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PA Consulting Business Combinations

12 Months Ended

Oct. 01, 2021

Other Business Combinations

On November 19, 2021, Jacobs consummated its previously announced acquisition of BlackLynx ("BlackLynx"). Pursuant to and subject to the terms and conditions of Agreement and Plan of Merger (the “Merger Agreement”), Jacobs acquired all of BlackLynx's outstanding shares of common stock, in a transaction valued at up to $257.5 million, on a cash-free, debt-free basis, including base consideration of $250 million, and a potential earn-out payment of up to $7.5 million. The amount of any earnout payment will depend on BlackLynx achieving certain revenue and gross margin thresholds in calendar year 2022. The purchase price was paid in cash and is subject to customary post-closing adjustments.

Buffalo Group

On November 24, 2020, a subsidiary of Jacobs completed the acquisition of Buffalo Group, a leader in advanced cyber and intelligence solutions which allows Jacobs to further expand its cyber and intelligence solutions offerings to government clients. The Company paid total consideration of $190.1 million, which was comprised of approximately $182.4 million in cash to the former owners of Buffalo Group and contingent consideration of $7.7 million which was expected to be settled in fiscal 2022. Subsequent to the closing date and during the current fiscal year, the Company recognized the $7.7 million as an offset to selling, general and administrative expense as it was no longer expected to be paid. In conjunction with the acquisition, the Company assumed the Buffalo Group's debt of approximately $7.7 million. The Company repaid all of the assumed Buffalo Group debt by the end of the first fiscal quarter of 2021. The following summarizes the fair values of The Buffalo Group's assets acquired and liabilities assumed as of the acquisition date (in millions):


Assets
Cash and cash equivalents	$	8.4
Receivables	19.2
Property, equipment and improvements, net	2.3
Goodwill	130.7
Identifiable intangible assets	74.0
Prepaid expenses and other current assets	6.2
Total Assets	$	240.8

Liabilities
Accounts payable, accrued expenses and other current liabilities	$	46.9

Other long term liabilities	3.8
Total Liabilities	50.7
Net assets acquired	$	190.1

The purchase price allocation is based upon preliminary information and is subject to change when additional information is obtained. Goodwill recognized results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. All of the goodwill recognized is expected to be deductible for tax purposes, given the acquisition was structured as an asset acquisition. The Company has not completed its final assessment of the fair values of Buffalo Group's assets acquired and liabilities assumed. The final purchase price allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

Identifiable intangibles are customer relationships, contracts and backlog and have estimated lives of 9 years.

Fair value measurements relating to the Buffalo Group are made primarily using Level 3 inputs including discounted cash flow and Monte Carlo simulation techniques. Fair value for the identified intangible assets is estimated using inputs primarily for the income approach using the multiple period excess earnings method. The significant assumptions used in estimating fair value include (i) revenue projections of the business, including profitability, (ii) attrition rate and (iii) the estimated discount rate that reflects the level of risk associated with receiving future cash flows. Other personal property assets, such as furniture, fixtures and equipment, are valued using the cost approach, which is

based on replacement or reproduction costs of the asset less depreciation. The fair value of the contingent consideration was estimated using a Monte Carlo simulation and the significant assumptions used include projections of revenues for Buffalo Group through calendar 2021 and probabilities of meeting those projections.

No summarized unaudited pro forma results are provided for the Buffalo Group due to the immateriality of this acquisition relative to the Company's consolidated financial position and results of operations.

John Wood Group's Nuclear Business

On March 6, 2020, a subsidiary of Jacobs completed the acquisition of the nuclear consulting, remediation and program management business of John Wood Group, a U.K.-based energy services company, for an enterprise value of £246 million, or approximately $317.9 million, less cash acquired of $24.3 million, as updated for additional working capital adjustments. The John Wood Group nuclear business allows Jacobs to further expand its lifecycle nuclear services business. The following summarizes the fair values of John Wood Group's assets acquired and liabilities assumed as of the acquisition date (in millions):


Assets
Cash and cash equivalents	$	24.3
Receivables	74.2
Other current assets	3.8
Property, equipment and improvements, net	8.3
Goodwill	207.8
Identifiable intangible assets	80.0
Miscellaneous	19.4
Total Assets	$	417.8

Liabilities
Accounts payable, accrued expenses and other current liabilities	$	71.4
Long term liabilities	28.5
Total Liabilities	99.9
Net assets acquired	$	317.9

Goodwill recognized results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. None of the goodwill recognized is expected to be deductible for tax purposes. The Company has completed its final assessment of the fair values of John Wood Group's assets acquired and liabilities assumed. Since the initial preliminary estimates reported in the second quarter of fiscal 2020, the Company has updated certain amounts reflected in the final purchase price allocation, as summarized in the fair values of John Wood Group's nuclear business assets acquired and liabilities assumed as of the acquisition date set forth above.

