JACOBS SOLUTIONS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. General The purpose of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to provide a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition from the most recent fiscal year-end to January 1, 2021 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year. In order to better understand such changes, readers of this MD&A should also read: • The discussion of the critical and significant accounting policies used by the Company in preparing its consolidated financial statements. The most current discussion of our critical accounting policies appears in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2020 Form 10-K, and the most current discussion of our significant accounting policies appears in Note 2- Significant Accounting Polices in Notes to Consolidated Financial Statements of our 2020 Form 10-K; • The Company’s fiscal 2020 audited consolidated financial statements and notes thereto included in our 2020 Form 10-K; and • Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2020 Form 10-K. In addition to historical information, this MD&A and other parts of this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that do not directly relate to any historical or current fact. When used herein, words such as “expects,” “anticipates,” “believes,” “seeks,” “estimates,” “plans,” “intends,” “future,” “will,” “would,” “could,” “can,” “may,” and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make concerning the potential continued effects of the COVID-19 pandemic on our business, financial condition and results of operations and our expectations as to our future growth, prospects, financial outlook and business strategy for fiscal 2021 or future fiscal years. You should not place undue reliance on these forward-looking statements. Although such statements are based on management’s current estimates and expectations, and/or currently available competitive, financial, and economic data, forward-looking statements are inherently uncertain, and you should not place undue reliance on such statements as actual results may differ materially. We caution the reader that there are a variety of risks, uncertainties and other factors that could cause actual results to differ materially from what is contained, projected or implied by our forward-looking statements. Such factors include the magnitude, timing, duration and ultimate impact of the COVID-19 pandemic and any resulting economic downturn on our results, prospects and opportunities; the timeline for easing or removing “shelter-in-place”, “stay-at-home”, social distancing, travel restrictions and similar orders, measures or restrictions imposed by governments and health officials in response to the pandemic, or if such orders, measures or restrictions are re-imposed after being lifted or eased, including as a result of increases in cases of COVID-19; the development, effectiveness and distribution of vaccines or treatments for COVID-19; and the timing and scope of any government stimulus programs enacted in response to the impacts of the COVID-19 pandemic. The impact of such matters includes, but is not limited to, the possible reduction in demand for certain of our services and the delay or abandonment of ongoing or anticipated projects due to the financial condition of our clients and suppliers or to governmental budget constraints; the inability of our clients to meet their payment obligations in a timely manner or at all; potential issues and risks related to a significant portion of our employees working remotely; illness, travel restrictions and other workforce disruptions that could negatively affect our supply chain and our ability to timely and satisfactorily complete our clients’ projects; difficulties associated with hiring additional employees or replacing any furloughed employees; increased volatility in the capital markets that may affect our ability to access sources of liquidity on acceptable pricing or borrowing terms or at all; and the inability of governments in certain of the countries in which we operate to effectively mitigate the financial or other impacts of the COVID-19 pandemic on their economies and workforces and our operations therein. The foregoing factors and potential future developments are inherently uncertain, unpredictable and, in many cases, beyond our control. For a description of these and additional factors that may occur that could cause actual results to differ from our forward-looking statements, see those listed and discussed in Item 1A, Risk Factors included in our 2020 Form 10-K and our Quarterly Reports on Form 10-Q. We undertake no obligation to release publicly any revisions or updates to any forward-looking statements. We encourage you to read carefully the risk factors, as well as the financial and business disclosures contained in this Quarterly Report on Form 10-Q and in other documents we file from time to time with the United States Securities and Exchange Commission ("SEC"). Page 31 Impact of COVID-19 on Our Business On March 11, 2020, the World Health Organization characterized the outbreak of the novel coronavirus (“COVID-19”) as a global pandemic and recommended certain containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and the vast majority of states and many municipalities have declared public health emergencies or taken similar actions. Along with these declarations, there were extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat outbreaks of COVID-19 in regions across the United States and around the world. These actions included quarantines and “stay-at-home” or “shelter-in-place” orders, social distancing measures, travel restrictions, school closures and similar mandates for many individuals in order to substantially restrict daily activities and orders for many businesses to curtail or cease normal operations unless their work is critical, essential or life-sustaining. Although certain jurisdictions have taken steps to lift or ease such restrictions to various degrees, some jurisdictions have subsequently reversed such lifting or easing in response to increased cases of COVID-19. In addition, governments and central banks in the United States and other countries in which we operate have enacted fiscal and monetary stimulus and assistance measures to counteract the economic impacts of COVID-19. As it became clear that the pandemic was unparalleled in the rate of community spread, we took early, decisive action to put people first, help flatten the curve and take care of our clients and communities. In early March 2020, we swiftly restricted travel and established return protocols for both client-related and personal travel. In 10 days, we successfully transitioned more than 85% of our employees to a remote working environment to support physical distancing. Where the essential and mission-critical nature of our work requires us to maintain staff at certain sites or locations, we worked closely with our clients and established project-specific plans designed to ensure the safety of our people and the integrity of our operations. Using technology and optimizing our networks, we continue to offer flexible work scenarios for our people, and to deliver business continuity for and continued collaboration with our clients. Our Executive Leadership Team met daily for the first three months and weekly thereafter, focusing on transparency, agile response and business resiliency; and our global and regional crisis management teams continued to maintain consistent messaging and direct local responses. Our regular global Town Halls, a weekly