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EX-95 - EX-95 - JACOBS ENGINEERING GROUP INC /DE/jec-ex95_46.htm
EX-32.2 - EX-32.2 - JACOBS ENGINEERING GROUP INC /DE/jec-ex322_47.htm
EX-32.1 - EX-32.1 - JACOBS ENGINEERING GROUP INC /DE/jec-ex321_48.htm
EX-31.2 - EX-31.2 - JACOBS ENGINEERING GROUP INC /DE/jec-ex312_49.htm
EX-31.1 - EX-31.1 - JACOBS ENGINEERING GROUP INC /DE/jec-ex311_51.htm
EX-10.1 - EX-10.1 - JACOBS ENGINEERING GROUP INC /DE/jec-ex101_53.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 July 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 August 5, 2016: 121,428,197

 

 

 

 


 

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

18

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

 

 

Item 4.

Controls and Procedures

28

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

 

 

Item 1A.

Risk Factors

29

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

29

 

 

 

 

 

Item 4.

Mine Safety Disclosures

29

 

 

 

 

 

Item 5.

Other Information

29

 

 

 

 

 

Item 6.

Exhibits

30

 

 

 

SIGNATURES

31

 

Page 2


 

Part I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

 

 

 

July 1,

2016

(Unaudited)

 

 

October 2,

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

616,391

 

 

$

460,859

 

Receivables

 

 

2,234,178

 

 

 

2,548,743

 

Prepaid expenses and other

 

 

78,020

 

 

 

113,076

 

Total current assets

 

 

2,928,589

 

 

 

3,122,678

 

Property, Equipment and Improvements, Net

 

 

325,130

 

 

 

381,238

 

Other Noncurrent Assets:

 

 

 

 

 

 

 

 

Goodwill

 

 

3,079,821

 

 

 

3,048,778

 

Intangibles

 

 

333,608

 

 

 

353,419

 

Deferred income taxes

 

 

356,444

 

 

 

374,064

 

Miscellaneous

 

 

397,200

 

 

 

505,749

 

Total other non-current assets

 

 

4,167,073

 

 

 

4,282,010

 

 

 

$

7,420,792

 

 

$

7,785,926

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Notes payable

 

$

8,941

 

 

$

13,364

 

Accounts payable

 

 

479,217

 

 

 

566,866

 

Accrued liabilities

 

 

1,020,762

 

 

 

1,090,985

 

Billings in excess of costs

 

 

297,520

 

 

 

309,951

 

Total current liabilities

 

 

1,806,440

 

 

 

1,981,166

 

Long-term Debt

 

 

479,000

 

 

 

584,434

 

Other Deferred Liabilities

 

 

646,070

 

 

 

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—121,703,665 shares and 123,152,966

   shares as of July 1, 2016 and October 2, 2015, respectively

  

 

121,704

 

 

 

123,153

 

Additional paid-in capital

 

 

1,156,064

 

 

 

1,137,144

 

Retained earnings

 

 

3,600,121

 

 

 

3,496,212

 

Accumulated other comprehensive loss

 

 

(453,263

)

 

 

(464,764

)

Total Jacobs stockholders’ equity

 

 

4,424,626

 

 

 

4,291,745

 

Noncontrolling interests

 

 

64,656

 

 

 

64,713

 

Total Group stockholders’ equity

 

 

4,489,282

 

 

 

4,356,458

 

 

 

$

7,420,792

 

 

$

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 Nine Months Ended July 1, 2016 and June 26, 2015

(In thousands, except per share information)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

July 1, 2016

 

 

June 26, 2015

 

 

July 1, 2016

 

 

June 26, 2015

 

Revenues

 

$

2,693,873

 

 

$

2,907,541

 

 

$

8,323,570

 

 

$

8,997,878

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct cost of contracts

 

 

(2,242,424

)

 

 

(2,422,944

)

 

 

(6,987,431

)

 

 

(7,502,891

)

