What changed in this filing

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Item 1. Financial Statements

2021-02-09 compared with 2020-08-03 · 482 added, 616 removed, 413 unchanged (73% of the section changed)

4 unchanged sentences

(In thousands, except share information)

June 26, 2020 September 27, 2019

January 1, 2021 October 2, 2020

Current Assets:

2 unchanged sentences

Prepaid expenses and other 144,224 162,355

Current assets held for sale — 952

Investment in equity securities 540,357 347,510

Total current assets 4,786,853 4,539,599

3 unchanged sentences

Intangibles, net 715,641 658,340

Deferred income tax assets 158,491 211,047

Operating lease right-of-use assets 582,985 576,915

Miscellaneous 397,129 409,990

Noncurrent assets held for sale — 26,978

Total other noncurrent assets 7,662,730 7,495,383

2 unchanged sentences

Current Liabilities:

Short-term debt $ — $ 199,901

Accounts payable $ 999,483 $ 1,061,754

Accrued liabilities 1,193,818 1,249,883

Operating lease liability 164,639 164,312

Contract liabilities 530,757 465,648

Current liabilities held for sale — 2,573

Total current liabilities 2,888,697 2,941,597

Long-term Debt 1,797,069 1,676,941

Liabilities relating to defined benefit pension and retirement plans 578,417 568,176

Deferred income tax liabilities 9,286 3,366

Long-term operating lease liability 735,337 735,202

Other deferred liabilities 615,452 573,404

Noncurrent Liabilities Held for Sale — 97

Commitments and Contingencies

4 unchanged sentences

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

issued and outstandin g 130,180,415 sh ares and 132,879,395

shares as of June 26, 2020 and September 27, 2019, respectively

issued and outstanding 130,035,258 shares and 129,747,783

shares as of January 1, 2021 and October 2, 2020, respectively

130,035 129,748

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CONSOLIDATED STATEMENTS OF EARNINGS

Three and Nine Months Ended June 26, 2020 and June 28, 2019

Three Months Ended January 1, 2021 and December 27, 2019

(In thousands, except per share information)

For the Three Months Ended For the Nine Months Ended

June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

For the Three Months Ended

January 1, 2021 December 27, 2019

Revenues $ 3,381,836 $ 3,360,049

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Earnings from Continuing Operations Before Taxes 354,111 254,169

Income Tax (Expense) Benefit from Continuing Operations ( 67,674 ) 1,981 ( 75,041 ) ( 12,829 )

Income Tax Expense from Continuing Operations ( 87,023 ) ( 68,489 )

Net Earnings of the Group from Continuing Operations 267,088 185,680

Net Earnings of the Group from Discontinued Operations 18,043 435,684 125,511 438,837

Net (Loss) Earnings of the Group from Discontinued Operations ( 14 ) 77,587

Net Earnings of the Group 267,074 263,267

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Net Earnings Attributable to Jacobs from Continuing Operations 257,062 179,423

Net Earnings Attributable to Noncontrolling Interests from Discontinued Operations — ( 607 ) — ( 2,195 )

Net Earnings Attributable to Jacobs from Discontinued Operations 18,043 435,077 125,511 436,642

Net Earnings Attributable to Jacobs $ 257,048 $ 257,010

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three and Nine Months Ended June 26, 2020 and June 28, 2019

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended January 1, 2021 and December 27, 2019

(In thousands)

For the Three Months Ended For the Nine Months Ended

June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

For the Three Months Ended

January 1, 2021 December 27, 2019

Net Earnings of the Group $ 267,074 $ 263,267

1 unchanged sentence

Foreign currency translation adjustment 86,338 52,297

(Loss) gain on cash flow hedges ( 20,944 ) ( 546 ) ( 20,926 ) 1,592

Gain on cash flow hedges 3,583 18

Change in pension and retiree medical plan liabilities ( 19,353 ) ( 16,251 )

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Net Comprehensive Income of the Group 322,592 299,913

Net (Earnings) Loss Attributable to Noncontrolling Interests ( 9,121 ) ( 6,622 ) ( 21,662 ) ( 17,773 )

Net Earnings Attributable to Noncontrolling Interests ( 10,026 ) ( 6,257 )

Net Comprehensive Income Attributable to Jacobs $ 312,566 $ 293,656

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended June 26, 2020 and June 28, 2019

For the Three Months Ended January 1, 2021 and December 27, 2019

(In thousands)

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Jacobs Stockholders’ Equity Noncontrolling Interests Total Group Stockholders’ Equity

Balances at March 29, 2019 $ 136,432 $ 2,568,809 $ 3,620,873 $ ( 860,260 ) $ 5,465,854 $ 89,727 $ 5,555,581

Balances at September 27, 2019 $ 132,879 $ 2,559,450 $ 3,939,174 $ ( 916,812 ) $ 5,714,691 $ 53,967 $ 5,768,658

Net earnings — — 257,010 — 257,010 6,257 263,267

Disposition of ECR business, net of deferred taxes of $ 5,402

— — — 119,791 119,791 ( 45,727 ) 74,064

Foreign currency translation adjustments — — — 52,297 52,297 — 52,297

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— — — ( 15,669 ) ( 15,669 ) — ( 15,669 )

(Loss) Gain on derivatives, net of deferred taxes of $( 35 )

Gain on derivatives, net of deferred taxes of $ —

— — — 18 18 — 18

Noncontrolling interest acquired / consolidated — — — — — — —

Dividends — — ( 68 ) — ( 68 ) — ( 68 )

Distributions to noncontrolling interests — — — — — ( 2,568 ) ( 2,568 )

Noncontrolling interests - distributions and other — — — — — ( 2,478 ) ( 2,478 )

Stock based compensation — 13,200 1,079 — 14,279 — 14,279

1 unchanged sentence

Repurchases of equity securities ( 352 ) 43,230 ( 42,878 ) — — — —

Balances at June 28, 2019

Balances at December 27, 2019

$ 133,001 $ 2,605,765 $ 4,145,825 $ ( 880,166 ) $ 6,004,425 $ 57,746 $ 6,062,171

Balances at March 27, 2020 $ 129,985 $ 2,569,417 $ 3,808,698 $ ( 946,317 ) $ 5,561,783 $ 51,200 $ 5,612,983

Balances at October 2, 2020 $ 129,748 $ 2,598,446 $ 4,020,575 $ ( 933,057 ) $ 5,815,712 $ 39,955 $ 5,855,667

Net earnings — — 257,048 — 257,048 10,026 267,074

3 unchanged sentences

— — — ( 20,179 ) ( 20,179 ) — ( 20,179 )

(Loss) Gain on derivatives, net of deferred taxes of $( 6,262 )

— — — ( 14,682 ) ( 14,682 ) — ( 14,682 )

Dividends — — ( 24,857 ) — ( 24,857 ) ( 24,857 )

Noncontrolling interests - distributions and other — — — — — ( 11,140 ) ( 11,140 )

Stock based compensation — 12,373 — — 12,373 — 12,373

Issuances of equity securities including shares withheld for taxes 195 7,473 ( 708 ) — 6,960 — 6,960

Balances at June 26, 2020 $ 130,180 $ 2,589,263 $ 4,028,062 $ ( 911,692 ) $ 5,835,813 $ 49,181 $ 5,884,994

See the accompanying Notes to Consolidated Financial Statements – Unaudited.

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended June 26, 2020 and June 28, 2019

(In thousands)

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Jacobs Stockholders’ Equity Noncontrolling Interests Total Group Stockholders’ Equity

Balances at September 28, 2018 $ 142,218 $ 2,708,839 $ 3,809,991 $ ( 806,703 ) 5,854,345 $ 90,009 $ 5,944,354

Net earnings — — 705,654 — 705,654 17,773 723,427

Disposition of ECR business, net of deferred taxes of $ 5,402

— 119,791 119,791 ( 45,727 ) 74,064

Adoption of ASC 606, net of deferred taxes of $( 10,285 )

( 37,209 ) ( 37,209 ) — ( 37,209 )

Foreign currency translation adjustments — — — ( 51,455 ) ( 51,455 ) — ( 51,455 )

Pension and retiree medical plan liability, net of deferred taxes of $( 6,976 )

— — — ( 25,942 ) ( 25,942 ) — ( 25,942 )

Gain on derivatives, net of deferred taxes of $( 221 )

— — — 3,804 3,804 — 3,804

Noncontrolling interest acquired / consolidated — ( 1,113 ) — — ( 1,113 ) — ( 1,113 )

Dividends — — ( 34 ) — ( 34 ) — ( 34 )

Distributions to noncontrolling interests — — — — — ( 14,001 ) ( 14,001 )

Stock based compensation — 47,335 6 — 47,341 — 47,341

Issuances of equity securities including shares withheld for taxes 1,316 25,369 ( 6,729 ) — 19,956 — 19,956

Repurchases of equity securities ( 7,685 ) ( 146,253 ) ( 370,680 ) — ( 524,618 ) — ( 524,618 )

Balances at June 28, 2019 $ 135,849 $ 2,634,177 $ 4,053,626 $ ( 763,589 ) $ 6,060,063 $ 48,054 $ 6,108,117

Balances at September 27, 2019 $ 132,879 $ 2,559,450 $ 3,939,174 $ ( 916,812 ) 5,714,691 $ 53,967 $ 5,768,658

Net earnings — — 409,855 — 409,855 21,662 431,517

Foreign currency translation adjustments, net of deferred taxes of $ 3,633

— — — 8,377 8,377 — 8,377

Pension and retiree medical plan liability, net of deferred taxes of $ 4,465

— — — 11,407 11,407 — 11,407

(Loss) Gain on derivatives, net of deferred taxes of $( 6,262 )

— — — ( 14,664 ) ( 14,664 ) — ( 14,664 )

Dividends — — ( 50,379 ) — ( 50,379 ) — ( 50,379 )

Noncontrolling interests - distributions and other — — — — — ( 6,104 ) ( 6,104 )

