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EX-10.1 - EX-10.1 - JACOBS ENGINEERING GROUP INC /DE/jec-ex101_355.htm
EX-10.2 - EX-10.2 - JACOBS ENGINEERING GROUP INC /DE/jec-ex102_354.htm
EX-32.1 - EX-32.1 - JACOBS ENGINEERING GROUP INC /DE/jec-ex321_31.htm
EX-32.2 - EX-32.2 - JACOBS ENGINEERING GROUP INC /DE/jec-ex322_30.htm
EX-31.2 - EX-31.2 - JACOBS ENGINEERING GROUP INC /DE/jec-ex312_32.htm
EX-31.1 - EX-31.1 - JACOBS ENGINEERING GROUP INC /DE/jec-ex311_33.htm
EX-95 - EX-95 - JACOBS ENGINEERING GROUP INC /DE/jec-ex95_29.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Quarterly Report on

FORM 10-Q

(Mark one)

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 1, 2016

o

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission File Number 1-7463

JACOBS ENGINEERING GROUP INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

95-4081636

(State of incorporation)

(I.R.S. employer identification number)

 

 

155 North Lake Avenue, Pasadena, California

91101

(Address of principal executive offices)

(Zip code)

 

(626) 578 – 3500

(Registrant’s telephone number, including area code)

Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    x  Yes    o  No

Indicate by check-mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    o  No

Indicate by check-mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

x

Accelerated filer

o

 

 

 

 

Non-accelerated filer

o

Smaller reporting company

o

Indicate by check-mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  Yes   x  No

Number of shares of common stock outstanding at May 3, 2016: 121,925,178

 

 

 


JACOBS ENGINEERING GROUP INC.

INDEX TO FORM 10-Q

 

 

 

 

Page No.

PART I

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

 

 

Consolidated Balance Sheets

3

 

 

 

 

 

 

Consolidated Statements of Earnings - Unaudited

4

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income - Unaudited

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows - Unaudited

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements - Unaudited

7

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

 

 

Item 1A.

Risk Factors

28

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

 

 

Item 4.

Mine Safety Disclosure

28

 

 

 

 

 

Item 6.

Exhibits

29

 

 

 

SIGNATURES

30

 

 

Page 2


Part I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

 

 

 

April 1,

2016

(Unaudited)

 

 

October 2,

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

559,722

 

 

$

460,859

 

Receivables

 

 

2,415,092

 

 

 

2,548,743

 

Prepaid expenses and other

 

 

98,014

 

 

 

113,076

 

Total current assets

 

 

3,072,828

 

 

 

3,122,678

 

Property, Equipment and Improvements, Net

 

 

343,550

 

 

 

381,238

 

Other Noncurrent Assets:

 

 

 

 

 

 

 

 

Goodwill

 

 

3,054,798

 

 

 

3,048,778

 

Intangibles

 

 

342,367

 

 

 

353,419

 

Deferred income taxes

 

 

375,244

 

 

 

374,064

 

Miscellaneous

 

 

528,018

 

 

 

505,749

 

Total other non-current assets

 

 

4,300,427

 

 

 

4,282,010

 

 

 

$

7,716,805

 

 

$

7,785,926

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

$

2,727

 

 

$

13,364

 

Accounts payable

 

 

487,810

 

 

 

566,866

 

Accrued liabilities

 

 

1,054,229

 

 

 

1,090,985

 

Billings in excess of costs

 

 

373,649

 

 

 

309,951

 

Total current liabilities

 

 

1,918,415

 

 

 

1,981,166

 

Long-term Debt

 

 

530,000

 

 

 

584,434

 

Other Deferred Liabilities

 

 

829,416

 

 

 

863,868

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Capital stock:

 

 

 

 

 

 

 

 

Preferred stock, $1 par value, authorized - 1,000,000 shares; issued and

   outstanding - none

 

 

 

 

 

 

Common stock, $1 par value, authorized - 240,000,000 shares;

   issued and outstanding—122,146,182 shares and 123,152,966

   shares, respectively

 

 

122,146

 

 

 

123,153

 

Additional paid-in capital

 

 

1,149,777

 

 

 

1,137,144

 

Retained earnings

 

 

3,554,291

 

 

 

3,496,212

 

Accumulated other comprehensive loss

 

 

(450,196

)

 

 

(464,764

)

Total Jacobs stockholders’ equity

 

 

4,376,018

 

 

 

4,291,745

 

Noncontrolling interests

 

 

62,956

 

 

 

64,713

 

Total Group stockholders’ equity

 

 

4,438,974

 

 

 

4,356,458

 

 

 

$

7,716,805

 

 

$

7,785,926

 

 

See the accompanying Notes to Consolidated Financial Statements.

