SEC Info - Jacobs Solutions Inc. - ‘10-K’ for 9/30/22

By:

/S/ Steven J. Demetriou

Steven J. Demetriou

Chair of the Board and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature

Title

Date

/S/ Steven J. Demetriou

Chair of the Board and Chief Executive Officer (Principal Executive Officer)

Steven J. Demetriou

/S/ Vincent K. Brooks

Director

Vincent K. Brooks

/S/ Peter J. Robertson

Director

Peter J. Robertson

/S/ Ralph E. Eberhart

Director

Ralph E. Eberhart

/S/ Manny Fernandez

Director

Manny Fernandez

/S/ Georgette D. Kiser

Director

Georgette D. Kiser

/S/ Barbara L. Loughran

Director

Barbara L. Loughran

/S/ Robert A. McNamara

Director

Robert A. McNamara

/S/ Priya Abani

Director

Priya Abani

/S/ Christopher M.T. Thompson

Director

Christopher M.T. Thompson

/S/ Kevin C. Berryman

President and
Chief Financial Officer
(Principal Financial Officer)

Kevin C. Berryman

/S/ William B. Allen, Jr.

Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)

William B. Allen, Jr.

Page 74

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

WITH REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F-1

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-2

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)


	September 30, 2022		October 1, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	i 1,140,479	$	i 1,014,249
Receivables and contract assets	i 3,405,381		i 3,101,418
Prepaid expenses and other	i 176,134		i 176,228


Total current assets	i 4,721,994		i 4,291,895
Property, Equipment and Improvements, net	i 346,676		i 353,117
Other Noncurrent Assets:
Goodwill	i 7,184,658		i 7,197,000
Intangibles, net	i 1,394,052		i 1,565,758
Deferred income tax assets	i 31,480		i 103,193
Operating lease right-of-use assets	i 476,913		i 650,097
Miscellaneous	i 504,646		i 471,549

Total other noncurrent assets	i 9,591,749		i 9,987,597
	$	i 14,660,419	$	i 14,632,609
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt	$	i 50,415	$	i 53,456
Accounts payable	i 966,792		i 908,441
Accrued liabilities	i 1,441,762		i 1,533,559
Operating lease liability	i 150,171		i 172,414
Contract liabilities	i 641,705		i 542,054
Total current liabilities	i 3,250,845		i 3,209,924
Long-term debt	i 3,357,256		i 2,839,933
Liabilities relating to defined benefit pension and retirement plans	i 271,332		i 418,080
Deferred income tax liabilities	i 269,077		i 214,380
Long-term operating lease liability	i 607,447		i 758,358
Other deferred liabilities	i 167,548		i 559,375

Commitments and Contingencies	i		i
Redeemable Noncontrolling Interests	i 632,522		i 657,722
Stockholders’ Equity:
Capital stock:
Preferred stock, $ i i 1 / par value, authorized - i i 1,000,000 / shares; issued and outstanding - i i i i none / / /	i —		i —
Common stock, $ i i 1 / par value, authorized - i i 240,000,000 / shares; issued and outstanding - i i 127,393,378 / shares and i i 128,892,540 / shares as of September 30, 2022 and October 1, 2021, respectively	i 127,393		i 128,893
Additional paid-in capital	i 2,682,009		i 2,590,012
Retained earnings	i 4,225,784		i 4,015,578
Accumulated other comprehensive loss	( i 975,130)		( i 794,442)
Total Jacobs stockholders’ equity	i 6,060,056		i 5,940,041
Noncontrolling interests	i 44,336		i 34,796
Total Group stockholders’ equity	i 6,104,392		i 5,974,837
	$	i 14,660,419	$	i 14,632,609

See the accompanying Notes to Consolidated Financial Statements.

F-3

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

For the Fiscal Years Ended September 30, 2022, October 1, 2021 and October 2, 2020

(In thousands, except per share information)

Revenues

i 14,922,825

i 14,092,632

i 13,566,975

Direct cost of contracts

( i 11,595,785)

( i 11,048,860)

( i 10,980,307)

Gross profit

i 3,327,040

i 3,043,772

i 2,586,668

Selling, general and administrative expenses

( i 2,409,190)

( i 2,355,683)

( i 2,050,695)

Operating Profit

i 917,850

i 688,089

i 535,973

Other Income (Expense):

Interest income

i 4,489

i 3,503

i 4,729

Interest expense

( i 100,246)

( i 72,714)

( i 62,206)

Miscellaneous income (expense), net

i 54,254

i 76,724

( i 37,293)

Total other (expense) income, net

( i 41,503)

i 7,513

( i 94,770)

Earnings from Continuing Operations Before Taxes

i 876,347

i 695,602

i 441,203

Income Tax Expense for Continuing Operations

( i 160,903)

( i 274,781)

( i 55,320)

Net Earnings of the Group from Continuing Operations

i 715,444

i 420,821

i 385,883

Net (Loss) Earnings of the Group from Discontinued Operations

( i 32)

i 10,008

i 137,984

Net Earnings of the Group

i 715,412

i 430,829

i 523,867

Net Earnings Attributable to Noncontrolling Interests from Continuing Operations

( i 36,788)

( i 39,213)

( i 32,022)

Net (Earnings) Loss Attributable to Redeemable Noncontrolling Interests

( i 34,585)

i 85,414

i —

Net Earnings Attributable to Jacobs from Continuing Operations

i 644,071

i 467,022

i 353,861

Net Earnings Attributable to Jacobs

i 644,039

i 477,030

i 491,845

Net Earnings Per Share:

Basic Net Earnings from Continuing Operations Per Share

i 5.01

i 3.15

i 2.69

Basic Net Earnings from Discontinued Operations Per Share

i —

i 0.08

i 1.05

Basic Earnings Per Share

i 5.01

i 3.22

i 3.74

Diluted Net Earnings from Continuing Operations Per Share

i 4.98

i 3.12

i 2.67

Diluted Net Earnings from Discontinued Operations Per Share

i —

i 0.08

i 1.04

Diluted Earnings Per Share

i 4.98

i 3.20

i 3.71

See the accompanying Notes to Consolidated Financial Statements.

F-4

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Fiscal Years Ended September 30, 2022, October 1, 2021 and October 2, 2020

(In thousands)

Net Earnings of the Group

i 715,412

i 430,829

i 523,867

Other Comprehensive (Loss) Income:

Foreign currency translation adjustment

( i 397,819)

i 15,585

i 64,052

Gain (loss) on cash flow hedges

i 154,541

i 29,332

( i 21,883)

Change in pension and retiree medical plan liabilities

i 92,527

i 142,135

( i 75,334)

Other comprehensive (loss) income before taxes

( i 150,751)

i 187,052

( i 33,165)

Income Tax (Expense) Benefit:

Foreign currency translation adjustment

i 19,019

( i 3,110)

( i 3,722)

Cash flow hedges

( i 43,595)

( i 7,357)

i 7,285

Change in pension and retiree medical plan liabilities

( i 5,361)

( i 37,970)

i 13,357

Income Tax (Expense) Benefit:

( i 29,937)

( i 48,437)

i 16,920

Net other comprehensive (loss) income

( i 180,688)

i 138,615

( i 16,245)

Net Comprehensive Income of the Group

i 534,724

i 569,444

i 507,622

Net Earnings Attributable to Noncontrolling Interests

( i 36,788)

( i 39,213)

( i 32,022)

Net (Earnings) Loss Attributable to Redeemable Noncontrolling Interests

( i 34,585)

i 85,414

i —

Net Comprehensive Income Attributable to Jacobs

i 463,351

i 615,645

i 475,600

See the accompanying Notes to Consolidated Financial Statements including the Company's note on Other Financial Information for a presentation of amounts reclassified to net income during the period.

F-5

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Fiscal Years Ended September 30, 2022, October 1, 2021 and October 2, 2020

(In thousands)

Common Stock

Additional
Paid-in
Capital

Retained Earnings

Accumulated Other Comprehensive
Income
(Loss)

Total Jacobs Stockholders’ Equity

Noncontrolling Interests

Total Group Stockholders’ Equity

Balances at September 27, 2019

i 132,879

i 2,559,450

i 3,939,174

( i 916,812)

i 5,714,691

i 53,967

i 5,768,658

Net earnings

—

i 491,845

—

i 491,845

i 32,022

i 523,867

Foreign currency translation adjustments, net of deferred taxes of $ i 3,722

—

i 60,330

i —

i 60,330

Pension and retiree medical plan liability, net of deferred taxes of $( i 13,357)

—

( i 61,977)

—

( i 61,977)

Loss on derivatives, net of deferred taxes of $( i 7,285)

—

( i 14,598)

—

( i 14,598)

Dividends

—

( i 99,921)

—

( i 99,921)

—

( i 99,921)

Noncontrolling interests - distributions and other

—

i 5,002

—

i 5,002

( i 46,034)

( i 41,032)

Stock based compensation

—

i 47,048

i 1,102

—

i 48,150

—

i 48,150

Issuances of equity securities including shares withheld for taxes

i 998

i 17,890

( i 9,447)

—

i 9,441

—

i 9,441

Repurchases of equity securities

( i 4,129)

( i 30,944)

( i 302,178)

—

( i 337,251)

—

( i 337,251)

Balances at October 2, 2020

i 129,748

i 2,598,446

i 4,020,575

( i 933,057)

i 5,815,712

i 39,955

i 5,855,667

Net earnings

—

i 477,030

—

i 477,030

i 39,213

i 516,243

Foreign currency translation adjustments, net of deferred taxes of $ i 3,110

—

i 12,475

i —

i 12,475

Pension and retiree medical plan liability, net of deferred taxes of $ i 37,970

—

i 104,165

—

i 104,165

Gain on derivatives, net of deferred taxes of $ i 7,357

—

i 21,975

—

i 21,975

Dividends

—

( i 109,616)

—

( i 109,616)

—

( i 109,616)

Noncontrolling interests - distributions and other

—

i —

—

i —

( i 44,372)

Redeemable Noncontrolling interests redemption value adjustment

—

( i 175,183)

—

( i 175,183)

—

( i 175,183)

Stock based compensation

—

i 56,221

i —

—

i 56,221

—

i 56,221

Issuances of equity securities including shares withheld for taxes

i 871

i 20,345

( i 9,006)

—

i 12,210

—

i 12,210

Repurchases of equity securities

( i 1,726)

( i 85,000)

( i 188,222)

—

( i 274,948)

—

( i 274,948)

Balances at October 1, 2021

i 128,893

i 2,590,012

i 4,015,578

( i 794,442)

i 5,940,041

i 34,796

i 5,974,837

Net earnings

—

i 644,039

—

i 644,039

i 36,788

i 680,827

Foreign currency translation adjustments, net of deferred taxes of $( i 19,019)

—

( i 378,800)

—

( i 378,800)

Pension and retiree medical plan liability, net of deferred taxes of $ i 5,361

—

i 87,166

—

i 87,166

Gain on derivatives, net of deferred taxes of $ i 43,595

—

i 110,946

—

i 110,946

Dividends

—

( i 118,291)

—

( i 118,291)

—

( i 118,291)

Noncontrolling interests - distributions and other

—

( i 27,248)

Redeemable Noncontrolling interests redemption value adjustment

—

( i 27,657)

—

( i 27,657)

—

( i 27,657)

Repurchase and issuance of redeemable noncontrolling interests

—

i 2,618

—

i 2,618

—

i 2,618

Stock based compensation

—

i 53,383

i —

—

i 53,383

—

i 53,383

Issuances of equity securities including shares withheld for taxes

i 973

i 39,537

( i 11,973)

—

i 28,537

—

i 28,537

Repurchases of equity securities

( i 2,473)

( i 923)

( i 278,530)

—

( i 281,926)

—

( i 281,926)

Balances at September 30, 2022

i 127,393

i 2,682,009

i 4,225,784

( i 975,130)

i 6,060,056

i 44,336

i 6,104,392

See the accompanying Notes to Consolidated Financial Statements.

F-6

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Fiscal Years Ended September 30, 2022, October 1, 2021 and October 2, 2020

(In thousands)

Cash Flows from Operating Activities:

Net earnings attributable to the Group

i 715,412

i 430,829

i 523,867

Adjustments to reconcile net earnings to net cash flows provided by (used for) operations:

Depreciation and amortization:

Property, equipment and improvements

i 102,454

i 101,024

i 91,070

Intangible assets

i 198,602

i 149,776

i 90,563

Gain on sale of ECR business

i —

( i 15,608)

( i 110,236)

(Gain) loss on investment in equity securities

( i 13,862)

( i 71,325)

i 103,623

Stock based compensation

i 53,383

i 56,221

i 48,150

Equity in earnings of operating ventures, net of return on capital distributions

i 18,291

i 10,941

i 9,172

(Gain) loss on disposals of assets, net

( i 4,680)

i 1,003

i 766

Impairment of equity method investment and other long term assets

i 78,292

i 40,640

i 162,238

Loss on pension and retiree medical plan changes

i 123

i 2,783

i 4,598

Deferred income taxes

i 111,846

i 113,623

i 82,275

Changes in assets and liabilities, excluding the effects of businesses acquired:

Receivables and contract assets, net of contract liabilities

( i 267,947)

i 242,154

( i 107,784)

Prepaid expenses and other current assets

i 6

i 6,800

( i 27,280)

Miscellaneous other assets

i 113,850

i 116,097

i 110,678

Accounts payable

i 87,402

( i 165,502)

( i 92,838)

Income taxes payable

( i 70,258)

i 20,961

i 35,194

Accrued liabilities

( i 552,036)

( i 252,305)

( i 27,849)

Other deferred liabilities

( i 73,697)

( i 63,915)

( i 64,390)

Other, net

( i 22,472)

i 2,079

( i 24,968)

Net cash provided by operating activities

i 474,709

i 726,276

i 806,849

Cash Flows from Investing Activities:

Additions to property and equipment

( i 127,615)

( i 92,814)

( i 118,269)

Disposals of property and equipment and other assets

i 9,392

i 474

i 96

Capital contributions to equity investees, net of return of capital distributions

i 3,025

( i 5,016)

( i 12,278)

Acquisitions of businesses, net of cash acquired

( i 437,083)

( i 1,741,062)

( i 293,580)

Disposals of investment in equity securities

i 13,862

i 421,315

i —

Proceeds (Payments) related to sales of businesses

i —

i 36,360

( i 5,061)

Net cash used for investing activities

( i 538,419)

( i 1,380,743)

( i 429,092)

Cash Flows from Financing Activities:

Proceeds from long-term borrowings

i 3,145,500

i 4,445,080

i 2,986,661

Repayments of long-term borrowings

( i 2,420,166)

( i 3,216,965)

( i 2,521,467)

Proceeds from short-term borrowings

i —

i 78

Repayments of short-term borrowings

( i 6,359)

( i 7,675)

( i 200,008)

Debt issuance costs

i —

( i 2,747)

( i 1,807)

Proceeds from issuances of common stock

i 51,034

i 38,077

i 37,235

Common stock repurchases

( i 281,926)

( i 274,948)

( i 337,251)

Taxes paid on vested restricted stock

( i 28,587)

( i 25,867)

( i 27,794)

Cash dividends to shareholders

( i 115,948)

( i 107,188)

( i 97,900)

Net dividends associated with noncontrolling interests

( i 26,982)

( i 48,784)

( i 46,062)

Repurchase of redeemable noncontrolling interests

( i 46,074)

i —

Proceeds from issuances of redeemable noncontrolling interests

i 49,742

i —

Net cash provided by (used for) financing activities

i 320,234

i 798,983

( i 208,315)

Effect of Exchange Rate Changes

( i 128,892)

i 19,635

i 61,914

Net Increase in Cash and Cash Equivalents and Restricted Cash

i 127,632

i 164,151

i 231,356

Cash and Cash Equivalents, including Restricted Cash, at the Beginning of the Period

i 1,026,575

i 862,424

i 631,068

Cash and Cash Equivalents, including Restricted Cash, at the End of the Period

i 1,154,207

i 1,026,575

i 862,424

See the accompanying Notes to Consolidated Financial Statements.

F-7

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. i Description of Business and Basis of Presentation

Description of Business

Jacobs Solutions Inc. ("Jacobs" or "the Company") is a leading global professional services company that designs and deploys technology-centric solutions to solve many of the world’s most complex challenges. In fiscal year 2022 we operated in i three operating segments: Critical Mission Solutions, People & Places Solutions and our investment in PA Consulting Group Limited ("PA Consulting").

We provide a broad range of technical, professional and construction services including engineering, design and architectural services; construction and construction management services; operations and maintenance services; and process, scientific and systems consulting services. We provide our services through offices and subsidiaries located primarily in North America, Europe, the Middle East, India, Australia, New Zealand and Asia. We provide our services under cost-reimbursable and fixed-price contracts, with our fixed-price contracts comprised mainly of professional services arrangements and in some limited cases, construction. i The percentage of revenues realized from each of these types of contracts for the fiscal years ended September 30, 2022, October 1, 2021 and October 2, 2020 was as follows:

For the Years Ended

Cost-reimbursable

i 74%

i 76%

Fixed-price

i 26%

i 24%

Basis of Presentation, Definition of Fiscal Year, and Other Matters

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and include the accounts of Jacobs Solutions Inc. and its subsidiaries and affiliates which it controls. On August 29, 2022, Jacobs Engineering Group Inc. (JEGI), the predecessor to Jacobs Solutions Inc., implemented a holding company structure, which resulted in Jacobs Solutions Inc. becoming the parent company of, and successor issuer to, JEGI. Prior to the implementation date, the Consolidated Financial Statements include the accounts of JEGI and its subsidiaries and affiliates which it controlled . All intercompany accounts and transactions have been eliminated in consolidation.

