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MarketScreener Homepage  >  Equities  >  Nyse  >  Jacobs Engineering Group    J

JACOBS ENGINEERING GROUP

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JACOBS ENGINEERING : DE/ Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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08/03/2020 | 06:57am EDT

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 26, 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 2019 audited consolidated financial statements and notes
thereto included in our 2019 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 continued
effects of the COVID-19 pandemic on our business, financial condition and
results of operations and our expectations as to our future growth, prospects,
financial outlook and business strategy for fiscal 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 you should not
place undue reliance on such statements as actual results may differ materially.
We caution the reader that there are a variety of risks, uncertainties and other
factors that could cause actual results to differ materially from what is
contained, projected or implied by our forward-looking statements. Such factors
include the magnitude, timing, duration and ultimate impact of the COVID-19
pandemic and any resulting economic downturn on our results, prospects and
opportunities; the timeline for easing or removing "shelter-in-place",
"stay-at-home", social distancing, travel restrictions and similar orders,
measures or restrictions imposed by governments and health officials in response
to the pandemic, or if such orders, measures or restrictions are re-imposed
after being lifted or eased, including as a result of increases in cases of
COVID-19; and the development, effectiveness and distribution of vaccines or
treatments for COVID-19. The impact of such matters includes, but is not limited
to, the possible reduction in demand for certain of our services and the delay
or abandonment of ongoing or anticipated projects due to the financial condition
of our clients and suppliers or to governmental budget constraints; the
inability of our clients to meet their payment obligations in a timely manner or
at all; potential issues and risks related to a significant portion of our
employees working remotely; illness, travel restrictions and other workforce
disruptions that could negatively affect our supply chain and our ability to
timely and satisfactorily complete our clients' projects; difficulties
associated with hiring additional employees or replacing any furloughed
employees; increased volatility in the capital markets that may affect our
ability to access sources of liquidity on acceptable pricing or borrowing terms
or at all; and the inability of governments in certain of the countries in which
we operate to effectively mitigate the financial or other impacts of the
COVID-19 pandemic on their economies and workforces and our operations therein.
The foregoing factors and potential future developments are inherently
uncertain, unpredictable and, in many cases, beyond our control. For a
description of these and additional factors that may occur that could cause
actual results to differ from our forward-looking statements, see those listed
and discussed in Item 1A, Risk Factors included in our 2019 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").

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Impact of COVID-19 on Our Business
On March 11, 2020, the World Health Organization characterized the outbreak of
the novel coronavirus ("COVID-19") as a global pandemic and recommended certain
containment and mitigation measures. On March 13, 2020, the United States
declared a national emergency concerning the outbreak, and the vast majority of
states and many municipalities have declared public health emergencies or taken
similar actions. Along with these declarations, there were extraordinary and
wide-ranging actions taken by international, federal, state and local public
health and governmental authorities to contain and combat outbreaks of COVID-19
in regions across the United States and around the world. These actions included
quarantines and "stay-at-home" or "shelter-in-place" orders, social distancing
measures, travel restrictions, school closures and similar mandates for many
individuals in order to substantially restrict daily activities and orders for
many businesses to curtail or cease normal operations unless their work is
critical, essential or life-sustaining. Although certain jurisdictions have
subsequently taken steps to lift or ease such restrictions to various degrees,
some jurisdictions have subsequently reversed such lifting or easing in response
to increased cases of COVID-19. In addition, governments and central banks in
the United States and other countries in which we operate have enacted fiscal
and monetary stimulus and assistance measures to counteract the economic impacts
of COVID-19.
We are a company operating in a critical infrastructure industry, as defined by
the U.S. Department of Homeland Security. Consistent with international,
federal, state and local requirements to date, we continue to materially
operate. In addition, demand for certain of our services, including those
supporting health care relief efforts relating to COVID-19, has increased, and
could continue to increase, as a result of COVID-19. Notwithstanding our
continued critical operations, COVID-19 has negatively impacted our business,
and may have further adverse impacts, on our continued operations, including
those listed and discussed in Item 1A, Risk Factors included in this Quarterly
Report on Form 10-Q. Accordingly, we have reduced spending broadly across the
Company, only proceeding with operating and capital spending that is critical.
We have also ceased all non-essential hiring and reduced discretionary expenses,
including certain employee benefits and compensation. Looking ahead, we have
developed contingency plans to reduce costs further if the situation further
deteriorates or lasts longer than current expectations. We will continue to
actively monitor the situation and may take further actions that alter our
business operations as may be necessary or appropriate for the health and safety
of employees, contractors, customers, suppliers or others or as required by
international, federal, state or local authorities.
Based on current estimates, we expect the impact of COVID-19 to continue in the
fourth fiscal quarter of 2020, although to a lesser degree than what was seen in
the third fiscal quarter of 2020. These impacts could also continue into fiscal
2021. 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 the fourth
fiscal quarter of 2020 and 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 nearly 55,000, Jacobs provides
a full spectrum of professional services including consulting, technical,
scientific and project delivery for the government and private sector.
The Company's deep global domain knowledge - applied together with the latest
advances in technology - are why customers large and small choose to partner
with Jacobs. We operate in two lines of business: Critical Mission Solutions
(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

