On January 16, 2020, the | |||
| Amount Authorized | Average Price Per Share (1) | Total Shares Retired | Shares Repurchased | |||
| $1,000,000,000 | $75.33 | 3,680,017 | 3,680,017 | |||
Dividend Program
On July 11, 2019,May 5, 2020, the Company’s Board of Directors declared a quarterly dividend of $0.17$0.19 per share of the Company’s common stock to be paid on August 23, 2019,June 17, 2020, to shareholders of record on the close of business on July 26, 2019.May 20, 2020. Future dividend declarations are subject to review and approval by the Company’s Board of Directors. Dividends paid through the thirdsecond fiscal quarter of 20192020 and the preceding fiscal year are as follows:
| Declaration Date | Record Date | Payment Date | Cash Amount (per share) | |||||||||||||||||
| January 16, 2020 | January 31, 2020 | February 28, 2020 | $0.19 | |||||||||||||||||
| September 19, 2019 | October 4, 2019 | November 1, 2019 | $0.17 | |||||||||||||||||
| July 11, 2019 | July 26, 2019 | August 23, 2019 | $0.17 | |||||||||||||||||
| May 2, 2019 | May 17, 2019 | June 14, 2019 | $0.17 | |||||||||||||||||
| January 17, 2019 | February 15, 2019 | March 15, 2019 | $0.17 | |||||||||||||||||
| September 11, 2018 | September 28, 2018 | October 26, 2018 | $0.15 | |||||||||||||||||
Derivative Financial Instruments
Due to the nature of the Company's international operations, we are at times exposed to foreign currency risk. Additionally, the Company is exposed to interest rate risk under its variable rate borrowings. As such, we sometimes enter into foreign exchange contracts and interest rate contracts in order to limit our exposure to fluctuating foreign currencies
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
and interest rates. The Company did not have outstanding foreign currency or interest rate derivatives that would have a material effect on our consolidated financial statements or results of operations as of March 27, 2020.
Contractual Guarantees and Insurance
In the normal course of business, we make contractual commitments some(some of which are supported by separate guarantees;guarantees) and on occasion we are a party in a litigation or arbitration proceeding. The litigation or arbitration in which we are involved includes personal injury claims, professional liability claims and breach of contract claims. Where we provide a separate guarantee, it is strictly in support of the underlying contractual commitment. Guarantees take various forms including surety bonds required by law, or standby letters of credit ("LOC") (also and also referred to as “bank guarantees”) or corporate guarantees given to induce a party to enter into a contract with a subsidiary. Standby LOCs are also used as security for advance payments or in various other transactions. The
guarantees have various expiration dates ranging from an arbitrary date to completion of our work (e.g., engineering only) to completion of the overall project. We record in the Consolidated Balance Sheets amounts representing our estimated liabilityliability relating to such guarantees, litigation and insurance claims. Guarantees are accounted for in accordance with ASC 460-10, Guarantees, at fair value at the inception of the guarantee.
At June 28, 2019March 27, 2020 and September 28, 2018,27, 2019, the Company had issued and outstanding approximately $359.0$262.8 million and $446.6and $262.2 million, respectively, in LOCs and $1.16 $1.97 billion and $870.3 million,and $2.0 billion, respectively, in surety bonds.
We maintain insurance coverage for most insurable aspects of our business and operations. Our insurance programs have varying coverage limits depending upon the type of insurance and include certain conditions and exclusions which insurance companies may raise in response to any claim that is asserted by or against the Company. We have also elected to retain a portion of losses and liabilities that occur through using various deductibles, limits, and retentions under our insurance programs. As a result, we may be subject to a future liability for which we are only partially insured or completely uninsured. We intend to mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms and conditions of the contracts which the Company enters with its clients. Our insurers are also subject to business risk and, as a result, one or more of them may be unable to fulfill their insurance obligations due to insolvency or otherwise.
Additionally, as a contractor providing services to the U.S. federal government, we are subject to many types of audits, investigations, and claims by, or on behalf of, the government including with respect to contract performance, pricing, cost allocations, procurement practices, labor practices, and socioeconomic obligations. Furthermore, our income, franchise, and similar tax returns and filings are also subject to audit and investigation by the Internal Revenue Service, most states within the United States, as well as by various government agencies representing jurisdictions outside the United States.
Our Consolidated Balance Sheets include amounts representing our probable estimated liability relating to such claims, guarantees, litigation, audits, and investigations. We perform an analysis to determine the level of reserves to establish for insurance-related claims that are known and have been asserted against us, as well as for insurance-related claims that are believed to have been incurred based on actuarial analysis but have not yet been reported to our claims administrators as of the respective balance sheet dates. We include any adjustments to such insurance reserves in our consolidated results of operations. Insurance recoveries are recorded as assets if recovery is probable and estimated liabilities are not reduced by expected insurance recoveries.
The Company believes, after consultation with counsel, that such guarantees, litigation, U.S. government contract-related audits, investigations and claims, and income tax audits and investigations should not have a material adverse effect on our consolidated financial statements, beyond amounts currently accrued.
Litigation and Investigations
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On September 30, 2015, Nui Phao Mining Company Limited (“NPMC”) commenced arbitration proceedings against Jacobs E&C Australia Pty Limited (“Jacobs E&C”) in Singapore before the Singapore International Arbitration Centre. Jacobs E&C was engaged by NPMC for the provision of management, design, engineering, and procurement services for a Nui Phao mine/mineral processing project in Vietnam as part of the Company’s former Energy, Chemicals & Resources (“ECR”) line of business. A three-week hearing on the merits concluded on December 15, 2017. On2017, and on March 28, 2019, the arbitration panel issued a decision finding against Jacobs E&C. On August 30, 2019, NPMC and awarding damagesJacobs E&C settled all of the proceedings related to this matter. Under the terms of the settlement, Jacobs E&C made a payment to NPMC in the amount of approximately $95.0 million. NPMC has asserted a claim for interest, costs and attorneys' fees for approximately $70.0$130.0 million whichin the Company intends to dispute.fourth fiscal quarter of 2019. The awardsettlement otherwise remains confidential. A hearing onDuring the interest and cost claim is scheduled to begin on October 28, 2019. On June 28,quarter ended December 27, 2019, the Company filed an applicationrecognized the reduction of $50.0 million of selling, general and administrative expenses in Singapore to set aside the award. In addition, NPMC has filed an application to enforce the award in Australia. A hearing on that application is scheduled to begin on September 4, 2019. In connection withdiscontinued operations as a temporary stayresult of the proceedings to enforce the award, the Company delivered a bank guarantee in the amountrealization of $95.0 million. The Company expects that a portion of the award is subject to recovery from insurance, however, the Company currently has not accrued a receivable for related insurance recoveries. Under the terms of the sale of the Company’sCompany's ECR business to WorleyParsonsWorley on April 26, 2019, the Company has retained liability with respect to this matter. The Company recorded pre-tax charges in discontinued operations for estimates related to the award and recovery of costs, estimated related interest and attorneys' fees in the amount of $147.0 million in the second quarter of 2019.
In 2012, CH2M HILL Australia Pty Limited, a subsidiary of CH2M, entered into a 50/50 integrated joint venture with Australian construction contractor UGL Infrastructure Pty Limited. The joint venture entered into a Consortium Agreement with General Electric and GE Electrical International Inc. The Consortium was awarded a subcontract by JKC Australia LNG Pty Limited ("JKC") for the engineering, procurement, construction and commissioning of a 360 MW Combined Cycle Power Plant for INPEX Operations Australia Pty Limited at Blaydin Point, Darwin, NT, Australia. In January 2017, the Consortium terminated the Subcontract because of JKC’s repudiatory breach and demobilized from the work site. JKC claimed the Consortium abandoned the work and itself purported to terminate the Subcontract. The Consortium and JKC are now in dispute over the termination. In August 2017, the Consortium filed an International Chamber of Commerce arbitration against JKC and is seeking compensatory damages in the amount of approximately
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On December 22, 2008, a coal fly ash pond at the Kingston Power Plant of the Tennessee Valley Authority ("TVA") was breached, releasing fly ash waste into the Emory River and surrounding community. In February 2009, TVA awarded a contract to the Company to provide project management services associated with the clean-up. All remediation and dredging were completed in August 2013 by other contractors under direct contracts with TVA. The Company did not perform the remediation, and its scope was limited to program management services. Certain employees of the contractors performing the cleanup work on the project filed lawsuits against the Company beginning in August 2013, alleging they were injured due to the Company's failure to protect the plaintiffs from exposure to fly ash, and asserting related personal injuries. There are currently 6 separate cases pending against the Company. The primary case, Greg Adkisson, et al. v. Jacobs Engineering Group Inc., case No. 3:13-CV-505-TAV-HBG, filed in the U.S. District Court for the Eastern District of Tennessee, consists of 10 consolidated cases. This case and the related cases involve several hundred plaintiffs that have been filed against the Company by employees of the contractors that completed the remediation and dredging work. The cases are at various stages of litigation, and several of the cases are currently stayed pending resolution of other cases. Separately, in May 2019, Roane County and the cities of King and Herriman filed a claim against TVA and the Company alleging that they misled the public about risks associated with the released fly ash. In December 2019, the court granted the Company's motion to dismiss a portion of the plaintiffs' complaint and scheduled this matter for trial in 2021 with respect to the remaining claims. In addition, in November 2019, a resident of Roane County filed a putative class action against TVA and the Company alleging they failed to adequately warn local residents about risks associated with the released fly ash. There has been no finding of liability against the Company or that any of the alleged illnesses are the result of exposure to fly ash in any of the above matters. The Company disputes the claims asserted in all of the above matters and is vigorously defending these claims. The Company does not expect the resolution of these matters to have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.
