JACOBS SOLUTIONS INC. Critical Accounting Policies and Estimates
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In order to better understand the changes that occur to key elements of our
financial condition, results of operations and cash flows, a reader of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be aware of the critical accounting policies we apply
in preparing our consolidated financial statements.
The consolidated financial statements contained in this report were prepared in
accordance with U.S. GAAP. The preparation of our consolidated financial
statements and the financial statements of any business performing long-term
professional services, engineering and construction-type contracts requires
management to make certain estimates and judgments that affect both the entity's
results of operations and the carrying values of its assets and liabilities.
Although our significant accounting policies are described in Note 2-
Significant Accounting Policies of Notes to Consolidated Financial Statements
beginning on page F-1 of this Annual Report on Form 10-K, the following
discussion is intended to highlight and describe those accounting policies that
are especially critical to the preparation of our consolidated financial
statements.
Revenue Accounting for Contracts
Engineering, Procurement & Construction Contracts and Service Contracts
On September 29, 2018 , the Company adopted ASC Topic 606, Revenue from Contracts
with Customers, including the subsequent ASUs that amended and clarified the
related guidance. The Company recognizes engineering, procurement, and
construction contract revenue over time, as performance obligations are
satisfied, due to the continuous transfer of control to the customer. Upon
adoption of ASC Topic 606, contracts which include engineering, procurement and
construction services are generally accounted for as a single deliverable (a
single performance obligation) and are no longer segmented between types of
services. In some instances, the Company's services associated with a
construction activity are limited only to specific tasks such as customer
support, consulting or supervisory services. In these instances, the services
are typically identified as separate performance obligations.
The Company recognizes revenue using the percentage-of-completion method, based
primarily on contract costs incurred to date compared to total estimated
contract costs. Estimated contract costs include the Company's latest estimates
using judgments with respect to labor hours and costs, materials, and
subcontractor costs. The percentage-of-completion method (an input method) is
the most representative depiction of the Company's performance because it
directly measures the value of the services transferred to the customer.
Subcontractor materials, labor and equipment and, in certain cases,
customer-furnished materials and labor and equipment are included in revenue and
cost of revenue when management believes that the company is acting as a
principal rather than as an agent (e.g., the company integrates the materials,
labor and equipment into the deliverables promised to the customer or is
otherwise primarily responsible for fulfillment and acceptability of the
materials, labor and/or equipment). The Company recognizes revenue, but not
profit, on certain uninstalled materials that are not specifically produced,
fabricated, or constructed for a project. Under the typical payment terms of our
engineering, procurement and construction contracts, amounts are billed as work
progresses in accordance with agreed-upon contractual terms at periodic
intervals (e.g., biweekly or monthly) and customer payments on are typically due
within 30 to 60 days of billing, depending on the contract.
For service contracts, the Company recognizes revenue over time using the
cost-to-cost percentage-of-completion method. Service contracts that include
multiple performance obligations are segmented between types of services. For
contracts with multiple performance obligations, the Company allocates the
transaction price to each performance obligation using an estimate of the
stand-alone selling price of each distinct service in the contract. In some
instances where the Company is standing ready to provide services, the Company
recognizes revenue ratably over the service period. Under the typical payment
terms of our service contracts, amounts are billed as work progresses in
accordance with agreed-upon contractual terms, and customer payments are
typically due within 30 to 60 days of billing, depending on the contract.
Direct costs of contracts include all costs incurred in connection with and
directly for the benefit of client contracts, including depreciation and
amortization relating to assets used in providing the services required by the
related projects. The level of direct costs of contracts may fluctuate between
reporting periods due to a variety of factors, including the amount of
pass-through costs we incur during a period. On those projects where we are
acting as principal for subcontract labor or third-party materials and
equipment, we reflect the amounts of such items in both revenues and costs (and
we refer to such costs as "pass-through costs").
Variable Consideration
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The nature of the Company's contracts gives rise to several types of variable
consideration, including claims and unpriced change orders; awards and incentive
fees; and liquidated damages and penalties. The Company recognizes revenue for
variable consideration when it is probable that a significant reversal in the
amount of cumulative revenue recognized will not occur. The Company estimates
the amount of revenue to be recognized on variable consideration using the
expected value (i.e., the sum of a probability-weighted amount) or the most
likely amount method, whichever is expected to better predict the amount. If the
requirements for recognizing revenue for claims or unapproved change orders are
met, revenue is recorded only when the costs associated with the claims or
unapproved change orders have been incurred and only up to the amount of cost
incurred.
Practical Expedient
If the Company has a right to consideration from a customer in an amount that
corresponds directly with the value of the Company's performance completed to
date (a service contract in which the company bills a fixed amount for each hour
of service provided), the Company recognizes revenue in the amount to which it
has a right to invoice for services performed.
Joint Ventures and VIEs
As is common to the industry, we execute certain contracts jointly with third
parties through various forms of joint ventures. Although the joint ventures own
and hold the contracts with the clients, the services required by the contracts
are typically performed by us and our joint venture partners, or by other
subcontractors under subcontracting agreements with the joint ventures. Many of
these joint ventures are formed for a specific project. The assets of our joint
ventures generally consist almost entirely of cash and receivables (representing
amounts due from clients), and the liabilities of our joint ventures generally
consist almost entirely of amounts due to the joint venture partners (for
services provided by the partners to the joint ventures under their individual
subcontracts) and other subcontractors. In general, at any given time, the
equity of our joint ventures represents the undistributed profits earned on
contracts the joint ventures hold with clients. Very few of our joint ventures
have employees or third-party debt or credit facilities. The debt held by the
joint ventures is non-recourse to the general credit of Jacobs.
Our unconsolidated joint ventures (including equity method investments) are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the investment might not be recoverable, and
impairment losses are recognized for such investments if there is a decline in
fair value below carrying value that is considered to be other-than-temporary.
Many of the joint ventures are deemed to be variable interest entities ("VIE")
because they lack sufficient equity to finance the activities of the joint
venture. The Company uses a qualitative approach to determine if the Company is
the primary beneficiary of the VIE, which considers factors that indicate a
party has the power to direct the activities that most significantly impact the
joint venture's economic performance. These factors include the composition of
the governing board, how board decisions are approved, the powers granted to the
operational manager(s) and partner that holds that position(s), and to a certain
extent, the partner's economic interest in the joint venture. The Company
analyzes each joint venture initially to determine if it should be consolidated
or unconsolidated.
