UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 30, 2022

☐    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission File Number 1-7463

JACOBS SOLUTIONS INC.

(Exact name of registrant as specified in its charter)

Delaware				88-1121891
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification Number)
1999 Bryan Street	Suite 1200	Dallas	Texas	75201
(Address of principal executive offices)				(Zip Code)

(214) 583 – 8500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

_________________________________________________________________

Title of Each Class		Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	$1 par value	J	New York Stock Exchange

Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:     ☒ Yes    ☐  No

Indicate by check-mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Page 1

Indicate by check-mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check-mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes   ☒  No

Number of shares of common stock outstanding at January 27, 2023: 126,714,126

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JACOBS SOLUTIONS INC.

INDEX TO FORM 10-Q

			Page No.
PART I	FINANCIAL INFORMATION
	Item 1.	Financial Statements	4
		Consolidated Balance Sheets - Unaudited	5
		Consolidated Statements of Earnings - Unaudited	6
		Consolidated Statements of Comprehensive Income - Unaudited	7
		Consolidated Statements of Stockholders’ Equity - Unaudited	8
		Consolidated Statements of Cash Flows - Unaudited	9
		Notes to Consolidated Financial Statements - Unaudited	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
	Item 4.	Controls and Procedures	56
PART II	OTHER INFORMATION
	Item 1.	Legal Proceedings	48
	Item 1A.	Risk Factors	48
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
	Item 3.	Defaults Upon Senior Securities	48
	Item 4.	Mine Safety Disclosures	49
	Item 5.	Other Information	49
	Item 6.	Exhibits	50
		SIGNATURES	51

Page 3

Part I - FINANCIAL INFORMATION

Item 1.    Financial Statements.

Page 4

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

	December 30, 2022		September 30, 2022
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,211,102	$	1,140,479
Receivables and contract assets	3,439,940		3,405,381
Prepaid expenses and other	156,704		176,134
Total current assets	4,807,746		4,721,994
Property, Equipment and Improvements, net	356,784		346,676
Other Noncurrent Assets:
Goodwill	7,341,082		7,184,658
Intangibles, net	1,411,959		1,394,052
Deferred income tax assets	29,805		31,480
Operating lease right-of-use assets	466,331		476,913
Miscellaneous	504,466		504,646
Total other noncurrent assets	9,753,643		9,591,749
	$	14,918,173	$	14,660,419
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt	$	51,643	$	50,415
Accounts payable	929,745		966,792
Accrued liabilities	1,370,561		1,441,762
Operating lease liability	152,360		150,171
Contract liabilities	736,953		641,705
Total current liabilities	3,241,262		3,250,845
Long-term Debt	3,434,318		3,357,256
Liabilities relating to defined benefit pension and retirement plans	293,134		271,332
Deferred income tax liabilities	297,746		269,077
Long-term operating lease liability	607,674		607,447
Other deferred liabilities	182,532		167,548
Commitments and Contingencies
Redeemable Noncontrolling interests	627,909		632,522
Stockholders’ Equity:
Capital stock:
Preferred stock, $1 par value, authorized - 1,000,000 shares; issued and outstanding - none	—		—
Common stock, $1 par value, authorized - 240,000,000 shares; issued and outstanding - 126,668,513 shares and 127,393,378 shares as of December 30, 2022 and September 30, 2022, respectively	126,669		127,393
Additional paid-in capital	2,672,421		2,682,009
Retained earnings	4,230,866		4,225,784
Accumulated other comprehensive loss	(845,852)		(975,130)
Total Jacobs stockholders’ equity	6,184,104		6,060,056
Noncontrolling interests	49,494		44,336
Total Group stockholders’ equity	6,233,598		6,104,392
	$	14,918,173	$	14,660,419

See the accompanying Notes to Consolidated Financial Statements – Unaudited.

Page 5

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

Three Months Ended December 30, 2022 and December 31, 2021

(In thousands, except per share information)

(Unaudited)

