Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

In order to better understand the changes that occur to key elements of our financial condition, results of operations and cash flows, a reader of this Management’s Discussion and Analysis of Financial Condition and Results

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of Operations (“MD&A”) should be aware of the critical accounting policies we apply in preparing our consolidated financial statements.

The consolidated financial statements contained in this report were prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and the financial statements of any business performing long-term professional services, engineering and construction-type contracts requires management to make certain estimates and judgments that affect both the entity’s results of operations and the carrying values of its assets and liabilities. Although our significant accounting policies are described in Note 2 - Significant Accounting Policies of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K, the following discussion is intended to highlight and describe those accounting policies that are especially critical to the preparation of our consolidated financial statements.

Revenue Accounting for Contracts

Engineering, Procurement & Construction Contracts and Service Contracts

On September 29, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, including the subsequent ASUs that amended and clarified the related guidance. The Company recognizes engineering, procurement, and construction contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Upon adoption of ASC Topic 606, contracts which include engineering, procurement and construction services are generally accounted for as a single deliverable (a single performance obligation) and are no longer segmented between types of services. In some instances, the Company’s services associated with a construction activity are limited only to specific tasks such as customer support, consulting or supervisory services. In these instances, the services are typically identified as separate performance obligations.

The Company recognizes revenue using the percentage-of-completion method, based primarily on contract costs incurred to date compared to total estimated contract costs. Estimated contract costs include the Company’s latest estimates using judgments with respect to labor hours and costs, materials, and subcontractor costs. The percentage-of-completion method (an input method) is the most representative depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Subcontractor materials, labor and equipment and, in certain cases, customer-furnished materials and labor and equipment are included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an agent (e.g., the company integrates the materials, labor and equipment into the deliverables promised to the customer or is otherwise primarily responsible for fulfillment and acceptability of the materials, labor and/or equipment). The Company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when control is transferred. Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. Under the typical payment terms of our engineering, procurement and construction contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms at periodic intervals (e.g., biweekly or monthly) and customer payments on are typically due within 30 to 60 days of billing, depending on the contract.

For service contracts, the Company recognizes revenue over time using the cost-to-cost percentage-of-completion method. Service contracts that include multiple performance obligations are segmented between types of services. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using an estimate of the stand-alone selling price of each distinct service in the contract. In some instances where the Company is standing ready to provide services, the Company recognizes revenue ratably over the service period. Under the typical payment terms of our service contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, and customer payments are typically due within 30 to 60 days of billing, depending on the contract.

Direct costs of contracts include all costs incurred in connection with and directly for the benefit of client contracts, including depreciation and amortization relating to assets used in providing the services required by the related projects. The level of direct costs of contracts may fluctuate between reporting periods due to a variety of factors, including the amount of pass-through costs we incur during a period. On those projects where we are acting as principal for subcontract labor or third-party materials and equipment, we reflect the amounts of such items in both revenues and costs (and we refer to such costs as “pass-through costs”).

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Variable Consideration

The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred and only up to the amount of cost incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied.

The Company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on the project. Historically, warranty claims have not resulted in material costs incurred for which the Company was not compensated for by the customer.

Practical Expedient

If the Company has a right to consideration from a customer in an amount that corresponds directly with the value of the Company’s performance completed to date (a service contract in which the company bills a fixed amount for each hour of service provided), the Company recognizes revenue in the amount to which it has a right to invoice for services performed.

The Company does not adjust the contract price for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a service to a customer and when the customer pays for that service will be one year or less.

Joint Ventures and VIEs

As is common to the industry, 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. Many of these joint ventures are formed for a specific project. The assets of our joint ventures generally consist almost entirely of cash and receivables (representing amounts due from clients), and the liabilities of our joint ventures generally consist almost entirely of amounts due to the joint venture partners (for services provided by the partners to the joint ventures under their individual subcontracts) and other subcontractors. In general, at any given time, the equity of our joint ventures represents the undistributed profits earned on contracts the joint ventures hold with clients. Very few of our joint ventures have employees or third-party debt or credit facilities. The debt held by the joint ventures is non-recourse to the general credit of Jacobs.

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. Our risk of loss on these arrangements is usually shared with our partners. 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. 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. See Note 17- Contractual Guarantees, Litigation, Investigations and Insurance for further discussion.

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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. The Company uses a qualitative approach to determine if the Company is the primary beneficiary of the VIE, which considers factors that indicate a party has the power to direct the activities that most significantly impact the joint venture’s economic performance. These factors include the composition of the governing board, how board decisions are approved, the powers granted to the operational manager(s) and partner that holds that position(s), and to a certain extent, the partner’s economic interest in the joint venture. The Company analyzes each joint venture initially to determine if it should be consolidated or unconsolidated.

•	Consolidated if the Company is the primary beneficiary of a VIE, or holds the majority of voting interests of a non-VIE (and no significant participative rights are available to the other partners).

•	Unconsolidated if the Company is not the primary beneficiary of a VIE, or does not hold the majority of voting interest of a non-VIE.

Share-Based Payments

We measure the value of services received from employees and directors in exchange for an award of an equity instrument based on the grant-date fair value of the award. The computed value is recognized as a non-cash cost on a straight-line basis over the period the individual provides services, which is typically the vesting period of the award with the exception of the value of awards containing an internal performance measure, such as EPS growth and ROIC, which is recognized on a straight-line basis over the vesting period subject to the probability of meeting the performance requirements and adjusted for the number of shares expected to be earned.

Accounting for Pension Plans

The accounting for pension plans requires the use of assumptions and estimates in order to calculate periodic pension cost and the value of the plans’ assets and liabilities. These assumptions include discount rates, investment returns and projected salary increases, among others. The actuarial assumptions used in determining the funded statuses of the plans are provided in Note 12 - Pension and Other Postretirement Benefit Plans of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.