•Consolidated if the Company is the primary beneficiary of a VIE, or holds the
majority of voting interests of a non-VIE (and no significant participative
rights are available to the other partners).
•Unconsolidated if the Company is not the primary beneficiary of a VIE, or does
not hold the majority of voting interest of a non-VIE.
Share-Based Payments
We measure the value of services received from employees and directors in
exchange for an award of an equity instrument based on the grant-date fair value
of the award. The computed value is recognized as a non-cash cost on a
straight-line basis over the period the individual provides services, which is
typically the vesting period of the award with the exception of the value of
awards containing an internal performance measure, such as EPS growth and ROIC,
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.
Accounting for Pension Plans
The accounting for pension plans requires the use of assumptions and estimates
in order to calculate periodic pension cost and the value of the plans' assets
and liabilities. These assumptions include discount rates, investment returns
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and projected salary increases, among others. The actuarial assumptions used in
determining the funded statuses of the plans are provided in Note 13- Pension
and Other Postretirement Benefit Plans of Notes to Consolidated Financial
Statements beginning on page F-1 of this Annual Report on Form 10-K.
The expected rates of return on plan assets ranged from 1.8% to 7% for fiscal
2021 and range from 2% to 7% fiscal 2022. We believe the range of rates selected
for fiscal 2022 reflects the long-term returns expected on the plans' assets,
considering recent market conditions, projected rates of inflation, the
diversification of the plans' assets, and the expected real rates of market
returns. The discount rates used to compute plan liabilities ranged from 0.4% to
6.6% in fiscal 2021 and range of 0.6% to 6.6% in fiscal 2022. These assumptions
represent the Company's best estimate of the rates at which its pension
obligations could be effectively settled.
Changes in the actuarial assumptions often have a material effect on the values
assigned to plan assets and liabilities, and the associated pension expense. For
example, if the discount rate used to value the net pension benefit obligation
("PBO") at October 1, 2021 was higher by 0.5%, the PBO would have been lower at
that date by approximately $229.4 million for non-U.S. plans, and by
approximately $20.5 million for U.S. plans. If the expected return on plan
assets was higher by 1.0%, the net periodic pension cost for fiscal 2021 would
be lower by approximately $21.2 million for non-U.S. plans, and by approximately
$3.4 million for U.S. plans. Differences between actuarial assumptions and
actual performance (i.e., actuarial gains and losses) that are not recognized as
a component of net periodic pension cost in the period in which such differences
arise are recorded to accumulated other comprehensive income (loss) and are
recognized as part of net periodic pension cost in future periods in accordance
with U.S. GAAP. Management monitors trends in the marketplace within which our
pension plans operate in an effort to assure the fairness of the actuarial
assumptions used.
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Redeemable Noncontrolling Interests
In connection with the PA Consulting investment, the Company recorded redeemable
noncontrolling interests, representing the interest holders' 35% equity interest
in the form of preferred and common shares of PA Consulting . The preferred
shares are entitled to a cumulative annual compounding 12% dividend based on the
outstanding preferred share subscription price. These interest holders have
certain option rights to put the preferred and common share interests back to
the Company at a value based on the fair value of PA Consulting (the redemption
values). Additionally, the Company has an option to call the interests for
certain individual shareholders in certain circumstances. Because the interests
are redeemable at the option of the holders and not solely within the control of
the Company, the Company classified the interests in redeemable noncontrolling
interests within its Consolidated Balance Sheet at their redemption values. The
optional redemption features may become exercisable no earlier than five years
from the March 2, 2021 closing date, or upon the occurrence of certain other
events.
The Company has deemed these interests probable of becoming redeemable in the
future and requiring their measurement at the greater of (i) the redemption
amount that would be paid if settlement occurred at the balance sheet date, or
(ii) the historical value resulting from the original acquisition date fair
value plus the impact of any earnings or loss attribution amounts, including
dividends. The fair value of the the PA Consulting redeemable noncontrolling
interests is determined using an income and market approach.
Further, any excess in redemption amounts over the historical values of the
interests is recognized as an increase to redeemable noncontrolling interests
and an offsetting decrease in consolidated retained earnings. Additionally,
particular to the preference share and in certain circumstances the ordinary
share components of redeemable noncontrolling interests, such decrease in
consolidated retained earnings is also reflected as a corresponding downward
adjustment to net earnings attributable to Jacobs for purposes of the
calculation of consolidated earnings per share attributable to common
shareholders.
Contractual Guarantees, Litigation, Investigations, and Insurance
In the normal course of business, we make contractual commitments, some of which
are supported by separate guarantees; and on occasion we are a party in a
litigation or arbitration proceeding. The litigation in which we are involved
primarily includes personal injury claims, professional liability claims, and
breach of contract claims. Where we provide a separate guarantee, it is strictly
in support of the underlying contractual commitment. Guarantees take various
forms including surety bonds required by law, or standby letters of credit
("LOC") (also referred to as "bank guarantees") or corporate guarantees given to
induce a party to enter into a contract with a subsidiary. Standby LOCs are also
used as security for advance payments or in various other transactions. The
guarantees have various expiration dates ranging from an arbitrary date to
completion of our work (e.g., engineering only) to completion of the overall
project. We record in the Consolidated Balance Sheets amounts representing our
estimated liability relating to such guarantees, litigation and insurance
claims. Guarantees are accounted for in accordance with ASC 460-10, Guarantees,
at fair value at the inception of the guarantee.
We maintain insurance coverage for most insurable aspects of our business and
operations. Our insurance programs have varying coverage limits depending upon
the type of insurance, and include certain conditions and exclusions which
insurance companies may raise in response to any claim that the Company brings.
We have also elected to retain a portion of losses and liabilities that occur
through the use of various deductibles, limits, and retentions under our
insurance programs. As a result, we may be subject to a future liability for
which we are only partially insured or completely uninsured. We intend to
mitigate any such future liability by continuing to exercise prudent business
judgment in negotiating the terms and conditions of the contracts which the
Company enters with its clients. Our insurers are also subject to business risk
and, as a result, one or more of them may be unable to fulfill their insurance
obligations due to insolvency or otherwise.