	For the Three Months Ended
	December 30, 2022		December 31, 2021
Revenues	$	3,798,668	$	3,380,625
Direct cost of contracts	(2,983,955)		(2,584,151)
Gross profit	814,713		796,474
Selling, general and administrative expenses	(576,908)		(619,141)
Operating Profit	237,805		177,333
Other Income (Expense):
Interest income	3,007		1,501
Interest expense	(40,077)		(19,426)
Miscellaneous (expense) income, net	(3,254)		9,682
Total other expense, net	(40,324)		(8,243)
Earnings from Continuing Operations Before Taxes	197,481		169,090
Income Tax Expense from Continuing Operations	(50,103)		(15,889)
Net Earnings of the Group from Continuing Operations	147,378		153,201
Net Loss of the Group from Discontinued Operations	(708)		(232)
Net Earnings of the Group	146,670		152,969
Net Earnings Attributable to Noncontrolling Interests from Continuing Operations	(7,031)		(9,252)
Net Earnings Attributable to Redeemable Noncontrolling interests	(3,992)		(9,683)
Net Earnings Attributable to Jacobs from Continuing Operations	136,355		134,266
Net Earnings Attributable to Jacobs	$	135,647	$	134,034
Net Earnings Per Share:
Basic Net Earnings from Continuing Operations Per Share	$	1.08	$	1.04
Basic Net Loss from Discontinued Operations Per Share	$	(0.01)	$	—
Basic Earnings Per Share	$	1.07	$	1.04
Diluted Net Earnings from Continuing Operations Per Share	$	1.07	$	1.03
Diluted Net Loss from Discontinued Operations Per Share	$	(0.01)	$	—
Diluted Earnings Per Share	$	1.06	$	1.03

See the accompanying Notes to Consolidated Financial Statements - Unaudited.

Page 6

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended December 30, 2022 and December 31, 2021

(In thousands)

(Unaudited)

	For the Three Months Ended
	December 30, 2022		December 31, 2021
Net Earnings of the Group	$	146,670	$	152,969
Other Comprehensive Income:
Foreign currency translation adjustment	165,335		(8,685)
(Loss) gain on cash flow hedges	(10,144)		8,855
Change in pension and retiree medical plan liabilities	(22,266)		8,039
Other comprehensive income before taxes	132,925		8,209
Income Tax (Expense) Benefit:
Foreign currency translation adjustment	(6,609)		2,990
Cash flow hedges	3,270		(2,945)
Change in pension and retiree medical plan liabilities	(308)		(1,468)
Income Tax Benefit (Expense):	(3,647)		(1,423)
Net other comprehensive income	129,278		6,786
Net Comprehensive Income of the Group	275,948		159,755
Net Earnings Attributable to Noncontrolling Interests	(7,031)		(9,252)
Net Earnings Attributable to Redeemable Noncontrolling interests	(3,992)		(9,683)
Net Comprehensive Income Attributable to Jacobs	$	264,925	$	140,820

See the accompanying Notes to Consolidated Financial Statements - Unaudited.

Page 7

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended December 30, 2022 and December 31, 2021

(In thousands)

(Unaudited)

	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 October 1, 2021	$	128,893	$	2,590,012	$	4,015,578	$	(794,442)	$	5,940,041	$	34,796	$	5,974,837
Net earnings	—		—		134,034		—		134,034		9,252		143,286
Foreign currency translation adjustments, net of deferred taxes of $(2,990)	—		—		—		(5,695)		(5,695)		—		(5,695)
Pension liability, net of deferred taxes of $1,468	—		—		—		6,571		6,571		—		6,571
Gain on derivatives, net of deferred taxes of $2,945	—		—		—		5,910		5,910		—		5,910
Dividends	—		—		(123)		—		(123)		—		(123)
Redeemable Noncontrolling interests redemption value adjustment	—		—		(15,203)		—		(15,203)		—		(15,203)
Repurchase of Redeemable Noncontrolling interests	—		—		7,761		—		7,761		—		7,761
Noncontrolling interests - distributions and other	—		—		—		—		—		(14,049)		(14,049)
Stock based compensation	—		7,014		—		—		7,014		—		7,014
Issuances of equity securities including shares withheld for taxes	602		906		(11,872)		—		(10,364)		—		(10,364)
Repurchases of equity securities	(342)		43,127		(42,785)		—		—		—		—
Balances at December 31, 2021	$	129,153	$	2,641,059	$	4,087,390	$	(787,656)	$	6,069,946	$	29,999	$	6,099,945
Balances at September 30, 2022	$	127,393	$	2,682,009	$	4,225,784	$	(975,130)	$	6,060,056	$	44,336	$	6,104,392
Net earnings	—		—		135,647		—		135,647		7,031		142,678
Foreign currency translation adjustments, net of deferred taxes of $6,609	—		—		—		158,726		158,726		—		158,726
Pension liability, net of deferred taxes of $308	—		—		—		(22,574)		(22,574)		—		(22,574)
Loss on derivatives, net of deferred taxes of $(3,270)	—		—		—		(6,874)		(6,874)		—		(6,874)
Dividends	—		—		(874)		—		(874)		—		(874)
Redeemable Noncontrolling interests redemption value adjustment	—		—		(23,317)		—		(23,317)		—		(23,317)
Repurchase and issuance of redeemable noncontrolling interests	—		—		11,337		—		11,337		—		11,337
Noncontrolling interests - distributions and other	—		—		—		—		—		(1,873)		(1,873)
Stock based compensation	—		20,231		—		—		20,231		—		20,231
Issuances of equity securities including shares withheld for taxes	514		(3,762)		(4,484)		—		(7,732)		—		(7,732)
Repurchases of equity securities	(1,238)		(26,057)		(113,227)		—		(140,522)		—		(140,522)
Balances at December 30, 2022	$	126,669	$	2,672,421	$	4,230,866	$	(845,852)	$	6,184,104	$	49,494	$	6,233,598

