JACOBS SOLUTIONS INC. 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 April 2, 2021 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
2020 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 2020 Form 10-K;
•The Company's fiscal 2020 audited consolidated financial statements and notes
thereto included in our 2020 Form 10-K; and
•Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations included in our 2020 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 2021 or future fiscal years
and the anticipated benefits of the strategic partnership with PA Consulting .
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; the development, effectiveness and distribution of vaccines or
treatments for COVID-19; the timing and scope of any government stimulus
programs enacted in response to the impacts of the COVID-19 pandemic, including,
but not limited to, any proposed infrastructure-related stimulus programs and
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 or changes to governmental
budgetary priorities; 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 2020 Form 10-K and our
Quarterly Reports 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
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.
As it became clear that the pandemic was unparalleled in the rate of community
spread, we took early, decisive action to put people first, help flatten the
curve and take care of our clients and communities. In early March 2020 , we
swiftly restricted travel and established return protocols for both
client-related and personal travel. In 10 days, we successfully transitioned
more than 85% of our employees to a remote working environment to support
physical distancing. Where the essential and mission-critical nature of our work
requires us to maintain staff at certain sites or locations, we worked closely
with our clients and established project-specific plans designed to ensure the
safety of our people and the integrity of our operations. Using technology and
optimizing our networks, we continue to offer flexible work scenarios for our
people, and to deliver business continuity for and continued collaboration with
our clients. Our Executive Leadership Team met daily for the first three months
and weekly thereafter, focusing on transparency, agile response and business
resiliency; and our global and regional crisis management teams continued to
maintain consistent messaging and direct local responses. Our regular global
Town Halls, a weekly Chair and CEO email and short, self-produced leadership
videos are intended to share open, transparent information to connect and unite
our global community.
We are a company operating in a critical infrastructure industry, as defined by
the U.S. Department of Homeland Security . Consistent with international,
federal, state and local requirements to date, we continue to materially
operate. In addition, demand for certain of our services, including those
supporting health care relief efforts relating to COVID-19, has increased, and
could continue to increase, as a result of COVID-19. Notwithstanding our
continued critical operations, COVID-19 has negatively impacted our business,
and may have further adverse impacts, on our continued operations, including
those listed and discussed in Item 1A, Risk Factors included in our 2020 Form
10-K. Accordingly, we have reduced spending broadly across the Company, only
proceeding with operating and capital spending that is critical. We also
temporarily ceased all non-essential hiring and reduced discretionary expenses,
including temporarily suspending certain employee benefits and compensation
through the end of fiscal 2020. 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
throughout fiscal 2021, although to a lesser degree than what was seen in fiscal
2020. Although this business disruption is expected to be temporary, significant
uncertainty exists concerning the magnitude, duration and impacts of the
COVID-19 pandemic, including with regard to the effects on our customers and
customer demand for our services. Accordingly, actual results for future fiscal
periods could differ materially versus current expectations and current results
and financial condition discussed herein may not be indicative of future
operating results and trends.
For a discussion of risks and uncertainties related to COVID-19, including the
potential impacts on our business, financial condition and results of
operations, see Item 1A - Risk Factors contained in our 2020 Form 10-K.
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.
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We operate in three lines of business: Critical Mission Solutions, People &
Places Solutions and our new investment in
Revenue by Type (Q2 FY2021)1
[[Image Removed: jec-20210402_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 remainder of fiscal
2021.
Lines of Business
The Company's three operating segments and global lines of business ("LOBs") are
as follows: (i) Critical Mission Solutions, (ii) People & Places Solutions and
(iii) the new investment in PA Consulting .
Critical Mission Solutions (CMS)
Our Critical Mission Solutions line of business provides a full spectrum of
cyber, data analytics, systems and software application integration services and
consulting, enterprise level operations and maintenance and mission IT,
engineering and design, enterprise operations and maintenance, program
management, and other highly technical consulting solutions to government
agencies as well as commercial customers and international markets. Across
multiple businesses within CMS, we license internally developed technology such
as KeyRadar®, Ginkgo and ion©.