On October 31, 2019, the Company received a request from the Enforcement Division of the Securities and Exchange Commission (the "SEC") for the voluntary production of certain information and documents. The information and documents sought by the SEC primarily relate to the operations of a joint venture in Morocco which was at one time partially-owned by the Company (and subsequently divested), including in respect of possible corrupt practices. The Company is fully cooperating with the SEC and is producing the requested information and documents in its possession. The Company does not expect the resolution of this matter to have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.
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General
The purpose of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to provide a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition from the most recent fiscal year-end to June 28, 2019March 27, 2020 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year. In order to better understand such changes, readers of this MD&A should also read:
•The discussion of the critical and significant accounting policies used by the Company in preparing its consolidated financial statements. The most current discussion of our critical accounting policies appears in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2019 Form 10-K, and the most current discussion of our significant accounting policies appears in Note 2- Significant Accounting Polices in Notes to Consolidated Financial Statements of our 2019 Form 10-K. See also Note 13- Revenue Accounting for Contracts and Adoption of ASC 606 for a discussion of our updated policies related to revenue recognition; • |
The Company’s fiscal 20182019 audited consolidated financial statements and notes thereto included in our 20182019 Form 10-K; and
•Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 Form 10-K. |
In addition to historical information, this MD&A and other parts of this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that do not directly relate to any historical or current fact. When used herein, words such as “expects,” “anticipates,” “believes,” “seeks,” “estimates,” “plans,” “intends,” “future,” “will,” “would,” “could,” “can,” “may,” and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make concerning the potential effects of the COVID-19 pandemic on our business, financial condition and results of operations and our expectations as to our future growth, prospects, financial outlook and business strategy for fiscal 2020 or future fiscal years. You should not place undue reliance on these forward-looking statements. Although such statements are based on management’s current estimates and expectations, and/or currently available competitive, financial, and economic data, forward-looking statements are inherently uncertain, and involveyou should not place undue reliance on such statements as actual results may differ materially. We caution the reader that there are a variety of risks, uncertainties and uncertaintiesother factors that could cause our actual results to differ materially from what may be inferred from theis contained, projected or implied by our forward-looking statements. SomeSuch factors include the magnitude, timing, duration and ultimate impact of the COVID-19 pandemic and any resulting economic downturn on our results, prospects and opportunities. Such impact includes, but is not limited to, the possible reduction in demand for certain of our services and the delay or abandonment of ongoing or anticipated projects due to the financial condition of our clients and suppliers or to governmental budget constraints; the inability of our clients to meet their payment obligations in a timely manner or at all; potential issues and risks related to a significant portion of our employees working remotely; illness, travel restrictions and other workforce disruptions that could negatively affect our supply chain and our ability to timely and satisfactorily complete our clients’ projects; difficulties associated with hiring additional employees or replacing any furloughed employees; increased volatility in the capital markets that may affect our ability to access sources of liquidity on acceptable pricing or borrowing terms or at all; and the inability of governments in certain of the countries in which we operate to effectively mitigate the financial or other impacts of the COVID-19 pandemic on their economies and workforces and our operations therein. The foregoing factors and potential future developments are inherently uncertain, unpredictable and, in many cases, beyond our control. For a description of these and additional factors that may occur that could cause or contributeactual results to such differences include, but are not limited to,differ from our forward-looking statements, see those listed and discussed in Item 1A, Risk Factors included in our 20182019 Form 10-K and this Quarterly Report on Form 10-Q. We undertake no obligation to release publicly any revisions or updates to any forward-looking statements. We encourage you to read carefully the risk factors, as well as the financial and business disclosures contained in this Quarterly Report on Form 10-Q and in other documents we file from time to time with the United States Securities and Exchange Commission ("SEC").
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
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municipalities have declared public health emergencies or taken similar actions. Along with these declarations, 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.In addition, governments and central banks in the United States and other countries in which we operate have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.
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 currently continue to materially operate. In addition, demand for certain of our services, including those supporting health care relief efforts relating to COVID-19, could increase as a result of COVID-19. Notwithstanding our continued critical operations, it is expected that the COVID-19 may have further adverse impacts on our continued operations. Accordingly, we are reducing 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. Looking ahead, we have developed contingency plans to reduce costs further if the situation deteriorates. 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 primarily occur in the third fiscal quarter of 2020, which impact may continue into the fourth fiscal quarter of 2020 or beyond. 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 “Part II - Item 1A - Risk Factors”.
Business Overview
At Jacobs, we’re challenging today to reinvent tomorrow by solving the world’s most critical problems for thriving cities, resilient environments, mission-critical outcomes, operational advancement, scientific discovery and cutting-edge manufacturing, turning abstract ideas into realities that transform the world for good. Leveraging a talent force of approximately 55,000, Jacobs provides a full spectrum of professional services including consulting, technical, scientific and project delivery for the government and private sector.
The Company’s deep global domain knowledge - applied together with the latest advances in technology - are why customers large and small choose to partner with Jacobs. We operate in two lines of business: Critical Mission Solutions (formerly Aerospace, Technology and Nuclear) and People & Places Solutions (formerly Buildings, Infrastructure and Advanced Facilities). These new names better reflect outcome-focused solutions for our customers and the changes have no impact on reported financial statements, line of business leadership or customer relationships.
After spending three years transforming our portfolio and setting the foundation to get us where we are today, we launched a three-year accelerated profitable growth strategy at our Investor Day in February 2019, focused on innovation and continued transformation to build upon our position as the leading solutions provider for our clients. This transformation included the $3.2 billion acquisition of CH2M and the $3.4 billion divestiture of the Company's energy, chemicals and resources business. Our acquisitions of KeyW and John Wood Group’s nuclear business will further position us as a leader in high-value government services and technology-enabled solutions, enhancing our portfolio by adding intellectual property-driven technology with unique proprietary C5ISR (command, control, communications, computer, combat systems, intelligence, surveillance and reconnaissance) rapid solutions, and amplifying Jacobs’ position as a Tier-1 global nuclear services provider.
We have turned the course of Jacobs’ future and are now focused on broadening our leadership in high growth sectors. As part of our strategy, our new brand was created from an understanding of where we’ve been, what’s true to our culture and our strategy going forward. Central to it is our new tagline: Challenging today. Reinventing tomorrow. Signaling our transition from an engineering and construction company to a global technology-forward solutions company, we have a new look, and we plan to change our name to Jacobs Solutions Inc.
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Revenue by Type (Q2 FY2020)1
1 Due to COVID-19 and the actions taken by governmental authorities and others related thereto, some of the information provided in this summary relating to sources of revenue could be substantially different in the third quarter of fiscal 2020 and subsequent periods.
Lines of Business
Critical Mission Solutions (CMS)
Our Critical Mission Solutions line of business provides a full spectrum of cybersecurity, data analytics, software application development, enterprise and mission IT, systems integration and other highly technical consulting solutions to move the Global Environmental Solutions ("GES") business from the ATN segment to the BIAF segment. This reorganization occurred in conjunction with the integration of CH2M into the Company's legacy businesses,government agencies as well as selective aerospace, automotive and is intended to better serve our global clients, leverage our workforce, help streamline operations, and provide enhanced growth opportunities.
Serving mission-critical industry sectors
Critical Mission Solutions serves broad sectors, including U.S. government services, cybersecurity, nuclear, commercial, and international sectors.
The U.S. government is the world’s largest buyer of technical services, and in fiscal 2019, approximately 77% of CMS’s revenue was earned from serving the DoD, Intelligence Community and civil governmental entities.
Trends affecting our government clients include electronic and cyber warfare, IT modernization, space exploration and intelligence, defense systems and intelligent asset management, which are driving demand for our highly technical solutions. Attacks by foreign entities and insider threats highlight potential cyber defense vulnerabilities.
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
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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 nuclear weapons and energy infrastructure.
Leveraging our base market of offering valued technical services to U.S. government customers, CMS also serves commercial and international markets. In fiscal 2019, approximately 12% of CMS’s revenue was from various U.S. commercial sectors, including the telecommunications market, 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.
Our international customers, which accounted for 11% of fiscal 2019 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 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, modify and maintain software solutions and complex systems. This service includes 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.
•Cybersecurity and Data Analytics. With our recent acquisition of KeyW, CMS offers a full suite of cyber services for its 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 of technology services. For our abilitytelecommunications customers, we provide permitting, site planning and engineering to design, build, operate,enable 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 ofsustainment and technical services for facility-oriented clients including for the nuclear life-cycle from initial planning through design, construction, commissioning, operations and decommissioning/decontamination on government sites within the U.S., and Canada and on both government and commercial sites in the U.K.
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•Nuclear Solutions. We provide support across the nuclear energy life-cycle, including operational site management, program management and research and consulting, mainly to the U.S. Department of Energy (DoE) and the Office for Nuclear Regulation (“ONR”) and NDA with the U.K. government.
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 cybersecurity instructors at CMS’s Parrot Labs, 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.
•TITANTM: With the exponential growth of information being harvested, deriving meaningful insights from data collecting can be challenging for organizations. TITAN is a suite of solutions (including Graph Database, Elastic Stack, and SocTraq) that leverages open-source technology to filter out noise to find the real needle in supportthe haystack of threats, offering real-time detection and alerting capabilities for high-value asset and mission critical systems.