Selling, general and administrative expenses

 

 

(341,893

)

 

 

(384,163

)

 

 

(1,080,352

)

 

 

(1,103,286

)

Operating Profit

 

 

109,556

 

 

 

100,434

 

 

 

255,787

 

 

 

391,701

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

624

 

 

 

1,697

 

 

 

5,108

 

 

 

5,553

 

Interest expense

 

 

(4,572

)

 

 

(5,509

)

 

 

(10,315

)

 

 

(15,374

)

Miscellaneous income (expense), net

 

 

(2,801

)

 

 

566

 

 

 

470

 

 

 

(1,034

)

Total other income (expense), net

 

 

(6,749

)

 

 

(3,246

)

 

 

(4,737

)

 

 

(10,855

)

Earnings Before Taxes

 

 

102,807

 

 

 

97,188

 

 

 

251,050

 

 

 

380,846

 

Income Tax Benefit (Expense)

 

 

(31,870

)

 

 

120

 

 

 

(66,418

)

 

 

(89,233

)

Net Earnings of the Group

 

 

70,937

 

 

 

97,308

 

 

 

184,632

 

 

 

291,613

 

Net Loss (Earnings) Attributable to Noncontrolling Interests

 

 

(1,882

)

 

 

(6,246

)

 

 

(3,813

)

 

 

(18,505

)

Net Earnings Attributable to Jacobs

 

$

69,055

 

 

$

91,062

 

 

$

180,819

 

 

$

273,108

 

Net Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.58

 

 

$

0.74

 

 

$

1.50

 

 

$

2.17

 

Diluted

 

$

0.57

 

 

$

0.73

 

 

$

1.49

 

 

$

2.15

 

 

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 Nine Months Ended July 1, 2016 and June 26, 2015

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

July 1, 2016

 

 

June 26, 2015

 

 

July 1, 2016

 

 

June 26, 2015

 

Net Earnings of the Group

 

$

70,937

 

 

$

97,308

 

 

$

184,632

 

 

$

291,613

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(35,840

)

 

 

17,650

 

 

 

(35,094

)

 

 

(69,041

)

Gain (loss) on cash flow hedges

 

 

(459

)

 

 

3,071

 

 

 

(872

)

 

 

(1,773

)

Change in pension liabilities

 

 

42,008

 

 

 

(15,035

)

 

 

60,426

 

 

 

15,886

 

Other comprehensive income (loss) before taxes

 

 

5,709

 

 

 

5,686

 

 

 

24,460

 

 

 

(54,928

)

Income Tax Benefit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges

 

 

(69

)

 

 

(839

)

 

 

(65

)

 

 

425

 

Change in pension liabilities

 

 

(8,706

)

 

 

3,090

 

 

 

(12,893

)

 

 

(2,913

)

Income Tax Benefit (Expense):

 

 

(8,775

)

 

 

2,251

 

 

 

(12,958

)

 

 

(2,488

)

Net other comprehensive income (loss)

 

 

(3,066

)

 

 

7,937

 

 

 

11,502

 

 

 

(57,416

)

Net Comprehensive Income of the Group

 

 

67,871

 

 

 

105,245

 

 

 

196,134

 

 

 

234,197

 

Net Comprehensive Income Attributable to Noncontrolling Interests

 

 

(1,882

)

 

 

(6,246

)

 

 

(3,813

)

 

 

(18,505

)

Net Comprehensive Income Attributable to Jacobs

 

$

65,989

 

 

$

98,999

 

 

$

192,321

 

 

$

215,692

 

 

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 Nine Months Ended July 1, 2016 and June 26, 2015

(In thousands)

(Unaudited)

 

 

 

July 1, 2016

 

 

June 26, 2015

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net earnings attributable to the Group

 

$

184,632

 

 

$

291,613

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

Property, equipment and improvements

 

 

63,447

 

 

 

75,718

 

Intangible assets

 

 

35,499

 

 

