Attached files

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EX-95 - EX-95 - JACOBS ENGINEERING GROUP INC /DE/jec-ex95_10.htm
EX-32.2 - EX-32.2 - JACOBS ENGINEERING GROUP INC /DE/jec-ex322_107.htm
EX-32.1 - EX-32.1 - JACOBS ENGINEERING GROUP INC /DE/jec-ex321_7.htm
EX-31.2 - EX-31.2 - JACOBS ENGINEERING GROUP INC /DE/jec-ex312_6.htm
EX-31.1 - EX-31.1 - JACOBS ENGINEERING GROUP INC /DE/jec-ex311_9.htm
EX-10.11 - EX-10.11 - JACOBS ENGINEERING GROUP INC /DE/jec-ex1011_109.htm
EX-10.10 - EX-10.10 - JACOBS ENGINEERING GROUP INC /DE/jec-ex1010_108.htm
EX-10.9 - EX-10.9 - JACOBS ENGINEERING GROUP INC /DE/jec-ex109_110.htm
EX-10.8 - EX-10.8 - JACOBS ENGINEERING GROUP INC /DE/jec-ex108_111.htm
EX-10.7 - EX-10.7 - JACOBS ENGINEERING GROUP INC /DE/jec-ex107_112.htm
EX-10.6 - EX-10.6 - JACOBS ENGINEERING GROUP INC /DE/jec-ex106_113.htm
EX-10.5 - EX-10.5 - JACOBS ENGINEERING GROUP INC /DE/jec-ex105_114.htm
EX-10.4 - EX-10.4 - JACOBS ENGINEERING GROUP INC /DE/jec-ex104_115.htm
EX-10.3 - EX-10.3 - JACOBS ENGINEERING GROUP INC /DE/jec-ex103_116.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark one)

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

For the quarterly period ended December 29, 2017

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 or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

 

 

1999 Bryan Street, Suite 1200, Dallas, Texas

75201

(Address of principal executive offices)

(Zip Code)

 

(214) 583 – 8500

(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:      Yes      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).      Yes      No

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Number of shares of common stock outstanding at January 24, 2018: 141,671,364

 

 

 


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 (Loss) - 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

25

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

 

 

 

Item 4.

Controls and Procedures

37

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

38

 

 

 

 

 

Item 1A.

Risk Factors

38

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

38

 

 

 

 

 

Item 4.

Mine Safety Disclosures

38

 

 

 

 

 

Item 5.

Other Information

38

 

 

 

 

 

Item 6.

Exhibits

40

 

 

 

SIGNATURES

42

 

Page 2


Part I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

 

 

 

December 29, 2017     (Unaudited)

 

 

September 29, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

           Cash and cash equivalents

 

$

1,059,839

 

 

$

774,151

 

           Receivables

 

 

3,293,502

 

 

 

2,102,543

 

           Prepaid expenses and other

 

 

193,614

 

 

 

119,486

 

               Total current assets

 

 

4,546,955

 

 

 

2,996,180

 

Property, Equipment and Improvements, net

 

 

574,034

 

 

 

349,911

 

Other Noncurrent Assets:

 

 

 

 

 

 

 

 

           Goodwill

 

 

5,720,875

 

 

 

3,009,826

 

           Intangibles, net

 

 

921,000

 

 

 

332,920

 

           Miscellaneous

 

 

928,893

 

 

 

692,022

 

               Total other noncurrent assets

 

 

7,570,768

 

 

 

4,034,768

 

 

 

$

12,691,757

 

 

$

7,380,859

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

           Notes payable

 

$

5,450

 

 

$

3,071

 

           Accounts payable

 

 

947,199

 

 

 

683,605

 

           Accrued liabilities

 

 

1,472,865

 

 

 

939,687

 

           Billings in excess of costs

 

 

637,542

 

 

 

299,864

 

               Total current liabilities

 

 

3,063,056

 

 

 

1,926,227

 

Long-term Debt

 

 

2,587,933

 

 

 

235,000

 

Other Deferred Liabilities

 

 

1,079,021

 

 

 

732,281

 

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—141,556,705 shares and 120,385,544

                      shares as of December 29, 2017 and September 29, 2017, respectively

 

 

141,557

 

 

 

120,386

 

          Additional paid-in capital

 

 

2,628,012

 

 

 

1,239,782

 

          Retained earnings

 

 

3,728,527

 

 

 

3,721,698

 

          Accumulated other comprehensive loss

 

 

(628,985

)

 

 

(653,514

)

                Total Jacobs stockholders’ equity

 

 

5,869,111

 

 

 

4,428,352

 

         Noncontrolling interests

 

 

92,636

 

 

 

58,999

 

                Total Group stockholders’ equity

 

 

5,961,747

 

 

 

4,487,351

 

 

 

$

12,691,757

 

 

$

7,380,859

 

 

See the accompanying Notes to Consolidated Financial Statements – Unaudited.