The Company’s fiscal year ends on the Friday closest to September 30 (determined on the basis of the number of workdays) and, accordingly, an additional week of activity is added every five-to-six years. Fiscal 2020 included an extra week of activity.

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 $190.8 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. The Company has recorded its preliminary purchase price allocation associated with the acquisition, which is summarized in Note 15- Other Business Combinations.

F-8

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Consequently, this amount represented compensation expense incurred related to the investment that was expensed subsequent to the date of the transaction, and was reflected in selling, general and administrative expense and cash from operations for the fiscal year ended October 1, 2021. The remaining 35% interest was acquired by PA Consulting employees, whose redeemable noncontrolling interests had a fair value of $ i 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. The Company has recorded its final purchase price allocation associated with the acquisition. 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 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 $ i 190.1 million, which was comprised of approximately $ i 182.4 million in cash to the former owners of Buffalo Group and contingent consideration of $ i 7.7 million The contingent consideration was subsequently recognized in fiscal 2021 as an offset to selling, general and administrative expense when it was determined no amounts would be paid. In conjunction with the acquisition, the Company assumed the Buffalo Group's debt of approximately $ i 7.7 million. The Company repaid all of the assumed Buffalo Group debt by the end of the first fiscal quarter of 2021. The Company has recorded its final purchase price allocation associated with the acquisition, which is summarized in Note 15- Other Business Combinations.

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 £ i 246 million, or approximately $ i 317.9 million, less cash acquired of $ i 24.3 million. The Company has recorded its final purchase price allocation associated with the acquisition, which is summarized in Note 15- Other Business Combinations.

On April 26, 2019, Jacobs completed the sale of its Energy, Chemicals and Resources ("ECR") business to Worley Limited, a company incorporated in Australia ("Worley"), for a purchase price of $ i 3.4 billion consisting of (i) $ i 2.8 billion in cash plus (ii) i 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”). As a result of the ECR sale, substantially all ECR-related assets and liabilities were sold (the "Disposal Group"). We determined that the Disposal Group should be reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations because their disposal represents a strategic shift that had a major effect on our operations and financial results. As such, the financial results of the ECR business are reflected in our Consolidated Statements of Earnings as discontinued operations for all periods presented. As of September 30, 2022, all of the ECR business to be sold under the terms of the sale has been conveyed to Worley and as such, no amounts remain held for sale. For further discussion see Note 16- Sale of Energy, Chemicals and Resources ("ECR") Business.

2. i Significant Accounting Policies

Revenue Accounting for Contracts

Engineering, Procurement & Construction Contracts, Service Contracts and Software 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 Topic 606, Revenue from Contracts with Customers. Contracts which include engineering, procurement and construction services are generally accounted for as a single deliverable (a single performance obligation) and are no longer segmented between types of services. In some instances, the Company’s services associated with a construction activity are limited to specific tasks such as customer support, consulting or supervisory services. In these instances, the services are typically identified as separate performance obligations.

F-9

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company recognizes revenue using the percentage-of-completion method, based primarily on contract costs incurred to date compared to total estimated contract 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). The Company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when control is transferred. Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. 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. Service contracts that include multiple performance obligations are segmented between types of services. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using an estimate of the stand-alone selling price of each distinct service in the contract. 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.

Revenue for certain contracts related to the sale of software licenses is recognized at a point in time, typically at the time of delivery, in accordance with ASC 606. The software license sale will be treated as a performance obligation separate and distinct from any related service and maintenance.

Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above have been satisfied.

Variable Consideration

The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred and only up to the amount of cost incurred which generally represents the amount of consideration that is not probable of reversal.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on the project. Historically, warranty claims have not resulted in material costs incurred for which the Company was not compensated for by the customer.

See Note 3- Revenue Accounting for Contracts for further discussion.

Joint Ventures and VIEs

As is common to the industry, we execute certain contracts jointly with third parties through various forms of joint ventures. Although the joint ventures own and hold the contracts with the clients, the services required by the contracts are typically performed by us and our joint venture partners, or by other subcontractors under subcontracting agreements with the joint ventures. Many of these joint ventures are formed for a specific project. The assets of our joint ventures generally consist almost entirely of cash and receivables (representing amounts due from clients), and the liabilities of our joint ventures generally consist almost entirely of amounts due to the joint venture partners (for services provided by the partners to the joint ventures under their individual subcontracts) and other subcontractors. In general, at any given time, the equity of our joint ventures represents the undistributed profits earned on contracts the joint ventures hold with clients. Very few of our joint ventures have employees or third-party debt or credit facilities. The debt held by the joint ventures is non-recourse to the general credit of Jacobs.

The assets of a joint venture are restricted for use to the obligations of the particular joint venture and are not available for general operations of the Company. Our risk of loss on these arrangements is usually shared with our partners. The liability of each partner is usually joint and several, which means that each partner may become liable for the entire risk of loss on the project. Furthermore, on some of our projects, the Company has granted guarantees which may encumber both our contracting subsidiary company and the Company for the entire risk of loss on the project. The Company is unable to estimate the maximum potential amount of future payments that we could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by our joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects, and the terms of the related contracts. See Note 19- Contractual Guarantees, Litigation, Investigations and Insurance for further discussion.

Most of the joint ventures are deemed to be variable interest entities (“VIE”) because they lack sufficient equity to finance the activities of the joint venture. The Company uses a qualitative approach to determine if the Company is the primary beneficiary of the VIE, which considers factors that indicate a party has the power to direct the activities that most significantly impact the joint venture’s economic performance. These factors include the composition of the governing board, how board decisions are approved, the powers granted to the operational manager(s) and partner that holds that position(s), and to a certain extent, the partner’s economic interest in the joint venture. The Company analyzes each joint venture initially to determine if it should be consolidated or unconsolidated.

•Consolidated if the Company is the primary beneficiary of a VIE, or holds the majority of voting interests of a non-VIE (and no significant participative rights are available to the other partners).

•Unconsolidated if the Company is not the primary beneficiary of a VIE, or does not hold the majority of voting interest of a non-VIE.

Our unconsolidated joint ventures (including equity method investments) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable, and impairment losses are recognized for such investments if there is a decline in fair value below carrying value that is considered to be other-than-temporary.

See Note 8- Joint Ventures, VIEs and Other Investments for further discussion.

Fair Value Measurements

Certain amounts included in the accompanying consolidated financial statements are presented at “fair value.” Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants as of the date fair value is determined (the “measurement date”). When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider only those assumptions we believe a typical market participant would consider when pricing an asset or liability. In measuring fair value, we use the following inputs in the order of priority indicated:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices in active markets included in Level 1, such as (i) quoted prices for similar assets or liabilities; (ii) quoted prices in markets that have insufficient volume or infrequent transactions (e.g., less active markets); and (iii) model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data for substantially the full term of the asset or liability.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the fair value measurement.

The net carrying amounts of cash and cash equivalents, trade receivables and payables and short-term debt approximate fair value due to the short-term nature of these instruments. See Note 9- Borrowings for a discussion of the fair value of long-term debt.

Certain other assets and liabilities, such as forward contracts and interest rate swap agreements we purchased as cash-flow hedges discussed in Note 18- Commitments and Contingencies and Derivative Financial Instruments are required to be carried in our Consolidated Financial Statements at Fair Value.

The fair value of the Company’s reporting units (used for purposes of determining whether there is an impairment of the carrying value of goodwill) is determined using an income and market approach. Both approaches require us to make certain estimates and judgments. Under the income approach, fair value is determined by using the discounted cash flows of our 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 earnings before taxes, interest, depreciation and amortization associated with the guideline companies. In assessing whether the carrying value of goodwill has been impaired, we utilize the results of both valuation techniques and consider the range of fair values indicated.

With respect to equity-based compensation (i.e., share-based payments), we estimate the fair value of stock options granted to employees and directors using the Black-Scholes option-pricing model. Like all option-pricing models, the Black-Scholes model requires the use of subjective assumptions including (i) the expected volatility of the market price of the underlying stock, and (ii) the expected term of the award, among others. Accordingly, changes in assumptions and any subsequent adjustments to those assumptions can cause different fair values to be assigned to our future stock option awards. For restricted stock awards (including restricted stock units) containing market conditions, compensation expense is based on the fair value of such awards using a Monte Carlo simulation. For restricted stock awards (including restricted stock units) containing service and performance conditions, compensation expense is based on the closing stock price on the date of grant.

The fair values of the assets owned by the various pension plans that the Company sponsors are determined based on the type of asset, consistent with U.S. GAAP. Equity securities are valued by using market observable data such as quoted prices. Publicly traded corporate equity securities are valued at the last reported sale price on the last business day of the year. Securities not traded on the last business day are valued at the last reported bid price. Fixed income investment funds categorized as Level 2 are valued by the trustee using pricing models that use verifiable observable market data (e.g., interest rates and yield curves observable at commonly quoted intervals), bids provided by brokers or dealers, or quoted prices of securities with similar characteristics. Real estate consists primarily of common or collective trusts, with underlying investments in real estate. These investments are valued using the best information available, including quoted market price, market prices for similar assets when available, internal cash flow estimates discounted at an appropriate interest rate, or independent appraisals, as appropriate. Management values insurance contracts and hedge funds using actuarial assumptions and certain values reported by fund managers.

Fair value measurements relating to our business combinations are made primarily using Level 3 inputs including discounted cash flow and to the extent applicable, Monte Carlo simulation techniques. Fair value for the identified intangible assets is generally estimated using inputs primarily for the income approach using the multiple period excess earnings method and the relief from royalties method. The significant assumptions used in estimating fair value include (i) revenue projections of the business, including profitability, (ii) attrition rates 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 and probabilities of meeting those projections. Key inputs to

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

the valuation of the noncontrolling interests include projected cash flows and the expected volatility associated with those cash flows.

The fair values for the asset groups relating to the impaired long-lived assets (see Note 10, Leases) were estimated primarily using discounted cash flow models (income approach) with Level 3 inputs. The significant assumptions used in estimating fair value include the expected downtime prior to the commencement of future subleases, projected sublease income over the remaining lease periods and discount rates that reflects the level of risk associated with receiving future cash flows.

The methodologies described above and elsewhere in these Notes to Consolidated Financial Statements may produce a fair value measure that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

Cash Equivalents

We consider all highly liquid investments with original maturities of less than three months to be cash equivalents. Cash equivalents at September 30, 2022 and October 1, 2021 consisted primarily of money market mutual funds and overnight bank deposits.

Receivables, Contract Assets and Contract Liabilities

Receivables include amounts billed, net and unbilled receivables. Amounts billed, net consist of amounts invoiced to clients in accordance with the terms of our client contracts and are shown net of an allowance for doubtful accounts. We anticipate that substantially all of such billed amounts will be collected over the next twelve months.

Unbilled receivables and other, which represent an unconditional right to payment subject only to the passage of time in connection with our client contracts, are reclassified to amounts billed when they are billed under the terms of the contract. We anticipate that substantially all of such unbilled amounts will be billed and collected over the next twelve months.

Contract assets represent unbilled amounts where the right to payment is subject to more than merely the passage of time and includes performance-based incentives and services provided ahead of agreed contractual milestones. Contract assets are transferred to unbilled receivables when the right to consideration becomes unconditional and are transferred to amounts billed upon invoicing.

Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. We anticipate that substantially all such amounts will be earned over the next twelve months.

In order to manage short-term liquidity and credit exposure, Jacobs may sell current customer receivables to third parties. When Jacobs sells customer receivables to third parties it accelerates the receipt of cash that would otherwise have been collected from customers and records these transactions as reductions to the receivable amounts. Jacobs does not maintain continuing involvement in these arrangements.

Property, Equipment, and Improvements

Property, equipment and improvements are carried at cost, and are shown net of accumulated depreciation and amortization in the accompanying Consolidated Balance Sheets. Depreciation and amortization is computed primarily by using the straight-line method over the estimated useful lives of the assets. The cost of leasehold improvements is amortized using the straight-line method over the lesser of the estimated useful life of the asset or the remaining term of the related lease. Estimated useful lives range from i 20 to i 40 years for buildings, from i 3 to i 10 years for equipment and from i 4 to i 10 years for leasehold improvements.

/ i

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost of an acquired business over the fair value of the net tangible and intangible assets acquired. Goodwill and intangible assets with indefinite lives are not amortized; instead, on an annual basis we test goodwill and intangible assets with indefinite lives for possible impairment. Intangible assets with finite lives are amortized on a straight-line basis over the useful lives of those assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

For purposes of impairment testing, goodwill is assigned to the applicable reporting units based on the current reporting structure. We have determined that our operating segments are also our reporting units based on management’s conclusion that the components comprising each of our operating segments share similar economic characteristics and meet the aggregation criteria in accordance with ASC 350.

We perform our annual goodwill impairment assessment as of the first day of the fourth fiscal quarter each year. We begin with the qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value before applying the quantitative assessment described below. If it is determined through the evaluation of events or circumstances that the carrying value may not be recoverable, the Company then compares the fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized. During 2022, we completed our annual goodwill impairment test and qualitatively determined that none of our goodwill was impaired. We have determined that the fair value of our reporting units exceeded their respective carrying values for the Consolidated Balance Sheets presented.

Impairment of Long-Lived Assets

Our long-lived assets other than goodwill principally consist of right-of-use (ROU) lease assets, property, equipment and improvements, and finite-lived intangible assets. These long-lived assets are evaluated for impairment for each of our asset groups in accordance with ASC 360 by first identifying whether indicators of impairment exist. If such indicators are present, we assess long-lived asset groups for recoverability based on estimated future undiscounted cash flows. For asset groups where the recoverability test fails, the fair value of each asset group is then estimated and compared to its carrying amount. An impairment loss is recognized for the amount by which an asset group’s carrying value exceeds its fair value.

Foreign Currencies

In preparing our Consolidated Financial Statements, it is necessary to translate the financial statements of our subsidiaries operating outside the U.S., which are denominated in currencies other than the U.S. dollar, into the U.S. dollar. In accordance with U.S. GAAP, revenues and expenses of operations outside the U.S. are translated into U.S. dollars using weighted-average exchange rates for the applicable periods being translated while the assets and liabilities of operations outside the U.S. are generally translated into U.S. dollars using period-end exchange rates. The net effect of foreign currency translation adjustments is included in stockholders’ equity as a component of accumulated other comprehensive income (loss) in the accompanying Consolidated Balance Sheets.

Share-Based Payments

We measure the value of services received from employees and directors in exchange for an award of an equity instrument based on the grant-date fair value of the award. The fair value is recognized as a non-cash cost on a straight-line basis over the period the individual provides services, which is typically the vesting period of the award with the exception of awards containing an internal performance measure, such as Earnings Per Share growth and Return on Invested Capital, which is recognized on a straight-line basis over the vesting period subject to the probability of meeting the performance requirements and adjusted for the number of shares expected to be earned. The cost of these awards is recorded in selling, general and administrative expense in the accompanying Consolidated Statements of Earnings.

Concentrations of Credit Risk

Our cash balances and cash equivalents are maintained in accounts held by major banks and financial institutions located in North America, South America, Europe, the Middle East, India, Australia, Africa and Asia. In the normal course of business, and consistent with industry practices, we grant credit to our clients without requiring collateral. Concentrations of credit risk is the risk that, if we extend a significant amount of credit to clients in a specific geographic area or industry, we may experience disproportionately high levels of default if those clients are adversely affected by factors particular to their geographic area or industry. Concentrations of credit risk relative to trade receivables are limited due to our diverse client base, which includes the U.S. federal government and multi-national corporations operating in a broad range of industries and geographic areas. Additionally, in order to mitigate credit risk, we continually evaluate the credit worthiness of our major commercial clients.

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Leases

The Company accounts for its leases in accordance with ASC 842, Leases ("ASC 842"). ASC 842 requires lessees to recognize assets and liabilities for most leases. The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of an identified asset for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract, and (2) the customer has the right to control the use of the identified asset. Lessees are required to classify leases as either finance or operating leases. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.

ASC 842 provided several optional practical expedients for use in transition to and ongoing application of ASC 842. The Company elected to utilize the package of practical expedients in ASC 842-10-65-1(f) that, upon adoption of ASC 842, allows entities to (1) not reassess whether any expired or existing contracts are or contain leases, (2) retain the classification of leases (e.g., operating or finance lease) existing as of the date of adoption and (3) not reassess initial direct costs for any existing leases. The Company did not elect the practical expedient pertaining to the use of hindsight. The Company elected to utilize the practical expedient in ASC 842-10-15-37 in which the Company has chosen to account for each separate lease component of a contract and its associated non-lease components as a single lease component.

The Company’s right-of use assets and lease liabilities relate to real estate, project assets used in connection with long-term construction contracts, IT assets and vehicles. The Company’s leases have remaining lease terms of i one year to i thirteen years. The Company’s lease obligations are primarily for the use of office space and are primarily operating leases. Certain of the Company’s leases contain renewal, extension, or termination options. The Company assesses each option on an individual basis and will only include options reasonably certain of exercise in the lease term. The Company generally considers the base term to be the term provided in the contract. None of the Company’s lease agreements contain material options to purchase the leased property, material residual value guarantees, or material restrictions or covenants.

Long-term project asset and vehicle leases (leases with terms greater than twelve months), along with all real estate and IT asset leases, are recorded on the consolidated balance sheet at the present value of the minimum lease payments not yet paid. Because the Company primarily acts as a lessee and the rates implicit in its leases are not readily determinable, the Company generally uses its incremental borrowing rate on the lease commencement date to calculate the present value of future lease payments. Certain leases include payments that are based solely on an index or rate. These variable lease payments are included in the calculation of the ROU asset and lease liability and are initially measured using the index or rate at the lease commencement date. Other variable lease payments, such as payments based on use and for property taxes, insurance, or common area maintenance that are based on actual assessments are excluded from the ROU asset and lease liability and are expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease prepayments and initial direct costs of obtaining the lease, such as commissions.