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intellectual property-driven technology with unique proprietary C5ISR (command,
control, communications, computer, combat systems, intelligence, surveillance
and reconnaissance) rapid solutions, and amplifying Jacobs' position as a Tier-1
global nuclear services provider.
We have altered the course of Jacobs' future and are now focused on broadening
our leadership in high growth sectors. As part of our strategy, our new brand
was created from an understanding of where we've been, what's true to our
culture and our strategy going forward. Central to it is our new tagline:
Challenging today. Reinventing tomorrow. Signaling our transition from an
engineering and construction company to a global technology-forward solutions
company, we have a new look, and we plan to change our name to Jacobs Solutions
Inc.
                          Revenue by Type (Q3 FY2020)1
                     [[Image Removed: jec-20200626_g1.jpg]]
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 fourth quarter of
fiscal 2020 and subsequent periods.
Lines of Business
The Company's two operating segments and global lines of business ("LOBs") are
as follows: (i) Critical Mission Solutions and (ii) People & Places Solutions;
with the previous Energy, Chemicals and Resources ("ECR") line of business now
reported as discontinued operations.
                        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 government agencies as well as selective aerospace, automotive and telecom
customers. Our representative clients include the U.S. Department of Defense
(DoD), the U.S. Special Operations Command (USSOCOM), the U.S. Intelligence
Community, NASA, the U.S. Department of Energy (DoE), Ministry of Defence in the
U.K. Nuclear Decommissioning Authority (NDA), and the Australian Department of
Defence, as well as private sector customers mainly in the automotive and
telecom sectors.
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.

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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 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 our major government customers in the U.S., where we
provide a wide range of technology services. For our

                                    Page 40
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telecommunications customers, we provide permitting, site planning and
engineering to enable the development of wireline and wireless communications
including the development of 5G small cell sites.
•Facility Engineering and Operations. We provide services for advanced technical
structures and systems, including flight/launch facilities, R&D facilities, test
facilities and military range facilities. Customers also engage us to operate,
maintain and provide technical services for these facilities and systems over
their lives. We also provide sustainment and technical services for
facility-oriented clients including for the automotive industry where we provide
highly technical aerodynamic, climatic, altitude and acoustic solutions for our
customer research and development operations.
•Nuclear Solutions. We provide support across the 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 the 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 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 long-term operation of advanced
facilities and infrastructure. Solutions may be delivered as standalone
engagements or through comprehensive program management solutions that integrate
disparate workstreams to yield additional benefits not attainable through
project-by-project implementation.
Our clients include national, state and local government in the U.S., Europe,
U.K., Middle East, Australia, New Zealand and Asia, as well as the private
sector throughout the world.
Serving broad industry sectors that support people and places
Environmental and infrastructure resilience, urbanization, digital
transformation and the convergence of information 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 adaptation of next-generation mobility as well as
revenue generating fiber infrastructure.

                                    Page 41
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Furthermore, the future of nearly all water infrastructure will be highly
technology-enabled, leveraging solutions with digital twins, predictive
analytics and 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 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,
aviation, port and maritime infrastructure. For example, we do this by assessing
the impact of autonomous vehicles on roadways and cities for transportation
agencies, engineering and specifying vehicles for mass-transit, consulting
services for digital fare payment systems, program management of the 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 provide solutions across water and wastewater treatment,
water reuse, and water resources such as the deployment of next generation smart
metering, digital twin technology and highly technical consulting, engineering,
design-build and operation of complex water systems. We support our customers on
some of the world's largest water infrastructure projects such as Delta
Conveyance Project, Thames Tideway, Houston Water and Singapore National Water
Agency.
•For the built environment, we deliver full-service solutions for cities, places
and buildings, including smart-city and resiliency city solutions. This also
includes consulting, engineering and design services for transportation hubs in
Boston and London, urban developments, corporate, national government,
healthcare, education, science facilities for public sector and industrial
clients across diverse markets and services. Our solutions include
multi-functional infrastructure that addresses economic, social and
environmental issues spanning a range of sectors, technology and industries. We
also provide consulting around technology-enabled asset management, economic
development and scientific advancement that enables our clients to make
intelligent data-driven investment decisions.
•In our environmental business we provide all aspects of environmental planning,
permitting, regulatory and compliance management, and consulting services
related to remediation, revitalization and redevelopment. We also provide
critical consulting and technology related services to clients responsible for
disaster planning, mitigation and response as well as logistics, planning and
implementation support for leading edge scientific and research endeavors. We
recently provided a large confidential U.S. customer with data analytics and
visualization solutions to deliver actionable intelligence to help them
understand and prioritize their approach to polyfluoroalkyl substances (PFAS)
remediation.
•In our advanced facilities business, we provide fully integrated solutions for
highly specialized facilities in the fields of medical research, sustainable
manufacturing, nanoscience, biotechnology, semiconductor and data centers. Our
services also include implementation of operational environments and providing
cybersecurity assessments, network architecture development and construction
management for their operational environments. Our clients include life sciences
and pharmaceutical, specialty manufacturing, microelectronics and data intensive
industries.