See the accompanying Notes to Consolidated Financial Statements – Unaudited.

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended December 30, 2022 and December 31, 2021

(In thousands)

(Unaudited)

	For the Three Months Ended
	December 30, 2022		December 31, 2021
Cash Flows from Operating Activities:
Net earnings attributable to the Group	$	146,670	$	152,969
Adjustments to reconcile net earnings to net cash flows provided by operations:
Depreciation and amortization:
Property, equipment and improvements	27,979		26,237
Intangible assets	49,773		46,907
Stock based compensation	20,231		7,014
Equity in earnings of operating ventures, net of return on capital distributions	2,613		12,749
Loss on disposals of assets, net	241		151
Impairment of long-lived assets	27,142		72,266
Deferred income taxes	13,797		(17,659)
Changes in assets and liabilities, excluding the effects of businesses acquired:
Receivables and contract assets, net of contract liabilities	127,144		163,535
Prepaid expenses and other current assets	8,219		32,286
Miscellaneous other assets	42,578		24,618
Accounts payable	(51,669)		(88,470)
Accrued liabilities	(127,043)		(91,263)
Other deferred liabilities	8,462		(18,407)
Other, net	6,160		(1,288)
Net cash provided by operating activities	302,297		321,645
Cash Flows from Investing Activities:
Additions to property and equipment	(32,187)		(19,318)
Disposals of property and equipment and other assets	8		43
Capital contributions to equity investees, net of return of capital distributions	384		(480)
Acquisitions of businesses, net of cash acquired	(16,943)		(229,813)
Net cash used for investing activities	(48,738)		(249,568)
Cash Flows from Financing Activities:
Proceeds from long-term borrowings	1,282,000		637,000
Repayments of long-term borrowings	(1,289,421)		(400,287)
Repayments of short-term borrowings	—		(5,326)
Proceeds from issuances of common stock	14,798		17,862
Common stock repurchases	(140,522)		—
Taxes paid on vested restricted stock	(22,530)		(28,226)
Cash dividends to shareholders	(29,811)		(27,498)
Net dividends associated with noncontrolling interests	(2,307)		(14,067)
Repurchase of redeemable noncontrolling interests	(58,353)		(35,095)
Net cash (used for) provided by financing activities	(246,146)		144,363
Effect of Exchange Rate Changes	51,806		2,722
Net Increase in Cash and Cash Equivalents and Restricted Cash	59,219		219,162
Cash and Cash Equivalents, including Restricted Cash, at the Beginning of the Period	1,154,207		1,026,575
Cash and Cash Equivalents, including Restricted Cash, at the End of the Period	$	1,213,426	$	1,245,737

See the accompanying Notes to Consolidated Financial Statements – Unaudited.

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Basis of Presentation

Unless the context otherwise requires:

•References herein to “Jacobs” are to Jacobs Solutions Inc. and its predecessors;

•References herein to the “Company”, “we”, “us” or “our” are to Jacobs Solutions Inc. and its consolidated subsidiaries; and

•References herein to the “Group” are to the combined economic interests and activities of the Company and the persons and entities holding noncontrolling interests in our consolidated subsidiaries.

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 (the "Holding Company Reorganization"). For purposes of this Quarterly Report, references to the "Company", "we", "us" or "our" or our management or business at any point prior to August 29, 2022 (the "Holding Company Implementation Date") refer to JEGI and its consolidated subsidiaries as the predecessor to Jacobs Solutions Inc.

The accompanying consolidated financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. Readers of this Quarterly Report on Form 10-Q should also read our consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (“2022 Form 10-K”).

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of our consolidated financial statements at December 30, 2022, and for the three month period ended December 30, 2022.