Chair and CEO email and short, self-produced leadership videos are intended to share open, transparent information to connect and unite our global community. We are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with international, federal, state and local requirements to date, we continue to materially operate. In addition, demand for certain of our services, including those supporting health care relief efforts relating to COVID-19, has increased, and could continue to increase, as a result of COVID-19. Notwithstanding our continued critical operations, COVID-19 has negatively impacted our business, and may have further adverse impacts, on our continued operations, including those listed and discussed in Item 1A, Risk Factors included in our 2020 Form 10-K. Accordingly, we have reduced spending broadly across the Company, only proceeding with operating and capital spending that is critical. We also temporarily ceased all non-essential hiring and reduced discretionary expenses, including temporarily suspending certain employee benefits and compensation through the end of fiscal 2020. Looking ahead, we have developed contingency plans to reduce costs further if the situation further deteriorates or lasts longer than current expectations. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be necessary or appropriate for the health and safety of employees, contractors, customers, suppliers or others or as required by international, federal, state or local authorities. Based on current estimates, we expect the impact of COVID-19 to continue into the first half of fiscal 2021, although to a lesser degree than what was seen in fiscal 2020. Although this business disruption is expected to be temporary, significant uncertainty exists concerning the magnitude, duration and impacts of the COVID-19 pandemic, including with regard to the effects on our customers and customer demand for our services. Accordingly, actual results for future fiscal periods could differ materially versus current expectations and current results and financial condition discussed herein may not be indicative of future operating results and trends. For a discussion of risks and uncertainties related to COVID-19, including the potential impacts on our business, financial condition and results of operations, see Item 1A - Risk Factors contained in our 2020 Form 10-K. Page 32 Business Overview At Jacobs, we’re challenging today to reinvent tomorrow by solving the world’s most critical problems for thriving cities, resilient environments, mission-critical outcomes, operational advancement, scientific discovery and cutting-edge manufacturing, turning abstract ideas into realities that transform the world for good. Leveraging a talent force of nearly 55,000, Jacobs provides a full spectrum of professional services including consulting, technical, scientific and project delivery for the government and private sector. The Company’s deep global domain knowledge - applied together with the latest advances in technology - are why customers large and small choose to partner with Jacobs. We operate in two lines of business: Critical Mission Solutions and People & Places Solutions. After spending three years transforming our portfolio and setting the foundation to get us where we are today, we launched a three-year accelerated profitable growth strategy at our Investor Day in February 2019, focused on innovation and continued transformation to build upon our position as the leading solutions provider for our clients. This transformation included the $3.2 billion acquisition of CH2M and the $3.4 billion divestiture of the Company's energy, chemicals and resources business. Our acquisitions of KeyW, John Wood Group’s nuclear business and Buffalo Group will further position us as a leader in high-value government services and technology-enabled solutions, enhancing our portfolio by adding intellectual property-driven technology with unique proprietary C5ISR (command, control, communications, computer, combat systems, intelligence, surveillance and reconnaissance) rapid solutions, and amplifying Jacobs’ position as a Tier-1 global nuclear services provider. We have altered the course of Jacobs’ future and are now focused on broadening our leadership in high growth sectors. As part of our strategy, our new brand was created from an understanding of where we’ve been, what’s true to our culture and our strategy going forward. Central to it is our new tagline: Challenging today. Reinventing tomorrow. Signaling our transition from an engineering and construction company to a global technology-forward solutions company, we have a new look, and we plan to change our name to Jacobs Solutions Inc. Revenue by Type ( Q1 FY 2021 ) 1 1 Due to COVID-19 and the actions taken by governmental authorities and others related thereto, some of the information provided in this summary relating to sources of revenue could be substantially different in the remainder of fiscal 2021. Lines of Business The Company's two operating segments and global lines of business ("LOBs") are as follows: (i) Critical Mission Solutions and (ii) People & Places Solutions; with the previous Energy, Chemicals and Resources ("ECR") line of business now reported as discontinued operations. Page 33 Critical Mission Solutions (CMS) Our Critical Mission Solutions line of business provides a full spectrum of cyber, data analytics, systems and software application integration services and consulting, enterprise level operations and maintenance and mission IT, engineering and design, enterprise operations and maintenance, program management, and other highly technical consulting solutions to government agencies as well as commercial customers. Our representative clients include the U.S. Department of Defense (DoD), the Combatant Commands, the U.S. Intelligence Community, NASA, the U.S. Department of Energy (DoE), Ministry of Defence in the U.K. Nuclear Decommissioning Authority (NDA), and the Australian Department of Defence, as well as private sector customers mainly in the aerospace, automotive, energy and telecom sectors. Serving mission-critical industry end markets Critical Mission Solutions serves broad sectors, including U.S. government services, cyber, nuclear, commercial, and international sectors. The U.S. government is the world’s largest buyer of technical services, and in fiscal 2020, approximately 79% of CMS’s revenue was earned from serving the DoD, Intelligence Community and Federal Civilian governmental entities. Trends affecting our government clients include information warfare, cyber, IT modernization, space exploration and intelligence, defense systems and intelligent asset management, which are driving demand for our highly technical solutions. Another trend we are witnessing is an increase in the capabilities of unmanned aircraft and hypersonic weapons, which is impacting both offensive and defensive spending priorities among our clients and is a driver for next generation solutions such as C5ISR (command, control, communications, computer, combat systems, intelligence, surveillance and reconnaissance) and advanced aeronautical testing, respectively. We are also seeing an increase in space exploration initiatives both from the U.S. government, such as NASA’s Artemis program to return to the moon in 2024, as well as the commercial sector. Within the nuclear sector, our customers have decades-long initiatives to manage, upgrade, decommission and remediate existing energy infrastructure and nuclear weapons. Our international customers, which accounted for 13% of fiscal 2020 revenue, have also increased