Certain lease contracts contain nonlease components such as maintenance and utilities. The Company has made an accounting policy election, as allowed under ASC 842-10-15-37 and discussed above, to capitalize both the lease component and nonlease components of its contracts as a single lease component for all of its right-of-use assets.

Short-term project asset and vehicle leases (project asset and vehicle leases with an initial term of twelve months or less or leases that are cancellable by the lessee and lessor without significant penalties) are not recorded on the consolidated balance sheet and are expensed on a straight-line basis over the lease term. The majority of the Company’s short-term leases relate to equipment used on construction projects. These leases are entered into at agreed upon hourly, daily, weekly or monthly rental rates for an unspecified duration and typically have a termination for convenience provision. Such equipment leases are considered short-term in nature unless it is reasonably certain that the equipment will be leased for a term greater than twelve months.

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Pensions

We use certain assumptions and estimates in order to calculate periodic pension cost and the value of the assets and liabilities of our pension plans. These assumptions involve discount rates, investment returns and projected salary increases, among others. Changes in the actuarial assumptions may have a material effect on the plans’ liabilities and the projected pension expense.

We use a corridor approach to amortize actuarial gains and losses. Under this approach, net gains or losses in excess of ten percent of the larger of the pension benefit obligation or the market-related value of the assets are

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

amortized on a straight-line basis. The period of amortization is the average remaining service of active participants who are expected to receive benefits under certain plans and the average remaining future lifetime of plan participants for certain plans.

We measure our defined benefit plan assets and obligations as of the end of the month closest to their fiscal year end, which is September 30, 2022 as the alternative measurement date in accordance with FASB guidance ASU 2015-04, Compensation Retirement Benefit (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Asset. This guidance allows employers with fiscal year ends that do not coincide with a calendar month end to make an accounting policy election to measure defined benefit plan assets and obligations as of the end of the month closest to their fiscal year end.

Redeemable Noncontrolling Interests

In connection with the PA Consulting investment, the Company recorded redeemable noncontrolling interests, representing the interest holders' i 35% equity interest in the form of preferred and common shares of PA Consulting. The preferred shares are entitled to a cumulative annual compounding i 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). 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 i five years from the March 2, 2021 closing date, or upon the occurrence of certain other events.

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 and in certain circumstances the ordinary share components of redeemable noncontrolling interests, such decrease in consolidated retained earnings could also be reflected as a corresponding adjustment to net earnings attributable to Jacobs for purposes of the calculation of consolidated earnings per share attributable to common shareholders.

Income Taxes

We determine our consolidated income tax expense using the asset and liability method prescribed by U.S. GAAP. Under this method, deferred tax assets and liabilities are recognized for the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Such deferred tax assets and liabilities are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. If and when we determine that a deferred tax asset will not be realized for its full amount, we will recognize and record a valuation allowance with a corresponding charge to earnings. Judgment is required in determining our provision for income taxes. In the normal course of business, we may engage in numerous transactions every day for which the ultimate tax outcome (including the period in which the transaction will ultimately be included in taxable income or deducted as an expense) is uncertain. Additionally, we file income, franchise, gross receipts and similar tax returns in many jurisdictions. Our tax returns are subject to audit and investigation by the Internal Revenue Service, most states in the U.S., and by various government agencies representing many jurisdictions outside the U.S.

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Tax Cuts and Jobs Act of 2017 (the "Tax Act") contains a provision which subjects a U.S. parent of a foreign subsidiary to current U.S. tax on its global intangible low–taxed income (“GILTI”). The GILTI income is eligible for a deduction, which lowers the effective tax rate to 10.5% for calendar years 2018 through 2025 and 13.125% after 2025. The Company will report the tax impact of GILTI as a period cost when incurred. Accordingly, the Company is not providing deferred taxes for basis differences expected to reverse as GILTI.

Contractual Guarantees, Litigation, Investigations and Insurance

In the normal course of business we are subject to certain contractual guarantees and litigation. We record in the Consolidated Balance Sheets amounts representing our estimated liability relating to such guarantees, litigation and insurance claims. Guarantees are accounted for in accordance with ASC 460-10, Guarantees, at fair value at the inception of the guarantee. We perform an analysis to determine the level of reserves to establish for both insurance-related claims that are known and have been asserted against us as well as for insurance-related claims that are believed to have been incurred based on actuarial analysis, but have not yet been reported to our claims administrators as of the respective balance sheet dates. We include any adjustments to such insurance reserves in our Consolidated Statements of Earnings. In addition, as a contractor providing services to various agencies of the U.S. federal government, we are subject to many levels of audits, investigations, and claims by, or on behalf of, the U.S. federal government with respect to contract performance, pricing, costs, cost allocations and procurement practices. We adjust revenues based upon the amounts we expect to realize considering the effects of any client audits or governmental investigations.

Business Combinations

U.S. GAAP requires that the purchase price paid for business combinations accounted for using the acquisition method be allocated to the assets and liabilities acquired based on their respective Fair Values. The Company makes certain estimates and judgments relating to other assets and liabilities acquired as well as any identifiable intangible assets acquired.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires us to employ estimates and make assumptions that affect the reported amounts of certain assets and liabilities; the revenues and expenses reported for the periods covered by the financial statements; and certain amounts disclosed in these Notes to the Consolidated Financial Statements. Although such estimates and assumptions are based on management’s most recent assessment of the underlying facts and circumstances utilizing the most current information available and past experience, actual results could differ significantly from those estimates and assumptions. Our estimates, judgments and assumptions are evaluated periodically and adjusted accordingly.

New Accounting Pronouncements

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3. i Revenue Accounting for Contracts

Disaggregation of Revenues

Our revenues are principally derived from contracts to provide a diverse range of technical, professional, and construction services to a large number of industrial, commercial, and governmental clients. We provide a broad range of engineering, design, and architectural services; construction and construction management services; operations and maintenance services; and process, scientific, and systems consulting services. We provide our services through offices and subsidiaries located primarily in North America, South America, Europe, the Middle East, India, Australia, Africa, and Asia. We provide our services under cost-reimbursable and fixed-price contracts. Our contracts are with many different customers in numerous industries. Refer to Note 20- Segment Information for additional information on how we disaggregate our revenues by reportable segment.

The following table further disaggregates our revenue by geographic area for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

For the Years Ended

Revenues:

United States

i 9,875,252

i 9,671,281

i 10,158,508

Europe

i 3,488,317

i 3,140,114

i 2,253,284

Canada

i 269,386

i 227,692

i 227,067

Asia

i 140,663

i 114,118

i 117,698

India

i 114,235

i 70,772

i 50,618

Australia and New Zealand

i 706,283

i 647,866

i 537,076

South America and Mexico

i —

i 11

Middle East and Africa

i 328,689

i 220,789

i 222,713

Total

i 14,922,825

i 14,092,632

i 13,566,975

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The following table presents the revenues earned directly or indirectly from the U.S. federal government and its agencies, expressed as a percentage of total revenues:

For the Years Ended

i 31%

i 33%

Contract Liabilities

Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. Revenue recognized for the year ended September 30, 2022 that was included in the contract liability balance on October 1, 2021 was $ i 422 million. Revenue recognized for the year ended October 1, 2021 that was included in the contract liability balance on October 2, 2020 was $ i 405 million.

Remaining Performance Obligations

The Company’s remaining performance obligations as of September 30, 2022 represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The Company had approximately $ i 15.0 billion in remaining performance obligations as of September 30, 2022. The Company expects to recognize i 52% of our remaining performance obligations within the next twelve months and the remaining i 48% thereafter.

Although remaining performance obligations reflect business that is considered to be firm, cancellations, scope adjustments, foreign currency exchange fluctuations or project deferrals may occur that impact their volume or the expected timing of their recognition. Remaining performance obligations are adjusted to reflect any known project

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as appropriate.

4. i Earnings Per Share and Certain Related Information

Basic and Diluted Earnings Per Share

Basic and diluted earnings per share (“EPS”) are computed using the two-class method, which is an earnings allocation method that determines EPS for common shares and participating securities. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. Participating securities and common shares have equal rights to undistributed earnings. Net earnings used for the purpose of determining basic and diluted EPS is determined by taking net earnings, less earnings available to participating securities and the preferred redeemable noncontrolling interests redemption value adjustment associated with the PA Consulting transaction.

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

i The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

For the Years Ended

Numerator for Basic and Diluted EPS:

Net earnings attributable to Jacobs from continuing operations

i 644,071

i 467,022

i 353,861

Preferred Redeemable Noncontrolling interests redemption value adjustment (See Note 14- PA Consulting Business Combination)

i —

( i 57,307)

i —

Net earnings from continuing operations allocated to participating securities

i —

( i 72)

Net earnings from continuing operations allocated to common stock for EPS calculation

i 644,071

i 409,715

i 353,789

Net earnings attributable to Jacobs from discontinued operations

( i 32)

i 10,008

i 137,984

Net earnings from discontinued operations allocated to participating securities

i —

( i 28)

Net earnings from discontinued operations allocated to common stock for EPS calculation

( i 32)

i 10,008

i 137,956

Net earnings allocated to common stock for EPS calculation

i 644,039

i 419,723

i 491,745

Denominator for Basic and Diluted EPS:

Weighted average basic shares

i 128,665

i 130,194

i 131,541

Shares allocated to participating securities

i —

( i 27)

Shares used for calculating basic EPS attributable to common stock

i 128,665

i 130,194

i 131,514

Effect of dilutive securities:

Stock compensation plans

i 780

i 1,080

i 1,207

Shares used for calculating diluted EPS attributable to common stock

i 129,445

i 131,274

i 132,721

Net Earnings Per Share:

Basic Net Earnings from Continuing Operations Per Share

i 5.01

i 3.15

i 2.69

Basic Net Earnings from Discontinued Operations Per Share

i —

i 0.08

i 1.05

Basic Earnings Per Share:

i 5.01

i 3.22

i 3.74

Diluted Net Earnings from Continuing Operations Per Share

i 4.98

i 3.12

i 2.67

Diluted Net Earnings from Discontinued Operations Per Share

i —

i 0.08

i 1.04

Diluted Earnings Per Share:

i 4.98

i 3.20

i 3.71

F-20

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Share Repurchases

The following table summarizes the activity under the 2020 Repurchase Authorizations during fiscal 2022:

Amount Authorized

Average Price Per Share (1)

Shares Repurchased

Total Shares Retired

$ i 1,000,000,000

$ i 133.05

i 2,472,728

(1)Includes commissions paid and calculated at the average price per share

As of September 30, 2022, the Company has $ i 501.0 million remaining under the 2020 Repurchase Authorization.

Common and Preferred Stock

Jacobs is authorized to issue i two classes of capital stock designated “common stock” and “preferred stock” (each has a par value of $ i i 1.00 / per share). The preferred stock may be issued in one or more series. The number of shares to be included in a series as well as each series’ designation, relative powers, dividend and other preferences, rights and qualifications, redemption provisions and restrictions are to be fixed by the Company’s Board of Directors at the time each series is issued. Except as may be provided by the Company’s Board of Directors in a preferred stock designation, or otherwise provided for by statute, the holders of shares of common stock have the exclusive right to vote for the election of directors and on all other matters requiring stockholder action. The holders of shares of common stock are entitled to dividends if and when declared by the Company’s Board of Directors from whatever assets are legally available for that purpose.

Dividends

On September 15, 2022, the Company’s Board of Directors declared a quarterly dividend of $ i i 0.23 / per share of the Company’s common stock which was paid on October 28, 2022, to shareholders of record on the close of business on September 30, 2022. Future dividend declarations are subject to review and approval by the Company’s Board of Directors.

Dividends paid through September 30, 2022 and the preceding fiscal year are as follows:

Declaration Date

Record Date

Payment Date

Cash Amount (per share)

$ i i 0.23 /

$ i i 0.23 /

$ i i 0.23 /

$ i i 0.21 /

$ i i 0.21 /

$ i i 0.21 /

$ i i 0.21 /

F-21

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. i Goodwill and Intangibles

The carrying value of goodwill associated with continuing operations and appearing in the accompanying Consolidated Balance Sheets September 30, 2022 and October 1, 2021 was as follows (in thousands):

Critical Mission Solutions

People & Places Solutions

PA Consulting

Total

Balance October 1, 2021

i 2,550,631

i 3,240,783

i 1,405,586

i 7,197,000

Acquired

i 195,756

i 116,525

i 17,245

i 329,526

Post-Acquisition Adjustments

i —

i 5,720

Foreign currency translation and other

( i 30,194)

( i 47,995)

( i 269,399)

( i 347,588)

Balance September 30, 2022

i 2,716,193

i 3,309,313

i 1,159,152

i 7,184,658

/ i

The following table provides certain information related to the Company’s acquired intangibles in the accompanying Consolidated Balance Sheets for the year ended September 30, 2022 (in thousands):

Customer Relationships, Contracts and Backlog

Developed Technology

Trade Names

Total

Balances, October 1, 2021

i 1,309,061

i 40,020

i 216,677

i 1,565,758

Acquired

i 101,527

i 62,000

i 392

i 163,919

Amortization

( i 175,592)

( i 12,055)

( i 10,955)

( i 198,602)

Foreign currency translation and other

( i 98,558)

( i 1,034)

( i 37,431)

( i 137,023)

Balances, September 30, 2022

i 1,136,438

i 88,931

i 168,683

i 1,394,052

Weighted Average Amortization Period (years)

i 7

i 18

i 9

The weighted average amortization period includes the effects of foreign currency translation.

The following table presents estimated amortization expense of intangible assets for fiscal 2023 and for the succeeding years. The amounts below include preliminary amortization estimates for the StreetLight opening balance sheet fair values that are still preliminary and are subject to change.


Fiscal Year	(in millions)
2023	$	i 194.8
2024	i 194.4
2025	i 194.0
2026	i 171.3
2027	i 140.1
Thereafter	i 499.5
Total	$	i 1,394.1

6. i Other Financial Information

Receivables and contract assets

i The following table presents the components of receivables and contract assets appearing in the accompanying Consolidated Balance Sheets at September 30, 2022 and October 1, 2021 as well as certain other related information (in

F-22

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

thousands):


	September 30, 2022		October 1, 2021
Components of receivables:
Amounts billed, net	$	i 1,400,088	$	i 1,278,087
Unbilled receivables and other	i 1,523,249		i 1,343,588
Contract assets	i 482,044		i 479,743
Total receivables and contract assets, net	$	i 3,405,381	$	i 3,101,418
Other information about receivables:
Amounts due from the United States federal government included above, net of contract liabilities	$	i 749,323	$	i 563,009

Property, Equipment and Improvements, Net

i The following table presents the components of our property, equipment and improvements, net at September 30, 2022 and October 1, 2021 (in thousands):


	September 30, 2022		October 1, 2021
Land	$	i 478	$	i 970
Buildings	i 46,244		i 52,822
Equipment	i 643,805		i 586,302
Leasehold improvements	i 179,187		i 201,522
Construction in progress	i 34,880		i 21,188
	i 904,594		i 862,804
Accumulated depreciation and amortization	( i 557,918)		( i 509,687)
	$	i 346,676	$	i 353,117

F-23

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents our property, equipment and improvements, net by geographic area for the years ended September 30, 2022 and October 1, 2021 (in thousands):


	For the Years Ended
	September 30, 2022		October 1, 2021
Property, equipment and improvements, net:
United States	$	i 226,639	$	i 229,752
Europe	i 87,331		i 95,746
Canada	i 5,210		i 2,076
Asia	i 2,578		i 2,170
India	i 9,659		i 11,545
Australia and New Zealand	i 13,211		i 10,401
Middle East and Africa	i 2,048		i 1,427
Total	$	i 346,676	$	i 353,117

See discussion in Note 10- Leases, regarding impairments recorded in the current year relating to the Company's real estate lease portfolio and related property, equipment and improvements, net.

Accrued Liabilities

i The following table presents the components of “Accrued liabilities” shown in the accompanying Consolidated Balance Sheets at September 30, 2022 and October 1, 2021 (in thousands):


	September 30, 2022		October 1, 2021
Accrued payroll and related liabilities	$	i 947,547	$	i 1,042,265
Project-related accruals	i 28,178		i 56,083
Non project-related accruals and other	i 279,062		i 239,851
Insurance liabilities	i 63,183		i 73,016
Sales and other similar taxes	i 93,500		i 94,393
Dividends payable	i 30,292		i 27,951

Total	$	i 1,441,762	$	i 1,533,559

F-24

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Accumulated Other Comprehensive Income

The following table presents the Company's roll forward of accumulated income (loss) after-tax for the years ended September 30, 2022 and October 1, 2021 (in thousands):

Change in Pension and Retiree Medical Plan Liabilities

Foreign Currency Translation Adjustment (1)

Gain/(Loss) on Cash Flow Hedges

Total

Balance at October 2, 2020

( i 498,726)

( i 419,715)

( i 14,616)

( i 933,057)

Other comprehensive income (loss)

i 94,606

i 12,475

i 14,339

i 121,420

Reclassifications from other comprehensive income (loss)

i 9,559

i —

i 7,636

i 17,195

Balance at October 1, 2021

( i 394,561)

( i 407,240)

i 7,359

( i 794,442)

Other comprehensive income (loss)

i 87,034

( i 378,800)

i 108,555

( i 183,211)

Reclassifications from other comprehensive income (loss)

i 132

i —

i 2,391

i 2,523

Balance at September 30, 2022

( i 307,395)

( i 786,040)

i 118,305

( i 975,130)

(1)Included in the overall foreign currency translation adjustment for the years ended September 30, 2022 and October 1, 2021 is $ i 144.3 million and $( i 0.9) million, respectively, in unrealized gains (losses) on long-term foreign currency denominated intercompany loans not anticipated to be settled in the foreseeable future.

