Significant Accounting Policies | 12 Months Ended |
Sep. 27, 2013 |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | ' |
Significant Accounting Policies | ' |
Significant Accounting Policies |
Revenue Accounting for Contracts and Use of Joint Ventures |
In general, we recognize revenues at the time we provide services. Depending on the commercial terms of the contract, we recognize revenues either when costs are incurred, or using the percentage-of-completion method of accounting by relating contract costs incurred to date to the total estimated costs at completion. Contract losses are provided for in their entirety in the period they become known, without regard to the percentage-of-completion. For multiple contracts with a single customer we account for each contract separately. We also recognize as revenues costs associated with claims and unapproved change orders to the extent it is probable that such claims and change orders will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated. |
Certain cost-reimbursable contracts include incentive-fee arrangements. The incentive fees in such contracts can be based on a variety of factors but the most common are the achievement of target completion dates, target costs, and/or other performance criteria. Failure to meet these targets can result in unrealized incentive fees. We recognize incentive fees based on expected results using the percentage-of-completion method of accounting. As the contract progresses and more information becomes available, the estimate of the anticipated incentive fee that will be earned is revised as necessary. We bill incentive fees based on the terms and conditions of the individual contracts. In certain situations, we are allowed to bill a portion of the incentive fees over the performance period of the contract. In other situations, we are allowed to bill incentive fees only after the target criterion has been achieved. Incentive fees which have been recognized but not billed are included in receivables in the accompanying Consolidated Balance Sheets. |
Certain cost-reimbursable contracts with government customers as well as certain commercial clients provide that contract costs are subject to audit and adjustment. In this situation, revenues are recorded at the time services are performed based upon the amounts we expect to realize upon completion of the contracts. Revenues are not recognized for non-recoverable costs. In those situations where an audit indicates that we may have billed a client for costs not allowable under the terms of the contract, we estimate the amount of such nonbillable costs and adjust our revenues accordingly. |
When we are directly responsible for subcontractor labor or third-party materials and equipment, we reflect the costs of such items in both revenues and costs (and we refer to such costs as “pass-through” costs). On those projects where the client elects to pay for such items directly and we have no associated responsibility for such items, these amounts are not reflected in either revenues or costs. |
The following table sets forth pass-through costs included in revenues for each of the last three fiscal years (in millions): |
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2013 | | 2012 | | 2011 | | | | | | | | | | |
$ | 2,624.80 | | | $ | 2,328.40 | | | $ | 2,118.50 | | | | | | | | | | | |
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As is common to the industry, we execute certain contracts jointly with third parties through various forms of joint ventures and consortiums. Although the joint ventures own and hold the contracts with the clients, the services required by the contracts are typically performed by us and our joint venture partners, or by other subcontractors under subcontracting agreements with the joint ventures. The assets of our joint ventures, therefore, consist almost entirely of cash and receivables (representing amounts due from clients), and the liabilities of our joint ventures consist almost entirely of amounts due to the joint venture partners (for services provided by the partners to the joint ventures under their individual subcontracts) and other subcontractors. In general, at any given time, the equity of our joint ventures represents the undistributed profits earned on contracts the joint ventures hold with clients. Very few of our joint ventures have employees. None of our joint ventures have third-party debt or credit facilities. Our joint ventures, therefore, are simply mechanisms used to deliver engineering and construction services to clients. Rarely do they, in and of themselves, present any risk of loss to us or to our partners separate from those that we would carry if we were performing the contract on our own. Under U.S. GAAP, our share of losses associated with the contracts held by the joint ventures, if and when they occur, has always been reflected in our Consolidated Financial Statements. |
Certain of our joint ventures meet the definition of a VIE. In evaluating our VIEs for possible consolidation, we perform a qualitative analysis to determine whether or not we have a “controlling financial interest” in the VIE as defined by U.S. GAAP. We consolidate only those VIEs over which we have a controlling financial interest. |
For the Company’s unconsolidated joint ventures, we use either the equity method of accounting or proportional consolidation. The Company does not currently participate in any significant VIEs in which it has a controlling financial interest that it does not consolidate. |
