filings.toolsJacobs Solutions 10-Q 2022-12-30
Filed 2023-02-07. 8 sections, 200K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended December 30, 2022
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-7463
JACOBS SOLUTIONS INC.
(Exact name of registrant as specified in its charter)
| Delaware | 88-1121891 | |||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||||||||
| 1999 Bryan Street | Suite 1200 | Dallas | Texas | 75201 | ||||||||||
| (Address of principal executive offices) | (Zip Code) |
(214) 583 – 8500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
_________________________________________________________________
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | |||||||||
| Common Stock | $1 par value | J | New York Stock Exchange |
Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: ☒ Yes ☐ No
Indicate by check-mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Page 1
Indicate by check-mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check-mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Number of shares of common stock outstanding at January 27, 2023: 126,714,126
Page 2
JACOBS SOLUTIONS INC.
INDEX TO FORM 10-Q
Page 3
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Page 4
JACOBS SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
| December 30, 2022 | September 30, 2022 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 1,211,102 | $ | 1,140,479 | |||||||
| Receivables and contract assets | 3,439,940 | 3,405,381 | |||||||||
| Prepaid expenses and other | 156,704 | 176,134 | |||||||||
| Total current assets | 4,807,746 | 4,721,994 | |||||||||
| Property, Equipment and Improvements, net | 356,784 | 346,676 | |||||||||
| Other Noncurrent Assets: | |||||||||||
| Goodwill | 7,341,082 | 7,184,658 | |||||||||
| Intangibles, net | 1,411,959 | 1,394,052 | |||||||||
| Deferred income tax assets | 29,805 | 31,480 | |||||||||
| Operating lease right-of-use assets | 466,331 | 476,913 | |||||||||
| Miscellaneous | 504,466 | 504,646 | |||||||||
| Total other noncurrent assets | 9,753,643 | 9,591,749 | |||||||||
| $ | 14,918,173 | $ | 14,660,419 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Current maturities of long-term debt | $ | 51,643 | $ | 50,415 | |||||||
| Accounts payable | 929,745 | 966,792 | |||||||||
| Accrued liabilities | 1,370,561 | 1,441,762 | |||||||||
| Operating lease liability | 152,360 | 150,171 | |||||||||
| Contract liabilities | 736,953 | 641,705 | |||||||||
| Total current liabilities | 3,241,262 | 3,250,845 | |||||||||
| Long-term Debt | 3,434,318 | 3,357,256 | |||||||||
| Liabilities relating to defined benefit pension and retirement plans | 293,134 | 271,332 | |||||||||
| Deferred income tax liabilities | 297,746 | 269,077 | |||||||||
| Long-term operating lease liability | 607,674 | 607,447 | |||||||||
| Other deferred liabilities | 182,532 | 167,548 | |||||||||
| Commitments and Contingencies | |||||||||||
| Redeemable Noncontrolling interests | 627,909 | 632,522 | |||||||||
| Stockholders’ Equity: | |||||||||||
| Capital stock: | |||||||||||
| Preferred stock, $1 par value, authorized - 1,000,000 shares; issued and outstanding - none | — | — | |||||||||
| Common stock, $1 par value, authorized - 240,000,000 shares; issued and outstanding - 126,668,513 shares and 127,393,378 shares as of December 30, 2022 and September 30, 2022, respectively | 126,669 | 127,393 | |||||||||
| Additional paid-in capital | 2,672,421 | 2,682,009 | |||||||||
| Retained earnings | 4,230,866 | 4,225,784 | |||||||||
| Accumulated other comprehensive loss | (845,852) | (975,130) | |||||||||
| Total Jacobs stockholders’ equity | 6,184,104 | 6,060,056 | |||||||||
| Noncontrolling interests | 49,494 | 44,336 | |||||||||
| Total Group stockholders’ equity | 6,233,598 | 6,104,392 | |||||||||
| $ | 14,918,173 | $ | 14,660,419 |
See the accompanying Notes to Consolidated Financial Statements – Unaudited.
Page 5
JACOBS SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended December 30, 2022 and December 31, 2021
(In thousands, except per share information)
(Unaudited)
| For the Three Months Ended | |||||||||||||||||||||||
| December 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Revenues | $ | 3,798,668 | $ | 3,380,625 | |||||||||||||||||||
| Direct cost of contracts | (2,983,955) | (2,584,151) | |||||||||||||||||||||
| Gross profit | 814,713 | 796,474 | |||||||||||||||||||||
| Selling, general and administrative expenses | (576,908) | (619,141) | |||||||||||||||||||||
| Operating Profit | 237,805 | 177,333 | |||||||||||||||||||||
| Other Income (Expense): | |||||||||||||||||||||||
| Interest income | 3,007 | 1,501 | |||||||||||||||||||||
| Interest expense | (40,077) | (19,426) | |||||||||||||||||||||
| Miscellaneous (expense) income, net | (3,254) | 9,682 | |||||||||||||||||||||
| Total other expense, net | (40,324) | (8,243) | |||||||||||||||||||||
| Earnings from Continuing Operations Before Taxes | 197,481 | 169,090 | |||||||||||||||||||||
| Income Tax Expense from Continuing Operations | (50,103) | (15,889) | |||||||||||||||||||||
| Net Earnings of the Group from Continuing Operations | 147,378 | 153,201 | |||||||||||||||||||||
| Net Loss of the Group from Discontinued Operations | (708) | (232) | |||||||||||||||||||||
| Net Earnings of the Group | 146,670 | 152,969 | |||||||||||||||||||||
| Net Earnings Attributable to Noncontrolling Interests from Continuing Operations | (7,031) | (9,252) | |||||||||||||||||||||
| Net Earnings Attributable to Redeemable Noncontrolling interests | (3,992) | (9,683) | |||||||||||||||||||||
| Net Earnings Attributable to Jacobs from Continuing Operations | 136,355 | 134,266 | |||||||||||||||||||||
| Net Earnings Attributable to Jacobs | $ | 135,647 | $ | 134,034 | |||||||||||||||||||
| Net Earnings Per Share: | |||||||||||||||||||||||
| Basic Net Earnings from Continuing Operations Per Share | $ | 1.08 | $ | 1.04 | |||||||||||||||||||
| Basic Net Loss from Discontinued Operations Per Share | $ | (0.01) | $ | — | |||||||||||||||||||
| Basic Earnings Per Share | $ | 1.07 | $ | 1.04 | |||||||||||||||||||
| Diluted Net Earnings from Continuing Operations Per Share | $ | 1.07 | $ | 1.03 | |||||||||||||||||||
| Diluted Net Loss from Discontinued Operations Per Share | $ | (0.01) | $ | — | |||||||||||||||||||
| Diluted Earnings Per Share | $ | 1.06 | $ | 1.03 |
See the accompanying Notes to Consolidated Financial Statements - Unaudited.