 

38,090

 

Stock based compensation

 

 

25,786

 

 

 

32,925

 

Tax benefit from stock based compensation

 

 

(177

)

 

 

(732

)

Equity in earnings of operating ventures, net

 

 

(12,776

)

 

 

7,601

 

Losses (gains) on disposals of assets, net

 

 

13,152

 

 

 

(198

)

Change in pension plan obligations

 

 

(8,546

)

 

 

(4,357

)

Change in deferred compensation plans

 

 

741

 

 

 

(2,858

)

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

 

 

 

 

 

 

 

 

Receivables

 

 

291,784

 

 

 

149,640

 

Prepaid expenses and other current assets

 

 

34,265

 

 

 

39,987

 

Accounts payable

 

 

(92,089

)

 

 

(94,553

)

Accrued liabilities

 

 

(63,006

)

 

 

(78,566

)

Billings in excess of costs

 

 

6,486

 

 

 

(7,208

)

Income taxes

 

 

9,462

 

 

 

(54,442

)

Deferred income taxes

 

 

(25,771

)

 

 

3,770

 

Other deferred liabilities

 

 

(18,216

)

 

 

(11,933

)

Other, net

 

 

1,075

 

 

 

2,256

 

Net cash provided by operating activities

 

 

445,748

 

 

 

386,753

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(46,403

)

 

 

(69,297

)

Disposals of property and equipment

 

 

6,735

 

 

 

5,538

 

Purchases of investments

 

 

(3,406

)

 

 

 

Sales of investments

 

 

 

 

 

13

 

Acquisitions of businesses, net of cash acquired

 

 

(49,714

)

 

 

 

Net cash used for investing activities

 

 

(92,788

)

 

 

(63,746

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from long-term borrowings

 

 

1,329,050

 

 

 

1,214,548

 

Repayments of long-term borrowings

 

 

(1,427,140

)

 

 

(1,291,029

)

Proceeds from short-term borrowings

 

 

7,057

 

 

 

333,156

 

Repayments of short-term borrowings

 

 

(11,621

)

 

 

(329,416

)

Proceeds from issuances of common stock

 

 

26,498

 

 

 

25,056

 

Common stock repurchases

 

 

(102,439

)

 

 

(372,944

)

Excess tax benefits from stock based compensation

 

 

177

 

 

 

732

 

Dividends paid to noncontrolling interests

 

 

(2,709

)

 

 

(7,230

)

Net cash provided by financing activities

 

 

(181,127

)

 

 

(427,127

)

Effect of Exchange Rate Changes

 

 

(16,301

)

 

 

(74,966

)

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

155,532

 

 

 

(179,086

)

Cash and Cash Equivalents at the Beginning of the Period

 

 

460,859

 

 

 

732,647

 

Cash and Cash Equivalents at the End of the Period

 

$

616,391

 

 

$

553,561

 

 

See the accompanying Notes to Consolidated Financial Statements.

 

 

Page 6


 

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

July 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 July 1, 2016, and for the three and nine month periods ended July 1, 2016 and June 26, 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

July 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.  This standard could have a significant administrative impact on its operations, and the Company will further assess the impact through its implementation program.

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 on a retrospective basis for all periods presented. 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.  As a result of the Company’s adoption of ASU 2015-17 in the second quarter of fiscal 2016, 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 by $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

July 1, 2016

(continued)

 

Under the new organization, each LOB has a president that reports directly to the Company's Chairman and CEO (who is also the Company’s Chief Operating Decision Maker, or “CODM”).  As part of the reorganization, the sales function, which had been managed centrally for many years, is now managed on a LOB basis, and accordingly, the associated cost 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 attribute 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, the Management 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 selling, general and administrative (“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 Nine Months Ended

 

 

July 1, 2016

 

 

June 26, 2015

 

 

July 1, 2016

 

 

June 26, 2015

 

Revenues from External Customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Petroleum & Chemicals