Our representative clients include the U.S. Department of Defense (DoD ), the
Combatant Commands, the U.S. Intelligence Community , NASA, the U.S. Department
of Energy (DoE), Ministry of Defence in the U.K. , Nuclear Decommissioning
Authority (NDA), and the Australian Department of Defence , as well as private
sector customers mainly in the aerospace, automotive, energy and telecom
sectors.
Within the nuclear sector, our customers have decades-long initiatives to
manage, upgrade, decommission and remediate existing energy infrastructure.
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The U.S. government is the world's largest buyer of technical services, and in
fiscal 2020, approximately 79% of CMS's revenue was earned from serving the DoD ,
intelligence community and federal civilian governmental entities. In fiscal
2020, approximately 8% of CMS's revenue was from various U.S. commercial
sectors, including the telecommunications sector, which anticipates a large
cellular infrastructure build-out from 4G to 5G technology. Our international
customers, which accounted for 13% of fiscal 2020 revenue, have also increased
demand for our IT and cybersecurity solutions and nuclear projects, and the U.K.
Ministry of Defence continues to focus on accelerating its strategic innovative
and technology focused initiatives.
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, integrated
water management, smart cities, advanced manufacturing or environmental
stewardship. In doing so, we employ predictive analytics, artificial
intelligence and automation, digital twin technology, IoT smart sensors,
geospatial visualization and advanced delivery processes and tools for
consulting, planning, architecture, design, engineering, and implementation, as
well as long-term operation of 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. We also provide
progressive design-build and construction management at-risk delivery for our
clients.
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 multinational
private sector clients throughout the world.
PA Consulting
Jacobs recently completed a strategic investment of a 65% interest in PA
Consulting , an innovation and transformation consultancy which takes clients
from an idea through prototype to market and enables those clients to achieve
meaningful and enduring results. PA Consulting clients benefit from diverse
teams specializing in defense and security, consumer and manufacturing, energy
and utilities, financial services, government, health and life sciences, and
transport. PA Consulting has capabilities in agile transformation and delivery,
artificial intelligence and automation, business design, cyber security and
digital trust, data analytics and business intelligence, digital, IT
transformation, operational excellence, people and talent, program and portfolio
management, product design and engineering, and strategy. PA Consulting is
headquartered in the UK , and its strategists, digital experts, consultants,
designers, scientists, technologists and engineers work across a range of
industries in the UK , US, Europe and the Nordics.
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 September 27, 2019 . As of the year
ended October 2, 2020 , all of the ECR business to be sold under the terms of the
ECR sale had been conveyed to Worley and as such, no amounts remain held for
sale. For further discussion see Note 17- Sale of Energy, Chemicals and
Resources ("ECR") Business to the consolidated financial statements.
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Results of Operations for the three and six months ended
For the Three Months Ended For the Six Months Ended
April 2, 2021 March 27, 2020 April 2, 2021 March 27, 2020
Revenues $ 3,547,873
(2,780,860) (2,779,045) (5,530,636) (5,494,522)
Gross profit 767,013 648,135 1,399,072 1,292,707
Selling, general and administrative expenses (808,125) (480,357) (1,226,246) (973,582)
Operating (Loss) Profit (41,112) 167,778 172,826 319,125
Other Income (Expense):
Interest income 608 985 1,732 1,931
Interest expense (15,464) (15,154) (32,777) (29,971)
Miscellaneous (expense) income, net (56,313) (330,414) 100,047 (213,719)
Total other (expense) income, net (71,169) (344,583) 69,002 (241,759)
(Loss) Earnings from Continuing Operations
Before Taxes (112,281) (176,805) 241,828 77,366
Income Tax Benefit (Expense) from Continuing
Operations 20,772 61,122 (66,250) (7,368)
Net (Loss) Earnings of the Group from
Continuing Operations (91,509) (115,683) 175,578 69,998
Net Earnings of the Group from Discontinued
Operations 11,320 29,880 11,305 107,468
Net (Loss) Earnings of the Group (80,189) (85,803) 186,883 177,466
Net Earnings Attributable to Noncontrolling
Interests from Continuing Operations (10,158) (6,284) (20,184) (12,540)
Net Loss Attributable to Redeemable
Noncontrolling interests 101,392 - 101,392 -
Net (Loss) Earnings Attributable to Jacobs from
Continuing Operations (275) (121,967) 256,786 57,458