Page 6
JACOBS SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
**Three Months Ended December 30, 2022 and Decemb
Showing the first 8K of 124K characters. Open the full section
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 December 30, 2022 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 2022 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 2022 Form 10-K;
-
The Company’s fiscal 2022 audited consolidated financial statements and notes thereto included in our 2022 Form 10-K; and
-
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Form 10-K.
In addition to historical information, this MD&A and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of the United States 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 our business, financial condition and results of operations and our expectations as to our future growth, prospects, financial outlook and business strategy for fiscal year 2023 or future fiscal years, our expectations for the percentage of backlog we will realize as revenue in fiscal year 2023, and the anticipated benefits of any acquisition or the strategic investment in PA Consulting. 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 our ability to execute on our three-year corporate strategy, including our ability to invest in the tools needed to fully implement our strategy, competition from existing and future competitors in our target markets, our ability to achieve the cost-savings and synergies contemplated by our recent acquisitions within the expected time frames or to achieve them fully and to successfully integrate acquired businesses while retaining key personnel, the impact of the COVID-19 pandemic or any future pandemic, and any resulting economic downturn on our results, prospects and opportunities, measures or restrictions imposed by governments and health officials in response to such pandemic, the timing of the award of projects and funding and potential changes to the amounts provided for, under the Infrastructure Investment and Jobs Act, financial market risks that may affect the Company, including by affecting the Company's access to capital, the cost of such capital and/or the Company's funding obligations under defined benefit pension and postretirement plans, as well as general economic conditions, including inflation and the actions taken by monetary authorities in response to inflation, changes in interest rates and foreign currency exchange rates, changes in capital markets, the impact of a possible recession or economic downturn on our results, prospects and opportunities, and geopolitical events and conflicts, among others. The impact of such matters includes, but is not limited to, the possible reduction in demand for certain of our product solutions and 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 or changes to governmental budgetary priorities; 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 have and could continue to negatively affect our supply chain and our ability to timely and satisfactorily complete our clients’ projects; difficulties associated with retaining and hiring additional employees; and the inability of governments in certain of the countries in which we operate to effectively mitigate the financial or other impacts of pandemics 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 2022 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 (the "SEC").
Page 33
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 more than 60,000, Jacobs provides a full spectrum of professional services including consulting, technical, engineering, scientific and project delivery for the government and private sectors.
Our previous three-year corporate strategy launched 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. Setting the wheels in motion for our current path, this transformation included acquiring a 65% stake in PA Consulting Group Limited ("PA Consulting") in fiscal year 2021. Acquisitions of John Wood Group’s nuclear business, The Buffalo Group and most recently BlackLynx and StreetLight further position us as a leader in high-value government services and technology-enabled solutions.
We are now focused on broadening our leadership in sustainable, high growth sectors. As part of our strategy, our brand promise: "Challenging today. Reinventing tomorrow." signals our transition to a global technology-forward solutions company. We began trading as “J” on the New York Stock Exchange in December 2019, and in March 2021 our Global Industry Classifications Standard code changed to Research & Consulting Services. Our Focus 2023 Transformation Office is charged with driving further innovation, delivering value-creating solutions for our clients and leveraging an integrated digital and technology strategy to improve our efficiency and effectiveness, ultimately freeing up valuable time and resources for reinvestment in our people.
In the fourth quarter fiscal 2022, Jacobs Engineering Group Inc. (the predecessor parent company) created a new holding company, Jacobs Solutions Inc., which, through a reverse triangular merger, became the new parent company of Jacobs Engineering Group, Inc. As a result of the transaction, the predecessor parent company's then-current stockholders automatically became stockholders of Jacobs Solutions Inc., on a one-for-one basis, with the same number of shares and same ownership percentage of the predecessor parent company’s common stock that they held immediately prior to the transaction.
Operating Segments
The services we provide fall into the following two lines of business (LOB): Critical Mission Solutions (CMS) and People & Places Solutions (P&PS). Our LOBs, our business unit Divergent Solutions (DVS), which operates as an integrated offering to both LOBs, and a majority investment in PA Consulting (PA) constitute the Company’s reportable segments and are the foundation for how Jacobs helps create a more connected, sustainable world. For additional information regarding our segments, including information about our financial results by segment and financial results by geography, see Note 4- Revenue Accounting for Contracts of Notes to Consolidated Financial Statements.