Included in the Company’s cumulative net unrealized gains from interest rate and cross currency swaps recorded in accumulated other comprehensive income as of September 30, 2022 were approximately $ i 21 million in unrealized gains, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to September 30, 2022.

7. i Income Taxes

i The following table presents the components of our consolidated income taxes for continuing operations for years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

For the Years Ended

Current income tax (benefit) expense from continuing operations:

Federal

( i 35,291)

i 91,313

( i 37,030)

State

i 4,526

i 30,886

( i 5,021)

Foreign

i 79,822

i 38,959

i 41,616

Total current tax expense from continuing operations

i 49,057

i 161,158

( i 435)

Deferred income tax expense (benefit) from continuing operations:

Federal

i 56,526

i 35,109

i 53,485

State

i 17,178

i 21,826

i 7,133

Foreign

i 38,142

i 56,688

( i 4,863)

Total deferred tax expense from continuing operations

i 111,846

i 113,623

i 55,755

Consolidated income tax expense from continuing operations

i 160,903

i 274,781

i 55,320

Deferred taxes reflect the tax effects of temporary differences between the amounts recorded as assets and liabilities for financial reporting purposes and the comparable amounts recorded for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

i The following table presents the components of our net deferred tax (liabilities) assets at September 30, 2022 and October 1, 2021 (in thousands):

F-25

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


	September 30, 2022		October 1, 2021
Deferred tax assets:
Obligations relating to:

Other employee benefit plans	i 138,897		i 156,931
Net operating losses	i 132,999		i 197,929
Foreign tax credit	i 83,697		i 87,689

Contract revenues and costs	i —		i 81,633

Lease liability	i 138,635		i 155,064



Unrealized foreign exchange loss	i 46,005		i —
Other	i 13,005		i 19,689
Valuation allowance	( i 113,483)		( i 188,662)
Gross deferred tax assets	i 439,755		i 510,273
Deferred tax liabilities:

Contract revenues and costs	( i 6,007)		i —
Depreciation and amortization	( i 431,946)		( i 436,324)
Lease right of use asset	( i 71,658)		( i 93,338)


Partnership investment	( i 52,787)		( i 72,560)
Hedge Investments	( i 38,994)		( i 13,754)

Unrealized Foreign Exchange Gain	( i 45,754)		i —
Other	( i 30,206)		( i 5,484)
Gross deferred tax liabilities	( i 677,352)		( i 621,460)
Net deferred tax liabilities	$	( i 237,597)	$	( i 111,187)

Certain amounts have been reclassified to conform to current year presentation.

Tax law changes were enacted in the United Kingdom that, among other provisions, will increase the corporate tax rate to 25% from 19% effective April 1, 2023. The rate change resulted in an increase of $ i 3.2 million and $ i 25.6 million to our deferred income tax expense for the years ended September 30, 2022 and October 1, 2021, respectively. Our current income tax expense in the United Kingdom will be based on the new rate beginning in April 2023.

A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. The valuation allowance was $ i 113.5 million at September 30, 2022 and $ i 188.7 million at October 1, 2021. This $ i 75.2 million change in the valuation allowance is attributable mainly to $ i 33.1 million in a change in the realizability of foreign tax credits due to a change in the U.S. foreign tax credit regulations, a decrease of $ i 26.0 million relates to a change in judgment on the realizability of domestic deferred tax assets which are capital in nature, and a decrease of $ i 16.1 million relating to various other items.

At September 30, 2022 and October 1, 2021, the domestic and international net operating loss (NOL) carryforwards totaled $ i 491.3 million and $ i 760.4 million, resulting in an NOL deferred tax asset of $ i 133.0 million and $ i 197.9 million, respectively. The Company's net operating losses have various expiration periods between 2023 and indefinite periods. At September 30, 2022, the Company has foreign tax credit carryforwards of $ i 83.7 million, which has a partial valuation allowance of $ i 55.4 million, expiring between 2023 and 2032.

The following table presents the income tax benefits from continuing operations realized from the exercise of non-qualified stock options and disqualifying dispositions of stock sold under our employee stock purchase plans for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in millions):

For the Years Ended

i 2.2

i 9.9

i 10.2

F-26

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

i The following table reconciles total income tax expense from continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense for continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (dollars in thousands):

For the Years Ended

Statutory amount

i 184,033

i 21.0

i 146,078

i 21.0

i 92,652

i 21.0

State taxes, net of the federal benefit

i 19,316

i 2.2

i 14,564

i 2.1

i 7,254

i 1.6

Exclusion of tax on non-controlling interests

( i 7,533)

( i 0.9)

( i 7,999)

( i 1.1)

( i 6,622)

( i 1.5)

Foreign:

Difference in tax rates of foreign operations

( i 2,516)

( i 0.3)

i 3,684

i 0.5

( i 6,267)

( i 1.4)

Expense/(benefit) from foreign valuation allowance change

i 2,982

i 0.3

i 2,148

i 0.3

( i 16,861)

( i 3.8)

Nondeductible compensation

i —

i 48,727

i 7.0

i —

U.S. tax cost (benefit) of foreign operations

i 48,843

i 5.6

i 35,228

i 5.1

i 42,992

i 9.7

Tax differential on foreign earnings

i 49,309

i 5.6

i 89,787

i 12.9

i 19,864

i 4.5

Foreign tax credits

( i 33,734)

( i 3.8)

( i 25,230)

( i 3.6)

( i 26,471)

( i 6.0)

Tax Rate Change

i 3,210

i 0.4

i 25,588

i 3.7

( i 6,811)

( i 1.5)

Valuation allowance

( i 59,121)

( i 6.7)

i 38,928

i 5.6

i —

Uncertain tax positions

( i 1,439)

( i 0.2)

i 978

i 0.1

( i 11,338)

( i 2.6)

Other items:

Energy efficient commercial buildings deduction

( i 2,681)

( i 0.3)

( i 3,760)

( i 0.5)

( i 7,267)

( i 1.6)

Disallowed officer compensation

i 6,034

i 0.7

i 6,689

i 1.0

i 5,081

i 1.2

Stock compensation

( i 2,168)

( i 0.2)

( i 9,946)

( i 1.4)

( i 10,234)

( i 2.3)

Other items – net

i 5,677

i 0.6

( i 896)

( i 0.1)

( i 788)

( i 0.2)

Total other items

i 6,862

i 0.8

( i 7,913)

( i 1.1)

( i 13,208)

( i 3.0)

Taxes on income from continuing operations

i 160,903

i 18.4

i 274,781

i 39.5

i 55,320

i 12.5

The following table presents income tax payments, net made during the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in millions):

i 113.9

i 75.6

i 39.8

/ i

The following table presents the components of our consolidated earnings from continuing operations before taxes for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

For the Years Ended

United States earnings

i 415,673

i 634,820

i 208,302

Foreign earnings

i 460,674

i 60,782

i 232,901

i 876,347

i 695,602

i 441,203

We do not record a deferred tax liability for unremitted earnings of our foreign subsidiaries to the extent that the earnings meet the indefinite reversal criteria. This criteria is met if the foreign subsidiary has invested, or will invest, the earnings indefinitely. The decision as to the amount of unremitted earnings that we intend to maintain in non-U.S. subsidiaries considers items including, but not limited to, forecasts and budgets of financial needs of cash for working capital, liquidity plans, and expected cash requirements in the U.S. As of September 30, 2022, we had not recognized a deferred tax liability on approximately $ i 168.0 million of undistributed earnings for certain foreign subsidiaries, because these earnings are intended to be indefinitely reinvested. If such earnings were distributed, some countries may impose

F-27

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

additional taxes. The unrecognized deferred tax liability (the amount payable if distributed) is approximately $ i 13.1 million.

The Company has various long-term foreign currency denominated intercompany loans not anticipated to be settled in the foreseeable future. Due to the long-term nature of the loan, the foreign currency gains (losses) resulting from re-measurement are generally recognized as a component of accumulated other comprehensive income (loss). Deferred taxes are not provided on the unrealized gains of approximately $ i 101.7 million because the intercompany loans and the related gains (losses) on the loans denominated in the functional currencies of the subsidiaries are viewed as a part of the Company’s net investment in the subsidiaries and are considered to be indefinitely reinvested by the Company. The unrecognized deferred taxes are approximately $ i 25 million as of September 30, 2022.

The Company accounts for unrecognized tax benefits in accordance with ASC Topic 740, Income Taxes. It accounts for interest and penalties on unrecognized tax benefits as interest and penalties reported above the line (i.e., not as part of income tax expense). The Company’s liability for gross unrecognized tax benefits was $ i 81.9 million and $ i 91.9 million at September 30, 2022 and October 1, 2021, respectively, after ASU 2013-11 netting of $ i 7.0 million and $ i 21.7 million, respectively. If recognized, $ i 73.5 million would affect the Company’s consolidated effective income tax rate. The Company had $ i 43.5 million and $ i 41.6 million in accrued interest and penalties at September 30, 2022 and October 1, 2021, respectively. The Company estimates that, within twelve months, we may realize a decrease in our uncertain tax positions of approximately $ i 2.2 million as a result of concluding various tax audits and closing tax years. As of September 30, 2022, the Company’s U.S. federal income tax returns for tax years 2009 and forward remain subject to examination.

i The following table presents the reconciliation of the beginning and ending amount of unrecognized tax benefits, with StreetLight and PA Consulting related impacts added for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

For the Years Ended

Balance, beginning of year

i 113,633

i 102,484

i 104,355

Acquisitions/Divestitures

i 192

i 7,639

i —

Additions based on tax positions related to the current year

i 1,136

i 7,088

i 1,064

Additions for tax positions of prior years

i 1,207

i 1,711

i 7,472

Reductions for tax positions of prior years

( i 3,672)

( i 4,851)

( i 6,695)

Settlement

( i 23,603)

( i 438)

( i 3,712)

Balance, end of year

i 88,893

i 113,633

i 102,484

As further discussed in Note 14, PA Consulting Business Combination and Note 15, Other Business Combinations, the Company has made several acquisitions and a strategic investment, all of which were accounted for as stock purchases and the tax attributes of the net assets acquired were carried over, with the exception of the Buffalo Group, which was treated as an asset acquisition and the net assets were stepped up to fair value.

F-28

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8. i Joint Ventures, VIEs and Other Investments

For consolidated joint ventures, the entire amount of the revenue recognized for services performed and the costs associated with these services, including the services provided by the other joint venture partners, are included in the Company's results of operations. Likewise, the entire amount of each of the assets and liabilities are included in the Company’s consolidated balance sheet. There are no consolidated VIEs that have debt or credit facilities. i Summary financial information of consolidated VIEs is as follows (in millions):


	September 30, 2022		October 1, 2021
Current assets	$	i 353.9	$	i 289.7
Non-Current assets	i —		i 0.1
Total assets	$	i 353.9	$	i 289.8
Current liabilities	$	i 228.1	$	i 220.8

Total liabilities	$	i 228.1	$	i 220.8

For the Years Ended

Revenue

i 1,253.8

i 1,037.3

i 912.9

Direct cost of contracts

( i 985.5)

( i 910.1)

( i 807.9)

Gross profit

i 268.3

i 127.2

i 105.0

Net earnings

i 92.3

i 84.3

i 72.6

Unconsolidated joint ventures are accounted for under the equity method or proportionate consolidation. Proportionate consolidation is used for joint ventures that include unincorporated legal entities and activities of the joint venture are construction-related. For those joint ventures accounted for under proportionate consolidation, only the Company’s pro rata share of assets, liabilities, revenue, and costs are included in the Company’s balance sheet and results of operations.

For the proportionate consolidated VIEs, the carrying value of assets and liabilities was $ i 109.3 million and $ i 129.2 million as of September 30, 2022, respectively and $ i 115.1 million and $ i 129.5 million as of October 1, 2021, respectively. For those joint ventures accounted for under the equity method, the Company's investment balances for the joint venture is included in other noncurrent Assets: miscellaneous on the balance sheet and the Company’s pro rata share of net income is included in revenue. In limited cases, there are basis differences between the equity in the joint venture and Jacobs' investment created when Jacobs purchased their share of the joint venture. These basis differences are amortized based on an internal allocation to underlying net assets, excluding allocations to goodwill. Our investments in equity method joint ventures on the Consolidated Balance Sheets as of September 30, 2022 and October 1, 2021 were a net asset of $ i 56.6 million and $ i 121.3 million, respectively. During the years ended September 30, 2022, October 1, 2021, and October 2, 2020, we recognized income from equity method joint ventures of $ i 36.5 million, $ i 60.9 million, and $ i 82.2 million, respectively.

Accounts receivable from unconsolidated joint ventures accounted for under the equity method is $ i 21.1 million and $ i 19.7 million as of September 30, 2022 and October 1, 2021, respectively.

The Company currently holds a i 24.5% interest in AWE Management Ltd ("AWE") that is accounted for under the equity method, and the carrying value of the Company’s investment as of October 2, 2020 was approximately $ i 38 million. As of October 2, 2020, AWE was under a contractual operating arrangement with the UK Ministry of Defence (MoD) with multiple years remaining under the arrangement. On November 2, 2020, the MoD unexpectedly announced plans to change its current operating agreements with AWE that would result in the early termination of the current contract in 2021. During the fiscal year ended October 1, 2021, the Company recorded other-than-temporary impairment charges on its investment in AWE in the amount of $ i 38.5 million, which were included in miscellaneous income (expense), net in the consolidated statement of earnings. During fiscal year 2022, the contractual operating arrangement with MoD was terminated which has resulted in the wind down and full impairment of the AWE Joint Venture with immaterial activity expected going forward.

The Company held a cost method investment in C3.ai, Inc. ("C3") and in the first quarter of fiscal 2021, C3 completed an initial public offering and as a result the Company carried its investment in C3 at fair value, with changes

F-29

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

reflected in net income as it is an investment in equity securities with a readily determinable fair value based on quoted market prices. During fiscal 2021 and subsequent to the IPO, the Company sold all shares owned in C3. Dividend income, unrealized gains and related realized gains on disposal of these shares of $ i 49.6 million were recognized in miscellaneous income (expense), net, in the Consolidated Statement of Earnings for the year ended October 1, 2021.

9. i Borrowings

i The following table presents certain information regarding the Company’s long-term debt at September 30, 2022 and October 1, 2021 (dollars in thousands):

Interest Rate

Maturity

Revolving Credit Facility

Benchmark + applicable margin (1) (2)

March 2024

i 1,105,294

i 327,794

2021 Term Loan Facility

Benchmark + applicable margin (1) (3)

March 2024

i 923,580

i 1,081,724

2020 Term Loan Facility

Benchmark + applicable margin (1) (4)

March 2025 (5)

i 882,263

i 988,940

Fixed-rate notes due:

Senior Notes, Series A

i 4.27%

May 2025

i 190,000

Senior Notes, Series B

i 4.42%

May 2028

i 180,000

Senior Notes, Series C

i 4.52%

May 2030

i 130,000

Less: Current Portion (4)

( i 50,415)

( i 53,456)

Less: Deferred Financing Fees

( i 3,466)

( i 5,069)

Total Long-term debt, net

i 3,357,256

i 2,839,933

(1)During the year ended September 30, 2022, the aggregate principal amounts denominated in British pounds under the Revolving Credit Facility, 2021 Term Loan Facility and 2020 Term Loan Facility transitioned from underlying LIBOR benchmarked rates to SONIA rates. Borrowings denominated in U.S. dollars remained benchmarked to LIBOR rates.

(2)Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the Revolving Credit Facility (defined below)), U.S. dollar denominated borrowings under the Revolving Credit Facility bear interest at either a eurocurrency rate plus a margin of between i 0.875% and i 1.625% or a base rate plus a margin of between i 0% and i 0.625%.The applicable LIBOR rates, including applicable margins, at September 30, 2022 and October 1, 2021 were approximately i 4.08% and i 1.45%. Borrowings denominated in British pounds bear interest at an adjusted SONIA rate plus a margin of between i 0.875% and i 1.625%. There were no amounts drawn in British pounds as of September 30, 2022.

(3)Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the 2021 Term Loan Facility (defined below)), U.S. dollar denominated borrowings under the 2021 Term Loan Facility bear interest at either a eurocurrency rate plus a margin of between i 0.875% and i 1.625% or a base rate plus a margin of between i 0% and i 0.625%. The applicable LIBOR rate, including applicable margin, at September 30, 2022 and October 1, 2021was approximately i 4.06% and i 1.43%. Borrowings denominated in British pounds bear interest at an adjusted SONIA rate plus a margin of between i 0.875% and i 1.625%, which was approximately i 3.60% at September 30, 2022.

(4)Depending on the Company’s Consolidated Leverage Ratio (as defined in the credit agreement governing the 2020 Term Loan Facility (defined below)), U.S. dollar denominated borrowings under the 2020 Term Loan Facility bear interest at either a eurocurrency rate plus a margin of between i 0.875% and i 1.5% or a base rate plus a margin of between i 0% and i 0.5%. The applicable LIBOR rates, including applicable margins, at September 30, 2022 and October 1, 2021 were approximately i 4.49% and i 1.45%. Borrowings denominated in British pounds bear interest at an adjusted SONIA rate plus a margin between i 0.875% and i 1.5%, which was approximately i 3.60% at September 30, 2022.

(5)The 2020 Term Loan requires quarterly principal repayments of i 1.25%, or $ i 9.125 million and £ i 3.125 million, of the aggregate initial principal amount borrowed.

