned above were largely offset by the Company’s mitigating actions in discretionary operating spend and benefits costs, government assistance programs and other areas of improved operating performance.
Fiscal 2019 vs. 2018
Revenues for the P&PS segment 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 years ended September 29, 2017 and September 30, 2016 (in thousands):
|
| | | | | | | | | | | |
| September 28, 2018 | | September 29, 2017 | | September 30, 2016 |
| Lease Abandonments | $ | 53,914 |
| | $ | 55,647 |
| | $ | 92,643 |
|
| Involuntary Terminations | 37,063 |
| | 43,667 |
| | 85,599 |
|
| Outside Services | 36,308 |
| | 4,236 |
| | 7,398 |
|
| Other (1) | 63,521 |
| | 31,888 |
| | 2,267 |
|
| Total | $ | 190,806 |
| | $ | 135,438 |
| | $ | 187,907 |
|
(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).
Cumulative amounts incurred to date for Restructuring and other charges by each major type of costs as of September 28, 2018 are as follows (in thousands):
|
| | | |
| Lease Abandonments | $ | 292,773 |
|
| Involuntary Terminations | 221,642 |
|
| Outside Services | 60,677 |
|
| Other | 96,252 |
|
| Total | $ | 671,344 |
|
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Fiscal Years Ended September 28, 2018, September 29, 2017 and September 30, 2016
(In thousands, except per share information)
|
| | | | | | | | | | | |
| | September 28, 2018 | | September 29, 2017 | | September 30, 2016 |
| Revenues | $ | 14,984,646 |
| | $ | 10,022,788 |
| | $ | 10,964,157 |
|
| Direct cost of contracts | (12,156,276 | ) | | (8,250,536 | ) | | (9,196,326 | ) |
| Gross profit | 2,828,370 |
| | 1,772,252 |
| | 1,767,831 |
|
| Selling, general and administrative expenses | (2,180,399 | ) | | (1,379,983 | ) | | (1,429,233 | ) |
| Operating Profit | 647,971 |
| | 392,269 |
| | 338,598 |
|
| Other Income (Expense): | | | | | |
| Interest income | 8,984 |
| | 8,748 |
| | 7,848 |
|
| Interest expense | (76,760 | ) | | (12,035 | ) | | (15,260 | ) |
| Gain (Loss) on disposal of business and investments | (20,967 | ) | | 10,880 |
| | (41,410 | ) |
| Miscellaneous income (expense), net | (4,523 | ) | | (6,645 | ) | | (3,053 | ) |
| Total other (expense) income, net | (93,266 | ) | | 948 |
| | (51,875 | ) |
| Earnings Before Taxes | 554,705 |
| | 393,217 |
| | 286,723 |
|
| Income Tax Expense | (381,563 | ) | | (105,842 | ) | | (72,208 | ) |
| Net Earnings of the Group | 173,142 |
| | 287,375 |
| | 214,515 |
|
| Net (Earnings) Loss Attributable to Noncontrolling Interests | (9,711 | ) | | 6,352 |
| | (4,052 | ) |
| Net Earnings Attributable to Jacobs | $ | 163,431 |
| | $ | 293,727 |
| | $ | 210,463 |
|
| Net Earnings Per Share: | | | | | |
| Basic | $ | 1.18 |
| | $ | 2.43 |
| | $ | 1.75 |
|
| Diluted | $ | 1.17 |
| | $ | 2.42 |
| | $ | 1.73 |
|
2018 Overview
The Company's net earnings for fiscal 201827, 2019 were $163.4 million (or $1.17 per diluted share), a decrease of $130.3 million, or 44.4%, from $293.7 million (or $2.42 per diluted share) for the corresponding period last year. Included in the Company’s operating
results were $140.1 million (or $1.01 per share) in after tax Restructuring and other charges, $60.7 million in CH2M and ECR transaction costs and $259.2 million in income tax charges associated with the Tax Cuts and Jobs Act (“the Act”) enacted on December 22, 2017. Our fiscal 2017 results included $87.9 million (or $0.72 per share) in after tax charges associated with Restructuring and other charges and $10.6 million in CH2M transaction costs. Income taxes for fiscal 2018 were $381.6 million,$8.19 billion, an increase of $275.7 million,$1.34 billion, or 260.5%19.6%, from $105.8 million due mainly to the impacts from the provisional remeasurement of the deferred tax items and other impacts from U.S. Tax Reform.
On December 15, 2017, the Company completed the acquisition of 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 market presence in the water, nuclear and environmental remediation sectors and to further the Company’s 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 to the former stockholders and certain equity award holders of CH2M.
Backlog at September 28, 2018 was $27.3 billion, up $7.5 billion, from $19.8$6.85 billion for the corresponding period last year. New prospectsin 2018. The increase in revenues was due in part to favorable impacts resulting from the CH2M acquisition included for the full year of fiscal 2019 together with revenue increases across all our businesses given the strong investment by customers in Life Sciences, Electronics, Water and new sales remain strongTransport Infrastructure sectors. Impacts on revenues from unfavorable foreign currency were approximately $57.8 million for fiscal 2019.
Operating profit for the segment for the year ended September 27, 2019 was $714.4 million, up $186.5 million, or 35.3%, compared to $527.9 million for the corresponding period in 2018. The increase in operating profit was in part due to favorable impacts from the CH2M acquisition, together with positive impacts from the higher year over year revenues for the segment. Included in fiscal 2019 results was a $25.0 million charge associated with a project. SG&A for the P&PS segment increased for fiscal 2019, with this increase being attributable mainly to incremental SG&A
associated with the CH2M acquisition in December of fiscal 2018.
Other Corporate Expenses
Other corporate expenses were $249.4 million, $264.4 million and $161.8 million for the years ended October 2, 2020, September 27, 2019 and September 28, 2018, respectively. The decrease from fiscal 2019 to fiscal 2020 was due primarily to cost-reduction programs implemented through prior restructuring initiatives and the Company continuescurrent year COVID-19 pandemic response. The increase from fiscal 2018 to havefiscal 2019 was due primarily to higher intangible amortization expense from the KeyW and John Wood Group nuclear business acquisitions, as well as impacts from company benefit program enhancements. These increases were partly offset by employee related and other cost reductions across the Company's corporate functions. Fiscal 2019 also included approximately $70.2 million of year-to-date other current year cost allocation realignments that occurred in the first quarter of fiscal 2019 in conjunction with the CH2M acquisition. Prior periods were not restated for the cost allocation realignments.
Included in other corporate expenses in the above table are costs and expenses that relate to general corporate activities as well as corporate-managed benefit and insurance programs. Such costs and expenses include: (i) those elements of SG&A expenses relating to the business as a whole; (ii) those elements of our incentive compensation plans relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of business combinations; (iv) the quarterly variances between the Company’s actual costs of certain of its self-insured integrated risk and employee benefit programs and amounts charged to the LOBs; and (v) certain adjustments relating to costs associated with the Company’s international defined benefit pension plans. In addition, other corporate expenses may also include from time to time certain adjustments to contract margins (both positive outlook for manyand negative) associated with projects, as well as other items, where it has been determined that such adjustments are not indicative of the industry groupsperformance of the related LOB.
The Company currently holds a 24.5% interest in AWE Management Ltd (AWE ML) that is accounted for under the equity method, and marketsthe carrying value of the Company’s investment as of October 2, 2020 was approximately $38 million. As of October 2, 2020, AWE ML was under a contractual operating arrangement with the UK Ministry of Defence (MoD) with multiple years remaining under the arrangement. Subsequent to year end, on November 2, 2020, the MoD unexpectedly announced plans to change its current operating agreements with AWE ML that would result in whichthe early termination of the current contract in 2021. The Company is currently evaluating this subsequent development, including the potential impact on our clients operate.accounting for this equity method investment in future quarters.
Results of Operations
As previously noted by Company management, the Company was continuing
Fiscal 2020 Compared to finalize its year end audit processes, including with respect to income taxes, at the time of its 4th quarter earnings release. In that regard, the Company’s 2018 income tax expense also includes approximately $15.0 million in deferred income taxes associated with final one-time adjustments with respect to valuation allowances on foreign tax credits associated with the acquisition of the CH2M business that had not been included in the Company’s fourth quarter fiscal 2018 earnings release furnished on Form 8-K on November 20, 2018. The impact of these adjustments was $.10 per shareFiscal 2019
Revenues for the year ended September 28, 2018.
Fiscal 2018 Compared to Fiscal 2017
Total revenues for the year ended September 28, 2018,October 2, 2020 were $14.98$13.57 billion, an increase of $4.96 billion,$829.1 million, or 49.5%6.5%, from $10.02$12.74 billion for the corresponding period lastprior year. The increase in revenues was due primarily to favorablethe a full year of revenues in fiscal 2020 from the KeyW acquisition completed in June 2019, impacts from the CH2MMarch 2020 John Wood Group nuclear business acquisition which contributed approximately $3.81 billion in incremental revenues for fiscal 2018. Higher volumesand growth in our legacy ATEN, BIAFPeople & Places Solutions businesses, offset in part by impacts from the COVID 19 pandemic. Also, our revenues were impacted by an extra week of activity in fiscal 2020, see Note 1- Description of Business and ECR businesses also contributedBasis of Presentation in the notes to the increase.consolidated financial statements.
Pass-through costs included in revenues for the year ended September 28, 2018October 2, 2020 were $3.06$2.61 billion in comparison to $2.54 billion in the prior year. These year-over-year increases are due primarily to impacts from the CH2M acquisition as well as to pass-through costs in revenues from the ATEN businesses. In general, pass-through costs are more significant on projects that have a higher content of field services activities. Pass-through costs are generally incurred at specific points during the life cycle of a project and are highly dependent on the needs of our individual clients and the nature of the clients’ projects. However, because we have hundreds of projects which start at various times within a fiscal year, the effect of pass-through costs on the level of direct costs of contracts can vary between fiscal years without there being a fundamental or significant change to the underlying business.
Gross profit for the year ended September 28, 2018 was $2.83 billion, up $1.06 billion, or 59.6% from $1.77 billion from the corresponding period in 2017. Our gross profit margins were 18.9% and 17.7% for the years ended September 28, 2018 and September 29, 2017, respectively. The higher volume impacts seen in our ATEN, BIAF and ECR businesses, incremental benefits of the CH2M businesses acquired, and our continuing strategic focus on realigning our portfolio to higher margin businesses and project execution drove improving gross profit and margins for the year over year periods.
Selling, general & administrative expenses for the year ended September 28, 2018 were $2.18 billion, an increase of $800.4 million, or 58.0%, from $1.38 billion for the corresponding period last year. The increase in SG&A expenses is due mainly to incremental SG&A expense from the CH2M businesses acquired of approximately $650.3 million during the 2018 period, which included $99.3 million of restructuring and other charges and deal related costs, as well as higher personnel related costs year over year and charges associated with a legal matter of $15.0 million. Also, unfavorable impacts from foreign exchange (mainly from the stronger Australian Dollar and Indian Rupee) approximated $16.0 million.
Net interest expense for the year ended September 28, 2018 was $67.8 million, an increase of $64.5 million from $3.3 million for the corresponding period last year. The increases in net interest expense as compared to the corresponding periods last year was due primarily to higher levels of average debt balances outstanding related to financing activities for the acquisition of CH2M, which was partially funded with term loan financing of $1.5 billion and revolving credit line borrowings of $850 million.
Miscellaneous expense, net for the year ended September 28, 2018 was $4.5 million, a decrease of $2.1 million as compared to $6.6 million for the corresponding period last year. The increases were due primarily to unfavorable year over year impacts from unrealized gains and losses from foreign exchange.
Gain/(Loss) on disposal of business and investments was $(21.0) million and $10.9 million for the years ended September 28, 2018 and September 29, 2017, respectively. The reported loss amounts for fiscal 2018 were associated mainly with the Company's divestiture of its equity investment in the Guimar joint venture. The 2017 gain amount was associated mainly with the Company’s divestiture of its equity investment in Neste Jacobs Oy, a joint venture between the Company and Neste Corporation.