demand for our IT and cybersecurity solutions an d nuclear projects, and the U.K. Ministry of Defence continues to focus on accelerating its strategic innovative and technology focused initiatives. Leveraging our base market of offering valued technical services to U.S. government customers, CMS also serves commercial and international mar kets. In fiscal 2020, approximately 8% of CMS’s r evenue was from various U.S. commercial sectors, including the telecommunications sector, which anticipates a large cellular infrastructure build-out from 4G to 5G technology. And like our government facility-based clients, our commercial manufacturing clients are seeking ways to reduce maintenance costs and optimize their facilities with network connected facilities and equipment to optimize operational systems, which we refer to as Intelligent Asset Management. Leveraging strong domain expertise to deliver solutions CMS brings domain-specific capability and cross-market innovations in each of the above sectors by leveraging six core capability groups. • I nformation Technology Services . Across various business units in CMS, we provide a wide range of software development and enterprise IT solutions. We develop, integrate, modify and maintain software solutions and complex systems. These services include a broad array of lifecycle services, including requirements analysis, design, integration, testing, maintenance, quality assurance and documentation management. Our software activities support all major methodologies, including Agile, DevSecOps and other hybrid methodologies. For our enterprise IT capability, we develop, implement and sustain enterprise information technology systems, with a focus on improving mission performance, increasing security and reducing cost for our customers. Solutions typically include IT service management, data center consolidation, network operations, enterprise architecture, mobile computing, cloud computing and migration, software, infrastructure and platform as a service (SaaS, IaaS and PaaS), and data collection and analytics. Page 34 • Cyber and Data Analytics . Strongly enhanced by our recent acquisition of KeyW, CMS offers a full suite of cyber services for our government and commercial clients, including defensive cyber operations and training, offensive cyber operations, cloud and data analytics, threat intelligence, intelligence analysis, incident response and forensics, software and infrastructure security engineering, computer forensics and exploitation and information technology-operational technology (IT-OT) convergence services. • C5ISR (Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance and Reconnaissance) . CMS is a leader in the design, development, analysis, implementation and support of C5ISR systems and technology in any environment, including land, sea, air, space and cyber domains. We provide advanced solutions for collecting, processing, exploiting and disseminating geospatial intelligence for the U.S. and Allied Intelligence Communities and Special Forces organizations. Core capabilities include: imaging systems, radar systems, precision geo-location products, custom packaging and microelectronics and customizable tagging, tracking and locating devices. • Technical Services . We provide a broad range of technical consulting services to our government and commercial clients, including: systems integration, specialized propulsion, avionics, electrical, materials, aerodynamics, manufacturing processes modeling and simulation, testing and evaluation, scientific research, intelligent asset management, program management and consulting. NASA is one of our major government customers in the U.S., where we provide a wide range of technology services. For our telecommunications customers, we provide permitting, site planning and engineering to enable the development of wireline and wireless communications including the development of 5G small cell sites. • Facility Engineering and Operations . We provide services for advanced technical structures and systems, including flight/launch facilities, R&D facilities, test facilities and military range facilities. Customers also engage us to operate, maintain and provide technical services for these facilities and systems over their lives. We also provide sustainment and technical services for facility-oriented clients including for the automotive industry where we provide highly technical aerodynamic, climatic, altitude and acoustic solutions for our customer research and development operations. • Nuclear Solutions . We provide support across the full nuclear life cycle, including new build, operational support, and decommissioning. Support includes project management, engineering, technical and R&D services, complemented by the full range of CMS' other services. Customers include the U.S. DoE, the UK's NDA, and commercial companies such as EDF Energy, the UK's largest producer of low-carbon energy. Applying internally-developed technology Across multiple businesses within CMS we license internally developed technology such as: • KeyRadar® : The acquisition of KeyW brought numerous internally developed technologies, including KeyRadar, a scalable, software-defined synthetic aperture radar that can be configured to address a variety of missions, ranging from foliage penetration to long-range maritime domain awareness or long-range moving target detection. • Ginkgo : Ginkgo is the only virtual learning environment specifically created for cybersecurity training. Designed by experienced cyber instructors, Ginkgo offers a complete solution for implementing hands-on IT and cybersecurity training for both local and distance learning environments on desktops, tablets, and other mobile devices. • ion© : ion© is our open architecture, multi-protocol Industrial Internet of Things (IIoT) software solution providing an integrated, secure, and scalable platform for data aggregation integration, analysis and visualization. Ion© is both licensed and delivered as-a-service (aas) to commercial customers around the globe to enable a host of operational solutions, ranging from worker monitoring and safety to industrial asset visibility and management to smart/connected construction. Most recently, Jacobs is using ion© to support Return to Work solutions that allow our pharmaceutical clients to return mission essential personnel to their advanced research and production facilities despite the ongoing COVID-19 pandemic. Page 35 People & Places Solutions (P&PS) Jacobs' People & Places Solutions line of business provides end-to-end solutions for our clients’ most complex projects - whether connected mobility, integrated water management, smart cities, advanced manufacturing or environmental stewardship. In doing so, we employ predictive analytics, artificial intelligence and automation, digital twin technology, IoT smart sensors, geospatial visualization and advanced delivery processes and tools for consulting, planning, architecture, design, engineering, and implementation, as well as long-term operation of facilities and infrastructure. Solutions may be delivered as standalone engagements or through comprehensive program management solutions that integrates disparate workstreams to yield additional benefits not attainable through project-by-project implementation. We also provide progressive design-build and construction management at-risk delivery for our P&PS clients. Our clients include national, state and local government in the U.S., Europe, U.K., Middle East, Australia, New Zealand and Asia, as well as multinational private sector clients throughout the