 

 

Page 3


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

For the Three and Six Months Ended April 1, 2016 and March 27, 2015

(In thousands, except per share information)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

April 1, 2016

 

 

March 27, 2015

 

 

April 1, 2016

 

 

March 27, 2015

 

Revenues

 

$

2,781,763

 

 

$

2,903,332

 

 

$

5,629,697

 

 

$

6,090,337

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct cost of contracts

 

 

(2,337,547

)

 

 

(2,412,388

)

 

 

(4,745,007

)

 

 

(5,079,947

)

Selling, general and administrative expenses

 

 

(357,435

)

 

 

(357,899

)

 

 

(738,459

)

 

 

(719,122

)

Operating Profit

 

 

86,781

 

 

 

133,045

 

 

 

146,231

 

 

 

291,268

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,264

 

 

 

1,580

 

 

 

4,484

 

 

 

3,856

 

Interest expense

 

 

(2,200

)

 

 

(4,548

)

 

 

(5,743

)

 

 

(9,866

)

Miscellaneous income (expense), net

 

 

3,611

 

 

 

(1,115

)

 

 

3,271

 

 

 

(1,601

)

Total other income (expense), net

 

 

3,675

 

 

 

(4,083

)

 

 

2,012

 

 

 

(7,611

)

Earnings Before Taxes

 

 

90,456

 

 

 

128,962

 

 

 

148,243

 

 

 

283,657

 

Income Tax Expense

 

 

(27,067

)

 

 

(40,852

)

 

 

(34,548

)

 

 

(89,352

)

Net Earnings of the Group

 

 

63,389

 

 

 

88,110

 

 

 

113,695

 

 

 

194,305

 

Net Loss (Earnings) Attributable to Noncontrolling Interests

 

 

1,861

 

 

 

(6,143

)

 

 

(1,931

)

 

 

(12,259

)

Net Earnings Attributable to Jacobs

 

$

65,250

 

 

$

81,967

 

 

$

111,764

 

 

$

182,046

 

Net Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.54

 

 

$

0.65

 

 

$

0.93

 

 

$

1.43

 

Diluted

 

$

0.54

 

 

$

0.64

 

 

$

0.92

 

 

$

1.42

 

 

See the accompanying Notes to Consolidated Financial Statements including the Company’s note on Other Comprehensive Income for a presentation of amounts reclassified to net earnings during the period.

 

Page 4


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Six Months Ended April 1, 2016 and March 27, 2015

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

April 1, 2016

 

 

March 27, 2015

 

 

April 1, 2016

 

 

March 27, 2015

 

Net Earnings of the Group

 

$

63,389

 

 

$

88,110

 

 

$

113,695

 

 

$

194,305

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

17,248

 

 

 

(38,318

)

 

 

746

 

 

 

(86,691

)

Loss on cash flow hedges

 

 

(2,965

)

 

 

(2,925

)

 

 

(413

)

 

 

(4,844

)

Change in pension liabilities

 

 

6,975

 

 

 

16,278

 

 

 

18,418

 

 

 

30,921

 

Other comprehensive loss before taxes

 

 

21,258

 

 

 

(24,965

)

 

 

18,751

 

 

 

(60,614

)

Income Tax Benefit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges

 

 

727

 

 

 

643

 

 

 

4

 

 

 

1,265

 

Change in pension liabilities

 

 

(1,705

)

 

 

(3,076

)

 

 

(4,187

)

 

 

(6,004

)

Income Tax Expense

 

 

(978

)

 

 

(2,433

)

 

 

(4,183

)

 

 

(4,739

)

Net other comprehensive income (loss)

 

 

20,280

 

 

 

(27,398

)

 

 

14,568

 

 

 

(65,353

)

Net Comprehensive Income of the Group

 

 

83,669

 

 

 

60,712

 

 

 

128,263

 

 

 

128,952

 

Net Comprehensive Loss (Income) Attributable to

   Noncontrolling Interests

 

 

1,861

 

 

 

(6,143

)

 

 

(1,931

)

 

 

(12,259

)

Net Comprehensive Income Attributable to Jacobs

 

$

85,530

 

 

$

54,569

 

 

$

126,332

 

 

$

116,693

 

 

See the accompanying Notes to Consolidated Financial Statements including the Company’s note on Other Comprehensive Income for a presentation of amounts reclassified to net earnings during the period.