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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:
•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.
•Replica Process™ allows Jacobs' world-renowned expertise in water treatment to
be simulated both statically and dynamically over time in Replica Process™
software. Much of the process predictive capabilities in Replica Process are
founded on the Jacobs' Pro2D2™ and Source™ software. Informed decisions are
founded on the ability of Replica Process to provide details on system
performance among many alternatives, very quickly.
•Replica Hydraulics™ was designed to simulate all pressurized and gravity flow
hydraulics of a system, simultaneously. Replica's hydraulic blocks were built on
accepted engineering practice equations and have been successfully verified on
hundreds of projects. The Replica Hydraulics library is the foundation for
complete, dynamic water system analysis and can be used exclusively for
hydraulic analysis of a system or in conjunction with Replica Process, Replica
Controls and/or Replica Air.
•Replica Controls™ allows for dynamic simulation of system instrumentation such
as flow meters, indicator transmitters, limit switches and stream analyzers as
well as the logic objects including PID controllers, sequencers, units
controller and alarms. The software's controls capabilities and functionality
align with industry design standards and its ability to predict full scale
performance is unmatched due to the connectivity with Replica Hydraulics.
•Replica Air™ simulates all aspects of compressible fluid (e.g. air) supply
system including pipes, valves, diffusers and blowers. The ability to couple
Replica Air with Replica Controls in a single simulation allows for the
development of unique and robust designs that reduce energy use and life cycle
costs.

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Energy, Chemicals and Resources (ECR)
ECR Disposition
On April 26, 2019, Jacobs completed the sale of its Energy, Chemicals and
Resources ("ECR") business to Worley Limited, a company incorporated in
Australia ("Worley"), for a purchase price of $3.4 billion consisting of (i)
$2.8 billion in cash plus (ii) 58.2 million ordinary shares of Worley, subject
to adjustments for changes in working capital and certain other items (the "ECR
sale").
As a result of the ECR sale, substantially all ECR-related assets and
liabilities were sold (the "Disposal Group"). We determined that the disposal
group should be reported as discontinued operations in accordance with ASC
210-05, Discontinued Operations because their disposal represented a strategic
shift that had a major effect on our operations and financial results. As such,
the assets and liabilities of the ECR business were reflected as held-for-sale
in the Consolidated Balance Sheets through December 27, 2019. As of June 26,
2020, all of the ECR business to be sold under the terms of the sale has been
conveyed to Worley and as such, no amounts remain held for sale. For further
discussion see Note 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 encompassed
consulting, engineering, procurement, construction, maintenance and project
management.


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Results of Operations for the three and nine months ended June 26, 2020 and June 28, 2019 (in thousands, except per share information)

                                                                                                                    For the Nine Months
                                                      For the Three Months Ended                                           Ended
                                                 June 26, 2020          June 28, 2019         June 26, 2020         June 28, 2019
Revenues                                        $   3,260,057          $ 

3,169,622 $ 10,047,286$ 9,345,005 Direct cost of contracts

                           (2,631,031)           (2,543,488)           (8,125,554)            (7,533,511)
Gross profit                                          629,026               626,134             1,921,732              1,811,494
Selling, general and administrative expenses         (434,650)             (536,180)           (1,408,232)            (1,505,731)
Operating Profit                                      194,376                89,954               513,500                305,763
Other Income (Expense):
Interest income                                         1,249                 3,398                 3,180                  7,172
Interest expense                                      (18,193)              (18,978)              (48,163)               (73,727)
Miscellaneous income (expense), net                   126,249                19,025               (87,470)                58,211
Total other income (expense), net                     109,305                 3,445              (132,453)                (8,344)
Earnings from Continuing Operations Before
Taxes                                                 303,681                93,399               381,047                297,419
Income Tax (Expense) Benefit from Continuing
Operations                                            (67,674)                1,981               (75,041)               (12,829)
Net Earnings of the Group from Continuing
Operations                                            236,007                95,380               306,006                284,590
Net Earnings of the Group from Discontinued
Operations                                             18,043               435,684               125,511                438,837
Net Earnings of the Group                             254,050               531,064               431,517                723,427
Net Earnings Attributable to Noncontrolling
Interests from Continuing Operations                   (9,121)               (6,015)              (21,662)               (15,578)
Net Earnings Attributable to Jacobs from
Continuing Operations                                 226,886                89,365               284,344                269,012
Net Earnings Attributable to Noncontrolling
Interests from Discontinued Operations                      -                  (607)                    -                 (2,195)
Net Earnings Attributable to Jacobs from
Discontinued Operations                                18,043               435,077               125,511                436,642
Net Earnings Attributable to Jacobs             $     244,929$    524,442$    409,855$     705,654
Net Earnings Per Share:
Basic Net Earnings from Continuing Operations
Per Share                                       $        1.74$       0.65$       2.15$        1.93
Basic Net Earnings from Discontinued Operations
Per Share                                       $        0.14$       3.18$       0.95$        3.14
Basic Earnings Per Share                        $        1.88$       3.83$       3.11$        5.07

Diluted Net Earnings from Continuing Operations
Per Share                                       $        1.73$       0.65$       2.13$        1.92
Diluted Net Earnings from Discontinued
Operations Per Share                            $        0.14$       3.15$       0.94$        3.11
Diluted Earnings Per Share                      $        1.87$       3.80$       3.08$        5.02