Net Earnings (Loss) Attributable to Jacobs $ 11,045 $ (92,087) $ 268,091 $ 164,926
Net Earnings Per Share:
Basic Net (Loss) Earnings from Continuing
Operations Per Share $ -
$ (0.92)
$ 0.09
$ 0.23
$ 0.08
$ (0.69)
Diluted Net (Loss) Earnings from Continuing Operations Per Share $ -
$ (0.92)
$ 0.09
$ 0.23
$ 0.08 $ (0.69) $ 2.04 $ 1.23
Page 42-------------------------------------------------------------------------------- Overview - Three and Six Months EndedApril 2, 2021 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 second fiscal quarter of 2021 were adversely impacted by COVID-19. While certain business units ofCritical 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 and People & Places Solutions continuing into fiscal 2021, although to a lesser degree than what was seen in fiscal 2020. 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 I - Item 1A - Risk Factors" of our 2020 Form 10-K. Net (loss) earnings attributable to the Company from continuing operations for the second fiscal quarter endedApril 2, 2021 were$(0.3) million (or$0.00 per diluted share), an increase of$121.7 million , or 99.8%, from net losses of$(122.0) million (or$(0.92) per diluted share) for the corresponding period last year. Included in the Company's operating results from continuing operations for the three months endedApril 2, 2021 were$21.8 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 and after-tax fair value losses associated with our investment in C3.ai, Inc. ("C3") of$35.1 million . These losses were partially offset by the after-tax realized gain of$9.5 million related to holdings of our C3 shares sold during the period as further discussed in Note 11- Joint Ventures, VIEs and Other Investments. In addition, the current period selling, general and administrative expense includes after-tax costs incurred in connection with the investment inPA Consulting , in part classified as compensation costs of$292.0 million . In comparison, the corresponding period in the prior year included$258.6 million in after-tax fair value losses associated with our investment in Worley stock (net of Worley stock dividend) and certain foreign currency revaluations relating to the ECR sale. Net earnings attributable to the Company from discontinued operations for the second fiscal quarter endedApril 2, 2021 were$11.3 million (or$0.09 per diluted share), a decrease of$18.6 million , or 62.1%, from earnings of$29.9 million (or$0.23 per diluted share) for the corresponding period last year. Included in net earnings attributable to Jacobs from discontinued operations for the current quarter was the final working capital settlement with Worley, partially offset by accounts receivable from Worley. Included in the prior year period was the recognition of the deferred gain for the delayed conveyance of the international entities and adjustments for working capital and certain other items in connection with the ECR sale. For further discussion, see Note 17- Sale of Energy, Chemicals and Resources ("ECR") Business. For the six months endedApril 2, 2021 , net earnings attributable to the Company from continuing operations were$256.8 million (or$1.96 per diluted share), an increase of$199.3 million , or 346.9%, from$57.5 million (or$0.43 per diluted share) for the corresponding period last year. Included in the Company's operating results from continuing operations for the six months endedApril 2, 2021 were$48.5 million in after-tax unrealized appreciation gains recorded in miscellaneous income (expense), net, associated with our investment in Worley stock (net of Worley stock dividend) and certain foreign currency revaluations relating to the ECR sale and after-tax unrealized appreciation gains associated with our investment in C3.ai, Inc. ("C3") of$27.2 million in addition to the after-tax realized gain of$9.5 million related to holdings of our C3 shares sold during the period as further discussed Note 11 - Joint Ventures, VIEs and Other Investments. Also included in other income for the period was a$26.9 million after-tax other-than-temporary impairment in respect of our AWE investment. In addition, the current year to date period selling, general and administrative expense includes after-tax costs incurred in connection with the investment inPA Consulting , in part classified as compensation costs, of$295.1 million . In comparison, the corresponding period in the prior year included$183.7 million in after-tax fair value losses associated with our investment in Worley stock (net of Worley stock dividend) and certain foreign currency revaluations relating to the ECR sale. For the six months endedApril 2, 2021 , net earnings attributable to the Company from discontinued operations were$11.3 million (or$0.09 per diluted share), a decrease of$96.2 million , or 89.5%, from$107.5 million (or$0.80 per diluted share) for the corresponding period last year. Included in net earnings attributable to Jacobs from discontinued operations for the current year to date period was the final working capital