world. Serving broad market sectors that support people and places Aging infrastructure; climate action; urbanization; water, food and energy security; global supply chains; pandemic preparedness and response; environmental, social, and corporate governance (ESG); and digital transformation are driving new challenges and opportunities for our clients. These drivers are highlighting the need for holistic, integrated technology solutions that draw on the domain knowledge resident in the multidisciplinary consulting and delivery expertise of our global workforce. For example, an airport is no longer simply aviation infrastructure but is now a smart city with extensive operational, cybersecurity and autonomous mobility requirements, as well as the contactless travel requirements necessary to best manage COVID-19. Master planning for a city now requires advanced analytics to plan for climate adaption and next-generation mobility as well as revenue generating fiber infrastructure. Furthermore, the future of nearly all water infrastructure will be highly technology-enabled, leveraging solutions with digital twins, predictive analytics and smart metering technology to ensure we are giving communities, industries and regions the secure water resource they need to flourish and expand. This increase in technology requirements is a key factor in our organic growth strategy as well as our recent acquisitions and divestitures. Moreover, our business model is evolving to provision a broader spectrum of digital- and technology-enabled solutions to address our infrastructure clients' challenges with less exposure to craft construction services. Our focus on the five core sectors of Transportation, Water, Built Environment, Environmental and Advanced Facilities provides us with the ability to leverage our expansive domain expertise across all global markets, enabling truly end-to-end connected solutions for our clients' most complex major projects and programs, including the London 2012 Olympic and Paralympic Games, Expo 2020 Dubai, and the LaGuardia Airport Redevelopment. Today, we are executing complex solutions that pull expertise from all markets, fused with digital expertise, for major developments in places like London, Dubai, Sydney, Singapore, Miami, Los Angeles and Toronto. Leveraging our global platform to deliver integrated solutions to clients One of our key differentiators is our global integrated delivery model, which harnesses deep domain expertise from our global Solutions and Technology and solution organization that is leveraged with the benefits of scale when we focus the world’s best talent to deliver innovative solutions and value to our clients. • Within transportation , we provide sustainable solutions to plan, develop, finance, design engineer, construct, operate and maintain, next generation mobility across all modes, including highway, bridge, rail and transit, aviation, port and maritime infrastructure. For example, we do this by assessing the impact of autonomous vehicles on roadways and cities for transportation agencies, engineering and specifying vehicles for mass-transit, delivering consulting services for digital fare payment systems; providing program management of the largest airport developments, designing cutting edge automated container terminals and ports infrastructure and utilizing big data to develop cross modal mobility solutions. Our clients encompass the world’s largest transportation agencies as well as private shipping and logistics companies worldwide, including the multi-modal Port Authority of New York and New Jersey, Transport for London, Highways England, Transport for New South Wales and Etihad Rail. Page 36 • Water is one of the most precious resources in the world. Extreme weather events in the form of droughts, desertification and flooding are stressing water supplies, at the same time population growth and industrialization are increasing demand. Addressing these challenges, we provide integrated solutions across water and wastewater treatment, water reuse, and water resources such as the deployment of next generation smart metering, digital twin technology and highly technical consulting, engineering, design-build and operation of complex water systems. We support our clients on some of the world’s largest water infrastructure projects such as California WaterFix, Thames Tideway, Houston Water and Singapore National Water Agency. • For the built environment, we deliver full-service architecture, engineering, interiors, planning, urban design, landscape architecture and project delivery solutions for government, corporate, commercial, institutional and industrial clients across diverse sectors. Our technology-enabled expertise ranges from the future of work, transaction advisory and asset management to transportation hubs, urban developments, government, healthcare, higher education and science facilities, as well as sports and entertainment venues. We plan and deliver resilient, triple bottom line-based solutions that are connected, secure and smart, including the rebuild of Tyndall Air Force Base in Florida into a visionary Installation of the Future; the corporate headquarters and research facility relocation of Spark Therapeutics in Philadelphia, Pennsylvania; and the expanded Blacktown Mount Druitt Hospital in New South Wales, Australia. • In our environmental business, we utilize a multidisciplinary, systems-oriented approach to develop environmental planning for infrastructure development; data-driven site remediation and regeneration for per- and poly-fluoroalkyl substances (PFAS) and other known and emerging contaminants; environmental health & safety (EHS) operational excellence and information management; and climate action solutions that incorporate sustainability and resiliency principles as essential to the well-being of all people and of our planet. We also provide post-disaster response and recovery services in support of the Federal Emergency Management Agency’s mission throughout the U.S. In addition to providing end-to-end technology-enabled solutions for multinational oil & gas, chemical and life sciences, mining, manufacturing and energy clients, Jacobs provides comprehensive environmental services for the U.S. Department of Defense, the U.S. Environmental Protection Agency, NASA and other civilian agencies, the UK Environment Agency, and the Australian Department of Defense. • Within advanced facilities, we provide fully integrated solutions for highly specialized facilities in the fields of medical research, sustainable manufacturing, nanoscience, biotechnology, semiconductor and data centers. Our services span the full range of facility work, from early planning and site selection through architecture, engineering, construction and facility operations, all tailored to specific client needs in the life sciences and pharmaceutical, specialty manufacturing, microelectronics and data intensive industries. As the largest professional services provider to the biopharmaceutical industry, we are working with our multinational clients to rapidly increase capacity for vaccines and therapeutics, as well as reshoring manufacturing facilities, in response to the COVID-19 pandemic. Representative projects include the retrofit of AstraZeneca’s West Chester, Ohio manufacturing facility to deliver a potential COVID-19 vaccine; the Mountbatten Nanotechnology Electronics Research Complex, University of Southampton, U.K.; and the Procter & Gamble, Singapore Innovation Center. Applying internally developed technology A strong foundation of data-rich innovative solutions is woven into every