The expected rates of return on plan assets range from 2.3% to 7.5% for fiscal 2019 and fiscal 2020. We believe the range of rates selected for fiscal 2019 reflects the long-term returns expected on the plans’ assets, considering recent market conditions, projected rates of inflation, the diversification of the plans’ assets, and the expected real rates of market returns. The discount rates used to compute plan liabilities remained consistent year over year with a range of 1.3% to 8.1% in both fiscal 2018 and 2019. These assumptions represent the Company’s best estimate of the rates at which its pension obligations could be effectively settled.

Changes in the actuarial assumptions often have a material effect on the values assigned to plan assets and liabilities, and the associated pension expense. For example, if the discount rate used to value the net pension benefit obligation (“PBO”) at September 27, 2019 was higher by 0.5%, the PBO would have been lower at that date by approximately $197.6 million for non-U.S. plans, and by approximately $22.5 million for U.S. plans. If the expected return on plan assets was higher by 1.0%, the net periodic pension cost for fiscal 2019 would be lower by approximately $19.0 million for non-U.S. plans, and by approximately $3.6 million for U.S. plans. Differences between actuarial assumptions and actual performance (i.e., actuarial gains and losses) that are not recognized as a component of net periodic pension cost in the period in which such differences arise are recorded to accumulated other comprehensive income (loss) and are recognized as part of net periodic pension cost in future periods in accordance with U.S. GAAP. Management monitors trends in the marketplace within which our pension plans operate in an effort to assure the fairness of the actuarial assumptions used.

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Contractual Guarantees, Litigation, Investigations, and Insurance

In the normal course of business, we make contractual commitments, some of which are supported by separate guarantees; and on occasion we are a party in a litigation or arbitration proceeding. The litigation in which we are involved primarily includes personal injury claims, professional liability claims, and breach of contract claims. Where we provide a separate guarantee, it is strictly in support of the underlying contractual commitment. Guarantees take various forms including surety bonds required by law, or standby letters of credit ("LOC") (also referred to as “bank guarantees”) or corporate guarantees given to induce a party to enter into a contract with a subsidiary. Standby LOCs are also used as security for advance payments or in various other transactions. The guarantees have various expiration dates ranging from an arbitrary date to completion of our work (e.g., engineering only) to completion of the overall project. We record in the Consolidated Balance Sheets amounts representing our estimated liability relating to such guarantees, litigation and insurance claims. Guarantees are accounted for in accordance with ASC 460-10, Guarantees, at fair value at the inception of the guarantee.

We maintain insurance coverage for most insurable aspects of our business and operations. Our insurance programs have varying coverage limits depending upon the type of insurance, and include certain conditions and exclusions which insurance companies may raise in response to any claim that the Company brings. We have also elected to retain a portion of losses and liabilities that occur through the use of various deductibles, limits, and retentions under our insurance programs. As a result, we may be subject to a future liability for which we are only partially insured or completely uninsured. We intend to mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms and conditions of the contracts which the Company enters with its clients. Our insurers are also subject to business risk and, as a result, one or more of them may be unable to fulfill their insurance obligations due to insolvency or otherwise.

Additionally, as a contractor providing services to the U.S. federal government we are subject to many types of audits, investigations, and claims by, or on behalf of, the government including with respect to contract performance, pricing, cost allocations, procurement practices, labor practices, and socioeconomic obligations. Furthermore, our income, franchise, and similar tax returns and filings are also subject to audit and investigation by the Internal Revenue Service, most states within the United States, as well as by various government agencies representing jurisdictions outside the United States.

Our Consolidated Balance Sheets include amounts representing our probable estimated liability relating to such claims, guarantees, litigation, audits, and investigations. Our estimates of probable liabilities require us to make assumptions related to potential losses regarding our determination of amounts considered probable and estimable. We perform an analysis to determine the level of reserves to establish for insurance-related claims that are known and have been asserted against us, as well as for insurance-related claims that are believed to have been incurred based on actuarial analysis, but have not yet been reported to our claims administrators as of the respective balance sheet dates. We include any adjustments to such insurance reserves in our consolidated results of operations. Insurance recoveries are recorded as assets if recovery is probable and estimated liabilities are not reduced by expected insurance recoveries.

The Company believes, after consultation with counsel, that such guarantees, litigation, U.S. government contract-related audits, investigations and claims, and income tax audits and investigations should not have a material adverse effect on our consolidated financial statements, beyond amounts currently accrued.

Testing Goodwill for Possible Impairment

The goodwill carried on our Consolidated Balance Sheets is tested annually for possible impairment, and on an interim basis if indicators of possible impairment exist. For purposes of impairment testing, goodwill is assigned to the applicable reporting units based on the current reporting structure. In performing the annual impairment test, we evaluate our goodwill at the reporting unit level. The Company performs the annual goodwill impairment test for the reporting units at the beginning of the fourth quarter of its fiscal year.

U.S. GAAP does not prescribe a specific valuation method for estimating the fair value of reporting units. Any valuation technique used to estimate the fair value of a reporting unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates and future market conditions, among others.

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We used an income approach to test our goodwill for possible impairment which requires us to make estimates and judgments. Under the income approach, fair value is determined by using the discounted cash flows of our reporting units. The Company’s discount rate reflects a weighted average cost of capital (“WACC”) for a peer group of companies representative of the Company’s respective reporting units.

It is possible that changes in market conditions, economy, facts and circumstances, judgments and assumptions used in estimating the fair value could change, resulting in possible impairment of goodwill in the future. The fair values resulting from the valuation techniques used are not necessarily representative of the values we might obtain in a sale of the reporting units to willing third parties.

We have determined that the fair value of our reporting units substantially exceeded their respective carrying values for the Consolidated Balance Sheets presented.