settlement with Worley, partially offset by accounts receivable from Worley. The prior 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 Page 43 -------------------------------------------------------------------------------- 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 17 - Sale of Energy, Chemicals and Resources ("ECR") Business. OnMarch 2, 2021 , Jacobs completed the strategic investment of a 65% interest inPA Consulting . For further discussion, see Note 15 - PA Consulting Business Combination. OnNovember 24, 2020 , Jacobs completed the acquisition ofBuffalo Group . For further discussion, see Note 16- Other Business Combinations. Consolidated Results of Operations Revenues for the second fiscal quarter of 2021 were$3.55 billion , an increase of$120.7 million , or 3.5% from$3.43 billion for the corresponding period last year. For the six months endedApril 2, 2021 , revenues were$6.93 billion , an increase of$142.5 million , or 2.1%, from$6.79 billion for the corresponding period last year. The increase in revenues for the year over year periods was due mainly to fiscal 2021 incremental revenues from thePA Consulting investment and theBuffalo Group and John Wood Group Nuclear business acquisitions, offset in part by impacts from the COVID 19 pandemic on our P&PS business, which resulted in a decrease to P&PS revenues period over period. Pass-through costs included in revenues for the three and six months endedApril 2, 2021 amounted to$576.6 million and$1.23 billion , respectively, a decrease of$64.8 million and$117.8 million , or 10.1% and 8.8%, from$641.4 million and$1.34 billion from the corresponding periods last year. Gross profit for the second quarter of 2021 was$767.0 million , an increase of$118.9 million , or 18.3%, from$648.1 million from the corresponding period last year. Our gross profit margins were 21.6% and 18.9% for the three months endedApril 2, 2021 andMarch 27, 2020 , respectively, with these trend differences being mainly attributable to favorable margin trends from our recentPA Consulting investment and theBuffalo Group and John Wood Group nuclear business acquisitions, offset in part by project mix impacts in our legacy portfolio year over year and lower overhead rate impacts on revenue resulting from our ongoing cost reduction programs partially offset by COVID-19 cost mitigation efforts. Gross profit for the six months endedApril 2, 2021 was$1.40 billion , an increase of$106.4 million , or 8.2%, from$1.29 billion from the corresponding period to date last year. Our gross profit margins were 20.2% and 19.0% for the six months endedApril 2, 2021 andMarch 27, 2020 , respectively, with these trend differences being mainly attributable to the legacy portfolio mix and lower overhead rate impacts mentioned above, along with favorable margin trends from our recent acquisitions and investment inPA Consulting . 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 and six months endedApril 2, 2021 were$808.1 million and$1.23 billion , respectively, an increase of$327.8 million and$252.7 million , or 68.2% and 26.0%, from$480.4 million and$973.6 million for the corresponding periods last year. Included in the current year's three and six months ended results were$321.5 million and$343.5 million , respectively, of restructuring and other charges and transaction costs primarily comprised of$296.1 million and$300.2 million in the respective periods for pre-tax costs incurred in connection with the investment inPA Consulting , in part classified as compensation costs, in addition to the Company's transformation initiatives relating to real estate and other staffing programs and the Company's impairment of its AWE investment. In comparison, the three and six months endedMarch 27, 2020 included$44.4 million and$95.1 million of Restructuring and other charges and transaction costs. Incremental SG&A expenses from thePA Consulting investment and theBuffalo Group and John Wood Group nuclear business acquisitions have been offset in part by continued reductions in personnel-related and other overhead costs resulting from our ongoing cost reduction programs, as well as COVID-19 cost mitigation efforts. Unfavorable impacts on SG&A expenses from foreign exchange were$43.9 million and$50.0 million , respectively, for the three and six months endedApril 2, 2021 . Net interest expense for the three and six months endedApril 2, 2021 was$14.9 million and$31.0 million , respectively, an increase of$0.7 million and$3.0 million from$14.2 million and$28.0 million for the corresponding periods last year. The increase in net interest expense for the three and six month periods year over year is due to higher levels of debt outstanding relating in part to the funding of thePA Consulting investment. Page 44 -------------------------------------------------------------------------------- Miscellaneous (expense) income, net for the three and six months endedApril 2, 2021 was$(56.3) million and$100.0 million , respectively, a