$

766,546

 

 

$

983,887

 

 

$

2,575,474

 

 

$

3,191,106

 

Aerospace & Technology

 

667,785

 

 

 

699,118

 

 

 

2,007,440

 

 

 

2,134,460

 

Buildings & Infrastructure

 

553,546

 

 

 

593,834

 

 

 

1,696,004

 

 

 

1,820,626

 

Industrial

 

705,996

 

 

 

630,702

 

 

 

2,044,652

 

 

 

1,851,686

 

Total

$

2,693,873

 

 

$

2,907,541

 

 

$

8,323,570

 

 

$

8,997,878

 

 

  

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

July 1, 2016

 

 

June 26, 2015

 

 

July 1, 2016

 

 

June 26, 2015

 

Operating Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Petroleum & Chemicals

$

29,646

 

 

$

42,011

 

 

$

92,194

 

 

$

105,765

 

Aerospace & Technology

 

53,741

 

 

 

46,467

 

 

 

156,861

 

 

 

149,500

 

Buildings & Infrastructure

 

50,168

 

 

 

41,625

 

 

 

133,083

 

 

 

122,017

 

Industrial

 

28,444

 

 

 

21,511

 

 

 

68,216

 

 

 

98,361

 

Total Segment Operating Profit

 

161,999

 

 

 

151,614

 

 

 

450,354

 

 

 

475,643

 

Other Corporate Expenses

 

(19,523

)

 

 

(7,558

)

 

 

(57,896

)

 

 

(26,282

)

Restructuring Charges

 

(32,920

)

 

 

(43,622

)

 

 

(136,671

)

 

 

(57,660

)

Total Other Expense

 

(6,749

)

 

 

(3,246

)

 

 

(4,737

)

 

 

(10,855

)

Earnings Before Taxes

$

102,807

 

 

$

97,188

 

 

$

251,050

 

 

$

380,846

 

 

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” includes adjustments to contract margins (both positive and negative) associated with projects where it has been determined, in the opinion of management, that such adjustments are not indicative of the performance of the related LOB and therefore should not be attributed to the LOB.

 

 

Page 9


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

July 1, 2016

(continued)

 

Business Combinations

During fiscal year 2016, the Company acquired J.L. Patterson & Associates and The Van Dyke Technology Group, Inc. These acquisitions were not material to the Company’s consolidated results for the first nine months of fiscal 2016.

 

 

Receivables

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

 

 

 

July 1, 2016

 

 

October 2,

2015

 

Components of receivables:

 

 

 

 

 

 

 

 

Amounts billed

 

$

1,086,702

 

 

$

1,213,892

 

Unbilled receivables and other

 

 

1,062,725

 

 

 

1,252,509

 

Retentions receivable

 

 

84,751

 

 

 

82,342

 

Total receivables, net

 

$

2,234,178

 

 

$

2,548,743

 

Other information about receivables:

 

 

 

 

 

 

 

 

Amounts due from the United States federal

   government, included above, net of advanced

   billings

 

$

267,007

 

 

$

327,157

 

Claims receivable

 

$

10,382

 

 

$

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 provide that such amounts become billable upon 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 July 1, 2016 and October 2, 2015 consist of the following (in thousands):

 

 

 

July 1, 2016

 

 

October 2,

2015

 

Land

 

$

18,698

 

 

$

23,757

 

Buildings

 

 

92,410

 

 

 

97,597

 

Equipment

 

 

560,152

 

 

 

592,491

 

Leasehold improvements

 

 

231,294

 

 

 

259,544

 

Construction in progress

 

 

26,203

 

 

 

17,229

 

 

 

 

928,757

 

 

 

990,618

 

Accumulated depreciation and amortization

 

 

(603,627

)

 

 

(609,380

)

 

 

$

325,130

 

 

$

381,238

 

 

 

Page 10


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

July 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 fiscal 2015 and the first nine 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 in connection with the 2015 Restructuring.

