# JACOBS SOLUTIONS INC. (J) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from JACOBS SOLUTIONS INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/52988/000005298823000084/jec-20230929.htm
Accession: 0000052988-23-000084
Filing date: 2023-11-21
Report date: 2023-09-29
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/J/
All MD&A years: /company/J/mda/
Previous year: /company/J/mda/fy2022/ (FY 2022)
Next year: /company/J/mda/fy2024/ (FY 2024)

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

In order to better understand the changes that occur to key elements of our financial condition, results of operations and cash flows, a reader of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be aware of the critical accounting policies we apply in preparing our consolidated financial statements.

The consolidated financial statements contained in this report were prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and the financial statements of any business performing long-term professional services, engineering and construction-type contracts requires management to make certain estimates and judgments that affect both the entity’s results of operations and the carrying values of its assets and liabilities. Although our significant accounting policies are described in Note 2- Significant Accounting Policies of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K, the following discussion is intended to

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highlight and describe those accounting policies that are especially critical to the preparation of our consolidated financial statements.

Revenue Accounting for Contracts

The Company recognizes engineering, procurement, and construction contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer in accordance with ASC 606, Revenue from Contracts with Customers. Contracts that include engineering, procurement and construction services are generally accounted for as a single deliverable (a single performance obligation). In some instances, the Company’s services associated with a construction activity are limited only to specific tasks such as customer support, consulting or supervisory services. In these instances, the services are typically identified as separate performance obligations.

The Company recognizes revenue using the percentage-of-completion method, based primarily on contract costs incurred to date compared to total estimated contract costs. Estimated contract costs include the Company’s latest estimates using judgments with respect to labor hours and costs, materials, and subcontractor costs. The percentage-of-completion method (an input method) is the most representative depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Subcontractor materials, labor and equipment and, in certain cases, customer-furnished materials and labor and equipment are included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an agent (e.g., the company integrates the materials, labor and equipment into the deliverables promised to the customer or is otherwise primarily responsible for fulfillment and acceptability of the materials, labor and/or equipment). Under the typical payment terms of our engineering, procurement and construction contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms at periodic intervals (e.g., biweekly or monthly) and customer payments are typically due within 30 to 60 days of billing, depending on the contract.

For service contracts, the Company recognizes revenue over time using the cost-to-cost percentage-of-completion method. In some instances where the Company is standing ready to provide services, the Company recognizes revenue ratably over the service period. Under the typical payment terms of our service contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, and customer payments are typically due within 30 to 60 days of billing, depending on the contract.

Direct costs of contracts include all costs incurred in connection with and directly for the benefit of client contracts, including depreciation and amortization relating to assets used in providing the services required by the related projects. The level of direct costs of contracts may fluctuate between reporting periods due to a variety of factors, including the amount of pass-through costs we incur during a period. On those projects where we are acting as principal for subcontract labor or third-party materials and equipment, we reflect the amounts of such items in both revenues and costs (and we refer to such costs as “pass-through costs”).

Accounting for Pension Plans

The accounting for pension plans requires the use of assumptions and estimates in order to calculate periodic pension cost and the value of the plans’ assets and liabilities. These assumptions include discount rates, investment returns, and projected salary increases, among others. The actuarial assumptions used in determining the funded statuses of the plans are provided in Note 13- Pension and Other Postretirement Benefit Plans of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.

The expected rates of return on plan assets ranged from 3.3% to 7.5% for fiscal 2023 and range from 5.3% to 7.6% for fiscal 2024. We believe the range of rates selected for fiscal 2024 reflects the long-term returns expected on the plans’ assets, considering recent market conditions, projected rates of inflation, the diversification of the plans’ assets, and the expected real rates of market returns. The discount rates used to compute plan liabilities ranged from 2.4% to 7.4% in fiscal 2023 and range from 3.8% to 6.9% in fiscal 2024. These assumptions represent the Company’s best estimate of the rates at which its pension obligations could be effectively settled.

Changes in the actuarial assumptions often have a material effect on the values assigned to plan assets and liabilities, and the associated pension expense. For example, if the discount rate used to value the net pension benefit obligation (“PBO”) at September 29, 2023 was lower or higher by 1.0%, the PBO would have been higher or lower, respectively, at that date by approximately $139.9 million for non-U.S. plans, and by approximately $19.8 million for U.S. plans. If the expected return on plan assets was lower or higher by 1.0%, the net periodic pension cost for fiscal 2023 would be higher or lower, respectively, by approximately $12.4 million for non-U.S. plans, and by approximately $3.2

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million for U.S. plans. Differences between actuarial assumptions and actual performance (i.e., actuarial gains and losses) that are not recognized as a component of net periodic pension cost in the period in which such differences arise are recorded to accumulated other comprehensive income (loss) and are recognized as part of net periodic pension cost in future periods in accordance with U.S. GAAP. Management monitors trends in the marketplace within which our pension plans operate in an effort to assure the reasonableness of the actuarial assumptions used.

Redeemable Noncontrolling Interests

In connection with the PA Consulting investment in March 2021, the Company recorded redeemable noncontrolling interests, representing the interest holders' initial 35% equity interest in the form of preferred and common shares of PA Consulting. The preferred shares are entitled to a cumulative annual compounding 12% dividend based on the outstanding preferred share subscription price. These noncontrolling 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). The primary inputs and assumptions impacting the fair value of PA Consulting include projections of revenue and earnings before interest, taxes, depreciation and amortization and discount rates applied thereto. Additionally, the Company has an option to call the interests for certain individual shareholders 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 Company 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 the impact of any earnings or loss attribution amounts, including dividends. The fair value of the PA Consulting redeemable noncontrolling interest is determined using a combination of the income and market approaches. Under the income approach, fair value is determined by using the projected discounted cash flows of PA Consulting. Under the market approach, the fair value is determined by reference to guideline companies that are reasonably comparable to PA Consulting; the fair value is estimated based on the valuation multiples of earnings before interest, taxes, depreciation and amortization.

Litigation, Investigations, and Insurance

In the normal course of business, we make contractual commitments, and on occasion we are a party in litigation or arbitration proceedings. The litigation in which we are involved primarily includes personal injury claims, professional liability claims, and breach of contract claims. We are also routinely subject to investigations and audits.

We maintain insurance coverage for most insurable aspects of our business and operations. Our insurance programs have varying coverage limits depending upon the type of insurance and include certain conditions and exclusions which insurance companies may raise in response to any claim that the Company brings. We have also elected to retain a portion of certain losses, claims and liabilities that occur through the use of various deductibles, limits, and retentions under our insurance programs and utilize a number of internal financing mechanisms for these self-insurance arrangements including the operation of certain captive insurance entities. As a result, we may be subject to a future liability for which we are only partially insured or completely uninsured. We intend to mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms and conditions of the contracts which the Company enters with its clients. Our insurers are also subject to business risk and, as a result, one or more of them may be unable to fulfill their insurance obligations due to insolvency or otherwise.