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Repurchases of equity securities ( 251 ) ( 5,027 ) ( 19,523 ) — ( 24,801 ) — ( 24,801 )

Balances at June 26, 2020 $ 130,180 $ 2,589,263 $ 4,028,062 $ ( 911,692 ) $ 5,835,813 $ 49,181 $ 5,884,994

Balances at January 1, 2021 $ 130,035 $ 2,597,586 $ 4,249,408 $ ( 877,539 ) $ 6,099,490 $ 43,877 $ 6,143,367

See the accompanying Notes to Consolidated Financial Statements – Unaudited.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 26, 2020 and June 28, 2019

For the Three Months Ended January 1, 2021 and December 27, 2019

(In thousands)

For the Nine Months Ended

June 26, 2020 June 28, 2019

For the Three Months Ended

January 1, 2021 December 27, 2019

Cash Flows from Operating Activities:

5 unchanged sentences

Gain on sale of ECR business — ( 61,943 )

Loss on disposal of other businesses and investments — 9,608

Loss (Gain) on investment in equity securities 138,875 ( 2,175 )

Gain on investment in equity securities ( 190,368 ) ( 105,319 )

Stock based compensation 11,841 14,279

Equity in earnings of operating ventures, net ( 1,689 ) ( 7,632 )

Equity in earnings of operating ventures, net of return on capital distributions 1,159 ( 715 )

(Gain) Loss on disposals of assets, net ( 134 ) 36

Loss (Gain) on pension and retiree medical plan changes 2,651 ( 34,621 )

Impairment of equity method investment 27,902 —

Loss on pension and retiree medical plan changes — 2,651

Deferred income taxes 53,008 102,487

2 unchanged sentences

Prepaid expenses and other current assets 25,144 ( 4,152 )

Miscellaneous other assets 16,564 34,634

Accounts payable ( 63,985 ) ( 35,380 )

5 unchanged sentences

Additions to property and equipment ( 16,766 ) ( 22,260 )

Disposals of property and equipment and other assets 96 7,300

Capital contributions to equity investees ( 12,358 ) ( 3,904 )

Capital contributions to equity investees, net of return of capital distributions ( 3,430 ) ( 12,000 )

Acquisitions of businesses, net of cash acquired ( 173,012 ) —

Disposals of investment in equity securities

(Payments) proceeds related to sales of businesses ( 5,061 ) 2,796,734

Purchases of noncontrolling interests — ( 1,113 )

Net cash (used for) provided by investing activities ( 392,678 ) 2,181,945

Net cash used for investing activities ( 193,208 ) ( 34,260 )

Cash Flows from Financing Activities:

3 unchanged sentences

Repayments of short-term borrowings ( 7,675 ) ( 6 )

Debt issuance costs ( 1,807 ) ( 3,741 )

Proceeds from issuances of common stock 9,541 6,201

2 unchanged sentences

Cash dividends, including to noncontrolling interests ( 35,718 ) ( 25,618 )

Net cash provided by (used for) financing activities 372,496 ( 1,791,048 )

Net cash provided by financing activities 18,685 166,865

Effect of Exchange Rate Changes 36,493 ( 7,275 )

Net Increase in Cash and Cash Equivalents 393,742 204,884

Net Decrease in Cash and Cash Equivalents ( 25,412 ) ( 11,856 )

Cash and Cash Equivalents at the Beginning of the Period 862,424 631,068

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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 27, 2019 (“2019 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 June 26, 2020, and for the three and nine months ended June 26, 2020.

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 January 1, 2021, and for the three months ended January 1, 2021.

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

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The Company adopted ASC 842 using a modified retrospective approach, and accordingly the new guidance was applied to leases that existed or were entered into after the first day of adoption without adjusting the comparative periods presented.

Please refer to Note-14 Leases for a discussion of our updated policies and disclosures related to leases.

Effective the beginning of fiscal first quarter 2019, the Company adopted ASC 606, Revenue from Contracts with Customers , including the subsequent ASUs that amended and clarified the related guidance.

The Company adopted ASC Topic 606 using the modified retrospective method, and accordingly the new guidance was applied retrospectively to contracts that were not completed or substantially completed as of September 29, 2018 (the date of initial application).

Please refer to Note 13- Revenue Accounting for Contracts for a discussion of our updated policies related to revenue recognition.

Please refer to Note-13 Leases for required disclosures related to leases.

On November 24, 2020, a subsidiary of Jacobs completed the acquisition of Buffalo Group LLC ("Buffalo Group"), a leader in advanced cyber and intelligence solutions.

The Company paid total consideration of $ 212.8 million, which was comprised of approximately $ 181.4 million in cash to the former owners of Buffalo Group and the assumption of Buffalo Group's debt of approximately $ 7.7 million and $ 23.7 million in other assumed liabilities.

The Company repaid all of the assumed Buffalo Group debt by the end of the first fiscal quarter of 2021.

The Company has recorded its preliminary purchase price allocation associated with the acquisition, which is summarized in Note 15- Business Combinations .

On March 6, 2020, a subsidiary of Jacobs completed the acquisition of the nuclear consulting, remediation and program management business of John Wood Group, a U.K.-based energy services company, for an enterprise value of £ 246 million, or approximately $ 317.9 million, less cash acquired of $ 24.3 million.

The Company has recorded its preliminary purchase price allocation associated with the acquisition, which is summarized in Note 15- Business Combinations .

On June 12, 2019, Jacobs completed the acquisition of The KeyW Holding Corporation (“KeyW”), a U.S.-based national security solutions provider to the intelligence, cyber, and counterterrorism communities by acquiring 100 % of the outstanding shares of KeyW common stock.

The Company paid total consideration of $ 902.6 million, which was comprised of approximately $ 604.2 million in cash to the former stockholders and certain equity award holders of KeyW and the assumption of KeyW’s debt of approximately $ 298.4 million.

The Company repaid all of the assumed KeyW debt by the end of the fourth fiscal quarter of 2019.

The Company has recorded its final purchase price allocation associated with the acquisition, which is summarized in Note 5- Business Combinations .

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

On April 26, 2019, Jacobs completed the sale of its Energy, Chemicals and Resources ("ECR") business to Worley Limited, a company incorporated in Australia ("Worley"), for a purchase price of $ 3.4 billion consisting of (i) $ 2.8 billion in cash plus (ii) 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”).

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As such, the financial results of the ECR business are reflected in our unaudited Consolidated Statements of Earnings as discontinued operations for all periods presented.

Additionally, assets and liabilities of the Disposal Group were reflected as held-for-sale in the Consolidated Balance Sheets through December 27, 2019.

As of June 26, 2020, all of the ECR business to be sold under the terms of the sale has been conveyed to Worley and as such, no amounts remain held for sale.

As of October 2, 2020, all of the ECR business to be sold under the terms of the ECR sale had been conveyed to Worley and as such, no amounts remain held for sale.

For further discussion, see Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business to the consolidated financial statements.

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Use of Estimates and Assumptions

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See Note 12- Borrowings for a discussion of the fair value of long-term debt.

New Accounting Pronouncements

ASU 2017-04, Simplifying the Test for Goodwill Impairment, is effective for fiscal years beginning after December 15, 2019.

ASU 2017-04 removed the second step of the goodwill impairment test, which requires a hypothetical purchase price allocation.

An entity will now recognize a goodwill impairment charge for the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the amount of goodwill allocated to the reporting unit.

The adoption of ASU 2017-04 did not have a material impact on the Company's financial position, results of operations or cash flows.

JACOBS ENGINEERING GROUP INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

New Accounting Pronouncements

In August 2017, the FASB issued ASU No.

2017-12, Derivatives and Hedging ("ASC 815"):

Targeted Improvements to Accounting for Hedging Activities.

ASU 2017-12 provides financial reporting improvements related to hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements.

Additionally, ASU No.

2017-12 makes certain targeted improvements to simplify the application of the hedge accounting guidance.

The revised guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted.

The updated guidance did not have a significant impact on the Company’s consolidated financial statements.

ASU 2017-04, Simplifying the Test for Goodwill Impairment, is effective for fiscal years beginning after December 15, 2019 with early adoption permitted.

ASU 2017-04 removes the second step of the goodwill impairment test, which requires a hypothetical purchase price allocation.

Management does not expect the adoption of ASU 2017-04 to have a material impact on the Company's financial position, results of operations or cash flows.

2016-13, Financial Instruments - Credit Losses ("ASC 326"):

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There are other provisions within the standard that affect how impairments of other financial assets may be recorded and presented, and that expand disclosures.

This standard will be effective for our interim and annual periods beginning with the first fiscal quarter of 2021 and must be applied on a modified retrospective basis.

Management does not expect the adoption of ASU 326 to have a material impact on the Company's financial position, results of operations or cash flows.

Business Combinations

John Wood Group's Nuclear Business

The John Wood Group nuclear business allows Jacobs to further expand its lifecycle nuclear services business.

The following summarizes the fair values of John Wood Group's assets acquired and liabilities assumed as of the acquisition date (in millions):

Cash and cash equivalents $ 24.3

Receivables 75.9

Other current assets 5.2

Property, equipment and improvements, net 8.3

Goodwill 205.8

Identifiable intangible assets 80.0

Miscellaneous 19.4

Total Assets $ 418.9

Accounts payable, accrued expenses and other current liabilities $ 71.8

Long term liabilities 29.2

Total Liabilities

Net assets acquired $ 317.9

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The purchase price allocation is based upon preliminary information and is subject to change when additional information is obtained.

Goodwill recognized 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 John Wood Group's assets acquired and liabilities assumed.

The final purchase price allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

Identified intangibles include customer relationships, contracts and backlog and developed technology.

The customer relationships, contracts and backlog intangible represents the fair value of existing contracts, underlying customer relationships and backlog.

The customer relationships, contracts and backlog intangible and the developed technology intangible have lives of 12 and 15 years, respectively.

Fair value measurements relating to the John Wood Group nuclear business are made primarily using Level 3 inputs including discounted cash flow techniques.