 

 

Page 3


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

For the Three Months Ended December 29, 2017 and December 30, 2016

(In thousands, except per share information)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

December 29, 2017

 

 

December 30, 2016

 

Revenues

 

$

2,750,311

 

 

$

2,551,604

 

Direct cost of contracts

 

 

(2,263,131

)

 

 

(2,132,292

)

Gross Profit

 

 

487,180

 

 

 

419,312

 

Selling, general and administrative expenses

 

 

(439,536

)

 

 

(330,684

)

Operating Profit

 

 

47,644

 

 

 

88,628

 

Other Income (Expense):

 

 

 

 

 

 

 

 

Interest income

 

 

3,834

 

 

 

1,486

 

Interest expense

 

 

(7,092

)

 

 

(3,518

)

Miscellaneous expense, net

 

 

(2,470

)

 

 

(716

)

Total other expense, net

 

 

(5,728

)

 

 

(2,748

)

Earnings Before Taxes

 

 

41,916

 

 

 

85,880

 

Income Tax Expense

 

 

(39,355

)

 

 

(24,727

)

Net Earnings of the Group

 

 

2,561

 

 

 

61,153

 

Net Earnings Attributable to Noncontrolling Interests

 

 

(398

)

 

 

(617

)

Net Earnings Attributable to Jacobs

 

$

2,163

 

 

$

60,536

 

Net Earnings Per Share:

 

 

 

 

 

 

 

 

Basic

 

$

0.02

 

 

$

0.50

 

Diluted

 

$

0.02

 

 

$

0.50

 

 

See the accompanying Notes to Consolidated Financial Statements – Unaudited.

 

Page 4


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three Months  Ended December 29, 2017 and December 30, 2016

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

December 29, 2017

 

 

December 30, 2016

 

Net Earnings of the Group

 

$

2,561

 

 

$

61,153

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

20,168

 

 

 

(287,524

)

Gain (loss) on cash flow hedges

 

 

890

 

 

 

(942

)

Change in pension liabilities

 

 

3,596

 

 

 

24,753

 

Other comprehensive income (loss) before taxes

 

 

24,654

 

 

 

(263,713

)

Income Tax Expense:

 

 

 

 

 

 

 

 

Cash flow hedges

 

 

 

 

 

(82

)

Change in pension liabilities

 

 

(125

)

 

 

(4,522

)

Income Tax Expense:

 

 

(125

)

 

 

(4,604

)

Net other comprehensive income (loss)

 

 

24,529

 

 

 

(268,317

)

Net Comprehensive Income (Loss) of the Group

 

 

27,090

 

 

 

(207,164

)

Net Earnings Attributable to Noncontrolling Interests

 

 

(398

)

 

 

(617

)

Net Comprehensive Income (Loss) Attributable to Jacobs

 

$

26,692

 

 

$

(207,781

)

 

See the accompanying Notes to Consolidated Financial Statements – Unaudited.

 

Page 5


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended December 29, 2017 and December 30, 2016

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

December 29, 2017

 

 

December 30, 2016

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net earnings attributable to the Group

 

$

2,561

 

 

$

61,153

 

Adjustments to reconcile net earnings to net cash flows provided by operations:

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

Property, equipment and improvements

 

 

24,832

 

 

 

16,621

 

Intangible assets

 

 

14,695

 

 

 

11,914

 

Debt Issuance Costs

 

 

218

 

 

 

 

(Gain) Loss on sales of business

 

 

(444

)

 

 

822

 

Stock based compensation

 

 

24,619

 

 

 

10,205

 

Tax deficiency from stock based compensation

 

 

 

 

 

 

(1,205

)

Equity in earnings of operating ventures, net

 