The Company’s consolidated effective income tax rate is generally higher than the U.S. statutory rate of 24.60010276% primarily due to the impacts related to U.S. Tax Reform and the integration of CH2M's tax attributes. The following table reconciles total income tax expense using the statutory U.S. federal income tax rate to the consolidated income tax expense shown in the accompanying Consolidated Statements of Earnings for the years ended September 28, 2018 and September 29, 2017 (dollars in thousands):
|
| | | | | | | | | | | | | |
| | For the Years Ended |
| | September 28, 2018 | | % | | September 29, 2017 | | % |
| Statutory amount | $ | 136,458 |
| | 24.6 | % | | $ | 137,626 |
| | 35.0 | % |
| State taxes, net of the federal benefit | 7,587 |
| | 1.4 | % | | 8,955 |
| | 2.3 | % |
| Exclusion of tax on non-controlling interests | (2,389) |
| | (0.4 | )% | | 2,223 |
| | 0.6 | % |
| Foreign: | |
| |
|
| | |
| | |
|
| Difference in tax rates of foreign operations | 9,860 |
| | 1.8 | % | | (16,987 | ) | | (4.3 | )% |
Benefit from valuation allowance
release | (5,105) |
| | (0.9 | )% | | (3,085 | ) | | (0.8 | )% |
| U.K. tax rate change on deferred tax assets | — |
| | — |
| | — |
| | — |
|
| Nontaxable income from foreign affiliate | — |
| | — |
| | (3,280 | ) | | (0.8 | )% |
| U.S. tax cost of foreign operations | 6,577 |
| | 1.2 | % | | 18,612 |
| | 4.7 | % |
| Tax differential on foreign earnings | 11,332 |
| | 2.0 | % | | (4,740 | ) | | (1.2 | )% |
| Foreign tax credits | (21,729) |
| | (3.9 | )% | | (20,454 | ) | | (5.2 | )% |
| Tax Reform | 154,150 | | 27.8 | % | | — |
| | — |
|
| Valuation Allowance | 104,221 |
| | 18.8 | % | | — |
| | — |
|
| Uncertain tax positions | (1,297) |
| | (0.2 | )% | | (5,779 | ) | | (1.5 | )% |
| Other items: | |
| |
|
| | |
| | |
|
| IRS §179D deduction | (4,520) |
| | (0.8 | )% | | (3,351 | ) | | (0.8 | )% |
| IRS §199D deduction | — |
| | — |
| | (2,113 | ) | | (0.5 | )% |
| Foreign partnership loss | (3,990) |
| | (0.7 | )% | | (9,861 | ) | | (2.5 | )% |
| Other items - net | 1,740 |
| | 0.3 | % | | 3,336 |
| | 0.7 | % |
| Total other items | (6,770) | | (1.2 | )% | | (11,989 | ) | | (3.1 | )% |
| Taxes on income | $ | 381,563 |
| | 68.8 | % | | $ | 105,842 |
| | 26.9 | % |
The Company’s consolidated effective income tax rate for the year ended September 28, 2018 increased to 68.788%% from 26.9% in fiscal 2017. Key drivers for this year over year increase include the impacts from the provisional remeasurement of the deferred tax items and other impacts from U.S. Tax Reform.
On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the United States. The Act reduces the top corporate U.S. federal statutory tax rate from 35% to 21% starting on January 1, 2018, resulting in a blended statutory tax rate for fiscal year filers. The Company’s blended federal statutory tax rate for fiscal 2018 is 24.6%. 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 are effective for the first tax year beginning after January 1, 2018, which will be the Company’s taxable year beginning fiscal 2019.
Fiscal 2017 Compared to Fiscal 2016
Total revenues for the year ended September 29, 2017, were $10.02 billion, decrease of $941.4 million, or 8.6%, from $10.96 billion for the corresponding period last year. The decrease in revenues was due primarily to lower volumes in the ECR and ATEN LOBs. These lower volumes were driven mainly by lower field services volume, primarily with ECR customers and the timing of project completions versus new project timing.
Pass-through costs included in revenues for the year ended September 29, 2017 were $2.54 billion in comparison to $2.49 billion in line with amounts in the corresponding period last year. In general, pass-through costs are more significant on projects that have a higher content of field services activities. Pass-through costs are generally incurred at specific points during the life cycle of a project and are highly dependent on the needs of our individual clients and the nature of the clients’ projects. However, because we have hundreds of projects which start at various times within a fiscal year, the effect of pass-through costs on the level of direct costs of contracts can vary between fiscal years without there being a fundamental or significant change to the underlying business.
Gross profit for the year ended September 29, 2017October 2, 2020 was $1.77$2.59 billion, an increase of $4.4up $109.6 million, or 0.25%4.4%, from $2.48 billion for the corresponding period in 2016.prior year. Our gross profit margins were 17.7%19.1% and 16.1%19.4% for the years ended October 2, 2020 and September 27, 2019, respectively. The increase in our gross profit was attributable to favorable impacts from the KeyW and John Wood Group nuclear business acquisitions, also impacted by the extra week of activity in fiscal 2020. The slight differences in year over year gross margin trends were attributable mainly to legacy portfolio mix and lower overhead rate impacts on revenue, with partial offsets from favorable margin trends from our recent KeyW and John Wood Group nuclear business acquisitions and as well as year over year impacts from lower overhead reimbursement rates resulting from our ongoing cost reduction programs partially offset by COVID-19 cost mitigation efforts.
See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment level.
Selling, general & administrative expenses for the year ended October 2, 2020 were $2.05 billion, a decrease of $21.5 million, or 1.0%, from $2.07 billion for the prior year. The decrease in SG&A expenses as compared to the prior year was due primarily to less expense relating to the Transition Services Agreement (the "TSA") with Worley, which expired in April 2020, although the parties agreed to extend certain of the services beyond the initial term, and reductions in personnel related and other overhead costs resulting from our ongoing cost reduction programs as well as COVID-19 cost mitigation efforts, partially offset by incremental SG&A expenses from the KeyW and John Wood Group nuclear business acquisitions and the extra week of activity in fiscal 2020. Also, included in the current year results were $325.1 million of restructuring and other charges and transaction costs associated in part with the Company's fourth quarter fiscal 2020 transformation initiatives relating to real estate and other staffing programs, and the Company's acquisition of John Wood Groups' nuclear business. In comparison, the prior year included $350.3 million of restructuring and other charges and transaction costs. Favorable impacts on SG&A expenses from foreign exchange were $3.2 million for the current year.
Net interest expense for the year ended October 2, 2020 was $57.5 million, a decrease of $16.9 million from $74.4 million for the prior year. The decrease in net interest expense year over year is primarily due to the paydown of debt subsequent to the ECR sale in the prior year third quarter.
Miscellaneous income (expense), net for the year ended October 2, 2020 was $(37.3) million, a decrease of $57.8 million as compared to $20.5 million in income for the prior year. The decrease from the prior year was due primarily to $74.5 million in pre-tax unrealized losses associated with changes in the fair value of our investment in Worley stock (net of Worley stock dividend) and certain foreign currency revaluations relating to the ECR sale in the current year, compared to $64.8 million in the prior year. Also included in miscellaneous (expense) income during the current year is $15.8 million in TSA-related income associated with the ECR sale compared to $35.4 million in the prior year, as discussed in Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business. Further,miscellaneous income (expense), net for the year ended September 27, 2019 included a one-time gain on the settlement of the CH2M retiree medical plan of $35.0 million.
Net earnings attributable to Jacobs from discontinued operations for fiscal 2020 were $138.0 million (or $1.04 per diluted share), a decrease of $419.0 million, or 75.2%, from $557.0 million (or $4.00 per diluted share) for the prior year. Included in net earnings attributable to the Company from discontinued operations for the current year was an expense reduction for the settlement of the Nui Phao ("NPMC") legal matter described in Note 17- Commitments and Contingencies and Derivative Financial Instruments that was reimbursed by insurance, the recognition of the deferred gain
for the delayed conveyance of the international entities and for the delivery of the ECR IT assets, as discussed in Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business and adjustments for working capital and certain other items in connection with the ECR sale. Additionally, the year-over-year change was also driven by the gain on sale recognized in the fiscal 2019 period and the absence of normal operating results of the ECR business as reported in the prior year. Included in the current year results from discontinued operations is the pre-tax gain on sale of the ECR business of $110.2 million. Included in prior year results from discontinued operations is the pre-tax gain on the sale of the ECR business of $935.1 million, see Note 15- Sale of Energy, Chemicals and Resources ("ECR") Business.
The Company’s consolidated effective income tax rate of 12.5% is lower than the U.S. statutory rate primarily due to a $16.9 million benefit from foreign valuation allowance releases, $26.5 million of foreign tax generated in the current year, a benefit of $7.3 million from the application of the Internal Revenue Code Section 179D, a reduction in uncertain tax positions of $11.3 million and benefits from tax rate changes and stock compensation. These decreases in tax expense were offset by $43.0 million of U.S. foreign inclusions within U.S. tax costs of foreign operations.
The following table reconciles total income tax expense on continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense on continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended October 2, 2020 and September 27, 2019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | October 2, 2020 | | % | | September 27, 2019 | | % |
| Statutory amount | $ | 92,652 | | | 21.0 | % | | $ | 73,701 | | | 21.0 | % |
| State taxes, net of the federal benefit | 7,254 | | 1.6 | % | | 10,183 | | | 2.9 | % |
| Exclusion of tax on non-controlling interests | (6,622) | | (1.5) | % | | (4,839) | | | (1.4) | % |
| Foreign: | | | | | | | |
| Difference in tax rates of foreign operations | (6,267) | | (1.4) | % | | 1,083 | | | 0.3 | % |
| Benefit from foreign valuation allowance release | (16,861) | | (3.8) | % | | (29,125) | | | (8.3) | % |
| | | | | | | |
| U.S. tax cost (benefit) of foreign operations | 42,992 | | | 9.7 | % | | (17,760) | | | (5.1) | % |
| Tax differential on foreign earnings | 19,864 | | | 4.5 | % | | (45,802) | | | (13.1) | % |
| Foreign tax credits | (26,471) | | (6.0) | % | | (15,682) | | | (4.5) | % |
| | | | | | | |
| Tax Rate Change | (6,811) | | | (1.5) | % | | — | | | — | |
| | | | | | | |
| Tax reform | — | | — | % | | 36,674 | | | 10.4 | % |
| Valuation allowance | — | | — | % | | (207) | | | (0.1) | % |
| Uncertain tax positions | (11,338) | | (2.6) | % | | (6,883) | | | (2.0) | % |
| Other items: | | | | | | | |
| IRS §179D deduction | (7,267) | | (1.6) | % | | (2,957) | | | (0.8) | % |
| Disallowed officer compensation | 5,081 | | 1.2 | % | | 5,568 | | | 1.6 | % |
| Stock compensation | (10,234) | | (2.3) | % | | (7,864) | | | (2.2) | % |
| Foreign partnership income/(loss) | — | | | — | % | | — | | | — | % |
| Other items – net | (788) | | (0.2) | % | | (4,938) | | | (1.4) | % |
| Total other items | (13,208) | | (3.0) | % | | (10,191) | | (2.8) | % |
| Taxes on income from continuing operations | $ | 55,320 | | | 12.5 | % | | $ | 36,954 | | | 10.5 | % |
The Company’s consolidated effective income tax rate for the year ended October 2, 2020 increased to 12.5% from 10.5% for fiscal 2019. Key drivers for this year over year increase in the effective tax rate include a reduction in valuation allowance releases in fiscal 2020, as well as an increase in tax on foreign earnings in the U.S.
Fiscal 2019 Compared to Fiscal 2018
Revenues for the year ended September 27, 2019, were $12.74 billion, an increase of $2.16 billion, or 20.4%, from $10.58 billion for the corresponding period in 2018. The increase in revenues was due primarily to the CH2M acquisition in December fiscal 2018 included in fiscal 2019 for the full year, impacts from the KeyW acquisition included in the fiscal 2019 results since closing in mid-June and growth in our legacy CMS and P&PS businesses.
Pass-through costs included in revenues for the year ended September 27, 2019 were $2.54 billion in comparison to $2.25 billion in the prior year. These year-over-year increases are due primarily to impacts from the CH2M acquisition included for the full year of fiscal 2019.
Gross profit for the year ended September 27, 2019 was $2.48 billion, an increase of $318.5 million, or 14.8% from $2.16 billion for the corresponding period in 2018. Our gross profit margins were 19.4% and 20.4% for the years ended September 29, 201727, 2019 and September 30, 2016,28, 2018, respectively. Our continuing strategic focus on realigning our portfolio to higher margin businesses and project executionRevenue mix primarily drove improvingthe lower gross profit and marginsmargin for the year over year periods.
Selling, general & administrative expenses for the year ended September 29, 201727, 2019 were $1.38$2.07 billion, decreasean increase of $49.2 million,$0.30 billion, or 3.44%17.0%, from $1.43$1.77 billion for the corresponding period last year.in 2018. The decreaseincrease in SG&A expenses for the comparative annual periods wasis due mainly to lower Restructuringincremental SG&A expense from the CH2M and KeyW businesses acquired. Also, included in the 2019 results were $350.3 million of restructuring and other charges of $75.9 million and transaction costs, as well as higher personnel related savings from the 2015 Restructuring. These decreases were offset in part by highercosts year over year spending mainlydue in personnel relatedpart to costs to service the TSA with Worley. In comparison, the prior year included $230.5 million of restructuring and professional service fees, including an additional $17.1 million associated with CH2M professional service feesother charges and integrationtransaction costs.