Fair value is estimated using inputs primarily for 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 reflects the level of risk associated with receiving future cash flows.

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.

No summarized unaudited pro forma results are provided for the John Wood Group nuclear business due to the immateriality of this acquisition relative to the Company's consolidated financial position and results of operations.

On June 12, 2019, Jacobs completed the acquisition of The KeyW Holding Corporation (“KeyW”), a U.S.

based national security solutions provider to the intelligence, cyber, and counterterrorism communities, by acquiring 100 % of the outstanding shares of KeyW common stock (the "KeyW acquisition").

The KeyW acquisition allows Jacobs to further expand its government services business.

The Company repaid all of the assumed KeyW debt by the end of the fourth fiscal quarter of 2019.

This standard is effective beginning with the current fiscal quarter.

The adoption of ASU 326 did not have a material impact on the Company's financial position, results of operations or cash flows.

Revenue Accounting for Contracts

Disaggregation of Revenues

Our revenues are principally derived from contracts to provide a diverse range of technical, professional, and construction services to a large number of industrial, commercial, and governmental clients.

We provide a broad range of 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.

Our contracts are with many different customers in numerous industries.

Refer to Note 19- Segment Information for additional information on how we disaggregate our revenues by reportable segment.

The following table further disaggregates our revenue by geographic area for the three months ended January 1, 2021 and December 27, 2019 (in thousands):

Three Months Ended

January 1, 2021 December 27, 2019

United States $ 2,457,041 $ 2,532,716

Europe 639,315 551,272

Canada 55,627 55,396

Asia 27,405 30,440

India 14,548 5,980

Australia and New Zealand 137,408 129,194

Middle East and Africa 50,492 55,051

Total $ 3,381,836 $ 3,360,049

Contract Liabilities

Contract liabilities represent amounts billed to clients in excess of revenue recognized to date.

Revenue recognized for the three months ended January 1, 2021 and December 27, 2019 that was included in the contract liability balance on October 2, 2020 and September 27, 2019, respectively was $ 259.0 million and $ 244.1 million, respectively.

Remaining Performance Obligations

The Company’s remaining performance obligations as of January 1, 2021 represent a measure of the total dollar value of work to be performed on contracts awarded and in progress.

The Company had approximately $ 17.3 billion in remaining performance obligations as of January 1, 2021.

The Company expects to recognize approximately 44 % of our remaining performance obligations into revenue within the next twelve months and the remaining 56 % thereafter.

Although remaining performance obligations reflect business that is considered to be firm, cancellations, scope adjustments, foreign currency exchange fluctuations or deferrals may occur that impact their volume or the expected timing of their recognition.

Remaining performance obligations are adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as appropriate.

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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

Cash and cash equivalents $ 29.1

Receivables 79.1

Inventories, net 19.3

Prepaid expenses and other 2.4

Property, equipment and improvements, net 24.5

Deferred tax asset and other 37.8

Goodwill 615.6

Identifiable intangible assets 179.0

Accounts payable $ 8.3

Accrued expenses 69.1

Short term debt 298.4

Other current liabilities 3.9

Other non-current liabilities 2.9

Total Liabilities

Net assets acquired $ 604.2

Goodwill recognized results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations.

Goodwill of $ 136.0 million is expected to be deductible for tax purposes.

The Company has completed its final assessment of the fair values of the acquired assets and liabilities of KeyW.

Since the initial preliminary estimates reported in the third quarter of fiscal 2019, the Company has updated certain amounts reflected in the final purchase price allocation, as summarized in the fair values of KeyW assets acquired and liabilities assumed as of the acquisition date as set forth above.

Identified intangibles include customer relationships, contracts and backlog and developed technology.

The customer relationships, contracts and backlog intangible represents the fair value of existing contracts, underlying customer relationships and backlog.

The customer relationships, contracts and backlog intangible, and the developed technology intangible have lives of 10 and 12 years, respectively.

Other intangible liabilities consist of the fair value of office leases and have a weighted average life of approximately 9 years.

Fair value measurements relating to the KeyW acquisition are made primarily using Level 3 inputs including discounted cash flow techniques.

Fair value is estimated using inputs primarily for the income approach, which include the use of both the multiple period excess earnings method and the relief from royalties method.

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.

For purposes of our comparative fiscal 2020 and 2019 reporting requirements in this Form 10-Q, t he following presents summarized unaudited pro forma operating results of the Company for the nine months ended June 28, 2019 assuming that the June 12, 2019 acquisition of KeyW had occurred at the beginning of fiscal 2018 for pro forma purposes.

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 on such date (in millions, except per share data):

Earnings Per Share and Certain Related Information

Basic and diluted earnings per share (“EPS”) are computed using the two-class method, which is an earnings allocation method that determines EPS for common shares and participating securities.

The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period.

Participating securities and common shares have equal rights to undistributed earnings.

Net earnings used for the purpose of determining basic and diluted EPS is determined by taking net earnings, less earnings available to participating securities.

During the three months ended January 1, 2021, the Company did not have any outstanding participating securities.

The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for the three months ended January 1, 2021 and December 27, 2019 (in thousands):

Three Months Ended

January 1, 2021 December 27, 2019

Numerator for Basic and Diluted EPS:

Net earnings attributable to Jacobs from continuing operations $ 257,062 $ 179,423

Net earnings from continuing operations allocated to participating securities — ( 92 )

Net earnings from continuing operations allocated to common stock for EPS calculation $ 257,062 $ 179,331

Net earnings attributable to Jacobs from discontinued operations $ ( 14 ) $ 77,587

Net earnings from discontinued operations allocated to participating securities — ( 40 )

Net earnings from discontinued operations allocated to common stock for EPS calculation $ ( 14 ) $ 77,547

Net earnings allocated to common stock for EPS calculation $ 257,048 $ 256,878

Denominator for Basic and Diluted EPS:

Weighted average basic shares 129,968 133,202

Shares allocated to participating securities — ( 68 )

Shares used for calculating basic EPS attributable to common stock 129,968 133,134

Effect of dilutive securities:

Stock compensation plans 1,182 1,484

Shares used for calculating diluted EPS attributable to common stock 131,150 134,618

Net Earnings Per Share:

Basic Net Earnings from Continuing Operations Per Share $ 1.98 $ 1.35

Basic Net Earnings from Discontinued Operations Per Share $ — $ 0.58

Basic Earnings Per Share $ 1.98 $ 1.93

Diluted Net Earnings from Continuing Operations Per Share $ 1.96 $ 1.33

Diluted Net Earnings from Discontinued Operations Per Share $ — $ 0.58

Diluted Earnings Per Share $ 1.96 $ 1.91

Share Repurchases

On January 17, 2019, the Company’s Board of Directors authorized a share repurchase program of up to $ 1.0 billion of the Company’s common st ock, to expire on January 16, 2022 (the "2019 Repurchase Authorization").

On January 16, 2020, the Company's Board of Directors authorized an additional share repurchase program of up to $ 1.0 billion of the Company's common stock, to expire on January 15, 2023 (the "2020 Repurchase Authorization").

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Nine Months Ended June 28, 2019

Revenues $ 9,562.0

Net earnings of the Group $ 290.8

Net earnings (loss) attributable to Jacobs $ 275.3

Net earnings (loss) attributable to Jacobs per share:

Basic earnings (loss) per share $ 1.98

Diluted earnings (loss) per share $ 1.96

Included in the table above are the unaudited pro forma operating results of continuing operations.

Also, income tax expense (benefit) for the nine month pro forma period ended June 28, 2019 was $ 14.9 million.

The following table summarizes the activity under the 2019 and 2020 Repurchase Authorizations in the first quarter of fiscal 2021:

Amount Authorized

(2019 and 2020 Repurchase Authorizations) Average Price Per Share (1) Shares Repurchased Total Shares Retired

$ 2,000,000,000 $ 98.81 251,001 251,001

(1) Includes commissions paid and calculated at the average price per share

As a precautionary measure in light of the COVID-19 pandemic, the Company temporarily suspended purchases under the share repurchase plan in March 2020, with such suspension remaining in effect through the fiscal third quarter of 2020.

During the fourth fiscal quarter of 2020, the Company resumed share repurchases on a limited basis while we continue to monitor developments in fiscal 2021 with the pandemic.

As of January 1, 2021, the Company h as $ 33.1 million rema ining under the 2019 Repurchase Authorization and $ 1.0 billion remaining under the 2020 Repurchase Authorization.

The share repurchase programs do not obligate the Company to purchase any shares.

Share repurchases may be executed through various means including, without limitation, accelerated share repurchases, open market transactions, privately negotiated transactions, purchases pursuant to Rule 10b5-1 plans or otherwise.

The authorization for the share repurchase programs may be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time.

The timing, amount and manner of share repurchases may depend upon market conditions and economic circumstances, availability of investment opportunities, the availability and costs of financing, currency fluctuations, the market price of the Company's common stock, other uses of capital and other factors.

Dividend Program

On January 27, 2021, the Company’s Board of Directors declared a quarterly dividend of $ 0.21 per share of the Company’s common stock to be paid on March 26, 2021, to shareholders of record on the close of business on February 26, 2021.

Future dividend declarations are subje ct to review and approval by the Company’s Board of Directors.