•SOCTRAQ: SOCTRAQ is a next-generation component of the automotive industry,larger TITAN cyber data platform that aids our federal clients in the automation of cybersecurity found in a security operations center (SOC). The technology is a real-time threat detection and alerting heads-up display run on a client’s computer to provide incident detection, recommended response actions, and case management. Features include alert visualization, depiction of threat-chain, and adaptive machine learning.
People & Places Solutions(P&PS)
Jacobs' People & Places Solutions line of business provides end-to-end solutions for our clients’ most complex projects - whether connected mobility, water, smart cities, advanced manufacturing or the environment. In doing so, we employ data analytics, artificial intelligence and automation, and software development to enable technology and digitally-driven consulting, planning, architecture, engineering, and implementation, as well as provide a wide rangelong-term operation of services in the telecommunications market.
Serving broad industry sectors that support people and local departmentsplaces
Environmental and infrastructure resilience, urbanization, digital transformation and the convergence of transportation withininformation and operational technology (IT/OT) are driving new infrastructure requirements and opportunities for our clients. For example, an airport is no longer simply aviation infrastructure but is now a smart city with extensive operational, cybersecurity and autonomous mobility requirements. Master planning for a city now requires advanced analytics to plan for the U.Sadaptation of 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 private industry firms.smart metering technology.
This increase in technology requirements is a key factor in our organic growth strategy as well as our recent acquisitions and divestitures. Moreover, our business model is evolving to now being a provider of digitally-enabled solutions to our infrastructure clients with less exposure to craft construction services. Our focus on five core sectors of Transportation, Water, Built Environment, Environmental and Advanced Facilities provides us with the unique opportunity to leverage expertise across all sectors to provide end-to-end connected solutions for our client’s most complex projects.
We are executing complex city solutions that pull expertise from all markets, fused with digital expertise, for highways, bridges,major developments in places like London, Dubai, Sydney, India and the United States.
Leveraging global platform to deliver integrated solutions to our customers
One of our key differentiators is our global integrated delivery model, which harnesses deep domain expertise from our global technology and solution organization that is leveraged with the benefits of scale when we focus the world’s best talent to deliver differentiated solutions and value to our clients.
•Within transportation, we provide sustainable solutions to plan, develop, finance, design and 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, consulting services for digital fare payment systems, program management of the client’s staff.largest airport developments, designing cutting edge automated container terminals and ports infrastructure and utilizing digital data to develop cross modal mobility solutions. Our customers include 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, and Etihad Rail.
•Water is one of the most precious resources in the world, and extreme weather events are exacerbating supply and demand issues with drought, desertification and flooding at the same time population growth and industrialization are increasing demands. We have experience with alternative financing methods, which have been used in Europe through the privatization of public infrastructure systems.
•For the built environment, we deliver full-service solutions for cities, places and flood defense projects. We provide full life cycle services including engineering design, construction management, design build and operations and maintenance.
•In our environmental business we provide all aspects of environmental planning, permitting, regulatory and compliance management, and consulting services (sometimes through joint ventures with third parties)related to remediation, revitalization and redevelopment. We also provide critical consulting and technology related services to clients responsible for which we assume responsibility for the ongoing operationdisaster planning, mitigation and maintenance of entire commercial or industrial complexes on behalf of clients.
•In our advanced facilities mission-critical business, we provide fully integrated solutions for highly specialized 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 highly
In addition to each of the industry sectors that we serve, we deploy solutions to the world’s most complex projects and major programs that span across all markets, such as the London 2012 Olympic and Paralympic Games, the Dubai Expo, and LaGuardia Airport Redevelopment.
Applying internally developed technology
A strong foundation of data-rich innovative solutions is woven into every project that we deliver. These solutions employ an array of technical expertise to enable the most efficient, effective and predictable solutions for our customers, such as our proprietary technology software. Examples of these technologies include:
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•TrackRecord is a workflow automation and compliance management platform for the delivery of major projects.
•AquaDNA is a wastewater asset management platform that lowers operation and maintenance costs and facilitates a move from reactive to proactive maintenance.
•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 environment and the challenges associated with flood risk. It is suitable for a wide range of engineering and environmental applications, from calculating simple backwater profiles to modeling entire catchments to mapping potential flood risk for entire countries.
•Replica™ is Jacobs’ digital twin solution software platform and consists of the following capabilities:
•Replica Parametric Design™ (formerly CPES™) provides outputs on construction quantities and costs, life cycle quantities and costs, and estimates of environmental impacts. Rapid process design in Replica Process and the resulting development of the Replica Parametric Designs allows for thorough alternatives analysis and enhanced team communication.
•Replica Preview™ is used for early stage visualization of facility designs. This software rapidly creates scaled three-dimensional designs, which can be placed on Google Earth®. Rapid design development in Replica Parametric Design and visualization with Replica Preview allows for informed analysis of many alternatives and sound decision-making.
•Replica Systems Analysis™ (formerly Voyage™) is a very 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. We also have global
•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 pharma-bio, data center, government intelligence, corporate headquarters/interiors,Jacobs' Pro2D2™ and scienceSource™ 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 technology-based education markets. Our government building projects include large, multi-year programsgravity 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 the U.S.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 Europe supporting various U.S. and U.K. government agencies.
•Replica Air™ simulates all aspects of compressible fluid (e.g. air) supply system including pipes, valves, diffusers and more efficiently.
Energy, Chemicals and Resources (ECR)
ECR Disposition
On April 26, 2019, Jacobs completed the sale of its Energy, Chemicals and Resources ("ECR") business to WorleyParsonsWorley Limited, a company incorporated in Australia ("WorleyParsons"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 WorleyParsons,Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”).
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As a result of the ECR sale, substantially all ECR-related assets and liabilities have beenwere 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 representsrepresented a strategic shift that had a major effect on our operations and financial results. As such, the financial results of the ECR business are reflected in our unaudited Consolidated Statements of Earnings as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of the Disposal Group areECR business were reflected as held-for-sale in the unaudited Consolidated Balance Sheet asSheets through December 27, 2019. As of September 28, 2018. Further, as of the quarter ended June 28, 2019, a portionMarch 27, 2020, all of the ECR business remains held by Jacobsunder the terms of the sale has been conveyed to Worley and as described above and continues to be classified assuch, no amounts remain held for sale during the third fiscal quarter of 2019 in accordance with U.S. GAAP.sale. For further discussion see Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business to the consolidated financial statements.
Prior to the sale, we served the energy, chemicals and resources sectors, including upstream, midstream and downstream oil, gas, refining, chemicals and mining and minerals industries. We provided integrated delivery of complex projects for our Oil and Gas, Refining, and Petrochemicals clients. Bridging the upstream, midstream and downstream industries, our services encompassencompassed consulting, engineering, procurement, construction, maintenance and project management.