decrease of$274.1 million and an increase of$313.8 million , respectively, from$(330.4) million and$(213.7) million for the corresponding periods last year. The increase from the prior year was due primarily to pre-tax unrealized losses of$29.7 million and pre-tax unrealized gains of$63.5 million for the current three and six months ended respectively, compared to$341.0 million and$241.9 million in the prior year corresponding periods 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 and pre-tax unrealized losses of$46.6 million and pre-tax unrealized gains of$36.1 million for the three and six months ended respectively, related to the C3 investment in the current year. The three and six months endedApril 2, 2021 also included pre-tax realized gains of$12.5 million related to holdings of our C3 shares sold during the period, as further discussed in Note 11 - Joint Ventures, VIEs and Other Investments. Additionally, during the six months endedApril 2, 2021 , the Company recorded an other-than-temporary impairment on its investment in AWE in the amount of$33.2 million , respectively, which is also included in miscellaneous income (expense), net on its consolidated statement of earnings. The Company's effective tax rates from continuing operations for the three months endedApril 2, 2021 andMarch 27, 2020 were 18.5% and 34.6%, respectively. The Company's effective tax rate from continuing operations for the three months endedApril 2, 2021 was lower than the corresponding rate in the prior period primarily due to a tax expense of$15.0 million attributable to a nondeductible compensation related charge associated with thePA Consulting acquisition, resulting in a decrease in tax rate as a consequence of an overall pre-tax loss position. The current period expense was offset by a$7.7 million benefit related to a change in the Company's assertion about indefinite reinvestment of certain foreign unremitted earnings inIndia . Also, for the three months endedMarch 27, 2020 , the effective tax rate was impacted by amended returns for foreign tax credits and research and development credits, anIndia withholding tax rate change and an Internal Revenue Code section 179D energy credit. The Company is continuing to accrue taxes related to all other foreign earnings, except for certain entities inCanada . The Company's effective tax rates from continuing operations for the six months endedApril 2, 2021 andMarch 27, 2020 were 27.4% and 9.5%, respectively. The Company's effective tax rate from continuing operations for the six months endedApril 2, 2021 was higher than the corresponding rate in the prior period primarily due to the currentPA Consulting compensation expense charge mentioned above and$7.4 million attributable to US foreign inclusions. Also contributing to the higher year to date rate is the absence of prior year favorable benefit of$5.8 million from amended returns for foreign tax credits and research and development credits, a$4.1 million benefit related to anIndia withholding tax rate change and$7.0 million benefit from an Internal Revenue Code section 179D energy credit for the period endingMarch 27, 2020 . The current year increase was further offset by a$3.6 million excess tax benefit attributable to stock compensation and a$12.1 million benefit related to a change in the Company's assertion about indefinite reinvestment of certain foreign unremitted earnings inCanada andIndia . See Note 17 - Sale of Energy, Chemicals and Resources ("ECR") Business for further information on the Company's discontinued operations reporting for the sale of the ECR business. The amount of income taxes the Company pays is subject to ongoing audits by tax jurisdictions around the world. In the normal course of business, the Company is subject to examination by tax authorities throughout the world, including such major jurisdictions asAustralia ,Canada ,India ,the Netherlands , theUnited Kingdom andthe United States . Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time. The Company believes that it has adequately provided for reasonably foreseeable outcomes related to these matters. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate. Page 45 -------------------------------------------------------------------------------- Segment Financial Information The following table provides selected financial information for our operating segments and includes a reconciliation of segment operating profit to totalU.S. GAAP operating profit from continuing operations by including certain corporate-level expenses, Restructuring and other charges and transaction and integration costs (in thousands). Three Months Ended Six Months Ended April 2, 2021 March 27, 2020 April 2, 2021 March 27, 2020 Revenues from External Customers: Critical Mission Solutions$ 1,309,573 $
1,243,378
2,139,990 2,183,802 4,226,538 4,361,394
PA Consulting 98,310 - 98,310 -
Total $ 3,547,873 $ 3,427,180 $6,929,708 $6,787,229
Three Months Ended Six Months Ended