 

 

Page 5


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended April 1, 2016 and March 27, 2015

(In thousands)

(Unaudited)

 

 

 

April 1, 2016

 

 

March 27, 2015

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net earnings attributable to the Group

 

$

113,695

 

 

$

194,305

 

Adjustments to reconcile net earnings to net cash flows from operations:

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

Property, equipment and improvements

 

 

43,226

 

 

 

51,155

 

Intangible assets

 

 

23,451

 

 

 

25,535

 

Stock based compensation

 

 

17,107

 

 

 

23,805

 

Tax benefit from stock based compensation

 

 

(29

)

 

 

(279

)

Equity in earnings of operating ventures, net

 

 

(10,382

)

 

 

8,420

 

Losses (gains) on disposals of assets, net

 

 

9,624

 

 

 

(267

)

Change in pension plan obligations

 

 

2,371

 

 

 

(5,767

)

Change in deferred compensation plans

 

 

(703

)

 

 

(2,187

)

Changes in certain assets and liabilities, excluding the effects of businesses acquired:

 

 

 

 

 

 

 

 

Receivables

 

 

134,619

 

 

 

40,503

 

Prepaid expenses and other current assets

 

 

15,180

 

 

 

27,420

 

Accounts payable

 

 

(84,465

)

 

 

(131,767

)

Accrued liabilities

 

 

(38,365

)

 

 

(75,409

)

Billings in excess of costs

 

 

65,657

 

 

 

(29,505

)

Income taxes

 

 

3,131

 

 

 

(17,003

)

Deferred income taxes

 

 

(13,096

)

 

 

5,136

 

Other deferred liabilities

 

 

(21,229

)

 

 

(10,799

)

Other, net

 

 

4,508

 

 

 

885

 

Net cash provided by operating activities

 

 

264,300

 

 

 

104,181

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(29,309

)

 

 

(59,177

)

Disposals of property and equipment

 

 

250

 

 

 

5,038

 

Purchases of investments

 

 

(3,406

)

 

 

 

Sales of investments

 

 

 

 

 

13

 

Acquisitions of businesses, net of cash acquired

 

 

(10,500

)

 

 

 

Net cash used for investing activities

 

 

(42,965

)

 

 

(54,126

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from long-term borrowings

 

 

988,796

 

 

 

692,433

 

Repayments of long-term borrowings

 

 

(1,041,486

)

 

 

(693,005

)

Proceeds from short-term borrowings

 

 

618

 

 

 

301,191

 

Repayments of short-term borrowings

 

 

(11,466

)

 

 

(291,462

)

Proceeds from issuances of common stock

 

 

15,735

 

 

 

17,157

 

Common stock repurchases

 

 

(72,291

)

 

 

(254,209

)

Excess tax benefits from stock based compensation

 

 

29

 

 

 

279

 

Dividends paid to noncontrolling interests

 

 

(2,709

)

 

 

(7,230

)

Net cash provided by financing activities

 

 

(122,774

)

 

 

(234,846

)

Effect of Exchange Rate Changes

 

 

302

 

 

 

(82,906

)

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

98,863

 

 

 

(267,697

)

Cash and Cash Equivalents at the Beginning of the Period

 

 

460,859

 

 

 

732,647

 

Cash and Cash Equivalents at the End of the Period

 

$

559,722

 

 

$

464,950

 

 

See the accompanying Notes to Consolidated Financial Statements.

 

 

Page 6


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

April 1, 2016

 

Basis of Presentation

Unless the context otherwise requires:

 

·

References herein to “Jacobs” are to Jacobs Engineering Group Inc. and its predecessors;

 

·

References herein to the “Company”, “we”, “us” or “our” are to Jacobs Engineering Group Inc. and its consolidated subsidiaries; and

 

·

References herein to the “Group” are to the combined economic interests and activities of the Company and the persons and entities holding noncontrolling interests in our consolidated subsidiaries.

The accompanying consolidated financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. Readers of this Quarterly Report on Form 10-Q should also read our consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 2, 2015 (“2015 Form 10-K”) as well as Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2015 Form 10-K.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of our consolidated financial statements at April 1, 2016, and for the three and six month periods ended April 1, 2016 and March 27, 2015.

Our interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year.

Please refer to Note 16—Definitions of Notes to Consolidated Financial Statements included in our 2015 Form 10-K for the definitions of certain terms used herein.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires us to employ estimates and make assumptions that affect the reported amounts of certain assets and liabilities, the revenues and expenses reported for the periods covered by the accompanying consolidated financial statements, and certain amounts disclosed in these Notes to the Consolidated Financial Statements. Although such estimates and assumptions are based on management’s most recent assessment of the underlying facts and circumstances utilizing the most current information available and past experience, actual results could differ significantly from those estimates and assumptions. Our estimates, judgments, and assumptions are evaluated periodically and adjusted accordingly. Please refer to Note 2—Significant Accounting Policies of Notes to Consolidated Financial Statements included in our 2015 Form 10-K for a discussion of the significant estimates and assumptions affecting our consolidated financial statements.

Fair Value and Fair Value Measurements

Certain amounts included in the accompanying consolidated financial statements are presented at “fair value.” Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants as of the date fair value is determined (the “measurement date”). When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider only those assumptions we believe a typical market participant would consider when pricing an asset or liability. In measuring fair value, we use the following inputs in the order of priority indicated:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices in active markets included in Level 1, such as (i) quoted prices for similar assets or liabilities; (ii) quoted prices in markets that have insufficient volume or infrequent transactions (e.g., less active markets); and (iii) model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data for substantially the full term of the asset or liability.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the fair value measurement.