Identified intangibles include customer relationships, contracts and backlog and developed technology. The customer relationships, contracts and backlog intangible represents the fair value of existing contracts, underlying customer relationships and backlog. The customer relationships, contracts and backlog intangible and the developed technology intangible have lives of 12 and 15 years, respectively.

Fair value measurements relating to the John Wood Group nuclear business are made primarily using Level 3 inputs including discounted cash flow techniques. Fair value is estimated using inputs primarily for the income approach, which include the use of both the multiple period excess earnings method and the relief from royalties method. The significant assumptions used in estimating fair value include (i) revenue projections of the business, including profitability, (ii) attrition rate and (iii) the estimated discount rate that reflects the level of risk associated with receiving future cash flows. Other personal property assets, such as furniture, fixtures and equipment, are valued using the cost approach, which is based on replacement or reproduction costs of the asset less depreciation.

No summarized unaudited pro forma results are provided for the John Wood Group nuclear business due to the immateriality of this acquisition relative to the Company's consolidated financial position and results of operations.

KeyW

On June 12, 2019, Jacobs completed the acquisition of The KeyW Holding Corporation (“KeyW”), a U.S. based national security solutions provider to the intelligence, cyber, and counterterrorism communities by acquiring 100% of the outstanding shares of KeyW common stock (the "KeyW acquisition"). The KeyW acquisition allows Jacobs to further expand its government services business. 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 debt of $298.4 million. The Company repaid all of KeyW's debt by the end of the fourth fiscal quarter of 2019.

The following summarizes the fair values of KeyW assets and acquired liabilities assumed as of the acquisition date (in millions):


Assets
Cash and cash equivalents	$	29.1
Receivables	79.1
Inventories, net	19.3
Prepaid expenses and other	2.4
Property, equipment and improvements, net	24.5
Deferred tax asset and other	37.8
Goodwill	615.6
Identifiable intangible assets	179.0
Total Assets	$	986.8

Liabilities
Accounts payable	$	8.3
Accrued expenses	69.1
Short term debt	298.4
Other current liabilities	3.9

Other non-current liabilities	2.9
Total Liabilities	382.6
Net assets acquired	$	604.2

Goodwill recognized results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. Goodwill of $136.3 million is expected to be deductible for tax purposes. The Company has completed its final assessment of the fair values of the acquired assets and liabilities of KeyW. Since the initial preliminary estimates reported in the third quarter of fiscal 2019, the Company has updated certain amounts reflected in the final purchase price allocation, as summarized in the fair values of KeyW assets acquired and liabilities assumed as of the acquisition date as set forth above.

Identified intangibles include customer relationships, contracts and backlog and developed technology. The customer relationships, contracts and backlog intangible represents the fair value of existing contracts, underlying customer relationships and backlog. The customer relationships, contracts and backlog intangible, and the developed technology intangible have lives of 10 and 12 years, respectively. Other intangible liabilities consist of the fair value of office leases and have a weighted average life of approximately 9 years.

Fair value measurements relating to the KeyW acquisition are made primarily using Level 3 inputs including discounted cash flow techniques. Fair value is estimated using inputs primarily for the income approach, which include the use of both the multiple period excess earnings method and the relief from royalties method. The significant assumptions used in estimating fair value include (i) revenue projections of the business, including profitability, (ii) attrition rate and (iii) the estimated discount rate that reflects the level of risk associated with receiving future cash flows. Other personal

property assets, such as furniture, fixtures and equipment, are valued using the cost approach, which is based on replacement or reproduction costs of the asset less depreciation.

For purposes of our comparative fiscal 2020 and 2019 reporting requirements in this Form 10-K, the following presents summarized unaudited pro forma operating results of the Company for the year ended September 27, 2019 assuming that the June 12, 2019 acquisition of KeyW had occurred at the beginning of fiscal 2018 for pro forma purposes. These pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the related events occurred on such date (in millions, except per share data):


	For the Year Ended
	September 27, 2019
Revenues	$	13,068.7
Net earnings of the Group from Continuing Operations	$	326.0
Net earnings (loss) attributable to Jacobs from continuing operations	$	303.0
Net earnings (loss) attributable to Jacobs from continuing operations per share:
Basic earnings (loss) from continuing operations per share	$	2.19
Diluted earnings (loss) from continuing operations per share	$	2.17

Included in the table above are the unaudited pro forma operating results of continuing operations. Also, income tax expense (benefit) for the fiscal year pro forma period ended September 27, 2019 was $41.3 million.