Our interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year.

As part of the new Company strategy, during the first quarter of fiscal year 2023 Jacobs formed a reporting and operating segment, Divergent Solutions ("DVS"), to further strengthen our ability to drive value for our clients. DVS supports both lines of business as the core foundation for developing and delivering innovative, next-generation cloud, cyber, data and digital technologies. For a further discussion of our segment information, please refer to Note 18- Segment Information.

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 final purchase price allocation associated with the acquisition, which is summarized in Note 15- Other Business Combinations.

On November 19, 2021, Jacobs acquired all outstanding shares of common stock of BlackLynx, Inc. ("BlackLynx"), a provider of high-performance software, to complement Jacobs' portfolio of cyber, intelligence and digital solutions. The Company paid total base consideration of approximately $235.4 million in cash to the former owners of BlackLynx. In conjunction with the acquisition, the Company also paid off BlackLynx's debt of approximately $5.3 million simultaneously with the consummation of the acquisition. The Company has recorded its final purchase price allocation associated with the acquisition, which is summarized in Note 15- Other Business Combinations.

On March 2, 2021, Jacobs completed the strategic investment of a 65% interest in PA Consulting Group Limited ("PA Consulting"), a UK-based leading innovation and transformation consulting firm. The total consideration paid by the Company was $1.7 billion, funded through cash on hand, proceeds from a new term loan and draws on the Company's existing revolving credit facility. The remaining 35% interest was acquired by PA Consulting employees, whose redeemable noncontrolling interests had a fair value of $582.4 million on the closing date, including subsequent purchase accounting

Page 10

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

adjustments. PA Consulting is accounted for as a consolidated subsidiary and as a separate operating segment. See Note 14- PA Consulting Business Combination for more discussion on the investment and Note 11- Borrowings for more discussion on the financing for the transaction.

On April 26, 2019, Jacobs completed the sale of its Energy, Chemicals and Resources ("ECR") business to Worley Limited ("Worley"), a company incorporated in Australia, for a purchase price of $3.4 billion consisting of (i) $2.8 billion in cash plus (ii) 58.2 million ordinary shares of Worley, subject to adjustments for changes in working capital and certain other items (the “ECR sale”). 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 unaudited Consolidated Statements of Earnings as discontinued operations for all periods presented and all of the ECR business to be sold under the terms of the ECR sale had been conveyed to Worley and as such, no amounts remain held for sale.

2.    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 accompanying consolidated financial statements, and certain amounts disclosed in these Notes to the Consolidated Financial Statements. Although such estimates and assumptions are believed to be reasonable under the circumstances and 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.

Please refer to Note 2- Significant Accounting Policies of Notes to Consolidated Financial Statements included in our 2022 Form 10-K for a discussion of other significant estimates and assumptions affecting our consolidated financial statements.

3.    Fair Value and 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:

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.

Please refer to Note 2- Significant Accounting Policies of Notes to Consolidated Financial Statements included in our 2022 Form 10-K for a more complete discussion of the various items within the consolidated financial statements measured at fair value and the methods used to determine fair value. Please also refer to Note 17- Commitments and Contingencies and Derivative Financial Instruments for discussion regarding the Company's derivative instruments.

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 11- Borrowings for a discussion of the fair value of long-term debt.

Fair value measurements relating to our business combinations and goodwill allocations related to our segment realignment are made primarily using Level 3 inputs including discounted cash flow 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

Page 11

JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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

4.    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 technical, digital, 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, 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 18- 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 three months ended December 30, 2022 and December 31, 2021 (in thousands):

	Three Months Ended
	December 30, 2022		December 31, 2021
Revenues:
United States	$	2,536,114	$	2,148,554
Europe	854,734		866,351
Canada	61,829		65,039
Asia	34,824		32,087
India	40,344		22,148
Australia and New Zealand	161,040		177,652
Middle East and Africa	109,783		68,794
Total	$	3,798,668	$	3,380,625

Contract Liabilities

Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. Revenue recognized for the three months ended December 30, 2022 that was previously included in the contract liability balance on September 30, 2022 was $330.3 million. Revenue recognized for the three months ended December 31, 2021 that was included in the contract liability balance on October 1, 2021 was $291.5 million.

Remaining Performance Obligation

The Company’s remaining performance obligations as of December 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 $17.2 billion in remaining performance obligations as of December 30, 2022. The Company expects to recognize approximately 46% of our remaining performance obligations into revenue within the next twelve months and the remaining 54% thereafter.