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Results of Operations for the three and ninesix months ended June 28,March 27, 2020 and March 29, 2019 and June 29, 2018
(in thousands, except per share information)
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||||||||||||||
| March 27, 2020 | March 29, 2019 | March 27, 2020 | March 29, 2019 | ||||||||||||||||||||||||||||||||
| Revenues | $ | 3,427,180 | $ | 3,091,596 | $ | 6,787,229 | $ | 6,175,384 | |||||||||||||||||||||||||||
| Direct cost of contracts | (2,779,045) | (2,474,755) | (5,494,522) | (4,990,023) | |||||||||||||||||||||||||||||||
| Gross profit | 648,135 | 616,841 | 1,292,707 | 1,185,361 | |||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | (480,357) | (514,160) | (973,582) | (969,551) | |||||||||||||||||||||||||||||||
| Operating Profit | 167,778 | 102,681 | 319,125 | 215,810 | |||||||||||||||||||||||||||||||
| Other (Expense) Income: | |||||||||||||||||||||||||||||||||||
| Interest income | 985 | 1,670 | 1,931 | 3,774 | |||||||||||||||||||||||||||||||
| Interest expense | (15,154) | (29,423) | (29,971) | (54,749) | |||||||||||||||||||||||||||||||
| Miscellaneous (expense) income, net | (330,414) | 36,904 | (213,719) | 39,186 | |||||||||||||||||||||||||||||||
| Total other (expense) income, net | (344,583) | 9,151 | (241,759) | (11,789) | |||||||||||||||||||||||||||||||
| (Loss) Earnings from Continuing Operations Before Taxes | (176,805) | 111,832 | 77,366 | 204,021 | |||||||||||||||||||||||||||||||
| Income Tax Benefit (Expense) for Continuing Operations | 61,122 | 7,947 | (7,368) | (14,811) | |||||||||||||||||||||||||||||||
| Net (Loss) Earnings of the Group from Continuing Operations | (115,683) | 119,779 | 69,998 | 189,210 | |||||||||||||||||||||||||||||||
| Net Earnings (Loss) of the Group from Discontinued Operations | 29,880 | (57,006) | 107,468 | 3,153 | |||||||||||||||||||||||||||||||
| Net (Loss) Earnings of the Group | (85,803) | 62,773 | 177,466 | 192,363 | |||||||||||||||||||||||||||||||
| Net Earnings Attributable to Noncontrolling Interests from Continuing Operations | (6,284) | (5,024) | (12,540) | (9,562) | |||||||||||||||||||||||||||||||
| Net (Loss) Earnings Attributable to Jacobs from Continuing Operations | (121,967) | 114,755 | 57,458 | 179,648 | |||||||||||||||||||||||||||||||
| Net Earnings Attributable to Noncontrolling Interests from Discontinued Operations | — | (832) | — | (1,588) | |||||||||||||||||||||||||||||||
| Net Earnings (Loss) Attributable to Jacobs from Discontinued Operations | 29,880 | (57,838) | 107,468 | 1,565 | |||||||||||||||||||||||||||||||
| Net (Loss) Earnings Attributable to Jacobs | $ | (92,087) | $ | 56,917 | $ | 164,926 | $ | 181,213 | |||||||||||||||||||||||||||
| Net (Loss) Earnings Per Share: | |||||||||||||||||||||||||||||||||||
| Basic Net (Loss) Earnings from Continuing Operations Per Share | $ | (0.92) | $ | 0.83 | $ | 0.43 | $ | 1.28 | |||||||||||||||||||||||||||
| Basic Net Earnings (Loss) from Discontinued Operations Per Share | $ | 0.23 | $ | (0.42) | $ | 0.81 | $ | 0.01 | |||||||||||||||||||||||||||
| Basic (Loss) Earnings Per Share | $ | (0.69) | $ | 0.41 | $ | 1.24 | $ | 1.29 | |||||||||||||||||||||||||||
| Diluted Net (Loss) Earnings from Continuing Operations Per Share | $ | (0.92) | $ | 0.82 | $ | 0.43 | $ | 1.27 | |||||||||||||||||||||||||||
| Diluted Net Earnings (Loss) from Discontinued Operations Per Share | $ | 0.23 | $ | (0.41) | $ | 0.80 | $ | 0.01 | |||||||||||||||||||||||||||
| Diluted (Loss) Earnings Per Share | $ | (0.69) | $ | 0.41 | $ | 1.23 | $ | 1.28 | |||||||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||
| June 28, 2019 | June 29, 2018 | June 28, 2019 | June 29, 2018 | ||||||||||||
| Revenues | $ | 3,169,622 | $ | 2,933,623 | $ | 9,345,005 | $ | 7,587,916 | |||||||
| Direct cost of contracts | (2,543,488 | ) | (2,325,028 | ) | (7,533,511 | ) | (6,035,598 | ) | |||||||
| Gross profit | 626,134 | 608,595 | 1,811,494 | 1,552,318 | |||||||||||
| Selling, general and administrative expenses | (536,180 | ) | (446,083 | ) | (1,505,731 | ) | (1,325,722 | ) | |||||||
| Operating Profit | 89,954 | 162,512 | 305,763 | 226,596 | |||||||||||
| Other Income (Expense): | |||||||||||||||
| Interest income | 3,398 | 1,277 | 7,172 | 6,896 | |||||||||||
| Interest expense | (18,978 | ) | (23,788 | ) | (73,727 | ) | (50,107 | ) | |||||||
| Miscellaneous income (expense), net | 19,025 | 6,632 | 58,211 | 5,195 | |||||||||||
| Total other (expense) income, net | 3,445 | (15,879 | ) | (8,344 | ) | (38,016 | ) | ||||||||
| Earnings from Continuing Operations Before Taxes | 93,399 | 146,633 | 297,419 | 188,580 | |||||||||||
| Income Tax Benefit (Expense) for Continuing Operations | 1,981 | (31,174 | ) | (12,829 | ) | (110,230 | ) | ||||||||
| Net Earnings of the Group from Continuing Operations | 95,380 | 115,459 | 284,590 | 78,350 | |||||||||||
| Net Earnings of the Group from Discontinued Operations | 435,684 | 34,612 | 438,837 | 126,215 | |||||||||||
| Net Earnings of the Group | 531,064 | 150,071 | 723,427 | 204,565 | |||||||||||
| Net Earnings Attributable to Noncontrolling Interests from Continuing Operations | (6,015 | ) | (2,123 | ) | (15,578 | ) | (5,539 | ) | |||||||
| Net Earnings Attributable to Jacobs from Continuing Operations | 89,365 | 113,336 | 269,012 | 72,811 | |||||||||||
| Net (Earnings) Losses Attributable to Noncontrolling Interests from Discontinued Operations | (607 | ) | 2,274 | (2,195 | ) | 1,946 | |||||||||
| Net Earnings Attributable to Jacobs from Discontinued Operations | 435,077 | 36,886 | 436,642 | 128,161 | |||||||||||
| Net Earnings Attributable to Jacobs | $ | 524,442 | $ | 150,222 | $ | 705,654 | $ | 200,972 | |||||||
| Net Earnings Per Share: | |||||||||||||||
| Basic Net Earnings from Continuing Operations Per Share | $ | 0.65 | $ | 0.79 | $ | 1.93 | $ | 0.53 | |||||||
| Basic Net Earnings from Discontinued Operations Per Share | $ | 3.18 | $ | 0.26 | $ | 3.14 | $ | 0.94 | |||||||
| Basic Earnings Per Share | $ | 3.83 | $ | 1.05 | $ | 5.07 | $ | 1.47 | |||||||
| Diluted Net Earnings from Continuing Operations Per Share | $ | 0.65 | $ | 0.79 | $ | 1.92 | $ | 0.53 | |||||||
| Diluted Net Earnings from Discontinued Operations Per Share | $ | 3.15 | $ | 0.26 | $ | 3.11 | $ | 0.93 | |||||||
| Diluted Earnings Per Share | $ | 3.80 | $ | 1.05 | $ | 5.02 | $ | 1.46 | |||||||
Overview – Three and NineSix Months Ended June 28, 2019March 27, 2020
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
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may cause. The Company’s operations for the second fiscal quarter of 2020 were not materially impacted by COVID-19, in part due to the timing of the spread of the virus, which escalated towards the end of the quarter. While certain business units of both Critical Mission Solutions and People & Places Solutions may 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 tohave an adverse impact on each of Critical Missions Solutions and People & Places Solutions in the third fiscal quarter of 2020, which may continue into the fourth fiscal quarter and beyond.
For a discussion of risks and uncertainties related to COVID-19, including the potential impacts on the Company’s business, financial condition and results of operations, see “Part II - Item 1A - Risk Factors”.
Net earningsloss attributable to Jacobsthe Company from continuing operations for the thirdsecond fiscal quarter 2019 ended June 28, 2019March 27, 2020 were $89.4$(122.0) million (or $0.65$(0.92) per diluted share), a decrease of $24.0$236.7 million, or 21.2%206.3%, from $113.3earnings of $114.8 million (or $0.79$0.82 per diluted share) for the corresponding period last year. Included in the Company’s operating results from continuing operations for the three months ended March 27, 2020 were $258.6 million in after-tax fair value losses recorded in miscellaneous (expense) income, net, associated with our investment in Worley stock (net of Worley stock dividend and certain foreign currency revaluations relating to the ECR sale) and after-tax Restructuring and other charges and transaction costs of $32.8 million associated in part with the Company's acquisition of John Wood Groups' Nuclear consulting, remediation and program management business.
Net earnings attributable to the Company from discontinued operations for the second fiscal quarter ended March 27, 2020 were $29.9 million (or $0.23 per diluted share), an increase of $87.7 million, or 151.7%, from a loss of $(57.8) million (or $(0.41) per diluted share) for the corresponding period last year. Included in net earnings attributable to the Company from discontinued operations for the current quarter was the recognition of the deferred gain for the delayed conveyance of the international entities discussed in Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business and adjustments for working capital and certain other items in connection with the ECR sale. Included in the prior year pre-tax results was a charge for the award and recovery of costs, estimated related interest and attorneys' fees in the amount of $147.0 million for the Nui Phao legal matter, see Note 19- Commitments and Contingencies. Additionally, the change year-over-year was also driven by the absence in the current period of normal operating results of the ECR business as reported in the prior period.
For the six months ended March 27, 2020, net earnings attributable to the Company from continuing operations were $57.5 million (or $0.43 per diluted share), a decrease of $122.2 million, or 68.0%, from $179.6 million (or $1.27 per diluted share) for the corresponding period last year. Included in the Company’s operating results from continuingcontinuing operations for the threesix months ended June 28, 2019March 27, 2020 were $70.3$183.7 million in 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, $73.1 million in after-tax Restructuring and other charges and $10.0 million in transaction costs associated in part with the Company's acquisition of KeyW. Our third quarter fiscal 2018 operating results from continuing operations included $22.1 million in after tax RestructuringJohn Wood Groups' Nuclear consulting, remediation and other charges and $3.5 million in CH2M transaction costs.program management business.
for the corresponding period last year. Included in net earnings attributable to the current quarter resultsCompany from discontinued operations isfor the pre-taxcurrent year to date period was the settlement of the Nui Phao ("NPMC") legal matter described in Note 19- Commitments and Contingencies that was reimbursed by insurance, the recognition of the deferred gain on salefor the delayed conveyance of the international entities and for the delivery of the ECR business of $917.7 million, seeIT assets, as discussed in Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business.Business
On June 12, 2019, the Company acquired KeyW and on December 15, 2017, the CompanyMarch 6, 2020, Jacobs completed the acquisition of CH2M.John Wood Group's Nuclear consulting, remediation and program management business. For further discussion, see Note 5- Business Combinations.