 

Page 7


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

April 1, 2016

(continued)

 

Please refer to Note 2—Significant Accounting Policies of Notes to Consolidated Financial Statements included in our 2015 Form 10-K for a more complete discussion of the various items within the consolidated financial statements measured at fair value and the methods used to determine fair value.

 

 

New Accounting Standards

From time to time, the Financial Accounting Standards Board (“FASB”) issues accounting standards updates (each being an “ASU”) to its Accounting Standards Codification (“ASC”), which constitutes the primary source of U.S. GAAP.  The Company regularly monitors ASUs as they are issued and considers their applicability to its business.  All ASUs applicable to the Company are adopted by the due date and in the manner prescribed by the FASB.

In May 2014, the FASB issued ASU No. 2014-09—Revenue from Contracts with Customers. The new guidance provided by ASU 2014-09 is intended to remove inconsistencies and perceived weaknesses in the existing revenue requirements, provide a more robust framework for addressing revenue issues, improve comparability, provide more useful information and simplify the preparation of financial statements.  ASU 2014-09 was initially effective for annual and interim reporting periods beginning after December 15, 2016. On July 9, 2015, the FASB approved a one-year deferral of the effective date of this standard.  The revised effective date for the standard is for annual reporting periods beginning after December 15, 2017 and interim periods therein.  The FASB also approved changes allowing for early adoption of the standard as of the original effective date.  The Company continues to evaluate the impact that the new guidance may have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02—Leases. ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for public entity financial statements for annual periods beginning after December 15, 2018, and interim periods within those annual periods.  Early adoption is permitted, including adoption in an interim period.  The guidance must be adopted using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.  The Company is evaluating the impact of the new guidance on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09—Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted for any entity in any interim or annual period for which financial statements have not been issued or made available for issuance.  If an entity early adopts the amendments in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period.  An entity that elects early adoption must adopt all of the amendments in the same period.  The Company is evaluating the impact of the new guidance on its consolidated financial statements.

During the second quarter of fiscal 2016, the Company adopted the provisions of ASU 2015-17—Balance Sheet Classification of Deferred Taxes. ASU 2015-17 removes the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. Instead, the update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.  ASU 2015-17 is effective for entities for fiscal years beginning after December 15, 2016, with retrospective application to all periods presented. Early application is permitted. The Company adopted ASU 2015-17 on a retrospective basis.  Accordingly, the current deferred taxes and noncurrent deferred tax assets included in miscellaneous noncurrent assets on the October 2,  2015 Consolidated Balance Sheet were reclassified to noncurrent deferred taxes, which increased noncurrent deferred tax assets $160.3 million and decreased miscellaneous noncurrent assets by $213.8 million.

 

 

Segment Information

During the second quarter of fiscal 2016, we reorganized our operating and reporting structure around four lines of business (“LOB”).  This reorganization is intended to better serve our global clients, leverage our workforce, help streamline operations, and provide enhanced growth opportunities.  The four global LOBs are: Petroleum & Chemicals, Buildings & Infrastructure, Aerospace & Technology, and Industrial. Previously, the Company operated its business as a single segment.

 

Page 8


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

April 1, 2016

(continued)

 

Under the new organization, each LOB has a president that reports directly to the Company's President & CEO (who is also the Company’s Chief Operating Decision maker, or “CODM”).  As part of the reorganization, the cost of the sales function, which had been managed centrally for many years, is now embedded in the new segments and report to the respective line of business presidents.  In addition, a portion of the costs of other support functions (e.g., finance, legal, human resources, and information technology) are allocated to each LOB using methodologies which, we believe, effectively attributes the cost of these support functions to the revenue-generating activities of the Company on a rational basis.  In addition, the cost of the Company’s cash incentive plan (“MIP”) and the expense associated with the Jacobs Engineering Group Inc. Stock Incentive Plan (“1999 SIP”) have likewise been charged to the LOBs except for those amounts determined to relate to the business as a whole (which amounts remain in corporate’s results of operations).

 

Financial information for each LOB is reviewed by the CODM to assess performance and make decisions regarding the allocation of resources.  The Company does not track assets by LOB, nor does it provide such information to the CODM.

 

The CODM evaluates the operating performance of our LOBs using operating profit, which is defined as margin less “corporate charges” (e.g., the allocated amounts described above).  The Company incurs certain SG&A costs which relate to its business as a whole which are not allocated to the LOBs.

 

The following tables present total revenues, and operating profit for each reportable segment. Prior period information has been restated to reflect the current period presentation (in thousands).

