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PA Consulting Business Combination | 9 Months Ended
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Jul. 02, 2021
Business Acquisition [Line Items] |
PA Consulting Business Combination | Business Combinations Buffalo Group On November 24, 2020, a subsidiary of Jacobs completed the acquisition of Buffalo Group, a leader in advanced cyber and intelligence solutions. 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 is expected to be settled in fiscal 2022. During the third fiscal quarter, the Company recorded an adjustment to the contingent consideration of $3.8 million to selling, general and administrative expense, resulting in contingent consideration of $3.9 million at July 2, 2021. 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 acquisition of Buffalo Group allows Jacobs to further expand its cyber and intelligence solutions offering to government clients. 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, which include the use of both the multiple period excess earnings method. The significant assumptions used in estimating fair value include (i) the estimated life the asset will contribute to cash flows, such as attrition rate of customers or remaining contractual terms, (ii) profitability 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 is estimated using a Monte Carlo simulation and the significant assumptions used include projections of revenues for Buffalo Group through fiscal 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 the acquired assets and liabilities of John Wood Group's nuclear business. 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 as set forth above. Identifiable 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) the estimated life the asset will contribute to cash flows, such as attrition rate of customers or remaining contractual terms, (ii) profitability 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.
PA Consulting Group Limited |
Business Acquisition [Line Items] |
PA Consulting Business Combination | 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, a new term loan and draws on the Company's existing revolver. Further, in connection with the transaction, an estimated additional $267 million had not yet been distributed at April 2, 2021 due to continuing employment requirements. Consequently, this amount represented compensation expense incurred related to the acquisition that was expensed in the second quarter, and was reflected in selling, general and administrative expense on the consolidated income statement for the six month period ended April 2, 2021. During the third quarter of fiscal 2021, an amount of $5.6 million of the above estimated charges was forfeited by employees that left the Company before payment, and as such, was recognized in earnings in the three month period ended July 2, 2021. The updated amount of $261 million is reflected in earnings and cash from operations for the nine month period ended July 2, 2021. 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 12- 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 | 166.7 |
Property, equipment and improvements, net | 40.5 |
Goodwill | 1,442.3 |
Identifiable intangible assets | 1,004.2 |
Prepaid expenses and other current assets | 9.5 |
Miscellaneous long term assets | 83.7 |
Total Assets | $ | 2,881.8 |
Liabilities |
Accounts payable | $ | 6.5 |
Accrued liabilities and other current liabilities | 344.8 |
Other long term liabilities | 246.2 |
Total Liabilities | $ | 597.5
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 reported 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) the estimated life the asset will contribute to cash flows, such as attrition rate of customers or remaining contractual terms, (ii) profitability 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 with those cash flows. Pre-tax transaction costs associated with the PA Consulting investment in the accompanying Consolidated Statements of Earnings for the nine months ended July 2, 2021 were $36.4 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 Nine Months Ended
| July 2, 2021 |  | June 26, 2020
Revenues | $ | 10,917.8 |  |  | $ | 10,634.6 |
Net earnings (loss) of the Group | $ | 624.1 |  |  | $ | (8.1) |
Net earnings attributable to Jacobs | $ | 503.2 |  |  | $ | 63.7 |
Net earnings attributable to Jacobs per share: |  |  |
Basic earnings per share | $ | 3.86 |  |  | $ | 0.05 |
Diluted earnings per share | $ | 3.83 |  |  | $ | 0.05 |
Included in the table above are charges relating to transaction expenses, a nonrecurring compensation charge, an EPS numerator adjustment relating to the PA preference shares redemption value which does not affect net earnings. and other items that are removed from the nine months ended July 2, 2021 and are reflected in the prior fiscal year due to the assumed timing of the transaction. Also, income tax (expense) benefit for the ni ne-month p ro forma periods ended July 2, 2021 and June 26, 2020 wa s $(231.3) million and $(29.5) million, respectively. Redeemable Noncontrolling Interest 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. The preferred shares are entitled to a cumulative compounding 12% dividend based on the outstanding preferred share subscription price. These interest holders have certain option rights to put the preferred and common share interests back to the Company at a value based on the fair value of PA Consulting (the redemption values). Additionally, the Company has an option to call the interests in certain circumstances. Because the interests are redeemable at the option of the holders and not solely within the control of the Company, the Company classified the interests in redeemable noncontrolling interests within its Consolidated Balance Sheet at their redemption values. The optional redemption features may become exercisable no earlier than five years from the March 2, 2021 closing date, or upon the occurrence of certain other events. The Compa ny has deemed these interests probable of becoming redeemable in the future and requiring their measurement at the greater of (i) the redemption amount that would be paid if settlement occurred at the balance sheet date, or (ii) the historical value resulting from the original acquisition date fair value plus or minus any earnings or loss attribution amounts, including divi dends, in accordance with U.S. generally accepted accounting principles. Further, any excess in redemption amounts over the historical values of the interests is recognized as an increase to redeemable noncontrolling interests and an offsetting decrease in consolidated retained earnings. Additionally, particular to the preference share component of redeemable noncontrolling interests, this retained earnings decrease is also reflected as a corresponding downward adjustment to net earnings attributable to Jacobs for purposes of the calculation of consolidated earnings per share. 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 6- 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 interest d uring the nine months ended July 2, 2021 are as follows (in thousands):
|  |  |  |  |  |  |  | Total
Fair value of redeemable noncontrolling interests at acquisition on March 2, 2021 |  |  |  |  |  |  |  | $ | 581,119 |
Cumulative Accrued Preferred Dividend to Preference Shareholders |  |  |  |  |  |  |  | 23,151 |
Attribution of Preferred Dividend to Common Shareholders |  |  |  |  |  |  |  | (23,151) |
Net loss attributable to redeemable noncontrolling interest to Common Shareholders |  |  |  |  |  |  |  | (101,776) |
Redeemable Noncontrolling interests redemption value adjustment (1) |  |  |  |  |  |  |  | 124,725 |
Cumulative translation adjustment and other |  |  |  |  |  |  |  | (2,893) |
Balance at July 2, 2021 |  |  |  |  |  |  |  | $ | 601,175 |
(1) | Includes impacts from updates to the preliminary opening balance fair value estimates of the noncontrolling interests and corresponding redemption value adjustments described above.
In addition, certain employees and nonemployees 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 is party to an employee benefit trust that is a separately administered discretionary trust for the benefit of employees and is consolidated under US G AAP. At July 2, 2021, t he Company held $12.6 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 UK arrangement is a defined benefit plan which has been closed to new participants since 1998 and is expected to wind down in the current fiscal year. Prior to the investment in PA Consulting, PA Consulting completed a pension buy-in transaction for the primary UK defined benefit pension plan where the assets of the plan were invested in a bulk-purchase annuity policy with an insurance company. As such, the UK defined benefit plan is fully funded. 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.

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