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Consolidated Results of Operations
Revenues for the thirdsecond fiscal quarter of 20192020 were $3.17$3.43 billion, an increase of $0.24 billion,$335.6 million, or 8.0%10.9% from $2.93$3.09 billion for the corresponding period last year. For the ninesix months ended June 28, 2019,March 27, 2020, revenues were $9.35$6.79 billion, an increase of $1.76$611.8 million or 9.9% from $6.18 billion or 23.2% from $7.59 billion for the corresponding period last year. The increase in revenues for the three month period year over year was due in part to fiscal 2020 incremental revenues from the June 2019 KeyW of $23.9 million in fiscal 2019and the March 2020 John Wood Group Nuclear business acquisitions, in addition to overall growth in ATNour Critical Mission Solutions (CMS) and BIAF legacyPeople & Places Solutions (P&PS) businesses. The increase in revenues for the year to date period was due primarily to the three-month period ended December 28, 2018 including only fifteen days of results attributable from the CH2M acquisition and to an overall increase in legacy Jacobs ATN and BIAF businesses along with the KeyW revenue in the current period but not in the prior. Pass-through costs included in revenues for the three and ninesix months ended June 28, 2019March 27, 2020 amounted to $533.9$641.4 million and $1.84$1.34 billion, respectively, a decrease of $49.5 million and an increase of $236.6$9.0 million and $36.5 million, or (8.5)%1.4% and 14.8%2.8%, from $583.4from $632.4 million and $1.60$1.31 billion respectively from the corresponding periodperiods last year. The nine month year-over-year increase is due primarily to the full quarter of incremental revenue in the first fiscal quarter of 2019 from the December 15, 2017 acquisition of CH2M and growth in the legacy ATN and BIAF businesses.
Gross profit for the thirdsecond quarter of 20192020 was $626.1$648.1 million, an increase of $17.5$31.3 million, or 2.9%5.1% from $608.6$616.8 million fromfrom the corresponding period last year. Our gross profit margins were 19.8%18.9% and 20.7%20.0% for the three month periods ended June 28,March 27, 2020 and March 29, 2019, and June 29, 2018, respectively.respectively, with these trend differences being mainly attributable to project mix impacts in our legacy portfolio year over year, as well as year over year impacts from lower overhead reimbursement rates resulting from our ongoing cost reduction programs as well as COVID-19 cost mitigation efforts. Gross profit for the ninesix months ended June 28, 2019March 27, 2020 was $1.81$1.29 billion, an increase of $259.2$107.3 million, or 16.7%9.1% from $1.55$1.19 billion from the corresponding period to date last year. Our gross profit margins were 19.4%19.0% and 20.5%19.2% for the nine monthssix month periods ended June 28,March 27, 2020 and March 29, 2019, and June 29, 2018, respectively. The increase in our gross profit forwas attributable to overall growth in both our P&PS and CMS businesses along with favorable impacts from the nine month periodKeyW and John Wood Group Nuclear business acquisitions. The slight differences in year over year wasgross margin trends for the three and six month periods were attributable mainly to the full quarter of incremental revenue in the first fiscal quarter of 2019legacy portfolio mix and lower overhead rate impacts mentioned above, with partial offsets from the December 15, 2017 acquisition of CH2M which benefited bothfavorable margin trends from our ATNrecent KeyW and BIAF businesses. Additionally, for both the three month and nine month year over year periods, gross profit increased due to growth in our ATN and BIAF legacy businesses. The decrease in our gross profit margins quarter over quarter and year over year was due to a higher mix of ATN reimbursable versus fixed price revenue and the revenue mix impact from entering the final stages of a large BIAF advanced facilities project.Wood Group acquisitions.
See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment.
SG&A expenses for the three months ended June 28, 2019March 27, 2020 were $536.2$480.4 million, a decrease of $33.8 million, or 6.6%, from $514.2 million for the corresponding period last year. The decrease in SG&A expenses as compared to the corresponding period last year was due primarily to less expense relating to the Transition Services Agreement (the "TSA") with Worley which terminated in April 2020 and reductions in personnel related and other overhead costs, partly offset by incremental SG&A increases from the KeyW and John Wood Group Nuclear business acquisitions. SG&A expenses for the six months ended March 27, 2020 were $973.6 million, an increase of $90.1$4.0 million, or 20.2%0.4%, from $446.1$969.6 million for the corresponding period last year. The increase in SG&A expenses as compared to the corresponding period last year was due mainly to restructuring charges and transaction costs. SG&A expenses for the nine months ended June 28, 2019 were $1.51 billion, an increase of $180.0 million or 13.6%, from $1.33 billion for the corresponding period last year. The increase in SG&A expenses as compared to the corresponding period last year was due mainlyprimarily to incremental SG&A expense from the acquired CH2M businesses. ImpactsKeyW and John Wood Group Nuclear business acquisitions, offset by less expense relating to the Transition Services Agreement (the "TSA") with Worley which terminated in April 2020 and reductions in personnel related and other overhead costs resulting from our ongoing cost reduction programs as well as COVID-19 cost mitigation efforts. Favorable impacts on SG&A expenses from foreign exchange were favorable by $9.4$6.3 million and $6.7 million, respectively for the three and six months ended June 28, 2019 and $42.4 million for the nine months ended June 28, 2019. SG&A expense for the three months ended June 28, 2019 included Restructuring and other charges of $92.4 million and $12.7 million in KeyW transaction costs, while SG&A expense for the three months ended June 29, 2018 included $30.5 million in Restructuring and other charges and $4.4 million in CH2M transaction costs. For the nine months ended June 28, 2019, SG&A expense included Restructuring and other charges of $233.6 million and $12.7 million in KeyW transactionMarch 27, 2020.
Net interest expense for the three and ninesix months ended June 28, 2019March 27, 2020 was $15.6$14.2 million and $66.6$28.0 million, respectively, a decrease of $6.8$13.6 million and an increase of $23.3$22.9 million from $22.5$27.8 million and $43.2$51.0 million forfor the corresponding periodsperiod last year. The decrease in net interest expense for the three month period year over year is due to the paydown of debt subsequent to the ECR sale in the currentprior year third quarter. The increase in
Miscellaneous (expense) income, net interest expense for the nine month period .year overthree and six months ended March 27, 2020 was $(330.4) million and $(213.7) million, respectively, a decrease of $367.3 million and $252.9 million from $36.9 million and $39.2 million for the corresponding periods last year. The decrease from the prior year was due primarily to higher levels of average debt balances outstanding related to financing activities for the acquisition of CH2M which was not funded until December 15, 2017.
The Company’s effective tax rates from continuing operations for the three months ended March 27, 2020 and March 29, 2019 were 34.6% and (7.1)%, respectively. The Company’s effective tax rates from continuing operations for the six months ended March 27, 2020 and March 29, 2019 were 9.5% and 7.3%, respectively. The comparatively higher quarterly tax rate was primarily due to a $37.4 million tax benefit in the three months ended March 29, 2019 for remeasurement of the Company's deferred tax liability for unremitted earnings to account for the change in expected manner of recovery due to the ECR divestiture. For the three months ended March 27, 2020, the effective tax rate was impacted by $5.8 million from amended returns for foreign tax credits and research and development credits, a
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$4.1 million benefit related to an India withholding tax rate change and benefits from an Internal Revenue Code section 179D energy credit. The Company’s effective tax rate from continuing operations for the six months ended March 27, 2020 was impacted by the quarterly tax benefit items noted above as well as impacts from a $3.7 million favorable settlement with the Indian Revenue Services in the first quarter fiscal 2020.
See Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business for further information on the Company's discontinued operations reporting for the sale of the ECR business.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted in the United States and significantly revised the U.S. corporate income tax laws. Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allowsallowed registrants to record provisional amounts during a one year “measurement period” like that used when accounting for business combinations. As of December 22, 2018, we have completed our accounting for the tax effects of the enactment of the Act. For the deferred tax balances, we remeasured the U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The Company’s revised remeasurement resulted in cumulative charges to income tax expense of $144.4 million for the measurement period. The Act callscalled for a one-time tax on deemed repatriation of foreign earnings. This one-time transition tax iswas based on our total post-1986 earnings and profits (E&P) of certain of our foreign subsidiaries. InWe recorded $14.3 million in cumulative transition taxes during the current reportingmeasurement period, the Company filed its tax return which reflectedalthough the transition tax. The net tax liability after consideringwas expected to be offset by foreign tax credits resulted in athe future, resulting in no additional cash tax liability of $0.8 million.liability. In addition, the Company recorded $104.2 million in cumulative valuation expense charges during the measurement period with respect to certain foreign tax credit deferred tax assets as a result of the Tax Act and CH2M integration.
The amount of income taxes the Company pays is subject to ongoing audits by tax jurisdictions around the world. In the normal course of business, the Company is subject to examination by tax authorities throughout the world, including such major jurisdictions as Australia, Canada, India, the Netherlands, the United Kingdom and the United States. Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time. The Company believes that it has adequately provided for reasonably foreseeable outcomes related to these matters. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate. It is reasonably possible that, during the next twelve months, we may realize a decrease in our uncertain tax positions of approximately $16.3 million as a result of concluding various tax audits and closing tax years.
Segment Financial Information
The following table provides selected financial information for our operating segments and includes a reconciliation of segment operating profit to total U.S. GAAP operating profit from continuing operations by including certain corporate-level expenses, Restructuring and other charges and transaction and integration costs (in thousands).