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

For the Fiscal Years Ended September 27, 2019**,** September 28, 2018 and September 29, 2017

(In thousands, except per share information)

	September 27, 2019				September 28, 2018				September 29, 2017
Revenues	$	12,737,868			$	10,579,773			$	6,330,126
Direct cost of contracts	(10,260,840		)		(8,421,223		)		(5,070,091		)
Gross profit	2,477,028				2,158,550				1,260,035
Selling, general and administrative expenses	(2,072,177		)		(1,771,107		)		(1,015,893		)
Operating Profit	404,851				387,443				244,142
Other Income (Expense):
Interest income	9,487				8,984				8,748
Interest expense	(83,847		)		(76,760		)		(12,035		)
Miscellaneous income (expense), net	20,468				11,314				2,299
Total other (expense) income, net	(53,892		)		(56,462		)		(988		)
Earnings from Continuing Operations Before Taxes	350,959				330,981				243,154
Income Tax Benefit (Expense) for Continuing Operations	(36,954		)		(325,632		)		(73,103		)
Net Earnings of the Group from Continuing Operations	314,005				5,349				170,051
Net Earnings of the Group from Discontinued Operations	559,214				167,793				117,324
Net Earnings of the Group	873,219				173,142				287,375
Net (Earnings) Loss Attributable to Noncontrolling Interests from Continuing Operations	(23,045		)		(9,534		)		116
Net Earnings (Loss) Attributable to Jacobs from Continuing Operations	290,960				(4,185		)		170,167
Net (Earnings) Loss Attributable to Noncontrolling Interests from Discontinued Operations	(2,195		)		(177		)		6,236
Net Earnings Attributable to Jacobs from Discontinued Operations	557,019				167,616				123,560
Net Earnings Attributable to Jacobs	$	847,979			$	163,431			$	293,727
Net Earnings (Loss) Per Share:
Basic Net Earnings (Loss) from Continuing Operations Per Share	$	2.11			$	(0.03	)		$	1.41
Basic Net Earnings from Discontinued Operations Per Share	$	4.03			$	1.21			$	1.02
Basic Earnings Per Share	$	6.14			$	1.18			$	2.43
Diluted Net Earnings (Loss) from Continuing Operations Per Share	$	2.09			$	(0.03	)		$	1.40
Diluted Net Earnings from Discontinued Operations Per Share	$	4.00			$	1.21			$	1.02
Diluted Earnings Per Share	$	6.08			$	1.18			$	2.42

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2019 Overview

Net earnings attributable to Jacobs from continuing operations for fiscal 2019 were $291.0 million (or $2.09 per diluted share), an increase of $295.1 million, or 7,052.4%, from $(4.2) million (or $(0.03) per diluted share) for the corresponding period last year. Included in the Company’s operating results for the current year were $243.7 million (or $1.75 per share) in after tax Restructuring and other charges and $16.1 million in KeyW, CH2M and other transaction costs. Also included in fiscal 2019 net earnings from continuing operations are $64.8 million in fair value losses associated with our investment in Worley stock, partly offset by dividend income from this investment and certain foreign currency revaluations relating to ECR sale proceeds. Our fiscal 2018 results included $112.8 million (or $0.81 per share) in after tax Restructuring and other charges, $60.7 million in CH2M transaction costs and $259.2 million in income tax charges associated with the Tax Cuts and Jobs Act (“the Act”) enacted on December 22, 2017. Income tax expense for continuing operations for fiscal 2019 was $37.0 million, a decrease of $288.7 million, or 88.7%, from $325.6 million due mainly to the impacts from the provisional remeasurement of the deferred tax items and other impacts from U.S. Tax Reform in the prior year.

Net earnings attributable to Jacobs from discontinued operations for fiscal 2019 were $557.0 million (or $4.00 per diluted share), an increase of $389.4 million, or 232.3%, from $167.6 million (or $1.21 per diluted share) for the corresponding period last year. Included in the current year results from discontinued operations is the pre-tax gain on sale of the ECR business of $935.1 million, see Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business.

On June 12, 2019, we acquired The KeyW Holding Corporation (“KeyW”), a U.S. based national security solutions provider to the intelligence, cyber, and counterterrorism communities. On December 15, 2017, we acquired CH2M HILL Companies, Ltd ("CH2M"), a provider of international engineering, construction and technical services. On August 20, 2019, Jacobs announced that it had entered into an agreement to acquire John Wood Group's Nuclear business for an enterprise value of £250 million (approx. $300 million) on a debt-free, cash-free basis. The transaction is expected to close by the end of fiscal 2020 second quarter.

Backlog at September 27, 2019 was $22.6 billion, up $2.6 billion, from $20.0 billion for the corresponding period last year. New prospects and new sales remain strong and the Company continues to have a positive outlook for many of the industry groups and sectors in which our clients operate.

Results of Operations

Fiscal 2019 Compared to Fiscal 2018

Revenues for the year ended September 27, 2019 were $12.74 billion, an increase of $2.16 billion, or 20.4%, from $10.58 billion for the corresponding period last year. The increase in revenues was due primarily to the CH2M acquisition included in fiscal 2019 for the full period, the KeyW acquisition included in the current year results since closing in mid-June and growth in our legacy Critical Mission Solutions and People & Places Solutions businesses.

Pass-through costs included in revenues for the year ended September 27, 2019 were $2.54 billion in comparison to $2.25 billion in the prior year. These year-over-year increases are due primarily to impacts from the CH2M acquisition included for the full year 2019. In general, pass-through costs are more significant on projects that have a higher content of field services activities. Pass-through costs are generally incurred at specific points during the life cycle of a project and are highly dependent on the needs of our individual clients and the nature of the clients’ projects. However, because we have hundreds of projects which start at various times within a fiscal year, the effect of pass-through costs on the level of direct costs of contracts can vary between fiscal years without there being a fundamental or significant change to the underlying business.