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Overview - Three and Nine Months Ended June 26, 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 may cause. The
Company's operations for the third fiscal quarter of 2020 were adversely
impacted by COVID-19. While certain business units of both Critical Mission
Solutions and People & Places Solutions have experienced, and may continue to
experience, an increase in demand for certain of their services regarding new
projects that may arise in response to the COVID-19 pandemic, it is still
expected that COVID-19 is likely to continue to have an adverse impact on each
of Critical Missions Solutions and People & Places Solutions in the fourth
fiscal quarter of 2020, although to a lesser degree than what was seen in the
third fiscal quarter of 2020. These may continue into fiscal 2021.
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 earnings attributable to the Company from continuing operations for the
third fiscal quarter ended June 26, 2020 were $226.9 million (or $1.73 per
diluted share), an increase of $137.5 million, or 153.9%, from earnings of $89.4
million (or $0.65 per diluted share) for the corresponding period last year.
Included in the Company's operating results from continuing operations for the
three months ended June 26, 2020 were $93.3 million in after-tax unrealized
appreciation gains recorded in miscellaneous income (expense), net, associated
with our investment in Worley stock and certain foreign currency revaluations
relating to the ECR sale and after-tax Restructuring and other charges and
transaction costs of $14.1 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
third fiscal quarter ended June 26, 2020 were $18.0 million (or $0.14 per
diluted share), a decrease of $417.0 million, or 95.9%, from earnings of $435.1
million (or $3.15 per diluted share) for the corresponding period last year. The
change year-over-year was primarily driven by the gain on the ECR sale
recognized in the 2019 period and the absence in the current period of normal
operating results of the ECR business as reported also in the prior period.
For the nine months ended June 26, 2020, net earnings attributable to the
Company from continuing operations were $284.3 million (or $2.13 per diluted
share), an increase of $15.3 million, or 5.7%, from $269.0 million (or $1.92 per
diluted share) for the corresponding period last year. Included in the Company's
operating results from continuing operations for the nine months ended June 26,
2020 were $90.4 million in after-tax fair value losses recorded in miscellaneous
income (expense), net, associated with our investment in Worley stock (net of
Worley stock dividend) and certain foreign currency revaluations relating to the
ECR sale, $87.2 million in after-tax Restructuring and other charges and
transaction costs associated in part with the Company's acquisition of John Wood
Groups' Nuclear consulting, remediation and program management business.
For the nine months ended June 26, 2020, net earnings attributable to the
Company from discontinued operations were $125.5 million (or $0.94 per diluted
share), a decrease of $311.1 million, or 71.3%, from $436.6 million (or $3.11
per diluted share) for the corresponding period last year. Included in net
earnings attributable to the Company from discontinued operations for the
current year to date period was the settlement of the Nui Phao ("NPMC") legal
matter described in Note 19- Commitments and Contingencies and Derivative
Financial Instruments that was reimbursed by insurance, the recognition of the
deferred gain for the delayed conveyance of the international entities and for
the delivery of the ECR IT assets, as discussed in Note 7- Sale of Energy,
Chemicals and Resources ("ECR") Business and adjustments for working capital and
certain other items in connection with the ECR sale. Additionally, the
year-over-year change was also driven by the gain on sale recognized in the 2019
period and the absence of normal operating results of the ECR business as
reported also in the prior period.
On March 6, 2020, Jacobs completed the acquisition of 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 third fiscal quarter of 2020 were $3.26 billion, an increase of
$90.4 million, or 2.9% from $3.17 billion for the corresponding period last
year. For the nine months ended June 26, 2020, revenues were $10.05 billion, an
increase of $702.3 million or 7.5% from $9.35 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
and the March 2020 John Wood Group Nuclear business acquisitions, in addition to
overall growth in our Critical Mission Solutions (CMS) and People & Places
Solutions (P&PS) businesses, largely offset by impacts from the COVID 19
pandemic. Pass-through costs included in revenues for the three and nine months
ended June 26, 2020 amounted to $578.7 million and $1.92 billion, respectively,
an increase of $44.8 million and $81.3 million, or 8.4% and 4.4%, from $533.9
million and $1.84 billion from the corresponding periods last year.
Gross profit for the third quarter of 2020 was $629.0 million, an increase of
$2.9 million, or 0.5% from $626.1 million from the corresponding period last
year. Our gross profit margins were 19.3% and 19.8% for the three month periods
ended June 26, 2020 and June 28, 2019, 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 partially
offset by COVID-19 cost mitigation efforts. Gross profit for the nine months
ended June 26, 2020 was $1.92 billion, an increase of $110.2 million, or 6.1%
from $1.81 billion from the corresponding period to date last year. Our gross
profit margins were 19.1% and 19.4% for the nine month periods ended June 26,
2020 and June 28, 2019, respectively. The increase in our gross profit was
attributable to overall growth in both our P&PS and CMS businesses along with
favorable impacts from the KeyW and John Wood Group Nuclear business
acquisitions. The slight differences in year over year gross margin trends for
the three and nine month periods were attributable mainly to legacy portfolio
mix and lower overhead rate impacts mentioned above, with partial offsets from
favorable margin trends from our recent KeyW and 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 26, 2020 were $434.7 million, a
decrease of $101.5 million, or 18.9%, from $536.2 million for the corresponding
period last year. SG&A expenses for the nine months ended June 26, 2020 were
$1.41 billion, a decrease of $97.5 million, or 6.5%, from $1.51 billion for the
corresponding period last year. The decrease in SG&A expenses as compared to the
corresponding periods 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
resulting from our ongoing cost reduction programs as well as COVID-19 cost
mitigation efforts, partially offset by incremental SG&A expenses from the KeyW
and John Wood Group Nuclear business acquisitions. Favorable impacts on SG&A
expenses from foreign exchange were $5.7 million and $12.4 million, respectively
for the three and nine months ended June 26, 2020, although impacts from foreign
exchange were immaterial to the Company's operating profit as a whole.
Net interest expense for the three and nine months ended June 26, 2020 was $16.9
million and $45.0 million, respectively, a decrease of $1.4 million and $21.6
million from $15.6 million and $66.6 million for the corresponding periods last
year. The decrease in net interest expense for the nine month period year over
year is due to the paydown of debt subsequent to the ECR sale in the prior year
third quarter.
Miscellaneous income (expense), net for the three months ended June 26, 2020 was
$126.2 million, an increase of $107.2 million, from $19.0 million for the
corresponding period last year. The increase from the prior year was due
primarily to $123.1 million in pre-tax unrealized gains associated with changes
in the fair value of our investment in Worley stock and certain foreign currency
revaluations relating to the ECR sale. Miscellaneous income (expense), net for
the nine months ended June 26, 2020 was $(87.5) million, a decrease of $145.7
million, from $58.2 million for the corresponding periods last year. The
decrease from prior year was due primarily to $118.8 million in pre-tax
unrealized losses associated with changes in the fair value of our investment in
Worley stock (net of Worley stock dividend) and certain foreign currency
revaluations relating to the ECR sale. Also included in miscellaneous (expense)
income during the three and nine months ended June 26, 2020 is $1.0 million and
$15.2 million, respectively, in TSA related income associated with the ECR sale
as discussed in Note 7- Sale of Energy, Chemicals and Resources ("ECR")
Business.