 

(3,631

)

 

 

(902

)

(Gain) Losses on disposals of assets, net

 

 

(20

)

 

 

2,847

 

Change in pension plan obligations

 

 

(10,227

)

 

 

(5,301

)

Pension Settlement Charge

 

 

3,819

 

 

 

 

Change in deferred compensation plans

 

 

(985

)

 

 

463

 

Deferred income taxes

 

 

(11,951

)

 

 

(565

)

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

 

 

 

 

 

 

 

 

Receivables

 

 

15,749

 

 

 

(19,627

)

Prepaid expenses and other current assets

 

 

(1,550

)

 

 

(2,612

)

Accounts payable

 

 

(38,875

)

 

 

(10,782

)

Accrued liabilities

 

 

(110,140

)

 

 

(69,638

)

Billings in excess of costs

 

 

71,587

 

 

 

111,862

 

Other deferred liabilities

 

 

5,997

 

 

 

(576

)

Non-current assets and other, net

 

 

60,632

 

 

 

5,748

 

Net cash provided by operating activities

 

 

46,886

 

 

 

110,427

 

Cash Flows Used for Investing Activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(22,450

)

 

 

(21,054

)

Disposals of property and equipment

 

 

104

 

 

 

4

 

Purchases of investments

 

 

(370

)

 

 

 

Additions to intangibles

 

 

(237

)

 

 

 

Acquisitions of businesses, net of cash acquired

 

 

(1,365,809

)

 

 

 

Sales of business

 

 

 

 

 

(2,036

)

Net cash used for investing activities

 

 

(1,388,762

)

 

 

(23,086

)

Cash Flows Provided by Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from long-term borrowings

 

 

2,733,475

 

 

 

314,460

 

Repayments of long-term borrowings

 

 

(1,090,329

)

 

 

(303,128

)

Proceeds from short-term borrowings

 

 

721

 

 

 

669

 

Repayments of short-term borrowings

 

 

(721

)

 

 

 

Proceeds from issuances of common stock

 

 

14,454

 

 

 

37,396

 

Common stock repurchases

 

 

 

 

 

(30,221

)

Excess tax benefits from stock based compensation

 

 

 

 

 

1,205

 

Taxes paid on vested restricted stock

 

 

(13,780

)

 

 

(5,053

)

Cash dividends

 

 

(18,143

)

 

 

 

Net cash provided by financing activities

 

 

1,625,677

 

 

 

15,328

 

Effect of Exchange Rate Changes

 

 

1,887

 

 

 

(21,839

)

Net Increase in Cash and Cash Equivalents

 

 

285,688

 

 

 

80,830

 

Cash and Cash Equivalents at the Beginning of the Period

 

 

774,151

 

 

 

655,716

 

Cash and Cash Equivalents at the End of the Period

 

$

1,059,839

 

 

$

736,546

 

 

See the accompanying Notes to Consolidated Financial Statements – Unaudited.

 

Page 6


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

 

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

December 29, 2017

 

1.

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 September 29, 2017 (“2017 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 December 29, 2017, and for the three-month period ended December 29, 2017.

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

Please refer to Note 17 Definitions of Notes to Consolidated Financial Statements included in our 2017 Form 10-K for the definitions of certain terms used herein.

 

2.

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 2017 Form 10-K for a discussion of the significant estimates and assumptions affecting our consolidated financial statements.

3.

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

 

Please refer to Note 2 Significant Accounting Policies of Notes to Consolidated Financial Statements included in our 2017 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.

The net carrying amounts of cash and cash equivalents, trade receivables and payables, and notes payable approximate Fair Value due to the short-term nature of these instruments. Similarly, we believe the carrying value of long-term debt also approximates Fair Value based on the interest rates and scheduled maturities applicable to the outstanding borrowings.

 

4.

New Accounting Pronouncements

         Revenue Recognition

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’s adoption activities will be performed over three phases: (i) assessment, (ii) design, and (iii) implementation. Our assessment phase is complete. We have established a cross-functional team to implement ASU 2014-09.  We have identified and are in the process of implementing changes to our systems, processes and internal controls to meet the standard’s updated reporting and disclosure requirements.  The following are the potential significant differences identified during the assessment phase:

Performance Obligations

Under current U.S. GAAP, the Company typically considers engineering and construction services as separate performance obligations. Under ASU 2014-09, the Company has determined, in most instances, it is likely that engineering and construction services will be required to be combined into a single performance obligation. In these instances, this will likely change the timing and pattern of revenue recognition.