Our Consolidated Balance Sheets include amounts representing our probable
estimated liability relating to such claims, guarantees, litigation, audits, and
investigations. Our estimates of probable liabilities require us to make
assumptions related to potential losses regarding our determination of amounts
considered probable and estimable. We perform an analysis to determine the level
of reserves to establish for insurance-related claims that are known and have
been asserted against us, as well as for insurance-related claims that are
believed to have been incurred based on actuarial analysis, but have not yet
been reported to our claims administrators as of the respective balance sheet
dates. We include any adjustments to such insurance reserves in our consolidated
results of operations. Insurance recoveries are recorded as assets if recovery
is probable and estimated liabilities are not reduced by expected insurance
recoveries.
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The Company believes, after consultation with counsel, that such guarantees,
litigation, U.S. government contract-related audits, investigations and claims,
and income tax audits and investigations should not have a material adverse
effect on our consolidated financial statements, beyond amounts currently
accrued.
Testing Goodwill for Possible Impairment
The goodwill carried on our Consolidated Balance Sheets is tested annually for
possible impairment, and on an interim basis if indicators of possible
impairment exist. For purposes of impairment testing, goodwill is assigned to
the applicable reporting units based on the current reporting structure. In
performing the annual impairment test, we evaluate our goodwill at the reporting
unit level. The Company performs the annual goodwill impairment test for the
reporting units at the beginning of the fourth quarter of its fiscal year.
We evaluate impairment of goodwill either by assessing qualitative factors to
determine whether it is more likely than not that the fair value of our
reporting unit is less than its carrying amount, or by performing a quantitative
assessment. Qualitative factors include industry and market considerations,
overall financial performance, and other relevant events and circumstances
affecting the reporting unit. If we choose to perform a qualitative assessment
and after considering the totality of events or circumstances, we determine it
is more likely than not that the fair value of our reporting unit is less than
its carrying amount, we would perform a quantitative fair value test.
U.S. GAAP does not prescribe a specific valuation method for estimating the fair
value of reporting units. Any valuation technique used to estimate the fair
value of a reporting unit requires the use of significant estimates and
assumptions, including revenue growth rates, operating margins, discount rates
and future market conditions, among others.
We use income and market approaches to test our goodwill for possible impairment
which requires us to make estimates and judgments. Under the income approach,
fair value is determined by using the discounted cash flows of our reporting
units. The Company's discount rate reflects a weighted average cost of capital
("WACC") for a peer group of companies representative of the Company's
respective reporting units. 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.
It is possible that changes in market conditions, economy, facts and
circumstances, judgments and assumptions used in estimating the fair value could
change, resulting in possible impairment of goodwill in the future. The fair
values resulting from the valuation techniques used are not necessarily
representative of the values we might obtain in a sale of the reporting units to
willing third parties.
For the 2021 fiscal year, we have determined that the fair value of our
reporting units substantially exceeded their respective carrying values for the
Consolidated Balance Sheets presented and any analysis beyond the qualitative
level was not considered necessary.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Fiscal Years Ended
2019
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(In thousands, except per share information)
September 27,
October 1, 2021 October 2, 2020 2019
Revenues $ 14,092,632 $ 13,566,975 $ 12,737,868
Direct cost of contracts (11,048,860) (10,980,307) (10,260,840)
Gross profit 3,043,772 2,586,668 2,477,028
Selling, general and administrative expenses (2,355,683) (2,050,695) (2,072,177)
Operating Profit 688,089 535,973 404,851
Other Income (Expense):
Interest income 3,503 4,729 9,487
Interest expense (72,714) (62,206) (83,867)
Miscellaneous income (expense), net 76,724 (37,293) 20,488
Total other income (expense), net 7,513 (94,770) (53,892)
Earnings from Continuing Operations Before
Taxes 695,602 441,203 350,959
Income Tax Expense for Continuing Operations (274,781) (55,320) (36,954)
Net Earnings of the Group from Continuing
Operations 420,821 385,883 314,005
Net Earnings of the Group from Discontinued
Operations 10,008 137,984 559,214
Net Earnings of the Group 430,829 523,867 873,219
Net Earnings Attributable to Noncontrolling
Interests from Continuing Operations (39,213) (32,022) (23,045)
Net Loss Attributable to Redeemable
Noncontrolling Interests 85,414 - -
Net Earnings Attributable to Jacobs from
Continuing Operations 467,022 353,861 290,960
Net (Earnings) Attributable to Noncontrolling
Interests from Discontinued Operations - - (2,195)
Net Earnings Attributable to Jacobs from
Discontinued Operations 10,008 137,984 557,019
Net Earnings Attributable to Jacobs $ 477,030 $ 491,845 $ 847,979
Net Earnings Per Share:
Basic Net Earnings from Continuing Operations
Per Share $ 3.15 $ 2.69 $ 2.11
Basic Net Earnings from Discontinued
Operations Per Share $ 0.08 $ 1.05 $ 4.03
Basic Earnings Per Share $ 3.22 $ 3.74 $ 6.14
Diluted Net Earnings from Continuing
Operations Per Share $ 3.12 $ 2.67 $ 2.09
Diluted Net Earnings from Discontinued
Operations Per Share $ 0.08 $ 1.04 $ 4.00
Diluted Earnings Per Share $ 3.20 $ 3.71 $ 6.08
2021 Overview
COVID-19 Pandemic. There are many risks and uncertainties regarding the COVID-19
pandemic, including the anticipated duration of the pandemic and the extent of
local and worldwide social, political, and economic disruption it may cause. The
Company's operations for fiscal 2021 were adversely impacted by COVID-19. While
certain business units of Critical Mission Solutions, People & Places Solutions
and PA Consulting 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,
People & Places Solutions and PA Consulting in fiscal 2022, although to a lesser
degree than what was seen in 2021 or 2020.
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Please refer to Item 1A - Risk Factors, for a discussion of risks and
uncertainties related to COVID-19, including the potential impacts on the
Company's business, financial condition and results of operations.