In connection with the Company's implementation of a new holding company structure, which was completed in August 2022, the Company launched an offer to repurchase its outstanding Senior Notes at par plus accrued and unpaid interest, and without any make-whole premium. On October 7, 2022, the Company repaid $ i 481 million of Senior Notes held by holders who accepted the offer with proceeds from our long-term Revolving Credit Facility. The remaining $ i 19 million of Senior Notes outstanding are Senior Notes, Series B due in May 2028 as indicated in the table above. The Revolving Credit Facility and Term Loan Facilities (defined below) were amended to permit the implementation of the holding company.

On February 7, 2014, the Company and certain of its subsidiaries entered into a $ i 1.6 billion long-term unsecured, revolving credit facility (as amended, the “2014 Revolving Credit Facility”) with a syndicate of U.S. and international banks and financial institutions. On March 27, 2019, the Company entered into a second amended and restated credit agreement

F-30

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(the "Revolving Credit Facility") which amended and restated the 2014 Revolving Credit Facility by, among other things, (a) extending the maturity date of the credit facility to March 27, 2024, (b) increasing the facility amount to $ i 2.25 billion (with an accordion feature that allows a further increase of the facility amount up to $ i 3.25 billion), (c) eliminating the covenants restricting investments, joint ventures and acquisitions by the Company and its subsidiaries and (d) adjusting the financial covenants to eliminate the net worth covenant upon the removal of the same covenant from the Company’s existing Note Purchase Agreement (defined below). We were in compliance with the covenants under the Revolving Credit Facility at September 30, 2022.

On December 16, 2020, the Company entered into a first amendment to the Revolving Credit Facility, which provides for, among other things, (a) administrative changes allowing a one-time limited conditionality draw under the Revolving Credit Facility in connection with the March 2, 2021 investment by the Company, indirectly through a subsidiary of the Company, of a majority interest in PA Consulting and (b) an increase in the interest rate applicable margin to i 1.625% per annum if the Consolidated Leverage Ratio (as defined in the Revolving Credit Facility) of the Company is equal to or greater than i 3.00 to 1.00.

The Revolving Credit Facility permits the Company to borrow under i two separate tranches in U.S. dollars, certain specified foreign currencies, and any other currency that may be approved in accordance with the terms of the Revolving Credit Facility. The Revolving Credit Facility also provides for a financial letter of credit sub facility of $ i 400.0 million, permits performance letters of credit, and provides for a $ i 50.0 million sub facility for swing line loans. Letters of credit are subject to fees based on the Company’s Consolidated Leverage Ratio. The Company pays a facility fee of between i 0.08% and i 0.23% per annum depending on the Company’s Consolidated Leverage Ratio.

On March 25, 2020, the Company entered into an unsecured term loan facility (the “2020 Term Loan Facility”) with a syndicate of financial institutions as lenders. Under the 2020 Term Loan Facility, the Company borrowed an aggregate principal amount of $ i 730.0 million and one of the Company's U.K. subsidiaries borrowed an aggregate principal amount of £ i 250.0 million. The proceeds of the term loans were used to repay the Bilateral Term Loan and for general corporate purposes. The 2020 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.

During fiscal 2020, the Company entered into interest rate and cross currency derivative contracts to swap a portion of our variable rate debt to fixed rate debt. See Note 18- Commitments and Contingencies and Derivative Financial Instruments for discussion regarding the Company's derivative instruments.

During fiscal 2022 we entered into i two treasury locks to manage our interest rate exposure with the anticipated issuance of fixed rate debt before December 2023. During fiscal 2020, the Company entered into interest rate and cross currency derivative contracts to swap a portion of our variable rate debt to fixed rate debt. See Note 18- Commitments and Contingencies and Derivative Financial Instruments for discussion regarding the Company's derivative instruments.

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 $ i 200.0 million and £ i 650.0 million. The proceeds of the term loans were used primarily to fund the Company's 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 2020 Term Loan Facility.

The 2020 Term Loan Facility and the 2021 Term Loan Facility are together referred to as the "Term Loan Facilities". We were in compliance with the covenants under the Term Loan Facilities at September 30, 2022.

F-31

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

On March 12, 2018, the Company entered into a note purchase agreement (as amended, the "Note Purchase Agreement") with respect to the issuance and sale in a private placement transaction of $ i 500.0 million in the aggregate principal amount of the Company’s senior notes in i three series (collectively, the “Senior Notes”). The Note Purchase Agreement provides that if the Company's consolidated leverage ratio exceeds a certain amount, the interest on the Senior Notes may increase by i 75 basis points. The Senior Notes may be prepaid at any time subject to a make-whole premium. The sale of the Senior Notes closed on May 15, 2018. The Company used the net proceeds from the offering of Senior Notes to repay certain existing indebtedness and for other general corporate purposes. The Note Purchase Agreement contains affirmative, negative and financial covenants customary for financings of this type, including, among other things, covenants to maintain a minimum consolidated net worth and maximum consolidated leverage ratio and limitations on certain liens, mergers, dispositions and transactions with affiliates. In addition, the Note Purchase Agreement contains customary events of default. We were in compliance with the covenants under the Note Purchase Agreement at September 30, 2022.

We believe the carrying value of the Revolving Credit Facility, the Term Loan Facilities and other debt approximates fair value based on the interest rates and scheduled maturities applicable to the outstanding borrowings. The fair value of the Senior Notes is estimated to be $ i 498.3 million at September 30, 2022, based on Level 2 inputs. The fair value is determined by discounting future cash flows using interest rates available for issuances with similar terms and average maturities.

The Company has issued $ i 1.3 million in letters of credit under the Revolving Credit Facility, leaving $ i 1.14 billion of available borrowing capacity under the Revolving Credit Facility at September 30, 2022. In addition, the Company had issued $ i 279.2 million under separate, committed and uncommitted letter-of-credit facilities for total issued letters of credit of $ i 280.5 million at September 30, 2022.

The following table presents the amount of interest paid by the Company during September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

For the Years Ended

$ i 88,031

$ i 54,860

$ i 58,257

10. i i Leases /

The components of lease expense (reflected in selling, general and administrative expenses) for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 were as follows (in thousands):

Lease cost

Operating lease cost

i 151,134

i 160,026

i 169,967

Variable lease cost

i 36,631

i 31,727

i 35,083

Sublease income

( i 15,207)

( i 12,359)

( i 14,719)

Total lease cost

i 172,558

i 179,394

i 190,331

F-32

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Supplemental information related to the Company's leases for the years ended September 30, 2022 and October 1, 2021 was as follows (in thousands):

Cash paid for amounts included in the measurements of lease liabilities

i 229,275

i 209,594

Right-of-use assets obtained in exchange for new operating lease liabilities

i 38,110

i 165,770

Weighted average remaining lease term - operating leases

i 6.3 years

i 7 years

Weighted average discount rate - operating leases

i 2.8%

i 2.6%

Total remaining lease payments under the Company's leases for each of the succeeding years is as follows (in thousands):


Fiscal Year	Operating Leases
2023	$	i 168,347
2024	i 149,492
2025	i 125,494
2026	i 106,247
2027	i 86,639
Thereafter	i 196,628
	i 832,847
Less Interest	( i 75,229)
	$	i 757,618

Right-of-Use and Other Long-Lived Asset Impairment

During fiscal 2022 and fiscal 2020, as a result of the Company's transformation initiatives, including the changing nature of the Company's use of office space for its workforce, the Company evaluated its existing real estate lease portfolio. These initiatives resulted in the abandonment of certain leased office spaces and the establishment of a formal plan to sublease certain other leased spaces that will no longer be utilized by the Company. In connection with the Company’s actions related to these initiatives, the Company evaluated certain of its lease right-of-use assets and related property, equipment and leasehold improvements for impairment under ASC 360.

As a result of the analysis, the Company recognized impairment losses of $ i 78.3 million and $ i 162 million for the fiscal years ended September 30, 2022 and October 2, 2020, respectively, which are included in selling, general and administrative expenses in the accompanying statements of earnings. The impairment losses recorded include $ i 60.7 million and $ i 127.0 million related to right-of-use lease assets and $ i 17.7 million and $ i 35.0 million related to other long-lived assets, including property, equipment & improvements and leasehold improvements for the fiscal years ended September 30, 2022 and October 2, 2020, respectively.

11. i Employee Stock Purchase and Stock Incentive Plans

Employee Stock Purchase Plans

Under the Company's stock purchase plans, eligible employees who elect to participate in these plans are granted the right to purchase shares of the common stock of Jacobs at a discount that is limited to i 5% of the per-share market value on the day shares are sold to employees.

F-33

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

i The following table summarizes the stock issuance activity under the plans for the fiscal years ended September 30, 2022, October 1, 2021 and October 2, 2020:

For the Years Ended

Aggregate Purchase Price Paid for Shares Sold (in thousands):

i 38,648

i 32,149

i 27,813

Aggregate Number of Shares Sold:

i 302,429

i 287,587

i 333,078

At September 30, 2022, there remains i 2,875,448 shares reserved for issuance under the Company's stock purchase plans.

Stock Incentive Plans

We also sponsor the 1999 Stock Incentive Plan, as amended and restated (the "SIP") and the 1999 Outside Director Stock Plan, as amended and restated (the "ODSP"). The 1999 SIP provides for the issuance of incentive stock options, non-qualified stock options, share appreciation rights ("SARs"), restricted stock and restricted stock units to employees. The 1999 ODSP provides for awards of shares of common stock, restricted stock, restricted stock units and grants of non-qualified stock options to our outside (i.e., nonemployee) directors. i The following table sets forth certain information about the 1999 Plans:

1999 SIP

1999 ODSP

Total

Number of shares authorized

i 29,850,000

i 1,100,000

i 30,950,000

Number of remaining shares reserved for issuance at September 30, 2022

i 4,244,964

i 242,212

i 4,487,176

Number of shares relating to outstanding stock options at September 30, 2022

i 358,224

i 81,125

i 439,349

Number of shares available for future awards:

At September 30, 2022

i 3,886,740

i 161,087

i 4,047,827

At October 1, 2021

i 4,166,975

i 187,554

i 4,354,529

Effective September 28, 2012, all grants of shares under the 1999 SIP are issued on a fungible basis. An award other than an option or SAR is granted on a i 1.92-to-1.00 basis (“Fungible”). An award of an option or SAR is granted on a i 1-to-1 basis (“Not Fungible”).

i The following table presents the fair value of shares (of restricted stock and restricted stock units) vested for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

For the Years Ended

Restricted Stock and Restricted Stock Units (service condition)

i 23,077

i 20,374

i 29,209

Restricted Stock Units (service, market, and performance conditions at target)

i 22,678

i 26,495

i 20,998

Total

i 45,755

i 46,869

i 50,207

At September 30, 2022, the amount of compensation cost relating to non-vested awards not yet recognized in the financial statements is approximately $ i 81.9 million. The majority of these unrecognized compensation costs will be recognized by the first quarter of fiscal 2024. The weighted average remaining contractual term of options currently exercisable is i 2.2 years.

F-34

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Stock Options

The following table summarizes the stock option activity for the years ended September 30, 2022, October 1, 2021 and October 2, 2020:


	Number of Stock Options	Weighted Average Exercise Price
Outstanding at September 27, 2019	i 926,606	$	i 45.48
Exercised	( i 212,467)	$	i 44.05
Cancelled or expired	( i 7,650)	$	i 45.31
Outstanding at October 2, 2020	i 706,489	$	i 45.91
Exercised	( i 130,030)	$	i 47.07
Cancelled or expired	( i 2,475)	$	i 45.18
Outstanding at October 1, 2021	i 573,984	$	i 45.65
Granted (1)	i 150,951	$	i 12.79
Exercised	( i 284,502)	$	i 43.56
Cancelled or expired	( i 1,084)	$	i 21.34
Outstanding at September 30, 2022	i 439,349	$	i 35.77

(1) Included in the September 30, 2022 amounts are options issued related to a recent business combination with strike prices lower than the then-current share price in order to derive a certain value.

Cash received from the exercise of stock options, net of tax remitted, during the year ended September 30, 2022 was $ i 12.4 million.

F-35

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Stock options outstanding at September 30, 2022 consisted entirely of non-qualified stock options. i The following table presents the total intrinsic value of stock options exercised for the fiscal years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

For the Years Ended

$ i 28,149

$ i 9,693

$ i 9,986

The total intrinsic value of stock options exercisable at September 30, 2022 was approximately $ i 25.2 million. i The following table presents certain other information regarding our 1999 SIP and 1999 OSDP for the fiscal years ended September 30, 2022, October 1, 2021 and October 2, 2020:

At fiscal year end:

Range of exercise prices for options exercisable (1)

$ i 5.64–$ i 60.43

$ i 37.03–$ i 60.43

$ i 32.51–$ i 60.43

Number of options exercisable

i 367,624

i 573,984

i 706,489

For the fiscal year:

Range of prices relating to options exercised

$ i 11.27–$ i 60.43

$ i 32.51-$ i 60.43

$ i 37.03-$ i 60.08

The following table presents certain information regarding stock options outstanding and stock options exercisable at September 30, 2022:

Options Outstanding and Exercisable

Range of Exercise Prices

Number

Weighted Average Remaining Contractual Life (years)

Weighted Average Price

$ i 32.51 - $ i 37.03

i i 149,328 /

i 7.60

i i 12.79 /

$ i 37.43 - $ i 46.09

i i 178,009 /

i 2.82

i i 43.01 /

$ i 47.11 - $ i 55.13

i i 90,137 /

i 0.96

i i 53.53 /

$ i 60.08 - $ i 80.63

i i 21,875 /

i 1.42

i i 60.43 /

i i 439,349 /

i 3.99

i i 35.77 /

The 1999 ODSP and the 1999 SIP allow participants to satisfy the exercise price of stock options by tendering shares of Jacobs common stock that have been owned by the participants for at least six months. Shares so tendered are retired and canceled, and are shown as repurchases of common stock in the accompanying Consolidated Statements of Stockholders’ Equity. The weighted average remaining contractual term of options currently exercisable is i 3.1 years.

F-36

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Restricted Stock

The following table presents the number of shares of restricted stock and restricted stock units issued as common stock under the 1999 SIP for the years ended September 30, 2022, October 1, 2021 and October 2, 2020:

For the Years Ended

Restricted stock

i 818

i —

Restricted stock units (service condition)

i 290,582

i 380,722

i 351,670

Restricted stock units (service and performance conditions)

i 176,470

i 181,132

i 202,792

The amount of restricted stock units issued for awards with performance conditions in the above table are issued based on performance against the target amount. The number of shares ultimately issued, which could be greater or less than target, will be based on achieving specific performance conditions related to the awards as well as achieving the service condition required for the restricted stock units to vest.

The following table presents the number and weighted average grant-date fair value of restricted stock and restricted stock units at September 30, 2022:


	Number of Shares	Weighted Average Grant-Date Fair Value
Outstanding at October 1, 2021	i 1,444,231	$	i 91.23
Granted	i 623,323	$	i 127.35
Vested	( i 602,793)	$	i 80.95
Canceled	( i 89,332)	$	i 113.89
Outstanding at September 30, 2022	i 1,375,429	$	i 110.64

The following table presents the number of shares of restricted stock and restricted stock units canceled and withheld for taxes under the 1999 SIP for the years ended September 30, 2022, October 1, 2021 and October 2, 2020:

For the Years Ended

Restricted stock

i —

i 34,417

Restricted stock units (service condition)

i 57,366

i 201,967

i 183,099

Restricted stock units (service and performance conditions)

i 31,966

i 218,520

i 160,781

The amount of unvested restricted stock units canceled for awards with service and performance conditions in the above table is based on the service period achieved and performance against the target amount.

The restrictions attached to restricted stock and restricted stock units generally relate to the recipient’s ability to sell or otherwise transfer the stock or stock units. There are also restrictions that subject the stock and stock units to forfeiture back to the Company until earned by the recipient through continued employment or service.

The following table provides the number of restricted stock units outstanding at September 30, 2022 under the 1999 SIP.

F-37

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


			September 30, 2022
Restricted stock			i 252
Restricted stock units (service condition)			i 732,945
Restricted stock units (service and performance conditions)			i 585,099

The following table presents the number of shares of restricted stock and restricted stock units issued under the 1999 ODSP for the years ended September 30, 2022, October 1, 2021 and October 2, 2020:

For the Years Ended

Restricted stock units (service condition)

i 13,785

i 17,680

i 18,100

No shares of restricted stock were issued under the 1999 ODSP during such periods.

The following table provides the number of shares of restricted stock and restricted stock units outstanding at September 30, 2022 under the 1999 ODSP:


			September 30, 2022
Restricted stock			i —
Restricted stock units (service condition)			i 57,133

All shares granted under the 1999 ODSP are issued on a i 1.92-to-1.00 basis.

12. i Savings and Deferred Compensation Plans

Savings Plans

We sponsor various defined contribution savings plans which allow participants to make voluntary contributions by salary deduction. Such plans cover substantially all of our domestic, nonunion employees in the U.S. and are qualified under Section 401(k) of the U.S. Internal Revenue Code. Similar plans outside the U.S. cover various groups of employees of our international subsidiaries and affiliates. Several of these plans allow the Company to match, on a voluntary basis, a portion of the employee contributions. i The following table presents the Company’s contributions to these savings plans for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

i 184,399

i 132,865

i 91,833

Deferred Compensation Plans

Our non-qualified deferred compensation programs provide benefits payable to directors, officers, and certain key employees or their designated beneficiaries at specified future dates, upon retirement, or death. The plans are unfunded; therefore, benefits are paid from the general assets of the Company. Participants' cash deferrals earn a return based on the participants' selection of investments in several hypothetical investment options. Participants are also able to defer stock based compensation in the plans, which must remain invested in Company stock and are distributed in shares of Jacobs common stock. Since no investment diversification is permitted, changes in the fair value of Jacobs' common stock are not recognized. For the deferred compensation held in company stock, the number of shares needed to settle the liability is included in the denominator in both the basic and diluted earnings per share calculations. i The following table presents the amount charged to expense for the Company’s deferred compensation plans for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

i 1,697

i 2,900

i 203

F-38

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents the amount relating to assets held as deferred compensation arrangement investments for the years ended September 30, 2022 and October 1, 2021 (in thousands):


	September 30, 2022		October 1, 2021
Deferred compensation arrangement investments	$	i 165,118	$	i 210,223

Deferred compensation arrangement investments are comprised primarily of the cash surrender value of life insurance policies and pooled-investment funds. The fair value of the pooled investment funds is derived using Level 2 inputs.