Gross profit for the year ended September 27, 2019 was $2.48 billion, up $0.32 billion, or 14.8%, from $2.16 billion for the corresponding period in 2018. Our gross profit margins were 19.4% and 20.4% for the years ended September 27, 2019 and September 28, 2018, respectively. Revenue mix primarily drove the lower gross profit and margin for the year over year periods.

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Selling, general & administrative expenses for the year ended September 27, 2019 were $2.07 billion, an increase of $0.30 billion, or 17.0%, from $1.77 billion for the corresponding period last year. The increase in SG&A expenses is due mainly to incremental SG&A expense from the CH2M and KeyW businesses acquired. Also, included in the current year results were $332.1 million of restructuring and other charges and $18.2 million of transaction costs, as well as higher personnel related costs year over year due in part to costs to service the Transition Services Agreement ("TSA") with Worley. In comparison, the prior year included $150.1 million of restructuring and other charges and $80.4 million of transaction costs.

Net interest expense for the year ended September 27, 2019 was $74.4 million, an increase of $6.6 million from $67.8 million for the corresponding period last year. The increase in net interest expense as compared to the corresponding period last year was due primarily to higher levels of debt outstanding in the current year and our fixed rate notes having been outstanding for the full year of fiscal 2019 and only five months in the prior year.

Miscellaneous income (expense), net for the year ended September 27, 2019 was $20.5 million, an increase of $9.2 million as compared to $11.3 million for the corresponding period last year. The increase was due primarily to the gain on the settlement of the CH2M retiree medical plan of $35.0 million, income from the TSA with Worley of $35.4 million, offset by $64.8 million, net, relating to ECR related fair value adjustments (unrealized losses) and dividend income related to our investment in Worley stock and certain foreign currency revaluations relating to ECR sale proceeds.

Net earnings of the group from discontinued operations was $559.2 million for the year ended September 27, 2019, an increase of $391.4 million from $167.8 million for the corresponding period last year. Included in the current year amount was the pre-tax gain on the sale of the ECR business of $935.1 million, offset in part by a charge for the final settlement of the Nui Phao legal matter. The prior fiscal year included a $21.0 million loss associated with the disposal of the Company's equity investment in its Guimar joint venture.

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The Company’s consolidated effective income tax rate is lower than the U.S. statutory rate of 21.0% primarily due to a $29.1 million benefit from foreign valuation allowance releases in the current year, $15.7 million of foreign tax and other credits generated in the current year and a reduction in the tax contingency reserves of $6.9 million. The decreases in tax expense were offset by a $36.7 million charge from the remeasurement of net deferred tax assets and other miscellaneous U.S. tax reform changes. The following table reconciles total income tax expense on continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense on continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended September 27, 2019 and September 28, 2018 (dollars in thousands):

	For the Years Ended
	September 27, 2019				%			September 28, 2018				%
Statutory amount	$	73,701			21.0	%		$	81,421			24.6	%
State taxes, net of the federal benefit	10,183				2.9	%		15,772				4.8	%
Exclusion of tax on non-controlling interests	(4,839)				(1.4	)%		(2,389		)		(0.7	)%
Foreign:
Difference in tax rates of foreign operations	1,083				0.3	%		2,815				0.9	%
Benefit from foreign valuation allowance release	(29,125)				(8.3	)%		(5,088		)		(1.5	)%
Nontaxable income from foreign affiliate	—				—	%		—				—	%
U.S. tax cost (benefit) of foreign operations	(17,760		)		(5.1	)%		4,030				1.2	%
Tax differential on foreign earnings	(45,802		)		(13.1	)%		1,757				0.6	%
Foreign tax credits	(15,682)				(4.5	)%		(21,735		)		(6.6	)%
Tax reform	36,674				10.4	%		155,756				47.1	%
Valuation allowance	(207)				(0.1	)%		104,221				31.5	%
Uncertain tax positions	(6,883)				(2.0	)%		(1,402		)		(0.4	)%
Other items:
IRS §179D deduction	(2,957)				(0.8	)%		(4,557		)		(1.4	)%
IRS §199D deduction	—				—			—				—	%
Disallowed officer compensation	5,568				1.6	%		1,510				0.5	%
Stock compensation	(7,864)				(2.2	)%		(2,158		)		(0.7	)%
Foreign partnership income/(loss)	—				—	%		(3,678		)		(1.1	)%
Other items – net	(4,938)				(1.4	)%		1,114				0.3	%
Total other items	(10,191)				(2.8	)%		(7,769		)		(2.4	)%
Taxes on income from continuing operations	$	36,954			10.5	%		$	325,632			98.4	%

The Company’s consolidated effective income tax rate for the year ended September 27, 2019 decreased to 10.5% from 98.4% for fiscal 2018. Key drivers for this year over year decrease in the effective tax rate include a reduction of $119.1 million associated with remeasurement of U.S. deferred tax items due to tax reform and a decrease in the amount charged for valuation allowance related to foreign tax credits of $104.4 million.

Fiscal 2018 Compared to Fiscal 2017

Revenues for the year ended September 28, 2018, were $10.58 billion, an increase of $4.25 billion, or 67.1%, from $6.33 billion for the corresponding period in 2017. The increase in revenues was due primarily to the CH2M acquisition, along with higher volumes in our legacy CMS and PPS businesses.

Pass-through costs included in revenues for the year ended September 28, 2018 were $2.25 billion in comparison to $1.50 billion in the corresponding period in 2017. In general, pass-through costs are more significant on projects that have a higher content of field services activities. Pass-through costs are generally incurred at specific points during the life cycle of a project and are highly dependent on the needs of our individual clients and the nature of the clients’ projects. However, because we have hundreds of projects which start at various times within a fiscal year, the effect of pass-through costs on the level of direct costs of contracts can vary between fiscal years without there being a fundamental or significant change to the underlying business.

