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Sale of Energy, Chemicals and Resources ("ECR") Business | 3 Months Ended
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Dec. 27, 2019
Discontinued Operations and Disposal Groups [Abstract] |
Sale of Energy, Chemicals and Resources (ECR) Business | Sale of Energy, Chemicals and Resources ("ECR") Business On April 26, 2019, Jacobs completed the sale of its ECR business to Worley for a purchase price of $3.4 billion consisting of (i) $2.8 billion in cash plus (ii) 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”). The stock purchase agreement for the ECR sale contained a lock-up on our ability to sell the Worley shares received in the transaction, which expired in the first quarter of fiscal 2020. Gain on Sale and Deferred Gain As a result of the sale of the ECR business, the Company recognized a pre-tax gain of $1.0 billion, $935.1 million of which was recognized in fiscal 2019 and $61.9 million which is included in Net Earnings of the Group from Discontinued Operations on the consolidated statement of earnings for the three months ended December 27, 2019, which is further discussed below. Upon closing the ECR sale, the Company retained a noncontrolling interest (with significant influence) in People & Places Solutions ("P&PS")-related activities in one international legal entity that is now controlled and consolidated by Worley. The fair value of the Company’s retained interest in the net assets and liabilities of this entity was estimated at $33.0 million and recorded at closing. For another international legal entity, the closing and transfer of ECR-related assets to Worley will occur at a future date, currently estimated to be in the second quarter of fiscal 2020. Accordingly, the Company allocated proceeds received to this deferred closing on a relative fair value basis and recognized a deferred gain of $34.4 million, which will be recorded in income when the ECR-related assets are transferred. Subsequent to quarter end, the Company received the approval from the relevant regulatory body for this transfer. In addition to consideration received for the sale of the business, the proceeds received included advanced consideration for the Company to deliver IT application and related hardware assets at a future date (ECR Business “IT Migration Date”) to Worley upon completion of the interim transition services, described further below. This deliverable of IT assets was considered to be a separate element of the ECR business sale transaction, and accordingly, we allocated a portion of the proceeds received of $95.3 million on a relative fair value basis to this separate deliverable and recognized deferred income. Upon completion and acceptance of this deliverable by Worley in December 2019, the deferred proceeds were recognized in income, along with expenses associated with any costs incurred and deferred by the Company for this deliverable. Investment in Worley Stock As discussed above, the Company received 58.2 million in ordinary shares of Worley. Pursuant to the purchase agreement for the ECR sale, 51.4 million of the shares were considered "restricted" during a lock-up period beginning April 26, 2019 and ending in December 2019. During the lock-up period Jacobs could not, without Worley's consent, directly or indirectly dispose of the "restricted" shares. The remaining 6.8 million shares not considered "restricted" were sold in the prior year, netting a loss of $4.9 million, which was recognized in miscellaneous income (expense), net. Dividend income and unrealized gains and losses on changes in fair value of Worley shares are recognized in miscellaneous income (expense), net in continuing operations. The Company's investment in Worley is measured at fair value through net income as it is an equity investment with a readily determinable fair value based on quoted market prices. The 51.4 million ordinary shares that are no longer considered "restricted" are recorded within prepaid expenses and other in the Company's consolidated balance sheets at their estimated fair value, which is $556.5 million as of December 27, 2019. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input. Transition Service Agreement Upon closing of the ECR sale, the Company entered into a Transition Services Agreement ("TSA") with Worley pursuant to which the Company, on an interim basis, provides various services to Worley including executive consultation, corporate, information technology, and project services. The term of the TSA agreement began immediately following closing of the ECR sale on April 26, 2019 and will continue for up to one year, with an option to extend the period if mutually agreed upon. Pursuant to the terms of the TSA, the Company will receive payments for the interim services which approximate costs incurred to perform the services. The Company has recognized costs recorded in SG&A expense incurred to perform the TSA, offset by $12.0 million in TSA related income for such services that is reported in miscellaneous income (expense) for the three months ended December 27, 2019 before inclusion of certain incremental outside service support costs agreed to be shared equally by the parties. Discontinued Operations As a result of the ECR sale, substantially all ECR-related assets and liabilities have been sold (the "Disposal Group"). We determined that the Disposal Group should be reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations because their disposal represents a strategic shift that had a major effect on our operations and financial results. As such, the financial results of the ECR business are reflected in our unaudited Consolidated Statements of Earnings as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of the Disposal Group are reflected as held-for-sale in the unaudited Consolidated Balance Sheets. As of the quarter ended December 27, 2019, a portion of the ECR business remains held by Jacobs as described above and continues to be classified as held for sale during the first fiscal quarter of 2020 in accordance with U.S. GAAP. Summarized Financial Information of Discontinued Operations The following table represents earnings (loss) from discontinued operations, net of tax (in thousands):
| Three Months Ended |  |  |  |  |  |
| December 27, 2019 |  | December 28, 2018 |  |  |  |
Revenues | $ | 7,099 |  |  | $ | 1,164,707 |  |  |  |  |
Direct cost of contracts | (4,692) |  |  | (995,606) |  |  |  |  |
Gross profit | 2,407 |  |  | 169,101 |  |  |  |  |
Selling, general and administrative expenses | 47,159 |  |  | (91,010) |  |  |  |  |
Operating Profit (Loss) | 49,566 |  |  | 78,091 |  |  |  |  |
Gain on sale of ECR business | 61,943 |  |  | — |  |  |  |  |
Other (expense) income, net | 1 |  |  | 2,120 |  |  |  |  |
Earnings Before Taxes from Discontinued Operations | 111,510 |  |  | 80,211 |  |  |  |  |
Income Tax Expense | (33,923) |  |  | (20,053) |  |  |  |  |
Net Earnings of the Group from Discontinued Operations | $ | 77,587 |  |  | $ | 60,158 |  |  |  |  |
Selling, general and administrative expenses includes an offsetting insuranc e recovery of $50.0 million for the three months ended December 27, 2019 recorded in connection with the Nui Phao ("NPMC") legal matter described in Note 19- Commitments and Contingencies. The gain on sale of the ECR business of $61.9 million for the three months ended December 27, 2019 primarily includes additional income for the re lease of a deferred gain upon achievement of the IT Migration Date described above in connection with the delivery to Worley of certain IT application and hardware assets related to the ECR business, as well as adjustments to the purchase price for working capital and certain other items in connection with the ECR sale. The following tables represent the assets and liabilities held for sale (in thousands):
| December 27, 2019 |  | September 27, 2019
Receivables and contract assets | $ | 3,976 |  |  | $ | 871 |
Prepaid expenses and other | 46 |  |  | 81 |
Current assets held for sale | $ | 4,022 |  |  | $ | 952 |
Property, Equipment and Improvements, net | $ | 1,200 |  |  | $ | 1,643 |
Goodwill | 24,896 |  |  | 24,896 |
Miscellaneous | 434 |  |  | 439 |
Noncurrent assets held for sale | $ | 26,530 |  |  | $ | 26,978 |
Accounts payable and accrued liabilities | $ | 778 |  |  | $ | 2,495 |
Contract liabilities | 19 |  |  | 78 |
Current liabilities held for sale | $ | 797 |  |  | $ | 2,573 |
Other Deferred Liabilities | $ | 52 |  |  | $ | 97 |
Noncurrent liabilities held for sale | $ | 52 |  |  | $ | 97 |
The significant components included in our Consolidated Statements of Cash Flows for the discontinued operations are as follows (in thousands):
| For the Three Months Ended |  |
| December 27, 2019 |  | December 28, 2018
Depreciation and amortization: |  |  |
Property, equipment and improvements | $ | — |  |  | $ | 2,110 |
Intangible assets | $ | — |  |  | $ | 614 |
Additions to property and equipment | $ | — |  |  | $ | (1,254) |
Stock based compensation | $ | — |  |  | $ | 3,615 |

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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