Contract Modifications

In many instances, the Company enters into contracts for construction services subsequent to entering in to engineering services contracts (“Phased Projects”). Under ASU 2014-09, the construction services contract may be deemed to modify the engineering contract, or may be required to be combined with the engineering contract. This modification or combination of contracts may result in a cumulative catchup adjustment, which will have an immediate impact on the Company’s results of operations in the period the contract combination or modification occurs. In addition, it will change the timing and pattern of revenue recognition after the period the contracts have been combined or modified.  The Company analyzed its current Phased Projects and concluded that a significant number of these arrangements would be combined under ASU 2014-09.

The Company currently intends to adopt the new standard using the Modified Retrospective application. This standard could have a significant impact on the Company’s Consolidated Financial Statements and an administrative impact on its operations and will depend on the magnitude of the items discussed above. The Company will continue to evaluate the impact through the design and implementation phases.

         Lease Accounting

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

Page 8


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

 

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.

Hedge Accounting

In August 2017, the FASB issued ASU  No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.  ASU No. 2017-12 makes targeted improvements to the current guidance on accounting for hedges so that it provides a better view of an entity’s risk management activities and how the entity’s hedging strategies are being used to manage risk. In addition, ASU No. 2017-12 further simplifies the application of certain aspects of hedge accounting, including the measurement of hedge effectiveness.  The revised guidance becomes effective for fiscal years beginning after December 15, 2018.  The Company is evaluating the impact of the new guidance on its consolidated financial statements. It is not expected that the updated guidance will have a significant impact on the Company’s consolidated financial statements.

 

 

5.

Business Combinations

 

On December 15, 2017, the Company completed the acquisition of CH2M HILL Companies, Ltd. (CH2M), an international provider of engineering, construction, and technical services, by acquiring 100% of the outstanding shares of CH2M common stock and preferred stock. The purpose of the acquisition is to further diversify the Company’s presence in the water, nuclear and environmental remediation sectors and to further the Company’s profitable growth strategy. The Company paid total consideration of approximately $1.8 billion in cash and issued approximately $1.4 billion of Jacobs’ common stock, or 20.7 million shares, to the former stockholders and certain equity award holders of CH2M. In connection with the acquisition, the Company also assumed CH2M’s revolving credit facility and second lien notes, including a $20 million prepayment penalty, which totaled approximately $700 million of long-term debt.  Immediately following the effective time of the acquisition, the Company repaid CH2M’s revolving credit facility and second lien notes including the related prepayment penalty.

 

The following summarizes the estimated fair values of CH2M assets acquired and liabilities assumed as of the acquisition date (in millions):

 

Assets

 

 

 

 

Cash and cash equivalents

 

$

315.2

 

Receivables

 

1,201.9

 

Prepaid expenses and other

 

72.7

 

Property, equipment and improvements, net

 

225.6

 

Goodwill

 

2,698.8

 

Identifiable intangible assets:

 

 

 

Customer relationships, contracts and backlog

 

557.0

 

Trade name

 

40.0

 

Lease intangible assets

 

5.9

 

Total identifiable intangible assets

 

602.9

 

Miscellaneous

 

277.4

 

Total Assets

 

$            5,394.5

 

 

 

Liabilities

 

 

 

Notes payable

 

2.2

 

Accounts payable

 

309.6

 

Accrued liabilities

 

659.0

 

Billings in excess of costs

 

263.5

 

Identifiable intangible liabilities:

 

 

 

Lease intangible liabilities

 

9.6

 

Long-term debt

 

702.3

 

Other deferred liabilities

 

382.7

 

Total Liabilities

 

2,328.9

 

Noncontrolling interests

 

(40.9)

 

Net assets acquired

 

$

3,024.7

 

 

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

 

Customer relationships, contracts and backlog represent the fair value of existing contracts, the underlying customer relationships and backlog of consolidated subsidiaries and have lives ranging from 5 to 13 years (weighted average life of approximately 8 years). The fair value of the acquired trade name has an estimated life of three years. Other intangible assets and liabilities primarily consist of the fair value of office leases and have a weighted average life of approximately 12 years.