Our Consolidated Balance Sheets include amounts representing our probable estimated liability relating to such claims, litigation, audits, and investigations. Our estimates of probable liabilities require us to make assumptions related to potential losses regarding our determination of amounts considered probable and estimable.

The Company believes, after consultation with counsel, that such litigation, U.S. government contract-related audits, investigations and claims, and income tax audits and investigations should not have a material adverse effect on our consolidated financial statements, beyond amounts currently accrued.

Goodwill and Intangible Assets

Goodwill represents the excess of the fair value of consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the

Page 50

acquisition date. We recognize purchased intangible assets in connection with our business acquisitions at fair value on the acquisition date.

The goodwill carried on our Consolidated Balance Sheets is tested annually for possible impairment, and on an interim basis if indicators of possible impairment exist. For purposes of impairment testing, goodwill is assigned to the applicable reporting units based on the current reporting structure. In performing the annual impairment test, we evaluate our goodwill at the reporting unit level. The Company performs the annual goodwill impairment test for the reporting units at the beginning of the fourth quarter of its fiscal year.

We evaluate impairment of goodwill either by assessing qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount, or by performing a quantitative assessment. Qualitative factors include industry and market considerations, overall financial performance, and other relevant events and circumstances affecting the reporting unit. If we choose to perform a qualitative assessment and after considering the totality of events or circumstances, we determine it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we would perform a quantitative fair value test.

U.S. GAAP does not prescribe a specific valuation method for estimating the fair value of reporting units. Any valuation technique used to estimate the fair value of a reporting unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates and future market conditions, among others.

We use income and market approaches to test our goodwill for possible impairment which requires us to make estimates and judgments. Under the income approach, fair value is determined by using the discounted cash flows of our reporting units. The Company’s discount rate reflects a weighted average cost of capital (“WACC”) for a peer group of companies representative of the Company’s respective reporting units. Under the market approach, the fair values of our reporting units are determined by reference to guideline companies that are reasonably comparable to our reporting units; the fair values are estimated based on the valuation multiples of the invested capital associated with the guideline companies. In assessing whether there is an indication that the carrying value of goodwill has been impaired, we utilize the results of both valuation techniques and consider the range of fair values indicated.

It is possible that changes in facts and circumstances, judgments and assumptions used in estimating the fair value, including with respect to market conditions and the economy, could change, resulting in possible impairment of goodwill in the future. The fair values resulting from the valuation techniques used are not necessarily representative of the values we might obtain in a sale of the reporting units to willing third parties.

For the 2023 fiscal year, in connection with the separation activities of the CMS business and part of our DVS business, we performed a quantitative impairment test of the CMS and DVS reporting units and determined that the fair value of these reporting units exceeded their respective carrying value. For the remaining reporting units, we determined that the fair values significantly exceeded their carrying values and an analysis beyond the qualitative level was not considered necessary.

Intangible assets with finite lives that arise from business acquisitions are amortized based on the period over which the contractual or economic benefit of the intangible assets are expected to be realized or on a straight-line basis over the useful lives of the underlying assets. These primarily consist of customer relationships, contracts and backlog, developed technology and trade names. We assess the recoverability of the unamortized balance of our intangible assets when indicators of impairment are present based on expected future profitability and undiscounted expected cash flows and their contribution to overall operations. Should the review indicate that the carrying value is not fully recoverable, the excess of the carrying value over the fair value of the intangible assets would be recognized as an impairment loss.

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

For the Fiscal Years Ended September 29, 2023, September 30, 2022 and October 1, 2021

(In thousands, except per share information)

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[[/GREPCENT_TABLE]]

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2023 Overview

Net earnings attributable to the Company from continuing operations for fiscal 2023 were $666.6 million (or $5.31 per diluted share), an increase of $22.5 million, or 3.5%, from $644.1 million (or $4.98 per diluted share) for the prior year. The current year results reflected higher year-over-year operating profit of $157.4 million, which benefited from favorable year-over-year underlying operating results for Jacobs businesses, primarily P&PS, as discussed below in the Segment Financial Information section. These favorable operating profit impacts were partly offset by fiscal 2023 Restructuring and other charges and transaction costs relating to expenses incurred in conjunction with the CMS separation activities, real estate transformation rescaling initiatives and the PA Consulting restructuring program charges (primarily employee separation costs), which are discussed in Note 16- Restructuring and Other Charges. Fiscal 2022 was impacted by the final $91.3 million settlement of a legacy litigation matter involving a subsidiary of CH2M (the "Legacy CH2M Matter"), net of previously recorded reserves, which is further discussed in Note 17- Commitments and Contingencies and Derivative Financial Instruments. Additionally, the 2023 year-to-date period was impacted by approximately $15.0 million in net favorable impacts from cost reductions associated mainly with first quarter 2023 changes in employee benefit programs, which were partly offset by higher spend in company technology platforms and other personnel and corporate cost increases.

Other expense, net was unfavorable by $117.1 million for the current year compared to corresponding fiscal 2022 amounts, due mainly to higher interest expense of $67.9 million in the current year compared to the prior year due to higher interest rates. Additionally, miscellaneous (expense) income was impacted year over year by an increase in pension costs associated with higher interest rate impacts in the current year along with comparatively unfavorable foreign exchange gains and losses in the current year. Also, fiscal 2022 included a $13.9 million pre-tax gain related to a cost method investment sold during the period and a $7.1 million gain related to a lease termination.

Income taxes were higher in the current year by $35.3 million due primarily to reduced total tax benefits in fiscal 2023, consisting of $39.4 million mostly related to uncertain tax positions in the U.S. that were effectively settled, as well as $13.0 million for the release of previously valued foreign tax credits, as compared to prior year favorable impacts of $33.1 million for a change in the realizability of foreign tax credits due to a change in the U.S. foreign tax credit regulations, $26.0 million for a change in judgment on the realizability of domestic deferred tax assets which are capital in nature, and $9.1 million due to the reversal of a withholding tax accrual on certain intercompany loans. In addition, in fiscal 2023, the higher year-over-year pre-tax book income resulted in an additional $10.0 million of tax expense.

Finally, year-over-year net earnings impacts associated with redeemable noncontrolling interests were lower by $(13.0) million and were attributable mainly to lower after-tax earnings results in our PA Consulting investment compared to the prior year which were impacted in fiscal 2023 by the PA severance charges discussed above.

Backlog at September 29, 2023 was $29.1 billion, up $1.2 billion, from $27.9 billion for the prior year. New prospects and new sales remain strong, and the Company continues to have a positive outlook for many of the industry groups and sectors in which our clients operate.

Results of Operations

Fiscal 2023 Compared to Fiscal 2022

Revenues for the year ended September 29, 2023 were $16.35 billion, an increase of $1.43 billion, or 9.6%, from $14.92 billion for the prior year. The increase in revenues was due mainly to improved performance of our P&PS and CMS businesses and in addition, to a smaller degree, other increases in our DVS and PA Consulting businesses. The P&PS business benefited primarily from stronger performance in its Advanced Facilities and U.S. business operations, while our CMS business showed improved performance resulting 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, as well as growth from contracts in the United Kingdom. Additionally, the increase in revenues for fiscal 2023 were partially offset by an unfavorable impact of foreign currency translation of $222.3 million in our international businesses, as compared to an unfavorable impact of $346.3 million for the corresponding period last fiscal year.