Dividends pai d through the first fiscal quarter of 2021 and the preceding fiscal year are as follows:

Declaration Date Record Date Payment Date Cash Amount (per share)

September 17, 2020 October 2, 2020 October 30, 2020 $ 0.19

July 9, 2020 July 24, 2020 August 21, 2020 $ 0.19

May 5, 2020 May 20, 2020 June 17, 2020 $ 0.19

January 16, 2020 January 31, 2020 February 28, 2020 $ 0.19

September 19, 2019 October 4, 2019 November 1, 2019 $ 0.17

Goodwill and Intangibles

The carrying value of goodwill associated with continuing operations and appearing in the accompanying Consolidated Balance Sheets at June 26, 2020 and September 27, 2019 was as follows (in millions):

The carrying value of goodwill associated with continuing operations and appearing in the accompanying Consolidated Balance Sheets at January 1, 2021 and October 2, 2020 was as follows (in thousands):

Critical Mission Solutions People & Places Solutions Total

Balance September 27, 2019 $ 2,202 $ 3,231 $ 5,433

Balance October 2, 2020 $ 2,409,081 $ 3,230,010 $ 5,639,091

Acquired 139,550 — 139,550

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Post-Acquisition Adjustments 294 — 294

Disposed — ( 6 ) ( 6 )

Balance June 26, 2020 $ 2,400 $ 3,217 $ 5,617

The following table provides certain information related to the Company’s acquired intangibles in the accompanying Consolidated Balance Sheets at June 26, 2020 and September 27, 2019 (in thousands):

Customer Relationships, Contracts and Backlog Developed Technology Trade Names Other Total

Balances September 27, 2019 $ 622,392 $ 40,833 $ 1,183 $ 668 $ 665,076

Amortization ( 64,002 ) ( 2,751 ) ( 321 ) — ( 67,074 )

Acquired 73,558 6,452 — — 80,010

Foreign currency translation ( 1,170 ) ( 232 ) ( 54 ) ( 551 ) ( 2,007 )

Balances June 26, 2020 $ 630,778 $ 44,302 $ 808 $ 117 $ 676,005

Balance January 1, 2021 $ 2,561,304 $ 3,247,180 $ 5,808,484

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table provides certain information related to the Company’s acquired intangibles in the accompanying Consolidated Balance Sheets at January 1, 2021 and October 2, 2020 (in thousands):

Customer Relationships, Contracts and Backlog Developed Technology Trade Names Total

Balances October 2, 2020 $ 614,045 $ 43,572 $ 723 $ 658,340

Amortization ( 22,063 ) ( 985 ) ( 107 ) ( 23,155 )

Acquired 71,000 — — 71,000

Foreign currency translation 9,112 339 5 9,456

Balances January 1, 2021 $ 672,094 $ 42,926 $ 621 $ 715,641

The following table presents estimated amortization expense of intangible assets for the remainder of fiscal 2021 and for the succeeding years.

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Total $ 715.6

Sale of Energy, Chemicals and Resources ("ECR") Business

On April 26, 2019, Jacobs completed the sale of its ECR business to Worley for a purchase price of $ 3.4 billion consisting of (i) $ 2.8 billion in cash plus (ii) 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”).

The stock and asset purchase agreement for the ECR sale contained a lock-up on our ability to sell the Worley shares received in the transaction, which expired in the first fiscal quarter of 2020.

Discontinued Operations

As a result of the ECR sale, substantially all ECR-related assets and liabilities were sold (the "Disposal Group").

We determined that the Disposal Group should be reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations because their disposal represent a strategic shift that had a major effect on our operations and financial results.

As such, the financial results of the ECR business are reflected in our unaudited Consolidated Statements of Earnings as discontinued operations for all periods presented.

Additionally, assets and liabilities of the ECR business were reflected as held-for-sale in the Consolidated Balance Sheets through December 27, 2019.

As of the quarter ended June 26, 2020, all of the ECR business to be sold under the terms of the sale has been conveyed to Worley and as such, no amounts remain held for sale.

Any assets and liabilities of the ECR business that were retained by the Company pursuant to the stock and asset purchase agreement with Worley were included in discontinued operations.

Summarized Financial Information of Discontinued Operations

The following table represents earnings (loss) from discontinued operations, net of tax (in thousands):

For the Three Months Ended

For the Nine Months Ended

June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

Revenues $ 59 $ 392,526 $ 11,221 $ 2,718,317

Direct cost of contracts ( 69 ) ( 340,525 ) ( 6,124 ) ( 2,336,076 )

Gross profit ( 10 ) 52,001 5,097 382,241

Selling, general and administrative expenses ( 801 ) ( 39,556 ) 43,359 ( 333,155 )

Operating (Loss) Profit ( 811 ) 12,445 48,456 49,086

Gain on sale of ECR business 31,456 917,697 113,366 917,697

Other (expense) income, net 1,472 ( 7,864 ) 112 ( 40,158 )

Earnings Before Taxes from Discontinued Operations 32,117 922,278 161,934 926,625

Income Tax Expense ( 14,074 ) ( 486,594 ) ( 36,423 ) ( 487,788 )

Net Earnings of the Group from Discontinued Operations $ 18,043 $ 435,684 $ 125,511 $ 438,837

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Selling, general and administrative expenses includes an offsetting insuranc e recovery of $ 50.0 million for the nine months ended June 26, 2020 recorded in connection with the Nui Phao ("NPMC") legal matter described in Note 19- Commitments and Contingencies .

Additionally, the nine month period ended June 28, 2019 includes a charge for the award and recovery of costs, estimated related interest and attorneys' fees related to the NPMC legal matter.

For the nine months ended June 26, 2020, the gain on sale of $ 113.4 million relates mainly to the recognition of the deferred gain for the delayed transfer of the ECR-related assets and liabilities of the two international entities discussed above, adjustments for working capital and certain other items in connection with the sale and add itional income for the re lease of a deferred gain upon achievement of the IT Migration Date described below in connecti on with the delivery to Worley of certain IT application and hardware assets related to the ECR business.

Gain on Sale and Deferred Gain

As a result of the ECR sale, the Company recognized a pre-tax gain of $ 1.0 billion, $ 935.1 million of which was recognized in fiscal 2019 and $ 113.4 million of which is included in Net Earnings of the Group from Discontinued Operations on the consolidated statement of earnings for the nine months ended June 26, 2020, which is further discussed below.

Upon closing the ECR sale, the Company retained a noncontrolling interest (with significant influence) in People & Places Solutions ("P&PS")-related activities in one international legal entity acquired by Worley.

The fair value of the Company’s retained interest in the net assets and liabilities of this entity was estimated at $ 33.0 million and recorded at closing.

For another international legal entity, the closing and transfer of ECR-related assets to Worley were set to occur at a future date.

At the time of the ECR sale, the Company allocated proceeds received to these deferred closing items on a relative fair value basis and recognized a deferred gain of $ 34.4 million.

During the second fiscal quarter of 2020, the delayed transfer of the ECR-related assets and liabilities of these two international entities occurred, and as a result, previously deferred gain amounts were recognized.

In addition to consideration received for the sale of the business, the proceeds received included advanced consideration for the Company to deliver IT application and related hardware assets at a future date (“IT Migration Date”) to Worley upon completion of the interim transition services, described further below.

This deliverable of IT assets was considered to be a separate element of the ECR business sale transaction, and accordingly, we allocated a portion of the proceeds received of $ 95.3 million on a relative fair value basis to this separate deliverable and recognized deferred income.

Upon completion and acceptance of this deliverable by Worley in December 2019, the deferred proceeds were recognized in income, along with expenses associated with any costs incurred and deferred by the Company for this deliverable.

Investment in Worley Stock

As discussed above, the Company received 58.2 million in ordinary shares of Worley.

Pursuant to the purchase agreement for the ECR sale, 51.4 million of the shares were considered "restricted" during a lock-up period beginning April 26, 2019 and ending in December 2019, after which these restrictions were lifted.

During the lock-up period the Company could not, without Worley's consent, directly or indirectly dispose of the "restricted" shares.

The remaining 6.8 million shares not considered "restricted" were sold in the prior year, netting a loss of $ 4.9 million, which was recognized in miscellaneous income (expense), net.

Dividend income and unrealized gains and losses on changes in fair value of Worley shares are recognized in miscellaneous income (expense), net in continuing operations.

The Company's investment in Worley is measured at fair value through net income as it is an equity investment with a readily determinable fair value based on quoted market prices.

The 51.4 million ordinary shares currently held are recorded within prepaid expenses and other in the Company's consolidated balance sheets at their estimated fair value, which is $ 312.3 million as of June 26, 2020.

For the three and nine month periods ended June 26, 2020, the Company recognize d a gain of $ 131.4 million and a loss of $ 138.9 million, respectively, associated with share price and currency changes on this investment as well as dividends of $ 7.7 million during the nine month period ended June 26, 2020.

Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input.

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Transition Service Agreement

Upon closing of the ECR sale, the Company entered into a Transition Services Agreement (the "TSA") with Worley pursuant to which the Company, on an interim basis, provided various services to Worley, including executive consultation, corporate, information technology, and project services.

The initial term of the TSA began immediately following closing of the ECR sale on April 26, 2019 and expired in April 2020, although the parties mutually agreed to extend certain of the services for additional time periods beyond the initial term.

Pursuant to the terms of the TSA, the Company received payments for the interim services which approximate costs incurred to perform the services.

The Company has recognized costs recorded in SG&A expense incurred to perform the TSA, offset b y $ 15.2 million in TSA related income for such services that is reported in miscellaneous income (expense) for the nine months ended June 26, 2020 before inclusion of certain incremental outside service support costs agreed to be shared equally by the parties.

Segment Information

The Company's two operating segments and global lines of business ("LOBs") are as follows:

Critical Mission Solutions ("CMS") and People & Places Solutions ("P&PS"), with the previous Energy, Chemicals and Resources ("ECR") LOB reported as discontinued operations.

For further information on ECR, refer to Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business.

The Company’s Chair and Chief Executive Officer is the Chief Operating Decision Maker (“CODM”) and can 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 for reporting units in accordance with ASC 350, Intangibles-Goodwill and Other .

Under this organization, the sales function is managed by LOB, and accordingly, the associated cost is embedded in the segments and reported to the respective head of each LOB.

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 Leadership Performance Plan ("LPP"), formerly named the Management Incentive Plan, 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 other corporate expenses).

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.

The following tables present total revenues and segment operating profit from continuing operations 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, Restructuring and other charges (as defined in Note 11 - Restructuring and Other Charges) and transaction and integration costs (in thousands).