April 2, 2021 March 27, 2020 April 2, 2021 March 27, 2020
Segment Operating Profit:
Critical Mission Solutions $ 113,933 $
84,293
202,030 189,082 398,330 367,411
PA Consulting 27,917 - 27,917 -
Total Segment Operating Profit 343,880 273,375 650,249 542,126
Other Corporate Expenses (1) (63,327) (61,216) (133,667) (127,934)
Restructuring, Transaction and Other
Charges (2) (321,665) (44,381) (343,756) (95,067)
Total U.S. GAAP Operating (Loss) Profit (41,112) 167,778 172,826 319,125
Total Other (Expense) Income, net (3) (71,169) (344,583) 69,002 (241,759)
(Loss) Earnings Before Taxes from
Continuing Operations $ (112,281) $
(176,805)
(1) Other corporate expenses also include intangibles amortization of
respectively, and
2021 and
(2) Included in the three and six months ended
(3) The three and six months ended
Worley stock (net of Worley stock dividend) and certain foreign currency revaluations
relating to the ECR sale,
adjustments related to our investment in C3 stock. The six months ended
also includes
investment. The three and six months ended
Company's
million and
investment in Worley stock (net of Worley stock dividend) and certain foreign
currency revaluations relating to the ECR sale, the amortization of deferred
financing fees related to the
respectively, and the loss on settlement of the
of $0 and $2.7 million , respectively.
Page 46--------------------------------------------------------------------------------
Critical Mission Solutions
Three Months Ended Six Months Ended
April 2, 2021 March 27, 2020 April 2,
2021
Revenue$ 1,309,573 $ 1,243,378 $ 2,604,860 $ 2,425,835 Operating Profit$ 113,933 $ 84,293 $ 224,002 $ 174,715 Critical Mission Solutions (CMS) segment revenues for the three and six months endedApril 2, 2021 were$1.31 billion and$2.60 billion , respectively, an increase of$66.2 million and$179.0 million , or 5.3% and 7.4%, from$1.24 billion and$2.43 billion for the corresponding periods last year. The increase in revenue was primarily attributable to incremental revenue from theBuffalo Group and John Wood Group nuclear business acquisitions. Also, there was comparable revenue growth from most elements of our legacy portfolio, driven by increased spending by customers in theU.S. government business sector, although offset by a few more large contracts winding down. These primarily favorable performance trends more than offset limited 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 favorable foreign currency translation were approximately$20.3 million and$27.6 million for the three and six month periods endedApril 2, 2021 , respectively, compared to$5.1 million and$6.4 million in unfavorable impacts, respectively, in the corresponding prior year periods. Operating profit for the segment was$113.9 million and$224.0 million , respectively, for the three and six months endedApril 2, 2021 , an increase of$29.6 million and$49.3 million , or 35.2% and 28.2%, from$84.3 million and$174.7 million for the corresponding periods last year. The increase from the prior year was primarily attributable to incremental operating profit from theBuffalo Group and John Wood Group nuclear business acquisitions and the continued growth in profits from ourU.S. governmental business sector. Impacts on operating profit from favorable foreign currency translation were approximately$3.2 million and$4.5 million for the three and six months endedApril 2, 2021 , respectively, compared to immaterial impacts in the corresponding prior year periods. Limited revenue impacts from COVID-19 mentioned above were largely offset by the Company's limited discretionary spend actions and other areas of improved operating performance. People & Places Solutions Three Months Ended
Six Months Ended
April 2, 2021 March 27, 2020 April 2,
2021
Revenue$ 2,139,990 $ 2,183,802 $ 4,226,538 $ 4,361,394 Operating Profit$ 202,030 $ 189,082 $ 398,330 $ 367,411 Revenues for the People & Places Solutions (P&PS) segment for the three and six months endedApril 2, 2021 were$2.14 billion and$4.23 billion , respectively, a decrease of$43.8 million and$134.9 million , or (2.0)% and (3.1)%, from$2.18 billion and$4.36 billion for the corresponding periods last year. The decreases in revenue were primarily due to lower volume in the advanced facilities sector. Impacts on revenues from favorable foreign currency translation were approximately$55.3 million and$85.4 million for the three and six month periods endedApril 2, 2021 compared to$19.7 million and$29.3 million in unfavorable impacts, respectively, in the corresponding prior year period. Operating profit for the segment for the three and six months endedApril 2, 2021 were$202.0 million and$398.3 million , respectively, an increase of$12.9 million and$30.9 million , or 6.8% and 8.4%, from$189.1 million and$367.4 million for the corresponding periods last year. The year-over-year increases in operating profit were due primarily to lower travel, real estate and discretionary spending related to COVID-19 mitigation efforts. Impacts on operating profit from favorable foreign currency translation were approximately$9.6 million and$13.7 million for the three and six month periods endedApril 2, 2021 , compared to$3.2 million and$4.4 million in unfavorable impacts, respectively, in the corresponding prior year periods. The unfavorable revenue impacts mentioned above were more than offset by the Company's cost mitigation actions. Page 47 --------------------------------------------------------------------------------