project that we deliver. This may include Jacobs-developed proprietary software that employs an array of technical expertise to enable the most efficient, effective and predictable solutions for our clients. Examples of these technologies include: • TrackRecord is a workflow automation and compliance management platform for the delivery of major projects. • AquaDNA is a predictive analytics platform that integrates innovative technologies for wastewater asset management through an AI learning platform, facilitating a move from reactive to proactive maintenance and reduced operation and maintenance costs. • Travel Service Optimisation (TSO) is Jacobs' travel sharing solution for Special Education needs children which centers on the children’s ability to travel together rather than focusing on their disability. • SafetyWeb is a site hazard management and compliance tool. • ProjectMapper is a web based geospatial mapping and project visualization software platform. Page 37 • Flood Modeller provides proactive decision-making to help manage our environment and the challenges associated with flood risk. It is suitable for a wide range of engineering and environmental applications, from calculating simple backwater profiles and modeling entire catchments to mapping potential flood risk for entire countries. • ion© is an Industrial Internet of Things (IoT) multi-protocol wireless application networking system which provides an open, integrated, secure and scalable system for data aggregation and viewing. • Replica™ is Jacobs’ digital twin solution software platform and consists of the following capabilities: • Replica Parametric Design™ (formerly CPES™) provides outputs on construction quantities and costs, life cycle quantities and costs, and estimates of environmental impacts. Rapid process design in Replica Process and the resulting development of the Replica Parametric Designs allows for thorough alternatives analysis and enhanced team communication. • Replica Preview™ is used for early stage visualization of facility designs. This software rapidly creates scaled three-dimensional designs, which can be placed on Google Earth®. Rapid design development in Replica Parametric Design and visualization with Replica Preview allows for informed analysis of many alternatives and sound decision-making. • Replica Systems Analysis™ (formerly Voyage™) is a flexible platform that can simulate resource systems dynamically, over time. Examples of modeled systems include water resources, energy, solid waste and traffic. The ability to connect complex systems together in a single interface that is visually intuitive leads to informed team collaboration and creative solutions. • Replica Process™ allows Jacobs' world-renowned expertise in water treatment to be simulated both statically and dynamically over time in Replica Process™ software. Much of the process predictive capabilities in Replica Process are founded on the Jacobs' Pro2D2™ and Source™ software. Informed decisions are founded on the ability of Replica Process to provide details on system performance among many alternatives, very quickly. • Replica Hydraulics™ was designed to simulate all pressurized and gravity flow hydraulics of a system, simultaneously. Replica’s hydraulic blocks were built on accepted engineering practice equations and have been successfully verified on hundreds of projects. The Replica Hydraulics library is the foundation for complete, dynamic water system analysis and can be used exclusively for hydraulic analysis of a system or in conjunction with Replica Process, Replica Controls and/or Replica Air. • Replica Controls™ allows for dynamic simulation of system instrumentation such as flow meters, indicator transmitters, limit switches and stream analyzers as well as the logic objects including PID controllers, sequencers, units, controller and alarms. The software's controls capabilities and functionality align with industry design standards and its ability to predict full scale performance is unmatched due to the connectivity with Replica Hydraulics. • Replica Air™ simulates all aspects of a compressible fluid (e.g. air) supply system, including pipes, valves, diffusers and blowers. The ability to couple Replica Air with Replica Controls in a single simulation allows for the development of unique and robust designs that reduce energy use and life cycle costs. Energy, Chemicals and Resources (ECR) ECR Disposition On April 26, 2019, Jacobs completed the sale of its Energy, Chemicals and Resources ("ECR") business to Worley Limited, a company incorporated in Australia ("Worley"), for a purchase price of $3.4 billion consisting of (i) $2.8 billion in cash plus (ii) 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”). Page 38 As a result of the ECR sale, substantially all ECR-related assets and liabilities were sold (the "Disposal Group"). We determined that the disposal group should be reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations because their disposal represented a strategic shift that had a major effect on our operations and financial results. As such, the assets and liabilities of the ECR business were reflected as held-for-sale in the Consolidated Balance Sheets through September 27, 2019. As of the year ended October 2, 2020, all of the ECR business to be sold under the terms of the ECR sale had been conveyed to Worley and as such, no amounts remain held for sale. For further discussion see Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business to the consolidated financial statements. Prior to the ECR sale, the ECR business served the energy, chemicals and resources sectors, including upstream, midstream and downstream oil, gas, refining, chemicals and mining and minerals industries. We provided integrated delivery of complex projects for our Oil and Gas, Refining, and Petrochemicals clients. Bridging the upstream, midstream and downstream industries, our services encompassed consulting, engineering, procurement, construction, maintenance and project management. Results of Operations for the three months ended January 1, 2021 and December 27, 2019 (in thousands, except per share information) For the Three Months Ended January 1, 2021 December 27, 2019 Revenues $ 3,381,836 $ 3,360,049 Direct cost of contracts (2,749,776) (2,715,478) Gross profit 632,060 644,571 Selling, general and administrative expenses (418,120) (493,226) Operating Profit 213,940 151,345 Other Income (Expense): Interest income 1,124 946 Interest expense (17,313) (14,817) Miscellaneous income (expense), net 156,360 116,695 Total other income (expense), net 140,171 102,824 Earnings from Continuing Operations Before Taxes 354,111 254,169 Income Tax Expense from Continuing Operations (87,023) (68,489) Net Earnings of the Group from Continuing Operations 267,088 185,680 Net (Loss) Earnings of the Group from Discontinued Operations (14) 77,587 Net Earnings of the Group 267,074 263,267 Net Earnings Attributable to Noncontrolling Interests from Continuing Operations (10,026) (6,257) Net Earnings Attributable to Jacobs from Continuing Operations 257,062 179,423 Net Earnings Attributable to Jacobs $ 257,048 $ 257,010 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 Page 39 Overview – Three Months Ended January 1, 2021 COVID-19 Pandemic . There are many risks and uncertainties regarding the COVID-19 pandemic, including the anticipated duration of the pandemic and the extent of local and worldwide social, political, and economic disruption it may cause. The Company’s operations for the first fiscal quarter of 2021 were adversely impacted by COVID-19. While certain business