Critical Mission Solutions (CMS)
Jacobs' Critical Mission Solutions line of business provides a full spectrum of solutions for clients to address evolving challenges like information and cyber warfare, digital transformation and modernization, national security and defense, space exploration, digital asset management and the green energy transition. Our core capabilities include program management and mission operations; systems digital engineering and mission integration, research development, test and evaluation; integration, operation, maintenance and sustainment of systems and facilities; enterprise-level IT operations and mission IT delivery, software development, and software application integration; engineering, design and construction of specialized technical facilities and systems; environmental remediation; specialized training; robotics and automation; and other highly technical consulting solutions. We deliver these capabilities for government agencies as well as commercial clients in the U.S. and international markets.
We leverage our deep experience to support clients in the Aerospace, Automotive, Space, Telecom, Intel, Defense and Energy sectors to develop lasting solutions in the communities where we live and work.
Page 34
People & Places Solutions (P&PS)
Jacobs' People & Places Solutions line of business provides end-to-end solutions for our clients’ most complex challenges related to climate change, energy transition, connected mobility, integrated water management, smart cities and biopharmaceutical manufacturing. In doing so, we combine deep experience in the following markets - Infrastructure, Cities & Places, Energy & Environmental, Health & Life Sciences and Advanced Manufacturing. Our core capabilities revolve around consulting, planning, science, architecture, design and engineering, as well as infrastructure delivery services and long-term operation of facilities. Solutions may be delivered as standalone professional service engagements, comprehensive program management partnerships, and selective progressive design-build and construction management at-risk delivery services in targeted markets. Increasingly, we leverage our data science and technology-enabled expertise with our core capabilities to deliver positive and enduring solutions for the clients and communities we serve.
Our clients include national, state and local governments in the U.S., Europe, U.K., Middle East and Asia-Pacific, as well as multinational and local private sector clients throughout the world.
Divergent Solutions (DVS)
Jacobs’ new operating segment, Divergent Solutions (DVS), serves as the core foundation for developing and delivering innovative, next-generation cloud, cyber, data and digital technologies. DVS further strengthens our ability to drive value for clients of both LOBs by leveraging a full spectrum of cyber, data analytics, systems and software application integration services across Jacobs. Our core capabilities include global strategic alliances, innovation collaboration, next-generation technologies, software and data as a service and data and secure solutions. DVS clients include government agencies and commercial clients in the U.S. and international markets.
PA Consulting
Jacobs invested in a 65% stake in PA Consulting, the consultancy that is Bringing Ingenuity to Life, which offers end-to-end innovation to accelerate new growth ideas from concept, through design and development and to commercial success. We revitalize organizations, building the leadership, culture, systems and processes to make innovation a reality. PA Consulting's team of roughly 4,000 strategists, innovators, designers, consultants, digital experts, scientists, engineers and technologists work across seven sectors: consumer and manufacturing, defense and security, energy and utilities, financial services, government, health and life sciences, and transport to make a positive impact alongside the clients it supports. PA Consulting has a diverse mix of private and public sector clients, from global household names to start-ups, to national and local public services. Recently, PA Consulting supported the launch of a new Electric Vehicle Infrastructure Fund to drive the roll-out of electric vehicle charging infrastructure in the U.K.; innovated cell and gene therapy manufacturing with Ori Biotech in the U.S.; and designed a growth strategy for Green Boom, a U.S.-based start-up that has developed a patent-pending and sustainable way to help prevent, reduce and clean up oil spills.
Together, the collective strengths of PA Consulting and Jacobs drive value creation for clients around the globe and support projects to address five key trends: product and service innovation, the future of work, sustainability and climate change.
Page 35
Results of Operations for the three months ended December 30, 2022 and December 31, 2021
(in thousands, except per share information)
| For the Three Months Ended | |||||||||||||||||||||||
| December 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Revenues | $ | 3,798,668 | $ | 3,380,625 | |||||||||||||||||||
| Direct cost of contracts | (2,983,955) | (2,584,151) | |||||||||||||||||||||
| Gross profit | 814,713 | 796,474 | |||||||||||||||||||||
| Selling, general and administrative expenses | (576,908) | (619,141) | |||||||||||||||||||||
| Operating Profit | 237,805 | 177,333 | |||||||||||||||||||||
| Other Income (Expense): | |||||||||||||||||||||||
| Interest income | 3,007 | 1,501 | |||||||||||||||||||||
| Interest expense | (40,077) | (19,426) | |||||||||||||||||||||
| Miscellaneous (expense) income, net | (3,254) | 9,682 | |||||||||||||||||||||
| Total other expense, net | (40,324) | (8,243) | |||||||||||||||||||||
| Earnings from Continuing Operations Before Taxes | 197,481 | 169,090 | |||||||||||||||||||||
| Income Tax Expense from Continuing Operations | (50,103) | (15,889) | |||||||||||||||||||||
| Net Earnings of the Group from Continuing Operations | 147,378 | 153,201 | |||||||||||||||||||||
| Net Loss of the Group from Discontinued Operations | (708) | (232) | |||||||||||||||||||||
| Net Earnings of the Group | 146,670 | 152,969 | |||||||||||||||||||||
| Net Earnings Attributable to Noncontrolling Interests from Continuing Operations | (7,031) | (9,252) | |||||||||||||||||||||
| Net Earnings Attributable to Redeemable Noncontrolling interests | (3,992) | (9,683) | |||||||||||||||||||||
| Net Earnings Attributable to Jacobs from Continuing Operations | 136,355 | 134,266 | |||||||||||||||||||||
| Net Earnings Attributable to Jacobs | $ | 135,647 | $ | 134,034 | |||||||||||||||||||
| Net Earnings Per Share: | |||||||||||||||||||||||
| Basic Net Earnings from Continuing Operations Per Share | $ | 1.08 | $ | 1.04 | |||||||||||||||||||
| Basic Net Loss from Discontinued Operations Per Share | $ | (0.01) | $ | — | |||||||||||||||||||