 

Estimated fair value measurements relating to the CH2M acquisition are made using Level 3 inputs including discounted cash flow techniques.  Fair value is estimated using inputs primarily from the income approach, which include the use of both the multiple period excess earnings method and the relief from royalties method. The significant assumptions used in estimating fair value include (i) the estimated life the asset will contribute to cash flows, such as attrition rate of customers or remaining contractual terms, (ii) profitability and (iii) the estimated discount rate that reflect the level of risk associated with receiving future cash flows. The estimated fair value of land has been determined using the market approach, which arrives at an indication of value by comparing the site being valued to sites that have been recently acquired in arm’s-length transactions. Personal property assets with an active and identifiable secondary market are valued using the market approach. Buildings and land improvements are valued using the cost approach using a direct cost model built on estimates of replacement cost. Other personal property assets such as furniture, fixtures and equipment are valued using the cost approach which is based on replacement or reproduction costs of the asset less depreciation.

 

Other deferred liabilities were comprised of pensions and other long-term employee related liabilities totaling approximately $291.0 million.  

 

The purchase price allocation is based upon preliminary information and is subject to change when additional information is obtained. Goodwill recognized largely results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. None of the goodwill recognized is expected to be deductible for tax purposes.  The Company has not completed its final assessment of the fair values of purchased receivables, intangible assets and liabilities, property and equipment, tax balances, contingent liabilities, long-term leases or acquired contracts. The final purchase price allocation will result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill. See Note 18, Commitments and Contingencies, relating to CH2M contingencies.

 

From the acquisition date of December 15, 2017 through the end of the first fiscal quarter of 2018, CH2M contributed approximately $131 million in revenue and $15.7 million in net earnings included in the accompanying consolidated statement of earnings.  Included in these results were approximately $30 million in pre-tax restructuring and transaction costs.

 

Transaction costs associated with the CH2M acquisition in the accompanying consolidated statements of operations for the three months ended December 29, 2017 are comprised of the following (in millions):

 

Personnel costs

 

$

41,222

 

Professional service, real estate-related, and other expenses

 

26,675

 

Total

 

$

67,897

 

 

 

The following presents summarized unaudited pro forma operating results assuming that the Company had acquired CH2M at October 1, 2016. These pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the related events occurred (in millions):

 

 

 

Three Months Ended

 

See note 1 

 

December 29,
2017

 

December 30,
2016

 

 

 

 

 

Revenues

 

$

3,778  

 

$

3,652

 

Net earnings (loss)

 

$                 25.8

 

$

             (47.0)

 

Net earnings (loss) attributable to  Jacobs

 

$

23.2

 

$

(56.6)

 

Net earnings (loss) attributable to Jacobs per share:

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.16

 

$

(0.40)

 

Diluted earnings (loss) per share

 

$

0.16

 

$

(0.40)

 

 

1

Included in the unaudited pro forma operating results are charges relating to transaction expenses, severance expense and other items that are removed from the three months ended December 29, 2017 and are reflected in the three months ended December 30, 2016 due to the assumed timing of the transaction.  Also, income tax expense (benefit) for the three month pro forma periods ended December 29, 2017 and December 30, 2016 were $67.4 million and ($78.6) million, respectively.

 

Page 10


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

 

6.

Goodwill and Intangibles

 

The carrying value of goodwill by reportable segment appearing in the accompanying Consolidated Balance Sheets at December 29, 2017 and September 29, 2017 were as follows (in millions):

 

 

 

 

Aerospace & Technology

 

 

Buildings & Infrastructure

 

 

Industrial

 

 

Petroleum & Chemicals

 

 

 

Total

Balance September 29, 2017

 

$

1,025.8

 

$

751.4

 

$

561.8

 

$

670.8

$

 

3,009.8

Acquired

 

 

945.2

 

 

1,417.9

 

 

 

 

335.7

 

2,698.8

Foreign Exchange Impact

 

 

4.2

 

 

3.1

 

 

2.3

 

 

2.7

 

12.3

Balance December 29, 2017

 

$

1,975.2

 

$

2,172.4

 

$

564.1

 

$

1,009.2

$

 

5,720.9

 