Gross profit for the year ended September 29, 2023 was $3.47 billion, up $146.3 million, or 4.4%, from $3.33 billion for the prior year. The current year gross profit was affected by net favorable impacts from cost reductions associated mainly with first quarter 2023 changes in employee benefit programs, which were partly offset by higher spend

Page 53

in company technology platforms and other personnel and corporate cost increases, as mentioned above, and unfavorable foreign currency translation impacts. Our gross profit margins were 21.2% and 22.3% for the years ended September 29, 2023 and September 30, 2022, respectively. Project mix impacts in our portfolios, higher personnel costs and lower utilization trends primarily in the PA Consulting business impacted our current year margins, partly offset by new program startups won in fiscal 2023.

See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment level.

Selling, general & administrative expenses for the year ended September 29, 2023 were $2.40 billion, a decrease of $11.1 million, or 0.5%, from $2.41 billion for the prior year. The current year's results were impacted by Restructuring and other charges of $63.4 million in separation activities (mainly professional services and employee separation costs) relating to the CMS separation transaction, approximately $14.3 million in costs associated with the Company's restructuring initiatives relating to its investment in PA Consulting (primarily employee separation costs) and $50.7 million in costs associated with the Company's transformation initiatives relating to real estate (compared to $78.3 million for fiscal 2022). Fiscal 2022 was impacted by the final pre-tax $91.3 million settlement of the Legacy CH2M Matter, net of previously recorded reserves, mentioned above and approximately $27 million in third party recoveries was recorded as receivables reducing SG&A, which is further discussed in Note 18 - Contractual Guarantees, Litigation, Investigations and Insurance. The current year results were also impacted by higher investments in company technology platforms, offset in part by decreases in real estate related costs, as well as other department spend decreases due in part to the Company's transformation initiatives. Lastly, SG&A expenses benefited from favorable foreign exchange impacts of $42.5 million for the year ended September 29, 2023 as compared to favorable impacts of $76.4 million for fiscal 2022.

Net interest expense for the year ended September 29, 2023 was $142.1 million, an increase of $46.3 million from $95.8 million for the prior year. The increase in net interest expense year over year is primarily due to higher interest rates in the current year compared to the prior year periods. The increase was offset in part by $6.3 million net interest benefit during the current year period related to the release of interest accruals associated with the effective settlement of uncertain tax positions.

Miscellaneous (expense) income, net for the year ended September 29, 2023 was expense of $16.5 million, unfavorable by $70.7 million as compared to $54.3 million in income for the prior year. The increase in expense from fiscal 2022 was due primarily to an increase in pension costs associated with higher interest rate impacts in the current year along with comparatively unfavorable foreign exchange gains and losses in the current year periods. Also, fiscal 2022 included a $13.9 million pre-tax gain related to a cost method investment sold during the period and a $7.1 million gain related to a lease termination.

Fiscal 2022 Compared to Fiscal 2021

Revenues for the year ended September 30, 2022 were $14.92 billion, an increase of $830.2 million, or 5.9%, from $14.09 billion from fiscal 2021. The increase in revenues was due mainly to fiscal 2022 incremental revenues from the PA Consulting investment completed in March 2021, the Buffalo Group acquisition in November 2020, and the StreetLight and BlackLynx acquisitions in fiscal 2022, as well as revenue benefits from increased spending in our U.S. government business sector client base. Additionally, fiscal 2022 was unfavorably impacted by (1) certain large contract wind downs in the U.S and (2) foreign currency translation of $346.3 million in our international businesses, as compared to favorable impacts of $238.6 million for the corresponding period in fiscal 2021.

Gross profit for the year ended September 30, 2022 was $3.33 billion, up $283.3 million, or 9.3%, from $3.04 billion for fiscal 2021. Our gross profit margins were 22.3% and 21.6% for the years ended September 30, 2022 and October 1, 2021, respectively. The increase in our gross profit and gross profit margins were mainly attributable to the fiscal 2022 impacts of the recent business acquisitions mentioned above and favorable impacts from the business results of our PA Consulting investment on a year-to-date basis along with revenue benefits from increased spending in the U.S. government business sector noted above. The increases in gross profit during fiscal 2022 were partially offset by the impacts from the recent large contract wind downs in the U.S. mentioned above, as well as increases in labor costs associated with moderation of COVID-19 mitigation efforts and a competitive labor market along with inflation impacts and incremental investments to support projected top-line growth.

See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment level.

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Selling, general & administrative expenses for the year ended September 30, 2022 were $2.41 billion, an increase of $53.5 million, or 2.3%, from $2.36 billion for fiscal 2021. Fiscal 2022's results were impacted by incremental SG&A expenses from the business acquisitions mentioned above (mainly PA Consulting) of $150.0 million (including $48.9 million in additional amortization expense for acquired intangibles and excluding the compensation related charge discussed below) due to fiscal 2021 including activity related to the acquired businesses and investment in PA Consulting only for the partial periods subsequent to the applicable acquisition date. Additionally, Restructuring and other charges for fiscal 2022 included $91.3 million pre-tax attributable to the final settlement of the Legacy CH2M Matter, approximately $27 million in third party recoveries was recorded as receivables reducing SG&A, which is further discussed in Note 18 - Contractual Guarantees, Litigation, Investigations and Insurance and in costs associated in part with the Company's transformation initiatives relating to real estate. Also, fiscal 2022 SG&A expenses were impacted by higher personnel costs associated with investments in advance of expected growth anticipated in late 2022 and 2023. Additionally, fiscal 2021 included Restructuring and other charges of $261 million for pre-tax costs incurred in connection with the investment in PA Consulting, in part classified as compensation costs reported in selling, general and administrative expenses. Lastly, SG&A expenses benefited from favorable foreign exchange impacts of $76.4 million for the year ended September 30, 2022 as compared to unfavorable impacts of $75.9 million for fiscal 2021.

Net interest expense for the year ended September 30, 2022 was $95.8 million, an increase of $26.5 million from $69.2 million for fiscal 2021. The increase in net interest expense from fiscal 2021 to 2022 is primarily due to the higher levels of debt outstanding due to the funding of the StreetLight and BlackLynx acquisitions and increased borrowings associated with the payment of the Legacy CH2M Matter settlement in fiscal 2022, in addition to higher interest rates. Additionally, the increase was also impacted by higher levels of average debt outstanding related to the funding of the PA Consulting investment in March of fiscal 2021.

Miscellaneous income (expense), net for the year ended September 30, 2022 was income of $54.3 million, a decrease of $22.5 million as compared to $76.7 million in income for fiscal 2021. The $22.5 million decrease from fiscal 2021 was due primarily to impacts in fiscal 2021 of pre-tax unrealized gains of $34.7 million associated with our former investment in Worley stock (including the Worley stock dividend) and certain foreign currency revaluations relating to the ECR sale, which was sold during fiscal 2021 and $49.6 million in the Company's investment holding in C3, as further discussed in Note 8 - Joint Ventures, VIEs and Other Investments. Offsetting these favorable items in fiscal 2021 was an other-than-temporary impairment charge on our investment in AWE ML of $38.6 million. Additionally, fiscal 2022 benefited primarily from a $13.9 million pre-tax gain related to a cost method investment sold during the period.