| Basic Earnings Per Share | $ | 1.07 | $ | 1.04 | |||||||||||||||||||
| Diluted Net Earnings from Continuing Operations Per Share | $ | 1.07 | $ | 1.03 | |||||||||||||||||||
| Diluted Net Loss from Discontinued Operations Per Share | $ | (0.01) | $ | — | |||||||||||||||||||
| Diluted Earnings Per Share | $ | 1.06 | $ | 1.03 |
Page 36
Overview – Three Months Ended December 30, 2022
Net earnings attributable to the Company from continuing operations for the first fiscal quarter ended December 30, 2022 were $136.4 million (or $1.07 per diluted share), an increase of $2.1 million, from net earnings of $134.3 million (or $1.03 per diluted share) for the corresponding period last year. While operating profit levels were up for the respective three-month periods of fiscal 2023 due primarily to our P&PS business, the first fiscal quarter of 2023 was impacted by $39.7 million in pre-tax Restructuring and other charges and transaction costs compared to fiscal 2022 amounts of $75.0 million, for both periods associated mainly with the Company's transformation initiatives relating to real estate which is discussed in Note 16- Restructuring and Other Charges. Additionally, the 2023 first fiscal quarter was impacted by approximately $15.0 million in net favorable impacts from overhead cost reductions associated mainly with one-time benefit program changes, while partly offset by higher incentive and other compensation charges and higher investments in company technology platforms. Also, first quarter fiscal 2023 other expense, net, of $40.3 million was higher by $32.1 million versus first quarter fiscal 2022 amounts of $8.2 million, with the current period primarily impacted by unfavorable higher net interest expense compared to the prior year quarter as discussed further below. Our reported net earnings for the current year quarter were unfavorably impacted by higher income taxes of $34.2 million compared to the fiscal 2022 period, attributable to higher effective tax rates in the current quarter due mainly to the absence of prior year tax benefits including $15.7 million related to the release of previously valued foreign tax credits and other prior year favorable tax items combined with current quarter income tax expense items further discussed in Note 9- Income Taxes. Additionally, redeemable noncontrolling interests was $5.7 million lower in the current quarter due to unfavorable net earnings results in our PA Consulting investment compared to the prior year quarter.
On February 4, 2022, the Company acquired StreetLight Data, Inc., ("StreetLight"). For further discussion, see Note 15- Other Business Combinations.
Consolidated Results of Operations
Revenues for the first fiscal quarter of 2023 were $3.80 billion, an increase of $418.0 million, or 12.4%, from $3.38 billion for the corresponding period last year. Revenue increases for the year over year period were due mainly to the Company's P&PS and CMS legacy businesses and in addition, to a smaller degree, fiscal 2023 incremental revenues benefited from the StreetLight acquisition (owned for the full period in fiscal 2023) and other increases in our DVS business. The P&PS business benefited primarily from stronger performance in its Advanced Facilities and U.S. business operations. Our CMS business benefited from increased spending in our U.S. government business sector, which was primarily attributable to fiscal 2022 contract awards for the U.S. Department of Energy. Due to foreign currency translation impacts, revenues in our PA Consulting investment decreased (excluding translation impacts, PA Consulting experienced year over year growth). Also, revenue was unfavorably impacted by foreign currency translation of $158.5 million for the three months ended December 30, 2022 in our international businesses, with no significant impact in the prior year period. Pass-through costs included in revenues for the three months ended December 30, 2022 amounted to $673.7 million, an increase of $195.6 million, or 40.9%, from $478.1 million from the corresponding period last year.
Gross profit for the first fiscal quarter of 2023 was $814.7 million, an increase of $18.2 million, or 2.3%, from $796.5 million from the corresponding period last year. Our gross profit margins were 21.4% and 23.6% for the three months ended December 30, 2022 and December 31, 2021, respectively, with these margin differences being mainly attributable to lower utilization trends primarily in the PA Consulting business, project mix impacts in our legacy CMS portfolio and unfavorable foreign currency translation impacts, partly offset by new program startups won in fiscal 2022 and favorable performance in our P&PS advanced facilities and U.S. businesses. Additionally, gross profit benefited from favorable impacts from overhead cost reductions associated mainly with one-time benefit program changes, while partly offset by higher incentive and other compensation charges and higher investments in company technology platforms in the current year, as mentioned above.
See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment.
SG&A expenses for the three months ended December 30, 2022 were $576.9 million, a decrease of $42.2 million or (6.8)% from $619.1 million for the corresponding period last year. The current year's three months ended results were impacted by decreases in real estate related costs, as well as other department spend decreases due in part to the Company's transformation initiatives. Also, Restructuring and other charges for fiscal 2023 and 2022 included $27.1 million and $73.2 million, respectively, in costs associated with the Company's transformation initiatives relating to real
Page 37
estate. Lastly, SG&A expenses benefited from favorable foreign exchange impacts of $27.5 million for the three months ended December 30, 2022, with no significant impact in the corresponding prior year period.
Net interest expense for the three months ended December 30, 2022 was $37.1 million, an increase of $19.1 million from $17.9 million for the corresponding period last year. The increase in net interest expense for the three month period was due to higher levels of debt outstanding due to the funding of the StreetLight and BlackLynx acquisitions and increased borrowings associated with the payment of the settlement of a legacy litigation matter involving a subsidiary of CH2M (the "Legacy CH2M Matter") in fiscal 2022, in addition to higher interest rates.
Miscellaneous (expense) income, net for the three months ended December 30, 2022 was $(3.3) million in comparison to $9.7 million for the corresponding period last year. The $12.9 million decrease from the prior three-month comparable period was due primarily to an increase in pension costs due to higher interest rate impacts in the current year along with the prior year $6.9 million gain related to a lease termination.