During the preparation of the Form 10-Q for the first fiscal quarter of 2017, the Company determined that its prior financial statements contained immaterial misstatements related to incorrect translation of the Company’s non-U.S. goodwill balances from local currency to the U.S. Dollar reporting currency. It was determined that the Company had incorrectly used historical translation rates for the U.S. Dollar in place at the time of the Company’s recording of its foreign goodwill balances rather than using current translation rates at each balance sheet date in accordance with U.S. GAAP.  The error dated back to the time of our initial reporting of non-US goodwill balances in the late 1990s and affected our historical quarterly and annual reporting periods through the first fiscal quarter of 2017.  Goodwill and accumulated other comprehensive income in the Company’s September 30, 2016 consolidated balance sheet (which have not been adjusted) were each overstated by $209.9 million and was corrected in the first fiscal quarter of 2017 foreign currency translation adjustment.  Consequently, the correction was a direct component of the overall translation adjustment amount of $287.5 million that was reported for the three months ended December 30, 2016.  These adjustments had no impact on the Company’s Consolidated Statements of Earnings or Cash Flows.

 

 

 

 

 

 

 

The following table provides certain information related to the Company’s acquired intangibles in the accompanying Consolidated Balance Sheets at December 29, 2017 and September 29, 2017 (in thousands):

 

Customer Relationships, Contracts, and Backlog

 

Developed Technology

 

Trade Names

 

Patents

 

 

 

 

 

 

Lease Intangible Assets

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, September 29, 2017

$

301,468

 

$

14,462

 

$

6,699

 

$

10,180

 

$               -

 

$

111

 

$

332,920

 

 

Acquisitions and additions

 

557,000

 

 

237

 

 

40,000

 

 

-

 

5,951

 

 

-

 

 

603,188

 

 

Amortization

 

(12,852

)

 

(384

)

 

(1,344

)

 

(104

)

-

 

 

(11

)

 

(14,695

)

 

Foreign currency translation

 

(346

)

 

-

 

 

26

 

 

(93

)

-

 

 

-

 

 

(413

)

 

Balances, December 29, 2017

$

845,270

 

$

14,315

 

$

45,381

 

$

9,983

 

$

5,951

 

$

100

 

$

921,000

 

 

 

In addition, we acquired $9.6 million in lease intangible liabilities in connection with the CH2M acquisition.

 

The following table presents estimated amortization expense of intangible assets for the remainder of fiscal 2018 and for the succeeding years.  The amounts below include preliminary amortization estimates for the CH2M opening balance sheet fair values that are still preliminary and are subject to change.

 

Fiscal Year

 

(in millions)

 

2018 (nine months remaining)

 

$

90.5

 

2019

 

119.2

 

2020

 

117.1

 

2021

 

102.3

 

Page 11


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

 

2022

 

98.2

 

Thereafter

 

384.1

 

Total

 

$

911.4

 

 

 

7.

Segment Information

The Company’s operations are organized around four global lines of business (“LOBs”), which also serve as the Company’s operating segments: Aerospace & Technology, Buildings & Infrastructure, Industrial and Petroleum & Chemicals. The Company’s LOB leadership and internal reporting structures report to the Chief Executive Officer, who is also the Chief Operating Decision Maker (“CODM”), and enable the CODM to evaluate the performance of each of these segments and make appropriate resource allocations among each of the segments. For purposes of the Company’s goodwill impairment testing, it has been determined that the Company’s operating segments are also its reporting units based on management’s conclusion that the components comprising each of its operating segments share similar economic characteristics and meet the aggregation criteria in accordance with ASC 350, Intangibles-Goodwill and Other.

 

Under the current organization, each LOB has a president that reports directly to the CODM. In addition, the sales function, which had been managed centrally for many years, is managed on an LOB basis, and accordingly, the associated cost is embedded in the new segments and reported to the respective LOB presidents.  In addition, a portion of the costs of other support functions (e.g., finance, legal, human resources, and information technology) is 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.  The cost of the Company’s cash incentive plan, the Management Incentive Plan (“MIP”) and the expense associated with the Jacobs Engineering Group Inc. 1999 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 generally 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 segment 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 costs (“SG&A”) that relate to its business as a whole which are not allocated to the LOBs.