 

The costs of the 2015 Restructuring are included in SG&A 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 nine month periods ended July 1, 2016 (in thousands):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

July 1, 2016

 

 

July 1, 2016

 

Petroleum & Chemicals

$

21,774

 

 

$

74,789

 

Buildings & Infrastructure

 

2,245

 

 

 

17,812

 

Aerospace & Technology

 

1,924

 

 

 

4,359

 

Industrial

 

1,658

 

 

 

21,551

 

Corporate

 

5,319

 

 

 

18,160

 

Total

$

32,920

 

 

$

136,671

 

 

 

The Company’s accrual for the 2015 Restructuring as of October 2, 2015 was $102.2 million.  There were $136.7 million of charges and $105.6 million of payments during the nine months ended July 1, 2016.  The accrual balance was $133.3 million as of July 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 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 July 1, 2016 was $479.0 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 July 1, 2016. In addition, the Company had $229.9 million issued under separate, committed and uncommitted letter-of-credit facilities for total issued letters of credit of $232.4 million at July 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 (as defined in the credit agreement governing the 2014 facility), borrowings under the 2014 Facility 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 July 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

Page 11


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

July 1, 2016

(continued)

 

costs incurred to date to the total estimated costs at completion. Contract losses are provided for in their entirety in the period they become known, without regard to the percentage-of-completion. For multiple contracts with a single customer, we account for each contract separately. We also recognize as revenues, costs associated with claims and unapproved change orders to the extent it is probable that such claims and change orders will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated. 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 factors 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 nine months ended July 1, 2016 and June 26, 2015 (in thousands):

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

July 1, 2016

 

 

June 26, 2015

 

 

July 1, 2016

 

 

June 26, 2015

 

Pass-through costs included in revenues

 

$

616,160

 

 

$

574,350

 

 

$

1,887,620

 

 

$

1,896,516

 

 

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.  In accordance with U.S. GAAP, our share of losses associated with the contracts held by the joint ventures, if and when they occur, have 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”) must consolidate a VIE if the reporting entity has a “controlling financial interest” in the VIE, as demonstrated by

Page 12


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

July 1, 2016

(continued)

 

the reporting entity having both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic 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 nine months ended July 1, 2016 and June 26, 2015 (in thousands):

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

July 1, 2016

 

 

June 26, 2015

 

 

July 1, 2016

 

 

June 26, 2015

 

Component:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

5,081

 

 

$

9,988

 

 

$

22,261

 

 

$

26,824

 

Interest cost

 

 

14,568

 

 

 

19,245

 

 

 

45,477

 

 

 

52,006

 

Expected return on plan assets

 

 

(19,723

)

 

 

(24,195

)

 

 

(58,156

)

 

 

(65,610

)

Amortization of previously unrecognized items

 

 

3,249

 

 

 

6,362

 

 

 

14,323

 

 

 

16,798

 

Settlement (gain) loss

 

 

(150

)

 

 

111

 

 

 

(244

)

 

 

270

 

Net periodic benefit cost

 

$

3,025

 

 

$

11,511

 

 

$

23,661

 

 

$

30,288

 

 

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.  Net periodic pension costs for this pension plan for the three and nine months ended July 1, 2016 were $3.4 million and $10.1 million, respectively, and were $1.5 million and $4.4 million, respectively, for the three and nine months ended June 26, 2015.  As of June 30, 2016, we are no longer performing on this operating contract, and, as such, we are no longer responsible for administering this pension plan.  As a result, the unfunded obligation included in “Other Deferred Liabilities” and the corresponding receivable from the U.S. federal government of approximately $115.5 million at July 1, 2016 ($115.5 million at October 2, 2015) were derecognized in the accompany Consolidated Balance Sheet at July1, 2016.  The decrease in pension costs for the three and nine months ended July 1, 2016 as compared to the comparable prior year period was due to the curtailment of our pension plans in the U.K.