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| March 27, 2020 | March 29, 2019 | March 27, 2020 | March 29, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
| Revenues from External Customers: | |||||||||||||||||||||||||||||||||||||||||||||||
| Critical Mission Solutions | $ | 1,243,378 | $ | 1,059,508 | $2,425,835 | $2,094,537 | |||||||||||||||||||||||||||||||||||||||||
| People & Places Solutions | 2,183,802 | 2,032,088 | 4,361,394 | 4,080,847 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 3,427,180 | $ | 3,091,596 | $6,787,229 | $6,175,384 | |||||||||||||||||||||||||||||||||||||||||
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| Three Months Ended | Nine Months Ended | ||||||||||||||
| June 28, 2019 | June 29, 2018 | June 28, 2019 | June 29, 2018 | ||||||||||||
| Revenues from External Customers: | |||||||||||||||
| Aerospace, Technology and Nuclear | $ | 1,156,488 | $ | 1,021,523 | $ | 3,251,024 | $ | 2,656,303 | |||||||
| Buildings, Infrastructure and Advanced Facilities | 2,013,134 | 1,912,100 | 6,093,981 | 4,931,613 | |||||||||||
| Total | $ | 3,169,622 | $ | 2,933,623 | $ | 9,345,005 | $ | 7,587,916 | |||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| June 28, 2019 | June 29, 2018 | June 28, 2019 | June 29, 2018 | ||||||||||||
| Segment Operating Profit: | |||||||||||||||
| Aerospace, Technology and Nuclear | $ | 76,306 | $ | 69,085 | $ | 222,289 | $ | 182,609 | |||||||
| Buildings, Infrastructure and Advanced Facilities | 183,318 | 163,193 | 515,465 | 374,809 | |||||||||||
| Total Segment Operating Profit | 259,624 | 232,278 | 737,754 | 557,418 | |||||||||||
| Other Corporate Expenses (1) | (64,525 | ) | (34,802 | ) | (185,674 | ) | (131,163 | ) | |||||||
| Restructuring and Other Charges | (92,407 | ) | (30,544 | ) | (233,579 | ) | (122,744 | ) | |||||||
| Transaction Costs | (12,738 | ) | (4,420 | ) | (12,738 | ) | (76,915 | ) | |||||||
| Total U.S. GAAP Operating Profit | 89,954 | 162,512 | 305,763 | 226,596 | |||||||||||
| Total Other (Expense) Income, net (2) | 3,445 | (15,879 | ) | (8,344 | ) | (38,016 | ) | ||||||||
| Earnings from Continuing Operations Before Taxes | $ | 93,399 | $ | 146,633 | $ | 297,419 | $ | 188,580 | |||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| March 27, 2020 | March 29, 2019 | March 27, 2020 | March 29, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
| Segment Operating Profit: | |||||||||||||||||||||||||||||||||||||||||||||||
| Critical Mission Solutions | $ | 84,293 | $ | 73,831 | $ | 174,715 | $ | 145,982 | |||||||||||||||||||||||||||||||||||||||
| People & Places Solutions | 189,082 | 172,689 | 367,411 | 332,148 | |||||||||||||||||||||||||||||||||||||||||||
| Total Segment Operating Profit | 273,375 | 246,520 | 542,126 | 478,130 | |||||||||||||||||||||||||||||||||||||||||||
| Other Corporate Expenses (1) | (61,216) | (49,901) | (127,934) | (121,149) | |||||||||||||||||||||||||||||||||||||||||||
| Restructuring, Transaction and Other Charges | (44,381) | (93,938) | (95,067) | (141,171) | |||||||||||||||||||||||||||||||||||||||||||
| Total U.S. GAAP Operating Profit | 167,778 | 102,681 | 319,125 | 215,810 | |||||||||||||||||||||||||||||||||||||||||||
| Total Other (Expense) Income, net (2) | (344,583) | 9,151 | (241,759) | (11,789) | |||||||||||||||||||||||||||||||||||||||||||
| (Loss) Earnings from Continuing Operations Before Taxes | $ | (176,805) | $ | 111,832 | $ | 77,366 | $ | 204,021 | |||||||||||||||||||||||||||||||||||||||
(1)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 $6.4 million and $12.8 million for the three and six month periods ended March 29, 2019. Other corporate expenses also include intangibles amortization of $22.1 million and $18.7 million for the three-month periods ended March 27, 2020 and March 29, 2019, respectively, and $43.9 million and $37.3 million for the six months ended March 27, 2020 and March 29, 2019, respectively.
| Three Months Ended | Nine Months Ended | ||||||||||||||
| June 28, 2019 | June 29, 2018 | June 28, 2019 | June 29, 2018 | ||||||||||||
| Revenue | $ | 1,156,488 | $ | 1,021,523 | $ | 3,251,024 | $ | 2,656,303 | |||||||
| Operating Profit | $ | 76,306 | $ | 69,085 | $ | 222,289 | $ | 182,609 | |||||||
Critical Mission Solutions
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| March 27, 2020 | March 29, 2019 | March 27, 2020 | March 29, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 1,243,378 | $ | 1,059,508 | $ | 2,425,835 | $ | 2,094,537 | |||||||||||||||||||||||||||||||||||||||
| Operating Profit | $ | 84,293 | $ | 73,831 | $ | 174,715 | $ | 145,982 | |||||||||||||||||||||||||||||||||||||||
Critical Mission Solutions (CMS) segment revenues for the three and ninesix months ended June 28, 2019March 27, 2020 were $1.16$1.24 billion and $3.25$2.43 billion, respectively, an increase of $135.0$183.9 million and $594.7$331.3 million, or 13.2%,17.4% and 22.4%15.8% from $1.02$1.06 billion and $2.66$2.09 billion for the corresponding periods last year. Our revenues were positively impacted byincrease in revenue was primarily attributable to incremental revenue from the KeyW and John Wood Group Nuclear business acquisitions, combined with year over year revenue volume growth across our legacy portfolio, highlighted by increased spending by customers in the U.S. government business sector. Also, the increases in revenue for the nine months ended were due in large part to the incremental revenue resulting from the CH2M acquisition which closed on December 15, 2017. Impacts on revenues from unfavorable foreign currency translation were approximately $7.3$5.1 million for the
Operating profit for the segment was $76.3$84.3 million and $222.3$174.7 million, respectively, for the three and ninesix months ended June 28, 2019,March 27, 2020, an increase of $7.2$10.5 million and $39.7$28.7 million, or 10.5%14.2% and 21.7%19.7%, from $69.1$73.8 million and $182.6$146.0 million for the corresponding periods last year. In addition to incremental operating profit benefits from the CH2M acquisition, theThe increases from the prior year were primarily attributable to incremental operating profit from the KeyW and John Wood Group Nuclear business acquisitions, the continued growth in profits from our U.S. governmental business sector.
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| Three Months Ended | Nine Months Ended | ||||||||||||||
| June 28, 2019 | June 29, 2018 | June 28, 2019 | June 29, 2018 | ||||||||||||
| Revenue | $ | 2,013,134 | $ | 1,912,100 | $ | 6,093,981 | $ | 4,931,613 | |||||||
| Operating Profit | $ | 183,318 | $ | 163,193 | $ | 515,465 | $ | 374,809 | |||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| March 27, 2020 | March 29, 2019 | March 27, 2020 | March 29, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 2,183,802 | $ | 2,032,088 | $ | 4,361,394 | $ | 4,080,847 | |||||||||||||||||||||||||||||||||||||||
| Operating Profit | $ | 189,082 | $ | 172,689 | $ | 367,411 | $ | 332,148 | |||||||||||||||||||||||||||||||||||||||
Revenues for the Buildings, Infrastructure and Advanced FacilitiesPeople & Places Solutions (P&PS) segment for the three and ninesix months ended June 28, 2019March 27, 2020 were $2.01$2.18 billion and $6.09$4.36 billion, respectively, an increase of $101.0$151.7 million and $1.16 billion,$280.5 million, or 5.3%7.5%, and 23.6%,6.9% from $1.91$2.03 billion and $4.93$4.08 billion for the corresponding periods last year. The increases in revenue were due in large part to the incremental revenue resulting from the CH2M acquisition which closed on December 15, 2017 for the year to date period, together with revenue increasesportfolio growth across all our businesses, withhighlighted by strong investment in Advanced Facilities,advanced facilities, water and transport infrastructure and project management/construction management ("PMCM") sectors. Impacts on revenues from unfavorable foreign currency translation were approximately $33$19.7 million and $29.3 million, respectively, for the three-month period of fiscal 2019three and six month periods ended March 27, 2020 compared to the corresponding prior year periods in fiscal 2018 and $105.4 million for the nine-month period of fiscal 2019 compared to the corresponding prior year periods in fiscal 2018.periods.
Operating profit for the segment for the three and ninesix months ended June 28, 2019March 27, 2020 was $183.3$189.1 million and $515.5$367.4 million, respectively, an increase of $20.1$16.4 million and $140.7$35.3 million, or 12.3% and 37.5%9.5%, and10.6% from $163.2$172.7 million and $374.8$332.1 million for the comparativecorresponding periods in 2018.last year. The year over year increase in operating profit was in part due primarily to favorable impacts from the CH2M acquisition, together with positive impacts from the higher year over year revenues for the segment.segment and reductions in personnel related costs. Impacts on operating profit from unfavorable foreign currency translation were approximately $5.0$3.2 million and $15.9$4.4 million for the three-three and nine-six month periods of fiscal 2019, respectively,ended March 27, 2020, compared to the corresponding prior year periods in fiscal 2018.periods.