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The Company's effective tax rates from continuing operations for the three
months ended June 26, 2020 and June 28, 2019 were 22.3% and (2.1)%,
respectively. The Company's effective tax rates from continuing operations for
the nine months ended June 26, 2020 and June 28, 2019 were 19.7% and 4.3%,
respectively. The comparatively higher quarterly tax rate was primarily due to a
$21.7 million tax benefit in the three months ended June 28, 2019, which related
to the release of a valuation allowance on previously fully valued foreign tax
credits. For the three months ended June 26, 2020, the effective tax rate was
impacted by a $4.1 million benefit for the release of uncertain tax positions
due to the statute of limitations expiring and a $12.6 million benefit for the
release of a valuation allowance in the UK, with offsetting unfavorable impacts
from other discrete items. The Company's effective tax rate from continuing
operations for the nine months ended June 26, 2020 was higher primarily due to
$62.6 million in discrete benefits in the nine months ended June 28, 2019,
predominantly comprised of $37.4 million for a remeasurement of the Company's
deferred tax liability for unremitted earnings to account for the change in
expected manner of recovery and an additional benefit of $21.7 million as a
result of a valuation allowance release on foreign tax credits that were
previously fully reserved. Comparatively, in the nine months ended June 26,
2020, the Company had a $12.6 million benefit for the release of a valuation
allowance in the UK, a $6.9 million of benefit from the application of the
Internal Revenue Code section 179D, a $3.7 million favorable settlement with the
Indian Revenue Services, an amended tax return generating $5.8 million of
foreign tax credits and research and development, and a $4.1 million benefit for
an India tax rate change, with offsetting unfavorable impacts from other
discrete items.
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 allowed 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 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 called for a
one-time tax on deemed repatriation of foreign earnings. This one-time
transition tax was based on our total post-1986 earnings and profits (E&P) of
certain of our foreign subsidiaries. We recorded $14.3 million in cumulative
transition taxes during the measurement period, although the transition tax was
expected to be offset by foreign tax credits in the future, resulting in no
additional cash tax 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 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.

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Segment Financial Information
The following table provides selected financial information for our operating
segments and includes a reconciliation of segment operating profit to total U.S.
GAAP operating profit from continuing operations by including certain
corporate-level expenses, Restructuring and other charges and transaction and
integration costs (in thousands).
                                                    Three Months Ended                                                      Nine Months Ended
                                            June 26, 2020         June 28, 2019           June 26, 2020              June 28, 2019
Revenues from External Customers:
Critical Mission Solutions                 $  1,211,143$  1,156,488$3,636,978$3,251,024
People & Places Solutions                     2,048,914             2,013,134               6,410,308                  6,093,981
Total                                      $  3,260,057$  3,169,622$10,047,286$9,345,005



                                                           Three Months Ended                                          Nine Months Ended
                                                  June 26, 2020         

June 28, 2019June 26, 2020June 28, 2019 Segment Operating Profit: Critical Mission Solutions

                       $      89,608          $   

76,306 $ 264,323$ 222,289 People & Places Solutions

                              190,453                183,318                557,864             515,465
Total Segment Operating Profit                         280,061                259,624                822,187             737,754
Other Corporate Expenses (1)                           (65,213)               (64,525)              (193,148)           (185,674)
Restructuring, Transaction and Other Charges           (20,472)              (105,145)              (115,539)           (246,317)

Total U.S. GAAP Operating Profit                       194,376                 89,954                513,500             305,763
Total Other Income (Expense), net (2)                  109,305                  3,445               (132,453)             (8,344)