PA Consulting Three Months Ended Six Months Ended April 2, 2021 March 27, 2020 April 2, 2021 March 27, 2020 Revenue$ 98,310 $ -$ 98,310 $ - Operating Profit$ 27,917 $ -$ 27,917 $ - Revenues for thePA Consulting segment for the three and six months endedApril 2, 2021 were$98.3 million . Operating profit for the segment for the three and six months endedApril 2, 2021 was$27.9 million . There were no comparable periods in the prior year, given the transaction closed onMarch 2, 2021 . Other Corporate Expenses Other corporate expenses for the three and six months endedApril 2, 2021 were$63.3 million and$133.7 million an increase of$2.1 million and$5.7 million from$61.2 million and$127.9 million for the corresponding periods last year. This increase 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 which relate to general corporate activities as well as corporate-managed benefit and insurance programs. Such costs and expenses include: (i) those elements of SG&A expenses relating to the business as a whole; (ii) those elements of our incentive compensation plans relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of 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 See Note 18- 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 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 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 Page 48 -------------------------------------------------------------------------------- quarters (and sometimes over fiscal years), we evaluate our backlog on a year-over-year basis, rather than on a sequential, quarter-over-quarter basis. The following table summarizes our backlog atApril 2, 2021 andMarch 27, 2020 (in millions): April 2, 2021 March 27, 2020 Critical Mission Solutions$ 9,779 $ 9,135 People & Places Solutions 15,512 14,156 PA Consulting 280 - Total$ 25,571 $ 23,291 The increase in backlog in Critical Mission Solutions (CMS) fromMarch 27, 2020 was primarily the result of the acquisition of theBuffalo Group and conversion of the other robust CMS pipeline. The increase in backlog in People & Places Solutions (P&PS) fromMarch 27, 2020 was primarily the result of new awards in theU.S. markets. Backlog inPA Consulting as ofApril 2, 2021 was$280.0 million .The PA Consulting transaction closed onMarch 2, 2021 . 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 generally include in backlog the full contract award unless materially large, 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 AtApril 2, 2021 , our principal sources of liquidity consisted of$893.3 million in cash and cash equivalents and$1.39 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 atApril 2, 2021 represented an increase of$30.9 million from$862.4 million atOctober 2, 2020 , the reasons for which are described below. The Company also holds$273.6 million in restricted cash as ofApril 2, 2021 , relating to thePA Consulting employee benefit trust, the majority which is expected to be paid out in the third fiscal quarter of 2021 and will be recorded in cash from operations. Our cash flow provided by operations of$350.2 million during the six months endedApril 2, 2021 was favorable by$335.3 million in comparison to the cash flow used for operations of$15.0 million for the corresponding prior year period. This improvement was due mainly to lower uses of cash and a slight increase in non-cash add backs in other working capital. The improvement due to lower uses of cash was primarily due to improved receivable collections compared to the previous period, along with an increase in cash from accrued liabilities primarily associated with non-cash accruals ofPA Consulting compensation expense and favorability in other deferred liabilities. Our cash used for investing activities for the six months ended was$1.74 billion , compared to cash used for investing activities of$365.3 million in the corresponding prior year period, the change due primarily to the acquisition of theBuffalo Group in the first fiscal quarter and the investment inPA Consulting and final ECR sale proceeds received in the current quarter and the acquisition of John Wood Group's Nuclear Business in the prior year period of$286.5 million . Our cash provided by financing activities of$1.67 billion for the six months endedApril 2, 2021 resulted mainly from net proceeds from borrowings of$1.78 billion , partly offset by cash used for share repurchases of$24.9 million and$81.9 million in dividends to shareholders and noncontrolling interests. Cash provided by financing activities