 

On December 15, 2017, the Company completed the acquisition of CH2M.  For purposes of the Company’s first quarter fiscal 2018 segment reporting, the operating financial information of CH2M has been categorized within the Company’s existing LOB business structure, with its sales and operating profit results for the time period during which CH2M has been under the ownership of the Company (December 15, 2017 - December 29, 2017) being allocated to the Company’s A&T, B&I and P&C lines of business under a transitional business organization structure.  Additionally, the preliminary purchase accounting for the acquisition, including opening balance sheet fair value determinations as well as final segment categorizations are still in process.

 

The following tables present total revenues and segment operating profit for each reportable segment (in thousands) and includes a reconciliation of segment operating profit to total U.S. GAAP operating profit by including certain corporate-level expenses and expenses relating to the Restructuring and other charges and CH2M transaction and integration costs (in thousands).

 

 

For the Three Months Ended

 

December 29, 2017

 

 

December 30, 2016

 

Revenues from External Customers:

 

 

 

 

 

 

 

      Aerospace & Technology

$

721,567

 

 

$

577,436

 

      Buildings & Infrastructure

 

658,466

 

 

 

580,617

 

      Industrial

 

749,321

 

 

 

751,738

 

      Petroleum & Chemicals

 

620,957

 

 

 

641,813

 

            Total

$

2,750,311

 

 

$

2,551,604

 

Page 12


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

 

 

 

For the Three Months Ended

 

 

December 29, 2017

 

 

December 30, 2016

 

 

Segment Operating Profit:

 

 

 

 

 

 

 

 

      Aerospace & Technology

$

65,820

 

 

$

51,087

 

 

      Buildings & Infrastructure

 

45,273

 

 

 

38,797

 

 

      Industrial

 

38,113

 

 

 

25,129

 

 

      Petroleum & Chemicals

 

27,557

 

 

 

23,652

 

 

       Total Segment Operating Profit

 

176,763

 

 

 

138,665

 

 

Other Corporate Items

 

(42,129

)

 

 

(18,296

)

 

Restructuring and Other Charges

 

(19,349

)

 

 

(31,741

)

 

CH2M Transaction Costs

 

(67,641

)

 

 

 

 

        Total U.S. GAAP Operating Profit

 

47,644

 

 

 

88,628

 

 

Total Other Expense (1)

 

(5,728

)

 

 

(2,748

)

 

Earnings Before Taxes

$

41,916

 

 

$

85,880

 

 

 

(1)

Includes amortization of deferred financing fees related to the CH2M acquisition of $256 thousand for the three-month period ended December 29, 2017.

 

During the fourth fiscal quarter of 2017, the Company implemented certain restructuring activities (primarily severance related activities) associated with the Company’s announced definitive agreement to acquire CH2M.  Following the closing of the CH2M acquisition, these activities have continued into the first fiscal quarter of 2018 and include associated charges for professional services, personnel costs, severance and costs associated with co-locating Jacobs and CH2M offices, amounting to approximately $19.3 million in pre-tax charges during first quarter ended December 29, 2017.  These activities are expected to continue through 2019.  These activities are not expected to involve the exit of any service types or client end-markets.

 

Transaction costs associated with the CH2M acquisition in the accompanying consolidated statements of operations for the three months ended December 29, 2017 are comprised of the following (in millions):

 

Personnel costs

 

$

41,222

 

Professional service, real estate-related, and other expenses (1)

 

26,675

 

Total

 

$

67,897

 

 

 

(1)

Includes deferred financing fees related to the CH2M acquisition of $256 thousand for the three months ending December 29, 2017.

 

Included in “other corporate items” 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 Management Incentive Plan 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 items” 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.

We provide a broad range of technical, professional, and construction services including engineering, design, and architectural services; construction and construction management services; operations and maintenance services; and process, scientific, and systems consulting services.  We provide our services through offices and subsidiaries located primarily in North America, South America, Europe, the Middle East, India, Australia, Africa, and Asia.  We provide our services under cost-reimbursable and fixed-price contracts.

 

Page 13


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

 

The following tables present total services revenues for each reportable segment for the three months  ended  December 29, 2017 and  December 30, 2016 (in thousands).