Earnings Before Taxes from Continuing Operations $ 303,681 $

93,399 $ 381,047$ 297,419



(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 $2.0 million and $14.8 million for the
three and nine month periods ended June 28, 2019, respectively. Other corporate
expenses also include intangibles amortization of $23.1 million and $18.4
million for the three-month periods ended June 26, 2020 and June 28, 2019,
respectively, and $67.1 million and $55.7 million for the nine months ended June
26, 2020 and June 28, 2019, respectively.
(2)For the three and nine month periods ended June 26, 2020, includes revenues
under the Company's TSA with Worley of $1.0 million and $15.2 million,
respectively, $122.9 million and $(119.0) million in fair value adjustments
related to our investment in Worley stock (net of Worley stock dividend) and
certain foreign currency revaluations relating to the ECR sale, respectively,
the amortization of deferred financing fees related to the acquisition of CH2M
HILL Companies Ltd. ("CH2M") in December 2017 (the "CH2M acquisition") of $-
million and $0.7 million, respectively, and the loss on settlement of the U.S.
pension plan of $- million and $2.7 million respectively. For the three and nine
month periods ended June 28, 2019, includes the amortization of deferred
financing fees related to the CH2M acquisition of $0.5 million and $1.5 million,
respectively, and the gain on settlement of the CH2M portion of the U.S. pension
plan of $0.0 million and $34.6 million, respectively. Also includes revenues
under the Company's TSA with Worley of $14.1 million for the three and nine
month periods ended June 28, 2019, for which the related costs are included in
SG&A.

Critical Mission Solutions
                               Three Months Ended                                   Nine Months Ended
                        June 26, 2020      June 28, 2019      June 26, 2020        June 28, 2019
  Revenue              $  1,211,143$  1,156,488$  3,636,978$       3,251,024
  Operating Profit     $     89,608$     76,306$    264,323       $         222,289




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Critical Mission Solutions (CMS) segment revenues for the three and nine months
ended June 26, 2020 were $1.21 billion and $3.64 billion, respectively, an
increase of $54.7 million and $386.0 million, or 4.7% and 11.9% from $1.16
billion and $3.25 billion for the corresponding periods last year. Our increase
in revenue was primarily attributable to incremental revenue from the KeyW and
John Wood Group Nuclear business acquisitions, combined with areas of year over
year revenue volume growth across our legacy portfolio, highlighted by increased
spending by customers in the U.S. government business sector. These favorable
performance trends more than offset unfavorable COVID-19 related revenue impacts
mainly due to challenges from physical distancing requirements, client
scheduling changes and other related factors. Impacts on revenues from
unfavorable foreign currency translation were approximately $7.0 million and
$13.4 million, respectively, for the three and nine month periods ended June 26,
2020 compared to the corresponding prior year periods.

Operating profit for the segment was $89.6 million and $264.3 million,
respectively, for the three and nine months ended June 26, 2020, an increase of
$13.3 million and $42.0 million, or 17.4% and 18.9%, from $76.3 million and
$222.3 million for the corresponding periods last year. The increases from the
prior year were primarily attributable to incremental operating profit from the
KeyW and John Wood Group Nuclear business acquisitions, the continued growth in
profits from our U.S. governmental business sector and the favorable close out
of a large program management contract in the first fiscal quarter of 2020.
Impacts on operating profit from unfavorable foreign currency translation were
approximately $1.0 million and $1.9 million respectively, for the three and nine
months periods ended June 26, 2020, compared to the corresponding prior year
periods. Unfavorable revenue impacts from COVID-19 mentioned above were largely
offset by the Company's mitigating actions in discretionary operating spend and
benefits costs, government assistance programs and other areas of improved
operating performance.
People & Places Solutions
                               Three Months Ended                                   Nine Months Ended
                        June 26, 2020      June 28, 2019      June 26, 2020        June 28, 2019
  Revenue              $  2,048,914$  2,013,134$  6,410,308$       6,093,981
  Operating Profit     $    190,453$    183,318$    557,864       $         515,465



Revenues for the People & Places Solutions (P&PS) segment for the three and nine
months ended June 26, 2020 were $2.05 billion and $6.41 billion, respectively,
an increase of $35.8 million and $316.3 million, or 1.8%, and 5.2% from $2.01
billion and $6.09 billion for the corresponding periods last year. The increases
in revenue were due in part to portfolio growth across our businesses,
highlighted by strong investment in advanced facilities, water and transport
infrastructure and project management/construction management ("PMCM") sectors.
These favorable performance trends more than offset unfavorable COVID-19 related
revenue impacts mainly due to challenges from physical distancing requirements,
client scheduling changes and other related factors. Impacts on revenues from
unfavorable foreign currency translation were approximately $20.3 million and
$49.6 million, respectively, for the three and nine month periods ended June 26,
2020 compared to the corresponding prior year periods.

Operating profit for the segment for the three and nine months ended June 26,
2020 were $190.5 million and $557.9 million, respectively, an increase of $7.1
million and $42.4 million, or 3.9%, and 8.2% from $183.3 million and $515.5
million for the corresponding periods last year. The year over year increase in
operating profit was due primarily to positive impacts from the higher year over
year revenues for the segment and reductions in costs related to COVID-19
impacts and mitigation efforts. Impacts on operating profit from unfavorable
foreign currency translation were approximately $4.5 million and $8.9 million
for the three and nine month periods ended June 26, 2020, compared to the
corresponding prior year periods. Unfavorable revenue impacts from COVID-19
mentioned above were largely offset by the Company's mitigating actions in
discretionary operating spend and benefits costs, government assistance programs
and other areas of improved operating performance.
Other Corporate Expenses
Other corporate expenses for the three and nine months ended June 26, 2020 were
$65.2 million and $193.1 million, an increase of $0.7 million and $7.4 million
from $64.5 million and $185.7 million for the corresponding periods last year.
This increase was due primarily to higher intangible amortization expense from
the KeyW and John Wood Group nuclear business acquisitions, as well as impacts
from company benefit program enhancements. These increases were partly offset by
employee related and other cost reductions across the Company's corporate
functions.
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