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Gross profit for the year ended September 28, 2018 was $2.16 billion, an increase of $898.5 million, or 71.3% from $1.26 billion for the corresponding period in 2017. Our gross profit margins were 20.4% and 19.9% for the years ended September 28, 2018 and September 29, 2017, respectively. Our continuing strategic focus on realigning our portfolio to higher margin businesses and project execution, along with incremental benefits of the CH2M businesses acquired, drove improved gross profit and margins for the year over year periods.

Selling, general & administrative expenses for the year ended September 28, 2018 were $1.77 billion, an increase of $755.2 million, or 74.3%, from $1.02 billion for the corresponding period in 2017. The increase in SG&A expenses for the comparative annual periods was due mainly to the CH2M acquisition. Also, included in the 2018 results were $150.1 million of restructuring and other charges and $80.4 million of transaction costs compared to $97.5 million of restructuring and other charges and $17.1 million of transaction costs for fiscal 2017.

Net interest expense for the year ended September 28, 2018 was $67.8 million, an increase of $64.5 million from $3.3 million for the corresponding period in 2017. The increase in interest expense for the year ended September 28, 2018 as compared to the corresponding period in 2017 was due primarily to higher levels of average debt balances outstanding related to financing activities for the acquisition of CH2M, which was partially funded with term loan financing of $1.5 billion and revolving credit line borrowings of $850 million.

Miscellaneous income (expense), net for the year ended September 28, 2018 was $11.3 million, an increase as compared to $2.3 million for the corresponding period in 2017. The increases were due primarily to unfavorable year over year impacts from unrealized gains and losses from foreign exchange.

Net earnings of the group from discontinued operations was $167.8 million for the year ended September 28, 2018, an increase of $50.5 million from $117.3 million for the corresponding period in 2017. Included in fiscal 2018 was the $21.0 million loss associated with the disposal of the Company's equity investment in its Guimar joint venture and in fiscal 2017, $10.9 million associated mainly with the Company's divestiture of its equity investment in Neste Jacobs Oy.

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The Company’s consolidated effective income tax rate was generally higher than the U.S. statutory rate of 24.6% primarily due to the impacts related to U.S. Tax Reform and the integration of CH2M's tax attributes. The following table reconciles total income tax expense on continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense on continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended September 28, 2018 and September 29, 2017 (dollars in thousands):

	For the Years Ended
	September 28, 2018				%			September 29, 2017				%
Statutory amount	$	81,421			24.6	%		$	85,104			35.0	%
State taxes, net of the federal benefit	15,772				4.8	%		6,983				2.9	%
Exclusion of tax on non-controlling interests	(2,389		)		(0.7	)%		2,223				0.9	%
Foreign:
Difference in tax rates of foreign operations	2,815				0.9	%		(880		)		(0.4	)%
Benefit from foreign valuation allowance release	(5,088		)		(1.5	)%		(3,085		)		(1.3	)%
Nontaxable income from foreign affiliate	—				—	%		(1,320		)		(0.5	)%
U.S. tax cost (benefit) of foreign operations	4,030				1.2	%		10,147				4.2	%
Tax differential on foreign earnings	1,757				0.6	%		4,862				2.0	%
Foreign tax credits	(21,735		)		(6.6	)%		(16,337		)		(6.7	)%
Tax reform	155,756				47.1	%		—				—
Valuation allowance	104,221				31.5	%		—				—
Uncertain tax positions	(1,402		)		(0.4	)%		(5,624		)		(2.3	)%
Other items:
IRS §179D deduction	(4,557		)		(1.4	)%		(2,613		)		(1.1	)%
IRS §199D deduction	—				—	%		(1,647		)		(0.7	)%
Disallowed officer compensation	1,510				0.5	%		1,255				0.5	%
Stock compensation	(2,158		)		(0.7	)%		(1,783		)		(0.7	)%
Foreign partnership income/(loss)	(3,678		)		(1.1	)%		(725		)		(0.3	)%
Other items – net	1,114				0.3	%		1,405				0.6	%
Total other items	(7,769		)		(2.4	)%		(4,108		)		(1.7	)%
Taxes on income from continuing operations	$	325,632			98.4	%		$	73,103			30.1	%

The Company’s consolidated effective income tax rate for continuing operations for the year ended September 28, 2018 increased to 98.4% from 30.1% for fiscal 2017. Key drivers for this year over year increase include the reduction in the U.S. statutory tax rate in fiscal year 2018 causing a detriment for provisional remeasurement of the deferred tax items in the U.S. of $139.8 million, as well as a charge for valuation allowance related to foreign tax credits of $104.2 million. In addition, there was an increase due to the difference in foreign tax rates compared to the new U.S. statutory rate of $19.8 million. These detriments were partially offset by a $4.5 million benefit related to internal revenue service code section 179D, a nonrecurring benefit of $2.8 million related to tax accounting method changes and a $5.7 million federal hurricane credit.

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Segment Financial Information

The following tables present total revenues and segment operating profit for each reportable segment (in thousands) and includes a reconciliation of segment operating profit to total U.S. GAAP operating profit by including certain corporate-level expenses and Restructuring and other charges and transaction and integration costs (in thousands). Prior period information has been recast to reflect the current period presentation.