For the Three Months Ended For the Nine Months Ended

June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

Revenues from External Customers:

Critical Mission Solutions $ 1,211,143 $ 1,156,488 $ 3,636,978 $ 3,251,024

People & Places Solutions 2,048,914 2,013,134 6,410,308 6,093,981

Total $ 3,260,057 $ 3,169,622 $ 10,047,286 $ 9,345,005

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

For the Three Months Ended For the Nine Months Ended

June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

Segment Operating Profit:

Critical Mission Solutions $ 89,608 $ 76,306 $ 264,323 $ 222,289

People & Places Solutions 190,453 183,318 557,864 515,465

Total Segment Operating Profit 280,061 259,624 822,187 737,754

Other Corporate Expenses (1) ( 65,213 ) ( 64,525 ) ( 193,148 ) ( 185,674 )

Restructuring, Transaction and Other Charges ( 20,472 ) ( 105,145 ) ( 115,539 ) ( 246,317 )

GAAP Operating Profit 194,376 89,954 513,500 305,763

Total Other Income (Expense), net (2) 109,305 3,445 ( 132,453 ) ( 8,344 )

Earnings from Continuing Operations Before Taxes $ 303,681 $ 93,399 $ 381,047 $ 297,419

(1) Other corporate expenses include costs that were previously allocated to the ECR segment prior to discontinued operations presentation in connection with the ECR sale in the approximate amount of $ 2.0 million and $ 14.8 million for the three and nine month periods ended June 28, 2019, respectively.

Other corporate expenses also include intangibles amortization of $ 23.1 million and $ 18.4 million for the three-month periods ended June 26, 2020 and June 28, 2019, respectively, and $ 67.1 million and $ 55.7 million for the nine months ended June 26, 2020 and June 28, 2019, respectively.

(2) For the three and nine month periods ended June 26, 2020, i ncludes revenues under the Company's TSA with Worley of $ 1.0 million and $ 15.2 million, respectively, $ 122.9 million and $( 119.0 ) million in fair value adjustments related to our investment in Worley stock (net of Worley stock dividend) and certain foreign currency revaluations relating to the ECR sale, respectively, the amortization of deferred financing fees related to the acquisition of CH2M HILL Companies Ltd.

("CH2M") in December 2017 (the "CH2M acquisition") of $— million and $ 0.7 million, respectively, and the loss on settlement of the U.S.

pension plan of $— million and $ 2.7 million respectively.

For the three and nine month periods ended June 28, 2019, includes the amortization of deferred financing fees related to the CH2M acquisition of $ 0.5 million and $ 1.5 million , re spectively, and the gain on settlement of the CH2M portion of the U.S.

pension plan of $ 0.0 million and $ 34.6 million , respectively.

Also includes revenues under the Company's TSA with Worley of $ 14.1 million for the three and nine month periods ended June 28, 2019 , for which the related costs are included in SG&A.

(1) 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 LPP 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 may also include from time to time certain 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.

See also MD&A results of operations for our operating segments in Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations .

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Receivables and contract assets

The following table presents the components of receivables appearing in the accompanying Consolidated Balance Sheets at June 26, 2020 and September 27, 2019, as well as certain other related information (in thousands):

June 26, 2020 September 27, 2019

The following table presents the components of receivables appearing in the accompanying Consolidated Balance Sheets at January 1, 2021 and October 2, 2020, as well as certain other related information (in thousands):

January 1, 2021 October 2, 2020

Components of receivables and contract assets:

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We anticipate that substantially all of such unbilled amounts will be billed and collected over the next twelve months.

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Contract assets represent unbilled amounts where the right to payment is subject to more than merely the passage of time and includes performance-based incentives and services provided ahead of agreed contractual milestones.

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The increase in contract assets was a result of normal business activity and not materially impacted by any other factors.

Joint Ventures and VIEs

As is common to the industry, we execute certain contracts jointly with third parties through various forms of joint ventures.

Accumulated Other Comprehensive Income

The following table presents the Company's roll forward of accumulated other comprehensive income (loss) after-tax for the three months ended January 1, 2021 (in thousands):

Change in Pension Liabilities Foreign Currency Translation Adjustment Gain/(Loss) on Cash Flow Hedges Total

Balance at October 2, 2020

$ ( 498,726 ) $ ( 419,715 ) $ ( 14,616 ) $ ( 933,057 )

Other comprehensive income (loss) ( 20,179 ) 71,893 1,968 53,682

Reclassifications from accumulated other comprehensive income (loss) — — 1,836 1,836

Balance at January 1, 2021

$ ( 518,905 ) $ ( 347,822 ) $ ( 10,812 ) $ ( 877,539 )

The Company’s effective tax rates from continuing operations for the three months ended January 1, 2021 and December 27, 2019 were 24.6 % and 27.0 %, respectively.

The Company’s effective tax rate from continuing operations for the three months ended January 1, 2021 was lower than the corresponding rate in the prior period primarily due to one-time income tax charges associated with partnership interest basis differences generated during the quarter ending December 27, 2019.

For the three months ended January 1, 2021, the effective tax rate was impacted by a $ 1.4 million benefit from an Internal Revenue Code section 179D energy credit, a $ 2.2 million excess tax benefit attributable to stock compensation, and a $ 5.0 million benefit related to a change in the Company’s assertion about indefinite reinvestment of certain foreign unremitted earnings in Canada.

The Company is continuing to accrue taxes related to all other foreign earnings.

See Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business for further information on the Company's discontinued operations reporting for the sale of the ECR business.

The amount of income taxes the Company pays is subject to ongoing audits by tax jurisdictions around the world.

In the normal course of business, the Company is subject to examination by tax authorities throughout the world, including such major jurisdictions as Australia, Canada, India, the Netherlands, the United Kingdom and the United States.

Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time.

The Company believes that it has adequately provided for reasonably foreseeable outcomes related to these matters.

However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate.

Joint Ventures, VIEs and Other Investments

We execute certain contracts jointly with third parties through various forms of joint ventures.

Although the joint ventures own and hold the contracts with the clients, the services required by the contracts are typically performed by us and our joint venture partners, or by other subcontractors under subcontracting agreements with the joint ventures.

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Many of the joint ventures are deemed to be variable interest entities (“VIE”) because they lack sufficient equity to finance the activities of the joint venture.

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The assets of a joint venture are restricted for use to the obligations of the particular joint venture and are not available for general operations of the Company.

1 unchanged sentence

The liability of each partner is usually joint and several, which means that each partner may become liable for the entire risk of loss on the project.

Furthermore, on some of our projects, the Company has granted guarantees which may encumber both our contracting subsidiary company and the Company for the entire risk of loss on the project.

Furthermore, on some of our projects, the Company has granted guarantees that may encumber both our contracting subsidiary company and the Company for the entire risk of loss on the project.

The Company is unable to estimate the maximum potential amount of future payments that we could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by our joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects, and the terms of the related contracts.

Refer to Note 18 - Commitments and Contingencies and Derivative Financial Instruments, for further discussion relating to performance guarantees.

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

For consolidated joint ventures, the entire amount of the services performed, and the costs associated with these services, including the services provided by the other joint venture partners, are included in the Company's result of operations.

Likewise, the entire amount of each of the assets and liabilities are included in the Company’s Consolidated Balance Sheets.

For the consolidated VIEs, the carrying value of assets and liabilities was $ 304.0 million and $ 188.8 million, respectively, as of June 26, 2020 and $ 192.6 million and $ 138.5 million, respectively, as of September 27, 2019.

For the consolidated VIEs, the carrying value of assets and liabilities was $ 297.6 million and $ 217.9 million, respectively, as of January 1, 2021 and $ 261.8 million and $ 190.3 million, respectively, as of October 2, 2020.

There are no consolidated VIEs that have debt or credit facilities.

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For those joint ventures accounted for under proportionate consolidation, only the Company’s pro rata share of assets, liabilities, revenue, and costs are included in the Company’s balance sheet and results of operations.

For the proportionate consolidated VIEs, the carrying value of assets and liabilitie s was $ 61.3 million and $ 63.6 million , respectively, a s of June 26, 2020, and $ 61.1 million and $ 63.7 million, respectively, as of September 27, 2019.

For the proportionate consolidated VIEs, the carrying value of assets and liabilities was $ 67.2 million and $ 65.9 million, respectively, as of January 1, 2021, and $ 64.1 million and $ 63.0 million, respectively, as of October 2, 2020.

For those joint ventures accounted for under the equity method, the Company's investment balances for the joint venture are included in Other Noncurrent Assets:

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These basis differences are amortized based on an internal allocation to underlying net assets, excluding allocations to goodwill.

As of June 26, 2020, the Company’s equity method investments exceeded its share of venture net assets by $ 70.4 million.

Our investments in equity method joint ventures on the Consolidated Balance Sheets as of June 26, 2020 and September 27, 2019 were $ 170.5 million and $ 157.9 million, respectively.

During the three months ended June 26, 2020 and June 28, 2019, we recognized income from equity method joint ventures of $ 18.8 million and $ 13.2 million, respectively.

During the nine months ended June 26, 2020 and June 28, 2019, we recognized income from equity method joint ventures of $ 54.8 million and $ 39.1 million, respectively.

Accounts receivable from unconsolidated joint ventures accounted for under the equity method is $ 7.6 million and $ 19.5 million as of June 26, 2020 and September 27, 2019, respectively.

Restructuring and Other Charges

During fiscal 2019 and fiscal 2020, the Company implemented certain restructuring and preliminary separation initiatives associated with the ECR sale, the KeyW acquisition, the acquisition of John Wood Group's nuclear business and other related cost reduction initiatives.

The restructuring activities and related costs were comprised mainly of separation and lease abandonment programs, while the preliminary separation activities and costs were mainly related to the engagement of consulting services and internal personnel and other related costs dedicated to the Company’s ECR-business separation.

During the fourth fiscal quarter of 2017, the Company implemented certain restructuring and preliminary integration initiatives associated with the then-impending acquisition of CH2M, which closed in December 2017 (the "CH2M acquisition").

The restructuring activities and related costs were comprised mainly of integration, severance and lease abandonment programs, while the preliminary integration activities and costs were mainly related to the engagement of consulting services and internal personnel and other related costs dedicated to the Company’s acquisition integration management efforts.