The Company’s effective tax rates from continuing operations for the three months ended December 30, 2022 and December 31, 2021 were 25.4% and 9.4%, respectively. The most significant items contributing to the difference between the statutory U.S. federal corporate tax rate of 21.0% and the Company’s effective tax rate for the three months ended December 30, 2022 were U.S. state income tax expense of $4.6 million and U.S. tax on foreign earnings of $3.6 million. Both items are expected to have a continuing impact on the Company's effective tax rate for the remainder of the fiscal year.
The most significant items contributing to the difference between the statutory U.S. federal corporate tax rate of 21.0% and the Company's effective tax rate for the three months ended December 31, 2021 were a tax benefit of $15.7 million related to the release of previously reserved foreign tax credit assets, $4.2 million excess tax benefit attributable to stock compensation, and $4.0 million benefit from filing amended state returns.
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 38
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 | |||||||||||||||||||||||
| December 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Revenues from External Customers: | |||||||||||||||||||||||
| Critical Mission Solutions | $ | 1,075,175 | $ | 976,777 | |||||||||||||||||||
| People & Places Solutions | 2,226,985 | 1,920,997 | |||||||||||||||||||||
| Divergent Solutions | 214,465 | 192,877 | |||||||||||||||||||||
| PA Consulting | 282,043 | 289,974 | |||||||||||||||||||||
| Total | $ | 3,798,668 | $ | 3,380,625 |
| Three Months Ended | |||||||||||||||||||||||
| December 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Segment Operating Profit: | |||||||||||||||||||||||
| Critical Mission Solutions | $ | 82,220 | $ | 91,239 | |||||||||||||||||||
| People & Places Solutions | 226,619 | 188,841 | |||||||||||||||||||||
| Divergent Solutions | 11,967 | 23,108 | |||||||||||||||||||||
| PA Consulting | 51,027 | 63,071 | |||||||||||||||||||||
| Total Segment Operating Profit | 371,833 | 366,259 | |||||||||||||||||||||
| Other Corporate Expenses (1) | (93,686) | (105,360) | |||||||||||||||||||||
| Restructuring, Transaction and Other Charges (2) | (40,342) | (83,566) | |||||||||||||||||||||
| Total U.S. GAAP Operating Profit | 237,805 | 177,333 | |||||||||||||||||||||
| Total Other Income (Expense), net (3) | (40,324) | (8,243) | |||||||||||||||||||||
| Earnings Before Taxes from Continuing Operations | $ | 197,481 | $ | 169,090 |
| (1) | Other corporate expenses included intangibles amortization of $49.8 million and $46.9 million for the three months ended December 30, 2022 and December 31, 2021, respectively. Additionally, the three month period of fiscal 2023 included approximately $15.0 million in net favorable impacts from cost reductions compared to the prior year period, which was associated mainly with net favorable impacts during the current quarter from changes in employee benefit programs of $41 million offset by approximately $26 million in higher quarter over quarter spend in company technology platforms and other personnel and corporate cost increases. | ||||
| (2) | Included in the three months ended December 30, 2022 and December 31, 2021 are $27.1 million and $72.3 million, respectively, in real estate impairment charges related to the Company's transformation initiatives. | ||||
| (3) | The three months ended December 31, 2021 included a gain of $6.9 million related to a lease termination. Additionally, the increase in net interest expense year over year is primarily due to the higher levels of debt outstanding due to the funding of the StreetLight and BlackLynx acquisitions in fiscal 2022 and increased borrowings associated with the payment of the Legacy CH2M Matter settlement also in the prior year, in addition to higher interest rates. |
Page 39
Critical Mission Solutions
| Three Months Ended | |||||||||||||||||||||||
| December 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Revenue | $ | 1,075,175 | $ | 976,777 | |||||||||||||||||||
| Operating Profit | $ | 82,220 | $ | 91,239 |
Critical Mission Solutions (CMS) segment revenues for the three months ended December 30, 2022 were $1.08 billion, an increase of $98.4 million, or 10.1%, from $976.8 million for the corresponding period last year. During the three months ended December 30, 2022, revenue benefited from contracts awarded in late fiscal 2022, including the Department of Energy Nuclear remediation program. Also, impacts on revenues from unfavorable foreign currency translation were approximately $33.1 million for the three month period ended December 30, 2022, compared to $2.2 million in favorable impacts in the corresponding prior year period.
Operating profit for the segment was $82.2 million for the three months ended December 30, 2022, representing a decrease of $9.0 million, or (9.9)%, from $91.2 million for the corresponding period last year. Operating profit levels were down from the prior year, with impacts from large contract wind downs in early fiscal 2022, which carried higher profit margins, offset in part by growth in nuclear remediation work for the U.S. Department of Energy noted above. Impacts on operating profit from unfavorable foreign currency translation were approximately $3.9 million for the three months ended December 30, 2022, as compared to insignificant impacts in the corresponding prior year period.
People & Places Solutions
| Three Months Ended | |||||||||||||||||||||||
| December 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Revenue | $ | 2,226,985 | $ | 1,920,997 | |||||||||||||||||||
| Operating Profit | $ | 226,619 | $ | 188,841 |
Revenues for the People & Places Solutions (P&PS) segment for the three months ended December 30, 2022 was $2.23 billion, an increase of $306.0 million, or 15.9%, from $1.92 billion for the corresponding period last year. The increase in revenue for the three months ended December 30, 2022 was primarily driven by growth in both our advanced facilities and U.S. businesses as compared to the prior year corresponding period. Foreign currency translation had a $83.2 million unfavorable impact on revenues in our international businesses for the three period ended December 30, 2022, respectively, as compared to unfavorable impacts of $2.6 million in the corresponding prior year period.