Net earnings attributable to the Company from continuing operations for fiscal
2021 were $467.0 million (or $3.12 per diluted share), an increase of $113.2
million , or 32.0%, from $353.9 million (or $2.67 per diluted share) for the
prior year. Overall favorable operating profit improvements during the current
year compared to the last year benefited from our PA Consulting and Buffalo
Group investing activities in the current year as well as operating profit
results in our legacy businesses. These favorable items were offset by the
one-time impact of $261.4 million in relation to certain transaction proceeds
amounts for the PA investment required to be treated as post-completion
compensation expense due to continuing employment requirements associated with
employees of PA receiving transaction proceeds in accordance with US generally
accepted accounting principles. This required treatment had no impact on the
total purchase consideration for this investment. Additionally, included in the
Company's reported results in miscellaneous income (expense), net from
continuing operations for the year ended October 1, 2021 was $34.7 million in
pre-tax net gains associated with our investment in Worley stock (net of Worley
stock dividend), which was sold during the fourth quarter fiscal 2021, and
certain foreign currency revaluations relating to the ECR sale, as well as
pre-tax realized gains associated with our investment in C3.ai, Inc. ("C3") of
$49.6 million , which was sold during fiscal 2021, as further discussed Note 8-
Joint Ventures, VIEs and Other Investments. Further, $38.6 million in offsetting
pre-tax other-than-temporary impairment charges were recorded for our AWE
Management Ltd ("AWE") investment in fiscal 2021. In comparison, miscellaneous
income (expense), net for the corresponding 2020 period included pre-tax
earnings of $330.2 million in Restructuring and other charges and transaction
costs associated in part with the Company's fourth quarter fiscal 2020
transformation initiatives relating to real estate and other staffing programs
which are discussed in Note 17- Restructuring and Other Charges and $74.5
million in pre-tax fair value losses associated with our investment in Worley
stock (net of Worley stock dividend) and certain foreign currency revaluations
relating to the ECR sale. Income tax expense for continuing operations for
fiscal 2021 was $274.8 million , an increase of $219.5 million , or 396.7%, from
$55.3 million in the prior year. Key drivers for this year-over-year increase
include $48.7 million related to nondeductible compensation expense relating to
the PA Consulting acquisition, $25.6 million related to tax law changes enacted
in the United Kingdom , and the current year change in valuation allowance of
$38.9 million as compared to income tax benefits during fiscal 2020 of $11.3
million for the release of uncertain tax positions, $6.8 million related to
income tax rate changes, the prior year change in valuation allowance of $16.9
million , with the remaining increase related mainly to higher levels of pre-tax
income in 2021.
Net earnings attributable to Jacobs from discontinued operations for fiscal 2021
were $10.0 million (or $0.08 per diluted share), a decrease of $128.0 million ,
or 92.8%, from $138.0 million (or $1.04 per diluted share) for the prior year.
Included in net earnings attributable to the Company from discontinued
operations for the current year was the pre-tax gain amount of $15.6 million
associated with the final working capital settlement with Worley in connection
with the ECR sale during the current year. Also, the comparative 2020 year to
date period included the settlement of the Nui Phao ("NPMC") legal matter 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 and adjustments for working capital and certain other items in
connection with the ECR sale. For further discussion, see Note 16 - Sale of
Energy, Chemicals and Resources ("ECR") Business.
On March 2, 2021 , Jacobs completed the strategic investment of a 65% interest in
PA Consulting . For further discussion, see Note 14- PA Consulting Business
Combination.
On November 24, 2020 , Jacobs completed the acquisition of Buffalo Group . For
further discussion, see Note 15- Other Business Combinations.
Backlog at October 1, 2021 was $26.6 billion , up $2.8 billion , from $23.8
billion for the prior year. New prospects and new sales remain strong and the
Company continues to have a positive outlook for many of the industry groups and
sectors in which our clients operate.
Subsequent to October 1, 2021 , the Company has entered into the planning stages
for identifying certain additional leased space that it intends to abandon or
market for sublease and expects to record associated impairment charges in
fiscal 2022 upon finalization of these plans. Potential charges for these plans
are expected to approximate up to $70 million .
Results of Operations
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Fiscal 2021 Compared to Fiscal 2020
Revenues for the year ended October 1, 2021 were $14.09 billion , an increase of
$525.7 million , or 3.9%, from $13.57 billion for the prior year. The increase in
revenues was due partly to fiscal 2021 incremental revenues from the PA
Consulting investment completed in March 2021 , the Buffalo Group business
acquisition completed in November 2020 and the March 2020 John Wood Group
nuclear business acquisition. In addition, revenue growth benefited from
favorable foreign currency translation of $238.6 million for the year ended
October 1, 2021 , in our international businesses, as compared to unfavorable
impacts of $30.8 million for the corresponding period last year. The current
year benefits were partially offset by market conditions and certain contract
wind downs in our U.S. businesses and the extra week of activity in fiscal 2020.
Pass-through costs included in revenues for the year ended October 1, 2021 were
$2.38 billion , in comparison to $2.61 billion in the prior year. In general,
pass-through costs are more significant on projects that have a higher content
of field services activities. Pass-through costs are generally incurred at
specific points during the life cycle of a project and are highly dependent on
the needs of our individual clients and the nature of the clients' projects.
However, because we have hundreds of projects that start at various times within
a fiscal year, the effect of pass-through costs on the level of direct costs of
contracts can vary between fiscal years without there being a fundamental or
significant change to the underlying business.
Gross profit for the year ended October 1, 2021 was $3.04 billion , up $457.1
million , or 17.7%, from $2.59 billion for the prior year. Our gross profit
margins were 21.6% and 19.1% for the years ended October 1, 2021 and October 2,
2020 , respectively. The increase in our gross profit and gross profit margins
were mainly attributable to the recent business acquisitions mentioned along
with favorable foreign currency translation impacts in our international
businesses partially offset by market conditions and certain contract wind downs
in our U.S. businesses and the extra week of activity in fiscal 2020 as noted
above.
See Segment Financial Information discussion for further information on the
Company's results of operations at the operating segment level.