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

April 1, 2016

 

 

March 27, 2015

 

 

April 1, 2016

 

 

March 27, 2015

 

Revenues from External Customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Petroleum & Chemicals

$

866,615

 

 

$

1,046,767

 

 

$

1,808,928

 

 

$

2,207,219

 

Aerospace & Technology

 

669,464

 

 

 

701,115

 

 

 

1,339,655

 

 

 

1,435,342

 

Buildings & Infrastructure

 

579,128

 

 

 

602,062

 

 

 

1,142,458

 

 

 

1,226,792

 

Industrial

 

666,556

 

 

 

553,388

 

 

 

1,338,656

 

 

 

1,220,984

 

Total

$

2,781,763

 

 

$

2,903,332

 

 

$

5,629,697

 

 

$

6,090,337

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

April 1, 2016

 

 

March 27, 2015

 

 

April 1, 2016

 

 

March 27, 2015

 

Operating Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Petroleum & Chemicals

$

30,945

 

 

$

28,656

 

 

$

62,548

 

 

$

63,755

 

Aerospace & Technology

 

55,121

 

 

 

53,072

 

 

 

103,120

 

 

 

103,033

 

Buildings & Infrastructure

 

42,463

 

 

 

42,428

 

 

 

82,915

 

 

 

80,392

 

Industrial

 

12,417

 

 

 

47,877

 

 

 

39,772

 

 

 

76,850

 

Total Segment Operating Profit

 

140,946

 

 

 

172,033

 

 

 

288,355

 

 

 

324,030

 

Other Corporate Expenses

 

(18,797

)

 

 

(24,950

)

 

 

(38,373

)

 

 

(18,724

)

Restructuring Charges

 

(35,368

)

 

 

(14,038

)

 

 

(103,751

)

 

 

(14,038

)

Total Other Income (Expense)

 

3,675

 

 

 

(4,083

)

 

 

2,012

 

 

 

(7,611

)

Earnings Before Taxes

$

90,456

 

 

$

128,962

 

 

$

148,243

 

 

$

283,657

 

 

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 the MIP and the 1999 SIP relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of purchased business combinations; (iv) the quarterly variances between the Company’s actual costs of certain of its self-insured integrated risk and employee benefit programs and amounts charged to the LOBs; and (v) certain adjustments relating to costs associated with the Company’s international defined benefit pension plans.  In addition, “other corporate expenses” will include adjustments to contract margins (both positive and negative) associated with projects where the adjustments have been assessed, in the opinion of management, not indicative of the performance of the related LOB and therefore should not be attributed to the LOB.

 

 

Page 9


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

April 1, 2016

(continued)

 

Business Combinations

During fiscal year 2016, the Company acquired J.L. Patterson & Associates. This acquisition was not material to the Company’s consolidated results for the first six months of fiscal 2016.

 

 

Receivables

The following table presents the components of receivables appearing in the accompanying Consolidated Balance Sheets at April 1, 2016 and October 2,  2015 as well as certain other related information (in thousands):

 

 

 

April 1,

2016

 

 

October 2,

2015

 

Components of receivables:

 

 

 

 

 

 

 

 

Amounts billed

 

$

1,170,483

 

 

$

1,213,892

 

Unbilled receivables and other

 

 

1,159,548

 

 

 

1,252,509

 

Retentions receivable

 

 

85,061

 

 

 

82,342

 

Total receivables, net

 

$

2,415,092

 

 

$

2,548,743

 

Other information about receivables:

 

 

 

 

 

 

 

 

Amounts due from the United States federal

   government, included above, net of advanced

   billings

 

$

284,833

 

 

$

327,157

 

Claims receivable

 

$

9,291

 

 

$

32,511

 

 

Billed receivables consist of amounts invoiced to clients in accordance with the terms of our client contracts and are shown net of an allowance for doubtful accounts. We anticipate that substantially all of such billed amounts will be collected over the next twelve months.

Unbilled receivables and retentions receivable represent reimbursable costs and amounts earned and reimbursable under contracts in progress as of the respective balance sheet dates. Such amounts become billable according to the contract terms, which usually consider the passage of time, achievement of certain milestones, or completion of the project. We anticipate that substantially all of such unbilled amounts will be billed and collected over the next twelve months.

Claims receivable are included in receivables in the accompanying Consolidated Balance Sheets and represent certain costs incurred on contracts to the extent it is probable that such claims will result in additional contract revenue and the amount of such additional revenue can be reliably estimated.