Operating profit for the segment for the three month period ended December 30, 2022 was $226.6 million, an increase of $37.8 million, or 20.0%, from $188.8 million for the corresponding period last year. The year-over-year increase in operating profit for the three months ended December 30, 2022 was driven primarily by the revenue growth mentioned above while holding selling, general and administrative expenses relatively flat. Foreign currency translation had a $15.9 million unfavorable impact on operating profit in our international businesses for the three month periods ended December 30, 2022, respectively as compared to insignificant impacts in the corresponding prior year period.
Page 40
Divergent Solutions
| Three Months Ended | |||||||||||||||||||||||
| December 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Revenue | $ | 214,465 | $ | 192,877 | |||||||||||||||||||
| Operating Profit | $ | 11,967 | $ | 23,108 |
Revenues for the Divergent Solutions segment for the three months ended December 30, 2022 were $214.5 million, an increase of $21.6 million, or 11.2%, from $192.9 million for the corresponding period last year. The increase in revenue for the three months ended December 30, 2022 benefited from incremental revenues from the StreetLight acquisition (owned for the full period in fiscal 2023) and the startup of new programs previously won in fiscal 2022. Foreign currency translation impacts on revenue were not significant for either period.
Operating profit for the segment was $12.0 million for the three months ended December 30, 2022, a decrease of $11.1 million, or 48.2%, from $23.1 million, for the corresponding period last year. The decrease in operating profit for the three months ended December 30, 2022 was primarily driven by unfavorable impacts of changes in overhead billing rates during the current year quarter of 2023 vs. the prior year quarter mainly in our cyber intelligence market. Impacts on operating profit from foreign currency were not significant for either period.
PA Consulting
| Three Months Ended | |||||||||||||||||||||||
| December 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Revenue | $ | 282,043 | $ | 289,974 | |||||||||||||||||||
| Operating Profit | $ | 51,027 | $ | 63,071 |
Revenues for the PA Consulting segment for the three months ended December 30, 2022 were $282.0 million, a decrease of $7.9 million, or 2.7%, from $290.0 million for the corresponding period last year. The decrease in revenue for the three months ended December 30, 2022 was driven by foreign currency translation which had a $41.6 million unfavorable impact on revenues in our international businesses for the three months ended December 30, 2022, and a favorable impact of $5.3 million for the corresponding prior year quarter. In local currency (primarily GBP), PA Consulting experienced an approximate 10% increase in revenues as compared to the prior year period, primarily due to higher volumes in PA Consulting's existing business for previously delayed projects in fiscal 2022.
Operating profit for the segment for the three months ended December 30, 2022 was $51.0 million, a decrease of $12.0 million, or 19.1%, from $63.1 million, for the corresponding period last year, with the decrease partly due to unfavorable foreign currency translation impacts in our international business of $6.9 million as compared to $1.0 million in favorable impact in the corresponding prior year period. Additionally, operating profit was impacted by lower utilization as compared to the prior year quarter.
Other Corporate Expenses
Other corporate expenses for the three months ended December 30, 2022 were $93.7 million, a decrease of $11.7 million from $105.4 million for the corresponding period last year. This decrease during the three month period was primarily driven by approximately $15.0 million in net favorable impacts from overhead cost reductions associated mainly with one-time benefit program changes, while partly offset by higher incentive and other compensation charges and higher investments in company technology platforms.
Included in other corporate expenses 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)
Page 41
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.
Restructuring and Other Charges
See Note 16- 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 Operations & Maintenance ("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 Engineering, Procurement & Construction ("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 have presented our backlog on a year-over-year basis, rather than on a sequential, quarter-over-quarter basis.
The following table summarizes our backlog at December 30, 2022 and December 31, 2021 (in millions):
| December 30, 2022 | December 31, 2021 | ||||||||||
| Critical Mission Solutions | $ | 7,632 | $ | 7,525 | |||||||
| People & Places Solutions | 17,243 | 16,930 | |||||||||
| Divergent Solutions | 3,077 | 3,275 | |||||||||
| PA Consulting | 306 | 276 | |||||||||
| Total | $ | 28,258 | $ | 28,006 |
The increase in backlog in Critical Mission Solutions (CMS) from December 31, 2021 was primarily driven by new business awards in the U.S. government space and nuclear remediation sectors offsetting slower growth in the U.S. Defense market.
The increase in backlog in People & Places Solutions (P&PS) from December 31, 2021 was primarily driven by new business awards in our federal, environmental and advanced facilities business.
The decrease in backlog in Divergent Solutions (DVS) from December 31, 2021 was primarily driven by delays of new awards because of continuing resolution throughout fiscal 2022.
The increase in backlog in PA Consulting from December 31, 2021 was primarily driven by strategic focus on long-term projects as well as organic year over year growth of the business.
Page 42
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 generally 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 December 30, 2022, our principal sources of liquidity consisted of $1.21 billion in cash and cash equivalents and $637.9 million of available borrowing capacity under our $2.25 billion revolving 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 December 30, 2022 represented an increase of $70.6 million from $1.14 billion at September 30, 2022, the reasons for which are described below.
Our net cash flow provided by operations of $302.3 million during the three months ended December 30, 2022 was unfavorable by $19.3 million in comparison to the cash flow provided by operations of $321.6 million for the corresponding prior year period. The year-over-year decrease in cash from operations is primarily attributable to lower earnings after adjustments for non-cash items compared to the prior period, in addition to a small decrease in working capital performance compared to the prior period.
Our net cash used for investing activities for the three months ended December 30, 2022 was $48.7 million, compared to cash used for investing activities of $249.6 million in the corresponding prior year period, with this change due primarily to the acquisition of BlackLynx in the prior year.