Following the closing of the CH2M acquisition, these activities continued through the third fiscal quarter of 2020 and continue to be comprised mainly of severance, lease abandonment, IT related, consulting and other professional services as well as internal personnel costs.

The activities of the above-mentioned programs are expected to be substantially completed before the end of fiscal 2021.

Collectively, the above-mentioned restructuring activities are referred to as “Restructuring and other charges.”

The following table summarizes the impacts of the Restructuring and other charges by LOB in connection with the CH2M, KeyW and John Wood Group's nuclear business acquisitions and the ECR sale for the three and nine months ended June 26, 2020 and June 28, 2019 (in thousands):

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Three Months Ended Nine Months Ended

June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

Critical Mission Solutions $ 3,173 $ 7,699 $ 11,248 $ 8,489

People & Places Solutions 3,818 10,619 19,507 68,644

Corporate 12,690 74,921 81,554 127,986

Continuing Operations (1)

19,681 93,239 112,309 205,119

Energy, Chemicals and Resources (included in Discontinued Operations) — 2,720 — ( 138 )

Total $ 19,681 $ 95,959 $ 112,309 $ 204,981

(1) For the three months ended June 26, 2020 and June 28, 2019, amounts include $ 19.7 million and $92.4 million, respectively, and for the nine months ended June 26, 2020 and June 28, 2019 amounts include $109.6 million and $233.6 million, respectively, in items impacting operating profit, along with items recorded in other income (expense), net, which are the loss on settlement of the CH2M portion of the U.S.

pension plan of $— and $ 2.1 million for the three and nine months ended June 26, 2020, respectively, the gain on the settlement of the CH2M retiree medical plans of $— and $ 34.6 million for the three and nine months ended June 28, 2019, respectively, and write-off of fixed assets related to restructured leases of $ 0.9 million and $ 6.2 million for the three and nine months ended June 28, 2019, and other miscellaneous expenses of $0.6 million for the nine months ended June 26, 2020.

See Note 8 - Segment Information.

The activity in the Company’s accrual for the Restructuring and other charges including the program activities described above for the nine months ended June 26, 2020 is as follows (in thousands):

Balance at September 27, 2019

Transfer to lease right-of-use asset as a result of adoption of ASC 842 (1) ( 116,797 )

Net Charges 112,309

Payments and Usage ( 133,668 )

Balance at June 26, 2020 $ 24,546

(1) In addition, there was $ 24.6 million in lease cease-use liabilities relating to 2015 restructuring initiatives which were reclassified to ROU asset balances in accordance with the adoption of ASC 842, see Note 14- Leases .

The 2015 restructuring initiatives are no longer active and therefore activity associated with lease cease-use liabilities for those initiatives is not included in the table.

The following table summarizes the Restructuring and other charges by major type of costs in connection with the CH2M, KeyW and John Wood Group nuclear business acquisitions and the ECR sale for the three and nine months ended June 26, 2020 and June 28, 2019 (in thousands):

Three Months Ended Nine Months Ended

June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

Lease Abandonments $ ( 11,776 ) $ 22,982 $ ( 7,860 ) $ 72,296

Involuntary Terminations ( 49 ) 12,020 18,222 22,944

Outside Services 20,865 39,853 74,223 95,130

Other 10,641 18,384 27,724 14,749

Total $ 19,681 $ 93,239 $ 112,309 $ 205,119

Cumulative amounts since 2017 incurred to date under our various restructuring and other activities described above by each major type of cost as of June 26, 2020 are as follows (in thousands):

Lease Abandonments $ 154,507

Involuntary Terminations 93,707

Outside Services 244,871

Total $ 590,050

As of January 1, 2021, the Company’s equity method investments exceeded its share of venture net assets by $ 44 million.

Our investments in equity method joint ventures on the Consolidated Balance Sheets as of January 1, 2021 and October 2, 2020 were $ 140.2 million and $ 161.3 million, respectively.

During the three months ended January 1, 2021 and December 27, 2019, we recognized income from equity method joint ventures of $ 18.3 million and $ 17.3 million, respectively.

Accounts receivable from unconsolidated joint ventures accounted for under the equity method is $ 5.4 million and $ 8.3 million as of January 1, 2021 and October 2, 2020, respectively.

The Company currently holds a 24.5 % interest in AWE Management Ltd ("AWE ML") that is accounted for under the equity method, and the carrying value of the Company’s investment as of October 2, 2020 was approximately $ 38 million.

As of October 2, 2020, AWE ML was under a contractual operating arrangement with the UK Ministry of Defence (MoD) with multiple years remaining under the arrangement.

Subsequent to year end, on November 2, 2020, the MoD unexpectedly announced plans to change its current operating agreements with AWE ML that would result in the early termination of the current contract in 2021.

During the three months ended January 1, 2021, the Company recorded an other-than-temporary impairment on its investment in AWE ML in the amount of $ 27.9 million, which is included in miscellaneous income (expense), net in the consolidated statement of earnings.

At October 2, 2020 , the Company held a cost method investment in C3.ai, Inc.

("C3") of approximately $ 2.5 million.

On December 9, 2020, C3 completed an initial public offering and as a result the Company now carries its investment in C3 at fair value, with mark to market changes reflected in net income as it is an investment in equity securities with a readily determinable fair value based on quoted market prices.

In connection with the IPO, the Company became subject to a 180-day lock-up period, which restricts sales of the shares, subject to certain conditions that permit partial share sales based on C3's share performance during the lock-up period.

The fair value of the Company's investment at January 1, 2021 was $ 85.2 million and is included in investment in equity securities in the consolidated balance sheet.

Dividend income and unrealized gains and losses on changes in fair value of C3 shares are recognized in miscellaneous income (expense), net in the consolidated statement of earnings.

Quoted market prices are available for these securities in an active market, however a discount is applied to account for the lock-up period restrictions and therefore the investment is categorized as a Level 2 input.

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Short-Term Debt

At September 27, 2019, short-term debt consisted of a bilateral term loan facility with an aggregate principal balance of $ 200.0 million (the "Bilateral Term Loan") and uncommitted credit arrangements with several banks providing short-term borrowing capacity and overdraft protection.

Offset from the Bilateral Term Loan were deferred financing fees of $ 0.1 million .

This loan was repaid during the second fiscal quarter of 2020.

Long-Term Debt

At June 26, 2020 and September 27, 2019, long-term debt consisted of the following (principal amounts in thousands):

Interest Rate Maturity June 26, 2020 September 27, 2019

At January 1, 2021 and October 2, 2020, long-term debt consisted of the following (principal amounts in thousands):

Interest Rate Maturity January 1, 2021 October 2, 2020

Revolving Credit Facility LIBOR + applicable margin (1) March 2024 $ 268,794 $ 152,794

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March 2025 1,029,889 1,025,826

2017 Term Loan Facility LIBOR + applicable margin (3) December 2020 — 400,000

Fixed-rate notes due:

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(1) Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the Revolving Credit Facility (defined below)), borrowings under the Revolving Credit Facility bear interest at either a eurocurrency rate plus a margin of between 0.875 % and 1.625 % or a base rate plus a margin of between 0 % and 0.625 %.

The applicable LIBOR rates at June 26, 2020 and September 27, 2019 were approxim ately 0.06 % and 1.17 %.

(2) Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the 2020 Term Loan Facility (defined below)), borrowings under the 2020 Term Loan Facility bear interest at either a eurocurrency rate plus a margin of between 0.875 % and 1.5 % or a base rate plus a margin of between 0 % and 0.5 %.

The applicable LIBOR rate at June 26, 2020 was approximately 0.67 %.

(3) Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the 2017 Term Loan Facility (defined below)), borrowings under the 2017 Term Loan 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 a pplicable LIBOR rate at September 27, 2019 was approximately 2.05 %.

including applicable margins The applicable LIBOR rates at January 1, 2021 and October 2, 2020 were approxim ately 1.16 % a nd 1.39 %.

(2) Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the Term Loan Facility (defined below)), borrowings under the Term Loan Facility bear interest at either a eurocurrency rate plus a margin of between 0.875 % and 1.5 % or a base rate plus a margin of between 0 % and 0.5 % including applicable margins.

Th e applicable LIBOR rates at January 1, 2021 and October 2, 2020 were approximately 1.11 % and 1.37 % .

On February 7, 2014, Jacobs and certain of its subsidiaries entered into a $ 1.6 billion long-term unsecured, revolving credit facility (as amended, the “2014 Revolving Credit Facility”) with a syndicate of U.S.

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On March 27, 2019, the Company entered into a second amended and restated credit agreement (the "Revolving Credit Facility"), which amended and restated the 2014 Revolving Credit Facility by, among other things, (a) extending the maturity date of the credit facility to March 27, 2024, (b) increasing the facility amount to $ 2.25 billion (with an accordion feature that allows a further increase of the facility amount up to $ 3.25 billion), (c) eliminating the covenants restricting investments, joint ventures and acquisitions by the Company and its subsidiaries and (d) adjusting the financial covenants to eliminate the net worth covenant upon the removal of the same covenant from the Company’s existing Note Purchase Agreement (defined below).

We were in compliance with the covenants under the Revolving Credit Facility at June 26, 2020.

We were in compliance with the covenants under the Revolving Credit Facility at January 1, 2021.

On December 16, 2020, Jacobs entered into a first amendment to the Revolving Credit Facility, which provides for, among other things, (a) administrative changes allowing a one-time limited conditionality draw under the Revolving Credit Facility in connection with the consummation of the proposed acquisition by the Company, indirectly through a subsidiary of the Company, of a majority interest in PA Consulting Group Limited, a private limited company organized under the laws of England and Wales and (b) an increase in the interest rate applicable margin to 1.625 % per annum if the Consolidated Leverage Ratio (as defined in the Revolving Credit Facility) of the Company is equal to or greater than 3.00 to 1.00.

The Revolving Credit Facility permits the Company to borrow under two separate tranches in U.S.

