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Sale of Energy, Chemicals and Resources ("ECR") Business | 9 Months Ended
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Jun. 26, 2020
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 and asset purchase agreement for the ECR sale contained a lock-up on our ability to sell the Worley shares received in the transaction, which expired in the first fiscal quarter of 2020. Discontinued Operations As a result of the ECR sale, substantially all ECR-related assets and liabilities were sold (the "Disposal Group"). We determined that the Disposal Group should be reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations because their disposal represent a strategic shift that had a major effect on our operations and financial results. As such, the financial results of the ECR business are reflected in our unaudited Consolidated Statements of Earnings as discontinued operations for all periods presented. Additionally, assets and liabilities of the ECR business were reflected as held-for-sale in the Consolidated Balance Sheets through December 27, 2019. As of the quarter ended June 26, 2020, all of the ECR business to be sold under the terms of the sale has been conveyed to Worley and as such, no amounts remain held for sale. Any assets and liabilities of the ECR business that were retained by the Company pursuant to the stock and asset purchase agreement with Worley were included in discontinued operations. Summarized Financial Information of Discontinued Operations The following table represents earnings (loss) from discontinued operations, net of tax (in thousands):
| For the Three Months Ended |  |  |  | For the Nine Months Ended |  |
| June 26, 2020 |  | June 28, 2019 |  | June 26, 2020 |  | June 28, 2019
Revenues | $ | 59 |  |  | $ | 392,526 |  |  | $ | 11,221 |  |  | $ | 2,718,317 |
Direct cost of contracts | (69) |  |  | (340,525) |  |  | (6,124) |  |  | (2,336,076) |
Gross profit | (10) |  |  | 52,001 |  |  | 5,097 |  |  | 382,241 |
Selling, general and administrative expenses | (801) |  |  | (39,556) |  |  | 43,359 |  |  | (333,155) |
Operating (Loss) Profit | (811) |  |  | 12,445 |  |  | 48,456 |  |  | 49,086 |
Gain on sale of ECR business | 31,456 |  |  | 917,697 |  |  | 113,366 |  |  | 917,697 |
Other (expense) income, net | 1,472 |  |  | (7,864) |  |  | 112 |  |  | (40,158) |
Earnings Before Taxes from Discontinued Operations | 32,117 |  |  | 922,278 |  |  | 161,934 |  |  | 926,625 |
Income Tax Expense | (14,074) |  |  | (486,594) |  |  | (36,423) |  |  | (487,788) |
Net Earnings of the Group from Discontinued Operations | $ | 18,043 |  |  | $ | 435,684 |  |  | $ | 125,511 |  |  | $ | 438,837 |
Selling, general and administrative expenses includes an offsetting insuranc e recovery of $50.0 million for the nine months ended June 26, 2020 recorded in connection with the Nui Phao ("NPMC") legal matter described in Note 19- Commitments and Contingencies. Additionally, the nine month period ended June 28, 2019 includes a charge for the award and recovery of costs, estimated related interest and attorneys' fees related to the NPMC legal matter. For the nine months ended June 26, 2020, the gain on sale of $113.4 million relates mainly to the recognition of the deferred gain for the delayed transfer of the ECR-related assets and liabilities of the two international entities discussed above, adjustments for working capital and certain other items in connection with the sale and add itional income for the re lease of a deferred gain upon achievement of the IT Migration Date described below in connecti on with the delivery to Worley of certain IT application and hardware assets related to the ECR business. Gain on Sale and Deferred Gain As a result of the ECR sale, the Company recognized a pre-tax gain of $1.0 billion, $935.1 million of which was recognized in fiscal 2019 and $113.4 million of which is included in Net Earnings of the Group from Discontinued Operations on the consolidated statement of earnings for the nine months ended June 26, 2020, which is further discussed below. Upon closing the ECR sale, the Company retained a noncontrolling interest (with significant influence) in People & Places Solutions ("P&PS")-related activities in one international legal entity acquired by Worley. The fair value of the Company’s retained interest in the net assets and liabilities of this entity was estimated at $33.0 million and recorded at closing. For another international legal entity, the closing and transfer of ECR-related assets to Worley were set to occur at a future date. At the time of the ECR sale, the Company allocated proceeds received to these deferred closing items on a relative fair value basis and recognized a deferred gain of $34.4 million. During the second fiscal quarter of 2020, the delayed transfer of the ECR-related assets and liabilities of these two international entities occurred, and as a result, previously deferred gain amounts were recognized. In addition to consideration received for the sale of the business, the proceeds received included advanced consideration for the Company to deliver IT application and related hardware assets at a future date (“IT Migration Date”) to Worley upon completion of the interim transition services, described further below. This deliverable of IT assets was considered to be a separate element of the ECR business sale transaction, and accordingly, we allocated a portion of the proceeds received of $95.3 million on a relative fair value basis to this separate deliverable and recognized deferred income. Upon completion and acceptance of this deliverable by Worley in December 2019, the deferred proceeds were recognized in income, along with expenses associated with any costs incurred and deferred by the Company for this deliverable. Investment in Worley Stock As discussed above, the Company received 58.2 million in ordinary shares of Worley. Pursuant to the purchase agreement for the ECR sale, 51.4 million of the shares were considered "restricted" during a lock-up period beginning April 26, 2019 and ending in December 2019, after which these restrictions were lifted. During the lock-up period the Company could not, without Worley's consent, directly or indirectly dispose of the "restricted" shares. The remaining 6.8 million shares not considered "restricted" were sold in the prior year, netting a loss of $4.9 million, which was recognized in miscellaneous income (expense), net. Dividend income and unrealized gains and losses on changes in fair value of Worley shares are recognized in miscellaneous income (expense), net in continuing operations. The Company's investment in Worley is measured at fair value through net income as it is an equity investment with a readily determinable fair value based on quoted market prices. The 51.4 million ordinary shares currently held are recorded within prepaid expenses and other in the Company's consolidated balance sheets at their estimated fair value, which is $312.3 million as of June 26, 2020. For the three and nine month periods ended June 26, 2020, the Company recognize d a gain of $131.4 million and a loss of $138.9 million, respectively, associated with share price and currency changes on this investment as well as dividends of $7.7 million during the nine month period ended June 26, 2020. Quoted market prices are available for these securities in an active market and therefore categorized as a Level 1 input. Transition Service Agreement Upon closing of the ECR sale, the Company entered into a Transition Services Agreement (the "TSA") with Worley pursuant to which the Company, on an interim basis, provided various services to Worley, including executive consultation, corporate, information technology, and project services. The initial term of the TSA began immediately following closing of the ECR sale on April 26, 2019 and expired in April 2020, although the parties mutually agreed to extend certain of the services for additional time periods beyond the initial term. Pursuant to the terms of the TSA, the Company received payments for the interim services which approximate costs incurred to perform the services. The Company has recognized costs recorded in SG&A expense incurred to perform the TSA, offset b y $15.2 million in TSA related income for such services that is reported in miscellaneous income (expense) for the nine months ended June 26, 2020 before inclusion of certain incremental outside service support costs agreed to be shared equally by the parties.

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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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