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

 

Cash contributions made during the first nine months of

   fiscal 2016

 

$

32,207

 

Cash contributions we expect to make during the remainder

   of fiscal 2016

 

 

1,366

 

Total

 

$

33,573

 

 

 

Other Deferred Liabilities

Other Deferred Liabilities declined $217.8 million from $863.9 million as of October 2, 2015 to $646.1 million as of July 1, 2016.  The decline was due primarily to the derecognition of $115.5 million in pension liabilities associated with a U.S. government contract (discussed above under the heading “Disclosures About Defined Pension Benefit Obligations”), $68.6 million in net lower movements in the Company’s other pension plans, and $33.7 million in long-term deferred and taxes payable.

 

 

Page 13


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

July 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 SG&A expenses in the Company’s Consolidated Statements of Earnings for the three and nine months ended July 1, 2016 and June 26, 2015, respectively related to the Company’s defined benefit pension plans (in thousands):

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

July 1, 2016

 

 

June 26, 2015

 

 

July 1, 2016

 

 

June 26, 2015

 

Amortization of Defined Benefit Items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial losses

 

$

(2,097

)

 

$

(6,448

)

 

$

(10,866

)

 

$

(17,050

)

Prior service cost

 

 

61

 

 

 

26

 

 

 

182

 

 

 

73

 

Total Before Income Tax

 

 

(2,036

)

 

 

(6,422

)

 

 

(10,684

)

 

 

(16,977

)

Income Tax Benefit

 

 

572

 

 

 

1,766

 

 

 

2,634

 

 

 

4,729

 

Total reclassifications, after-tax

 

$

(1,464

)

 

$

(4,656

)

 

$

(8,050

)

 

$

(12,248

)

 

 

Income Taxes

The Company’s consolidated effective income tax rate for the three months ended July 1, 2016 increased to 31.0% from (0.1)% for the corresponding period last year.  The increase in the tax rate for the three months ended July 1, 2016 as compared to the corresponding period last year was primarily the result of a $23.1 million, or $0.19 per share, tax benefit recorded in the third quarter of fiscal 2015, related to the inter-company debt refinancing that was completed during the three months ended June 26, 2015 2015 (the “2015 Inter-company Debt Refinancing”).  Also impacting the current quarter tax rate was a net benefit of $1.4 million related to various discrete items.  The discrete items consisted of a favorable income tax reserve release due to statute expiration and an amended tax return to claim additional benefits for foreign tax credits and a U.S. Internal Revenue Code (“IRC”) Section 179D deduction.  These benefits were partially offset by an unfavorable return to tax accrual adjustment in the quarter.

The Company’s effective income tax rate for the nine months ended July 1, 2016 increased to 26.5% from 23.4% for the corresponding period last year.  Contributing to the increase in the comparable nine month period from the prior year was the result of a $23.1 million, or $0.19 per share, tax benefit recorded in the third quarter of fiscal 2015, which was related to the 2015 Inter-company Debt Refinancing.  Also impacting the current year to date tax rate was $18.8 million of net benefit related to discrete items recorded in the first three quarters of fiscal 2016.  These discrete items consisted of a favorable valuation allowance release, the release of certain tax reserves due to statute expiration and a benefit associated with an amended tax return to claim additional benefits for foreign tax credits and IRC Section 179D deductions.  These benefits were partially offset by an unfavorable return to tax accrual adjustment.

 

 

Page 14


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

July 1, 2016

(continued)

 

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 nine months ended July 1, 2016 and June 26, 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 Nine Months Ended

 

 

 

July 1, 2016

 

 

June 26, 2015

 

 

July 1, 2016

 

 

June 26, 2015

 

Shares used to calculate EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (denominator

   used to compute basic EPS)

 

 

119,850

 

 

 

123,392

 

 

 

120,330

 

 

 

126,004

 

Effect of stock options and restricted stock

 

 

1,596

 

 

 

1,209

 

 

 

1,198