units of both Critical Mission Solutions and People & Places Solutions have experienced, and may continue to experience, an increase in demand for certain of their services regarding new projects that may arise in response to the COVID-19 pandemic, it is still expected that COVID-19 is likely to continue to have an adverse impact on each of Critical Missions Solutions and People & Places Solutions continuing into fiscal 2021, although to a lesser degree than what was seen in fiscal 2020. For a discussion of risks and uncertainties related to COVID-19, including the potential impacts on the Company’s business, financial condition and results of operations, see “Part I - Item 1A - Risk Factors” of our 2020 Form 10-K. Net earnings attributable to the Company from continuing operations for the first fiscal quarter ended January 1, 2021 were $257.1 million (or $1.96 per diluted share), an increase of $77.6 million, or 43.3%, from earnings of $179.4 million (or $1.33 per diluted share) for the corresponding period last year. Included in the Compa ny’s operating results from continuing operations for the three months ended January 1, 2021 we re $70.4 million in after-tax unrealized appreciation gains recorded in miscellaneous income (expense), net, assoc iated with our investment in Worley stock and certain foreign currency revaluations relating to the ECR sale, after-tax unrealized appreciation gains associated with our investment in C3.ai, Inc. ("C3") o f $62.3 million. Also included in other income for the period was a $22.6 million after-tax other-than-temporary impairment in respect of our AWE investment. Net earnings attributable to the Company from discontinued operations for the first fiscal quarter ended January 1, 2021 were $(14.0) thousand (or $0.00 per diluted share), a decrease of $77.6 million, or 100.0%, from earnings of $77.6 million (or $0.58 per diluted share) for the corresponding period last year. Included in net earnings attributable to Jacobs from discontinued operations for the prior year was the settlement of a legal matter that was reimbursed by insurance, the release of the deferred gain for the delivery of the ECR IT Instance and the adjustment for working capital and certain other items in connection with the ECR sale. For further discussion, see Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business . On November 24, 2020, Jacobs completed the acquisition of Buffalo Group. For further discussion, see Note 15- Business Combinations . On November 27, 2020, the Company entered into an agreement to make a strategic investment in PA Consulting Group Limited by acquiring approximately 65% of its share capital in the form of preferred and common equity for an aggregate amount of £1.8 billion. The transaction is expected to close in the second quarter of fiscal 2021. Consolidated Results of Operations Revenues for the first fiscal quarter of 2021 were $3.38 billion, an increase of $21.8 million, or 0.6% from $3.36 billion for the corresponding period last year. The increase in revenues for the three month period year over year was due in part to fiscal 2020 incremental revenues from the Buffalo Group and John Wood Group Nuclear business acquisitions, in addition to overall growth in our Critical Mission Solutions (CMS) business, largely offset by impacts from the COVID 19 pandemic on our P&PS business which resulted in a decrease to P&PS revenues period over period. Pass-through costs included in revenues for the three months ended January 1, 2021 amounted to $648.7 million, a decrease of $53.1 million, or 7.6%, fro m $701.8 million from the corresponding periods last year. Gross profit for the first quarter of 2021 was $632.1 million, a decrease of $12.5 million, or 1.9% from $644.6 million fro m the corresponding period last year. Our gross profit margins were 18.7% and 19.2% for the three month periods ended January 1, 2021 and December 27, 2019, respectively, with these trend differences being mainly attributable to project mix impacts in our legacy portfolio year over year and lower overhead rate impacts on revenue, with partial offsets from favorable margin trends from our recent Buffalo Group and John Wood Group nuclear business acquisitions and as well as year over year impacts from lower overhead reimbursement rates resulting from our ongoing cost reduction programs partially offset by COVID-19 cost mitigation efforts. See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment. Page 40 SG&A expenses for the three months ended January 1, 2021 were $418.1 million, a decrease of $75.1 million, or 15.2%, from $493.2 million for the corresponding period last year. The decrease in SG&A expenses as compared to the corresponding period last year was due primarily to less expense relating to the Transition Services Agreement (the "TSA") with Worley which terminated in April 2020, although the parties agreed to extend certain of the services beyond the initial term, and reductions in personnel related and other overhead costs resulting from our ongoing cost reduction programs as well as COVID-19 cost mitigation efforts, partially offset by incremental SG&A expenses from the Buffalo Group and John Wood Group nuclear business acquisitions. Also, included in the current year results were $22.0 million of Restructuring and other charges and transaction costs associated in part with the Company's transformation initiatives relating to real estate and other staffing programs. In comparison, the prior year included $50.7 million ofRestructuring and other charges and transaction costs. Unfavorable impacts on SG&A expenses from foreign exchange were $3.8 million for th e three months ended January 1, 2021, although impacts from foreign exchange were immaterial to the Company's operating profit as a whole. Net interest expense for the three months ended January 1, 2021 was $16.2 million, an increase of $2.3 million from $13.9 million for the corresponding period last year. The increase in net interest expense for the three month period year over year is due to higher levels of debt outstanding. Miscellaneous income (expense), net for the three months ended January 1, 2021 was $156.4 million, an increase of $39.7 million, from $116.7 million for the corresponding period last year. The increase from the prior year was due primarily to $93.1 million in pre-tax unrealized gains associated with changes in the fair value of our investment in Worley stock and certain foreign currency revaluations relating to the ECR sale, compared to $99.1 million in the prior year and $82.6 million in net gains related to the C3 investment in the current year. Additionally, during the three months ended January 1, 2021, the Company recorded an other-than-temporary impairment on its investment in AWE in the amount of $27.9 million, which is also included in miscellaneous income (expense), net on its consolidated statement of earnings. The Company’s effective tax rates from continuing operations for the three months 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. Page 41 Segment Financial Information The following table provides selected financial information for our operating segments and includes a reconciliation of segment operating profit to total U.S. GAAP operating profit from continuing operations by including certain corporate-level expenses, Restructuring and other charges and transaction and integration costs (in thousands). Three Months Ended January 1, 2021 December 27, 2019 Revenues from External Customers: Critical Mission Solutions $ 1,295,287 $ 1,182,457 People & Places Solutions 2,086,549 2,177,592 Total $ 3,381,836 $ 3,360,049 Three Months Ended January 1, 2021 December 27, 2019 Segment Operating Profit: Critical Mission Solutions $ 110,072 $ 90,422 People & Places Solutions 196,300 178,328 Total Segment Operating Profit 306,372 268,750 Other Corporate Expenses (1) (70,341) (66,719) Restructuring, Transaction and Other Charges (22,091) (50,686) Total U.S. GAAP Operating Profit 213,940 151,345 Total Other Income (Expense), net (2) 140,171 102,824 Earnings Before Taxes from Continuing Operations $ 354,111 $ 254,169 (1) Other corporate expenses also include intangibles amortization of $23.2 million and $21.8 million for the three-month periods ended January 1, 2021 and December 27, 2019, respectively. (2) For the three month period ended January 1, 2021, includes $93.1 million in fair value adjustments related to our investment in Worley stock and certain foreign currency revaluations relating to the ECR sale, $82.6 million in fair adjustments related to our investment in C3 stock and $(27.9) million related to impairment of our AWE Management Ltd. investment. For the three month period ended December 27, 2019, includes revenues under the Company's TSA with Worley of $12.0 million, $99.1 million in fair value adjustments related to our investment in Worley stock and certain foreign currency revaluations relating to the ECR sale, the amortization of deferred financing fees related to the CH2M acquisition of $0.6 million and the loss on settlement of the CH2M portion of the U.S. pension plan of $2.4 million. Critical Mission Solutions Three Months Ended January 1, 2021 December 27, 2019 Revenue $ 1,295,287 $ 1,182,457 Operating Profit $ 110,072 $ 90,422 Page 42 Critical Mission Solutions (CMS) segment revenues for the three months ended January 1, 2021 were $1.30 billion, an increase of $112.8 million, or 9.5%, from $1.18 billion for the corresponding period last year. The increase in revenue was primarily attributable to incremental revenue from the Buffalo Group and John Wood Group nuclear business acquisitions, combined with areas of year over year revenue volume growth across our legacy portfolio, highlighted by increased spending by customers in the U.S. government business sector. These favorable performance trends more than offset limited unfavorable COVID-19 related revenue impacts mainly due to challenges from physical distancing requirements, client scheduling changes and other related factors. Impa cts on revenues from favorable foreign currency translation were approximately $4.6 million for the three month period ended January 1, 2021 compared to the corresponding prior year period. Operating profit for the segment was $110.1 million for the three months ended January 1, 2021, an increase of $19.7 million, or 21.7%, from $90.4 million for the corresponding period last year. The increase from the prior year was primarily attributable to incremental operating profit from the Buffalo Group and John Wood Group nuclear business acquisitions and the continued growth in profits from our U.S. governmental business sector, offset by the favorable close out of a large program management contract in the first fiscal quarter of 2020. Impacts on operating profit from favorable foreign currency translation were approximately $0.8 million for the three months ended January 1, 2021, compared to the corresponding prior year period. Limited revenue impacts from COVID-19 mentioned above were largely offset by the Company’s limited discretionary spend actions and other areas of improved operating performance. People & Places Solutions Three Months Ended January 1, 2021 December 27, 2019 Revenue $ 2,086,549 $ 2,177,592 Operating Profit $ 196,300 $ 178,328 Revenues for the People & Places Solutions (P&PS) segment for the three months ended January 1, 2021 were $2.09 billion, a decrease of $91.0 million, or 4.2%, from $2.18 billion for the corresponding period last year. The decrease in revenue was primarily due to lower pass through activity as well as client scheduling changes from COVID-19, particularly in the transportation and advanced facilities sectors, which was partially offset by growth in environmental services. Impacts on revenues from favorable foreign currency translation were approximately $19.5 million for the three month period en ded January 1, 2021 compared to the corresponding prior year period. Operating profit for the segment for the three months ended January 1, 2021 was $196.3 million, an increase of $18.0 million, or 10.1%, from $178.3 million for the corresponding p eriod last year. The year over year increase in operating profit was due primarily to lower labor, travel and discretionary spending related to COVID-19 mitigation efforts. Imp acts on operating profit from favorable foreign currency translation were approximately $2.1 million for the three month period ended January 1, 2021, compared to the corresponding prior year period. The unfavorable revenue impacts mentioned above were more than offset by the Company’s cost mitigation actions. Other Corporate Expenses Other corporate expenses for the three months ended January 1, 2021 were $70.3 million, an increase of $3.6 million from $66.7 million for the corresponding period last year. This increase was due primarily to higher intangible amortization expense from the John Wood Group nuclear business acquisition, as well as impacts from Company benefit program enhancements. These increases were partly offset by employee related and other cost reductions across the Company's corporate functions. Included in other corporate expenses in the above table are costs and expenses which relate to general corporate activities as well as corporate-managed benefit and insurance programs. Such costs and expenses include: (i) those elements of SG&A expenses relating to the business as a whole; (ii) those elements of our incentive compensation plans relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of business combinations; (iv) the quarterly variances between the Company’s actual costs of certain of its self-insured integrated risk and employee benefit programs and amounts charged to the LOBs; and (v) certain adjustments relating to costs associated with the Company’s international defined benefit pension plans. In addition, other corporate expenses may also include from time to time certain adjustments to contract margins (both positive and negative) associated with projects, as well as other items, where it has been determined that such adjustments are not indicative of the performance of the related LOB. Page 43 Restructuring and Other Charges See Note 17- Restructuring and Other Charges for information on the Company’s activity relating to restructuring and other charges. Backlog Information We include in backlog the total dollar amount of revenues we expect to record in the future as a result of performing work under contracts that have been awarded to us. Our policy with respect to O&M contracts, however, is to include in backlog the amount of revenues we expect to receive for one succeeding year, regardless of the remaining life of the contract. For national government programs (other than national government O&M contracts, which are subject to the same policy applicable to all other O&M contracts), our policy is to include in backlog the full contract award, whether funded or unfunded, excluding option periods. Because of variations in the nature, size, expected duration, funding commitments, and the scope of services required by our contracts, the timing of when backlog will be recognized as revenues can vary greatly between individual contracts. Consistent with industry