 

 

Property, Equipment and Improvements, Net

Property, Equipment and Improvements, Net in the accompanying Consolidated Balance Sheets at April 1, 2016 and October 2,  2015 consist of the following (in thousands):

 

 

 

April 1,

2016

 

 

October 2,

2015

 

Land

 

$

23,779

 

 

$

23,757

 

Buildings

 

 

93,014

 

 

 

97,597

 

Equipment

 

 

571,083

 

 

 

592,491

 

Leasehold improvements

 

 

238,964

 

 

 

259,544

 

Construction in progress

 

 

20,499

 

 

 

17,229

 

 

 

 

947,339

 

 

 

990,618

 

Accumulated depreciation and amortization

 

 

(603,789

)

 

 

(609,380

)

 

 

$

343,550

 

 

$

381,238

 

 

 

Page 10


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

April 1, 2016

(continued)

 

Restructuring Charges

During the second quarter of fiscal 2015, the Company began implementing a series of initiatives intended to improve operational efficiency, reduce costs, and better position itself to drive growth of the business in the future (the "2015 Restructuring"). The 2015 Restructuring was not completed in fiscal 2015, and actions related to the 2015 Restructuring continued into fiscal 2016. Actions related to the 2015 Restructuring completed during 2015 and the first six months of fiscal 2016 include involuntary terminations, the abandonment of certain leased offices, combining operational organizations, and the co-location of employees into other existing offices. We are not exiting any service types or client end-markets.

 

The costs of the 2015 Restructuring are included in selling, general, and administrative expense in the Consolidated Statements of Earnings. The following table summarizes the impact of the 2015 Restructuring on the Company's reportable segments for the three and six month periods ended April 1, 2016 (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

April 1, 2016

 

 

April 1, 2016

 

Petroleum & Chemicals

$

29,039

 

 

$

53,015

 

Buildings & Infrastructure

 

601

 

 

 

15,567

 

Aerospace & Technology

 

239

 

 

 

2,435

 

Industrial

 

2,316

 

 

 

19,893

 

Corporate

 

3,173

 

 

 

12,841

 

Total

$

35,368

 

 

$

103,751

 

 

 

The Company’s accrual for the 2015 Restructuring as of October 2,  2015 was $102.2 million.  There were $103.8 million of charges and $69.8 million of payments during the six months ended April 1, 2016.  The accrual balance was $136.1 million as of April 1, 2016.

 

 

Long-term Debt

Jacobs and certain of its subsidiaries have a $1.6 billion long-term unsecured, revolving credit facility (the “2014 Facility”) with a syndicate of large, U.S. and international banks and financial institutions. The 2014 Facility also provides an accordion feature that allows the Company and the lenders to increase the facility amount to $2.1 billion.

The total amount outstanding under the 2014 Facility in the form of direct borrowings at April 1, 2016 was $530.0 million. The Company has issued $2.5 million in letters of credit under the 2014 Facility leaving $1.1 billion of available borrowing capacity under the 2014 Facility at April 1, 2016. In addition, the Company had $235.9 million issued under separate, committed and uncommitted letter-of-credit facilities for total issued letters of credit of $238.4 million at April 1, 2016.

The 2014 Facility expires in February 2020 and permits the Company to borrow under two separate tranches in U.S. dollars, certain specified foreign currencies, and any other currency that may be approved in accordance with the terms of the 2014 Facility. Depending on the Company’s Consolidated Leverage Ratio, borrowings under the 2014 Facility will bear interest at either a eurocurrency rate plus a margin of between 1.0% and 1.5% or a base rate plus a margin of between 0% and 0.5%. The 2014 Facility also provides for a financial letter of credit subfacility of $300.0 million, permits performance letters of credit, and provides for a $50.0 million subfacility for swingline loans. Letters of credit are subject to fees based on the Company’s Consolidated Leverage Ratio at the time any such letter of credit is issued. The Company pays a facility fee of between 0.100% and 0.250% per annum depending on the Company’s Consolidated Leverage Ratio. Amounts outstanding under the 2014 Facility may be prepaid at the option of the Company without premium or penalty, subject to customary breakage fees in connection with the prepayment of eurocurrency loans. The 2014 Facility contains affirmative, negative, and financial covenants customary for financings of this type including, among other things, limitations on certain other indebtedness, loans and investments, liens, mergers, asset sales and transactions with affiliates. In addition, the 2014 Facility contains customary events of default. We were in compliance with our debt covenants at April 1, 2016.

 

 

Revenue Accounting for Contracts / Accounting for Joint Ventures

In general, we recognize revenue at the time we provide services. Depending on the commercial terms of the contract, we recognize revenues either when costs are incurred, or using the percentage-of-completion method of accounting by relating contract costs incurred to date to the total estimated costs at completion. Contract losses are provided for in their entirety in the period they

Page 11


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

April 1, 2016

(continued)

 

become known, without regard to the percentage-of-completion. For multiple contracts with a single customer we account for each contract separately. We also recognize as revenues, costs associated with claims and unapproved change orders to the extent it is probable that such claims and change orders will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated. A significant portion of the Company’s revenue is earned on cost reimbursable contracts. The percentage of revenues realized by the Company by type of contract during fiscal 2015 can be found in Note 1—Description of Business and Basis of Presentation of Notes to Consolidated Financial Statements included in our 2015 Form 10-K.