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

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

5.     Earnings Per Share and Certain Related Information

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.

The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for the three months ended December 30, 2022 and December 31, 2021 (in thousands):

	Three Months Ended
	December 30, 2022		December 31, 2021
Numerator for Basic and Diluted EPS:
Net earnings from continuing operations allocated to common stock for EPS calculation	$	136,355	$	134,266
Net loss from discontinued operations allocated to common stock for EPS calculation	$	(708)	$	(232)
Net earnings allocated to common stock for EPS calculation	$	135,647	$	134,034
Denominator for Basic and Diluted EPS:
Shares used for calculating basic EPS attributable to common stock	126,824		129,342
Effect of dilutive securities:
Stock compensation plans	672		952
Shares used for calculating diluted EPS attributable to common stock	127,496		130,294
Net Earnings Per Share:
Basic Net Earnings from Continuing Operations Per Share	$	1.08	$	1.04
Basic Net Loss from Discontinued Operations Per Share	$	(0.01)	$	—
Basic Earnings Per Share	$	1.07	$	1.04
Diluted Net Earnings from Continuing Operations Per Share	$	1.07	$	1.03
Diluted Net Loss from Discontinued Operations Per Share	$	(0.01)	$	—
Diluted Earnings Per Share	$	1.06	$	1.03

Share Repurchases

On January 16, 2020, the Company's Board of Directors authorized a share repurchase program of up to $1.0 billion of the Company's common stock (the "2020 Repurchase Authorization"). In the fourth quarter of fiscal 2021, the Company initiated an accelerated share repurchase program under the 2020 Repurchase Authorization by advancing $250 million to a financial institution in a privately negotiated transaction, with final non-cash settlement on the program during the first quarter of fiscal 2022 of 342,054 shares.

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The following table summarizes the activity under the 2020 Repurchase Authorization through the first fiscal quarter of 2023:

Amount Authorized (2020 Repurchase Authorization)	Average Price Per Share (1)	Total Shares Retired	Shares Repurchased
$1,000,000,000	$113.56	1,237,688	1,237,688

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

The 2020 Repurchase Authorization expired on January 15, 2023. On January 25, 2023, the Company's Board of Directors authorized an incremental share repurchase program of up to $1.0 billion of the Company's stock, to expire on January 25, 2026 (the "2023 Repurchase Authorization"). No repurchase activity has taken place under the 2023 Share Repurchase Authorization to date. Subsequent to the expiration of the 2020 Repurchase Authorization and the approval of the 2023 Repurchase Authorization, the Company has $1.0 billion remaining under the 2023 Repurchase Authorization.

Our share repurchase program does not obligate the Company to purchase any shares. Share repurchases may be executed through various means including, without limitation, accelerated share repurchases, open market transactions, privately negotiated transactions, purchases pursuant to Rule 10b5-1 plans or otherwise. The authorization for the share repurchase programs may be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time. The timing, amount and manner of share repurchases may depend upon market conditions and economic circumstances, availability of investment opportunities, the availability and costs of financing, currency fluctuations, the market price of the Company's common stock, other uses of capital and other factors.

Dividends

On January 25, 2023, the Company’s Board of Directors declared a quarterly dividend of $0.26 per share of the Company’s common stock to be paid on March 24, 2023, to shareholders of record on the close of business on February 24, 2023. Future dividend declarations are subject to review and approval by the Company’s Board of Directors. Dividends paid through the first fiscal quarter of 2023 and the preceding fiscal year are as follows:

Declaration Date	Record Date	Payment Date	Cash Amount (per share)
September 15, 2022	September 30, 2022	October 28, 2022	$0.23
July 13, 2022	July 29, 2022	August 26, 2022	$0.23
April 28, 2022	May 27, 2022	June 24, 2022	$0.23
January 26, 2022	February 25, 2022	March 25, 2022	$0.23
September 23, 2021	October 15, 2021	October 29, 2021	$0.21

6.    Goodwill and Intangibles

As a result of the formation of a new operating segment this quarter, Divergent Solutions, see Note 1- basis of Presentation, the historical carrying value of a portion of goodwill has been reallocated to the Divergent Solutions segment based on a relative fair value basis to the Divergent Solutions segment. The carrying value of goodwill appearing in the

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accompanying Consolidated Balance Sheets at December 30, 2022 and September 30, 2022 was as follows (in thousands):