There were no changes in facts and circumstances during the period that caused the Company to reassess the method of accounting for its VIEs. |
Fair Value Measurements |
The net carrying amounts of cash and cash equivalents, trade receivables and payables, and notes payable approximate Fair Value due to the short-term nature of these instruments. Similarly, we believe the carrying value of long-term debt also approximates Fair Value based on the interest rates and scheduled maturities applicable to the outstanding borrowings. Certain other assets and liabilities, such as forward contracts and an interest rate swap agreement we purchased as cash-flow hedges discussed in Note 10 —Commitments and Contingencies, and Derivative Financial Instruments are required to be carried in our Consolidated Financial Statements at Fair Value. |
The Fair Value of the Company’s reporting units (needed for purposes of determining whether there is an indication of possible impairment of the carrying value of goodwill) was determined in fiscal year 2011 using a market approach that multiplies the after-tax earnings of each reporting unit for the trailing twelve months by the Company’s overall average market earnings multiple. For fiscal years 2012 and 2013, we used both an income approach and a market approach to test our goodwill for possible impairment. Such approaches require us to make estimates and judgments. Under the income approach, Fair Value is determined by using the discounted cash flows of our reporting units. Under the market approach, the Fair Values of our reporting units are determined by reference to guideline companies that are reasonably comparable to our reporting units; the Fair Values are estimated based on the valuation multiples of the invested capital associated with the guideline companies. In assessing whether there is an indication that the carrying value of goodwill has been impaired, we utilize the results of both valuation techniques and consider the range of Fair Values indicated. The range of value (both end of the range) for each reporting unit, exceeded the respective book values by more than 60%. |
With respect to share-based payments, we estimate the Fair Value of stock options granted to employees and directors using the Black-Scholes option-pricing model. Like all option-pricing models, the Black-Scholes model requires the use of highly subjective assumptions including (i) the expected volatility of the market price of the underlying stock, and (ii) the expected term of the award, among others. Accordingly, changes in assumptions and any subsequent adjustments to those assumptions can cause drastically different Fair Values to be assigned to our stock option awards. For restricted stock units containing service and market conditions, compensation expense is based on the Fair Value of such units using a Monte Carlo simulation. Due to the uncertainties inherent in the use of assumptions and the results of applying Monte Carlo simulations, the amount of expense recorded in the accompanying consolidated financial statements may not be representative of the effects on our future consolidated financial statements because equity awards tend to vest over several years and additional equity awards may be made in the future. |
The Fair Values of the assets owned by the various pension plans that the Company sponsors are determined based on the type of asset, consistent with U.S. GAAP. Equity securities are valued by using market observable data such as quoted prices. Publicly traded corporate equity securities are valued at the last reported sale price on the last business day of the year of the plans. Securities not traded on the last business day are valued at the last reported bid price. Debt securities are valued at the last reported sale price on the last business day applicable. Real estate consists primarily of common or collective trusts, with underlying investments in real estate. They are valued using the best information available, including quoted market prices or market prices for similar assets when available or internal cash flow estimates discounted at an appropriate interest rate or independent appraisals, as appropriate. Insurance contracts, investments in infrastructure/raw goods, and hedge funds are valued using actuarial assumptions and values reported by the fund managers. |
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The methodologies described above and elsewhere in these Notes to Consolidated Financial Statements may produce a Fair Value measure that may not be indicative of net realizable value or reflective of future Fair Values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the Fair Value of certain financial instruments could result in a different Fair Value measurement. |
Cash Equivalents |
We consider all highly liquid investments with original maturities of less than three months to be cash equivalents. Cash equivalents at September 27, 2013 and September 28, 2012 consisted primarily of money market mutual funds and overnight bank deposits. |
Receivables and Billings in Excess of Costs |