Certain cost-reimbursable contracts include incentive-fee arrangements. The incentive fees in such contracts can be based on a variety of factors but the most common are the achievement of target completion dates, target costs, and/or other performance criteria. Failure to meet these targets can result in unrealized incentive fees. We recognize incentive fees based on expected results using the percentage-of-completion method of accounting. As the contract progresses and more information becomes available, the estimate of the anticipated incentive fee that will be earned is revised as necessary. We bill incentive fees based on the terms and conditions of the individual contracts. In certain situations, we are allowed to bill a portion of the incentive fees over the performance period of the contract. In other situations, we are allowed to bill incentive fees only after the target criterion has been achieved. Incentive fees which have been recognized but not billed are included in Receivables in the accompanying Consolidated Balance Sheets.

Certain cost-reimbursable contracts with government customers as well as certain commercial clients provide that contract costs are subject to audit and adjustment. In this situation, revenues are recorded at the time services are performed based upon the amounts we expect to realize upon completion of the contracts. Revenues are not recognized for non-recoverable costs. In those situations where an audit indicates that we may have billed a client for costs not allowable under the terms of the contract, we estimate the amount of such nonbillable costs and adjust our revenues accordingly.

When we are directly responsible for subcontractor labor or third-party materials and equipment, we reflect the costs of such items in both revenues and costs. On those projects where the client elects to pay for such items directly and we have no associated responsibility for such items, these amounts are not reflected in either revenues or costs.

The following table sets forth pass-through costs included in revenues for each of the three and six months ended April 1, 2016 and March 27, 2015 (in thousands):

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

April 1,

2016

 

 

March 27,

2015

 

 

April 1,

2016

 

 

March 27,

2015

 

Pass-through costs included in revenues

 

$

601,129

 

 

$

615,336

 

 

$

1,271,460

 

 

$

1,322,166

 

 

As is common to the industry, we execute certain contracts jointly with third parties through various forms of joint ventures and consortiums. Although the joint ventures own and hold the contracts with the clients, the services required by the contracts are typically performed by us and our joint venture partners, or by other subcontractors under subcontracting agreements with the joint ventures. The assets of our joint ventures, therefore, consist almost entirely of cash and receivables (representing amounts due from clients), and the liabilities of our joint ventures consist almost entirely of amounts due to the joint venture partners (for services provided by the partners to the joint ventures under their individual subcontracts) and other subcontractors. In general, at any given time, the equity of our joint ventures represents the undistributed profits earned on contracts the joint ventures hold with clients. Very few of our joint ventures have employees. None of our joint ventures have third-party debt or credit facilities. Our joint ventures, therefore, are simply mechanisms used to deliver engineering and construction services to clients. Rarely do they, in and of themselves, present any risk of loss to us or to our partners separate from those that we would carry if we were performing the contract on our own.  Under U.S. GAAP, our share of losses associated with the contracts held by the joint ventures, if and when they occur, has always been reflected in our Consolidated Financial Statements.

Certain of our joint ventures meet the definition of a “variable interest entity” (“VIE”). As defined in U.S. GAAP, a VIE is a legal entity in which equity investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of the equity investment at risk lack any one of the following three characteristics: (i) the power, through voting rights or similar rights, to direct the activities of a legal entity that most significantly impact the entity’s economic performance; (ii) the obligation to absorb the expected losses of the legal entity; or (iii) the right to receive the expected residual returns of the legal entity. Accordingly, entities issuing consolidated financial statements (e.g., a “reporting entity”) shall consolidate a VIE if the reporting entity has a “controlling financial interest” in the VIE, as demonstrated by the reporting entity having both (i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic

Page 12


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

April 1, 2016

(continued)

 

performance; and (ii) the right to receive benefits from the VIE that could potentially be significant to the VIE or the obligation to absorb losses of the VIE that could potentially be significant to the VIE.

In evaluating our VIEs for possible consolidation, we perform a qualitative analysis to determine whether or not we have a “controlling financial interest” in the VIE as defined by U.S. GAAP. We consolidate only those VIEs over which we have a controlling financial interest. For the Company’s unconsolidated joint ventures, we use the equity method of accounting. The Company does not currently participate in any significant VIEs in which it has a controlling financial interest.

 

 

Disclosures About Defined Pension Benefit Obligations

The following table presents the components of net periodic benefit cost recognized in earnings during each of the three and six months ended April 1, 2016 and March 27, 2015 (in thousands):

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

April 1,

2016

 

 

March 27,

2015

 

 

April 1,

2016

 

 

March 27,

2015

 

Component:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

8,504

 

 

$

8,261

 

 

$

17,180

 

 

$

16,836

 

Interest cost

 

 

15,207

 

 

 

16,103

 

 

 

30,909

 

 

 

32,761

 

Expected return on plan assets

 

 

(18,926

)

 

 

(20,365

)

 

 

(38,433

)

 

 

(41,415

)

Amortization of previously unrecognized items

 

 

5,579

 

 