Net interest expense for the year ended September 29, 201727, 2019 was $3.3$74.4 million, a decreasean increase of $4.1$6.6 million from $7.4$67.8 million for the corresponding period last year.in 2018. The decreaseincrease in net interest expense for the year ended September 29, 2017 as compared to the corresponding period last yearin 2018 was due primarily to the reversal of $2.5 million of accrued interest expense related to the statute expiration of a foreign tax reserve as well as higher levels of interest income.debt outstanding and our fixed rate notes having been outstanding for the full year of fiscal 2019 and only five months in fiscal 2018.
Miscellaneous expense,income (expense), net for the year ended September 29, 201727, 2019 was $6.6$20.5 million, an increase of $9.2 million, as compared to $3.1 million$11.3 million for the corresponding period last year. This changein 2018. The increase was due primarily to a reversal in fiscal 2016the gain on the settlement of $5.1the CH2M retiree medical plan of $35.0 million and income from the TSA with Worley of accrued penalties$35.4 million, offset by $64.8 million, net, relating to ECR related 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.
Net earnings of the statute expirationgroup from discontinued operations was $559.2 million for the year ended September 27, 2019, an increase of a foreign tax reserve, which did not recur$391.4 million from $167.8 million for the corresponding period in fiscal 2017,2018. Included in 2019 was the pre-tax gain on the sale of the ECR business of $935.1 million, offset in part by other miscellaneous charges.
Gain (loss) ona charge for the final settlement of the Nui Phao legal matter. The 2018 fiscal year included a $21.0 million loss associated with the disposal of business and investments was $10.9 million and $(41.4) million for the years ended September 29, 2017 and September 30, 2016, respectively. The reported amounts for fiscal 2017 were associated mainly with the Company’s divestiture of itsCompany's equity investment in Neste Jacobs Oy, aits Guimar joint venture between the Company and Neste Corporation. The $(41.4) million loss on disposal in fiscal 2016 was mainly attributable to the Company’s loss on the sale of our French subsidiary of $24.4 million, and a non-cash write-off on an equity investment of $17.0 million.venture.
The Company’s consolidated effective income tax rate is generallywas lower than the U.S. statutory rate of 35%21.0% primarily due to a $29.1 million benefit from foreign valuation allowance releases in fiscal 2019, $15.7 million of foreign tax and other credits generated in fiscal 2019 and a reduction in the impactstax contingency reserves of favorable$6.9 million. The decreases in tax rate differences in our foreign operations.expense were offset by a $36.7 million charge from the remeasurement of net deferred tax assets and other miscellaneous U.S. tax reform changes. The following table reconciles total income tax expense on continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense on continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended September 29, 201727, 2019 and September 30, 201628, 2018 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended |
| | September 27, 2019 | | % | | September 28, 2018 | | % |
| Statutory amount | $ | 73,701 | | | 21.0 | % | | $ | 81,421 | | | 24.6 | % |
| State taxes, net of the federal benefit | 10,183 | | | 2.9 | % | | 15,772 | | | 4.8 | % |
| Exclusion of tax on non-controlling interests | (4,839) | | | (1.4) | % | | (2,389) | | | (0.7) | % |
| Foreign: | | | | | | | |
| Difference in tax rates of foreign operations | 1,083 | | | 0.3 | % | | 2,815 | | | 0.9 | % |
| Benefit from foreign valuation allowance release | (29,125) | | | (8.3) | % | | (5,088) | | | (1.5) | % |
| U.S. tax cost (benefit) of foreign operations | (17,760) | | | (5.1) | % | | 4,030 | | | 1.2 | % |
| Tax differential on foreign earnings | (45,802) | | | (13.1) | % | | 1,757 | | | 0.6 | % |
| Foreign tax credits | (15,682) | | | (4.5) | % | | (21,735) | | | (6.6) | % |
| 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) | % |
| Other items: | | | | | | | |
| IRS §179D deduction | (2,957) | | | (0.8) | % | | (4,557) | | | (1.4) | % |
| Disallowed officer compensation | 5,568 | | | 1.6 | % | | 1,510 | | | 0.5 | % |
| Stock compensation | (7,864) | | | (2.2) | % | | (2,158) | | | (0.7) | % |
| Other items – net | (4,938) | | | (1.4) | % | | (2,564) | | | (0.8) | % |
| Total other items | (10,191) | | | (2.8) | % | | (7,769) | | | (2.4) | % |
| Taxes on income from continuing operations | $ | 36,954 | | | 10.5 | % | | $ | 325,632 | | | 98.4 | % |
|
| | | | | | | | | | | | | |
| | For the Years Ended |
| | September 29, 2017 | | % | | September 30, 2016 | | % |
| Statutory amount | $ | 137,626 |
| | 35 | % | | $ | 100,353 |
| | 35.0 | % |
| State taxes, net of the federal benefit | 8,955 |
| | 2.3 | % | | 7,853 |
| | 2.7 | % |
| Exclusion of tax on non-controlling interests | 2,223 |
| | 0.6 | % | | (1,418 | ) | | (0.5 | )% |
| Foreign: | |
| | |
| | |
| | |
|
| Difference in tax rates of foreign operations | (16,987 | ) | | (4.3 | )% | | (17,184 | ) | | (6.0 | )% |
| Benefit from foreign valuation allowance release | (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 | 18,612 |
| | 4.7 | % | | 30,850 |
| | 10.9 | % |
| Tax differential on foreign earnings | (4,740 | ) | | (1.2 | )% | | 11,337 |
| | 4.1 | % |
| Foreign tax credits | (20,454 | ) | | (5.2 | )% | | (44,018 | ) | | (15.4 | )% |
| Uncertain tax positions | (5,779 | ) | | (1.5 | )% | | 1,449 |
| | 0.5 | % |
| Other items: | |
| | |
| | |
| | |
|
| IRS §179D deduction | (3,351 | ) | | (0.8 | )% | | (2,153 | ) | | (0.8 | )% |
| IRS §199D deduction | (2,113 | ) | | (0.5 | )% | | (2,800 | ) | | (1.0 | )% |
| Foreign partnership loss | (9,861 | ) | | (2.5 | )% | | (2,658 | ) | | (0.9 | )% |
| Other items - net | 3,336 |
| | 0.7 | % | | 4,263 |
| | 1.5 | % |
| Total other items | (11,989 | ) | | (3.1 | )% | | (3,348 | ) | | (1.2 | )% |
| Taxes on income | $ | 105,842 |
| | 26.9 | % | | $ | 72,208 |
| | 25.2 | % |
The Company’s consolidated effective income tax rate for the year ended September 29, 2017 increased27, 2019 decreased to 26.9%10.5% from 25.2%98.4% for fiscal 2016.2018. Key drivers for this year over year increasedecrease 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 impacts of loweramount charged for valuation allowance related to foreign tax credit benefits and lower benefits from valuation allowance releases on foreign deferred tax assets, partly offset by favorable impactscredits 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.$104.4 million.
Segment Financial Information
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 Restructuring, transaction 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 |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenues from External Customers: | | | | | |
| Critical Mission Solutions | $ | 4,965,952 | | | $ | 4,551,162 | | | $ | 3,725,365 | |
| People & Places Solutions | 8,601,023 | | | 8,186,706 | | | 6,854,408 | |
| Total | $ | 13,566,975 | | | $ | 12,737,868 | | | $ | 10,579,773 | |
|
| | | | | | | | | | | |
| | 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 |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Segment Operating Profit: | | | | | |
| Critical Mission Solutions (1) | $ | 372,070 | | | $ | 310,043 | | | $ | 255,718 | |
| People & Places Solutions (2) | 740,707 | | | 714,394 | | | 527,900 | |
| Total Segment Operating Profit | 1,112,777 | | | 1,024,437 | | | 783,618 | |
| Other Corporate Expenses (3) | (249,391) | | | (264,351) | | | (161,788) | |
| Restructuring, Transaction and Other Charges | (327,413) | | | (355,235) | | | (234,387) | |
| Total U.S. GAAP Operating Profit | 535,973 | | | 404,851 | | | 387,443 | |
| | | | | |
| Total Other (Expense) Income, net (4) | (94,770) | | | (53,892) | | | (56,462) | |
| Earnings from Continuing Operations Before Taxes | $ | 441,203 | | | $ | 350,959 | | | $ | 330,981 | |
|
| | | | | | | | | | | |
| | 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 |
|
| |
(1) | Includes $15.0 million in charges during the year ended September 28, 2018 associated with a legal matter. |
| |
(2) | Excludes $23.8 in restructuring and other charges for the year ended September 29, 2017. See Note 8, Restructuring and Other Charges.(1)Includes $15.0 million in charges during the year ended September 28, 2018 associated with a legal matter. (2)Includes $25.0 million in charges associated with a certain project for the year ended September 27, 2019. (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 $— million, $14.8 million and $25.6 million for the years ended October 2, 2020, September 27, 2019 and September 28, 2018, respectively. Also includes intangibles amortization of $90.6 million, $79.1 million and $68.1 million for the years ended October 2, 2020, September 27, 2019 and September 28, 2018, respectively. (4)For the years ended October 2, 2020 and September 27, 2019, other expenses includes revenues under the Company's TSA with Worley of $15.8 million and $35.4 million, respectively, $74.3 million and $64.8 million in fair value adjustments related to our investment in Worley stock (net of Worley Stock dividends) and certain foreign currency revaluations relating to ECR sale proceeds, respectively. Also included for the years ended October 2, 2020, September 27, 2019 and September 28, 2018 is amortization of deferred financing fees related to the CH2M acquisition of $0.7 million, $3.2 million and $1.8 million respectively. Lastly, includes loss on settlement of U.S. pension plan of $2.7 million for the year ended October 2, 2020 and includes gain on settlement of the CH2M retiree medical plans of $35.0 million for the year ended September 27, 2019. |
| |
(3) | Includes amortization of deferred financing fees related to the CH2M acquisition of $1.8 million 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. |
In evaluating the Company’s performance by operating segment, the CODM reviews various metrics and statistical data for each LOBLine Of Business ("LOB") but focuses primarily on revenues and operating profit. As discussed above, segment operating profit includes not only local SG&A expenses but the SG&A expenses of the Company’s support groups that have been allocated to the segments. In addition, the Company attributes each LOB’s specific incentive compensation plan costs to the LOBs. The revenues of certain LOBsthe People & Places Solutions LOB are more affected by pass-through revenues than other LOBs.the Critical Mission Solutions LOB. The methods for recognizing revenue, incentive fees, project losses and change orders are consistent among the LOBs.
During
Critical Mission Solutions
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenue | $ | 4,965,952 | | | $ | 4,551,162 | | | $ | 3,725,365 | |
| Operating Profit | $ | 372,070 | | | $ | 310,043 | | | $ | 255,718 | |
Fiscal 2020 vs. 2019
Critical Mission Solutions (CMS) segment revenues for the fourthyear ended October 2, 2020 were $4.97 billion, up $414.8 million, or 9.1%, from $4.55 billion for the prior year. Our increase in revenue was primarily attributable to incremental revenue from the KeyW and John Wood Group nuclear business acquisitions, along with the extra week of activity in fiscal 2020. These favorable impacts more than offset unfavorable COVID-19 related revenue impacts mainly due to challenges from physical distancing requirements, client scheduling changes and other related factors. Impacts on revenues from unfavorable foreign currency translation were approximately $4.5 million for the year ended October 2, 2020.
Operating profit for the segment was $372.1 million for the year ended October 2, 2020, up $62.0 million, or 20.0%, from $310.0 million for the prior year. The increases from the prior year were primarily attributable to incremental operating profit from the KeyW and John Wood Group nuclear business acquisitions, the extra week of activity in fiscal 2020 and the favorable close out of a large program management contract in the first fiscal quarter of 2017, the Company implemented certain restructuring activities (primarily severance related activities) associated with2020. Impacts on operating profit from unfavorable foreign currency translation were approximately $0.4 million for the year ended October 2, 2020. Unfavorable revenue impacts from COVID-19 mentioned above were largely offset by the Company’s acquisitionmitigating actions in discretionary operating spend and benefits costs, government assistance programs and other areas of CH2M. Following the closing of the CH2M acquisition, these activities have continued into fiscal 2018 and include associated charges for professional services, personnel costs, severance and costs associated with co-locating Jacobs and CH2M offices, amounting to approximately $190.8 million in pre-tax charges during fiscal 2018. These activities are expected to continue through 2019. These activities are not expected to involve the exit of any service types or client end-markets.
Transaction costs associated with the CH2M acquisition in the accompanying consolidated statements of earnings for the years ended September 28, 2018 and September 29, 2017 are comprised of the following (in millions):
|
| | | | | | | |
| | 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. In evaluating the Company’s performance byimproved operating segment, the CODM reviews revenues and operating profit. As discussed above, segment operating profit includes not only local SG&A expenses but the SG&A expenses of the Company’s support groups that have been allocated to the segments. In addition, the Company attributes each LOB’s specific incentive compensation plan costs to the LOBs. The revenues of certain LOBs are more affected by pass-through revenues than other LOBs. The methods for recognizing revenue, incentive fees, project losses and change orders are consistent among the LOBs.