	For the Years Ended
	September 27, 2019				September 28, 2018				September 29, 2017
Revenues from External Customers:
Critical Mission Solutions	$	4,551,162			$	3,725,365			$	2,467,501
People & Places Solutions	8,186,706				6,854,408				3,862,625
Total	$	12,737,868			$	10,579,773			$	6,330,126

	For the Years Ended
	September 27, 2019				September 28, 2018				September 29, 2017
Segment Operating Profit:
Critical Mission Solutions (1)	$	310,043			$	255,718			$	197,196
People & Places Solutions (2)	714,394				527,900				265,928
Total Segment Operating Profit	1,024,437				783,618				463,124
Other Corporate Expenses (3)	(264,351		)		(161,788		)		(110,234		)
Restructuring and Other Charges	(337,066		)		(153,951		)		(91,648		)
Transaction Costs	(18,169		)		(80,436		)		(17,100		)
Total U.S. GAAP Operating Profit	404,851				387,443				244,142
Total Other (Expense) Income, net (4)	(53,892		)		(56,462		)		(988		)
Earnings from Continuing Operations Before Taxes	$	350,959			$	330,981			$	243,154

(1)	Includes $15.0 million in charges during the year ended September 28, 2018 associated with a legal matter.

(2)	Includes $25.0 million in charges associated with a certain project for the year ended September 27, 2019. Excludes $23.8 in restructuring and other charges for the year ended September 29, 2017. See Note 9, Restructuring and Other Charges.

(3)

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 $14.8 million, $25.6 million and $29.1 million for the years ended September 27, 2019, September 28, 2018 and September 29, 2017, respectively. Other corporate expenses also include intangibles amortization of $79.1 million, $68.1 million and $46.1 million for the years ended September 27, 2019, September 28, 2018 and September 29, 2017, respectively.

(4)

Includes gain on the settlement of the CH2M retiree medical plans of $35.0 million and the amortization of deferred financing fees related to the CH2M acquisition of $3.2 million and $1.8 million for the years ended September 27, 2019 and September 28, 2018 respectively. Also includes revenues under the Company's TSA agreement with Worley of $35.4 million offset by $64.8 million for fair value adjustments (unrealized losses) and dividend income related to our investment in Worley stock and certain foreign currency revaluations relating to ECR sale proceeds for the year ended September 27, 2019.

In evaluating the Company’s performance by operating segment, the CODM reviews various metrics and statistical data for each Line Of Business ("LOB") but focuses primarily on revenues and operating profit. As discussed above, segment operating profit includes not only local SG&A expenses but the SG&A expenses of the Company’s support groups that have been allocated to the segments. In addition, the Company attributes each LOB’s specific incentive compensation plan costs to the LOBs. The revenues of the People & Places Solutions LOB are more affected by pass-through revenues than the Critical Mission Solutions LOB. The methods for recognizing revenue, incentive fees, project losses and change orders are consistent among the LOBs.

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Critical Mission Solutions

	For the Years Ended
	September 27, 2019				September 28, 2018				September 29, 2017
Revenue	$	4,551,162			$	3,725,365			$	2,467,501
Operating Profit	$	310,043			$	255,718			$	197,196

Fiscal 2019 vs. 2018

Critical Mission Solutions (CMS) segment revenues for the year ended September 27, 2019 were $4.55 billion, up $825.8 million, or 22.2%, from $3.73 billion for the corresponding period last year. The increase in revenues were due in large part to nuclear services sector revenue resulting from the CH2M acquisition included for the full year of fiscal 2019 and also incremental revenues from the KeyW acquisition. Also, our CMS revenues were positively impacted by year over year revenue volume growth across the legacy portfolio, highlighted by increased spending by customers in the U.S. government business. Impacts on revenues from unfavorable foreign currency were approximately $29.7 million for fiscal year 2019.

Operating profit for the segment was $310.0 million for the year ended September 27, 2019, up $54.3 million, or 21.2%, from $255.7 million for the corresponding period last year. In addition to incremental operating profit benefits from the CH2M and KeyW acquisitions, the increase from the prior year was primarily attributable to continued growth in profits from our U.S. governmental business. SG&A for the CMS segment increased for fiscal 2019 attributable mainly to incremental SG&A associated with the CH2M and KeyW acquisitions. Fiscal 2018 included charges of $15.0 million associated with a legal matter.

Fiscal 2018 vs. 2017

CMS segment revenues for the year ended September 28, 2018 were $3.73 billion, up $1.26 billion, or 51.0%, from $2.47 billion for the corresponding period in 2017. The increase in revenues were due in large part to nuclear services revenue resulting from the CH2M acquisition. Also, our CMS revenues were positively impacted by year over year revenue volume growth across the legacy portfolio, highlighted by increased spending by customers in the U.S. government business and CMS' nuclear and defense unit in the U.K. Impacts on revenues from favorable foreign currency were approximately $23.8 million for fiscal year 2018.

Operating profit for the CMS segment was $255.7 million for the year ended September 28, 2018, up $58.5 million, or 29.7%, from $197.2 million for the corresponding period in 2017. In addition to incremental operating profit benefits from the CH2M acquisition, the increase from the prior year was primarily attributable to continued growth in profits from our U.S. governmental business sector and improvements in our nuclear and defense unit in the U.K. and fee income with our U.K. joint venture. SG&A for the CMS segment increased for fiscal 2018 attributable mainly to incremental SG&A associated with the CH2M acquisition during the fiscal 2018 and additional charges of $15.0 million associated with a legal matter incurred during fiscal 2018.

People & Places Solutions

	For the Years Ended
	September 27, 2019				September 28, 2018				September 29, 2017
Revenue	$	8,186,706			$	6,854,408			$	3,862,625
Operating Profit	$	714,394			$	527,900			$	265,928

Fiscal 2019 vs. 2018

Revenues for the People & Places Solutions (PPS) segment for the year ended September 27, 2019 were $8.19 billion, up $1.34 billion, or 19.6%, from $6.85 billion for the corresponding period last year. The increase in revenues was due in part to favorable impacts resulting from the CH2M acquisition included for the full year of fiscal 2019 together with revenue increases across all our businesses given the strong investment by customers in Life Sciences, Electronics, Water and Transport Infrastructure sectors. Impacts on revenues from unfavorable foreign currency were approximately $57.8 million for fiscal 2019.