practice, substantially all of our contracts are subject to cancellation or termination at the option of the client, including our U.S. government work. While management uses all information available to determine backlog, at any given time our backlog is subject to changes in the scope of services to be provided as well as increases or decreases in costs relating to the contracts included therein. Backlog is not necessarily an indicator of future revenues. Because certain contracts (e.g., contracts relating to large EPC projects as well as national government programs) can cause large increases to backlog in the fiscal period in which we recognize the award, and because many of our contracts require us to provide services that span over several fiscal quarters (and sometimes over fiscal years), we evaluate our backlog on a year-over-year basis, rather than on a sequential, quarter-over-quarter basis. The following table summarizes our backlog at January 1, 2021 and December 27, 2019 (in millions): January 1, 2021 December 27, 2019 Critical Mission Solutions $ 9,683 $ 8,473 People & Places Solutions 15,422 14,197 Total $ 25,105 $ 22,670 The increase in backlog in Critical Mission Solutions (CMS) from December 27, 2019 was primarily the result of the acquisition of the Buffalo Group and John Wood Group's nuclear consulting, remediation and program management business. The increase in backlog in People & Places Solutions (P&PS) from December 27, 2019 was primarily the result of new awards in the U.S. markets. Consolidated backlog differs from the Company’s remaining performance obligations as defined by ASC 606 primarily because of our national government contracts (other than national government O&M contracts). Our policy is to include in backlog the full contract award, whether funded or unfunded excluding the option periods while our remaining performance obligations represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. Additionally, the Company includes our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligations. Liquidity and Capital Resources At January 1, 2021, our principal sources of liquidity consisted of $ 837.0 million in cash and cash equivalents and $1.98 billion of available borrowing capacity under our $2.25 billion r evolving credit agreement (the "Revolving Credit Facility"). We finance much of our operations and growth through cash generated by our operations. The amount of cash and cash equivalents at January 1, 2021 represented a decrease of $25.4 million from $862.4 million at October 2, 2020, the reasons for which are described below. Page 44 Our cash flow provided by operations of $112.6 million during the three month period ended January 1, 2021 was favorable by $249.8 million in co mparison to the cash flow used for operations of $137.2 million for the corresponding prior year peri od. This improvement was due mainly to lower uses of cash in other working capital, which in turn was primarily due to improved receivable collections compared to the previous period along with less cash used in accrued liabilities year over year. The cash spend decrease in accrued liabilities is associated with lower payments in personnel related liabilities year over year. Our cash used for investing activities for the three months ended January 1, 2021 wa s $193.2 million, compared to cash used for investing activities of $34.3 million in the corresponding prior year period, the change due primarily to the acquisition of the Buffalo Group in the current quarter. Our cash provided by financing activities o f $18.7 million for the three months ended January 1, 2021 resulted mainly from net proceeds from borr owings of $95.0 million, partly offset by cash used for share repurchases of $24.8 million, $35.7 million in dividends to shareholders and noncontrolling interest and approximately $15.8 million in s tock-based compensation and benefit plan related activity. Cash provided by financing activities in the corresponding prior year period was $166.9 million, due primarily to net proceeds from borrowings of $210.6 million, partly offset by dividends of $25.6 million and stock-based compensation and benefit plan related activity of $18.1 million. At January 1, 2021, the Company had approxim ately $129.8 million in cash and cash equivalents held in the U.S. and $707.2 million held outside of the U.S. (primarily in t he U.K., the Eurozone, Australia, India, Japan and the United Arab Emirates), which is used primarily for funding operations in those regions. Other than the tax cost of repatriating funds to the U.S. (see Note 7- Income Taxes of Notes to Consolidated Financial Statements included in our 2020 Form 10-K), there are no material impediments to repatriating these funds to the U.S. The Company had $252.1 million in letters of credit outstanding at January 1, 2021. Of this amount, $2.3 million was issued under the Revolving Credit Facility and $249.8 million was issued under separate, committed and uncommitted letter-of-credit facilities. On November 24, 2020, a subsidiary of Jacobs completed the acquisition of 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 John Wood Group's nuclear consulting, remediation and program management business for an enterprise value of £246 million, or approximately $317.9 million, less cash acquired of $24.3 million. The Company has recorded its preliminary purchase accounting allocation associated with the acquisition, which is summarized in Note 15- Business Combinations . On November 27, 2020, the Company entered into an agreement to make a strategic investment in PA Consulting Group Limited by acquiring approximately 65% of its share capital in the form of preferred and common equity for an aggregate amount of £1.8 billion. The transaction is expected to be funded by cash on hand and debt proceeds and to close in the second quarter of fiscal 2021 . On January 20, 2021, Jacobs entered into a delayed draw term loan facility (the "Delayed Draw Term Loan Facility) under the Revolving Credit Facility. 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. Page 45 We believe we have adequate liquidity and capital resources to fund our projected cash requirements for the next twelve months based on the liquidity provided by our cash and cash equivalents on hand, our borrowing capacity and our continuing cash from operations. We further believe that our financial resources and discretionary spend controls, as well as near term benefits from government assistance programs, will allow us to continue managing the negative impacts of the COVID-19 pandemic on our business operations for the foreseeable future, which are expected to include reduced revenue from operating activities, based on current assumptions and expectations regarding the pandemic. We have taken actions to reduce spending more broadly across the Company, only proceeding with operating and capital spending that is critical. We also ceased all non-essential hiring and reduced discretionary expenses, including certain employee benefits and compensation through the end of fiscal 2020. In addition, as a precautionary measure, we temporarily suspended purchases under the share repurchase plan in March 2020, with such suspension remaining in effect through the third fiscal quarter of 2020. During the fourth fiscal quarter of 2020, we resumed share repurchases on a limited basis. Looking ahead, we have developed contingency plans to reduce costs further if the situation deteriorates beyond or lasts longer than current assumptions and expectations. We were in compliance with all of our debt covenants at January 1, 2021.