Aerospace, Technology, Environmental and Nuclear
|
| | | | | | | | | | | |
| | For the Years Ended |
| | September 28, 2018 | | September 29, 2017 | | September 30, 2016 |
| Revenue | $ | 4,372,008 |
| | $ | 2,464,363 |
| | $ | 2,845,913 |
|
| Operating Profit | $ | 311,871 |
| | $ | 200,179 |
| | $ | 215,119 |
|
Fiscal 20182019 vs. 20172018
Aerospace, Technology, Environmental and NuclearCMS segment revenues for the year ended September 28, 201827, 2019 were $4.37$4.55 billion, up $1.91 billion,$825.8 million, or 77.4%22.2%, from $2.46$3.73 billion for the corresponding period last year.in 2018. The increase in revenues werewas due in large part to nuclear and environmentalservices sector revenue resulting from the CH2M acquisition included for the full year of fiscal 2019 and also incremental revenues from the KeyW acquisition. Also, our CMS revenues were positively impacted by year over yearyear-over-year revenue volume growth across ourthe legacy portfolio, highlighted by increased spending by customers in the U.S. government business sector and our nuclear and defense unit in the U.K.business. Impacts on revenues from favorableunfavorable foreign currency were approximately $23.8$29.7 million for fiscal year 2018.2019.
Operating profit for the CMS segment was $311.9$310.0 million for the year ended September 28, 2018,27, 2019, up $111.7$54.3 million, or 55.8%21.2%, from $200.2$255.7 million for the corresponding period last year.in 2018. In addition to incremental operating profit benefits from the CH2M acquisition,and KeyW acquisitions, the increase from the prior year was primarily attributable to continued growth in profits from our U.S. governmental business sector and improvements in our nuclear and defense unit in the U.K. and fee income with our U.K. joint venture.business. SG&A for the ATENCMS segment increased for fiscal 20182019 attributable mainly to incremental SG&A associated with the CH2M acquisition during the fiscaland KeyW acquisitions. Fiscal 2018 and additionalincluded charges of $15.0 million associated with a legal matter incurred during fiscal 2018.matter.
People & Places Solutions
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenue | $ | 8,601,023 | | | $ | 8,186,706 | | | $ | 6,854,408 | |
| Operating Profit | $ | 740,707 | | | $ | 714,394 | | | $ | 527,900 | |
Fiscal 20172020 vs. 20162019
Aerospace, Technology, EnvironmentalRevenues for the People & Places Solutions (P&PS) segment for the year ended October 2, 2020 were $8.60 billion, up $414.3 million, or 5.1%, from $8.19 billion for the prior year. The increases in revenue were due in part to portfolio growth across our businesses, highlighted by strong investment in advanced facilities, water and Nucleartransport infrastructure and project management/construction management ("PMCM") sectors, along with the extra week of activity in fiscal 2020. These favorable performance trends more than offset unfavorable COVID-19 related revenue impacts mainly due to challenges from physical distancing requirements, client scheduling changes and other related factors. Impacts on revenues from unfavorable foreign currency translation were approximately $26.2 million for fiscal 2020.
Operating profit for the segment for the year ended October 2, 2020 was $740.7 million, an increase of $26.3 million, or 3.7%, from $714.4 million for the comparative period in 2019. The year-over-year increase in operating profit was due primarily to positive impacts from the higher year-over-year revenues for the segment, along with the extra week of activity in fiscal 2020 and reductions in costs related to COVID-19 impacts and mitigation efforts. Impacts on operating profit from unfavorable foreign currency translation were approximately $6.1 million for fiscal 2020. Unfavorable revenue impacts from COVID-19 mentioned above were largely offset by the Company’s mitigating actions in discretionary operating spend and benefits costs, government assistance programs and other areas of improved operating performance.
Fiscal 2019 vs. 2018
Revenues for the P&PS segment for the year ended September 29, 201727, 2019 were $2.46$8.19 billion, down $381.6 million,an increase of $1.34 billion, or 13.4%19.6%, from $2.85$6.85 billion for the corresponding period in 2016. The decrease in revenues was mainly in our U.S. government business sector, where rebid losses and small business award preferences drove the declines. Unfavorable foreign currency impacts of approximately $13.0 million also contributed to this year over year decline. These unfavorable items were partially offset by positive gains from organic growth and improvement in our telecommunications sector, our NASA projects and our projects for the Ministry of Defense in Australia.
Operating profit for the ATEN segment was $200.2 million for the year ended September 29, 2017, down $14.9 million, or 6.9%, from $215.1 million for the year ended September 30, 2016. This decrease in profitability was due primarily to the revenue declines in the U.S. government business sector mentioned above, as well as lower equity income from our U.K. joint venture for the comparative periods mainly associated with year over year declines in project funding.
Buildings, Infrastructure and Advanced Facilities
|
| | | | | | | | | | | |
| | For the Years Ended |
| | September 28, 2018 | | September 29, 2017 | | September 30, 2016 |
| Revenue | $ | 6,184,883 |
| | $ | 3,830,697 |
| | $ | 3,419,505 |
|
| Operating Profit | $ | 482,277 |
| | $ | 263,679 |
| | $ | 217,412 |
|
Fiscal 2018 vs. 2017
Revenues for the Buildings, Infrastructure and Advanced Facilities segment for the year ended September 28, 2018 were $6.18 billion, up $2.35 billion, or 61.5%, from $3.83 billion for the corresponding period last year.2018. The increase in revenues was due in part to favorable impacts resulting from the CH2M acquisition included for the full year of approximately $2.22 billionfiscal 2019 together with revenue increases across all our businesses withgiven the strong investment by customers in Life Sciences, Electronics, Water and Transport Infrastructure markets.sectors. Impacts on revenues from favorableunfavorable foreign currency were approximately $59.6$57.8 million for fiscal 2018.2019.
Operating profit for the segment for the year ended September 28, 201827, 2019 was $482.3$714.4 million, an increase of $218.6up $186.5 million, or 82.9%35.3%, from $263.7compared to $527.9 million for the comparativecorresponding period in 2017.2018. The increase in operating profit was in part due to favorable impacts from the CH2M acquisition, together with positive impacts from the higher year over year revenues for the segment. Included in fiscal 2019 results was a $25.0 million charge associated with a project. SG&A for the BIAFP&PS segment increased for fiscal 2018,2019, with this increase being attributable mainly to incremental SG&A
associated with the CH2M acquisition duringin December of fiscal 2018.
Fiscal 2017 vs. 2016
Revenues for the Buildings, Infrastructure and Advances Facilities segment for the year ended September 29, 2017 were $3.83 billion, an increase of $411.2 million, or 12.0%, versus $3.42 billion for the corresponding period in 2016. The year over year increases in revenues was due mainly to U.S. client spending level increases in the PMCM market and increased client major capex spending in the Life Sciences business. Year over year impacts on revenues from unfavorable foreign currency were approximately $36.0 million.
Operating profit for the segment for the year ended September 29, 2017 was $263.7 million, up $46.3 million, or 21.3%, compared to $217.4 million for 2016. Excluded from the presented operating profit amounts for the year ending September 29, 2017 were $23.8 million in Restructuring and other charges related to strategic business restructuring activities in our U.K, Middle East and Europe businesses. Increases in profitability for the period in 2017 over 2016 were due mainly to higher revenue from the U.S. PMCM projects and higher levels of professional service and project procurement business in the Life Sciences business, partially offset by charges from a contract settlement of $6.0 million.
Energy, Chemicals and Resources
|
| | | | | | | | | | | |
| | For the Years Ended |
| | September 28, 2018 | | September 29, 2017 | | September 28, 2018 |
| Revenue | $ | 4,427,755 |
| | $ | 3,727,728 |
| | $ | 4,698,739 |
|
| Operating Profit | $ | 218,109 |
| | $ | 161,312 |
| | $ | 153,797 |
|
Fiscal 2018 vs. 2017
Energy, Chemicals and Resources revenues for the year ended September 28, 2018 were $4.43 billion, an increase of $700.0 million, or 18.8%, from $3.73 billion for the corresponding period last year. The increase in revenues was due primarily to the ongoing execution of several large petrochemical projects with significant pass-through costs, growth in the construction operations and maintenance market as clients focus on capital efficiency, the continued recovery of mining and minerals market as clients begin the transition from feasibility studies into the investment phase of projects, and the increasing trend among oil producers to drive downstream investments to refining and chemicals. Also, the CH2M acquisition added approximately $284.4 million during fiscal year 2018. Additionally, foreign currency impacts were favorable by approximately $56.4 million for fiscal 2018 versus the corresponding periods of 2017.
Operating profit for the segment for the year ended September 28, 2018 was $218.1 million, an increase of $56.8 million or 35.2% from $161.3 million for the corresponding period last year. The increase in profitability was due to higher revenue and favorable mix across the portfolio. SG&A for the segment was up $77.0 million for fiscal 2018 versus the 2017 periods, due
mainly to incremental operating general and administrative expense coming with the CH2M acquisition. Additionally, included in the prior fiscal year was a one-time $9.9 million benefit associated with benefit plan changes in our India operations.
Fiscal 2017 vs. 2016
Energy, Chemicals and Resources revenues for the year ended September 29, 2017 were $3.73 billion, a decrease of $971.0 million, or 20.7%, versus $4.70 billion for the corresponding period in 2016. The decrease in revenues was primarily due to the completion or wind-down of several projects with significant pass-through revenue as well as award delays of large post front-end engineering and design projects, as clients continue to evaluate their capital spending plans as oil prices remained low and weaker market conditions in the Mining and Minerals business. These factors resulted in lower field service revenues compared with the prior year periods, while client investment spending continues primarily on compliance, maintenance and sustaining capital programs. Additionally, foreign currency impacts were unfavorable of approximately $18.0 million on year over year revenue comparisons for fiscal 2017 versus fiscal 2016.
Operating profit for the segment for the year ended September 29, 2017 was $161.3 million, up $7.5 million, or 4.9%, compared to $153.8 million for 2016. Increases in profitability for the period in 2017 over 2016 were due mainly to improved project performance in the Minings & Minerals business and SG&A savings from restructuring efforts and a one-time $9.9 million benefit associated with benefit plan changes in our India operations offset by revenue declines from lower business volumes as mentioned above, offset by revenue declines from lower business volumes mentioned previously.
Other Corporate Expenses
Other corporate expenseexpenses were $113.7$249.4 million, $81.6$264.4 million and $60.1$161.8 million for the years ended October 2, 2020, September 27, 2019 and September 28, 2018, September 29, 2017respectively. The decrease from fiscal 2019 to fiscal 2020 was due primarily to cost-reduction programs implemented through prior restructuring initiatives and September 30, 2016.the current year COVID-19 pandemic response. The increase from fiscal 2018 to fiscal 2019 was due primarily to higher intangible amortization expense from the KeyW and John Wood Group nuclear business acquisitions, as well as impacts from company benefit program enhancements. These increases were due primarily to increased intangible asset amortization relating topartly offset by employee related and other cost reductions across the Company's corporate functions. Fiscal 2019 also included approximately $70.2 million of year-to-date other current year cost allocation realignments that occurred in the first quarter of fiscal 2019 in conjunction with the CH2M acquisition, higher professional service fees, personnel related costs, settlement charges associated with certain ofacquisition. Prior periods were not restated for the Company's pension plans and higher depreciation associated with increased corporate technology investments, partially offset by savings associated with the 2015 Restructuring program.cost allocation realignments.
Included in other corporate expenses in the above table are costs and expenses whichthat relate to general corporate activities as well as corporate-managed benefit and insurance programs. Such costs and expenses include: (i) those elements of SG&A expenses relating to the business as a whole; (ii) those elements of our incentive compensation plans relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of business combinations; (iv) the quarterly variances between the Company’s actual costs of certain of its self-insured integrated risk and employee benefit programs and amounts charged to the LOBs; and (v) certain adjustments relating to costs associated with the Company’s international defined benefit pension plans. In addition, other corporate expenses may also include from time to time certain adjustments to contract margins (both positive and negative) associated with projects, as well as other items, where it has been determined in the opinion of management, that such adjustments are not indicative of the performance of the related LOB.
The Company currently holds a 24.5% interest in AWE Management Ltd (AWE ML) that is accounted for under the equity method, and the carrying value of the Company’s investment as of October 2, 2020 was approximately $38 million. As of October 2, 2020, AWE ML was under a contractual operating arrangement with the UK Ministry of Defence (MoD) with multiple years remaining under the arrangement. Subsequent to year end, on November 2, 2020, the MoD unexpectedly announced plans to change its current operating agreements with AWE ML that would result in the early termination of the current contract in 2021. The Company is currently evaluating this subsequent development, including the potential impact on our accounting for this equity method investment in future quarters.
Restructuring and Other Charges
For discussion regarding restructuring and other charges, see Note 16- Restructuring and Other Charges to the Consolidated Financial Statements.