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subsidiaries borrowed an aggregate principal amount of £ 250.0 million.

The proceeds of the term loans were used to repay the Bilateral Term Loan and for general corporate purposes.

The proceeds of the term loans were used to repay an existing term loan with a maturity date of June 2020 and for general corporate purposes.

The Term Loan Facility contains affirmative and negative covenants and events of default customary for financings of this type that are consistent with those included in the Revolving Credit Facility.

During the three month period ended June 26, 2020, the Company entered into interest rate and cross currency derivative contracts to swap a portion of our variable rate debt to fixed rate debt.

During fiscal 2020, the Company entered into interest rate and cross currency derivative contracts to swap a portion of our variable rate debt to fixed rate debt.

See Note 18- Commitments and Contingencies and Derivative Financial Instruments for discussion regarding the Company's derivative instruments.

On September 28, 2017, the Company entered into a $ 1.5 billion unsecured delayed-draw term loan facility (as amended, the “2017 Term Loan Facility”) with a syndicate of financial institutions as lenders and letter of credit issuers.

We incurred loans under the 2017 Term Loan Facility on December 15, 2017 in connection with the closing of the CH2M acquisition in order to pay cash consideration for the acquisition, and to pay fees and expenses related to the acquisition and the 2017 Term Loan Facility.

The 2017 Term Loan Facility was repaid in full during the first fiscal quarter of 2020.

On March 12, 2018, Jacobs entered into a note purchase agreement (as amended, the "Note Purchase Agreement") with respect to the issuance and sale in a private placement transaction o f $ 500 million in the aggregate principal amount of the Company’s senior notes in three series (collectively, the “Senior Notes”).

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In addition, the Note Purchase Agreement contains customary events of default.

We were in compliance with the covenants under the Note Purchase Agreement at June 26, 2020.

We were in compliance with the covenants under the Note Purchase Agreement at January 1, 2021.

We believe the carrying value of the Revolving Credit Facility, the Term Loan Facility and other debt outstanding approximates fair value based on the interest rates and scheduled maturities applicable to the outstanding borrowings.

The fair value of the Senior Notes is estimated to be $ 528.7 million at June 26, 2020, based on Level 2 inputs.

The fair value of the Senior Notes is estimated to be $ 547.8 million at January 1, 2021, based on Level 2 inputs.

The fair value is determined by discounting future cash flows using interest rates available for issuances with sim ilar terms and average maturities.

The Company has issue d $ 2.3 million in letters of credit under the Revolving Credit Facility, leaving $ 1.63 billion of available borrowing capacity under the Revolving Credit Facility at June 26, 2020.

In addition, the Company had issued $ 257.3 million u nder separate, committed and uncommitted letter-of-credit facilities for total issued letters of credit of $ 259.5 million a t June 26, 2020.

Revenue Accounting for Contracts

Disaggregation of Revenues

We provide a broad range of 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.

Our contracts are with many different customers in numerous industries.

Refer to Note 8- Segment Information for additional information on how we disaggregate our revenues by reportable segment.

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table further disaggregates our revenue by geographic area for the three and nine months ended June 26, 2020 and June 28, 2019 (in thousands):

Three Months Ended Nine Months Ended

June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

United States $ 2,472,091 $ 2,357,836 $ 7,548,192 $ 6,701,474

Europe 504,201 491,036 1,662,104 1,706,163

Canada 56,954 59,830 164,601 160,339

Asia 27,995 33,918 90,889 113,294

India 16,465 12,129 33,229 43,131

Australia and New Zealand 130,133 136,711 378,178 386,594

South America and Mexico — 1,225 — 7,244

Middle East and Africa 52,218 76,937 170,093 226,766

Total $ 3,260,057 $ 3,169,622 $ 10,047,286 $ 9,345,005

Contract Liabilities

Contract liabilities represent amounts billed to clients in excess of revenue recognized to date.

Revenue recognized for the three and nine months ended June 26, 2020 that was included in the contract liability balance on September 27, 2019 was $ 42.4 million and $ 352.9 million, respectively.

Revenue recognized for the three and nine months ended June 28, 2019 that was included in the contract liability balance on September 28, 2018 was $ 33.0 million and $ 331.0 million, respectively.

Remaining Performance Obligations

The Company’s remaining performance obligations as of June 26, 2020 represent a measure of the total dollar value of work to be performed on contracts awarded and in progress.

The Company had approximately $ 13.8 billion in remaining performance obligations as of June 26, 2020.

The Company expects to recognize approximately 45 % of our remaining performance obligations into revenue within the next twelve months and the remaining 55 % thereafter.

On September 28, 2019 the Company adopted ASU 2016-02, Leases ("ASC 842") , along with ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01, which amended and clarified the related guidance.

ASC 842 requires lessees to recognize assets and liabilities for most leases.

The Company determines if an arrangement is a lease at contract inception.

A lease exists when a contract conveys to the customer the right to control the use of an identified asset for a period of time in exchange for consideration.

The definition of a lease embodies two conditions:

(1) there is an identified asset in the contract, and (2) the customer has the right to control the use of the identified asset.

Lessees are required to classify leases as either finance or operating leases.

This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.

ASC 842 provided several optional practical expedients for use in transition to and ongoing application of ASC 842.

The Company elected to utilize the package of practical expedients in ASC 842-10-65-1(f) that, upon adoption of ASC 842, allows entities to (1) not reassess whether any expired or existing contracts are or contain leases, (2) retain the classification of leases (e.g., operating or finance lease) existing as of the date of adoption and (3) not reassess initial direct costs for any existing leases.

The Company did not elect the transition practical expedient pertaining to the use of hindsight.

The Company elected to utilize the practical expedient in ASC 842-10-15-37 in which the Company has chosen to account for each separate lease component of a contract and its associated non-lease components as a single lease component.

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company adopted ASC 842 using the modified retrospective method, and accordingly, the new guidance was applied to leases that existed as of September 28, 2019 (the date of initial application) without adjusting the comparative periods presented.

As a result, as of September 28, 2019, the Company has recorded total right-of-use ("ROU") assets of $ 767.0 million, which is comprised of approximately $ 82.3 million in reclassifications of previously recorded lease incentives and deferred rent, offset by $ 141.4 million in restructured lease cease-use liability.

Additionally, the Company has recorded total current lease liabilities of $ 180.7 million, and total noncurrent lease liabilities of $ 810.1 million.

The adoption of ASC 842 did not have a material impact on the Company’s results of operations or any impact on the Company’s cash flows.

On January 20, 2021, Jacobs entered into a delayed draw term loan facility (the "Delayed Draw Term Loan Facility) with a syndicate of financial institutions as lenders.

The Delayed Draw Term Loan Facility matures on the third anniversary of the date of closing.

Under the Delayed Draw Term Loan Facility, the Company may borrow up to $ 200 million of U.S.

dollar denominated term loans and up to £ 650 million U.K.

pound sterling denominated loans.

The proceeds of the term loans may be used to fund the acquisition of a majority interest in PA Consulting Group Limited, refinance certain existing indebtedness and pay related transaction costs and expenses.

The Delayed Draw Term Loan Facility contains affirmative and negative covenants and events of default customary for financings of this type and that are consistent with those included in the Revolving Credit Facility and the Term Loan Facility.

Depending on the Company’s consolidated leverage ratio, borrowings under the Delayed Draw Term Loan Facility will bear interest at either a eurocurrency rate plus a margin of between 0.875 % and 1.625 % or a base rate plus a margin of between 0 % and 0.625 %.

From the date that is 90 days after the closing of the Delayed Draw Term Loan Facility, the Company must pay a ticking fee with respect to undrawn commitments under the facility at a rate that will range between 0.80 % and 0.225 % based on the Company’s Consolidated Leverage Ratio.

The Company has issue d $ 2.3 million in letters of credit under the Revolving Credit Facility, leaving $ 1.98 billion of available borrowing capacity under the Revolving Credit Facility at January 1, 2021.

In addition, the Company had issued $ 249.8 million u nder separate, committed and uncommitted letter-of-credit facilities for total issued letters of credit of $ 252.1 million a t January 1, 2021.

The Company’s right-of use assets and lease liabilities relate to real estate, project assets used in connection with long-term construction contracts, IT assets and vehicles.

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None of the Company’s lease agreements contain material options to purchase the lease property, material residual value guarantees, or material restrictions or covenants.

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Long-term project asset and vehicle leases (leases with terms greater than twelve months), along with all real estate and IT asset leases, are recorded on the consolidated balance sheet at the present value of the minimum lease payments not yet paid.

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Certain leases include payments that are based solely on an index or rate.

These variable lease payments are included in the calculation of the ROU asset and lease liability and are initially measured using the index or rate at the lease commencement date.

These variable lease payments are included in the calculation of the right-of-use ("ROU") asset and lease liability and are initially measured using the index or rate at the lease commencement date.

Other variable lease payments, such as payments based on use and for property taxes, insurance, or common area maintenance that are based on actual assessments are excluded from the ROU asset and lease liability and are expensed as incurred.

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Such equipment leases are considered short-term in nature unless it is reasonably certain that the equipment will be leased for a term greater than twelve months.