“Receivables” include billed receivables, unbilled receivables, and retentions receivable. Billed receivables represent amounts invoiced to clients in accordance with the terms of our client contracts. They are recorded in our financial statements when they are issued. Unbilled receivables and retentions receivable represent reimbursable costs and amounts earned and reimbursable under contracts in progress as of the respective balance sheet dates. Such amounts become billable according to the contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project. We anticipate that substantially all of such unbilled amounts will be billed and collected over the next fiscal year. |
Certain contracts allow us to issue invoices to clients in advance of providing services. “Billings in excess of costs” represent billings to, and cash collected from, clients in advance of work performed. We anticipate that substantially all such amounts will be earned over the next twelve months. |
Property, Equipment, and Improvements |
Property, equipment and improvements are carried at cost, and are shown net of accumulated depreciation and amortization in the accompanying Consolidated Balance Sheets. Depreciation and amortization is computed primarily by using the straight-line method over the estimated useful lives of the assets. The cost of leasehold improvements is amortized using the straight-line method over the lesser of the estimated useful life of the asset or the remaining term of the related lease. Estimated useful lives range from 20 to 40 years for buildings, from 3 to 10 years for equipment and from 4 to 10 years for leasehold improvements. |
Goodwill and Other Intangible Assets |
Goodwill represents the excess of the cost of an acquired business over the Fair Value of the net tangible and intangible assets acquired. Goodwill and the cost of intangible assets with indefinite lives are not amortized; instead, we test goodwill for possible impairment. We conduct such tests annually (or more frequently if events occur or circumstances change that would more likely than not reduce the Fair Values of our reporting units below their respective carrying values). The first step in the test is to compare the implied Fair Value of each of the Company’s reporting units to their respective carrying amounts, including goodwill. In the event that the carrying value of a reporting unit exceeds its Fair Value, a second test is performed to measure the amount of the impairment loss, if any. In performing the annual impairment test, the Company evaluates goodwill at the reporting unit level. We have determined that our operating segment is comprised of two reporting units based on geography. Based on the results of these tests, we have determined that the Fair Value of our reporting units substantially exceeded their respective carrying values for fiscal years 2013, 2012, and 2011. |
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The following table provides certain information related to the Company’s acquired intangible assets for each of the fiscal years presented (in thousands): |
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| | Customer | | Developed | | Trade | | Other | | Total |
Relationships, | Technology | Names |
Contracts, and | | |
Backlog | | |
Balances, October 1, 2010 | | $ | 95,478 | | | $ | — | | | $ | 2,052 | | | $ | 2,515 | | | $ | 100,045 | |
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Acquisitions | | 155,512 | | | 23,000 | | | 2,744 | | | 2,542 | | | 183,798 | |
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Amortization | | (21,239 | ) | | (1,023 | ) | | (1,214 | ) | | (1,225 | ) | | (24,701 | ) |
Foreign currency translation | | (13 | ) | | — | | | (109 | ) | | (14 | ) | | (136 | ) |
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Balances, September 30, 2011 | | 229,738 | | | 21,977 | | | 3,473 | | | 3,818 | | | 259,006 | |
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Acquisitions | | 13,010 | | | — | | | 1,200 | | | 410 | | | 14,620 | |
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Amortization | | (24,406 | ) | | (1,533 | ) | | (1,430 | ) | | (1,597 | ) | | (28,966 | ) |
Foreign currency translation | | (613 | ) | | — | | | (161 | ) | | (124 | ) | | (898 | ) |
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Balances, September 28, 2012 | | 217,729 | | | 20,444 | | | 3,082 | | | 2,507 | | | 243,762 | |
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Amortization | | (20,731 | ) | | (1,533 | ) | | (614 | ) | | (1,130 | ) | | (24,008 | ) |
Foreign currency translation | | (1,471 | ) | | — | | | (289 | ) | | (90 | ) | | (1,850 | ) |
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Balances, September 27, 2013 | | $ | 195,527 | | | $ | 18,911 | | | $ | 2,179 | | | $ | 1,287 | | | $ | 217,904 | |
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Weighted average amortization period | | 10.2 | | | 13 | | | 13.4 | | | 7.2 | | | 10.5 | |
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The weighted average amortization period includes the effects of foreign currency translation. |
The above table excludes the values assigned to those intangible assets embedded in the Company’s investment in AWE Management Ltd. (“AWE”). Those amounts are included in the carrying value of the Company’s investment in AWE. The amount of amortization expense we estimate we will record during each of the next five fiscal years relating to intangible assets existing at September 27, 2013, including those associated with AWE, is: fiscal 2014 - $24.4 million; fiscal 2015 - $23.9 million; fiscal 2016 - $23.8 million; fiscal 2017 - $23.7 million; and fiscal 2018 - $23.7 million. The amounts reported for future amortization include the effect of exchange rate changes. |