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Operating profit for the segment for the year ended September 27, 2019 was $714.4 million, an increase of $186.5 million, or 35.3%, from $527.9 million for the comparative period in 2018. The increase in operating profit was in part due to favorable impacts from the CH2M acquisition, together with positive impacts from the higher year over year revenues for the segment. Included in fiscal 2019 results was a $25.0 million charge associated with a project. SG&A for the PPS segment increased for fiscal 2019, with this increase being attributable mainly to incremental SG&A associated with the CH2M acquisition in December of fiscal 2018.

Fiscal 2018 vs. 2017

Revenues for the PPS segment for the year ended September 28, 2018 were $6.85 billion, an increase of $2.99 billion, or 77.5%, from $3.86 billion for the corresponding period in 2017. The increase in revenues was due in part to favorable impacts from the CH2M acquisition of approximately $2.22 billion together with revenue increases across all our businesses with strong investment in Life Sciences, Electronics, Water and Transport Infrastructure sectors. Impacts on revenues from favorable foreign currency were approximately $59.6 million for fiscal 2018.

Operating profit for the segment for the year ended September 28, 2018 was $527.9 million, up $262.0 million, or 98.5%, compared to $265.9 million for the corresponding period in 2017. The increase in operating profit was in part due to favorable impacts from the CH2M acquisition, together with positive impacts from the higher year over year revenues for the segment. SG&A for the PPS segment increased for fiscal 2018, with this increase being attributable mainly to incremental SG&A associated with the CH2M acquisition in December of fiscal 2018.

Other Corporate Expenses

Other corporate expenses were $264.4 million, $161.8 million and $110.2 million for the years ended September 27, 2019, September 28, 2018 and September 29, 2017. These increases were due primarily to higher professional service fees, personnel related costs, amortization of intangible assets acquired and approximately $70.2 million of year-to-date other current year cost allocation realignments that occurred in the first quarter of fiscal 2019 in conjunction with the CH2M acquisition, partially offset by savings in other corporate expenses, including those associated with the CH2M Restructuring. Prior periods have not been restated for the cost allocation realignments.

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 where it has been determined, in the opinion of management, that such adjustments are not indicative of the performance of the related LOB.

Restructuring and Other Charges

For discussion regarding restructuring and other charges, see Note 9- Restructuring and Other Charges to the Consolidated Financial Statements.

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.

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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 it 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.

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 a number of fiscal quarters (and sometimes over fiscal years).

Please refer to Item 1A- Risk Factors, above, for a discussion of other factors that may cause backlog to ultimately convert into revenues at different amounts.

The following table summarizes our backlog for the years ended September 27, 2019, September 28, 2018 and September 29, 2017 (in millions):

	September 27, 2019				September 28, 2018				September 29, 2017
Critical Mission Solutions	$	8,460			$	7,130			$	5,557
People & Places Solutions	14,109				12,825				7,590
Total	$	22,569			$	19,955			$	13,147

The increase in backlog in Critical Mission Solutions for the years presented were primarily the result of new awards from the U.S. federal government and the KeyW acquisition in fiscal year 2019.

The increase in backlog in People & Places Solutions for the years presented were primarily the result of new awards in Australia and the U.S., in addition to the CH2M acquisition in fiscal 2018.

Backlog relating to work to be performed either directly or indirectly for the U.S. federal government and its agencies totaled approximately $8.8 billion (or 39.1% of total backlog), $6.8 billion (or 34.1% of total backlog) and $4.6 billion (or 34.9% of total backlog) at September 27, 2019, September 28, 2018 and September 29, 2017, respectively. Most of our federal government contracts require that services be provided beyond one year. In general, these contracts must be funded annually (i.e., the amounts to be spent under the contract must be appropriated by the U.S. Congress to the procuring agency, and then the agency must allot these sums to the specific contracts).

We estimate that approximately $8.66 billion, or 38.4%, of total backlog at September 27, 2019 will be realized as revenues within the next fiscal year.

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 September 27, 2019, our principal sources of liquidity consisted of $631.1 million in cash and cash equivalents, $1.94 billion of available borrowing capacity under our $2.25 billion restated revolving credit agreement (the "New Credit Agreement") and cash flows from operating activities. Additional information regarding the New Credit Agreement is set forth in Note 10 - Borrowings in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. We finance much of our operations and growth through cash generated by our operations.

At September 27, 2019, our cash and cash equivalents were $631.1 million, a decrease of $3.8 million from $634.9 million at September 28, 2018. This decrease was due to cash flows provided by investing activities of $2.2 billion and exchange rate effects on cash of $20.8 million, offset by unfavorable cash flows from financing activities of $2.0 billion and cash used for operations of $366.4 million.

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Our cash flow used for operations of $366.4 million during fiscal 2019 was comparatively lower than the $481.2 million in cash flow from operations for the corresponding period in fiscal 2018, due primarily to higher uses of cash in working capital (including cash paid for taxes relating to the ECR sale) compared to the previous period, offset in part by higher net earnings after add back of non-cash adjustments (including those related to the ECR sale) compared to the prior period. Also, the current fiscal year included acquisition costs related to KeyW and the prior fiscal year included acquisition costs incurred in connection with the CH2M acquisition.

Our cash provided by investing activities for fiscal 2019 of $2.2 billion was comparatively higher than the $1.6 billion cash used in investing activities for the corresponding period in fiscal 2018. The change is primarily attributable to cash provided by the ECR sale offset slightly by the cash used for the KeyW acquisition in the current year and cash used for the CH2M acquisition in the prior year. Also, additions to property and equipment increased from the comparative period and in the current period we received $64.7 million in proceeds from the sale of a portion of our Worley stock investment.