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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.
For the three and nine months ended June 26, 2020, net earnings attributable to
Jacobs from discontinued operations after income taxes were $18.0 million and
$125.5 million, respectively, and for the three and nine months ended June 28,
2019, net earnings attributable to discontinued operations after income taxes
were $435.1 million and $436.6 million, respectively. While the ECR business
sale closed in April 2019, the Company recognized additional pretax income from
discontinued operations of $32.1 million and $161.9 million in the three and
nine months ended June 26, 2020. Selling, general and administrative expenses
includes an offsetting insurance recovery of $50.0 million for the nine months
ended June 26, 2020 recorded in connection with the Nui Phao ("NPMC") legal
matter described in Note 19- Commitments and Contingencies. Additionally, the
nine month period ended June 28, 2019 includes a charge for the award and
recovery of costs, estimated related interest and attorneys' fees related to the
NPMC legal matter. For the nine months ended June 26, 2020, the gain on sale of
$113.4 million relates mainly to the recognition of the deferred gain for the
delayed transfer of the ECR-related assets and liabilities of the two
international entities discussed above, adjustments for working capital and
certain other items in connection with the sale and additional income for the
release of a deferred gain upon achievement of the IT Migration Date described
above in connection with the delivery to Worley of certain IT application and
hardware assets related to the ECR business.
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.

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The following table summarizes our backlog at June 26, 2020 and June 28, 2019 (in millions):

                                           June 26, 2020       June 28, 2019
            Critical Mission Solutions    $       9,066$       8,456
            People & Places Solutions            14,608              14,011
                  Total                   $      23,674$      22,467


The increase in backlog in Critical Mission Solutions (CMS) from June 28, 2019
was primarily the result of the acquisition of John Wood Group's Nuclear
consulting, remediation and program management business.
The increase in backlog in People & Places Solutions (P&PS) from June 28, 2019
was primarily the result of new awards in the U.K. and U.S. markets.
Consolidated backlog differs from the Company's remaining performance
obligations as defined by ASC 606 primarily because of our national government
contracts (other than national government O&M contracts). Our policy is to
include in backlog the full contract award, whether funded or unfunded excluding
the option periods while our remaining performance obligations represent a
measure of the total dollar value of work to be performed on contracts awarded
and in progress. Additionally, the Company includes our proportionate share of
backlog related to unconsolidated joint ventures which is not included in our
remaining performance obligations.
Liquidity and Capital Resources
At June 26, 2020, our principal sources of liquidity consisted of $1.02 billion
in cash and cash equivalents and $1.63 billion of available borrowing capacity
under our $2.25 billion revolving credit agreement (the "Revolving Credit
Facility").
The amount of cash and cash equivalents at June 26, 2020 represented an increase
of $393.7 million from $631.1 million at September 27, 2019, the changes of
which are described below.
Our cash flow provided by operations of $374.5 million during the nine month
period ended June 26, 2020 was favorable by $594.8 million in comparison to the
cash flow used for operations of $220.3 million for the corresponding prior year
period. This improvement was due primarily to favorable net earnings adjusted
for noncash items compared to the previous period driven by improved operating
profit performance. Partly offsetting this favorable impact were higher uses of
cash in other working capital, due mainly to higher accounts receivable
partially impacted by collection timing impacts from COVID-19 as well as higher
cash used in accounts payable, offset by favorable cash flow impacts in accrued
liabilities including the deferral of certain payments associated mainly with
COVID-19 government assistance programs in the U.S. and Europe.
Our cash used for investing activities for the nine months ended June 26, 2020
was $392.7 million, compared to cash provided by investing activities of $2.18
billion in the prior year, the change due primarily to the impact of the ECR
sale in the third quarter of the prior fiscal year compared to the acquisition
of John Wood Group's Nuclear business in the second quarter of fiscal year 2020.
Our cash provided by financing activities of $372.5 million for the nine months
ended June 26, 2020 resulted mainly from net proceeds from borrowings of $756.5
million, partly offset by cash used for share repurchases of $285.8 million,
$97.5 million in dividends to shareholders and noncontrolling interest and
approximately $1.1 million in stock-based compensation and benefit plan related
activity. Cash used for financing activities in the prior period was $1.79
billion, due primarily to net debt repayments of $1.20 billion, share
repurchases of $524.6 million$82.3 million in dividends to shareholders and
noncontrolling interest and approximately $20.0 million in stock-based
compensation and benefit plan related activity.
At June 26, 2020, the Company had approximately $244.3 million in cash and cash
equivalents held in the U.S. and $780.5 million held outside of the U.S.
(primarily in the U.K., the Eurozone, Australia, India and the United Arab
Emirates), which is used primarily for funding operations in those regions.
Other than the tax cost of repatriating funds to the U.S. (see Note 15- Income
Taxes of Notes to Consolidated Financial Statements included in our 2020 Form
10-K), there are no material impediments to repatriating these funds to the U.S.


                                    Page 52
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In March 2020, the Company entered into a new unsecured term loan facility (the
"2020 Term Loan Facility") with a syndicate of financial institutions as
lenders. The principal balance of the 2020 Term Loan Facility was $1.04 billion
as of June 26, 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. In the second quarter of fiscal 2020, the Company used
proceeds of the 2020 Term Loan Facility to repay $200.0 million in short-term
debt and retained the remaining cash proceeds as a precautionary measure due to
uncertainties resulting from the COVID-19 pandemic that was emerging at the
time. In the third quarter of fiscal 2020, after gaining additional insight into
the impact of the pandemic on the Company's business and improved cash flow, the
Company used the remaining cash proceeds and excess cash to repay $954.9 million
of outstanding amounts under the Revolving Credit Facility.