CH2M

On December 15, 2017, the Company completed the acquisition of CH2M HILL Companies, Ltd. ("CH2M"), an international provider of engineering, construction and technical services, by acquiring 100% of the outstanding shares of CH2M common stock and preferred stock (the "CH2M acquisition"). The Company paid total consideration of approximately $1.8 billion in cash (excluding $315.2 million of cash acquired) and issued approximately $1.4 billion of Jacobs’ common stock, or 20.7 million shares, to the former stockholders and certain equity award holders of CH2M.

The following summarizes the estimated fair values of CH2M assets acquired and liabilities assumed as of the acquisition date (in millions):


Assets
Cash and cash equivalents	$	315.2
Receivables	1,120.6
Prepaid expenses and other	72.7
Property, equipment and improvements, net	175.1
Goodwill	3,165.5
Identifiable intangible assets:
Customer relationships, contracts and backlog	412.3
Lease intangible assets	4.4
Total identifiable intangible assets	416.7
Miscellaneous	530.8
Total Assets	$	5,796.6

Liabilities
Notes payable	$	2.2
Accounts payable	309.6
Accrued liabilities	787.4
Contract liabilities	260.8
Identifiable intangible liabilities:
Lease intangible liabilities	9.6
Long-term debt	706.0
Other deferred liabilities	659.0
Total Liabilities	$	2,734.6
Noncontrolling interests	(37.3)
Net assets acquired	$	3,024.7

Goodwill recognized results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. None of the goodwill recognized is expected to be deductible for tax purposes. During the first quarter of fiscal 2019, the Company completed its final assessment of the fair values of the acquired assets and liabilities of CH2M. Accrued liabilities and other deferred liabilities include approximately $404.7 million related to estimates for various legal and other pre-acquisition contingent liabilities accounted for under ASC 450. See Note 19- Contractual Guarantees, Litigation, Investigations and Insurance relating to CH2M contingencies.

PA Consulting Group Limited

Business Acquisition [Line Items]

PA Consulting Business Combinations

PA Consulting Business Combination

Deal Summary, Opening Balance Sheet and Pro Forma Financial Information

On March 2, 2021, Jacobs completed the strategic investment of a 65% interest in PA Consulting, a UK-based leading innovation and transformation consulting firm. The total consideration paid by the Company was $1.7 billion, funded through cash on hand, proceeds from a new term loan and draws on the Company's existing revolver. Further, in connection with the transaction, an additional $261 million in investment proceeds had not yet been distributed at the investment date due to continuing employment requirements of associated management owners. Consequently, this amount represented compensation expense incurred related to the investment that was expensed subsequent to the acquisition date, and is reflected in selling, general and administrative expense and cash from operations for the current fiscal year. The remaining 35% interest is held by PA Consulting employees, whose redeemable noncontrolling interests had a fair value of $582.4 million on the closing date, including subsequent purchase accounting adjustments. PA Consulting is accounted for as a consolidated subsidiary and as a separate operating segment under U.S. GAAP accounting rules. See Note 9 - Borrowings for more discussion on the financing for the transaction. The following summarizes the fair values of PA Consulting's assets acquired and liabilities assumed as of the acquisition date (in millions):


Assets
Cash and cash equivalents	$	134.9
Receivables	164.9
Property, equipment and improvements, net	40.5
Goodwill	1,448.3
Identifiable intangible assets	1,004.2
Prepaid expenses and other current assets	9.5
Miscellaneous long term assets	83.7
Total Assets	$	2,886.0

Liabilities
Accounts payable	$	6.5
Accrued liabilities and other current liabilities	346.5
Other long term liabilities	248.7
Total Liabilities	$	601.7
Redeemable Noncontrolling interests	582.4
Net assets acquired	$	1,701.9

The purchase price allocation is based upon preliminary information and is subject to change when additional information is obtained. Goodwill recognized results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future economic benefits. None of the goodwill recognized is expected to be deductible for tax purposes. The Company has not completed its final assessment of the fair values of PA Consulting's assets acquired and liabilities assumed. The final purchase price allocation could result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill.

Since the initial preliminary estimates recorded in the second quarter of fiscal 2021, the Company has updated certain provisional amounts reflected in the preliminary purchase price allocation, as summarized in the estimated fair values of PA Consulting assets acquired and liabilities assumed above. See below for further discussion on updates to redeemable noncontrolling interests.