The change in goodwill during the period relates primarily to businesses acquired during fiscal 2013. |
Business Combinations |
The Company did not enter into any material business combinations during fiscal years 2012 and 2013, |
On September 8, 2013, the Company, entered into a Merger Implementation Deed with Sinclair Knight Merz (“SKM”), a 6,500-person professional services firm headquartered in Australia. In accordance with the terms of the Merger Implementation Deed, SKM would enter into a Sale Agreement immediately prior to implementation of the Acquisition. Pursuant to the Agreements, the Company would acquire 100% of SKM for approximately AUS$1.3 billion in cash (approximately US$1.2 billion as of September 27, 2013). The purchase price reflects an enterprise value of AUS$1.2 billion (US$1.1 billion as of September 27, 2013) plus adjustments for cash, debt and other items. |
SKM is an employee-owned company that provides engineering, design, procurement, construction and project management, as well as consulting, planning and scientific services in the mining and metals, building and infrastructure, water and environment and power and energy industries. SKM has significant operations in Australia, Asia, South America and the U.K. |
Additional detail regarding the SKM transaction can be found in the Company's Form 8-K dated September 8, 2013. |
During the second quarter of fiscal 2011, we acquired certain operations within the process and construction business of Aker Solutions ASA, and in April 2011 we completed the acquisition of Aker Projects (Shanghai) Company Limited (together, the "Aker Entities"). The acquisition of the Aker Entities is described in more detail on pages 6 and F-16 of our 2011 Form 10-K. Consistent with most other business combinations we have completed, we began integrating the Aker Entities into our existing operations shortly after the businesses were acquired. Accordingly, it is not practicable to provide complete financial information for the Aker Entities on a stand-alone basis. |
The purchase price consisted of $675.0 million plus approximately $234.6 million representing the value of certain transactions specified in the share purchase agreement (“SPA”) and a preliminary estimate of net cash and working capital acquired. Prior to the acquisition of the Aker Entities, the seller completed certain transactions that could have affected the amounts of net cash and net working capital of the operations acquired. The parties therefore negotiated into the SPA a "net cash and working capital adjustment" by which the net cash and working capital of the acquired operations were compared to target amounts specified in the SPA and which, after considering bands within which no settlement would be required, may cause one party to pay cash to the other. The final adjustment amount was determined in accordance with the terms of the SPA in the fourth quarter of fiscal 2011 and no payment was made by either party. |
During the second quarter of fiscal 2012, the Company completed the purchase price allocation of the Aker Entities. The Company recorded a number of Fair Value adjustments affecting, among other things, the estimated liabilities related to certain projects; the final, estimated liabilities relating to acquired professional liability exposures; and other adjustments to the working capital of the balance sheets of the acquired businesses, the total of which fell within the purchase price adjustment band described in the preceding paragraph. |
The following table presents the final allocation of the purchase price to the net assets acquired, excluding intangibles and goodwill (in thousands): |
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Assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 329,689 | | | | | | | | | | | | | | | | | | |
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Receivables and other current assets | 163,214 | | | | | | | | | | | | | | | | | | |
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Property and equipment, and other assets | 115,688 | | | | | | | | | | | | | | | | | | |
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Total assets | 608,591 | | | | | | | | | | | | | | | | | | |
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Liabilities: | | | | | | | | | | | | | | | | | | |
Current liabilities | 292,003 | | | | | | | | | | | | | | | | | | |
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Long-term liabilities | 22,534 | | | | | | | | | | | | | | | | | | |
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Total liabilities | 314,537 | | | | | | | | | | | | | | | | | | |
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Net assets acquired | $ | 294,054 | | | | | | | | | | | | | | | | | | |
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The following table presents the values assigned to the identifiable intangible assets acquired in the Aker Entities transactions (in thousands): |
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Customer relationships / backlog | $ | 136,000 | | | | | | | | | | | | | | | | | | |
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Technology | 23,000 | | | | | | | | | | | | | | | | | | |
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Total | $ | 159,000 | | | | | | | | | | | | | | | | | | |