On February 4, 2022, the Company acquired StreetLight Data, Inc. ("StreetLight") and on November 19, 2021, a subsidiary of Jacobs acquired BlackLynx ("BlackLynx"). For further discussion, see Note 15- Other Business Combinations.

The following table reconciles total income tax expense on continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense on continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended September 29, 2023, September 30, 2022 and October 1, 2021

Page 55

(dollars in thousands):

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[["","For the Years Ended"],["","September 29, 2023","","%","","September 30, 2022","","%","","October 1, 2021","","%"],["Statutory amount","$","192,503","","","21.0","%","","$","184,033","","","21.0","%","","$","146,078","","","21.0","%"],["State taxes, net of the federal benefit","23,901","","2.6","%","","19,316","","","2.2","%","","14,564","","","2.1","%"],["Exclusion of tax on non-controlling interests","(6,578)","","(0.7)","%","","(7,533)","","","(0.9)","%","","(7,999)","","","(1.1)","%"],["Foreign:"],["Difference in tax rates of foreign operations","7,166","","0.8","%","","(2,516)","","","(0.3)","%","","3,684","","","0.5","%"],["Expense/(benefit) from foreign valuation allowance change","(1,305)","","(0.1)","%","","2,982","","","0.3","%","","2,148","","","0.3","%"],["Nondeductible compensation","\u2014","","\u2014","%","","\u2014","","","\u2014","%","","48,727","","","7.0","%"],["U.S. tax cost (benefit) of foreign operations","78,216","","","8.5","%","","48,843","","","5.6","%","","35,228","","","5.1","%"],["Tax differential on foreign earnings","84,077","","","9.2","%","","49,309","","","5.6","%","","89,787","","","12.9","%"],["Foreign tax credits","(46,530)","","(5.1)","%","","(33,734)","","","(3.8)","%","","(25,230)","","","(3.6)","%"],["Tax Rate Change","(9,913)","","","(1.1)","%","","3,210","","","0.4","%","","25,588","","","3.7","%"],["Valuation allowance","(7,169)","","(0.8)","%","","(59,121)","","","(6.7)","%","","38,928","","","5.6","%"],["Uncertain tax positions","(38,844)","","(4.2)","%","","(1,439)","","","(0.2)","%","","978","","","0.1","%"],["Other items:"],["Energy efficient commercial buildings deduction","736","","0.1","%","","(2,681)","","","(0.3)","%","","(3,760)","","","(0.5)","%"],["Disallowed officer compensation","7,081","","0.8","%","","6,034","","","0.7","%","","6,689","","","1.0","%"],["Stock compensation","(3,896)","","(0.4)","%","","(2,168)","","","(0.2)","%","","(9,946)","","","(1.4)","%"],["Other items \u2013 net","813","","0.1","%","","5,677","","","0.6","%","","(896)","","","(0.1)","%"],["Total other items","4,734","","0.5","%","","6,862","","0.8","%","","(7,913)","","(1.1)","%"],["Taxes on income from continuing operations","$","196,181","","","21.4","%","","$","160,903","","","18.4","%","","$","274,781","","","39.5","%"]]
[[/GREPCENT_TABLE]]

The Company’s consolidated effective income tax rate for the year ended September 29, 2023 increased to 21.4% from 18.4% for fiscal 2022. The year-over-year increase in the effective tax rate is due to reduced total tax benefits in fiscal 2023, consisting of $39.4 million mostly related to uncertain tax positions in the U.S. that were effectively settled, as well as $13.0 million for the release of previously valued foreign tax credits, as compared to prior year favorable impacts of $33.1 million for a change in the realizability of foreign tax credits due to a change in the U.S. foreign tax credit regulations, $26.0 million for a change in judgment on the realizability of domestic deferred tax assets which are capital in nature, and $9.1 million due to the reversal of a withholding tax accrual on certain intercompany loans. In addition, in fiscal 2023, the higher year-over-year pre-tax book income resulted in an additional $10 million of tax expense.

The Company’s consolidated effective income tax rate for the year ended September 30, 2022 decreased to 18.4% from 39.5% for fiscal 2021. Key drivers for the year-over-year decrease in the effective tax rate include fiscal 2022 benefits of $33.1 million for a change in the realizability of foreign tax credits due to a change in the U.S. foreign tax credit regulations and $26.0 million for a change in judgment on the realizability of domestic deferred tax assets which are capital in nature, as compared to fiscal 2021 unfavorable impacts from valuation allowances of $38.9 million. The fiscal 2021 effective tax rate was also impacted by $261 million in nondeductible compensation relating to the PA investment post-completion compensation expense and $25.6 million related to tax rate changes in the United Kingdom.

Restructuring and Other Charges

During fiscal 2023, the Company implemented restructuring initiatives relating to the formation of the reporting and operating segment, Divergent Solutions, which were substantially completed this year. The Company incurred approximately $7.5 million in pre-tax cash charges in connection with these initiatives during the year ended September 29, 2023. These actions are expected to result in estimated gross annualized pre-tax cash savings of approximately $20 million to $24 million.

During fiscal 2023, the Company implemented restructuring initiatives relating to the announcement of its intention to separate its CMS business. The Company incurred approximately $19.8 million in pre-tax cash charges in

Page 56

connection with these initiatives during the year ended September 29, 2023. These actions, which are expected to be substantially completed before the end of fiscal 2024, are expected to result in estimated gross annualized pre-tax cash savings of approximately $43 million to $52 million. We will likely incur additional charges under this program during fiscal 2024, which are expected to result in additional savings.

During fiscal 2020 and continuing into fiscal 2023, the Company implemented further real estate rescaling efforts that were associated with its fiscal 2020 transformation program relating to real estate. These activities were substantially completed before the end of fiscal 2023. In connection with these efforts, the Company has incurred $47.3 million, $72.4 million and $8.7 million for the years ended September 29, 2023, September 30, 2022 and October 1, 2021, respectively in pre-tax mainly non-cash charges. These actions resulted in non-cash savings related to the future amortization of lease right-of-use assets over the remaining lease terms. Additionally, the objective of these initiatives was to create a modern, flexible work platform tailored to employees’ needs due to globalization and digital advances and to create total emissions savings that will be realized as we continue to optimize our real estate footprint.

During third quarter fiscal 2023, the Company approved a plan to improve business processes and cost structure of our PA Consulting investment by reorganizing senior management and reducing headcount. In connection with these initiatives, which are expected to be substantially complete before the end of fiscal 2024, the Company incurred approximately $14.3 million in pre-tax cash charges during the year ended September 29, 2023. These activities are expected to result in estimated gross annualized pre-tax cash savings of approximately $40 million to $45 million.