 

 

For the Three Months Ended

 

 

December 29, 2017

 

 

Aerospace & Technology

 

 

 

 

Buildings & Infrastructure

 

 

 

 

Industrial

 

 

 

 

Petroleum & Chemicals

 

 

Total

 

Technical Professional Services Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Services

$

274,945

 

 

 

 

 

615,238

 

 

 

 

 

67,672

 

 

 

 

 

401,166

 

 

 

1,359,021

 

Process, Scientific, and Systems Consulting

 

244,128

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

6,945

 

 

 

251,073

 

Total Technical Professional Services Revenues

 

519,073

 

 

 

 

 

615,238

 

 

 

 

 

67,672

 

 

 

 

 

408,111

 

 

 

1,610,094

 

Field Services Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

121,869

 

 

 

 

 

42,653

 

 

 

 

 

496,632

 

 

 

 

 

212,415

 

 

 

873,569

 

Operations and Maintenance (“O&M”)

 

80,625

 

 

 

 

 

575

 

 

 

 

 

185,017

 

 

 

 

 

431

 

 

 

266,648

 

Total Field Services Revenues

 

202,494

 

 

 

 

 

43,228

 

 

 

 

 

681,649

 

 

 

 

 

212,846

 

 

 

1,140,217

 

Total Revenues

$

721,567

 

 

 

 

$

658,466

 

 

 

 

$

749,321

 

 

 

 

$

620,957

 

 

$

2,750,311

 

 

 

For the Three Months Ended

 

 

December 30, 2016

 

 

Aerospace & Technology

 

 

 

 

Buildings & Infrastructure

 

 

 

 

Industrial

 

 

 

 

Petroleum & Chemicals

 

 

Total

 

Technical Professional Services Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Services

$

176,464

 

 

 

 

$

509,849

 

 

 

 

$

2,616

 

 

 

 

$

369,262

 

 

$

1,058,191

 

Process, Scientific, and Systems Consulting

 

199,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,917

 

 

 

206,746

 

Total Technical Professional Services Revenues

 

376,293

 

 

 

 

 

509,849

 

 

 

 

 

2,616

 

 

 

 

 

376,179

 

 

 

1,264,937

 

Field Services Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

82,787

 

 

 

 

 

66,641

 

 

 

 

 

535,336

 

 

 

 

 

262,183

 

 

 

946,947

 

Operations and Maintenance (“O&M”)

 

118,356

 

 

 

 

 

4,127

 

 

 

 

 

213,786

 

 

 

 

 

3,451

 

 

 

339,720

 

Total Field Services Revenues

 

201,143

 

 

 

 

 

70,768

 

 

 

 

 

749,122

 

 

 

 

 

265,634

 

 

 

1,286,667

 

Total Revenues

$

577,436

 

 

 

 

$

580,617

 

 

 

 

$

751,738

 

 

 

 

$

641,813

 

 

$

2,551,604

 

 

 

8.

Receivables

The following table presents the components of receivables appearing in the accompanying Consolidated Balance Sheets at December 29, 2017 and September 29, 2017, as well as certain other related information (in thousands):

 

 

 

December 29, 2017

 

 

September 29, 2017

 

Components of receivables:

 

 

 

 

 

 

 

 

Amounts billed, net

 

$

1,691,229

 

 

$

949,060

 

Unbilled receivables and other

 

 

1,577,005

 

 

 

1,118,144

 

Retentions receivable

 

 

25,268

 

 

 

35,339

 

Total receivables, net

 

$

3,293,502

 

 

$

2,102,543

 

Other information about receivables:

 

 

 

 

 

 

 

 

Amounts due from the United States federal

   government, included above, net of advanced

   billings

 

$

314,543

 

 

$

226,236

 

Claims receivable

 

$

4,600

 

 

$

4,600

 

 

Amounts billed, net 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 other 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.

Page 14


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

 

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.

 

 

9.

Property, Equipment and Improvements, Net

Property, Equipment and Improvements, Net in the accompanying Consolidated Balance Sheets at December 29, 2017 and September 29, 2017 consist of the following (in thousands):

 

 

 

December 29,

2017

 

 

September 29,
2017

 

Land

 

$

20,644

 

 

$

17,197

 

Buildings

 

 

137,336

 

 

 

93,313

 

Equipment

 

 

777,361

 

 

 

627,609

 

Leasehold improvements

 

 

274,141

 

 

 

220,295

 

Construction in progress

 

 

22,372

 

 

 

21,300

 

 

 

 

1,231,854

 

 

 

979,714

 

Accumulated depreciation and amortization

 

 

(657,820

)

 

 

(629,803

)