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The carrying values of intangible assets subject to amortization are included in “Other Noncurrent Assets” in the accompanying Consolidated Balance Sheet at September 28, 2012, and are being amortized over lives that range from 1 year to 15 years (the weighted average life for all intangibles is 12.8 years). |
The amount of goodwill created as a result of the Aker Entities transactions is summarized as follows (in thousands): |
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Purchase price | $ | 910,000 | | | | | | | | | | | | | | | | | | |
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Amount assigned to net assets acquired | (294,054 | ) | | | | | | | | | | | | | | | | | |
Amount assigned to identifiable intangible assets | (159,000 | ) | | | | | | | | | | | | | | | | | |
Deferred taxes related to intangible assets | 55,000 | | | | | | | | | | | | | | | | | | |
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Goodwill recognized | $ | 511,946 | | | | | | | | | | | | | | | | | | |
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Some of the factors contributing to a purchase price that resulted in the recognition of goodwill include: (i) access to a large, highly-trained and stable workforce; (ii) the opportunity to expand our client base in the U.S., the United Kingdom, Canada, Australia, and China; (iii) the opportunity to enter new geographic markets in South America; (iv) the opportunity to expand our presence in the mining and minerals market; and (v) the opportunity of achieving operating synergies. |
Other Matters |
We do not expect a material amount of the goodwill recognized during fiscal 2012 and fiscal 2011 to be deductible for income tax purposes. |
Included in selling, general and administrative expense for fiscal 2012 and fiscal 2011 is $5.8 million and $15.2 million, respectively of acquisition-related costs pertaining to our acquisition activities. |
The Company has retrospectively adjusted certain fiscal 2011 comparative financial information for significant purchase accounting adjustments identified during the respective measurement periods of the related acquisitions. During fiscal 2012, the Company recorded adjustments increasing the Fair Values of accrued liabilities by $100.1 million, income taxes payable by $10.4 million, and other deferred liabilities by $39.3 million. These amounts were offset by an increase in goodwill of $127.1 million and $22.7 million in deferred income tax assets. These purchase price adjustments related primarily to income tax exposures and project exposures. The basis for valuing the liabilities recorded for the income tax exposure was assessments received from taxing authorities, and the basis for valuing the projected-related liabilities was management's best estimate of the costs to complete the associated projects in excess of the respective contract values. |
Foreign Currencies |
In preparing our Consolidated Financial Statements, it is necessary to translate the financial statements of our subsidiaries operating outside the U.S., which are denominated in currencies other than the U.S. dollar, into the U.S. dollar. In accordance with U.S. GAAP, revenues and expenses of operations outside the U.S. are translated into U.S. dollars using weighted-average exchange rates for the applicable period(s) being translated while the assets and liabilities of operations outside the U.S. are generally translated into U.S. dollars using period-end exchange rates. The net effect of foreign currency translation adjustments is included in stockholders’ equity as a component of accumulated other comprehensive income (loss) in the accompanying Consolidated Balance Sheets. |
Share-Based Payments |
We measure the value of services received from employees and directors in exchange for an award of an equity instrument based on the grant-date Fair Value of the award. The computed value is recognized as a non-cash cost on a straight-line basis over the period the individual provides services, which is typically the vesting period of the award with the exception of awards containing an internal performance measure which is recognized on a straight-line basis over the vesting period subject to the probability of meeting the performance requirements and adjusted for the number of shares expected to be earned. The cost of these awards is recorded in selling, general and administrative expense in the Company's Consolidated Financial Statements. |
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The following table presents our stock-based compensation expense for the various types of awards made by the Company for each of the fiscal years presented (in thousands): |
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Award Type | | 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | |
Restricted Stock and Restricted | | $12,836 | | $11,021 | | $10,710 | | | | | | | | | | | | | | |
Stock Units (excluding Market and | | | | | | | | | | | | | | |
Performance Awards) | | | | | | | | | | | | | | |
Stock Options | | 11,385 | | 14,067 | | 16,468 | | | | | | | | | | | | | | |
Market and Performance Awards | | 15,297 | | 7,354 | | 1,906 | | | | | | | | | | | | | | |
Total Expense | | $39,518 | | $32,442 | | $29,084 | | | | | | | | | | | | | | |
The Company has two incentive plans whereby eligible employees and directors of Jacobs may be granted stock options, restricted stock, and/or restricted stock units. |