During fiscal 2020, the Company implemented certain transformation initiatives. The Company incurred approximately $1.8 million and $11.9 million in pre-tax cash charges in connection with these initiatives during the years ended September 30, 2022 and October 1, 2021, respectively. These actions were substantially complete in fiscal 2022 and resulted in estimated gross annualized pre-tax (primarily cash) savings of approximately $45 million to $55 million.

During fiscal 2020, the Company also implemented certain restructuring initiatives associated with the acquisition of John Wood Group's nuclear business. The Company incurred approximately $3.1 million in pre-tax cash charges in connection with these initiatives during the year ended October 1, 2021. These actions were substantially complete in fiscal 2021 and resulted in estimated gross annualized pre-tax cash savings of approximately $9 million to $10 million.

Refer to Note 16– Restructuring and Other Charges for further information regarding restructuring and integration initiatives.

Page 57

Segment Financial Information

The following tables present total revenues and segment operating profit for each reportable segment (in thousands) and includes a reconciliation of segment operating profit to total U.S. GAAP operating profit by including certain corporate-level expenses and expenses relating to the Restructuring other charges (as defined in Note 16 - Restructuring and Other Charges) and transaction costs (in thousands).

[[GREPCENT_TABLE]]
[["","For the Years Ended"],["","September 29, 2023","","September 30, 2022","","October 1, 2021"],["Revenues from External Customers:"],["Critical Mission Solutions","$","4,693,499","","","$","4,376,562","","","$","4,251,690"],["People & Places Solutions","9,553,857","","","8,534,650","","","8,364,640"],["Divergent Solutions","946,914","","","892,317","","","848,901"],["PA Consulting","1,158,144","","","1,119,296","","","627,401"],["Total","$","16,352,414","","","$","14,922,825","","","$","14,092,632"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","For the Years Ended"],["","September 29, 2023","","September 30, 2022","","October 1, 2021"],["Segment Operating Profit:"],["Critical Mission Solutions","$","378,201","","","$","355,563","","","$","359,001"],["People & Places Solutions (1)","957,714","","","824,834","","","780,514"],["Divergent Solutions","81,768","","","67,552","","","88,026"],["PA Consulting","237,003","","","232,225","","","151,071"],["Total Segment Operating Profit","1,654,686","","","1,480,174","","","1,378,612"],["Other Corporate Expenses (2)","(427,053)","","","(364,440)","","","(340,129)"],["Restructuring, Transaction and Other Charges (3)","(152,396)","","","(197,884)","","","(350,394)"],["Total U.S. GAAP Operating Profit","1,075,237","","","917,850","","","688,089"],["Total Other (Expense) Income, net (4)","(158,558)","","","(41,503)","","","7,513"],["Earnings from Continuing Operations Before Taxes","$","916,679","","","$","876,347","","","$","695,602"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Includes $19.5 million, net, in charges related to a legal settlement for the year ended October 1, 2021."],["(2)","Other corporate expenses include intangibles amortization of $203.9 million, $198.6 million and $149.8 million for the years ended September 29, 2023, September 30, 2022 and October 1, 2021, respectively, with the comparative increase from fiscal 2021 to fiscal 2022 mainly attributable to higher amortization from the PA Consulting investment. Additionally, 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 first quarter from changes in employee benefit programs of $41.0 million offset by approximately $26.0 million in higher spend in company technology platforms and other personnel and corporate cost increases."],["(3)","Fiscal 2023 includes $63.4 million relating to the activities (mainly professional services and employee separation costs, spread across all segments) around the CMS separation and $14.3 million in restructuring and other charges relating to the Company's investment in PA Consulting (primarily employee separation costs). Included in the years ended September 29, 2023, September 30, 2022 and October 1, 2021 were $48.2 million, $78.3 million and $2.4 million, respectively, in charges associated mainly with real estate impairments. Included in the year ended September 30, 2022 is $91.3 million pre-tax related to the final settlement of the Legacy CH2M Matter and net of previously recorded reserves and approximately $27 million in third party recoveries that was recorded as receivables reducing SG&A. Included in the year ended October 1, 2021 is $297.8 million of costs incurred in connection with the investment in PA Consulting, in part classified as compensation costs."],["(4)","The year ended September 30, 2022 included a $13.9 million gain related to a cost method investment sold during the period and a gain of $8.7 million related to lease terminations. The year ended October 1, 2021 included $34.7 million in fair value adjustments related to our investment in Worley stock (net of Worley stock dividends) and certain foreign currency revaluations relating to ECR sale proceeds, $(38.5) million related to impairment of our AWE Management Ltd. investment and $49.6 million in fair value adjustments related to our investment in C3 stock. The investments in Worley and C3 were sold in fiscal 2021 and therefore there are no comparable amounts in fiscal 2022 or 2023. Additionally, the increase in net interest expense from fiscal 2021 to fiscal 2022 is primarily due to the higher levels of debt outstanding due to the funding of the StreetLight and BlackLynx acquisitions and increased borrowings associated with the payment of the Legacy CH2M Matter settlement in fiscal 2022, in addition to higher interest rates. The increase in net interest expense from fiscal 2022 to fiscal 2023 is due primarily to higher interest rates."]]
[[/GREPCENT_TABLE]]

Page 58

In evaluating the Company’s performance by operating segment, the CODM reviews various metrics and statistical data for each Line of Business ("LOB") and PA Consulting, but focuses primarily on revenues and operating profit. As discussed above, segment operating profit includes not only local SG&A expenses but the SG&A expenses of the Company’s support groups that have been allocated to the segments. In addition, the Company attributes each segment's specific incentive compensation plan costs to the segments. The methods for recognizing revenue, incentive fees, project losses and change orders are consistent among the segments. 

Critical Mission Solutions

[[GREPCENT_TABLE]]
[["","For the Years Ended"],["","September 29, 2023","","September 30, 2022","","October 1, 2021"],["Revenue","$","4,693,499","","","$","4,376,562","","","$","4,251,690"],["Operating Profit","$","378,201","","","$","355,563","","","$","359,001"]]
[[/GREPCENT_TABLE]]

Fiscal 2023 vs. 2022

[[GREPCENT_TABLE]]
[["Critical Mission Solutions (CMS) segment revenues for the year ended September 29, 2023 were $4.69 billion, up $316.9 million, or 7.2%, from $4.38 billion for the prior year. Our increase in revenue was primarily attributable to growth from contracts in the nuclear remediation sector in the U.S. and United Kingdom. Impacts on revenues from unfavorable foreign currency translation were approximately $46.6 million for the year ended September 29, 2023, compared to $68.5 million in unfavorable impacts in the corresponding prior year."],["Operating profit for the segment was $378.2 million for the year ended September 29, 2023, up $22.6 million, or 6.4%, from $355.6 million for the prior year. Operating profit level trends year over year were favorably impacted by growth in our U.S. nuclear remediation, U.S. government space, U.K. nuclear power and U.K, defense markets, and were offset in part by a large contract wind down in early fiscal 2022 that carried a higher profit margin. Impacts on operating profit from unfavorable foreign currency translation were approximately $5.4 million for the year ended September 29, 2023, compared to $8.4 million in unfavorable impacts in the corresponding prior year."]]
[[/GREPCENT_TABLE]]