The Company had $259.5 million in letters of credit outstanding at June 26,
2020. Of this amount, $2.3 million was issued under the Revolving Credit
Facility and $257.3 million was issued under separate, committed and uncommitted
letter-of-credit facilities.
On March 6, 2020, a subsidiary of Jacobs completed the acquisition of John Wood
Group's Nuclear consulting, remediation and program management business for an
enterprise value of £246 million, or approximately $317.9 million, less cash
acquired of $24.3 million. The Company has recorded its preliminary purchase
accounting processes associated with the acquisitions, which are summarized in
Note 5- Business Combinations.
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 million which was comprised of approximately
$604.2 million in cash to the former stockholders and certain equity award
holders of KeyW and the assumption of KeyW's debt of $298.4 million. The Company
repaid all of KeyW's outstanding debt by the end of the fourth fiscal quarter of
2019. The Company has recorded its final purchase price allocation associated
with the acquisition, which is summarized in Note 5- Business Combinations.
On April 26, 2019, Jacobs completed the sale of its ECR business to Worley for a
purchase price of $3.4 billion consisting of (i) $2.8 billion in cash plus (ii)
58.2 million ordinary shares of Worley, subject to adjustments for changes in
working capital and certain other items.
We believe we have adequate liquidity and capital resources to fund our
projected cash requirements for the next twelve months based on the liquidity
provided by our cash and cash equivalents on hand, our borrowing capacity and
our continuing cash from operations. We further believe that our financial
resources, discretionary spend controls as well as near term benefits from
government assistance programs, will allow us to continue managing the negative
impacts of the COVID-19 pandemic on our business operations for the foreseeable
future, which is expected to include reduced revenue from operating activities,
based on current assumptions and expectations regarding the pandemic. We have
taken actions to reduce spending more broadly across the Company, only
proceeding with operating and capital spending that is critical. We have also
ceased all non-essential hiring and reduced discretionary expenses, including
certain employee benefits and compensation. In addition, as a precautionary
measure, we temporarily suspended purchases under the share repurchase plan in
March 2020. Looking ahead, we have developed contingency plans to reduce costs
further if the situation deteriorates beyond or lasts longer than current
assumptions and expectations.
We were in compliance with all of our debt covenants at June 26, 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 Revolving Credit
Facility and Note Purchase Agreement.

                                    Page 53
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Our Revolving Credit Facility, 2020 Term Loan Facility and certain other debt
obligations are subject to variable rate interest which could be adversely
affected by an increase in interest rates. As of June 26, 2020, we had an
aggregate of $1.66 billion in outstanding borrowings under our Revolving Credit
Facility and 2020 Term Loan Facility. Interest on amounts borrowed under these
agreements is subject to adjustment based on the Company's Consolidated Leverage
Ratio (as defined in the credit agreements governing the Revolving Credit
Facility and the 2020 Term Loan 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 0.875% and 1.5% or a base rate plus a margin of between 0% and 0.5%.
Additionally, if our consolidated leverage ratio exceeds a certain amount, the
interest on the Senior Notes may increase by 75 basis points. However, as
discussed in Note 19- Commitments and Contingencies and Derivative Financial
Instruments, we have entered into swap agreements with an aggregate notional
value of $899.6 million to convert the variable rate interest based liabilities
associated with a corresponding amount of our debt into fixed interest rate
liabilities, leaving $757.3 million in principal amount subject to variable
interest rate risk.
For the nine months ended June 26, 2020, our weighted average borrowings that
are subject to floating rate exposure were approximately $1.39 billion. If
floating interest rates had increased by 1.00%, our interest expense for the
nine months ended June 26, 2020 would have increased by approximately $10.4
million.
Foreign Currency Risk
In situations where the Company incurs costs in currencies other than our
functional currency, we sometimes enter into foreign exchange contracts to limit
our exposure to fluctuating foreign currencies. We follow the provisions of ASC
No. 815, Derivatives and Hedging in accounting for our derivative contracts. The
Company has $388.4 million in notional value of exchange rate sensitive
instruments at June 26, 2020. See Note 19- Commitments and Contingencies and
Derivative Financial Instruments for discussion.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are those controls and procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") are recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed under the
Exchange Act is accumulated and communicated to management, including our Chair
and Chief Executive Officer (principal executive officer) and Chief Financial
Officer (principal financial officer), to allow timely decisions regarding
required disclosure.
The Company's management, with the participation of its Chair and Chief
Executive Officer (principal executive officer) and Chief Financial Officer
(principal financial officer), evaluated the effectiveness of the Company's
disclosure controls and procedures as defined by Rule 13a-15(e) of the Exchange
Act defined above, as of June 26, 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 Chief Executive Officer
(principal executive officer) and Chief Financial Officer (principal financial
officer) concluded that the Company's disclosure controls and procedures, as of
the Evaluation Date, were effective to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms and that such information is
accumulated and communicated to the Company's management, including the
Company's Chair and Chief Executive Officer (principal executive officer) and
Chief Financial Officer (principal financial officer), as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting which
were identified in connection with the evaluation required by paragraph (d) of
Rules 13a-15 and 15d-15 under the Exchange Act during the quarter ended June 26,
2020 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

                                    Page 54

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