Our net cash used for financing activities of $246.1 million for the three months ended December 30, 2022 resulted mainly from cash used for share repurchases of $140.5 million, $58.4 million in repurchase of redeemable noncontrolling interests and $29.8 million in dividends to shareholders and $2.3 million in dividends to noncontrolling interest holders, partly offset by net proceeds from issuance of common stock of $14.8 million. Cash provided by financing activities in the corresponding prior year period was $144.4 million, due primarily to net proceeds from borrowings of $231.4 million, offset by cash used for repurchases of redeemable noncontrolling interests of $35.1 million and $27.5 million in dividends to shareholders and $14.1 million in net dividends to noncontrolling interest holders.
At December 30, 2022, the Company had approximately $210.0 million in cash and cash equivalents held in the U.S. and $1.0 billion held outside of the U.S. (primarily in the U.K., the Eurozone, Australia, India, Canada, Israel 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 6- Income Taxes of Notes to Consolidated Financial Statements included in our 2022 Form 10-K), there are no material impediments to repatriating these funds to the U.S.
The Company had $292.5 million in letters of credit outstanding at December 30, 2022. Of this amount, $1.3 million was issued under the Revolving Credit Facility and $291.2 million was issued under separate, committed and uncommitted letter-of-credit facilities.
On February 6, 2023, the Company refinanced its Revolving Credit Facility and Term Loan Facilities. See Note 11- Borrowings for further discussion relating to the terms of the Revolving Credit Facility and Term Loan Facilities following the refinancing.
Page 43
On February 4, 2022, the Company acquired StreetLight Data, Inc. ("StreetLight"). StreetLight is a pioneer of mobility analytics who uses its data and machine learning resources to shed light on mobility and enable users to solve complex transportation problems. The Company paid total base consideration of approximately $190.8 million in cash, and issued $0.9 million in equity and $5.2 million in in-the-money stock options to the former owners of StreetLight. The Company also paid off StreetLight's debt of approximately $1.0 million simultaneously with the consummation of the acquisition.
On November 19, 2021, Jacobs acquired all outstanding shares of common stock of BlackLynx, a provider of high-performance software, to complement Jacobs' portfolio of cyber, intelligence and digital solutions. The Company paid total base consideration of approximately $235.4 million in cash to the former owners of BlackLynx. In conjunction with the acquisition, the Company also paid off BlackLynx's debt of approximately $5.3 million simultaneously with the consummation of the acquisition.
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 December 30, 2022.
Page 44
Supplemental Obligor Group Financial Information
On February 6, 2023, Jacobs and its wholly-owned subsidiary, JEGI (together, the "Obligor Group"), filed an automatic shelf registration statement on Form S-3, registering, among other securities, Senior Debt Securities, and Subordinated Debt Securities of Jacobs, which may be fully and conditionally guaranteed by JEGI, and Senior Debt Securities, and Subordinated Debt Securities of JEGI, which may be fully and conditionally guaranteed by Jacobs. All other subsidiaries of the Company that will not guarantee the registered debt securities of either JEGI or Jacobs are referred to collectively as the "Non-Obligor Subsidiaries". As of the date of this report, no Senior or Subordinated Debt Securities subject to such guarantees have been issued.
In accordance with the SEC Regulation S-X Rule 13-01, set forth below is the summarized financial information for the Obligor Group on a combined basis after elimination of (i) intercompany transactions and balances between Jacobs and JEGI and (ii) equity in the earnings from and investments in the Non-Obligor Subsidiaries. This summarized financial information (in thousands) has been prepared and presented pursuant to Regulation S-X Rule 13-01, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” and is not intended to present the financial position or results of operations of the Obligor Group in accordance with U.S. GAAP.
| Three Months Ended | |||||
| (in thousands) | December 30, 2022 | ||||
| Summarized Statement of Earnings Data | |||||
| Revenue | $ | 757,688 | |||
| Direct Costs | $ | 645,637 | |||
| Selling, General and Administrative Expenses | $ | 121,268 | |||
| Net earnings attributable to Guarantor Subsidiaries from continuing operations | $ | (26,927) | |||
| Noncontrolling interests | $ | (227) |
| (in thousands) | December 30, 2022 | September 30, 2022 | |||||||||
| Summarized Balance Sheet Data | |||||||||||
| Current assets, less receivables from Non-Guarantor Subsidiaries | $ | 670,764 | $ | 641,281 | |||||||
| Current receivables from Non-Guarantor Subsidiaries | $ | 132,560 | $ | 144,564 | |||||||
| Noncurrent assets, less noncurrent receivables from Non-Guarantor Subsidiaries | $ | 489,598 | $ | 494,185 | |||||||
| Noncurrent receivables from Non-Guarantor Subsidiaries | $ | 654,156 | $ | 612,260 | |||||||
| Current liabilities | $ | 591,260 | $ | 573,614 | |||||||
| Long-term Debt | $ | 3,045,486 | $ | 2,986,124 | |||||||
| Other Noncurrent liabilities, less amounts payable to Non-Guarantor Subsidiaries | $ | 289,442 | $ | 289,452 | |||||||
| Noncurrent liabilities to Non-Guarantor Subsidiaries | $ | 462,306 | $ | 434,092 | |||||||
| Noncontrolling interests | $ | 765 | $ | 947 | |||||||
| Accumulated deficit | $ | (2,442,181) | $ | (2,391,939) |
Page 45
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We do not enter into derivative financial instruments for trading, speculation or other similar purposes that would expose the Company to market risk. In the normal course of business, our results of operations are exposed to risks associated with fluctuations in interest rates and currency exchange rates.
Interest Rate Risk
Please see the Note 11- Borrowings in Notes to Consolidated Financial Statements appearing under Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for a discussion of the Revolving Credit Facility, Term Loan Facilities and Note Purchase Agreement.