The components of lease expense (reflected in selling, general and administrative expenses) for th e three and nine month periods ended June 26, 2020 were as follows (in thousands):

Three Months Ended Nine Months Ended

The components of lease expense (reflected in selling, general and administrative expenses) for th e three months ended January 1, 2021 and December 27, 2019 were as follows (in thousands):

Three Months Ended

January 1, 2021 December 27, 2019

Operating lease cost $ 39,444 $ 44,080

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Total lease cost $ 44,231 $ 49,343

Information related to the Company's right-of use assets and lease liabilities as of June 26, 2020 was as follows (in thousands):

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Lease Asset/Liabilities Balance Sheet Classification

Right-of-use assets

Operating lease assets Miscellaneous assets $ 718,161

Lease Liabilities

Operating lease liabilities, current Accrued liabilities 152,438

Operating lease liabilities, noncurrent Other deferred liabilities 769,374

Total lease liabilities $ 921,812

Supplemental information related to the Company's leases for the nine months ended June 26, 2020 was as follows (in thousands):

Nine Months Ended

Supplemental information related to the Company's leases for the three months ended January 1, 2021 was as follows (in thousands):

Three Months Ended

Cash paid for amounts included in the measurements of lease liabilities $ 48,909

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Weighted average discount rate - operating leases 2.7 %

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Total remaining lease payments under the Company's leases for the remainder of fiscal 2021 and for the succeeding years is as follows (in thousands):

3 unchanged sentences

Less Interest ( 85,357 )

JACOBS ENGINEERING GROUP INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Pension and Other Postretirement Benefit Plans

The following table presents the components of net periodic benefit cost recognized in earnings during the three and nine month periods ended June 26, 2020 and June 28, 2019 (in thousands):

Three Months Ended Nine Months Ended

June 26, 2020 June 28, 2019 June 26, 2020 June 28, 2019

The following table presents the components of net periodic pension benefit recognized in earnings during the three months ended January 1, 2021 and December 27, 2019 (in thousands):

Three Months Ended

January 1, 2021 December 27, 2019

Service cost $ 1,735 $ 1,465

3 unchanged sentences

Plan Amendment and settlement loss (gain) — 2,651

Total net periodic pension cost recognized $ ( 10,063 ) $ ( 4,809 ) $ ( 27,530 ) $ ( 46,516 )

The service cost component of net periodic pension expense is presented in the same line item as other compensation costs (direct cost of contracts and selling, general and administrative expenses) and the other components of net periodic pension expense are presented in miscellaneous income (expense), net on the Consolidated Statements of Earnings.

In the first fiscal quarter of 2019, the Company elected to discontinue the CH2M Hill Retiree Medical Plan and the OMI Retiree Medical Plan, effective December 31, 2018.

Lump sum payments were made to certain participants in the first fiscal quarter of 2019, resulting in a partial plan settlement and related settlement gain of $ 2.2 million.

In the second fiscal quarter of 2019, lump sum payments were made to remaining plan participants and the plans were fully settled, resulting in an additional $ 32.4 million in settlement gains.

Total net periodic pension benefit recognized $ ( 7,875 ) $ ( 7,408 )

The service cost component of net periodic pension benefit is presented in the same line item as other compensation costs (direct cost of contracts and selling, general and administrative expenses) and the other components of net periodic pension expense are presented in miscellaneous income (expense), net on the Consolidated Statements of Earnings.

In the first fiscal quarter of 2020, the Company incurred a settlement loss on one of its U.S.

defined benefit plans of approximately $ 2.7 million.

On January 1, 2019, the CH2M Hill Pension Plan and the CH2M Hill IDC Pension Plan merged into the Company's Sverdrup Pension Plan.

The newly combined plan is called the Jacobs Consolidated Pension Plan.

The following table presents certain information regarding the Company’s cash contributions to our pension plans for fiscal 2021 (in thousands):

Cash contributions made during the first nine months of fiscal 2020

Cash contributions made during the first three months of fiscal 2021

Cash contributions projected for the remainder of fiscal 2021

Total $ 38,038

Accumulated Other Comprehensive Income

The following table presents the Company's roll forward of accumulated other comprehensive income (loss) after-tax for the nine months ended June 26, 2020 (in thousands):

Change in Pension Liabilities Foreign Currency Translation Adjustment Gain/(Loss) on Cash Flow Hedges Total

Balance at September 27, 2019

$ ( 436,749 ) $ ( 480,045 ) $ ( 18 ) $ ( 916,812 )

Other comprehensive income (loss) 3,554 8,377 ( 15,706 ) ( 3,775 )

Reclassifications from other comprehensive income (loss) 7,853 — 1,042 8,895

Balance at June 26, 2020

$ ( 425,342 ) $ ( 471,668 ) $ ( 14,682 ) $ ( 911,692 )

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company’s effective tax rates from continuing operations for the three months ended June 26, 2020 and June 28, 2019 were 22.3 % and ( 2.1 )%, respectively.

The Company’s effective tax rates from continuing operations for the nine months ended June 26, 2020 and June 28, 2019 were 19.7 % and 4.3 %, respectively.

The comparatively higher quarterly tax rate was primarily due to a $ 21.7 million tax benefit in the three months ended June 28, 2019, which related to the release of a valuation allowance on previously fully valued foreign tax credits.

For the three months ended June 26, 2020, the effective tax rate was impacted by a $ 4.1 million benefit for the release of uncertain tax positions due to the statute of limitations expiring and a $ 12.6 million benefit for the release of a valuation allowance in the UK, with offsetting unfavorable impacts from other discrete items.

The Company’s effective tax rate from continuing operations for the nine months ended June 26, 2020 was higher primarily due to $ 62.6 million in discrete benefits in the nine months ended June 28, 2019, predominantly comprised of $ 37.4 million for a remeasurement of the Company's deferred tax liability for unremitted earnings to account for the change in expected manner of recovery and an additional benefit of $ 21.7 million as a result of a valuation allowance release on foreign tax credits that were previously fully reserved.

Comparatively, in the nine months ended June 26, 2020, the Company had a $ 12.6 million benefit for the release of a valuation allowance in the UK, a $ 6.9 million of benefit from the application of the Internal Revenue Code section 179D, a $ 3.7 million favorable settlement with the Indian Revenue Services, an amended tax return generating $ 5.8 million of foreign tax credits and research and development, and a $ 4.1 million benefit for an India tax rate change, with offsetting unfavorable impacts from other discrete items.

See Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business for further information on the Company's discontinued operations reporting for the sale of the ECR business.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted in the United States and significantly revised the U.S.

corporate income tax laws.

Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No.

118 (SAB 118), which allowed registrants to record provisional amounts during a one year “measurement period” like that used when accounting for business combinations.

As of December 22, 2018, we completed our accounting for the tax effects of the enactment of the Act.

For the deferred tax balances, we remeasured the U.S.

deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%.

The Company’s revised remeasurement resulted in cumulative charges to income tax expense of $ 144.4 million for the measurement period.

The Act called for a one-time tax on deemed repatriation of foreign earnings.

This one-time transition tax was based on our total post-1986 earnings and profits (E&P) of certain of our foreign subsidiaries.

We recorded $ 14.3 million in cumulative transition taxes during the measurement period, although the transition tax was expected to be offset by foreign tax credits in the future, resulting in no additional cash tax liability.

In addition, the Company recorded $ 104.2 million in cumulative valuation expense charges during the measurement period with respect to certain foreign tax credit deferred tax assets as a result of the Act and CH2M integration.

The amount of income taxes the Company pays is subject to ongoing audits by tax jurisdictions around the world.

Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time.

The Company believes that it has adequately provided for reasonably foreseeable outcomes related to these matters.

However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate.

Business Combinations

Buffalo Group

On November 24, 2020, a subsidiary of Jacobs completed the acquisition of Buffalo Group, a leader in advanced cyber and intelligence solutions.

The Company repaid all of the assumed Buffalo Group debt by the end of the first fiscal quarter of 2021.

Additionally, the Company recorded contingent consideration of $ 14.6 million which is expected to be settled in fiscal 2022.

The acquisition of Buffalo Group allows Jacobs to further expand its cyber and intelligence solutions offering to government clients.

The following summarizes the fair values of The Buffalo Group's assets acquired and liabilities assumed as of the acquisition date (in millions):

Cash and cash equivalents $ 8.4

Receivables 19.2

Property, equipment and improvements, net 2.3

Goodwill 139.6

Identifiable intangible assets 71.0

Prepaid expenses and other current assets 6.2

Total Assets $ 246.7

Accounts payable, accrued expenses and other current liabilities $ 46.9

Contingent consideration 14.6

Other long term liabilities 3.8

Total Liabilities

Net assets acquired $ 181.4

The purchase price allocation is based upon preliminary information and is subject to change when additional information is obtained.

Goodwill recognized results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations.

All of the goodwill recognized is expected to be deductible for tax purposes, given the acquisition was structured as an asset acquisition.

The Company has not completed its final assessment of the fair values of Buffalo Group's assets acquired and liabilities assumed.

The final purchase price allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

Identified intangibles are customer relationships, contracts and backlog and have estimated lives of 9 years.

Fair value measurements relating to the Buffalo Group are made primarily using Level 3 inputs including discounted cash flow and Monte Carlo simulation techniques.

Fair value for the identified intangible assets is estimated using inputs primarily for the income approach, which include the use of both the multiple period excess earnings method and the relief from royalties method.

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.

The fair value of the contingent consideration is estimated using a Monte Carlo simulation and the significant assumptions used include projections of revenues for Buffalo Group through fiscal 2021 and probabilities of meeting those projections.

No summarized unaudited pro forma results are provided for the Buffalo Group due to the immateriality of this acquisition relative to the Company's consolidated financial position and results of operations.

JACOBS ENGINEERING GROUP INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Earnings Per Share and Certain Related Information

Basic and diluted earnings per share (“EPS”) are computed using the two-class method, which is an earnings allocation method that determines EPS for common shares and participating securities.

The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period.

Participating securities and common shares have equal rights to undistributed earnings.

Net earnings used for the purpose of determining basic and diluted EPS is determined by taking net earnings, less earnings available to participating securities.

The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for the three and nine months ended June 26, 2020 and June 28, 2019 (in thousands):

John Wood Group's Nuclear Business

The John Wood Group nuclear business allows Jacobs to further expand its lifecycle nuclear services business.

The following summarizes the fair values of John Wood Group's assets acquired and liabilities assumed as of the acquisition date (in millions):

Cash and cash equivalents $ 24.3

Receivables 74.2

Other current assets 5.2

Property, equipment and improvements, net 8.3

Goodwill 206.2

Identifiable intangible assets 80.0

Miscellaneous 19.4

Total Assets $ 417.6

Accounts payable, accrued expenses and other current liabilities $ 70.7

Long term liabilities 29.0