in the corresponding prior year period was$1.35 billion , due primarily to net proceeds from borrowings of$1.71 billion , offset by cash used for share repurchases of$285.8 million and$63.5 million in dividends to shareholders and noncontrolling interests. Page 49 -------------------------------------------------------------------------------- AtApril 2, 2021 , the Company had approximately$134.7 million in cash and cash equivalents held in theU.S. and$758.6 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 included in our 2020 Form 10-K), there are no material impediments to repatriating these funds to theU.S. The Company had$263.6 million in letters of credit outstanding atApril 2, 2021 . Of this amount,$1.7 million was issued under the Revolving Credit Facility and$261.9 million was issued under separate, committed and uncommitted letter-of-credit facilities. 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. Further, in connection with the transaction, an additional$266.6 million had not yet been distributed atApril 2, 2021 due to continuing employment requirements. Consequently, this amount represents compensation expense incurred related to the acquisition that is expected to be paid in the third quarter of fiscal 2021. The remaining 35% interest is held byPA Consulting employees, whose redeemable noncontrolling interests had a fair value of$581.1 million on the closing date.PA Consulting is accounted for as a consolidated subsidiary and as a separate operating segment underU.S. GAAP accounting rules. See Note 15- PA Consulting Business Combination for more discussion on the investment. 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 2020 Term Loan Facility. OnNovember 24, 2020 , a subsidiary of Jacobs completed the acquisition ofBuffalo Group , a leader in advanced cyber and intelligence solutions. 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 is expected to be settled in fiscal 2022. In conjunction with the acquisition, the Company assumed theBuffalo Group's debt of approximately$7.7 million . The Company repaid all of the assumedBuffalo Group debt by the end of the first fiscal quarter of 2021. The Company has recorded its preliminary purchase price allocation associated with the acquisition, which is summarized in Note 16- Other Business Combinations. OnMarch 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 final purchase accounting allocation associated with the acquisition, which is summarized in Note 16- Other Business Combinations. Page 50 -------------------------------------------------------------------------------- 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, 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 are 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 also ceased all non-essential hiring and reduced discretionary expenses, including certain employee benefits and compensation through the end of fiscal 2020. In addition, as a precautionary measure, we temporarily suspended purchases under the share repurchase plan inMarch 2020 , with such suspension remaining in effect through the third fiscal quarter of 2020. During the fourth fiscal quarter of 2020, we resumed share repurchases on a limited basis. 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 atApril 2, 2021 . 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, Term Loan Facilities and Note Purchase Agreement. Our Revolving Credit Facility, Term Loan Facilities and certain other debt obligations are subject to variable rate interest which could be adversely affected by an increase in interest rates. As ofApril 2, 2021 , we had an aggregate of$2.99 billion in outstanding borrowings under our Revolving Credit Facility and Term Loan Facilities. 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 Term Loan Facilities). Depending on the Company's Consolidated Leverage Ratio, borrowings under the Revolving Credit Facility and the Term Loan Facilities bear interest at a Eurocurrency rate plus a margin of between 0.875% and 1.625% or a base rate plus a margin of between 0.0% and 0.625% including applicable margins. 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$929.3 million to convert the variable rate interest based liabilities associated with a corresponding amount of our debt into fixed interest rate liabilities, leaving$2.06 billion in principal amount subject to variable interest rate risk. For the six months endedApril 2, 2021 , our weighted average borrowings that are subject to floating rate exposure were approximately$870.1 million . If floating interest rates had increased by 1.00%, our interest expense for the six months endedApril 2, 2021 would have increased by approximately$4.3 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$447.4 million in notional value of exchange rate sensitive instruments atApril 2, 2021 . See Note 19- Commitments and Contingencies and Derivative Financial Instruments for discussion. Page 51
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