13. i Pension and Other Postretirement Benefit Plans

Company-Only Sponsored Plans

We sponsor various defined benefit pension and other post retirement plans covering employees of certain U.S. and international subsidiaries. The pension plans provide pension benefits that are based on the employee’s compensation and years of service. Our funding policy varies by country and plan according to applicable local funding requirements and plan-specific funding agreements.

The accounting for pension and other post-retirement benefit plans requires the use of assumptions and estimates in order to calculate periodic benefit cost and the value of the plans’ assets and benefit obligations. These assumptions include discount rates, investment returns, and projected salary increases, among others. The discount rates used in valuing the plans' benefit obligations were determined with reference to high quality corporate and government bonds that are appropriately matched to the duration of each plan's obligations. The expected long-term rate of return on plan assets is generally based on using country-specific simulation models which select a single outcome for expected return based on the target asset allocation. The expected long-term rates of return used in the valuation are the annual average returns generated by these assumptions over a i 20-year period for each asset class based on the expected long-term rate of return of the underlying assets.

The following table sets forth the changes in the plans’ combined net benefit obligation (segregated between plans existing within and outside the U.S.) for the years ended September 30, 2022 and October 1, 2021 (in thousands):

U.S. Plans

Non-U.S. Plans

Net benefit obligation at the beginning of the year

i 404,820

i 437,920

i 2,375,640

i 2,388,077

Service cost

i 236

i 456

i 6,480

i 6,568

Interest cost

i 10,350

i 10,221

i 42,328

i 38,907

Participants’ contributions

i —

i 249

i 212

Actuarial gains (1)

( i 85,067)

( i 11,808)

( i 651,798)

( i 140,670)

Benefits paid

( i 25,565)

( i 25,582)

( i 74,378)

( i 74,477)

Curtailments/settlements/plan amendments

( i 5,271)

( i 6,387)

( i 2,641)

( i 13,932)

Acquisition of PA Consulting Plans, net of post-deal transfers (2)

i —

i 66,065

Effect of exchange rate changes and other, net

i —

( i 330,414)

i 104,890

Net benefit obligation at the end of the year

i 299,503

i 404,820

i 1,365,466

i 2,375,640

(1)Actuarial gains primarily driven by change in discount rates.

(2)See note below change in assets table.

F-39

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table sets forth the changes in the combined Fair Value of the plans’ assets (segregated between plans existing within and outside the U.S.) for the years ended September 30, 2022 and October 1, 2021 (in thousands):

U.S. Plans

Non-U.S. Plans

Fair value of plan assets at the beginning of the year

i 385,521

i 382,250

i 2,203,495

i 2,043,356

Actual (loss) return on plan assets

( i 68,585)

i 35,152

( i 557,972)

i 60,040

Employer contributions

i 93

i 88

i 33,032

i 39,085

Participants’ contributions

i —

i 249

i 212

Gross benefits paid

( i 25,565)

( i 25,582)

( i 74,378)

( i 74,477)

Curtailments/settlements/plan amendments

( i 5,271)

( i 6,387)

( i 2,641)

( i 13,932)

Acquisition of PA Consulting Plans, net of post-deal transfers

i —

i 60,160

Effect of exchange rate changes and other, net

i —

( i 304,160)

i 89,051

Fair value of plan assets at the end of the year

i 286,193

i 385,521

i 1,297,625

i 2,203,495

On March 2, 2021, the Company made a strategic investment in PA Consulting, and as a result acquired a gross pension plan obligation of $ i 1.025 billion and pension assets of $ i 1.018 billion. In the third quarter of fiscal 2021, PA Consulting transferred the majority of the assets and liabilities of its largest pension plan to an insurance company, approximately $ i i 960 / million each, effectively settling those related assets and liabilities for no impact to net income.

Also during fiscal 2022 and 2021, the Company incurred combined curtailment and settlement losses on our defined benefit plans of approximately $ i 0.1 million and $ i 2.8 million, respectively, primarily related to the Ireland, US and UK plans.

The following table reconciles the combined funded statuses of the plans recognized in the accompanying Consolidated Balance Sheets at September 30, 2022 and October 1, 2021 (segregated between plans existing within and outside the U.S.) (in thousands):

U.S. Plans

Non-U.S. Plans

Net benefit obligation at the end of the year

i 299,503

i 404,820

i 1,365,466

i 2,375,640

Fair value of plan assets at the end of the year

i 286,193

i 385,521

i 1,297,625

i 2,203,495

Underfunded amount recognized at the end of the year

i 13,310

i 19,299

i 67,841

i 172,145

/ i

The following table presents the accumulated benefit obligation at September 30, 2022 and October 1, 2021 (segregated between plans existing within and outside the U.S.) (in thousands):

U.S. Plans

Non-U.S. Plans

Accumulated benefit obligation at the end of the year

i 299,347

i 404,283

i 1,355,717

i 2,305,808

F-40

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents the amounts recognized in the accompanying Consolidated Balance Sheets at September 30, 2022 and October 1, 2021 (segregated between plans existing within and outside the U.S.) (in thousands):

U.S. Plans

Non-U.S. Plans

Prepaid benefit cost included in noncurrent assets

i —

i 54,897

i 48,340

Accrued benefit cost included in current liabilities

i 83

i 84

i 4,359

i 3,873

Accrued benefit cost included in noncurrent liabilities

i 13,227

i 19,215

i 118,379

i 216,612

Net amount recognized at the end of the year

i 13,310

i 19,299

i 67,841

i 172,145

/ i

The following table presents the significant actuarial assumptions used in determining the funded statuses and the following year's benefit cost of the Company’s U.S. plans for the years ended September 30, 2022, October 1, 2021 and October 2, 2020:

For the Years Ended

Discount rates

i 4.2% to i 5.5%

i 2.3% to i 2.8%

i 2.0% to i 2.7%

Rates of compensation increases

i 3.5%

Expected long-term rates of return on assets

i 5.5% to i 6.4%

i 4.7% to i 5.1%

i 4.6% to i 4.7%

/ i

The following table presents the significant actuarial assumptions used in determining the funded statuses and the following year's benefit cost of the Company’s non-U.S. plans for the years ended September 30, 2022, October 1, 2021 and October 2, 2020:

For the Years Ended

Discount rates

i 2.4% to i 7.4%

i 0.6% to i 6.6%

i 0.4% to i 6.6%

Rates of compensation increases

i 2.5% to i 9.0%

i 2.4% to i 7.5%

i 2.7% to i 7.5%

Expected long-term rates of return on assets

i 3.3% to i 7.5%

i 2.0% to i 7.0%

i 1.8% to i 7.0%

/ i

The following table presents certain amounts relating to our U.S. plans recognized in accumulated other comprehensive (gain) loss at September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

Arising during the period:

Net actuarial loss (gain)

i 578

( i 25,109)

( i 900)

Prior service cost

i —

i 1,589

Total

i 578

( i 25,109)

i 689

Reclassification adjustments:

Net actuarial losses

( i 2,157)

( i 3,204)

( i 2,653)

Prior service (benefit)

( i 324)

( i 325)

( i 244)

Total

( i 2,481)

( i 3,529)

( i 2,897)

Total

( i 1,903)

( i 28,638)

( i 2,208)

F-41

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents certain amounts relating to our non-U.S. plans recognized in accumulated other comprehensive (gain) loss at September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

Arising during the period:

Net actuarial (gain) loss

( i 78,705)

( i 65,547)

i 71,676

Prior service cost

i —

Total

( i 78,705)

( i 65,547)

i 71,676

Reclassification adjustments:

Net actuarial losses

( i 5,492)

( i 8,761)

( i 6,322)

Prior service (benefit)

( i 1,066)

( i 1,219)

( i 1,169)

Total

( i 6,558)

( i 9,980)

( i 7,491)

Total

( i 85,263)

( i 75,527)

i 64,185

/ i

The following table presents certain amounts relating to our plans recorded in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost at September 30, 2022 and October 1, 2021 (segregated between U.S. and non-U.S. plans) (in thousands):

U.S. Plans

Non-U.S. Plans

Net actuarial loss

i 37,638

i 39,217

i 248,716

i 328,397

Prior service cost

i 697

i 1,021

i 20,344

i 25,926

Total

i 38,335

i 40,238

i 269,060

i 354,323

/ i

The following table presents the amount of accumulated comprehensive income that will be amortized against earnings as part of our net periodic benefit cost in fiscal 2023 based on 2022 exchange rates (segregated between U.S. and non-U.S. plans) (in thousands):


	U.S. Plans		Non-U.S. Plans
Unrecognized net actuarial (gain) or loss	$	( i 1,770)	$	i 5,310
Unrecognized prior service cost	i 431		i 1,246
Accumulated comprehensive (gain) or loss to be recorded against earnings	$	( i 1,339)	$	i 6,556

We consider various factors in developing the estimates for the expected, long-term rates of return on plan assets. These factors include the projected, long-term rates of returns on the various types of assets in which the plans invest, as well as historical returns. In general, investment allocations are determined by each plan’s trustees and/or investment committees. The objectives of the plans’ investment policies are to (i) maximize returns while preserving capital; (ii) provide returns sufficient to meet the current and long-term obligations of the plan as the obligations become due; and (iii) maintain a diversified portfolio of assets so as to reduce the risk associated with having a disproportionate amount of the plans’ total assets invested in any one type of asset, issuer or geography. None of our pension plans hold Jacobs common stock directly (although some plans may hold shares indirectly through investments in mutual funds). i The plans’ weighted average asset allocations at September 30, 2022 and October 1, 2021 (the measurement dates used in valuing the plans’ assets and liabilities) were as follows:

U.S. Plans

Non-U.S. Plans

Equity securities

i 2

i 3

i 15

Debt securities

i 66

i 58

i 49

i 54

Real estate investments

i —

i 11

i 9

Other

i 32

i 39

i 25

i 22

F-42

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents the Fair Value of the Company’s Domestic U.S. plan assets at September 30, 2022, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands):

Fair Value, Determined Using Fair Value Measurement Inputs

Level 1

Level 2

Level 3

Investments measured at Net Asset Value

Total

Equities

i 6,708

i —

i 6,708

Domestic bonds

i 64,396

i 106,961

i —

i 171,357

Overseas bonds

i —

i 15,200

i —

i 15,200

Cash and equivalents

i 19,025

i —

i 19,025

Mutual funds

i 73,903

i —

i 73,903

Total

i 164,032

i 122,161

i —

i 286,193

/ i

The following table presents the Fair Value of the Company’s non-U.S. plan assets at September 30, 2022, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands):

Fair Value, Determined Using Fair Value Measurement Inputs

Level 1

Level 2

Level 3

Investments measured at Net Asset Value

Total

Domestic equities

i —

i 42,655

i —

i 1,539

i 44,194

Overseas equities

i —

i 74,056

i —

i 76,813

i 150,869

Domestic bonds

i —

i 38,448

i —

i 38,448

Overseas bonds

i —

i 532,697

i —

i 64,897

i 597,594

Cash and equivalents

i 9,667

i 1,835

i —

i 11,502

Real estate

i —

i 4,076

i 102,868

i 36,959

i 143,903

Insurance contracts

i —

i 80,231

Hedge funds

i —

i 138,603

i 11,568

i 150,171

Mutual funds

i —

i 80,713

i —

i 80,713

Total

i 9,667

i 774,480

i 321,702

i 191,776

i 1,297,625

F-43

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents the Fair Value of the Company’s U.S. plan assets at October 1, 2021, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands):

Fair Value, Determined Using Fair Value Measurement Inputs

Level 1

Level 2

Level 3

Investments measured at Net Asset Value

Total

Equities

i 12,331

i —

i 12,331

Domestic bonds

i 74,456

i 132,138

i —

i 206,594

Overseas bonds

i —

i 15,730

i —

i 15,730

Cash and equivalents

i 22,634

i —

i 22,634

Mutual funds

i 128,232

i —

i 128,232

Total

i 237,653

i 147,868

i —

i 385,521

The following table presents the Fair Value of the Company’s non-U.S. plan assets at October 1, 2021, segregated by level of Fair Value measurement inputs within the Fair Value hierarchy promulgated by U.S. GAAP (in thousands):

Fair Value, Determined Using Fair Value Measurement Inputs

Level 1

Level 2

Level 3

Investments measured at Net Asset Value

Total

Domestic equities

i —

i 86,117

i —

i 2,662

i 88,779

Overseas equities

i —

i 142,243

i —

i 101,071

i 243,314

Domestic bonds

i —

i 48,119

i —

i 48,119

Overseas bonds

i —

i 1,049,585

i —

i 56,616

i 1,106,201

Cash and equivalents

i 27,579

i 1,322

i —

i 28,901

Real estate

i —

i 17,319

i 116,936

i 53,434

i 187,689

Insurance contracts

i —

i 133,802

i —

i 133,802

Hedge funds

i —

i 231,319

i 16,020

i 247,339

Mutual funds

i —

i 119,351

i —

i 119,351

Total

i 27,579

i 1,464,056

i 482,057

i 229,803

i 2,203,495

The following table summarizes the changes in the Fair Value of the Company’s non-U.S. Pension Plans’ Level 3 assets for the years ended September 30, 2022 and October 1, 2021 (in thousands):

Real Estate

Insurance Contracts

Hedge Funds

Balance at Balance at October 2, 2020

i 105,422

i 67,709

i 171,730

Purchases, sales, and settlements

i 6,288

i 2,413

i 51,513

Realized and unrealized gains

i 398

i 1,448

i 864

Acquisition of PA Consulting Plans, net of post-deal transfers

i —

i 60,160

i —

Effect of exchange rate changes

i 4,828

i 2,072

i 7,212

Balance at October 1, 2021

i 116,936

i 133,802

i 231,319

Purchases, sales, and settlements

( i 8,686)

( i 6,312)

( i 11,553)

Realized and unrealized losses

i 14,701

( i 24,770)

( i 42,964)

Effect of exchange rate changes

( i 20,083)

( i 22,489)

( i 38,199)

Balance at September 30, 2022

i 102,868

i 80,231

i 138,603

F-44

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents the amount of cash contributions we anticipate making into the plans during fiscal 2023 (in thousands):


	U.S. Plans		Non-U.S. Plans
Anticipated cash contributions	$	i —	$	i 26,651

/ i

The following table presents the total benefit payments expected to be paid to plan participants during each of the next five fiscal years, and in total for the five years thereafter (in thousands):


	U.S. Plans		Non-U.S. Pans
2023	$	i 30,869	$	i 62,922
2024	i 28,884		i 67,058
2025	i 28,088		i 68,129
2026	i 27,377		i 72,069
2027	i 26,139		i 78,254
For the periods 2028 through 2032	i 115,872		i 351,748

/ i

The following table presents the components of net periodic benefit cost for the Company’s U.S. plans recognized in the accompanying Consolidated Statements of Earnings for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

Service cost

i 236

i 456

i 409

Interest cost

i 10,350

i 10,221

i 12,673

Expected return on plan assets

( i 16,933)

( i 15,932)

( i 17,670)

Actuarial loss

i 2,861

i 4,249

i 3,518

Prior service cost

i 430

i 431

i 323

Net pension cost, before special items

( i 3,056)

( i 575)

( i 747)

Curtailment expense/Settlement (gain) loss

( i 206)

( i 64)

i 3,436

Total net periodic pension (income) cost recognized

( i 3,262)

( i 639)

i 2,689

/ i

The following table presents the components of net periodic benefit cost for the Company’s Non-U.S. plans recognized in the accompanying Consolidated Statements of Earnings for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

Service cost

i 6,480

i 6,568

i 5,710

Interest cost

i 42,328

i 38,907

i 39,469

Expected return on plan assets

( i 71,875)

( i 90,346)

( i 93,407)

Actuarial loss

i 7,147

i 10,834

i 7,578

Prior service cost

i 1,421

i 1,519

i 1,405

Net pension cost, before special items

( i 14,499)

( i 32,518)

( i 39,245)

Curtailment expense/Settlement loss

i 329

i 2,847

i 1,341

Total net periodic pension (income) cost recognized

( i 14,170)

( i 29,671)

( i 37,904)

The service cost component of net periodic pension income is presented in direct cost of contracts and selling, general and administrative expenses while all other components are presented in miscellaneous income (expense), net on the Consolidated Statements of Earnings for the years presented above.

F-45

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Multiemployer Plans

In the U.S. and various other countries, we contribute to trusteed pension plans covering hourly and certain salaried employees under industry-wide agreements. Contributions are based on the hours worked by employees covered under these agreements and are charged to direct costs of contracts on a current basis. With respect to these multiemployer plans, the Company's liability to fund these plans is generally limited to the contributions we are required to make under collective bargaining agreements.

Based on our review of our multiemployer pension plans under the guidance provided in ASU 2011-09— Compensation-Retirement Benefits-Multiemployer Plans, we have concluded that none of the multiemployer pension plans into which we contribute are individually significant to our Consolidated Financial Statements.