Selling, general & administrative expenses for the year ended October 1, 2021
were $2.36 billion , an increase of $305.0 million , or 14.9%, from $2.05 billion
for the prior year. The current year's results were impacted by incremental SG&A
expenses from the recent business acquisitions mentioned above and higher
personnel-related costs, partly offset by lower other operational overhead costs
and the extra week of activity in fiscal 2020. Additionally, restructuring and
other charges for fiscal 2021 were mainly attributable to post-completion
compensation expense of $261 million in connection with the investment in PA
Consulting , while fiscal 2020 included $325.1 million of restructuring and other
charges and transaction costs associated in part with the Company's fourth
quarter fiscal 2020 transformation initiatives relating to real estate and other
staffing programs. Incremental SG&A expenses from the above-mentioned business
acquisitions have been offset in part by continued reductions in
personnel-related and other overhead costs resulting from our ongoing cost
reduction programs. Unfavorable impacts on SG&A expenses from foreign exchange
were $75.9 million for the year ended October 1, 2021 as compared to nominal
favorable impacts for the corresponding period last year.
Net interest expense for the year ended October 1, 2021 was $69.2 million , an
increase of $11.7 million from $57.5 million for the prior year. The increase in
net interest expense year over year is primarily due to the higher levels of
debt outstanding in the current year as a result of the PA acquisition,
partially offset by lower interest rates.
Miscellaneous income (expense), net for the year ended October 1, 2021 was $76.7
million , an increase of $114.0 million as compared to $(37.3) million in expense
for the prior year. The increase from the prior year was due primarily to $34.7
million in pre-tax net gains associated with changes in the fair value of our
investment in Worley stock (net of Worley stock dividend) (which was sold in
fourth quarter fiscal 2021) and certain foreign currency revaluations relating
to the ECR sale in the current year, compared to pre-tax net losses of $74.5
million in the prior year. Also included in miscellaneous (expense) income
during the current year are pre-tax realized gains of $49.6 million related to
holdings of our C3 shares sold during the period, as further discussed in Note
11 - Joint Ventures, VIEs and Other Investments. These favorable impacts for
fiscal 2021 were partially offset by other-than-temporary impairment charges on
our investment in AWE in the amount of $38.6 million .
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The following table reconciles total income tax expense on continuing operations
using the statutory U.S. federal income tax rate to the consolidated income tax
expense on continuing operations shown in the accompanying Consolidated
Statements of Earnings for the years ended October 1, 2021 , October 2, 2020 and
September 27, 2019 (dollars in thousands):
For the Years Ended
October 1, October 2, September 27,
2021 % 2020 % 2019 %
Statutory amount $ 146,078 21.0 % $ 92,652 21.0 % $ 73,701 21.0 %
State taxes, net of the federal benefit 14,564 2.1 % 7,254 1.6 % 10,183 2.9 %
Exclusion of tax on non-controlling interests (7,999) (1.1) % (6,622)
(1.5) % (4,839) (1.4) %
Foreign:
Difference in tax rates of foreign operations 3,684 0.5 % (6,267) (1.4) % 1,083 0.3 % Expense/(benefit) from foreign valuation allowance change 2,148 0.3 % (16,861) (3.8) % (29,125) (8.3) % Nondeductible compensation 48,727 7.0 % - - % - - % U.S. tax cost (benefit) of foreign operations 35,228 5.1 % 42,992 9.7 % (17,760) (5.1) % Tax differential on foreign earnings 89,787 12.9 % 19,864 4.5 % (45,802) (13.1) % Foreign tax credits (25,230) (3.6) % (26,471) (6.0) % (15,682) (4.5) % Tax Rate Change 25,588 3.7 % (6,811) (1.5) % - - % Tax reform - - % - - % 36,674 10.4 % Valuation allowance 38,928 5.6 % - - % (207) (0.1) % Uncertain tax positions 978 0.1 % (11,338) (2.6) % (6,883) (2.0) % Other items: Energy efficient commercial buildings deduction (3,760) (0.5) % (7,267) (1.6) % (2,957) (0.8) % Disallowed officer compensation 6,689 1.0 % 5,081 1.2 % 5,568 1.6 % Stock compensation (9,946) (1.4) % (10,234) (2.3) % (7,864) (2.2) % Other items - net (896) (0.1) % (788) (0.2) % (4,938) (1.4) % Total other items (7,913) (1.1) % (13,208) (3.0) % (10,191) (2.8) % Taxes on income from continuing operations$ 274,781 39.5 %$ 55,320 12.5 %$ 36,954 10.5 % The Company's consolidated effective income tax rate for the year endedOctober 1, 2021 increased to 39.5% from 12.5% for fiscal 2020. Key drivers for this year-over-year increase in the effective tax rate include impacts from$261 million in nondeductible compensation relating to the PA investment post-completion compensation expense,$25.6 million related to tax law changes enacted in theUnited Kingdom , and the current year change in valuation allowance of$38.9 million as compared to income tax benefits during fiscal 2020 of$11.3 million for the release of uncertain tax positions,$6.8 million related to income tax rate changes, the prior year change in valuation allowance of$16.9 million , with the remaining increase related mainly to higher levels of pre-tax income in 2021. Page 57 -------------------------------------------------------------------------------- Segment Financial Information The following tables present total revenues and segment operating profit for each reportable segment (in thousands) and includes a reconciliation of segment operating profit to totalU.S. GAAP operating profit by including certain corporate-level expenses and expenses relating to the restructuring other charges (as defined in Note 17- Restructuring and Other Charges) and transaction costs (in thousands). For the Years Ended September 27, October 1, 2021 October 2, 2020 2019 Revenues from External Customers: Critical Mission Solutions$ 5,087,052 $ 4,965,952 $ 4,551,162 People & Places Solutions 8,378,179 8,601,023 8,186,706 PA Consulting 627,401 - - Total$ 14,092,632 $ 13,566,975 $ 12,737,868 For the Years Ended October 1, 2021 October 2, 2020 September 27, 2019 Segment Operating Profit: Critical Mission Solutions$ 447,161 $ 372,070 $ 310,043 People & Places Solutions (1) 780,380 740,707 714,394 PA Consulting 151,071 - - Total Segment Operating Profit 1,378,612 1,112,777 1,024,437 Other Corporate Expenses (2) (340,129) (249,391) (264,351) Restructuring, Transaction and Other Charges (3) (350,394) (327,413) (355,235) Total U.S. GAAP Operating Profit 688,089 535,973 404,851 Total Other Income (Expense), net (4) 7,513 (94,770) (53,892) Earnings from Continuing Operations Before Taxes$ 695,602 $ 441,203 $ 350,959 (1)Includes$19.5 million , net, in charges related to a legal settlement for the year endedOctober 1, 2021 and$25.0 million in charges associated with a certain project for the year endedSeptember 27, 2019 . (2)Other corporate expenses include intangibles amortization of$149.8 million ,$90.6 million and$79.1 million for the years endedOctober 1, 2021 ,October 2, 2020 andSeptember 27, 2019 , respectively. Also includes costs that were previously allocated to the ECR segment prior to discontinued operations presentation in connection with the ECR sale in the approximate amount of$14.8 million for the year endedSeptember 27, 2019 . (3)Included in the year endedOctober 1, 2021 is$297.8 million of costs incurred in connection with the investment inPA Consulting , in part classified as compensation costs. (4)The years endedOctober 1, 2021 ,October 2, 2020 andSeptember 27, 2019 include$34.7 million ,$(74.3) million and$(64.8) million in fair value adjustments related to our investment in Worley stock (net of Worley stock dividends) (sold during the current year) and certain foreign currency revaluations relating to ECR sale proceeds, respectively and revenues under the Company'sTSA with Worley of$0.2 million ,$15.8 million and$35.4 million , respectively. The year endedOctober 1, 2021 includes$38.6 million related to impairment of ourAWE Management Ltd. investment and$49.6 million in fair value adjustments related to our investment in C3 stock. Lastly, includes gain on settlement of theCH2M retiree medical plans of$35.0 million for the year endedSeptember 27, 2019 . Page 58 -------------------------------------------------------------------------------- In evaluating the Company's performance by operating segment, the CODM reviews various metrics and statistical data for each Line Of Business ("LOB") andPA Consulting , but focuses primarily on revenues and operating profit. As discussed above, segment operating profit includes not only local SG&A expenses but the SG&A expenses of the Company's support groups that have been allocated to the segments. In addition, the Company attributes each segment's specific incentive compensation plan costs to the segments. The revenues of the People & Places Solutions LOB are more affected by pass-through revenues than the Critical Mission Solutions LOB or thePA Consulting segment. The methods for recognizing revenue, incentive fees, project losses and change orders are consistent among the segments.
Critical Mission Solutions
For the Years Ended
October 1, 2021 October 2, 2020 September 27, 2019
Revenue $ 5,087,052 $ 4,965,952 $ 4,551,162
Operating Profit $ 447,161 $ 372,070 $ 310,043
Critical Mission Solutions (CMS) segment revenues for the year ended October 1,
2021 were $5.09 billion , up $121.1 million , or 2.4%, from $4.97 billion for the
prior year. Our increase in revenue was primarily attributable to incremental
revenue from the Buffalo Group and John Wood Group nuclear business
acquisitions. There was also comparable revenue growth from most elements of our
legacy portfolio, driven by increased spending by customers in the U.S.
government business sector and our legacy international clients, mitigated by
several large contracts winding down in the U.S. and one less week of activity
as compared to fiscal year end 2020. Impacts on revenues from favorable foreign
currency translation were approximately $61.8 million for the year ended
October 1, 2021 , compared to $4.5 million in unfavorable impacts in the
corresponding prior year.
Operating profit for the segment was $447.2 million for the year ended
October 1, 2021 , up $75.1 million , or 20.2%, from $372.1 million for the prior
year. The increases from the prior year were primarily attributable to
incremental operating profit from the Buffalo Group and John Wood Group nuclear
business acquisitions, and the continued growth in profits from our U.S.
governmental business sector and our legacy international business. Impacts on
operating profit from favorable foreign currency translation were approximately
$9.7 million for the year ended October 1, 2021 , compared to $0.4 million in
unfavorable impacts in the corresponding prior year.
People & Places Solutions
For the Years Ended
October 1, 2021 October 2, 2020 September 27, 2019
Revenue $ 8,378,179 $ 8,601,023 $ 8,186,706
Operating Profit $ 780,380 $ 740,707 $ 714,394
Revenues for the People & Places Solutions (P&PS) segment for the year ended
October 1, 2021 were $8.38 billion , down $222.8 million , or 2.6%, from $8.60
billion for the prior year. The decrease in revenue was driven by softer market
conditions in our advanced facilities business and one less week of activity
during fiscal year ended October 1, 2021 , as compared to the prior year. These
items were partially offset by $176.8 million in favorable foreign currency
translation in our international business for the year ended October 1, 2021 ,
compared to $26.2 million in unfavorable impacts in the corresponding prior
year.
Operating profit for the segment for the year ended October 1, 2021 was $780.4
million , an increase of $39.7 million , or 5.4%, from $740.7 million for the
comparative period in 2020. The year-over-year increase is primarily related to
lower spend on travel, discretionary operating expenditures and other operating
expenditures and real estate transformation initiatives enacted in fiscal year
2020. Impacts on operating profit from favorable foreign currency translation
were approximately $30.9 million for the year ended October 1, 2021 , compared to
$6.1 million in unfavorable impacts in the corresponding prior year. In
addition, these were partially offset by $19.5 million in net charges related to
a legal settlement for the year ended October 1, 2021 .