Backlog Information
Backlog is not a defined measure and our methodology for determining backlog may vary from the methodology used by other companies. Currently, we report a combined backlog number based upon the legacy reporting methodologies used by Jacobs and the acquired business of CH2M prior to the acquisition while we work to harmonize these reporting methodologies as part of the Company's integration activities underway.
We include in backlog the total dollar amount of revenues we expect to record in the future as a result of performing work under contracts that have been awarded to us. Our policy with respect to Operations & Maintenance ("O&M&M") contracts, however, is to include in backlog the amount of revenues we expect to receive for one succeeding year, regardless of the remaining life of the contract. For national government programs (other than national government O&M contracts, which are subject to the same policy applicable to all other O&M contracts), our policy is to include in backlog the full contract award, whether funded or unfunded, excluding option periods. Because of variations in the nature, size, expected duration, funding commitments and the scope of services required by our contracts, the timing of when backlog will be recognized as revenues can vary greatly between individual contracts.
Consistent with industry practice, substantially all of our contracts are subject to cancellation or termination at the option of the client, including our U.S. government work. While management uses all information available to it to determine backlog, at any given time our backlog is subject to changes in the scope of services to be provided as well as increases or decreases in costs relating to the contracts included therein. Backlog is not necessarily an indicator of future revenues.
Because certain contracts (e.g., contracts relating to large EPCEngineering, Procurement & Construction ("EPC") projects as well as national government programs) can cause large increases to backlog in the fiscal period in which we recognize the award, and because many of our contracts require us to provide services that span over a number ofseveral fiscal quarters (and sometimes over fiscal years), we evaluate our backlog generally on a year-over-year basis, rather thanbut also on a sequential, quarter-over-quarter basis.basis, where appropriate.
Please refer to Item 1A- Risk Factors, above, for a discussion of other factors that may cause backlog to ultimately convert into revenues at different amounts.
The following table summarizes our backlog for the years ended October 2, 2020, September 27, 2019 and September 28, 2018 September 29, 2017 and September 30, 2016 (in millions):
|
| | | | | | | | | | | |
| | September 28, 2018 | | September 29, 2017 | | September 30, 2016 |
| Aerospace, Technology, Environmental and Nuclear | $ | 8,857 |
| | $ | 6,358 |
| | $ | 4,472 |
|
| Buildings, Infrastructure and Advanced Facilities | 11,376 |
| | 6,789 |
| | 7,063 |
|
| Energy, Chemicals and Resources | 7,066 |
| | 6,642 |
| | 7,226 |
|
| Total | $ | 27,299 |
| | $ | 19,789 |
| | $ | 18,761 |
|
| | | | | | | | | | | | | | | | | |
| October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Critical Mission Solutions | $ | 9,104 | | | $ | 8,460 | | | $ | 7,130 | |
| People & Places Solutions | 14,714 | | | 14,109 | | | 12,825 | |
| Total | $ | 23,818 | | | $ | 22,569 | | | $ | 19,955 | |
The increase in backlog in Aerospace, Technology, Environmental and NuclearCritical Mission Solutions for the years presented werewas primarily the result of new awards from the U.S. federal government and the CH2M acquisition of John Wood Group's nuclear consulting, remediation and program management business in fiscal year 2018.2020.
The increase in backlog in Buildings, Infrastructure and Advanced FacilitiesPeople & Places Solutions for the years presented werewas primarily the result of new awards in Australiathe U.K. and the U.S. markets and the CH2M acquisition in fiscal year 2018.
The increase in backlog in Energy, Chemicals and Resources from fiscal year 2017 to 2018 was due to the CH2M acquisition offset in part by work off of projects in the Americas with significant pass-through cost. The decrease seen in from fiscal year 2017 to 2016 was primarily due to the weakness in the upstream market, partly offset by strong performance in chemicals backlog.markets.
Backlog relating to work to be performed either directly or indirectly for the U.S. federal government and its agencies totaled approximately $6.8$8.5 billion (or 24.9%35.7% of total backlog), $4.6$8.8 billion (or 23.2%39.1% of total backlog) and $4.8$6.8 billion (or 25.4%34.1% of total backlog) at October 2, 2020, September 27, 2019 and September 28, 2018, September 29, 2017 and September 30, 2016, respectively. Most of our federal government contracts require that services be provided beyond one year. In general, these contracts must be funded annually (i.e., the amounts to be spent under the contract must be appropriated by the U.S. Congress to the procuring agency, and then the agency must allot these sums to the specific contracts).
We estimate that approximately $9.9$7.48 billion, or 36%31.4%, of total backlog at September 28, 2018October 2, 2020 will be realized as revenues within the next fiscal year.
Consolidated backlog differs from the Company’s remaining performance obligations as defined by ASC 606 primarily because of our national government contracts (other than national government O&M contracts). Our policy is to include in backlog the full contract award, whether funded or unfunded excluding the option periods while our remaining performance obligations represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. Additionally, the Company includes our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligations.
Liquidity and Capital Resources
At September 28, 2018,October 2, 2020, our principal sources of liquidity consisted of $793.4$862.4 million in cash and cash equivalents $1,448.4 millionand $2.09 billion of available borrowing capacity under our $1.6$2.25 billion 2014 revolving credit facilityagreement (the “Revolving"Revolving Credit Facility”Facility") and cash flows from operating activities. Additional information regarding the Revolving Credit Facility and the Term Loan Facility is set forth in Note 9 - Borrowings in Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.. We finance much of our operations and growth through cash generated by our operations.
On December 15, 2017, the Company completed 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 in cash acquired) and issued approximately $1.4 billion of Jacobs’ common stock 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 $700.0 million. 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 financed the cash consideration for the CH2M acquisition, the repayment of CH2M’s outstanding indebtedness and other transaction expenses with a combination of cash on hand and debt financing, which included borrowings under the Term Loan Facility in an aggregate principal amount of $1.5 billion and additional borrowings under the Revolving Credit Facility.
At September 28, 2018, our cash and cash equivalents were $793.4 million, at October 2, 2020 represented an increase of $19.1$231.4 million from $774.2$631.1 million at September 29, 2017.27, 2019, the reasons for which are described below.
This increase was due to cash flows provided by operations of $481.2 million and favorable cash flows from financing activities of $1.1 billion, partly offset by $1.6 billion in cash flows used in investing activities and exchange rate effects on cash of $(26.8) million.
Our cash flow fromprovided by operations of $481.2 $806.8 million during fiscal 2018fiscal 2020 was comparatively lower higher than the $574.9$366.4 million in cash flow fromused for operations for the corresponding periodprior year. This improvement was due primarily to favorable net cash earnings driven in fiscal 2017,part by improved operating profit performance and mitigating actions from the Company in response to the COVID-19 pandemic. Additionally, this favorable trend in cash from operations benefited from lower working capital levels, due mainly to higher levels of working capital (mainlycash used in the prior year for income taxes payable largely attributable to taxes paid on the gain from the ECR sale and favorable cash flow impacts in accrued liabilities, including the deferral of certain payments associated mainly with COVID-19 government assistance programs in the U.S. and Europe, offset mainly by higher cash used in accounts receivable), lower net earnings attributable to the group,payable.
Our cash used for payments oninvesting activities for fiscal 2020 of $429.1 million was comparatively lower than the opening balance sheet liabilities and post acquisition costs incurred$2.2 billion cash provided by investing activities for the prior year. The change was due primarily to the impact in connection2019 of $2.80 billion in cash proceeds associated with the CH2MECR sale and cash paid for the KeyW acquisition and payments associated with obligations from Restructuring and other charges.
With respect to the Company’s working capital accounts, the Company’sof $575.1 million, net of cash flows from operations are greatly affected by the cost-plus nature of our customer contracts. Because suchacquired. On a high percentage of our revenues are earned on cost-plus type contracts, and due to the significance of revenues relating to pass-through costs, most of the costs we incur are included in invoices we send to clients. Although we continually monitor our accounts receivable, we manage the operating cash flows of the Company by managing the working capital accounts in total, rather than by the individual elements. The primary elements of the Company’s working capital accounts are accounts receivable, accounts payable and billings in excess of cost. Accounts payable consist of obligations to third parties relating primarily to costs incurred for projects which are generally billable to clients. Accounts receivable consist of amounts due from our clients of which a substantial portion are for project-related costs. Billings in excess of cost consist of billings to and payments from our clients for costs yet to be incurred.
This relationship between revenues and costs, and between receivables and payables, is unique to our industry, and facilitates review of our liquidity at the total working capital level.
Ourcomparative basis, cash used in investing activities for fiscal 2018 of $1.6 billion was comparatively higher than the $236.2included approximately $293.6 million in cash used in investing activitiespaid for the corresponding period in fiscal 2017 which was primarily driven by cash used for the CH2M acquisition,John Wood Group's nuclear business, net of cash amounts acquired fromin the acquisitionsecond quarter of $315.2 million. Additions to property and equipment were slightly down from the comparative period.fiscal 2020.
Our cash fromused for financing activitiesactivities of $1.1 billion for$208.3 million in fiscal 20182020 resulted mainly from share repurchases of $337.3 million and dividend payments to both shareholders and non-controlling interests totaling $144.0 million, offset by net proceeds from borrowings of $5.8 billion, most of which$265.3 million. Cash used for financing activities was used in connection with financing of the CH2M acquisition. Repayments of long-term debt of $4.6 billion during first half of fiscal 2018 were up compared to $1.8$2.0 billion in fiscal 2017,2019 resulted mainly from net repayments of borrowings of $1.0 billion primarily related to repayments with this increase due mainly tocash received from the payoff of CH2M’s legacy debt balances in connection with the closing of the acquisition. Comparatively lower cash flows from proceeds from issuances ofECR sale, common stock during fiscal 2018 were offset by lower cash outflows for common stock repurchases. The Company paid $86.6repurchases of $853.7 million in dividends, includingand dividend payments to noncontrollingboth shareholders and non-controlling interests of $4.6 million, during the year, with $58.8 million in dividends paid in the comparative prior year period.$106.4 million.
At September 28, 2018,October 2, 2020, the Company had approximately $342.9$153.0 million in cash and cash equivalents held in the U.S. and $450.5$709.4 million held outside of the U.S. (primarily in the U.K., the Eurozone, ChileAustralia, India and India)the United Arab Emirates), which is used primarily for funding operations in those regions. Other than the tax cost of repatriating funds to the U.S. (see Note 13-7- Income Taxes of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K), there are no material impediments to repatriating these funds to the U.S.
In March 2020, the Company entered into a new unsecured term loan facility (the “2020 Term Loan Facility”) with a syndicate of financial institutions as lenders. The principal balance of the 2020 Term Loan Facility was $1.0 billion as of October 2, 2020. The terms and other important details are summarized in Note 9- Borrowings. The 2020 Term Loan Facility was entered into as part of our strategy to increase the portion of our long-term debt that is represented by term loan facilities. During fiscal 2020, the Company used proceeds of the 2020 Term Loan Facility to repay $200.0 million in short-term debt and all but $152.8 million in outstanding amounts under the Revolving Credit Facility.
The Company had $446.6$263.0 million in letters of credit outstanding at September 28, 2018.October 2, 2020. Of this amount, $2.5 $2.3 million was issued under the Revolving Credit Facility and $444.1 $260.7 million waswas issued under separate, committed and uncommitted letter-of-credit facilities.
On March 6, 2020, a subsidiary of Jacobs completed the acquisition of John Wood Group's nuclear consulting, remediation and program management business for an enterprise value of £246 million, or approximately $317.9 million, less cash acquired of $24.3 million. The Company has recorded its preliminary purchase accounting processes associated with the acquisitions, which are summarized in Note 14- Business Combinations.
On June 12, 2019, Jacobs completed the acquisition of KeyW 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 cash to the former stockholders and certain equity award holders of KeyW and the assumption of KeyW’s debt of $298.4 million. The Company repaid KeyW's outstanding debt by the end of the fourth fiscal quarter of 2019. The Company has recorded its final purchase accounting associated with the acquisition, which is summarized in Note 14- Business Combinations.
On October 21, 2018,April 26, 2019, Jacobs and WorleyParsons Limited, a company incorporated in Australia (“Buyer”), entered into a Stock and Asset Purchase Agreement pursuantcompleted the sale of its ECR business to which Buyer agreed to acquire the Company’s ECR businessWorley for a purchase price of $3.3$3.4 billion consisting of (i) $2.6$2.8 billion in cash plus (ii) 58.2 million ordinary shares of the Buyer equal to $700 million,Worley, 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.items.