Other Corporate Expenses
Other corporate expenses for the three and ninesix months ended June 28, 2019March 27, 2020 were $64.5$61.2 million and $185.7$127.9 million, an increase of $29.7$11.3 million and $54.4$6.7 million from $34.8$49.9 million and $131.2$121.1 million for the corresponding periods last year. These increases wereThis increase was due primarily to higher professional service fees, personnel related costs,intangible amortization of intangible assets acquiredexpense from the KeyW and approximately $51 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, partiallyJohn Wood Group nuclear business acquisitions, as well as impacts from company benefit program enhancements. These increases were partly offset by savings inemployee related and other cost reductions across the Company's corporate expenses, including those associated with the CH2M Restructuring.functions.
Included in other corporate expenses in the above table are costs and expenses which relate to general corporate activities as well as corporate-managed benefit and insurance programs. Such costs and expenses include: (i) those elements of SG&A expenses relating to the business as a whole; (ii) those elements of our incentive compensation plans relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of purchased 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 where it has been determined, in the opinion of management, that such adjustments are not indicative of the performance of the related LOB.
Discontinued Operations
The results from our ECR business formerly reported as a stand-alone segment are reflected in our unaudited consolidated financial statements as discontinued operations for all periods presented. For further information, refer to Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business.Business.
For the three and ninesix months ended March 27, 2020, net earnings attributable to Jacobs from discontinued operations after income taxes were $29.9 million and $107.5 million, respectively, and for the three and six months ended June 28,March 29, 2019, and June 29, 2018, net (loss) earnings attributable to discontinued operations beforeafter income taxes were $435.1$(57.8) million and $36.9 million, respectively, and $436.6 million and $128.2$1.6 million, respectively. These increases were due primarily to the gain on sale ofWhile the ECR business recordedsale closed in April 2019, the Company recognized additional pretax income from discontinued operations of $18.3 million and $129.8 million in the current quarter, offset in part by a prior quarter chargethree and six months ended March 27, 2020, primarily for the awardrelease of the deferred gain related to the delayed conveyance of the international entities in the three months ended March 27, 2020, and, additionally, for the six months ended March 27, 2020, the deferred gain upon achievement of the IT Migration Date in connection with the delivery to Worley of certain IT application and hardware assets related to the ECR business, as well as adjustment for working capital and certain other items resolved during the year to date period, described in Note 7. Additionally, for the six months ended March 27, 2020, the Company recognized
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a reduction to selling, general and administrative expenses in discontinued operations related to an insurance recovery of costs, estimated related interest and attorneys' fees$50.0 million in connection with the amount of $147.0 million for the Nui Phao ("NPMC")NPMC legal matter.
Restructuring and Other Charges
See Note 11- Restructuring and Other Charges for information on the Company’s activity relating to restructuring and other charges.
Backlog Information
We include in backlog the total dollar amount of revenues we expect to record in the future as a result of performing work under contracts that have been awarded to us. Our policy with respect to O&M contracts, however, is to include in backlog the amount of revenues we expect to receive for one succeeding year, regardless of the remaining life of the contract. For national government programs (other than national government O&M contracts, which are subject to the same policy applicable to all other O&M contracts), our policy is to include in backlog the full contract award, whether funded or unfunded, excluding option periods. Because of variations in the nature, size, expected duration, funding commitments, and the scope of services required by our contracts, the timing of when backlog will be recognized as revenues can vary greatly between individual contracts.
Consistent with industry practice, substantially all of our contracts are subject to cancellation or termination at the option of the client, including our U.S. government work. While management uses all information available to determine backlog, at any given time our backlog is subject to changes in the scope of services to be provided as well as increases or decreases in costs relating to the contracts included therein. Backlog is not necessarily an indicator of future revenues.
Because certain contracts (e.g., contracts relating to large EPC projects as well as national government programs) can cause large increases to backlog in the fiscal period in which we recognize the award, and because many of our contracts require us to provide services that span over several fiscal quarters (and sometimes over fiscal years), we evaluate our backlog on a year-over-year basis, rather than on a sequential, quarter-over-quarter basis.
The following table summarizes our backlog at June 28,March 27, 2020 and March 29, 2019 and June 29, 2018 (in millions):
| June 28, 2019 | June 29, 2018 | ||||||
| Aerospace, Technology and Nuclear | $ | 8,456 | $ | 7,147 | |||
| Buildings, Infrastructure and Advanced Facilities | 14,011 | 12,693 | |||||
| Total | $ | 22,467 | $ | 19,840 | |||
| March 27, 2020 | March 29, 2019 | ||||||||||
| Critical Mission Solutions | $ | 9,135 | $ | 7,285 | |||||||
| People & Places Solutions | 14,156 | 13,428 | |||||||||
| Total | $ | 23,291 | $ | 20,713 | |||||||
The increase in backlog in Aerospace, Technology and NuclearCritical Mission Solutions (CMS) from JuneMarch 29, 20182019 was primarily the result of new awards from the U.S. federal government and the acquisition of KeyW.KeyW and John Wood Group's Nuclear consulting, remediation and program management business
The increase in backlog in Buildings, Infrastructure and Advanced FacilitiesPeople & Places Solutions (P&PS) from JuneMarch 29, 20182019 was primarily the result of new awards in the UK, Middle EastU.K. and U.S. markets in Advanced Facilities and Transportation.markets.
Consolidated backlog differs from the Company’s remaining performance obligations as defined by ASC 606 primarily because of our national government contracts (other than national government O&M contracts). Our policy is to include in backlog the full contract award, whether funded or unfunded excluding the option periods while our remaining performance obligations represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. Additionally, the Company includes our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligations.
Liquidity and Capital Resources
At June 28, 2019,March 27, 2020, our principal sources of liquidity consisted of $998.2 million$1.66 billion in cash and cash equivalents and $2.12 billion$679.4 million of available borrowing capacity under our $2.25 billion restated revolving credit agreement (the "New"Revolving Credit Agreement"Facility").
The amount of cash and cash equivalents at June 28, 2019March 27, 2020 represented an increase of $363.4 million$1.0 billion from $634.9$631.1 million at September 28, 2018. This increase was due to favorable cash flows from investing activities27, 2019, the changes of $2.18 billion offset by unfavorable financing activities of $1.79 billion and cash used by operations of $220.3 million. On a comparative basis, cash and cash equivalents increased $50.2 million to $662.7 million during the nine month-period ended June 29, 2018 from $824.4 million at September 29, 2017. This increase was driven mainly by cash flow from operations of $269.0 million andwhich are described below.
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Our cash flow provided by financing activitiesoperations of $1.3 billion, offset by cash flows used for investing activities of $1.5 billion, both of which were largely driven by$15.0 million during the CH2M acquisition.
Our cash used for investing activities for the ninesix months ended June 28, 2019March 27, 2020 was $2.18 billion,$365.3 million, compared to cash fromused for investing of $1.54 billion$59.3 million in the prior year, the change due primarily to the current period acquisition of which primarily related to cash used for the CH2M acquisition in the prior year andJohn Wood Group's Nuclear business.
Our cash provided by the ECR sale and used for the KeyW sale in the current year.
At June 28, 2019,March 27, 2020, the Company had approximately $453.9approximately $860.1 million in cash and cash equivalents held in the U.S. and $544.3 million$795.8 million held outside of the U.S. (primarily in the U.K., the Eurozone, Chile,Australia, 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 13-15- Income Taxes of Notes to Consolidated Financial Statements included in our 20192020 Form 10-K), there are no material impediments to repatriating these funds to the U.S.
In March 25, 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 March 27, 2020. The terms and other important details are summarized in Note 12- 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. Although the Company had intended to use the majority of the proceeds of the 2020 Term Loan Facility to repay outstanding amounts under the Revolving Credit Facility, the Company used proceeds to repay $200 million in short-term debt and retained the remaining cash proceeds as a precautionary measure. As a result, the Company maintained a higher level of long-term indebtedness in order to increase its cash position and preserve financial flexibility in light of current uncertainties resulting from the COVID-19 pandemic.
The Company had $359.0$262.8 million in letters of credit outstanding at June 28, 2019.March 27, 2020. Of this amount, $2.3 million was issued under the NewRevolving Credit AgreementFacility and $356.7$260.5 million was issued under separate, committed and uncommitted letter-of-credit facilities.
On April 26, 2019,March 6, 2020, a subsidiary of Jacobs completed the saleacquisition of its ECRJohn Wood Group's Nuclear consulting, remediation and program management business to WorleyParsons for a purchase pricean enterprise value of $3.4 billion consisting£241 million, or approximately $310.9 million, less cash acquired of (i) $2.8 billion in cash plus (ii) 58.2 million ordinary shares of WorleyParsons, subject to adjustments for changes in working capital and certain other items.
On June 12, 2019, Jacobs completed the acquisition of The KeyW Holding Corporation (“KeyW”), a U.S. based innovative national security solutions provider to the intelligence, cyber, and counterterrorism communities by acquiring 100% of the outstanding shares of KeyW common stock. The Company paid total consideration of $902.6$902.7 million which iswas comprised of approximately $604.2$604.3 million in cash to the former stockholders and certain equity award holders of KeyW and the assumption of KeyW’s convertible debt of $22.6 million and first and second lien notes which totaled approximately $275.8 million. Immediately following the effective time of the acquisition, the Company repaid KeyW’s first and second lien notes. In July, the Company repaid KeyW's outstanding convertible debt of $22.6$298.4 million. The Company has recordedrepaid all of KeyW's outstanding debt by the end of the fourth fiscal quarter of 2019.