Fiscal 2022 vs. 2021

[[GREPCENT_TABLE]]
[["Critical Mission Solutions segment revenues for the year ended September 30, 2022 were $4.38 billion, up $124.9 million, or 2.9%, from $4.25 billion from fiscal 2021. Our increase in revenue was primarily attributable to recent contract awards including the Department of Energy Nuclear remediation program, offset in part by a large contract winding down in the U.S. that carried a higher profit margin. Impacts on revenues from unfavorable foreign currency translation were approximately $68.5 million for the year ended September 30, 2022, compared to $66.2 million in favorable impacts in fiscal 2021."],["Operating profit for the segment was $355.6 million for the year ended September 30, 2022, relatively flat to fiscal 2021 operating profit of $359.0 million. The year-over-year change in operating profit was unfavorably impacted by the large contract wind down mentioned above, partly offset by new business and U.S. government contract awards during fiscal 2022. Impacts on operating profit from unfavorable foreign currency translation were approximately $8.4 million for the year ended September 30, 2022, compared to $10.8 million in favorable impacts in fiscal 2021."]]
[[/GREPCENT_TABLE]]

People & Places Solutions

[[GREPCENT_TABLE]]
[["","For the Years Ended"],["","September 29, 2023","","September 30, 2022","","October 1, 2021"],["Revenue","$","9,553,857","","","$","8,534,650","","","$","8,364,640"],["Operating Profit","$","957,714","","","$","824,834","","","$","780,514"]]
[[/GREPCENT_TABLE]]

Page 59

Fiscal 2023 vs. 2022

[[GREPCENT_TABLE]]
[["Revenues for the People & Places Solutions (P&PS) segment for the year ended September 29, 2023 were $9.55 billion, up $1.02 billion, or 11.9%, from $8.53 billion for the prior year. The increase in revenue was broad based across most P&PS businesses, particularly due to stronger performance in its Advanced Facilities and U.S. business operations as compared to the corresponding prior year period. Foreign currency translation had an unfavorable impact of $123.9 million on our international business for the year ended September 29, 2023, compared to $194.5 million in unfavorable impacts in the corresponding prior year."],["Operating profit for the segment for the year ended September 29, 2023 was $957.7 million, an increase of $132.9 million, or 16.1%, from $824.8 million for the comparative period in fiscal 2022. The year-over-year increase in operating profit was driven primarily by the revenue growth mentioned above while holding selling, general, and administrative expenses relatively flat. Impacts on operating profit from unfavorable foreign currency translation were approximately $26.9 million for the year ended September 29, 2023, compared to $33.9 million in unfavorable impacts in the corresponding prior year."]]
[[/GREPCENT_TABLE]]

Fiscal 2022 vs. 2021

[[GREPCENT_TABLE]]
[["Revenues for the People & Places Solutions segment for the year ended September 30, 2022 were $8.53 billion, up $180.0 million, or 2.2%, from $8.36 billion for fiscal 2021. The increase in revenues from fiscal 2021 was primarily due to higher fee-based revenue from our Advanced Facilities and international businesses. Foreign currency translation had an unfavorable impact of $194.5 million on our international business for the year ended September 30, 2022, compared to $182.7 million in favorable impacts in fiscal 2021."],["Operating profit for the segment for the year ended September 30, 2022 was $824.8 million, an increase of $44.3 million, or 5.7%, from $780.5 million for fiscal 2021. The year-over-year increase was driven by the revenue growth mentioned above but partially offset by higher personnel costs associated with investments in advance of expected growth anticipated in 2023. In addition, fiscal 2021 operating profit was impacted by $19.5 million in net charges related to a legal settlement. Impacts on operating profit from unfavorable foreign currency translation were approximately $33.9 million for the year ended September 30, 2022, compared to $32.1 million in favorable impacts in fiscal 2021."]]
[[/GREPCENT_TABLE]]

Divergent Solutions

[[GREPCENT_TABLE]]
[["","For the Years Ended"],["","September 29, 2023","","September 30, 2022","","October 1, 2021"],["Revenue","$","946,914","","","$","892,317","","","$","848,901"],["Operating Profit","$","81,768","","","$","67,552","","","$","88,026"]]
[[/GREPCENT_TABLE]]

Fiscal 2023 vs. 2022

[[GREPCENT_TABLE]]
[["Revenues for the Divergent Solutions segment for the year ended September 29, 2023 were $946.9 million, up $54.6 million, or 6.12%, from $892.3 million for the prior year. The increase in revenue was due mainly to favorable year-over-year software licensing revenue and the startup of new programs, along with incremental revenues from the StreetLight acquisition (owned for the full period in fiscal 2023). Foreign currency translation did not have a material impact on revenues in our Divergent Solutions segment for either period presented."],["Operating profit for the segment for the year ended September 29, 2023 was $81.8 million, an increase of $14.2 million, or 21.0%, from $67.6 million, for the prior year. The increase in operating profit was due mainly to the favorable year-over-year software licensing revenue and the startup of new programs mentioned above. Foreign currency translation did not have a material impact on operating profit in our Divergent Solutions segment for either period presented."]]
[[/GREPCENT_TABLE]]

Page 60

Fiscal 2022 vs. 2021

[[GREPCENT_TABLE]]
[["Revenues for the Divergent Solutions segment for the year ended September 30, 2022 were $892.3 million, up $43.4 million, or 5.1%, from $848.9 million for fiscal 2021. The increase in revenue benefited from incremental revenues from the StreetLight and BlackLynx acquisitions (acquired during fiscal 2022). Foreign currency translation did not have a material impact on revenues in our Divergent Solutions segment for either period presented."],["Operating profit for the segment for the year ended September 30, 2022 was $67.6 million, a decrease of $20.5 million, or 23.3%, from $88.0 million, for fiscal 2021. The decrease in operating profit was due mainly to investment into StreetLight to accelerate growth and the ramp down from programs coming to an end. Foreign currency translation did not have a material impact on operating profit in our Divergent Solutions segment for either period presented."]]
[[/GREPCENT_TABLE]]

PA Consulting

[[GREPCENT_TABLE]]
[["","For the Years Ended"],["","September 29, 2023","","September 30, 2022","","October 1, 2021"],["Revenue","$","1,158,144","","","$","1,119,296","","","$","627,401"],["Operating Profit","$","237,003","","","$","232,225","","","$","151,071"]]
[[/GREPCENT_TABLE]]