	Critical Mission Solutions		People & Places Solutions		Divergent Solutions		PA Consulting		Total
Balance September 30, 2022	$	2,251,724	$	3,196,796	$	576,986	$	1,159,152	$	7,184,658
Acquired	—		—		—		16,425		16,425
Post-Acquisition Adjustments	—		(138)		—		1,409		1,271
Foreign currency translation and other	10,460		13,168		2,680		112,420		138,728
Balance December 30, 2022	$	2,262,184	$	3,209,826	$	579,666	$	1,289,406	$	7,341,082

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

	Customer Relationships, Contracts and Backlog		Developed Technology		Trade Names		Total
Balances September 30, 2022	$	1,136,438	$	88,931	$	168,683	$	1,394,052
Amortization	(43,383)		(3,895)		(2,495)		(49,773)
Acquired	1,318		—		—		1,318
Post-Acquisition Adjustments	(1,409)		—		—		(1,409)
Foreign currency translation and other	52,603		404		14,764		67,771
Balances December 30, 2022	$	1,145,567	$	85,440	$	180,952	$	1,411,959

The following table presents estimated amortization expense of intangible assets for the remainder of fiscal 2023 and for the succeeding years.

Fiscal Year	(in millions)
2023	$	151.6
2024	201.8
2025	201.4
2026	178.2
2027	146.8
Thereafter	532.2
Total	$	1,412.0

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7.    Receivables and Contract Assets

The following table presents the components of receivables and contract assets appearing in the accompanying Consolidated Balance Sheets at December 30, 2022 and September 30, 2022, as well as certain other related information (in thousands):

	December 30, 2022		September 30, 2022
Components of receivables and contract assets:
Amounts billed, net	$	1,457,752	$	1,400,088
Unbilled receivables and other	1,428,150		1,523,249
Contract assets	554,038		482,044
Total receivables and contract assets, net	$	3,439,940	$	3,405,381
Other information about receivables:
Amounts due from the United States federal government, included above, net of contract liabilities	$	796,118	$	749,323

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, 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 that have been provided in advance 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.

8.     Accumulated Other Comprehensive Income

The following table presents the Company's roll forward of accumulated other comprehensive income (loss) after-tax as of December 30, 2022 (in thousands):

	Change in Net Pension Obligation		Foreign Currency Translation Adjustment (1)		Gain/(Loss) on Cash Flow Hedges		Total
Balance at September 30, 2022	$	(307,395)	$	(786,040)	$	118,305	$	(975,130)
Other comprehensive income (loss)	(22,574)		158,726		(2,758)		133,394
Reclassifications from accumulated other comprehensive income (loss)	—		—		(4,116)		(4,116)
Balance at December 30, 2022	$	(329,969)	$	(627,314)	$	111,431	$	(845,852)

(1) Included in the overall foreign currency translation adjustment for the three months ended December 30, 2022 and December 31, 2021 are $(74.9) million and $18.9 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 December 30, 2022 were approximately $21.8 million in unrealized gains, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to December 30, 2022.

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9.    Income Taxes

The Company’s effective tax rates from continuing operations for the three months ended December 30, 2022 and December 31, 2021 were 25.4% and 9.4%, respectively. The most significant items contributing to the difference between the statutory U.S. federal corporate tax rate of 21.0% and the Company’s effective tax rate for the three months ended December 30, 2022 were U.S. state income tax expense of $4.6 million and U.S. tax on foreign earnings of $3.6 million. Both items are expected to have a continuing impact on the Company's effective tax rate for the remainder of the fiscal year.

The most significant items contributing to the difference between the statutory U.S. federal corporate tax rate of 21.0% and the Company's effective tax rate for the three months ended December 31, 2021 were a tax benefit of $15.7 million related to the release of previously reserved foreign tax credit assets, $4.2 million excess tax benefit attributable to stock compensation, and $4.0 million benefit from filing amended state returns.

The amount of income taxes the Company pays is subject to ongoing audits by tax jurisdictions around the world. In the normal course of business, the Company is subject to examination by tax authorities throughout the world, including such major jurisdictions as Australia, Canada, India, the Netherlands, the United Kingdom and the United States. Our estimate of the potential outcome of any uncertain tax issue is subject to our assessment of the relevant risks, facts, and circumstances existing at the time. The Company believes that it has adequately provided for reasonably foreseeable outcomes related to these matters. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, which may impact our effective tax rate. During the next 12 months, it is reasonably possible that U.S. tax audit resolutions may reduce unrecognized tax benefits by up to $44.2 million, resulting in a reduction of the Company's provision for taxes on earnings.