On April 26, 2019, Jacobs completed the sale of its preliminaryECR business to Worley for a purchase accounting processes associated with the acquisition, which is summarizedprice of $3.4 billion consisting of (i) $2.8 billion in Note 5- Business Combinations.
cash plus (ii) 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items.
We believe we have adequate liquidity and capital resources to fund our projected cash requirements for the next twelve months based on the liquidity provided by our cash and cash equivalents on hand, our borrowing capacity and our
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continuing cash from operations. We further believe that our financial resources, along with managing discretionary expenses, will allow us to manage the potential 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 are reducing 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. Looking ahead, we have developed contingency plans to reduce costs further if the situation deteriorates beyond current assumptions and expectations.
We were in compliance with all of our debt covenants at June 28, 2019.March 27, 2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We do not enter into derivative financial instruments for trading, speculation or other similar purposes that would expose the Company to market risk. In the normal course of business, our results of operations are exposed to risks associated with fluctuations in interest rates and currency exchange rates.
Interest Rate Risk
Please see the Note 12- Borrowings in Notes to Consolidated Financial Statements appearing under Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for a discussion of the NewRevolving Credit Agreement, Term Loan Facility and Note Purchase Agreement.
Our Revolving Credit Facility, 2020 Term Loan Facility New Credit Agreement and certain other debt obligations are subject to variable rate interest which could be adversely affected by an increase in interest rates. As ofJune 28, 2019, March 27, 2020, we had an aggregate of $0.5$2.6 billion in outstanding borrowings under our Revolving Credit Facility and 2020 Term Loan Facility and our New Credit Agreement.Facility. Interest on amounts borrowed under these agreements is subject to adjustment based on the Company’s Consolidated Leverage Ratio (as defined in the credit agreements governing the Revolving Credit Facility and the 2020 Term Loan Facility and New Credit Agreement)Facility). Depending on the Company’s Consolidated Leverage Ratio, borrowings under the Revolving Credit Facility and the 2020 Term Loan Facility bear interest at a Eurocurrency rate plus a margin of between 1.0% and 1.5% or a base rate plus a margin of between 0% and 0.5% and borrowings under the New Credit Agreement bear interest at a Eurocurrency rate plus a margin of between 0.875% and 1.5% or a base rate plus a margin of between 0% and 0.5%. Additionally, if our consolidated leverage ratio exceeds a certain amount, the interest on the Senior Notes may increase by 75 basis points.points.
For thenine six months ended June 28, 2019,March 27, 2020, our weighted average floating rate borrowings were approximately $1.91$1.38 billion. If floating interest rates had increased by 1.00%, our interest expense for the ninesix months ended June 28, 2019March 27, 2020 would have increased by approximately $14.4$7.9 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 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 doesdid not currently have exchange rate sensitive instruments at March 27, 2020 that would have a material effect on our consolidated financial statements or results of operations.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our ChairmanChair and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. In Part II - Item 9A - Controls and Procedures of our 2018 Form 10-K, we identified a material weakness in our disclosure controls and procedures relating to our 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.
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The Company’s management, with the participation of its ChairmanChair and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of the Company’s disclosure controls and procedures as defined by Rule 13a-15(e) of the Exchange Act defined above, as of June 28, 2019,March 27, 2020, the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on that evaluation, the Company’s management, with the participation of the Chairman and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) concluded that the Company’s disclosure controls and procedures, were not effective as of the Evaluation Date, as a result of the
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 KeyW that are subsumed by internal control over financial reporting. KeyW accounted for approximately 8% of total assets as of the Evaluation Date and approximately 1%3% of total revenues of the Company for the fiscal quartersix-month period ended on the Evaluation Date.
Changes in Internal Control Over Financial Reporting
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The information required by this Item 1 is included in the Note 18-19- Commitments and Contingencies included in the Notes to Consolidated Financial Statements appearing under Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors.
Please refer to Item 1A, Risk Factors in our 20182019 Form 10-K, and our subsequent Quarterly Reports on Form 10-Q for the first and second fiscal quarters of 2019, which areis incorporated herein by reference, for a discussion of some of the factors that have affected our business, financial condition, and results of operations in the past and which could affect us in the future. There have been no material changes to those risk factors, except for the information disclosed elsewhere in this Quarterly Report on Form 10-Q that provides factual updates to those risk factors.factors and the inclusion of the additional risk factors set forth below. Before making an investment decision with respect to our common stock, you should carefully consider those risk factors, as well as the financial and business disclosures contained in this Quarterly Report on Form 10-Q and our other current and periodic reports filed with the SEC.
On March 11, 2020, the World Health Organization characterized the outbreak of the novel coronavirus (“COVID-19”) as a global pandemic and recommended certain containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and the vast majority of states and many municipalities have declared public health emergencies or taken similar actions. Along with these declarations, there 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.
The COVID-19 pandemic may adversely affect certain elements of our business, including, but not limited to, the following:
•We may 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. While it is possible that COVID-19 and the resulting actions could result in increases in demand for certain of our services, including as a result of new projects that may arise 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 liquidity or stimulus programs that are enacted in the United States and in the foreign countries in which we operate in response to the COVID-19 pandemic may not be available to us or our customers or suppliers, and if available, may be insufficient to address the full impact of the COVID-19 pandemic. For example, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in March 2020. In addition to other measures intending to provide economic relief in response to the COVID-19 pandemic, the CARES Act contains provisions that authorize federal agencies to pay federal contractors notwithstanding reduced work schedules or shifts, as required to comply with quarantines or other social isolation measures. The exact amounts and circumstances permitting recovery are to be made by each applicable government agency or contracting official and are expected to vary 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. Although we expect to recover a significant portion of these types of expenses on our U.S. government projects where our performance of work was affected by social distancing or similar restrictions due to COVID-19, our discussions with our U.S. government clients are ongoing, and we may not recover the full amount of our fee in addition to the reimbursement of our costs.
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•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 are requiring 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 recently entered into a new term loan facility under our revolving credit facility and borrowed an aggregate principal amount of $730,000,000 and our subsidiary Jacobs U.K. borrowed an aggregate principal amount of £250,000,000, 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 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 our 2019 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
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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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no sales of unregistered equity securities during the second fiscal quarter of 2019.2020.
Share Repurchases
On July 23, 2015,January 17, 2019, the Company’s Board of Directors authorized a share repurchase program of 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 $500.0 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 Board of Directors authorized the continuation of this share repurchase program for an additional three years, to expire on July 31, 2021. A summary of repurchases of our common stock madeduring a calculation period which ended on June 5, 2019 for the first $250.0 million in repurchases and on December 4, 2019 for the second $250.0 million in repurchases. The purchases were recorded as share retirements for purposes of calculating earnings per share. The following table summarizes the activity under the 2019 Repurchase Authorization during each fiscal month during the thirdsecond fiscal quarter of fiscal 2019 under the 2015 share repurchase program is as follows:2020:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share (1) | Total Numbers of Shares Purchased as Part Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | Period | Total Number of Shares Purchased | Average Price Paid Per Share (1) | Total Numbers of Shares Purchased as Part of the 2019 Repurchase Authorization | Approximate Dollar Value of Shares that May Yet Be Purchased Under the 2019 Repurchase Authorization | |||||||||||||||||||||||||||||
| June 12, 2019 - June 17, 2019 | 113,378 | $ | 78.96 | 113,378 | $ | — | ||||||||||||||||||||||||||||||||
| February 12, 2020 - February 21, 2020 | February 12, 2020 - February 21, 2020 | 496,202 | $99.10 | 496,202 | $344,527,000 | |||||||||||||||||||||||||||||||||
| February 24, 2020 - March 24, 2020 | February 24, 2020 - March 24, 2020 | 2,728,416 | $86.73 | 2,728,416 | $107,883,291 | |||||||||||||||||||||||||||||||||
(1)Includes commissions paid and calculated at the average price per share
As a precautionary measure in light of the COVID-19 pandemic, the Company temporarily suspended purchases under the share repurchase plan in March 2020. On January 17, 2019,16, 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 16, 2022. On February 19, 2019,15, 2023 (the "2020 Repurchase Authorization"). There have been no repurchases under the Company launched accelerated2020 Repurchase Authorization as of March 27, 2020.
The share repurchase programs by advancing $250 million to two financial institutions in privately negotiated transactions (collectively, the "2019 ASR Program"). The specific number of shares thatdo not obligate the Company ultimately repurchased under the 2019 ASR Program was determined based generally on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period that was completed on June 5, 2019. The purchase was recorded as a share retirement for purposes of calculating earnings per share. Subsequent to the launch of the 2019 ASR Program, the Company had $722.8 million remaining under its $1.0 billion share repurchase authorization. A summary of repurchases of our common stock made during each fiscal month during the third quarter of fiscal 2019 under the 2019 share repurchase program is as follows:
| Period | Total Number of Shares Purchased | Price per share on delivery | Total Numbers of Shares Purchased as Part Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||
| May 31, 2019 - June 5, 2019 | 535,043 | $ | 74.80 | 535,043 | $ | 750,000,000 | ||||||
| June 17, 2019 - June 28, 2019 | 337,956 | $ | 80.58 | 337,956 | $ | 722,768,681 | ||||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. |
Item 5. Other Information.
None.
Item 6. Exhibits.
31.1* | |||||
31.2* | |||||
32.1* | |||||
32.2* | |||||
| 101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
JACOBS ENGINEERING GROUP INC.
| By: | /s/ Kevin C. Berryman | ||||
| Kevin C. Berryman | |||||
| President | |||||
| and Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
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