Fiscal 2023 vs. 2022

[[GREPCENT_TABLE]]
[["Revenues for the PA Consulting segment for the year ended September 29, 2023 were $1.16 billion, up $38.8 million, or 3.5%, from $1.12 billion for the prior year. The increase in revenue was due primarily to growth in PA Consulting's Defence & Security, Public Services and Energy & Utilities businesses. Foreign currency translation had a $51.1 million unfavorable impact on revenues in our international businesses for the year ended September 29, 2023, compared to an unfavorable impact of $82.2 million for the corresponding prior year."],["Operating profit for the segment for the year ended September 29, 2023 was $237.0 million, an increase of $4.8 million, or 2.1%, from $232.2 million, for the prior year. The increase in operating profit from the prior year is mainly due to lower personnel related costs, partially offset by unfavorable foreign currency translation impacts. Foreign currency translation had a $7.9 million unfavorable impact on operating profit in our international businesses for the year ended September 29, 2023 and an unfavorable impact of $17.1 million for the corresponding prior year."]]
[[/GREPCENT_TABLE]]

Fiscal 2022 vs. 2021

[[GREPCENT_TABLE]]
[["Revenues for the PA Consulting segment for the year ended September 30, 2022 were $1.12 billion, up $491.9 million, or 78.4%, from $627.4 million for fiscal 2021. The increase in revenue was due primarily to the full year-to-date impact of revenues from our March 2, 2021 investment in PA Consulting and was also due to growth in the U.K. business. Foreign currency translation had a $82.2 million unfavorable impact on revenues in our international businesses for the year ended September 30, 2022, compared to a favorable impact of $50.9 million for fiscal 2021."],["Operating profit for the segment for the year ended September 30, 2022 was $232.2 million, an increase of $81.2 million, or 53.7%, from $151.1 million, for fiscal 2021. The increase in operating profit from the prior year was due mainly to the full year-to-date impact of operating profit from our March 2, 2021 investment in PA Consulting, offset in part by PA Consulting normalization of utilization rates during the second half of fiscal 2022. Foreign currency translation had a $17.1 million unfavorable impact on operating profit in our international businesses for the year ended September 30, 2022 and a favorable impact of $11.8 million for fiscal 2021."]]
[[/GREPCENT_TABLE]]

Other Corporate Expenses

Other corporate expenses were $427.1 million, $364.4 million and $340.1 million for the years ended September 29, 2023, September 30, 2022 and October 1, 2021, respectively. The increase from fiscal 2022 to fiscal 2023 was mainly attributable to continued year-to-date higher investments in company technology platforms and personnel related costs in fiscal 2023, while offset in part by approximate $15.0 million in net favorable impacts from cost reductions associated mainly with changes in employee benefit programs. The increase from fiscal 2021 to fiscal 2022 was due primarily to higher intangible amortization expense from the StreetLight and BlackLynx acquisitions and the PA Consulting investment, as well as impacts from higher Company benefit program costs, partially offset by lower legal costs and reduced employee related expenses in the fourth quarter.

Included in other corporate expenses in the above table are costs and expenses that 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

Page 61

(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) 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.

Backlog Information

Backlog represents revenue we expect to realize for work to be completed by our consolidated subsidiaries and our proportionate share of work to be performed by unconsolidated joint ventures. Because of variations in the nature, size, expected duration, funding commitments, and the scope of services required by our contracts, the amount and timing of when backlog will be recognized as revenues includes significant estimates and 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.

Please refer to Item 1A- Risk Factors, above, for a discussion of other factors that may cause backlog to ultimately convert into revenues at different amounts.

The following table summarizes our backlog for the years ended September 29, 2023, September 30, 2022 and October 1, 2021 (in millions):

[[GREPCENT_TABLE]]
[["","September 29, 2023","","September 30, 2022","","October 1, 2021"],["Critical Mission Solutions","$","8,264","","","$","7,622","","","$","7,957"],["People & Places Solutions","17,345","","","17,014","","","15,733"],["Divergent Solutions","3,183","","","2,957","","","2,637"],["PA Consulting","311","","","269","","","304"],["Total","$","29,103","","","$","27,862","","","$","26,631"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Critical Mission Solutions backlog as of September 29, 2023 increased primarily from awards and funding increases in the U.S. aerospace and nuclear remediation sector in the U.S. and United Kingdom."],["The increase in backlog in People & Places Solutions for the years presented was primarily driven by new business awards in our Americas business."],["The increase in backlog in Divergent Solutions for the years presented was primarily driven by new business and recompete awards and contract extensions in the U.S."],["The PA Consulting backlog benefited from modest growth in the current year."]]
[[/GREPCENT_TABLE]]

Backlog relating to work to be performed either directly or indirectly for the U.S. federal government and its agencies totaled approximately $11.6 billion (or 39.8% of total backlog), $10.9 billion (or 39.1% of total backlog) and $10.8 billion (or 40.5% of total backlog) at September 29, 2023, September 30, 2022 and October 1, 2021, respectively. Most of our federal government contracts require that services be provided beyond one year. In general, these contracts must be funded annually (i.e., the amounts to be spent under the contract must be appropriated by the U.S. Congress to the procuring agency, and then the agency must allot these sums to the specific contracts).

We estimate that approximately $9.80 billion, or 33.7%, of total backlog at September 29, 2023 will be realized as revenues within the next fiscal year.

Page 62

Consolidated backlog differs from the Company’s remaining performance obligations as defined by ASC 606 primarily because of contract change orders or new wins not yet processed and our national government contracts where our policy is to generally include in backlog the contract award, whether funded or unfunded excluding certain 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 does not include our proportionate share of backlog related to unconsolidated joint ventures in our remaining performance obligations.

Liquidity and Capital Resources

At September 29, 2023, our principal sources of liquidity consisted of $926.6 million in cash and cash equivalents and $2.24 billion 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.

Cash and cash equivalents at September 29, 2023 represented a decrease of $213.9 million from $1.14 billion at September 30, 2022, the reasons for which are described below.

Our net cash flow provided by operations of $974.8 million during fiscal 2023 was favorable by $500.1 million in

comparison to the cash flow provided by operations of $474.7 million for the corresponding prior year. The year-over-year increase in cash from operations is primarily attributable to the payment of the Legacy CH2M Matter cash settlement in fiscal 2022 and other overall net favorable working capital performance during the 2023 period.

Our net cash used for investing activities for fiscal 2023 was $145.7 million, compared to cash used for investing of $538.4 million in the prior year, with this change due primarily to the BlackLynx and StreetLight acquisitions in the prior year.

Our net cash used for financing activities for the fiscal year ended 2023 of $1.09 billion resulted mainly from $616.6 million in net repayments of borrowings, cash used for share repurchases of $265.7 million, $128.4 million in dividends to shareholders and $58.9 million in net PA Consulting related redeemable noncontrolling interests purchase and issuance activity. Cash provided by financing activities in the prior year was $320.2 million, due primarily to net proceeds from borrowings of $719.0 million, offset by cash used for share repurchases of $281.9 million and $115.9 million in dividends to shareholders.

At September 29, 2023, the Company had approximately $171.6 million in cash and cash equivalents held in the U.S. and $755.0 million held outside of the U.S. (primarily in the U.K., the Eurozone, India, Australia and the Middle East region), which is used primarily for funding operations in those regions. Other than the tax cost of repatriating funds to the U.S. (see Note 7- Income Taxes of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K), there are no material impediments to repatriating these funds to the U.S.