10.    Joint Ventures, VIEs and Other Investments

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. Many 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 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 that 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. Refer to Note 17- Commitments and Contingencies and Derivative Financial Instruments for further discussion relating to performance guarantees.

For consolidated joint ventures, the entire amount of the 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 Sheets. For the consolidated VIEs, the carrying value of assets and liabilities was $358.2 million and $218.4 million, respectively, as of December 30, 2022 and $353.9 million and $228.1 million, respectively, as of September 30, 2022. There are no consolidated VIEs that have debt or credit facilities.

Unconsolidated joint ventures are accounted for under proportionate consolidation or the equity method. Proportionate consolidation is used for joint ventures that include unincorporated legal entities and activities of the joint venture that 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.

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For the proportionate consolidated VIEs, the carrying value of assets and liabilities was $118.7 million and $139.2 million, respectively, as of December 30, 2022, and $109.3 million and $129.2 million, respectively, as of September 30, 2022. For those joint ventures accounted for under the equity method, the Company's investment balances for the joint venture are included in Other Noncurrent Assets: Miscellaneous on the balance sheet and the Company’s pro rata share of net income is included in Revenues. In limited cases, there are basis differences between the equity in the joint venture and the Company's investment created when the Company purchased its share of the joint venture. These basis differences are amortized based on an internal allocation to underlying net assets, excluding allocations to goodwill. As of December 30, 2022, the Company does not have any equity method investments that exceed its share of venture net assets. Our investments in equity method joint ventures on the Consolidated Balance Sheets as of December 30, 2022 and September 30, 2022 were $55.9 million and $56.6 million, respectively. During the three months ended December 30, 2022 and December 31, 2021, we recognized income from equity method joint ventures of $10.0 million and $6.8 million, respectively.

Accounts receivable from unconsolidated joint ventures accounted for under the equity method was $23.1 million and $21.1 million as of December 30, 2022 and September 30, 2022, respectively.

11.    Borrowings

At December 30, 2022 and September 30, 2022, long-term debt consisted of the following (principal amounts in thousands):

	Interest Rate	Maturity	December 30, 2022		September 30, 2022
Revolving Credit Facility	Benchmark + applicable margin (1) (2)	March 2024	$	1,610,794	$	1,105,294
2021 Term Loan Facility	Benchmark + applicable margin (1) (3)	March 2024	987,410		923,580
2020 Term Loan Facility	Benchmark + applicable margin (1) (4)	March 2025 (5)	890,833		882,263
Fixed-rate notes due:
Senior Notes, Series A	4.27%	May 2025 (6)	—		190,000
Senior Notes, Series B	4.42%	May 2028 (6)	—		180,000
Senior Notes, Series C	4.52%	May 2030 (6)	—		130,000
Less: Current Portion (5)			(51,643)		(50,415)
Less: Deferred Financing Fees			(3,076)		(3,466)
Total Long-term debt, net			$	3,434,318	$	3,357,256

(1)During fiscal 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 0.875% and 1.625% or a base rate plus a margin of between 0% and 0.625%. The applicable LIBOR rates including applicable margins at December 30, 2022 and September 30, 2022 were approximately 5.76% and 4.08%. Borrowings denominated in British pounds bear interest at an adjusted SONIA rate plus a margin of between 0.875% and 1.625%. There were no amounts drawn in British pounds as of December 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 0.875% and 1.625% or a base rate plus a margin of between 0% and 0.625%. The applicable LIBOR rate including applicable margins for borrowings denominated in U.S. dollars at December 30, 2022 and September 30, 2022 was approximately 5.76% and 4.06%. Borrowings denominated in British pounds bear interest at an adjusted SONIA rate plus a margin of between 0.875% and 1.625%, which was approximately 4.84% and 3.60% at December 30, 2022 and September 30, 2022, respectively.

(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 0.875% and 1.5% or a base rate plus a margin of between 0% and 0.5%. The applicable LIBOR rates including applicable margins for borrowings denominated in U.S. dollars at December 30, 2022 and September 30, 2022 were approximately 5.76% and 4.49%. Borrowings denominated in British pounds bear interest at an adjusted SONIA rate plus

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JACOBS SOLUTIONS INC. AND SUBSIDIARIES

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a margin of between 0.875% and 1.625%, which was approximately 4.84% and 3.60% at December 30, 2022 and September 30, 2022, respectively.

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

(6)All amounts due under the Note Purchase Agreement pursuant to which the Senior Notes were issued were repaid in the first fiscal quarter of 2023.