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Stock Options—Substantially all of the stock options granted during the year are awarded on the same date (although the date is different for employees and directors). The following table presents the assumptions used in the Black-Scholes option-pricing model during each of the last three fiscal years for awards made to employees and directors: |
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| | Awards Made to Employees | | Awards Made to Directors | | |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | | |
Dividend yield | | 0 | % | | 0 | % | | 0 | % | | 0 | % | | 0 | % | | 0 | % | | |
Expected volatility | | 38.37 | % | | 43.28 | % | | 41.54 | % | | 37.65 | % | | 41.42 | % | | 41.97 | % | | |
Risk-free interest rate | | 1.11 | % | | 0.95 | % | | 2 | % | | 0.95 | % | | 1.11 | % | | 2.4 | % | | |
Expected term of options (in years) | | 5.82 | | | 5.82 | | | 5.82 | | | 5.82 | | | 5.82 | | | 5.82 | | | |
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Performance Awards— During fiscal year 2011, the Company granted restricted stock units containing service and performance conditions. The number of restricted stock units in which the employee may ultimately vest is determined using a stock performance multiplier (“SPM”). The SPM is the quotient obtained by dividing the 60 calendar day average market price of our common stock ending on the vesting date (“Ending Average Stock Price”) by the 60 calendar day average market price of our common stock ending on the grant date (“Beginning Average Stock Price”). The maximum SPM is 2 and will be zero if the Ending Average Market Price of our common stock is less than 50% of the Beginning Average Market Price. The number of restricted stock units earned is equal to the target restricted stock units awarded to an employee multiplied by the SPM. |
The Company's chief executive officer's restricted stock units are further subject to an additional Total Shareholder Return ("TSR") condition. Specifically, in order to receive full payout of whatever restricted stock unit award was otherwise earned at the end of the three-year performance period, the Company's TSR compared to its peers must be no less than at the 50th percentile. If performance is at the 25th percentile, 50% of the otherwise payable award is paid. No award is payable if TSR is below the 25th percentile. If performance is between the 25th and 50th percentile, the amount of the otherwise payable award is increased from 50% to 100% of the full award on a linear basis. |
Substantially all of the restricted stock units with market conditions granted during the year are awarded on the same date. The following table presents the assumptions used to value these restricted stock units: |
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| 2011 | | | | | | | | | | | | | | | | | | |
Dividend yield | — | % | | | | | | | | | | | | | | | | | | |
Expected volatility | 46.67 | % | | | | | | | | | | | | | | | | | | |
Risk-free interest rate | 0.83 | % | | | | | | | | | | | | | | | | | | |
Expected term (in years) | 3 | | | | | | | | | | | | | | | | | | | |
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During fiscal years 2013 and 2012, the Company granted restricted stock units containing service, performance, and market conditions. The restricted stock unit award is split equally between Earned Relative TSR Restricted Stock Units and Earned Net Earnings Growth Restricted Stock Units. |
The number of Earned Relative TSR Restricted Stock Units in which the employee may ultimately vest shall be equal to 50% of the grant multiplied by the TSR Performance Multiplier. The TSR Performance Multiplier will be determined by comparing the Company's total stockholder return to the total stockholder return of each of the companies in a specified industry peer group over the three-year period immediately following the award date. For purposes of computing total stockholder return, the beginning stock price will be the average closing stock price over the 30 calendar day period ending on the award date ("Performance Period"), and the ending stock price will be the average closing price over the 30 calendar day period ending on the last day of the performance period. Any dividend payments made over the Performance Period will be deemed re-invested on the ex-dividend data in additional shares of the related Company. |
The following table presents the basis on which the Earned Relative TSR Restricted Stock Units are determined: |
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Company TSR Percentile Rank | | TSR Performance Multiplier | | | | | | | | | | | | | | | | | | |
Below 30th percentile | | —% | | | | | | | | | | | | | | | | | | |
30th percentile | | 50% | | | | | | | | | | | | | | | | | | |
50th percentile | | 100% | | | | | | | | | | | | | | | | | | |
70th percentile or above | | 150% | | | | | | | | | | | | | | | | | | |
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If the Company's total stockholder return over the Performance Period falls between any of the brackets described above, the TSR Performance Multiplier will be determined using straight line interpolation based on the actual percentile ranking. |
Substantially all of the restricted stock units market conditions granted during the year are awarded on the same date. The following table presents the assumptions used to value the Earned Relative TSR Restricted Stock Units: |