The following table presents the Company’s contributions to these multiemployer plans for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

Europe

i 1,548

i 1,713

i 1,922

United States

i 11,038

i 11,316

i 6,637

Contributions to multiemployer pension plans

i 12,586

i 13,029

i 8,559

F-46

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

14. i 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 i 65% interest in PA Consulting, a UK-based leading innovation and transformation consulting firm. The total consideration paid by the Company was $ i 1.7 billion, funded through cash on hand, proceeds from a new term loan and draws on the Company's existing Revolving Credit Facility. Further, in connection with the transaction, an additional $261 million in investment proceeds had not yet been distributed at the investment date due to continuing employment requirements of associated management owners. Consequently, this amount represented compensation expense incurred related to the investment that was expensed subsequent to the date of the transaction, and was reflected in selling, general and administrative expense and cash from operations for the fiscal year ended October 1, 2021. The remaining 35% interest was acquired by PA Consulting employees, whose redeemable noncontrolling interests had a fair value of $ i 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. See Note 9 - Borrowings for more discussion on the financing for the transaction.

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


Assets
Cash and cash equivalents	$	i 134.9
Receivables	i 166.5
Property, equipment and improvements, net	i 40.5
Goodwill	i 1,454.0
Identifiable intangible assets	i 1,004.2
Prepaid expenses and other current assets	i 9.5
Miscellaneous long term assets	i 84.0
Total Assets	$	i 2,893.6

Liabilities
Accounts payable	$	i 6.5
Accrued liabilities and other current liabilities	i 354.8
Other long term liabilities	i 248.0
Total Liabilities	i 609.3
Redeemable Noncontrolling interests	i 582.4
Net assets acquired	$	i 1,701.9

Goodwill recognized is attributable to a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future economic benefits. i 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 PA Consulting's assets acquired and liabilities assumed. Since the initial preliminary estimates reported in the second quarter of fiscal 2021, the Company has updated certain provisional amounts reflected in the final 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 i 9 to i 20 years (weighted average life of approximately i 12 years).

F-47

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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. i These pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the related events occurred (in millions, except per share data):


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

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

F-48

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Redeemable Noncontrolling Interests

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

During fiscal 2022, the Company repurchased certain shares of the redeemable noncontrolling interest holders for $ i 46.1 million in cash and issued certain shares of redeemable noncontrolling interest holders for $ i 49.7 million. The difference between the cash purchase prices and the recorded book values of these repurchased and issued interests was recorded in the Company’s consolidated retained earnings.

During 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 $ i 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 $ i 0.44. See Note 4- Earnings Per Share and Certain Related Information. The results of these adjustments had no impact on the Company’s overall results of operations, financial position, or cash flows.

Changes in the Company's redeemable noncontrolling interests during the fiscal year ended September 30, 2022 are as follows (in thousands):

Total

Balance at October 1, 2021

i 657,722

Accrued Preferred Dividend to Preference Shareholders

i 67,598

Attribution of Preferred Dividend to Common Shareholders

( i 67,598)

Net earnings attributable to redeemable noncontrolling interest to Common Shareholders

i 34,585

Redeemable Noncontrolling interests redemption value adjustment

i 27,657

Repurchase of redeemable noncontrolling interests

( i 53,834)

Issuance of redeemable noncontrolling interests

i 54,884

Cumulative translation adjustment and other

( i 88,492)

Balance at September 30, 2022

i 632,522

In addition, certain employees and nonemployees of PA Consulting are eligible to receive equity-based incentive compensation under the terms of the applicable agreements. During the years ended September 30, 2022 and October 1, 2021, the Company recorded approximately $ i 3.3 million and $ i 0.4 million, respectively, in expense associated with these agreements which is reflected in selling, general and administrative expense in the consolidated statements of earnings.

Restricted Cash

The Company through its investment in PA Consulting held $ i 13.7 million in cash that is restricted from general use and is included in prepaid expenses and other current assets on the Consolidated Balance Sheet.

F-49

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

15. i Other Business Combinations

StreetLight Data, Inc.

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 $190.8 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. i The following summarizes the fair values of StreetLight's assets acquired and liabilities assumed as of the acquisition date (in millions):


Assets
Cash and cash equivalents	$	i 7.3
Receivables	i 5.2
Property, equipment and improvements, net	i 0.1
Goodwill	i 116.5
Identifiable intangible assets	i 105.1
Prepaid expenses and other current assets	i 2.0
Total Assets	$	i 236.2

Liabilities
Accounts payable, accrued expenses and other current liabilities	$	i 23.1
Other long term liabilities	i 16.2
Total Liabilities	i 39.3
Net assets acquired	$	i 196.9

The purchase price allocation is based upon preliminary information and is subject to change when additional information is obtained. Goodwill recognized is attributable to a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. i 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 StreetLight'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 2022, the Company has updated certain amounts reflected in the preliminary purchase price allocation, as summarized in the fair values of StreetLight's assets acquired and liabilities assumed as of the acquisition date set forth above, the majority of which related to reclassifications between goodwill and intangibles and for deferred taxes.

Identifiable intangibles are technology, data and customer relationships, contracts and backlog and have estimated lives of i 5, i 4 and i 9 years, respectively.

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

F-50

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

BlackLynx


Assets
Cash and cash equivalents	$	i 5.1
Receivables	i 7.7
Property, equipment and improvements, net	i 0.8
Goodwill	i 195.8
Identifiable intangible assets	i 51.1
Prepaid expenses and other current assets	i 3.2

Total Assets	$	i 263.7

Liabilities
Accounts payable, accrued expenses and other current liabilities	$	i 19.5
Other long term liabilities	i 8.8
Total Liabilities	i 28.3
Net assets acquired	$	i 235.4

Goodwill recognized is attributable to a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. i 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 BlackLynx's assets acquired and liabilities assumed. Since the initial preliminary estimates reported in the first quarter of fiscal 2021, the Company has updated certain amounts reflected in the preliminary purchase price allocation, as summarized in the fair values of BlackLynx's assets acquired and liabilities assumed as of the acquisition date set forth above, the majority of which related to reclassifications between goodwill and intangibles and for deferred taxes.

Identifiable intangibles are technology and customer relationships, contracts and backlog and have estimated lives of i 8 years and i 4 years, respectively.

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

F-51

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Buffalo Group

On November 24, 2020, a subsidiary of Jacobs completed the acquisition of Buffalo Group, a leader in advanced cyber and intelligence solutions which allows Jacobs to further expand its cyber and intelligence solutions offerings to government clients. The Company paid total consideration of $ i 190.1 million, which was comprised of approximately $ i 182.4 million in cash to the former owners of Buffalo Group and contingent consideration of $ i 7.7 million. The contingent consideration was subsequently recognized in fiscal 2021 as an offset to selling, general and administrative expense when it was determined no amounts would be paid. In conjunction with the acquisition, the Company assumed the Buffalo Group's debt of approximately $ i 7.7 million. The Company repaid all of the assumed Buffalo Group debt by the end of the first fiscal quarter of 2021. i 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	$	i 8.4
Receivables	i 19.2
Property, equipment and improvements, net	i 2.3
Goodwill	i 130.7
Identifiable intangible assets	i 74.0
Prepaid expenses and other current assets	i 6.2
Total Assets	$	i 240.8

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

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

Goodwill recognized is attributable to 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 for tax purposes. The Company has completed its final assessment of the fair values of Buffalo Group's assets acquired and liabilities assumed. Since the initial preliminary estimates reported in the first quarter of fiscal 2021, the Company has updated certain amounts reflected in the final purchase price allocation, as summarized in the fair values of Buffalo Group's assets acquired and liabilities assumed as of the acquisition date set forth above.

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

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 £ i 246 million, or approximately $ i 317.9 million, less cash acquired of $ i 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. i The following summarizes the fair values of John Wood Group's assets acquired and liabilities assumed as of the acquisition date (in millions):

F-52

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


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

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

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

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

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.

16. i Sale of Energy, Chemicals and Resources ("ECR") Business

On April 26, 2019, Jacobs completed the sale of its ECR business to Worley for a purchase price of $ i 3.4 billion consisting of (i) $ i 2.8 billion in cash plus (ii) i 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”).

As a result of the ECR sale, substantially all ECR-related assets and liabilities were sold (the "Disposal Group"). We determined that the Disposal Group should be reported as discontinued operations in accordance with ASC 210-05, Discontinued Operations as the disposal represented a strategic shift that had a major effect on our operations and financial results. As such, the financial results of the ECR business are reflected in our Consolidated Statements of Earnings as discontinued operations for all periods presented.

As a result of the ECR sale, the Company recognized a pre-tax gain of $ i 1.1 billion, $ i 935.1 million of which was recognized in fiscal 2019, $ i 110.2 million in fiscal 2020 and $ i 15.6 million for the year ended October 1, 2021, respectively.

In the second quarter of fiscal 2021, the Company received final working capital settlement proceeds of $ i 36.4 million from Worley and as such, recorded a pre-tax gain of $ i 15.6 million. Offsetting the proceeds from the settlement to arrive at the net gain amount were previously recorded accounts receivable from Worley.

Investment in Worley Stock

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As discussed above, the Company held ordinary shares of Worley that it received in connection with the ECR sale. Dividend income, realized gains and losses on sale and unrealized gains and losses on changes in fair value of Worley shares are recognized in miscellaneous income (expense), net in continuing operations prior to sale. The Company's investment in Worley was measured at fair value through net income as it is an equity investment with a readily determinable fair value based on quoted market prices and for the years ended October 1, 2021 and October 2, 2020, the Company recognized a gain of $ i 40.7 million and a loss of $ i 103.6 million, respectively, associated with share price and currency changes on this investment, as well as dividend income related to the equity investment in the amount of $ i 19.1 million and $ i 16.9 million, respectively. The Company completed the sale of all ordinary shares of Worley it held in the fourth fiscal quarter of fiscal 2021.

17. i Restructuring and Other Charges

During fiscal 2022, the Company implemented certain restructuring and integration initiatives relating to the StreetLight and BlackLynx acquisitions, the activities of which are expected to be substantially completed before the end of fiscal 2023. Also, during fiscal 2022, the Company implemented further real estate rescaling efforts that were associated with its fiscal 2020 transformation program relating to real estate and other staffing initiatives. These initiatives are expected to continue into fiscal 2023.

During fiscal 2021, the Company implemented certain restructuring and integration initiatives relating to the Buffalo Group acquisition and the PA Consulting investment. The activities of the Buffalo Group initiative are substantially completed and the activities of the PA Consulting investment are expected to end before the end of fiscal 2025.

Additionally, the Company recorded impairment charges on its investment in AWE ML during fiscal 2021. See related discussion in Note 8- Joint ventures, VIEs and other investments.

During fiscal 2019 and continuing into fiscal 2020, the Company implemented certain restructuring and separation initiatives associated with the ECR sale, the KeyW acquisition, and other related cost reduction initiatives. Additionally, in fiscal 2020, the Company implemented certain restructuring and separation initiatives associated with the acquisition of John Wood Group's nuclear business. The restructuring activities and related costs were comprised mainly of separation and lease abandonment and sublease programs, while the separation activities and costs were mainly related to the engagement of consulting services and internal personnel and other related costs dedicated to the Company’s ECR-business separation. The activities of these initiatives have been substantially completed.

As part of the Company's acquisition of CH2M Hill Companies, Ltd. ("CH2M") during fiscal 2018, the Company implemented certain restructuring plans that were comprised mainly of severance and lease abandonment programs as well as integration activities involving the engagement of professional services and internal personnel dedicated to the Company's integration management efforts. The activities of these initiatives have been substantially completed.

Collectively, the above-mentioned restructuring activities are referred to as “Restructuring and other charges”.

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table summarizes the impacts of the Restructuring and other charges by operating segment in connection with the CH2M, KeyW, John Wood Group nuclear business and Buffalo Group, BlackLynx and StreetLight acquisitions and the PA Consulting investment, the ECR sale, the Company's transformation initiatives relating to real estate and other staffing programs and the impairment and final exit activities of the AWE ML investment for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

Critical Mission Solutions

i 5,626

i 5,079

i 24,083

People & Places Solutions

i 64,204

i 7,077

i 170,631

PA Consulting

i 4,253

i 15,566

i —

Corporate

i 86,980

i 71,868

i 129,469

Total

i 161,063

i 99,590

i 324,183

Amounts included in:

Operating profit (mainly Selling, General and Administrative costs (“SG&A") (1)

i 173,555

i 61,042

i 322,082

Other (Income) Expense, net (2)

( i 12,492)

i 38,548

i 2,101

i 161,063

i 99,590

i 324,183

(1)For the year ended September 30, 2022, amounts include $ i 91.3 million pre-tax related to the final settlement of the Legacy CH2M Matter (as defined in Note 19 - Contractual Guarantees, Litigation, Investigations and Insurance), net of previously recorded reserves, approximately $ i 27 million in third party recoveries was recorded as receivables reducing SG&A and approximately $ i 78.3 million in charges associated with real estate related impairments, the majority of which related to People and Places Solutions. Included in the years ended October 1, 2021 and October 2, 2020 were $ i 2.4 million and $ i 161.4 million in charges associated mainly with real estate impairments.

(2)The year ended September 30, 2022 includes gains of $( i 8.7) million related to lease terminations. The year ended October 1, 2021 included $ i 38.5 million in charges related to the impairment of our AWE ML investment. See Note 20- Segment Information.

/ i

The activity in the Company’s accrual for the Restructuring and other charges including the program activities described above for the year ended September 30, 2022 is as follows (in thousands):


Balance at October 1, 2021	$	i 14,031
Net Charges (1)	i 25,824
Payments & Usage	( i 35,718)
Balance at September 30, 2022	$	i 4,137

(1) Excludes $ i 135.3 million in other net charges mainly comprised of $ i 91.3 million pre-tax in charges and payments for the final settlement of the Legacy CH2M Matter (net of previously recorded reserves), approximately $ i 27 million in third party recoveries was recorded as receivables reducing SG&A and $ i 71.0 million associated mainly with real estate related impairments and other transformation activities described above during the year ended September 30, 2022.

/ i

The following table summarizes the Restructuring and other charges by major type of costs for the years ended September 30, 2022, October 1, 2021 and October 2, 2020 (in thousands):

Lease Abandonments and Impairments (1)

i 69,802

i 4,282

i 151,150

Voluntary and Involuntary Terminations

i 5,635

i 15,773

i 53,484

Outside Services

i 22,340

i 35,210

i 88,476

Other (2)

i 63,286

i 44,325

i 31,073

Total

i 161,063

i 99,590

i 324,183

(1)The years ended September 30, 2022 and October 2, 2020 include approximately $ i 78.3 million and $ i 161.4 million, respectively, in charges associated with real estate related impairments reflected in Lease Abandonments and Impairments, offset by the gain of $( i 8.7) million related to lease terminations for the year ended September 30, 2022.

(2)Amounts in the year ended September 30, 2022 are mainly comprised of $ i 91.3 million in other charges related to the final pre-tax settlement of the Legacy CH2M Matter, net of previously recorded reserves and approximately $27 million in third party recoveries was recorded as receivables reducing SG&A. Amounts in the year ended October 1, 2021 are mainly comprised of $ i 38.5 million in charges related to the impairment of our AWE Management Ltd. investment.

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Cumulative amounts since 2017 incurred to date under our various restructuring and other activities described above by each major type of cost as of September 30, 2022 are as follows (in thousands):


Lease Abandonments and Impairments	$	i 387,601
Voluntary and Involuntary Terminations	i 150,377
Outside Services	i 316,334
Other	i 208,265
Total	$	i 1,062,577

18. i Commitments and Contingencies and Derivative Financial Instruments

Derivative Financial Instruments

The Company is exposed to interest rate risk under its variable rate borrowings and additionally, due to the nature of the Company's international operations, we are at times exposed to foreign currency risk. As such, we sometimes enter into foreign exchange contracts and interest rate contracts in order to limit our exposure to fluctuating foreign currencies and interest rates.

During fiscal 2022 we entered into i two treasury lock agreements with a total notional value of $ i 500.0 million as of September 30, 2022 to manage our interest rate exposure to the anticipated issuance of fixed rate debt before December 2023. The i two instruments locked in a fixed interest rate of i 2.769% for the first $ i 250 million of fixed rate debt to be issued and i 2.672% for the remaining amount to be issued. The fair value of the treasury locks at September 30, 2022 was $ i 40.9 million all of which is included in current assets within receivables and contract assets on the consolidated balance sheet. The unrealized net gain (loss) on these locks was $ i 30.8 million, net of tax, and is included in accumulated other comprehensive income as of September 30, 2022. Upon issuance of the fixed rate debt, the gain (loss) will be amortized to interest expense over the term of the debt.

In fiscal 2020 we entered into interest rate swap agreements with a notional value of $ i 748.4 million as of September 30, 2022 to manage the interest rate exposure on our variable rate loans. Additionally, we entered into a cross-currency swap agreement with a notional value of $ i 127.8 million to manage the interest rate and foreign currency exposure on our USD borrowings by a European subsidiary. By entering into the swap agreements, the Company converted the LIBOR and SONIA rate based liabilities into fixed rate liabilities and, for the cross currency swap, our LIBOR rate based borrowing in USD to a fixed rate Euro liability, for periods ranging from three and a half to i ten years. For U.S. dollar denominated interest rate swap agreements, the Company receives the one month LIBOR rate and pays monthly a fixed rate ranging from i 0.704% to i 1.116%. For interest rate swap agreements denominated in British pounds, the Company receives a one month adjusted SONIA rate and pays a monthly fixed rate of i 0.820%. Under the cross currency swap agreement, the Company receives the one month LIBOR rate plus i 0.875% in USD and pays monthly a Euro fixed rate of i 0.726% to i 0.746% for the term of the swaps. The swaps were designated as cash-flow hedges in accordance with ASC 815, Derivatives and Hedging. See Note 2 - Significant Accounting Policies for additional discussion related to the application of SONIA to existing hedge contracts. The fair value of the interest rate and cross currency swaps at September 30, 2022 was $ i 128.2 million, which is included in miscellaneous other assets on the consolidated balance sheet. The fair value of the interest rate and cross currency swaps at October 1, 2021 was $( i 0.8) million, of which, $( i 11.0) million is included in other deferred liabilities and $ i 10.2 million is included in miscellaneous other assets on the consolidated balance sheet. The unrealized net gain on these interest rate and cross currency swaps was $ i 87.5 million and $ i 7.4 million, net of tax, and was included in accumulated other comprehensive income as of September 30, 2022 and October 1, 2021, respectively.