The Company had $322.0 million in letters of credit outstanding at September 29, 2023. Of this amount, $0.9 million was issued under the Revolving Credit Facility and $321.1 million was issued under separate, committed and uncommitted letter-of-credit facilities.

On May 9, 2023, the Company announced our intention to spin-off our Critical Mission Solutions business into an independent publicly traded company to Jacobs’ stockholders. On November 20, 2023, Jacobs entered into a definitive agreement to spin-off and combine our Critical Mission Solutions and Cyber and Intelligence government services businesses (part of Divergent Solutions) with Amentum, in a Reverse Morris Trust transaction intended to be tax-free to Jacobs’ shareholders for U.S. federal income tax purposes. The transaction, which is expected to close in fiscal 2024, is subject to regulatory approvals and other customary closing conditions. Jacobs and its shareholders will own up to 63% of the combined company’s common shares upon consummation of the transaction, consisting of 51% Jacobs’ shareholders ownership and Jacobs retaining 7.5-12%. The exact amount of the retained stake will be determined based on achievement of certain fiscal year 2024 operating profit targets. Jacobs is expected to receive cash proceeds of $1 billion at close, subject to customary adjustments. Jacobs is also expected to realize additional value after closing through the disposition of its retained equity stake in the combined company within 12 months. The Company expects to use the cash received at closing to repay outstanding indebtedness.

On February 6, 2023, the Company refinanced its Revolving Credit Facility and Term Loan Facilities, and on February 16, 2023, the Company issued $500.0 million in bonds. On August 18, the Company issued $600.0 million in bonds. See Note 9 - Borrowings for further discussion relating to the terms of the 5.90% Bonds, the 6.35% Bonds, the Revolving Credit Facility and Term Loan Facilities following the issuances and refinancing.

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On April 12, 2022, the Company paid cash of AUD640 million, or approximately $475 million using mid-April 2022 exchange rates, which represented the final settlement of Legacy CH2M Matter. For more information, refer to Note 18 - Contractual Guarantees, Litigation, Investigations and Insurance.

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 $190.7 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 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.

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. The remaining 35% interest was held by PA Consulting employees. See Note 14- PA Consulting Business Combination for more discussion on the investment and Note 9- Borrowings for more discussion on the financing for the transaction.

On January 20, 2021, the Company entered into an unsecured delayed draw term loan facility (the “2021 Term Loan Facility”) with a syndicate of financial institutions as lenders. Under the 2021 Term Loan Facility, the Company borrowed an aggregate principal amount of $200.0 million and £650.0 million. The proceeds of the term loans were used primarily to fund the investment in PA Consulting. The 2021 Term Loan Facility contains affirmative and negative covenants and events of default customary for financings of this type that are consistent with those included in the Revolving Credit Facility and the Company’s unsecured term loan facility dated March 25, 2020 (the “2020 Term Loan Facility”). The 2020 Term Loan Facility and the 2021 Term Loan Facility are together referred to as the "Term Loan Facilities".

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 subsequently recognized in fiscal 2021 as an offset to selling, general and administrative expense when it was determined no amounts would be paid. See Note 15- Other Business Combinations for further discussion.

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 September 29, 2023.

Supplemental Obligor Group Financial Information

On February 16, 2023, Jacobs Engineering Group Inc., a wholly-owned subsidiary of Jacobs Solutions Inc. (together, the "Obligor Group"), completed an offering of $500 million aggregate principal amount of 5.90% Bonds, due 2033 and on August 18, 2023, completed an offering of $600 million aggregate principal amount of 6.35% Bonds, due 2028 (the “Bonds”). The Bonds are fully and unconditionally guaranteed by the Company (the “Guarantees”). The Bonds and the Guarantees were offered pursuant to prospectus supplements, dated February 13, 2023 and August 15, 2023, respectively, to the prospectus dated February 6, 2023, that forms a part of the Company and JEGI’s automatic shelf registration statement on Form S-3ASR (File Nos. 333-269605 and 333-269605-01) previously filed with the Securities and Exchange Commission.

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In accordance with 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 all other subsidiaries of the Company that do not guarantee the registered securities of either Jacobs or JEG. 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.

[[GREPCENT_TABLE]]
[["","Year Ended","","Year Ended"],["(in thousands)","September 29, 2023","","September 30, 2022"],["Summarized Statement of Earnings Data"],["Revenue","$","3,427,751","","","$","2,658,854"],["Direct Costs","$","2,841,572","","","$","2,188,593"],["Selling, General and Administrative Expenses","$","314,055","","","$","275,617"],["Net earnings attributable to Guarantor Subsidiaries from continuing operations","$","96,224","","","$","77,671"],["Noncontrolling interests","$","(702)","","","$","1,148"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(in thousands)","September 29, 2023","","September 30, 2022"],["Summarized Balance Sheet Data"],["Current assets, less receivables from Non-Guarantor Subsidiaries","$","693,037","","","$","641,281"],["Current receivables from Non-Guarantor Subsidiaries","$","\u2014","","","$","144,564"],["Noncurrent assets, less noncurrent receivables from Non-Guarantor Subsidiaries","$","459,276","","","$","494,185"],["Noncurrent receivables from Non-Guarantor Subsidiaries","$","610,900","","","$","612,260"],["Current liabilities","$","616,140","","","$","573,614"],["Current liabilities to Non-Guarantor Subsidiaries","$","387,461","","","$","\u2014"],["Long-term Debt","$","2,561,590","","","$","2,986,124"],["Other Noncurrent liabilities, less amounts payable to Non-Guarantor Subsidiaries","$","248,852","","","$","289,452"],["Noncurrent liabilities to Non-Guarantor Subsidiaries","$","343,674","","","$","434,092"],["Noncontrolling interests","$","577","","","$","947"],["Accumulated deficit","$","(2,395,081)","","","$","(2,391,939)"]]
[[/GREPCENT_TABLE]]

New Accounting Pronouncements

ASU 2020-04, Reference Rate Reform, (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting is intended to provide relief for entities impacted by reference rate reform and contains provisions and optional expedients designed to simplify requirements around designation of hedging relationships, probability assessments of hedged forecasted transactions and accounting for modifications of contracts that refer to LIBOR or other rates affected by reference rate reform. The guidance is elective and is effective on the date of issuance. ASU 2020-04 is applied prospectively to contract modifications and as of the effective date for existing and new eligible hedging relationships. The guidance was amended by ASU 2022-06, Reference Rate Reform, (Topic 848): Deferral of the Sunset Date of Topic 848 to defer the original sunset date of December 31, 2022 to December 31, 2024. The adoption of the new guidance in the first quarter of fiscal 2022 allowed the Company to continue its British pound denominated interest rate hedge relationships which previously defined LIBOR as the benchmark interest rate and were amended to replace LIBOR with the Sterling Overnight Index Average rate ("SONIA") in the first quarter of fiscal 2022 and its U.S. dollar denominated interest rate hedge relationships which previously defined LIBOR as the benchmark interest rate and were amended to replace LIBOR with the Secured Overnight Financing Rate ("SOFR") in the second quarter of fiscal 2023.

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