We believe we have adequate liquidity and capital resources to fund our operations and support our debt service, and also to make discretionary payments such as the payment of dividends and buyback of shares and to support our ongoing acquisition strategyprojected cash requirements for the next twelve months based on the liquidity provided by our cash and cash equivalents on hand, our borrowing capacity
remaining under the Revolving Credit Facility and our continuing cash from operations. We further believe that our financial resources and discretionary spend controls, as well as near term benefits from government assistance programs, will allow us to continue managing the negative impacts of the COVID-19 pandemic on our business operations for the foreseeable future, which is expected to include reduced revenue from operating activities, based on current assumptions and expectations regarding the pandemic. We have taken actions to reduce spending more broadly across the Company, only proceeding with operating and capital spending that is critical. We have also ceased all non-essential hiring and reduced discretionary expenses, including certain employee benefits and compensation. In addition, as a precautionary measure, we temporarily suspended purchases under the share repurchase plan in March 2020 with such suspension remaining in effect through the third fiscal quarter of 2020. Looking ahead, we have developed contingency plans to reduce costs further if the situation deteriorates beyond or lasts longer than current assumptions and expectations.
We were in compliance with all of our debt covenants at September 28, 2018.October 2, 2020.
Contractual Obligations
The following table sets forth certain information about our contractual obligations as of September 28, 2018October 2, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Fiscal Period |
| | Total | | 1 Year or Less | | 1 - 3 Years | | 3 - 5 Years | | More than 5 Years |
| Debt obligations | $ | 1,678,620 | | | $ | — | | | $ | — | | | $ | 1,368,620 | | | $ | 310,000 | |
| Interest (1) | 188,238 | | | 36,844 | | | 73,689 | | | 53,854 | | | 23,851 | |
| Operating leases | 994,678 | | | 184,967 | | | 307,834 | | | 235,338 | | | 266,539 | |
| Unfunded portion of defined benefit pension plans (2) | 400,391 | | | 31,258 | | | 66,317 | | | 71,728 | | | 231,088 | |
| Obligations under nonqualified deferred compensation plans (3) | 171,130 | | | 12,614 | | | 26,762 | | | 28,946 | | | 102,808 | |
| Purchase obligations (4) | 2,842,462 | | | 2,297,161 | | | 545,301 | | | — | | | — | |
| Total | $ | 6,275,519 | | | $ | 2,562,844 | | | $ | 1,019,903 | | | $ | 1,758,486 | | | $ | 934,286 | |
(1)Determined based on borrowings outstanding at the end of fiscal 2020 using the interest rates in effect at that time, considering the effects of interest rate swap agreements, and for our outstanding long-term debt, concluding with the expiration date of the debt facilities as defined below.
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Fiscal Period |
| | Total | | 1 Year or Less | | 1 - 3 Years | | 3 - 5 Years | | More than 5 Years |
| Debt obligations | $ | 2,151,877 |
| | $ | 941 |
| | $ | 1,650,936 |
| | $ | — |
| | $ | 500,000 |
|
Operating leases (1) | 1,219,521 |
| | 215,375 |
| | 346,009 |
| | 251,605 |
| | 406,532 |
|
Obligations under defined benefit pension plans (2) | 359,074 |
| | 34,150 |
| | 71,404 |
| | 75,753 |
| | 177,767 |
|
Obligations under nonqualified deferred compensation plans (3) | 258,901 |
| | 38,015 |
| | 80,697 |
| | 84,778 |
| | 55,410 |
|
Purchase obligations (4) | 2,693,034 |
| | 2,596,228 |
| | 96,806 |
| | — |
| | — |
|
Interest (5) | 176,080 |
| | 61,302 |
| | 85,158 |
| | 29,620 |
| | — |
|
| Total | $ | 6,858,487 |
| | $ | 2,946,011 |
| | $ | 2,331,010 |
| | $ | 441,756 |
| | $ | 1,139,709 |
|
| |
(1) | Assumes the Company will make the end of lease term residual value guarantee payment of $62.4 million in 2025 with respect to the lease of an office building in Houston, Texas. Please refer to Note 14- Commitments and Contingencies and Derivative Financial Instruments of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.(3)Assumes that future payments will be consistent with amounts paid in fiscal 2020. Due to the non-qualified nature of the plans, and the fact that benefits are based in part on years of service, the payments included in the schedule were limited to the amount recorded as of October 2, 2020. (4)Represents those liabilities estimated to be under firm contractual commitments as of October 2, 2020; primarily accounts payable, accrued payroll and accrued dividends. |
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(2) | Assumes that future contributions will be consistent with amounts projected to be contributed in fiscal 2018, allowing for certain growth based on rates of inflation and salary increases, but limited to the amount recorded as of September 28, 2018. Actual contributions will depend on a variety of factors, including amounts required by local laws and regulations, and other funding requirements. |
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(3) | Assumes that future payments will be consistent with amounts paid in fiscal 2018. Due to the non-qualified nature of the plans, and the fact that benefits are based in part on years of service, the payments included in the schedule were limited to the amount recorded as of September 28, 2018. |
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(4) | Represents those liabilities estimated to be under firm contractual commitments as of September 28, 2018; primarily accounts payable, accrued payroll and accrued dividends. |
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(5) | Determined based on borrowings outstanding at the end of fiscal 2018 using the interest rates in effect at that time and, for our outstanding long-term debt, concluding with the expiration date of the debt facilities, as defined below. |
Effects of Inflation and Changing Prices
The effects of inflation and changing prices on our business is discussed in Item 1A- Risk Factors, and is incorporated herein by reference.
Off-Balance Sheet Arrangements
We are party to financial instruments with off-balance sheet risk in the form of guarantees not reflected in our balance sheet that arise in the normal course of business. However, such off-balance sheet arrangements are not reasonably likely to have ana material adverse effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or resources that are material to investors.resources. See Note 14 - 17- Commitments and Contingencies and Derivative Financial Instruments of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.
New Accounting Pronouncements
From time to time, the Financial Accounting Standards Board (“FASB”) issues accounting standards updates (each an “ASU”) to its Accounting Standards Codification (“ASC”), which constitutes the primary source of U.S. GAAP. The Company regularly monitors ASUs as they are issued and considers their applicability to its business. All ASUs applicable to the Company are adopted by the due date and in the manner prescribed by the FASB.
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.
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 has also assessed the impact of ASU 2014-09 to the recently acquired CH2M business. We will align CH2M's accounting policies, processes and controls with the policies, processes and controls being implemented across the Company.
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 have a significant administrative impact on its operations, and the Company will further assess the impact through its implementation program.
Other Pronouncements
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging 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 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.
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 2017-07 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.must be applied on a modified retrospective basis. Management is currently evaluating the impact thatdoes not expect the adoption of ASU 2017-07 will326 to have a material impact on the Company's financial position, results of operations andor cash flows.
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Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not enter into derivative financial instruments for trading, speculation or other purposes that would expose the Company to market risk. In the normal course of business, our results of operations are exposed to risks associated with fluctuations in interest rates and currency exchange rates.
Interest Rate Risk
Please see the Note 9- Borrowings in Notes to Consolidated Financial Statements beginning on Page F-1 of this Annual reportReport on Form 10-K, which is incorporated herein by reference, for a discussion of the Revolving Credit Facility Term Loan Facility and Note Purchase Agreement.
Our Revolving Credit Facility, 2020 Term Loan Facility, Revolving Credit Facility and certain other debt obligations are subject to variable rate interest which could be adversely affected by an increase in interest rates. As of September 28, 2018,October 2, 2020, we had an aggregate of $1.651.2 billion in outstanding borrowings under our Term LoanRevolving Credit Facility and our Revolving Credit2020 Term Loan Facility. Interest on amounts borrowed under these agreements is subject to adjustment based on the Company’sCompany’s Consolidated Leverage Ratio (as defined in the credit agreements governing the Term LoanRevolving Credit Facility and Revolving Creditthe 2020 Term Loan Facility). Depending on the Company’s Consolidated Leverage Ratio, borrowings under the Term LoanRevolving Credit Facility and Revolving Creditthe 2020 Term Loan Facility bear interest at a Eurocurrency rate plus a margin of between 1.0%0.875% and 1.5% or a base rate plus a margin of between 0% and 0.5%. Additionally, if our consolidated leverage ratio exceeds a certain amount, the interest on the Senior Notes may increase by 75 basis points. However, as discussed in Note 17- Commitments and Contingencies and Derivative Financial Instruments, we have entered into swap agreements with an aggregate notional value of $911.5 million to convert the variable rate interest based liabilities associated with a corresponding amount of our debt into fixed interest rate liabilities, leaving $267.1 million in principal amount subject to variable interest rate risk.
For the year ended September 28, 2018,October 2, 2020, our weighted average floating rate borrowings were approximately $2.0$1.2 billion. If floating interest rates had increased by 1.00%, our interest expense for the year ended September 28, 2018October 2, 2020 would have increased by approximately $20.4$12.2 million.
Foreign Currency Risk
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. We follow the provisions of ASC No. 815, Derivatives and Hedging in accounting for our derivative contracts. The Company does not currently havehas $521.5 million in notional value of exchange rate sensitive instruments that would have a material effect on our consolidated financial statements or results of operations.at October 2, 2020. See Note 17- Commitments and Contingencies and Derivative Financial Instruments for discussion.
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Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is submitted as a separate section beginning on page F-1 of this Annual Report on Form 10-K and is incorporated herein by reference.
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Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | |
Item 9A. | CONTROLS AND PROCEDURES |
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chair and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure.
The Company’s management, with the participation of its Chair and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of the Company’s disclosure controls and procedures as defined by Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of September 28, 2018,October 2, 2020, the end of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”). Based on that evaluation, and as a resultthe Company’s management, with the participation of the material weakness in our internal control over financial reporting described below under Management's Annual Report on Internal Control Over Financial Reporting, the Chief Executive Officer (principal executive officer) and Chief Financial Officer have(principal financial officer) concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were not functioning effectively as of the Evaluation Date were effective to provide reasonable assuranceensure that the information required to be disclosed by the Company in the reports filedthat it files or submittedsubmits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chair and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate to allow timely decisions regarding required disclosure.
As permitted by SEC guidance for newly acquired businesses, management’s assessment of the Company’s disclosure controls and procedures did not include an assessment of those disclosure controls and procedures of CH2M HILL Companies, Ltd. (CH2M) that are subsumed by internal control over financial reporting. CH2M accounted for approximately 42% of total assets as of September 28, 2018, and 25% of revenues and 30% of operating profit for the fiscal year ended on September 28, 2018.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining for the Company adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Management, with the participation of its Chair and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), has assessed the effectiveness of the Company’s internal control over financial reporting as of the Evaluation Date based on the framework established in “Internal Control—Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, and the material weakness identified below, management has concluded that the Company’s internal control over financial reporting as of the Evaluation Date was ineffective. As permitted by SEC guidance for newly acquired businesses, management’s assessment of the Company’s internal control over financial reporting did not include an assessment of internal control over financial reporting of CH2M. CH2M accounted for approximately 42% of total assets as of September 28, 2018, and 25% of revenues and 30% of operating profit for the fiscal year ended on September 28, 2018.
Management has identified the following material weakness as of September 28, 2018: A material weakness related to internal control deficiencies over the accounting for income taxes in connection with a business combination, specifically related to the ineffective design and operating effectiveness of controls over the completeness and accuracy of deferred taxes and the evaluation of the recoverability of deferred taxes associated with the CH2M acquisition.
The material weakness did not result in any material misstatements to the Company’s previously issued financial statements, nor in the financial statements included in this Form 10-K.effective.
The Company's independent registered public accounting firm, Ernst & Young LLP, that audited the Company's consolidated financial statements included in this Annual Report on Form 10-K, also audited the effectiveness of our internal control over financial reporting as of September 28, 2018,October 2, 2020, as stated in their report included in this Annual Report on Form 10-K.
Remediation Plan
The Company's management is committed to maintaining a strong internal control environment. In response to the identified material weakness, management, with the oversight of the Audit Committee of the Board of Directors, will take comprehensive actions to remediate the material weakness in internal control over financial reporting, including implementing additional specific enhanced control procedures for the review, analysis and reporting of its deferred income tax accounts, including control procedures relating to the recoverability of deferred taxes associated with acquired businesses in a business combination. The Company has commenced its remediation plan, with the goal of remediating this material weakness as soon as possible, subject to the conclusion by management that the enhanced internal control over financial reporting is operating effectively following appropriate testing. The
remediation efforts are intended both to address the identified material weakness and to enhance our overall financial control environment. As management continues to evaluate and work to improve the Company's disclosure controls and procedures and internal control over financial reporting, the Company may take additional measures to address these deficiencies or modify certain of the remediation measures described above.
Changes in Internal Control
Subject to the above, thereThere were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended September 28, 2018October 2, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on Effectiveness of Controls
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures or its system of internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, but not absolute, assurance that the objectives of the system of internal control are met. The design of the Company’s control system reflects the fact that there are resource constraints, and that the benefits of such control systems must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the intentional acts of individuals, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that the design of any particular control will always succeed in achieving its objective under all potential future conditions.
| |
Item 9B. | OTHER INFORMATION |
Item 9B. OTHER INFORMATION
None.