Our Revolving Credit Facility, Term Loan Facilities and certain other debt obligations are subject to variable rate interest which could be adversely affected by an increase in interest rates. As of December 30, 2022, we had an aggregate of $3.49 billion in outstanding borrowings under our Revolving Credit Facility and Term Loan Facilities. Interest on amounts borrowed under these agreements is subject to adjustment based on the Company’s Consolidated Leverage Ratio (as defined in the credit agreements governing the Revolving Credit Facility and the Term Loan Facilities). Depending on the Company’s Consolidated Leverage Ratio, borrowings denominated in U.S. dollars under the Revolving Credit Facility and the Term Loan Facilities bear interest at a Eurocurrency rate plus a margin of between 0.875% and 1.625% or a base rate plus a margin of between 0.0% and 0.625% including applicable margins while borrowings denominated in British pounds under these respective facilities bear interest at an adjusted SONIA rate plus a margin of between 0.875% and 1.625%. Additionally, if our Consolidated Leverage Ratio exceeds a certain amount, the interest on the Senior Notes may increase by 75 basis points. However, as discussed in Note 17- Commitments and Contingencies and Derivative Financial Instruments, we are party to swap agreements with an aggregate notional value of $894.5 million to convert the variable rate interest based liabilities associated with a corresponding amount of our debt into fixed interest rate liabilities, leaving $2.59 billion in principal amount subject to variable interest rate risk. Additionally, during fiscal 2022, we entered into two treasury lock arrangements with an aggregate notional value of $500.0 million which is disclosed in further detail in Note 17- Commitments and Contingencies and Derivative Financial Instruments.
For the three months ended December 30, 2022, our weighted average borrowings that are subject to floating rate exposure were approximately $2.81 billion. If floating interest rates had increased by 1.00%, our interest expense for the three months ended December 30, 2022 would have increased by approximately $7.0 million.
Foreign Currency Risk
In situations where the Company incurs costs in currencies other than our functional currency, we sometimes enter into foreign exchange contracts to limit our exposure to fluctuating foreign currencies. We follow the provisions of ASC No. 815, Derivatives and Hedging in accounting for our derivative contracts. The Company has $382.5 million in notional value of exchange rate sensitive instruments at December 30, 2022. See Note 17- Commitments and Contingencies and Derivative Financial Instruments for discussion.
Page 46
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure.
The Company’s management, with the participation of its Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of the Company’s disclosure controls and procedures as defined by Rule 13a-15(e) of the Exchange Act defined above, as of December 30, 2022, the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on that evaluation, the Company’s management, with the participation of the Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) concluded that the Company’s disclosure controls and procedures, as of the Evaluation Date, were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting which were identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act during the quarter ended December 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Page 47
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The information required by this Item 1 is included in the Note 17- Commitments and Contingencies and Derivative Financial Instruments included in the Notes to Consolidated Financial Statements appearing under Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors.
Please refer to Item 1A- Risk Factors in our 2022 Form 10-K, which is incorporated herein by reference, for a discussion of some of the factors that have affected our business, financial condition, and results of operations in the past and which could affect us in the future. There have been no material changes to those risk factors. Before making an investment decision with respect to our common stock, you should carefully consider those risk factors, as well as the financial and business disclosures contained in this Quarterly Report on Form 10-Q and our other current and periodic reports filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no sales of unregistered securities during the first fiscal quarter of 2023.
Share Repurchases
On January 16, 2020, the Company's Board of Directors authorized a share repurchase program of up to $1.0 billion of the Company's common stock, that expired on January 15, 2023 (the "2020 Repurchase Authorization"). A summary of repurchases of the Company’s common stock made during the first quarter of fiscal 2023 under the 2020 Share Repurchase Authorization follows:
| Period | Total Number of Shares Purchased | Average Price Per Share (1) | Total Number of Shares Purchased under the 2020 Repurchase Authorization | Approximate Dollar Value of Shares that May Yet Be Purchased Under the 2020 Repurchase Authorization (2) | ||||||||||||||||||||||
| October 3, 2022 - October 28, 2022 | 912,812 | $112.10 | 912,812 | $398,661,297 | ||||||||||||||||||||||
| October 31, 2022 - November 25, 2022 | 316,876 | $117.49 | 316,876 | $361,430,317 | ||||||||||||||||||||||
| November 28, 2022 - December 30,2022 | 8,000 | $123.36 | 8,000 | $360,443,420 |
(1)Includes commissions paid and calculated at the average price per share.
(2)Expired on January 15, 2023 when 2020 Repurchase Authorization expired.
On January 25, 2023, the Company's Board of Directors authorized an incremental share repurchase program of up to $1.0 billion of the Company's stock, to expire on January 25, 2026 (the "2023 Repurchase Authorization"). No repurchase activity has taken place under the 2023 Share Repurchase Authorization to date.
Our share repurchase program does not obligate the Company to purchase any shares. Share repurchases may be executed through various means including, without limitation, accelerated share repurchases, open market transactions, privately negotiated transactions, purchases pursuant to Rule 10b5-1 plans or otherwise. The authorization for the share repurchase programs may be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time. The timing, amount and manner of share repurchases may depend upon market conditions and economic circumstances, availability of investment opportunities, the availability and costs of financing, currency fluctuations, the market price of the Company's common stock, other uses of capital and other factors.
Item 3. Defaults Upon Senior Securities
None.
Page 48
Item 4. Mine Safety Disclosure.
None.
Item 5. Other Information.
None.
Page 49
Item 6. Exhibits.
- Filed herewith
Management contract or compensatory plan or arrangement
Page 50
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
JACOBS SOLUTIONS INC.
| By: | /s/ Kevin C. Berryman | ||||
| Kevin C. Berryman | |||||
| President | |||||
| and Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
| Date: | February 7, 2023 |
Page 51