Page 59
--------------------------------------------------------------------------------PA Consulting For the Years Ended October 1, 2021 October 2, 2020 September 27, 2019 Revenue$ 627,401 $ - $ - Operating Profit$ 151,071 $ - $ - Revenues and operating profit for thePA Consulting segment for the year endedOctober 1, 2021 were$627.4 million and$151.1 million , respectively. There were no comparable periods in the prior year, given the transaction closed onMarch 2, 2021 . Other Corporate Expenses Other corporate expenses were$340.1 million ,$249.4 million and$264.4 million for the years endedOctober 1, 2021 ,October 2, 2020 andSeptember 27, 2019 , respectively. The increase from fiscal 2020 to fiscal 2021 was due primarily to higher intangible amortization expense from thePA Consulting investment and theBuffalo Group 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 that relate to general corporate activities as well as corporate-managed benefit and insurance programs. Such costs and expenses include: (i) those elements of SG&A expenses relating to the business as a whole; (ii) those elements of our incentive compensation plans relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of business combinations; (iv) the quarterly variances between the Company's actual costs of certain of its self-insured integrated risk and employee benefit programs and amounts charged to the LOBs; and (v) certain adjustments relating to costs associated with the Company's international defined benefit pension plans. In addition, other corporate expenses may also include from time to time certain adjustments to contract margins (both positive and negative) associated with projects, as well as other items, where it has been determined that such adjustments are not indicative of the performance of the related LOB. Restructuring and Other Charges For discussion regarding restructuring and other charges, see Note 17- Restructuring and Other Charges to the Consolidated Financial Statements. 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 Operations & Maintenance ("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 ourU.S. government work. While management uses all information available to it to determine backlog, at any given time our backlog is subject to changes in the scope of services to be provided as well as increases or decreases in costs relating to the contracts included therein. Backlog is not necessarily an indicator of future revenues. Because certain contracts (e.g., contracts relating to large Engineering, Procurement & Construction ("EPC") projects as well as national government programs) can cause large increases to backlog in the fiscal period in which we recognize the award, and because many of our contracts require us to provide services that span over several fiscal quarters (and sometimes over fiscal years), we evaluate our backlog generally on a year-over-year basis, but also on a sequential, quarter-over-quarter basis, where appropriate. Page 60 -------------------------------------------------------------------------------- Please refer to Item 1A- Risk Factors, above, for a discussion of other factors that may cause backlog to ultimately convert into revenues at different amounts. The following table summarizes our backlog for the years endedOctober 1, 2021 ,October 2, 2020 andSeptember 27, 2019 (in millions): October 1, 2021 October 2, 2020 September 27, 2019 Critical Mission Solutions $ 10,589 $ 9,104 $ 8,460 People & Places Solutions 15,738 14,714 14,109 PA Consulting 304 - - Total $ 26,631 $ 23,818 $ 22,569 The increase in backlog in Critical Mission Solutions for the years presented was primarily the result of the acquisition ofBuffalo Group and conversion of the other robust CMS pipeline. The increase in backlog in People & Places Solutions for the years presented was primarily the result of new awards in theU.K. andU.S. markets. Backlog inPA Consulting as ofOctober 1, 2021 was$303.6 million .The PA Consulting transaction closed onMarch 2, 2021 . Backlog relating to work to be performed either directly or indirectly for theU.S. federal government and its agencies totaled approximately$10.8 billion (or 40.5% of total backlog),$8.5 billion (or 35.7% of total backlog) and$8.8 billion (or 39.1% of total backlog) atOctober 1, 2021 ,October 2, 2020 andSeptember 27, 2019 , respectively. Most of our federal government contracts require that services be provided beyond one year. In general, these contracts must be funded annually (i.e., the amounts to be spent under the contract must be appropriated by theU.S. Congress to the procuring agency, and then the agency must allot these sums to the specific contracts). We estimate that approximately$8.50 billion , or 31.9%, of total backlog atOctober 1, 2021 will be realized as revenues within the next fiscal year. Consolidated backlog differs from the Company's remaining performance obligations as defined by ASC 606 primarily because of our national government contracts (other than national government O&M contracts). Our policy is to include in backlog the full contract award, whether funded or unfunded excluding the option periods while our remaining performance obligations represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. Additionally, the Company includes our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligations. For a discussion on the year endedOctober 2, 2020 compared to the year endedSeptember 27, 2019 , please refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedOctober 2, 2020 . Liquidity and Capital Resources AtOctober 1, 2021 , our principal sources of liquidity consisted of$1.01 billion in cash and cash equivalents and$1.92 billion of available borrowing capacity under our$2.25 billion revolving credit agreement (the "Revolving Credit Facility"). We finance much of our operations and growth through cash generated by our operations. The amount of cash and cash equivalents atOctober 1, 2021 represented an increase of$151.8 million from$862.4 million atOctober 2, 2020 , the reasons for which are described below. Our cash flow provided by operations of$726.3 million during fiscal 2021 was comparatively lower than the$806.8 million in cash flow provided by operations for the prior year. This change was due primarily to unfavorable impacts from net cash earnings driven by$261 million in cash used associated withPA Consulting post-completion compensation payments made during the year. These payments were offset in part by overall improved working capital performance, driven by favorability in accounts receivable collection trends partly offset by payments of certain costs deferred from the 2020 COVID assistance programs in theU.S andEurope . Page 61 -------------------------------------------------------------------------------- Our cash used for investing activities for fiscal 2021 of$1.38 billion was comparatively higher than the$429.1 million cash used for investing activities for the prior year. The increase was due primarily to theBuffalo Group acquisition and our investment inPA Consulting during fiscal 2021, partially offset by proceeds received from the Company's disposal of the Worley and C3 investments and the final ECR sale working capital settlement. Investing activities during the prior year were largely associated with the acquisition of John Wood Group's nuclear business of$293.6 million . Our cash provided by financing activities for the fiscal year ended 2021 of$799.0 million resulted mainly from net proceeds from borrowings of$1.22 billion mainly in connection with thePA Consulting investment, offset by cash used for share repurchases of$274.9 million and$156.0 million in dividends to shareholders and non-controlling interests. Cash used for financing activities was$208.3 million in fiscal 2020 and resulted mainly from common stock repurchases of$337.3 million and dividend payments to both shareholders and non-controlling interests of$144.0 million , offset