PART III
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Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors, Executive Officers, Promoters and Control Persons
The information required by Paragraph (a), and Paragraphs (c) through (g) of Item 401 of Regulation S-K (except for information required by Paragraph (e) of that Item to the extent the required information pertains to our executive officers) and Item 405 of Regulation S-K is set forth under the captions “Members of the Board of Directors,” “Corporate Governance” and “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year and is incorporated herein by reference. The information required by Paragraph (b) of Item 401 of Regulation S-K, as well as the information required by Paragraph (e) of that Item to the extent the required information pertains to our executive officers, is set forth in Part I, Item 1 of this Annual Report on Form 10-K under the heading “Executive Officers of the Registrant.“Information About Our Executive Officers.”
Code of Ethics
We have adopted a code of ethics for our Chief Executive Officer and senior financial officers; a code of business conduct and ethics for members of our Board of Directors and corporate governance guidelines. The full text of these codes of ethics and corporate governance guidelines are available at our website at www.jacobs.com. In the event we make any amendment to, or grant any waiver from, a provision of the code of ethics that applies to the principal executive officer, principal financial officer or principal accounting officer that requires disclosure under applicable SEC rules, we will disclose such amendment or waiver and the reasons therefor on our website. We will provide any person without charge a copy of any of the aforementioned codes of ethics upon receipt of a written request. Requests should be addressed to: Jacobs Engineering Group Inc., 1999 Bryan Street, Suite 1200, Dallas, Texas 75201, Attention: Corporate Secretary.
Corporate Governance
The information required by Items 407(d)(4) and (d)(5) of Regulation S-K is set forth under the caption “Corporate Governance” in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION | |
Item 11. | EXECUTIVE COMPENSATION |
The information required by this Item is set forth under the captions “Corporate Governance,” “Compensation Committee Report,” “Compensation Discussion and Analysis” and “Executive Compensation” in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | |
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents certain information about our equity compensation plans as of September 28, 2018:
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| | | | | | | | | |
| Column A | | Column B | | Column C |
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants, and rights | | Weighted- average exercise price of outstanding options, warrants, and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column A) |
| Equity compensation plans approved by shareholders (a) | 1,766,759 |
| | $ | 45.53 |
| | 5,631,371 |
|
| Equity compensation plans not approved by shareholders | — |
| | — |
| | — |
|
| Total | 1,766,759 |
| | 45.53 |
| | 5,631,371 |
|
| |
(a) | The number in Column A excludes purchase rights accruing under our two, broad-based, shareholder-approved employee stock purchase plans: The Jacobs Engineering Group Inc. 1989 Employee Stock Purchase Plan, as amended and restated (the “1989 ESPP”), and the Global Employee Stock Purchase Plan, as amended and restated (the “GESPP”). These plans give employees the right to purchase shares at an amount and price that are not determinable until the end of the specified purchase periods, which occur monthly. Our shareholders have authorized a total of 32.3 million shares of common stock to be issued through the 1989 ESPP and the GESPP. From the inception of the 1989 ESPP and the GESPP through September 28, 2018, a total of 28.0 million shares have been issued, leaving 4.3 million shares of common stock available for future issuance at that date. |
The information required by this Item 403 of Regulation S-K is set forth under the caption “Security Ownership” in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year and is incorporated herein by reference.
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Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is set forth under the captions “Members of The Board of Directors,” “Corporate Governance,” and “Certain Relationships and Related Transactions” in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year and is incorporated herein by reference.
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Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is set forth under the captions “Report of the Audit Committee” and “Audit and Non-Audit Fees” in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A within 120 days after the close of our fiscal year and is incorporated herein by reference.
PART IV
EXHIBITS AND FINANCIAL STATEMENTS
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Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
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(1) | The Company’s Consolidated Financial Statements at September 28, 2018 and September 29, 2017 and for each of the three years in the period ended September 28, 2018, and the notes thereto, together with the report of the independent auditors on those Consolidated Financial Statements are hereby filed as part of this report, beginning on page F-1. |
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(2) | Financial statement schedules – no financial statement schedules are presented as the required information is either not applicable, or is included in the consolidated financial statements or notes thereto. |
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(3) | See Exhibit Index below. |
(1)The Company’s Consolidated Financial Statements at October 2, 2020 and September 27, 2019 and for each of the three years in the period ended October 2, 2020, and the notes thereto, together with the report of the independent auditors on those Consolidated Financial Statements are hereby filed as part of this report, beginning on page F-1.
(2)Financial statement schedules – no financial statement schedules are presented as the required information is either not applicable, or is included in the consolidated financial statements or notes thereto.
(3)See Exhibit Index below.
(b) Exhibit Index:
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| 2.1 |
| | Agreement and Plan of Merger dated August 1, 2017, by and among The KeyW Holding Corporation, Jacobs Engineering Group Inc., CH2M HILL Companies, Ltd. and Basketball MergerAtom Acquisition Sub, Inc., dated April 21, 2019. Filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K on August 2, 2017April 22, 2019 and incorporated herein by reference. |
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| 2.2 |
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2.3 |
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| 3.1 |
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| 3.2 |
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4.14.1† |
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4.210.1 |
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4.3 |
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10.1 |
| | Second Amended and Restated Credit Agreement, dated as of February 7, 2014 among Jacobs Engineering Group Inc. and certain of its subsidiaries as borrowers, and the Bank of America, N.A. (as Administrative Agent); Bank of America, N.A., BNP Paribas, and Wells Fargo Bank, N.A. (as Co-Syndication Agents); The Bank of Tokyo-Mitsubishi UFJ, LTD, and TD Bank, N.A. (as Co- Documentation Agents); Merrill Lynch, Pierce, Fenner & Smith Incorporated (as Sole Book Manager); and Merrill Lynch, Pierce, Fenner & Smith Incorporated, BNP Paribas Securities Corp, and Wells Fargo Securities, LLC (as Joint Lead Arrangers). Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K on February 11, 2014 and incorporated herein by reference. |
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10.2 |
| | Amendment No. 1, dated as of March 4, 2015, among Jacobs Engineering Group, Inc. and the lenders thereto, and Bank of America, N.A., as administrative agent, to the Amended and Restated Credit Agreement dated as of February 7, 2014,27, 2019, by and among Jacobs Engineering Group Inc., certain of its subsidiaries party thereto, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent. Filed as Exhibit 10.1 to the Registrant’sRegistrant's Current Report on Form 8-K on March 5, 201528, 2019 and incorporated herein by reference. |
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10.310.2 |
| | Amendment No. 2, dated as of September 28, 2017, among Jacobs Engineering Group Inc. and the lenders thereto, and Bank of America, N.A., as administrative agent, to the Amended and Restated Credit Agreement dated as of February 7, 2014, by and among Jacobs Engineering Group Inc., the lenders from time to time party thereto and Bank of America, N.A., as administrative agent. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K on September 29, 2017 and incorporated herein by reference. |
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10.4 |
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10.510.3 |
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10.6 |
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10.710.4 |
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10.810.5 |
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10.9#10.6 |
| | Credit Agreement, dated as of March 25, 2020, among Jacobs Engineering Group Inc. and Jacobs U.K. Limited, as borrowers, the lenders party thereto, Bank of America, N.A. as administrative agent, Bank of America, N.A., BNP Paribas and Wells Fargo Bank, N.A., as co-syndication agents, The Bank of Nova Scotia, HSBC Bank USA, National Association, USA, PNC Bank, National Association, TD Bank, N.A., Truist Bank and U.S. Bank National Association, as co-documentation agents, and BofA Securities, Inc., BNP Paribas Securities Corp. and Wells Fargo Securities, LLC, as joint lead arrangers and joint bookrunners. Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K on March 27, 2020 and incorporated herein by reference. |
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| 10.7# | | |
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10.10#10.8# |
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10.11#10.9# |
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10.12#10.10# |
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10.13#10.11# |
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10.14#10.12# |
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10.15#10.13# |
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10.16# |
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10.17†# |
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10.18#10.14# |
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10.19#10.15# |
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10.20# |
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10.21#10.16# |
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10.22#10.17# |
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10.23# |
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10.24# |
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10.25# |
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10.26# |
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10.27# |
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10.28# |
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10.29# |
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10.31#10.18# |
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10.32# |
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10.33# |
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10.34# |
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10.35#
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10.36#
10.20#
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10.37#10.21# |
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10.38#
10.22# |
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10.39#
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10.40#
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10.41# |
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10.42# |
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10.49#10.23# |
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10.50# |
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10.51# |
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10.54#10.24# |
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10.55#10.25# |
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10.56#10.26# |
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10.57# |
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10.58# |
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10.59# |
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10.60# |
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10.61#10.27# |
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10.62#10.28# |
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10.63#
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10.31#
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10.64#
10.32#
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10.65#10.33# |
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21†10.34# |
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95†101.INS† |
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101.INS† |
| | XBRL Instance Document |
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| 101.SCH† |
| | XBRL Taxonomy Extension Schema Document |
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| 101.CAL† |
| | XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF† |
| | XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB† |
| | XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE† |
| | XBRL Taxonomy Extension Presentation Linkbase Document |
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†104† | Being filed herewith. | XBRL Coverpage interactive data file |
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| # | 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.
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| | | | | | JACOBS ENGINEERING GROUP INC. |
| Dated: | | November 21, 201824, 2020 | | 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, 201824, 2020 |
| Steven J. Demetriou | | | | |
| /S/ Joseph R. Bronson | | Director | | November 21, 201824, 2020 |
| Joseph R. Bronson | | | | |
/S/ Juan Jose Suarez CoppelVincent K. Brooks | | Director | | November 21, 201824, 2020 |
Juan Jose Suarez CoppelVincent K. Brooks | | | | |
| /S/ Robert C. Davidson, Jr. | | Director | | November 21, 201824, 2020 |
| Robert C. Davidson, Jr. | | | | |
| /S/ Ralph E. Eberhart | | Director | | November 21, 201824, 2020 |
| Ralph E. Eberhart | | | | |
/S/ Dawne S. HicktonManny Fernandez | | Director | | November 21, 201824, 2020 |
Dawne S. HicktonManny Fernandez | | | | |
| /S/ Georgette D. Kiser | | Director | | November 24, 2020 |
| Georgette D. Kiser | | | | |
| /S/ Linda Fayne Levinson | | Director | | November 21, 201824, 2020 |
| Linda Fayne Levinson | | | | |
| /S/ Barbara L. Loughran | | Director | | November 24, 2020 |
| Barbara L. Loughran | | | | |
| /S/ Robert A. McNamara | | Director | | November 21, 201824, 2020 |
| Robert A. McNamara | | | | |
| /S/ Peter J. Robertson | | Director | | November 21, 201824, 2020 |
| Peter J. Robertson | | | | |