Our cash used for financing activities of $2.0 billion in fiscal 2019 resulted mainly from net repayments of borrowings of $1.0 billion, primarily related to repayments with cash received from the ECR sale, and common stock repurchases of $853.7 million. Cash provided by financing activities was $1.14 billion for the prior fiscal year, provided mainly from the proceeds on borrowings to fund the CH2M acquisition. Additionally, the Company paid $106.4 million in dividends to shareholders and noncontrolling interests during the current fiscal year, compared to $86.6 million in dividends paid in the prior fiscal year period.

At September 27, 2019, the Company had approximately $224.9 million in cash and cash equivalents held in the U.S. and $406.2 million held outside of the U.S. (primarily in the U.K., the Eurozone, Australia, India 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 15- Income Taxes of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K), there are no material impediments to repatriating these funds to the U.S.

The Company had $262.2 million in letters of credit outstanding at September 27, 2019. Of this amount, $2.3 million was issued under the New Credit Agreement and $259.9 million was issued under separate, committed and uncommitted letter-of-credit facilities.

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.

In 2019, the Company repurchased $853.6 million in shares. At the end of fiscal 2019, the Company has $393.7 million remaining under its $1.0 billion share repurchase authorization.

On June 12, 2019, Jacobs completed the acquisition of The KeyW Holding Corporation (“KeyW”), a U.S. based innovative 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 convertible debt of $22.6 million and first and second lien notes which totaled approximately $275.8 million. Immediately following the effective time of the acquisition, the Company repaid KeyW’s first and second lien notes. In July, the Company repaid KeyW's outstanding convertible debt of $22.6 million. The Company has recorded its preliminary purchase accounting associated with the acquisition, which is summarized in Note 5- Business Combinations.

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 were in compliance with all of our debt covenants at September 27, 2019.

Contractual Obligations

The following table sets forth certain information about our contractual obligations as of September 27, 2019 (in thousands):

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	Payments Due by Fiscal Period
	Total				1 Year or Less				1 - 3 Years				3 - 5 Years				More than 5 Years
Debt obligations	$	1,403,780			$	200,000			$	400,000			$	303,780			$	500,000
Interest (1)	224,119				50,230				63,357				54,011				56,521
Operating leases	1,113,581				190,287				323,469				247,631				352,194
Unfunded portion of defined benefit pension plans (2)	399,822				32,619				69,204				74,852				223,147
Obligations under nonqualified deferred compensation plans (3)	204,635				38,752				82,217				83,666				—
Purchase obligations (4)	3,070,634				2,245,609				825,025				—				—
Total	$	6,416,571			$	2,757,497			$	1,763,272			$	763,940			$	1,131,862

(1)	Determined based on borrowings outstanding at the end of fiscal 2019 using the interest rates in effect at that time and, for our outstanding long-term debt, concluding with the expiration date of the debt facilities, as defined below.

(2)	Assumes that future contributions will be consistent with amounts contributed in fiscal 2019, allowing for certain growth based on rates of inflation and salary increases, but limited to the amount recorded as of September 27, 2019. Actual contributions will depend on a variety of factors, including amounts required by local laws and regulations, and other funding requirements.

(3)	Assumes that future payments will be consistent with amounts paid in fiscal 2019. Due to the non-qualified nature of the plans, and the fact that benefits are based in part on years of service, the payments included in the schedule were limited to the amount recorded as of September 27, 2019.

(4)	Represents those liabilities estimated to be under firm contractual commitments as of September 27, 2019; primarily accounts payable, accrued payroll and accrued dividends.

Effects of Inflation and Changing Prices

The effects of inflation and changing prices on our business is discussed in Item 1A- Risk Factors, and is incorporated herein by reference.

Off-Balance Sheet Arrangements

We are party to financial instruments with off-balance sheet risk in the form of guarantees not reflected in our balance sheet that arise in the normal course of business. However, such off-balance sheet arrangements are not reasonably likely to have a material adverse effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or resources. See Note 16- Commitments and Contingencies and Derivative Financial Instruments of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.

New Accounting Pronouncements

Lease Accounting

In February 2016, the FASB issued ASU 2016-02 Leases. ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for public entity financial statements for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The new guidance currently requires a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. ASU 2016-02 was further clarified and amended within ASU 2017-13, ASU 2018-01, ASU 2018-10 and ASU 2018-11 which included provisions that would provide us with the option to adopt the provisions of the new guidance using a modified retrospective transition approach, without adjusting the comparative periods presented. The Company is evaluating the impact of the new guidance on its consolidated financial statements and expects to use the modified retrospective transition approach without adjusting the comparative periods presented and expects a significant increase to the balance sheet in its assets for the lease right of use asset and a significant increase to the balance sheet in its liabilities for the lease obligation.

Other Pronouncements

In the first quarter of fiscal 2019, the Company adopted ASU 2016-01, Financial Instruments - Overall - Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and to

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recognize any changes in fair value in net income unless the investments qualify for a practicability exception. The adoption of ASU 2016-01 in the first quarter did not impact the Company’s financial position, results of operations or cash flows. However, as described in Note 7- Sale of Energy, Chemicals and Resources ("ECR") Business, the Company received ordinary shares of Worley during the third quarter of 2019 which are measured at fair value through net income in accordance with ASU 2016-01.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 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 becomes effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company is evaluating the impact of the new guidance on its consolidated financial statements. It is not expected that the updated guidance will have a significant impact on the Company’s consolidated financial statements.

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

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using this methodology will result in earlier recognition of losses than under the current incurred loss approach, which requires waiting to recognize a loss until it is probable of having been incurred. 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 quarter of fiscal 2021, and must be applied on a modified retrospective basis. We are currently evaluating the potential impact of this standard.