Identifiable intangibles are customer relationships, contracts and backlog and trade name and have estimated lives ranging from 9 to 20 years (weighted average life of approximately 12 years).

Fair value measurements relating to PA Consulting are made primarily using Level 3 inputs including discounted cash flow techniques. Fair value is estimated using inputs primarily from the income approach, which include the use of both the multiple period excess earnings method and the relief from royalties method. The significant assumptions used in estimating fair value include (i) revenue projections of the business, including profitability, (ii) attrition rate and (iii) the estimated discount rate that reflects the level of risk associated with receiving future cash flows. Other personal property assets, such as buildings, furniture, fixtures and equipment, are valued using the cost approach, which is based on estimates of replacement cost. Key inputs to the valuation of the noncontrolling interests include projected cash flows and the expected volatility associated with those cash flows.

Pre-tax transaction costs associated with the PA Consulting investment in the accompanying Consolidated Statements of Earnings for the year ended October 1, 2021 were $36.8 million.

The following presents summarized unaudited pro forma operating results of Jacobs from continuing operations assuming that the Company had the PA Consulting investment at September 28, 2019. These pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the related events occurred (in millions, except per share data):


	For the Years Ended
	October 1, 2021		October 2, 2020
Revenues	$	14,504.3	$	14,348.1
Net earnings of the Group	$	695.1	$	83.5
Net earnings attributable to Jacobs	$	548.0	$	138.6
Net earnings attributable to Jacobs per share:
Basic earnings per share	$	4.21	$	0.62
Diluted earnings per share	$	4.17	$	0.61

Included in the table above are charges relating to transaction expenses, a nonrecurring compensation charge and other items that are removed from the years ended October 1, 2021 and are reflected in the prior fiscal year due to the assumed timing of the transaction. Also, income tax expense for the fiscal year pro forma periods ended October 1, 2021 and October 2, 2020 was $330.7 million and $13.5 million, respectively.

Redeemable Noncontrolling Interests

In connection with the PA Consulting investment, the Company recorded redeemable noncontrolling interests of approximately $582.4 million, including subsequent purchase accounting adjustments, representing the interest holders' 35% equity interest in the form of preferred and common shares of PA Consulting, with substantially all of the value associated with these interests allocable to the preferred shares.

During the third quarter of fiscal 2021, updates to the Company’s preliminary opening balance sheet fair value estimates of the noncontrolling interests resulted in an offsetting decrease and increase in fair value of the preference share and common share components of the interests by $57.3 million, respectively, with the corresponding redemption value adjustment associated with the preference share portion decreasing consolidated retained earnings and earnings per share by $0.44. See Note 4- Earnings Per Share and Certain Related Information. The results of these adjustments had no impact on the Company’s overall results of operations, financial position, or cash flows.

Changes in the redeemable noncontrolling interests during the fiscal year ended October 1, 2021 are as follows (in thousands):



	Total
Fair value of redeemable noncontrolling interests at acquisition	$	581,119
Cumulative Accrued Preferred Dividend to Preference Shareholders	40,204
Attribution of Preferred Dividend to PA Consulting Common Shareholders	(40,204)

Net loss attributable to redeemable noncontrolling interest to Common Shareholders	(85,414)
Redeemable Noncontrolling interests redemption value adjustment to PA Consulting Shareholders (1)	175,183
Cumulative translation adjustment and other	(13,166)
Balance at October 1, 2021	$	657,722

(1) Includes $57.3 million impact from updates to the preliminary opening balance fair value estimates of the preference share noncontrolling interests and $117.9 million impact from redemption value adjustments for the B Ordinary shares..

In addition, certain employees of PA Consulting are expected to receive equity based incentive grants in the future under the terms of the applicable agreements.

Employee Benefit Trust, Defined Contribution Plans and Defined Benefit Plans

PA Consulting is party to an employee benefit trust arrangement, defined contribution plans and defined benefit plans.

PA Consulting's employee benefit trust is a separately administered discretionary trust for the benefit of employees and are consolidated under US GAAP. At October 1, 2021, the Company held $12.3 million in cash within the employee benefit trust that is restricted from general use and is included in prepaid expenses and other current assets on the consolidated balance sheet.

The PA Consulting defined benefit plans include UK and Germany based plans. The defined benefit plan amounts are included within our disclosures in Note 13- Pension and Other Postretirement Benefit Plans.

Regarding the defined contribution plans, PA Consulting matches a certain amount on behalf of the employees and pays the administration costs, which are both recognized in the income statement in the period in which they become payable. The defined contribution plan current year contributions are disclosed in Note 12- Savings and Deferred Compensation Plans.