 

5,108

 

 

 

11,312

 

 

 

10,436

 

Settlement (gain) loss

 

 

(169

)

 

 

15

 

 

 

(332

)

 

 

159

 

Net periodic benefit cost

 

$

10,195

 

 

$

9,122

 

 

$

20,636

 

 

$

18,777

 

 

Included in the above table are amounts relating to a U.S. pension plan, the participating employees of which are assigned to, and work exclusively on, a specific operating contract with the U.S. federal government. It is the expectation of the parties to this contract that the cost of this pension plan will be fully reimbursed by the U.S. federal government pursuant to applicable cost accounting standards. The underfunded amount for this pension plan is included in “Other Noncurrent Assets” in the accompanying Consolidated Balance Sheets at April 1, 2016. Net periodic pension costs for this pension plan for the three and six months ended April 1, 2016 were $3.3 million and $6.7 million, respectively, and three and six months ended March 27, 2015 were $1.5 million and $2.9 million, respectively.

The following table presents certain information regarding Company cash contributions to our pension plans for fiscal 2016 (in thousands):

 

Cash contributions made during the first six months of

   fiscal 2016

 

$

18,266

 

Cash contributions we expect to make during the remainder

   of fiscal 2016

 

 

16,256

 

Total

 

$

34,522

 

 

 

Page 13


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

April 1, 2016

(continued)

 

Other Comprehensive Income

The following table presents amounts reclassified from change in pension liabilities in other comprehensive income to direct cost of contracts and selling, general and administrative expenses in the Company’s Consolidated Statements of Earnings for the three and six months ended April 1, 2016 and March 27, 2015 related to the Company’s defined benefit pension plans (in thousands):

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

April 1,

2016

 

 

March 27,

2015

 

 

April 1,

2016

 

 

March 27,

2015

 

Amortization of Defined Benefit Items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial losses

 

$

(4,307

)

 

$

(5,191

)

 

$

(8,768

)

 

$

(10,602

)

Prior service cost

 

 

59

 

 

 

23

 

 

 

120

 

 

 

47

 

Total Before Income Tax

 

 

(4,248

)

 

 

(5,168

)

 

 

(8,648

)

 

 

(10,555

)

Income Tax Benefit

 

 

1,015

 

 

 

1,454

 

 

 

2,061

 

 

 

2,962

 

Total reclassifications, after-tax

 

$

(3,233

)

 

$

(3,714

)

 

$

(6,587

)

 

$

(7,593

)

 

 

Income Taxes

The Company’s consolidated effective income tax rate for the three months ended April 1, 2016 declined to 29.9% from 31.7% for the corresponding period last year. The decrease in the tax rate for the three months ended April 1, 2016 as compared to the corresponding period last year was primarily the result of a change in the Company’s geographic income mix due to international restructuring efforts, which increased the operational effective tax rate.  This increase, however, was offset by certain discrete tax benefits recognized during the second quarter of fiscal 2016.  The Company realized benefits associated with certain federal tax refunds received during the quarter as well as benefits associated with the release of a foreign tax reserve due to statute expiration.  In connection with the release of the foreign tax reserve, the Company also reversed accrued interest expense of $2.7 million of accrued interest expense and $5.1 million of accrued penalties, which is recorded in Other Income (Expense) in the Consolidated Statements of Earnings.

The Company’s effective income tax rate for the six months ended April 1, 2016 declined to 23.3% from 31.5% for the corresponding period last year.  Contributing to the decrease was the release of a valuation allowance of $11.2 million in the first quarter of fiscal 2016 related to certain foreign net operating losses combined with the discrete benefits realized during the three months ended April 1, 2016 as described in the preceding paragraph, partially offset by the change in geographic income mix.

 

 

Earnings Per Share and Certain Related Information

The following table (i) reconciles the denominator used to compute basic earnings per share (“EPS”) to the denominator used to compute diluted EPS for the three and six months ended April 1, 2016 and March 27, 2015; (ii) provides information regarding the number of non-qualified stock options and shares of restricted stock that were antidilutive and therefore disregarded in calculating the weighted average number of shares outstanding used in computing diluted EPS; and (iii) provides the number of shares of common stock issued from the exercise of stock options and the release of restricted stock (in thousands):

 

 

 

For the Three Months Ended

 

 

For the six Months Ended

 

 

 

April 1,

2016

 

 

March 27,

2015

 

 

April 1,

2016

 

 

March 27,

2015

 

Shares used to calculate EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

   (denominator used to compute basic EPS)

 

 

120,216

 

 

 

125,992

 

 

 

120,554

 

 

 

127,283

 

Effect of stock options and restricted stock

 

 

927

 

 

 

1,174

 

 

 

1,000

 

 

 

1,247

 

Denominator used to compute diluted EPS

 

 

121,143

 

 

 

127,166

 

 

 

121,554

 

 

 

128,530