Additionally, at September 30, 2022 and October 1, 2021, the Company held foreign exchange forward contracts in currencies that support our operations, including British Pound, Euro, Australian Dollar and other currencies, with notional values of $ i 298.2 million and $ i 506.5 million at September 30, 2022 and October 1, 2021, respectively. The length of these contracts currently ranges from one to i sixteen months. The fair value of the foreign exchange contracts at September 30, 2022 and October 1, 2021 was $( i 3.2) million and $ i 55.5 million, respectively, of which $( i 6.3) million is included within accounts payable, $ i 2.8 million is included within miscellaneous other assets and $ i 0.3 million included within current assets on the consolidated balance sheet as of September 30, 2022 with the entire $ i 55.5 million as of October 1, 2021 held in current assets within receivables and contract assets on the consolidated balance sheet. With associated income statement impacts included in miscellaneous income (expense) in the consolidated statements of earnings for both comparative periods. During fiscal 2022, the Company settled $ i 66.7 million in cash related to certain

F-56

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Australian Dollar foreign exchange forward contracts and subsequently entered into a new Australian Dollar instrument with an equal notional value which was ultimately settled later in fiscal 2022.

The fair value measurements of these derivatives are being made using Level 2 inputs under ASC 820, Fair Value Measurement, as the measurements are based on observable inputs other than quoted prices in active markets. We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under forward exchange and interest rate contracts and expect all counterparties to meet their obligations. We have not experienced credit losses from our counterparties.

Letters of Credit

At September 30, 2022, the Company had issued and outstanding approximately $ i 280.5 million in LOCs and $ i 2.2 billion in surety bonds. Of the outstanding LOC amount, $ i 1.3 million has been issued under the Revolving Credit Facility and $ i 279.2 million are issued under separate, committed and uncommitted letter-of-credit facilities.

19. i Contractual Guarantees, Litigation, Investigations and Insurance

In the normal course of business, we make contractual commitments (some of which are supported by separate guarantees) and on occasion we are a party in a litigation or arbitration proceeding. The litigation or arbitration in which we are involved primarily includes personal injury claims, professional liability claims and breach of contract claims. Where we provide a separate guarantee, it is strictly in support of the underlying contractual commitment. Guarantees take various forms including surety bonds required by law, or standby letters of credit ("LOC" and also referred to as “bank guarantees”) or corporate guarantees given to induce a party to enter into a contract with a subsidiary. Standby LOCs are also used as security for advance payments or in various other transactions. The guarantees have various expiration dates ranging from an arbitrary date to completion of our work (e.g., engineering only) to completion of the overall project. See Note 18- Commitments and Contingencies and Derivative Financial Instruments for more information surrounding LOCs and surety bonds.

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 is asserted by or against the Company. 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.

Additionally, as a contractor providing services to the U.S. federal government we are subject to many types of audits, investigations and claims by, or on behalf of, the government including with respect to contract performance, pricing, cost allocations, procurement practices, labor practices and socioeconomic obligations. Furthermore, our income, franchise and similar tax returns and filings are also subject to audit and investigation by the Internal Revenue Service, most states within the United States, as well as by various government agencies representing jurisdictions outside the United States.

Our Consolidated Balance Sheets include amounts representing our probable estimated liability relating to such claims, guarantees, litigation, audits and investigations. We perform an analysis to determine the level of reserves to establish for insurance-related claims that are known and have been asserted against us, as well as for insurance-related claims that are believed to have been incurred based on actuarial analysis, but have not yet been reported to our claims administrators as of the respective balance sheet dates. We include any adjustments to such insurance reserves in our consolidated results of operations. Insurance recoveries are recorded as assets if recovery is probable and estimated liabilities are not reduced by expected insurance recoveries.

The Company believes, after consultation with counsel, that such guarantees, 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.

F-57

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In 2012, CH2M HILL Australia PTY Limited, a subsidiary of CH2M, entered into a i 50/50 integrated joint venture with Australian construction contractor UGL Infrastructure Pty Limited. The joint venture entered into a Consortium Agreement with General Electric and GE Electrical International Inc. The Consortium was awarded a subcontract by JKC Australia LNG Pty Limited ("JKC") for the engineering, procurement, construction and commissioning of a i 360 MW Combined Cycle Power Plant for INPEX Operations Australia Pty Limited at Blaydin Point, Darwin, NT, Australia (the "Legacy CH2M Matter"). The subcontract was terminated in January 2017. In or around August 2017, the Consortium commenced an arbitration. On April 12, 2022, JKC and the Consortium entered into a confidential deed of settlement (“Settlement Agreement”). Under the terms of the Settlement Agreement, CH2M, as guarantor of CH2M Australia PTY Limited’s obligations with respect to the subcontract with JKC, made a cash payment to JKC in April 2022 of AUD i 640 million (or approximately $ i 475 million using mid-April 2022 exchange rates). As a result of the settlement agreement, additional pre-tax charges of $ i 91.3 million were recorded during the year ended September 30, 2022 for this matter (over amounts previously reserved and reported in long-term Other Deferred Liabilities in the Company's Consolidated Balance Sheet). The Settlement Agreement provided for a release of claims between JKC and each member of the Consortium, and in connection with this agreement the members of the Consortium also waived all claims against each other and their respective parent guarantors relating to the project.

On December 22, 2008, a coal fly ash pond at the Kingston Power Plant of the Tennessee Valley Authority ("TVA") was breached, releasing fly ash waste into the Emory River and surrounding community. In February 2009, TVA awarded a contract to the Company to provide project management services associated with the clean-up. All remediation and dredging were completed in August 2013 by other contractors under direct contracts with TVA. The Company did not perform the remediation, and its scope was limited to program management services. Certain employees of the contractors performing the cleanup work on the project filed lawsuits against the Company beginning in August 2013, alleging they were injured due to the Company's failure to protect the plaintiffs from exposure to fly ash, and asserting related personal injuries. The primary case, Greg Adkisson, et al. v. Jacobs Engineering Group Inc., case No. 3:13-CV-505-TAV-HBG, filed in the U.S. District Court for the Eastern District of Tennessee, consists of i 10 consolidated cases. This case and the related cases involve several hundred plaintiffs that were employees of the contractors that completed the remediation and dredging work. The cases are at various stages of litigation, and several of the cases are currently stayed pending resolution of other cases and/or appeal. Additionally, in May 2019, Roane County and the cities of Kingston and Harriman filed a lawsuit against TVA and the Company alleging that they misled the public about risks associated with the released fly ash. In October 2020, the Court granted Jacobs and TVA’s motion to dismiss the Roane County litigation and closed the case. In addition, in November 2019, a resident of Roane County, Margie Delozier, filed a putative class action against TVA and the Company alleging they failed to adequately warn local residents about risks associated with the released fly ash. The Company and TVA filed separate motions to dismiss the Delozier case in April 2020. In February 2021, the Court granted dismissal of the Delozier Complaint with prejudice, with the exception of plaintiffs’ nuisance cause of action, which plaintiffs voluntarily dismissed in June 2021. In August 2021, Thomas Ryan, a resident of Roane County, filed an action against Jacobs and TVA claiming personal injury and property damage. In June 2022, the Court granted Jacobs' motion to dismiss Ryan’s action in its entirety, closing the case. Separately, in February 2020, the Company learned that the district attorney in Roane County recommended that the Tennessee Bureau of Investigation investigate issues pertaining to clean up worker safety at Kingston. On November 16, 2021, the Roane County district attorney announced that it had concluded its investigation into issues pertaining to the Kingston coal ash spill cleanup. No indictments were issued. There has been no finding of liability against the Company or that any of the alleged illnesses are the result of exposure to fly ash in any of the above matters. The Company disputes the allegations asserted in all of the above matters and is vigorously defending these matters. The Company does not expect the resolution of these matters to have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.

On October 31, 2019, the Company received a request from the Enforcement Division of the Securities and Exchange Commission ("the SEC") for the production of certain information and documents. The information and documents sought by the SEC primarily relate to the operations of a joint venture in Morocco which was at one time partially-owned by the Company (and subsequently divested), including in respect of possible corrupt practices. In July 2022, the Company received a confirmatory letter from the SEC staff stating that its investigation of this matter had been terminated and that the staff does not intend to recommend an enforcement action against the Company.

During fourth quarter of fiscal 2022, the Company recorded a receivable for certain expected third-party recoveries equal to approximately $ i 27 million before tax. The Company expects the payment to be received by the second quarter of fiscal year 2023.

20. i Segment Information

The Company's i three operating segments are comprised of its i two global lines of business ("LOBs"): Critical Mission Solutions ("CMS") and People & Places Solutions ("P&PS") and its majority investment in PA Consulting. For further information on the PA Consulting investment, refer to Note 14- PA Consulting Business Combination.

F-58

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company’s Chair and Chief Executive Officer is the Chief Operating Decision Maker (“CODM”) and can evaluate the performance of each of these segments and make appropriate resource allocations among each of the segments. For purposes of the Company’s goodwill impairment testing, it has been determined that the Company’s operating segments are also its reporting units based on management’s conclusion that the components comprising each of its operating segments share similar economic characteristics and meet the aggregation criteria for reporting units in accordance with ASC 350, Intangibles-Goodwill and Other.

Under this organization, the sales function is managed by LOB and PA Consulting, and accordingly, the associated cost is embedded in the segments and reported to the respective head of each segment. In addition, a portion of the costs of other support functions (e.g., finance, legal, human resources, and information technology) is allocated to each LOB using methodologies which, we believe, effectively attribute the cost of these support functions to the revenue generating activities of the Company on a rational basis. The cost of the Company’s cash incentive plan, the Leadership Performance Plan ("LPP"), formerly named the Management Incentive Plan, and the expense associated with the Jacobs Engineering Group Inc. 1999 Stock Incentive Plan (“1999 SIP”) have likewise been charged to the LOBs except for those amounts determined to relate to the business as a whole (which amounts remain in other corporate expenses).

Financial information for each segment is reviewed by the CODM to assess performance and make decisions regarding the allocation of resources. The Company generally does not track assets by LOB, nor does it provide such information to the CODM.

The CODM evaluates the operating performance of our operating segments using segment operating profit, which is defined as consolidated operating profit less “corporate charges” (e.g., the allocated amounts described above). The Company incurs certain SG&A that relate to its business as a whole which are not allocated to the segments.

In the first quarter of fiscal 2023, the Company will begin reporting an operating segment, Divergent Solutions (DVS), in addition to the current operating segments.

The following tables present total revenues and segment operating profit from continuing operations 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, Restructuring and other charges (as defined in Note 17-Restructuring and Other Charges) and transaction and integration costs (in thousands).

For the Years Ended

Revenues from External Customers:

Critical Mission Solutions

i 5,233,629

i 5,087,052

i 4,965,952

People & Places Solutions

i 8,569,900

i 8,378,179

i 8,601,023

PA Consulting

i 1,119,296

i 627,401

i —

Total

i 14,922,825

i 14,092,632

i 13,566,975

For the Years Ended

Segment Operating Profit:

Critical Mission Solutions

i 424,385

i 447,161

i 372,070

People & Places Solutions (1)

i 823,564

i 780,380

i 740,707

PA Consulting

i 232,225

i 151,071

i —

Total Segment Operating Profit

i 1,480,174

i 1,378,612

i 1,112,777

Other Corporate Expenses (2)

( i 364,440)

( i 340,129)

( i 249,391)

Restructuring, Transaction and Other Charges (3)

( i 197,884)

( i 350,394)

( i 327,413)

Total U.S. GAAP Operating Profit

i 917,850

i 688,089

i 535,973

Total Other (Expense) Income, net (4)

( i 41,503)

i 7,513

( i 94,770)

Earnings from Continuing Operations Before Taxes

i 876,347

i 695,602

i 441,203

F-59

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(1)			Includes $ i 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 $ i 198.6 million, $ i 149.8 million and $ i 90.6 million for the years ended September 30, 2022, October 1, 2021 and October 2, 2020, respectively, with the comparative increase mainly attributable to higher amortization from the PA Consulting investment.
(3)			Included in the year ended September 30, 2022 is $ i 91.3 million pre-tax related to the final settlement of the Legacy CH2M Matter, net of previously recorded reserves, approximately $ i 27 million in third party recoveries was recorded as receivables reducing SG&A and $ i 78.3 million of real estate impairment charges. Included in the year ended October 1, 2021 is $ i 297.8 million of costs incurred in connection with the investment in PA Consulting, in part classified as compensation costs. Included in the years ended October 1, 2021 and October 2, 2020 were $ i 2.4 million and $ i 161.4 million in charges associated mainly with real estate impairments.
(4)			The year ended September 30, 2022 included a $ i 13.9 million gain related to a cost method investment sold during the period and a gain of $ i 8.7 million related to lease terminations. The years ended October 1, 2021 and October 2, 2020 include $ i 34.7 million and $( i 74.3) 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, respectively. The year ended October 1, 2021 includes $( i 38.5) million related to impairment of our AWE Management Ltd. investment and $ i 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 the current fiscal year. Additionally, the increase in net interest expense year over year 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 the current year, in addition to higher interest rates.

Included in other corporate expenses in the above table are costs and expenses which 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 (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.

F-60

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Jacobs Solutions Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Jacobs Solutions Inc. and subsidiaries (the Company) as of September 30, 2022 and October 1, 2021, the related consolidated statements of earnings, comprehensive income, stockholders' equity and cash flows for each of the three fiscal years in the period ended September 30, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2022 and October 1, 2021, and the results of its operations and its cash flows for each of the three fiscal years in the period ended September 30, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated November 21, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

F-61


						Revenue Recognition for Certain Fixed-Price Engineering, Procurement and Construction Contracts
Description of the Matter						As described in Note 2 to the consolidated financial statements, the Company recognizes engineering, procurement and construction contract revenue over time, as performance obligations are satisfied, using the percentage-of-completion method (an input method) based primarily on contract costs incurred to date compared to total estimated contract costs. Revenue recognition under this method is judgmental, as it requires the Company to prepare estimates of total contract revenue and total contract costs, including costs to complete in-process contracts. Auditing the Company’s estimates of total contract revenue and costs used to recognize revenue on certain fixed-price engineering, procurement and construction contracts which are larger in size involved significant auditor judgment, as it required the evaluation of subjective factors, such as assumptions related to estimated labor, material and subcontractor costs. These assumptions involved significant management judgment, which affects the measurement of revenue recognized by the Company.
How We Addressed the Matter in Our Audit						We tested certain of the Company’s controls over the estimation process that affect revenue recognized on fixed-price engineering, procurement and construction contracts. For example, we tested controls over management’s monitoring and review of project cost estimates, including the Company’s procedures to validate the completeness and accuracy of the data used to determine the estimates. To test the Company’s contract estimates related to revenues recognized on fixed-price engineering, procurement, and construction projects, our audit procedures included selecting a sample of projects and, among other procedures, we obtained and inspected related contract agreements, amendments, and change orders to test the existence of customer arrangements and understand the scope and pricing of the related projects; observed selected project team status meetings at the Company and interviewed project team personnel to obtain an understanding of the status of operational performance and progress on the related projects; evaluated the reasonableness of the Company’s estimated costs to complete by obtaining and analyzing supporting documentation for a sample of cost estimate components; and compared contract profitability estimates in the current year to historical estimates and actual performance for the same projects.
						Redeemable Noncontrolling Interests
Description of the Matter						As of September 30, 2022, the balance of redeemable noncontrolling interest relating to the Company’s PA Consulting subsidiary was $632.5 million. As discussed in Note 2 of the consolidated financial statements, the redeemable noncontrolling interests are subject to remeasurement as of the balance sheet date based on the greater of the redemption value or the historical value resulting from the original acquisition date fair value plus the impact of any earnings or loss attribution amounts, including dividends. The redemption value is based on the fair value of PA Consulting, which is determined using a combination of a discounted cash flow analysis based upon projected financial information and a multiple of earnings before interest, taxes, depreciation and amortization. Auditing the Company’s redeemable noncontrolling interest balance requires significant judgment, as the valuation of the redemption value includes subjective estimates and assumptions. In particular, the discounted cash flow analysis used in determining the redemption value is sensitive to significant assumptions such as projections of revenue and earnings before interest, taxes, depreciation and amortization. These assumptions are forward looking and could be affected by future economic conditions.

F-62


How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s determination of the redemption value, including controls over management’s review of the significant assumptions described above. To test the redemption value, our audit procedures included, among others, evaluating the Company's valuation methodologies, performing recalculations of the model, and testing the significant assumptions described above and the underlying data used by the Company. We compared the significant assumptions used by management to current industry trends and historical performance. We performed sensitivity analyses of significant assumptions to evaluate the change in the redemption value resulting from changes in the significant assumptions. We also involved our valuation specialists to assist in evaluating the valuation methodologies and certain assumptions used by the Company.

/s/ i Ernst and Young LLP

We have served as the Company's auditor since 1987.

i Dallas, Texas

F-63

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Jacobs Solutions Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Jacobs Solutions Inc. and subsidiaries’ internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Jacobs Solutions Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2022 and October 1, 2021, the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for each of the three fiscal years in the period ended September 30, 2022, and the related notes and our report dated November 21, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Dallas, Texas