| /S/ Christopher M.T. Thompson | | Director | | November 21, 201824, 2020 |
| Christopher M.T. Thompson | | | | |
/S/ Barry Williams | | Director | | November 21, 2018 |
Barry Williams | | | | |
| /S/ Kevin C. Berryman | | Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
| | November 21, 201824, 2020 |
| Kevin C. Berryman | | | | |
| /S/ William B. Allen | | Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
| | November 21, 201824, 2020 |
| William B. Allen | | | | |
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
September 28, 2018October 2, 2020
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 2018October 2, 2020
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information) | | | | September 28, 2018 | | September 29, 2017 | | October 2, 2020 | | September 27, 2019 |
| ASSETS | | | | ASSETS | | | |
| Current Assets: | | | | Current Assets: | |
| Cash and cash equivalents | $ | 793,358 |
| | $ | 774,151 |
| Cash and cash equivalents | $ | 862,424 | | | $ | 631,068 | |
| Receivables | 3,554,930 |
| | 2,102,543 |
| |
| Receivables and contract assets | | Receivables and contract assets | 3,167,310 | | | 2,840,209 | |
| Prepaid expenses and other | 208,296 |
| | 119,486 |
| Prepaid expenses and other | 162,355 | | | 189,358 | |
| Investment in equity securities | | Investment in equity securities | 347,510 | | | 451,133 | |
| | Total current assets | 4,556,584 |
| | 2,996,180 |
| Total current assets | 4,539,599 | | | 4,111,768 | |
| Property, Equipment and Improvements, net | 457,706 |
| | 349,911 |
| Property, Equipment and Improvements, net | 319,371 | | | 308,143 | |
| Other Noncurrent Assets: | | | | Other Noncurrent Assets: | | | |
| Goodwill | 6,103,856 |
| | 3,009,826 |
| Goodwill | 5,639,091 | | | 5,432,544 | |
| Intangibles, net | 655,957 |
| | 332,920 |
| Intangibles, net | 658,340 | | | 665,076 | |
| Deferred income tax assets | | Deferred income tax assets | 211,047 | | | 514,633 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 576,915 | | | 0 | |
| Miscellaneous | 871,692 |
| | 692,022 |
| Miscellaneous | 409,990 | | | 430,547 | |
| | Total other noncurrent assets | 7,631,505 |
| | 4,034,768 |
| Total other noncurrent assets | 7,495,383 | | | 7,042,800 | |
| | $ | 12,645,795 |
| | $ | 7,380,859 |
| | $ | 12,354,353 | | | $ | 11,462,711 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current Liabilities: | | | | Current Liabilities: | |
| Notes payable | $ | 4,954 |
| | $ | 3,071 |
| |
| Short-term debt | | Short-term debt | $ | 0 | | | $ | 199,901 | |
| Accounts payable | 1,127,671 |
| | 683,605 |
| Accounts payable | 1,061,754 | | | 1,072,645 | |
| Accrued liabilities | 1,488,629 |
| | 939,687 |
| Accrued liabilities | 1,249,883 | | | 1,386,952 | |
| Billings in excess of costs | 524,439 |
| | 299,864 |
| |
| Operating lease liability | | Operating lease liability | 164,312 | | | 0 | |
| Contract liabilities | | Contract liabilities | 465,648 | | | 414,208 | |
| Total current liabilities | 3,145,693 |
| | 1,926,227 |
| Total current liabilities | 2,941,597 | | | 3,073,706 | |
| Long-term Debt | 2,146,877 |
| | 235,000 |
| |
| Other Deferred Liabilities | 1,408,871 |
| | 732,281 |
| |
| Long-term debt | | Long-term debt | 1,676,941 | | | 1,201,245 | |
| Liabilities relating to defined benefit pension and retirement plans | | Liabilities relating to defined benefit pension and retirement plans | 568,176 | | | 575,897 | |
| Deferred income tax liabilities | | Deferred income tax liabilities | 3,366 | | | 233,111 | |
| Long-term operating lease liability | | Long-term operating lease liability | 735,202 | | | 0 | |
| Other deferred liabilities | | Other deferred liabilities | 573,404 | | | 610,094 | |
| | Commitments and Contingencies |
|
| |
|
| Commitments and Contingencies | | | |
| Stockholders’ Equity: | | | | Stockholders’ Equity: | |
| Capital stock: | | | | 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 |
| |
| Preferred stock, $1 par value, authorized - 1,000,000 shares; issued and outstanding - NaN | | Preferred stock, $1 par value, authorized - 1,000,000 shares; issued and outstanding - NaN | 0 | | | 0 | |
| Common stock, $1 par value, authorized - 240,000,000 shares; issued and outstanding - 129,747,783 shares and 132,879,395 shares as of October 2, 2020 and September 27, 2019, respectively | | Common stock, $1 par value, authorized - 240,000,000 shares; issued and outstanding - 129,747,783 shares and 132,879,395 shares as of October 2, 2020 and September 27, 2019, respectively | 129,748 | | | 132,879 | |
| Additional paid-in capital | 2,708,839 |
| | 1,239,782 |
| Additional paid-in capital | 2,598,446 | | | 2,559,450 | |
| Retained earnings | 3,809,991 |
| | 3,721,698 |
| Retained earnings | 4,020,575 | | | 3,939,174 | |
| Accumulated other comprehensive loss | (806,703 | ) | | (653,514 | ) | Accumulated other comprehensive loss | (933,057) | | | (916,812) | |
| Total Jacobs stockholders’ equity | 5,854,345 |
| | 4,428,352 |
| Total Jacobs stockholders’ equity | 5,815,712 | | | 5,714,691 | |
| Noncontrolling interests | 90,009 |
| | 58,999 |
| Noncontrolling interests | 39,955 | | | 53,967 | |
| Total Group stockholders’ equity | 5,944,354 |
| | 4,487,351 |
| Total Group stockholders’ equity | 5,855,667 | | | 5,768,658 | |
| | $ | 12,645,795 |
| | $ | 7,380,859 |
| | $ | 12,354,353 | | | $ | 11,462,711 | |
See the accompanying Notes to Consolidated Financial Statements.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Fiscal Years Ended October 2, 2020, September 27, 2019 and September 28, 2018 September 29, 2017 and September 30, 2016
(In thousands, except per share information)
| | | | September 28, 2018 | | September 29, 2017 | | September 30, 2016 | | October 2, 2020 | | September 27, 2019 | | September 28, 2018 |
| Revenues | $ | 14,984,646 |
| | $ | 10,022,788 |
| | $ | 10,964,157 |
| Revenues | $ | 13,566,975 | | | $ | 12,737,868 | | | $ | 10,579,773 | |
| Direct cost of contracts | (12,156,276 | ) | | (8,250,536 | ) | | (9,196,326 | ) | Direct cost of contracts | (10,980,307) | | | (10,260,840) | | | (8,421,223) | |
| Gross profit | 2,828,370 |
| | 1,772,252 |
| | 1,767,831 |
| Gross profit | 2,586,668 | | | 2,477,028 | | | 2,158,550 | |
| Selling, general and administrative expenses | (2,180,399 | ) | | (1,379,983 | ) | | (1,429,233 | ) | Selling, general and administrative expenses | (2,050,695) | | | (2,072,177) | | | (1,771,107) | |
| Operating Profit | 647,971 |
| | 392,269 |
| | 338,598 |
| Operating Profit | 535,973 | | | 404,851 | | | 387,443 | |
| Other Income (Expense): | | | | | | Other Income (Expense): | |
| Interest income | 8,984 |
| | 8,748 |
| | 7,848 |
| Interest income | 4,729 | | | 9,487 | | | 8,984 | |
| Interest expense | (76,760 | ) | | (12,035 | ) | | (15,260 | ) | Interest expense | (62,206) | | | (83,847) | | | (76,760) | |
| Gain (Loss) on disposal of business and investments | (20,967 | ) | | 10,880 |
| | (41,410 | ) | |
| Miscellaneous income (expense), net | (4,523 | ) | | (6,645 | ) | | (3,053 | ) | |
| Total other (expense) income, net | (93,266 | ) | | 948 |
| | (51,875 | ) | |
| Earnings Before Taxes | 554,705 |
| | 393,217 |
| | 286,723 |
| |
| Income Tax Expense | (381,563 | ) | | (105,842 | ) | | (72,208 | ) | |
| | Miscellaneous (expense) income, net | | Miscellaneous (expense) income, net | (37,293) | | | 20,468 | | | 11,314 | |
| Total other expense, net | | Total other expense, net | (94,770) | | | (53,892) | | | (56,462) | |
| Earnings from Continuing Operations Before Taxes | | Earnings from Continuing Operations Before Taxes | 441,203 | | | 350,959 | | | 330,981 | |
| Income Tax Expense for Continuing Operations | | Income Tax Expense for Continuing Operations | (55,320) | | | (36,954) | | | (325,632) | |
| Net Earnings of the Group from Continuing Operations | | Net Earnings of the Group from Continuing Operations | 385,883 | | | 314,005 | | | 5,349 | |
| Net Earnings of the Group from Discontinued Operations | | Net Earnings of the Group from Discontinued Operations | 137,984 | | | 559,214 | | | 167,793 | |
| Net Earnings of the Group | 173,142 |
| | 287,375 |
| | 214,515 |
| Net Earnings of the Group | 523,867 | | | 873,219 | | | 173,142 | |
| Net (Earnings) Loss Attributable to Noncontrolling Interests | (9,711 | ) | | 6,352 |
| | (4,052 | ) | |
| Net Earnings Attributable to Noncontrolling Interests from Continuing Operations | | Net Earnings Attributable to Noncontrolling Interests from Continuing Operations | (32,022) | | | (23,045) | | | (9,534) | |
| Net Earnings (Loss) Attributable to Jacobs from Continuing Operations | | Net Earnings (Loss) Attributable to Jacobs from Continuing Operations | 353,861 | | | 290,960 | | | (4,185) | |
| Net Earnings Attributable to Noncontrolling Interests from Discontinued Operations | | Net Earnings Attributable to Noncontrolling Interests from Discontinued Operations | 0 | | | (2,195) | | | (177) | |
| Net Earnings Attributable to Jacobs from Discontinued Operations | | Net Earnings Attributable to Jacobs from Discontinued Operations | 137,984 | | | 557,019 | | | 167,616 | |
| Net Earnings Attributable to Jacobs | $ | 163,431 |
| | $ | 293,727 |
| | $ | 210,463 |
| Net Earnings Attributable to Jacobs | $ | 491,845 | | | $ | 847,979 | | | $ | 163,431 | |
| Net Earnings Per Share: | | | | | | |
| Basic | $ | 1.18 |
| | $ | 2.43 |
| | $ | 1.75 |
| |
| Diluted | $ | 1.17 |
| | $ | 2.42 |
| | $ | 1.73 |
| |
| Net Earnings (Loss) Per Share: | | Net Earnings (Loss) Per Share: | | | | | |
| Basic Net Earnings (Loss) from Continuing Operations Per Share | | Basic Net Earnings (Loss) from Continuing Operations Per Share | $ | 2.69 | | | $ | 2.11 | | | $ | (0.03) | |
| Basic Net Earnings from Discontinued Operations Per Share | | Basic Net Earnings from Discontinued Operations Per Share | $ | 1.05 | | | $ | 4.03 | | | $ | 1.21 | |
| Basic Earnings Per Share | | Basic Earnings Per Share | $ | 3.74 | | | $ | 6.14 | | | $ | 1.18 | |
| | Diluted Net Earnings (Loss) from Continuing Operations Per Share | | Diluted Net Earnings (Loss) from Continuing Operations Per Share | $ | 2.67 | | | $ | 2.09 | | | $ | (0.03) | |
| Diluted Net Earnings from Discontinued Operations Per Share | | Diluted Net Earnings from Discontinued Operations Per Share | $ | 1.04 | | | $ | 4.00 | | | $ | 1.21 | |
| Diluted Earnings Per Share | | Diluted Earnings Per Share | $ | 3.71 | | | $ | 6.08 | | | $ | 1.18 | |
See the accompanying Notes to Consolidated Financial Statements.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
See the accompanying Notes to Consolidated Financial Statements including the Company's note on
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
See the accompanying Notes to Consolidated Financial Statements.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
See the accompanying Notes to Consolidated Financial Statements.
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 October 2, 2020, September 27, 2019 and September 28, 2018 September 29, 2017 and September 30, 2016 was as follows:
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. Certain prior year balances have been reclassified to conform to current year presentation.
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 20152020 included an extra week of activity.
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
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.
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
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.
We consider all highly liquid investments with original maturities of less than three months to be cash equivalents. Cash equivalents at September 28, 2018October 2, 2020 and September 29, 201727, 2019 consisted primarily of money market mutual funds and overnight bank deposits.
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 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.
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
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.
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.
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.
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.
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.
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 October 2, 2020, September 27, 2019 and September 28, 2018, September 29, 2017 and September 30, 2016:2018:
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.
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:
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”).
The following table presents the fair value of shares (of restricted stock and restricted stock units) vested for the years ended October 2, 2020, September 27, 2019 and September 28, 2018 September 29, 2017 and September 30, 2016 (in thousands):
The following table presents certain information regarding stock options outstanding and stock options exercisable at September 28, 2018:October 2, 2020:
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 October 2, 2020, September 27, 2019 and September 28, 2018, September 29, 2017 and September 30, 2016:
The following table presents certain amounts relating to our U.S. plans recognized in accumulated other comprehensive (gain) loss at October 2, 2020, September 27, 2019 and September 28, 2018 September 29, 2017 and September 30, 2016 (in thousands):
The following table presents certain amounts relating to our non-U.S. plans recognized in accumulated other comprehensive (gain) loss at October 2, 2020, September 27, 2019 and September 28, 2018 September 29, 2017 and September 30, 2016 (in thousands):
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, 2018October 2, 2020 and September 29, 201727, 2019 (segregated between U.S. and non-U.S. plans) (in thousands):
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 20192021 based on 20182020 exchange rates (segregated between U.S. and non-U.S. plans) (in thousands):
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, 2018October 2, 2020 and September 29, 201727, 2019 (the measurement dates used in valuing the plans’ assets and liabilities) were as follows:
The following table presents the Fair Value of the Company’s Domestic U.S. plan assets at September 28, 2018,October 2, 2020, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands):
The following table presents the Fair Value of the Company’s non-U.S. plan assets at September 28, 2018,October 2, 2020, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands):
The following table presents the Fair Value of the Company’s U.S. plan assets at September 29, 2017,27, 2019, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands):
The following table presents the Fair Value of the Company’s non-U.S. plan assets at September 29, 2017,27, 2019, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands):
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, 201827, 2019 and October 2, 2020 (in thousands):
The following table presents the amount of cash contributions we anticipate making into the plans during fiscal 20192021 (in thousands):
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):
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 October 2, 2020, September 27, 2019 and September 28, 2018 September 29, 2017 and September 30, 2016 (in thousands):
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 October 2, 2020, September 27, 2019 and September 28, 2018 September 29, 2017 and September 30, 2016 (in thousands):
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.
The following table presents the Company’s contributions to these multiemployer plans for the years ended October 2, 2020, September 27, 2019 and September 28, 2018 September 29, 2017 and September 30, 2016 (in thousands):