We believe the carrying value of the Revolving Credit Facility, the Term Loan Facilities and other debt outstanding approximates fair value based on the interest rates and scheduled maturities applicable to the outstanding borrowings.

Senior Notes

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 $500 million in the aggregate principal amount of the Company’s senior notes in three series (collectively, “Senior Notes”). In connection with the Holding Company Reorganization, 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. In fiscal first quarter 2023, the Company repurchased $481 million of Senior Notes held by holders who accepted the offer with proceeds from the Revolving Credit Facility. In December 2022, the Company repurchased the remaining $19 million of Senior Notes.

Revolving Credit Facility and Term Loans

On February 7, 2014, Jacobs and certain of its subsidiaries entered into a $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 (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 $2.25 billion (with an accordion feature that allows a further increase of the facility amount up to $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 December 30, 2022.

The Revolving Credit Facility permits the Company to borrow under 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 $400.0 million, permits performance letters of credit, and provides for a $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 0.08% and 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 $730.0 million and one of the Company's U.K. subsidiaries borrowed an aggregate principal amount of £250.0 million. The proceeds of the term loans were used to repay an existing term loan with a maturity date of June 2020 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.

On January 20, 2021, the Company entered into an unsecured delayed draw term loan facility (the “2021 Term Loan Facility”) with a syndicate of financial institutions as lenders. Under the 2021 Term Loan Facility, the Company borrowed an aggregate principal amount of $200.0 million and £650.0 million. The proceeds of the term loans were used primarily to fund the 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".

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In the fourth quarter of fiscal year 2022, the Revolving Credit Facility and Term Loan Facilities were amended to permit the Holding Company Reorganization.

We were in compliance with the covenants under the Term Loan Facilities at December 30, 2022.

On February 6, 2023, the Company refinanced its Revolving Credit Facility and Term Loan Facilities (the "Refinancing"). In connection with the Refinancing, the Revolving Credit Facility was amended and restated to, among other things: (a) extend the maturity date to February 6, 2028, (b) replace and adjust interest rates based on market conditions and incorporate a sustainability-linked pricing adjustment, (c) increase the Consolidated Leverage Ratio financial covenant to 3.50:1.00 (subject to temporary increases to 4.00:1.00 following the closing of certain material acquisitions), (d) eliminate the net worth financial covenant, and (e) add Jacobs as a guarantor of the obligations of JEGI and its subsidiaries under the Revolving Credit Agreement. The 2021 Term Loan Facility was amended and restated to, among other things: (a) extend the maturity date of the U.S. dollar term loan to February 6, 2026 and the British sterling term loan to September 1, 2025, (b) replace and adjust interest rates based on market conditions and incorporate a sustainability-linked pricing adjustment, (c) increase the Consolidated Leverage Ratio financial covenant to 3.50:1.00 (subject to temporary increases to 4.00:1.00 following the closing of certain material acquisitions), (d) eliminate the net worth financial covenant, and (e) add Jacobs as a guarantor of the obligations of JEGI under the 2021 Term Loan Facility. Finally, the Company amended the 2020 Term Loan Facility to, among other things: (a) replace and adjust interest rates based on market conditions and incorporate a sustainability-linked pricing adjustment, (b) increase the Consolidated Leverage Ratio financial covenant to 3.50:1.00 (subject to temporary increases to 4.00:1.00 following the closing of certain material acquisitions), (c) eliminate the net worth financial covenant, and (d) add Jacobs as a guarantor of the obligations of JEGI and Jacobs U.K.

Other arrangements

During fiscal 2022 the Company entered into two treasury locks to manage its 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 17- Commitments and Contingencies and Derivative Financial Instruments for discussion regarding the Company's derivative instruments.

The Company has issued $1.3 million in letters of credit under the Revolving Credit Facility, leaving $637.9 million of available borrowing capacity under the Revolving Credit Facility at December 30, 2022. In addition, the Company had issued $291.2 million under separate, committed and uncommitted letter-of-credit facilities for total issued letters of credit of $292.5 million at December 30, 2022.

12.    Leases

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 one year to 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 lease 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, net of impairments taken. 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 right-of-use ("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 pre-payments and initial direct costs of obtaining the lease, such as commissions.

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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.

The components of lease expense (reflected in selling, general and administrative expenses) for the three months ended December 30, 2022 and December 31, 2021 were as follows (in thousands):

	Three Months Ended
	December 30, 2022		December 31, 2021
Lease expense
Operating lease expense	$	35,282	$	40,538
Variable lease expense	9,346		7,084
Sublease income	(4,406)		(3,668)