by net proceeds from borrowings of$265.3 million . AtOctober 1, 2021 , the Company had approximately$140.4 million in cash and cash equivalents held in theU.S. and$873.9 million held outside of theU.S. (primarily in theU.K. , theEurozone ,Australia ,India ,Japan and theUnited Arab Emirates ), which is used primarily for funding operations in those regions. Other than the tax cost of repatriating funds to theU.S. (see Note 7- Income Taxes of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K), there are no material impediments to repatriating these funds to theU.S. OnNovember 19, 2021 , Jacobs consummated its previously announced acquisition of BlackLynx ("BlackLynx"). Pursuant to and subject to the terms and conditions of Agreement and Plan of Merger (the "Merger Agreement"), Jacobs acquired all of BlackLynx's outstanding shares of common stock, in a transaction valued at up to$257.5 million , on a cash-free, debt-free basis, including base consideration of$250 million , and a potential earn-out payment of up to$7.5 million . The amount of any earnout payment will depend on BlackLynx achieving certain revenue and gross margin thresholds in calendar year 2022. The purchase price was paid in cash and is subject to customary post-closing adjustments. OnMarch 2, 2021 , Jacobs completed the strategic investment of a 65% interest inPA Consulting , aUK -based leading innovation and transformation consulting firm. The total consideration paid by the Company was$1.7 billion, funded through cash on hand, a new term loan and draws on the Company's existing revolver. The remaining 35% interest is held byPA Consulting employees. See Note 14- PA Consulting Business Combination for more discussion on the investment and Note 9- Borrowings for more discussion on the financing for the transaction. OnJanuary 20, 2021 , the Company entered into an unsecured delayed draw term loan facility (the "2021 Term Loan Facility") with a syndicate of financial institutions as lenders. Under the 2021 Term Loan Facility, the Company borrowed an aggregate principal amount of$200.0 million and £650.0 million. The proceeds of the term loans were used primarily to fund the investment inPA Consulting . The 2021 Term Loan Facility contains affirmative and negative covenants and events of default customary for financings of this type that are consistent with those included in the Revolving Credit Facility and the Company's unsecured term loan facility datedMarch 25, 2020 (the "2020 Term Loan Facility"). The 2020 Term Loan Facility and the 2021 Term Loan Facility are together referred to as the "Term Loan Facilities". OnNovember 24, 2020 , a subsidiary of Jacobs completed the acquisition ofBuffalo Group , a leader in advanced cyber and intelligence solutions which allows Jacobs to further expand its cyber and intelligence solutions offerings to government clients. The Company paid total consideration of$190.1 million , which was comprised of approximately$182.4 million in cash to the former owners ofBuffalo Group and contingent consideration of$7.7 million which was expected to be settled in fiscal 2022. See Note 15- Other Business Combinations for further discussion. The Company had$263.8 million in letters of credit outstanding atOctober 1, 2021 . Of this amount,$1.7 million was issued under the Revolving Credit Facility and$262.1 million was issued under separate, committed and uncommitted letter-of-credit facilities. 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 and discretionary spend controls will allow us to continue managing the negative impacts of the COVID-19 pandemic on our business operations for the foreseeable future. We will continue to evaluate the impact of the pandemic on our business and reassess accordingly. We were in compliance with all of our debt covenants atOctober 1, 2021 . Page 62 --------------------------------------------------------------------------------
Contractual Obligations
The following table sets forth certain information about our contractual
obligations as of
Payments Due by Fiscal Period
More than 5
Total 1 Year or Less 1 - 3 Years 3 - 5 Years Years
Debt obligations $ 2,898,458 $ 53,456 $ 1,409,518 $ 1,125,484 $ 310,000
Interest (1) 224,021 56,523 96,584 37,261 33,653
Operating leases 1,025,873 194,981 316,535 234,192 280,165
Unfunded portion of defined benefit
pension plans (2) 191,444 24,820 52,658 56,955 57,011
Obligations under nonqualified deferred
compensation plans (3) 209,912 32,675 69,323 74,980 32,934
Purchase obligations (4) 3,171,289 2,411,949 759,340 - -
Total $ 7,720,997 $ 2,774,404 $ 2,703,958 $ 1,528,872 $ 713,763
(1)Determined based on borrowings outstanding at the end of fiscal 2021 using
the interest rates in effect at that time, considering the effects of interest
rate swap agreements, and for our outstanding long-term debt, concluding with
the expiration date of the debt facilities as defined below.
(2)Assumes that future contributions will be consistent with amounts contributed
in fiscal 2021, allowing for certain growth based on rates of inflation and
salary increases, but limited to the amount recorded as of October 1, 2021 .
Actual contributions will depend on a variety of factors, including amounts
required by local laws and regulations, and other funding requirements.
(3)Assumes that future payments will be consistent with amounts paid in fiscal
2021. Due to the non-qualified nature of the plans, and the fact that benefits
are based in part on years of service, the payments included in the schedule
were limited to the amount recorded as of October 1, 2021 .
(4)Represents those liabilities estimated to be under firm contractual
commitments as of October 1, 2021 ; primarily accounts payable, accrued payroll
and accrued dividends.
Effects of Inflation and Changing Prices
The effects of inflation and changing prices on our business is discussed in
Item 1A- Risk Factors, and is incorporated herein by reference.
Off-Balance Sheet Arrangements
We are party to financial instruments with off-balance sheet risk in the form of
guarantees not reflected in our balance sheet that arise in the normal course of
business. However, such off-balance sheet arrangements are not reasonably likely
to have a material adverse effect on our financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or resources.
See Note 18- Commitments and Contingencies and Derivative Financial Instruments
of Notes to Consolidated Financial Statements beginning on page F-1 of this
Annual Report on Form 10-K.
New Accounting Pronouncements
ASU 2017-04, Simplifying the Test for Goodwill Impairment, is effective for
fiscal years beginning after December 15, 2019 . ASU 2017-04 removed the second
step of the goodwill impairment test, which requires a hypothetical purchase
price allocation. An entity will now recognize a goodwill impairment charge for
the amount by which a reporting unit's carrying value exceeds its fair value,
not to exceed the amount of goodwill allocated to the reporting unit. The
adoption of ASU 2017-04 had no impact on the Company's financial position,
results of operations or cash flows.
ASU No. 2016-13, Financial Instruments - Credit Losses ("ASC 326"): Measurement
of Credit Losses on Financial Instruments requires entities to use a current
lifetime expected credit loss methodology to measure impairments of certain
financial assets. Using this methodology will result in earlier recognition of
losses than under the current incurred loss approach, which requires waiting to
recognize a loss until it is probable of having been incurred. There are other
provisions within the standard that affect how impairments of other financial
assets may be recorded and presented, and that expand disclosures. This standard
was effective beginning with the first fiscal quarter 2021. The adoption of ASU
326 did not have a material impact on the Company's financial position, results
of operations or cash flows.
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