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| 2013 | 2012 | | | | | | | | | | | | | | | | |
Dividend yield | — | % | — | % | | | | | | | | | | | | | | | | |
Expected volatility | 29.18 | % | 36.3 | % | | | | | | | | | | | | | | | | |
Risk-free interest rate | 0.42 | % | 0.42 | % | | | | | | | | | | | | | | | | |
Expected term (in years) | 3 | | 3 | | | | | | | | | | | | | | | | | |
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The number of Earned Net Earnings Growth Restricted Stock Units awarded in fiscal year 2012 in which an employee may ultimately vest shall be equal to the sum of the following: (1) an amount, not less than zero, equal to one-third of the Target Restricted Stock Units multiplied by 50% multiplied by the Net Earnings Growth Performance Multiplier (or, "NEGPM", as defined) determined based upon the growth in the Company's Net Earnings (as defined) over the period from April 1, 2012 to March 31, 2013; plus, (2) an amount, not less than zero, equal to (A) two-thirds of the Target Restricted Stock Units multiplied by 50% multiplied by the NEGPM determined based upon the average growth in the Company's Net Earnings over the period from April 1, 2012 to March 31, 2014, minus (B) the amount determined pursuant to (1) above; plus, (3) an amount, not less than zero, equal to (A) the Target Restricted Stock Units multiplied by 50% multiplied by the NEGPM determined based upon the average growth in the Company's Net Earnings over the period from April 1, 2012 to March 31, 2015, minus (B) the amount determined pursuant to (1) and (2) above. |
For Earned Net Earnings Growth Restricted Stock Units awarded in fiscal year 2013 all the criteria are the same over the three year vesting period as those referenced in the paragraph above with the exception of the performance period which is based upon the Company's Net Earnings (as defined) over the period starting on the first day of the Company's third quarter of fiscal 2013 and ending on the last day of the Company's second quarter of fiscal 2016. |
If the Company's average growth in Net Earnings over the applicable fiscal years during the respective Performance Periods is between 5% and 10%, 10% and 15%, or 15% and 20%, the Net Earnings Growth Performance Multiplier will be determined using straight line interpolation based on the actual average growth in the Company's consolidated net earnings. |
The following table presents the basis on which the Earned Net Earnings Growth Restricted Stock Units are determined: |
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Average Net | | Net Earnings Growth | | | | | | | | | | | | | | | | | | |
Earnings Growth | Performance | | | | | | | | | | | | | | | | | | |
| Multiplier | | | | | | | | | | | | | | | | | | |
Less than 5% | | —% | | | | | | | | | | | | | | | | | | |
5% | | 50% | | | | | | | | | | | | | | | | | | |
10% | | 100% | | | | | | | | | | | | | | | | | | |
15% | | 150% | | | | | | | | | | | | | | | | | | |
20% | | 200% | | | | | | | | | | | | | | | | | | |
Unless stated otherwise, all other awards are valued based on the closing price of the Company's common stock as reported in the NYSE Composite Price History on their respective grant date. |
Concentrations of Credit Risk |
Our cash balances and short-term investments are maintained in accounts held by major banks and financial institutions located primarily in North America, South America, Europe, Australia, and Asia. In the normal course of business, and consistent with industry practices, we grant credit to our clients without requiring collateral. Concentrations of credit risk is the risk that, if we extend a significant amount of credit to clients in a specific geographic area or industry, we may experience disproportionately high levels of default if those clients are adversely affected by factors particular to their geographic area or industry. Concentrations of credit risk relative to trade receivables are limited due to our diverse client base, which includes the U.S. federal government and multi-national corporations operating in a broad range of industries and geographic areas. Additionally, in order to mitigate credit risk, we continually evaluate the credit worthiness of our major commercial clients. |
Use of Estimates and Assumptions |
The preparation of financial statements in conformity with U.S. GAAP requires us to employ estimates and make assumptions that affect the reported amounts of certain assets and liabilities; the revenues and expenses reported for the periods covered by the financial statements; and certain amounts disclosed in these Notes to the Consolidated Financial Statements. Although such estimates and assumptions are based on management’s most recent assessment of the underlying facts and circumstances utilizing the most current information available and past experience, actual results could differ significantly from those estimates and assumptions. Our estimates, judgments, and assumptions are evaluated periodically and adjusted accordingly. |
Earlier in these Notes to Consolidated Financial Statements, we discussed three significant accounting policies that rely on the application of estimates and assumptions: revenue recognition for long-term construction contracts; the process for testing goodwill for possible impairment; and the accounting for share-based payments to employees and directors. The following is a discussion of certain other significant accounting policies that rely on the use of estimates: |
Accounting for Pensions— We use certain assumptions and estimates in order to calculate periodic pension cost and the value of the assets and liabilities of our pension plans. These assumptions involve discount rates, investment returns, and projected salary increases, among others. Changes in the actuarial assumptions may have a material effect on the plans’ liabilities and the projected pension expense. |
Accounting for Income Taxes— We determine our consolidated income tax provision using the asset and liability method prescribed by U.S. GAAP. Under this method, deferred tax assets and liabilities are recognized for the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Such deferred tax assets and liabilities are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. If and when we determine that a deferred tax asset will not be realized for its full amount, we will recognize and record a valuation allowance with a corresponding charge to earnings. Judgment is required in determining our worldwide provision for income taxes. In the normal course of business, we may engage in numerous transactions every day for which the ultimate tax outcome (including the period in which the transaction will ultimately be included in taxable income or deducted as an expense) is uncertain. Additionally, we file income, franchise, gross receipts and similar tax returns in many jurisdictions. Our tax returns are subject to audit and investigation by the Internal Revenue Service, most states in the U.S., and by various government agencies representing many jurisdictions outside the U.S. |
Contractual Guarantees, Litigation, Investigations, and Insurance— In the normal course of business, we are subject to certain contractual guarantees and litigation. We record in the Consolidated Balance Sheets amounts representing our estimated liability relating to such guarantees, litigation, and insurance claims. We perform an analysis to determine the level of reserves to establish for both insurance-related claims that are known and have been asserted against us as well as for insurance-related claims that are believed to have been incurred based on actuarial analysis, but have not yet been reported to our claims administrators as of the respective balance sheet dates. We include any adjustments to such insurance reserves in our Consolidated Statements of Earnings. In addition, as a contractor providing services to various agencies of the U.S. federal government, we are subject to many levels of audits, investigations, and claims by, or on behalf of, the U.S. federal government with respect to contract performance, pricing, costs, cost allocations, and procurement practices. We adjust revenues based upon the amounts we expect to realize considering the effects of any client audits or governmental investigations. |
Accounting for Business Combinations— U.S. GAAP requires that the purchase price paid for business combinations accounted for using the acquisition method be allocated to the assets and liabilities acquired based on their respective Fair Values. Determining the Fair Value of contract assets and liabilities acquired often requires estimates and judgments regarding, among other things, the estimated cost to complete such contracts. The Company must also make certain estimates and judgments relating to other assets and liabilities acquired as well as any identifiable intangible assets acquired. |
New Accounting Pronouncements |
In February 2013, the FASB adopted ASU No. 2013-02—Comprehensive Income. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement of earnings or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about these amounts. ASU 2013-02 is effective for annual and interim periods beginning after December 15, 2012. The adoption of ASU 2013-02 has not had a material effect on the Company's consolidated financial statements. |
In July 2012, the FASB adopted ASU No. 2012-02—Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 amends Topic 350 of the FASB's ASC regarding how entities test indefinite-lived intangible assets other than goodwill for possible impairment. ASU 2012-02 permits entities first to assess qualitative factors to determine whether it is more likely than not that an indefinite lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test pursuant to ASC Subtopic 350-30. If the entity determines that is more likely than not that such asset is not impaired based on its qualitative assessment, no further testing is required. The amendments in ASU 2012-02 are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of ASU 2012-02 has not had a material effect on the Company's Consolidated Financial Statements. |
Also in December 2011, the FASB adopted ASU No. 2011-11—Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 amends Topic 210 of the ASC and requires entities to disclose information about offsetting and related arrangements to enable users of their financial statements to understand the effect of those arrangements on their respective financial positions. The scope of this ASU includes derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and securities lending agreements. Entities are required to apply the provisions of ASU 2011-11 for annual reporting periods beginning on or after January 1, 2013. The Company does not believe that the adoption of ASU 2011-11 will have a material effect on its consolidated financial statements. |