<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
JACOBS ENGINEERING GROUP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF JACOBS ENGINEERING(R)]
Notice of 1998
Annual Meeting
Proxy Statement
Annual Financial Statements and
Review of Operations
<PAGE>
JACOBS ENGINEERING GROUP INC.
1111 SOUTH ARROYO PARKWAY
PASADENA, CALIFORNIA 91105
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
TO OUR SHAREHOLDERS
The Annual Meeting of Shareholders of Jacobs Engineering Group Inc. will be
held on Tuesday, February 10, 1998, at 3:30 p.m. at 1111 South Arroyo Parkway,
Pasadena, California, for the following purposes:
1. To elect four directors to hold office until the 2001 annual meeting;
2. To approve the appointment of Ernst & Young LLP as auditors for the year
ending September 30, 1998; and
3. To act upon such other matters as may properly come before the meeting.
The shareholders of record at the close of business on January 2, 1998, will
be entitled to vote at such meeting and any adjournment thereof. This notice
and proxy statement and the accompanying proxy are being mailed to such
shareholders on or about January 8, 1998. The stock transfer books will not
close.
By Order of the Board of Directors
ROBERT M. BARTON
Secretary
Dated: January 2, 1998
YOU ARE URGED TO DATE, SIGN, AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE
ENVELOPE PROVIDED.
PLEASE NOTE THE ADDRESS WHERE THE ANNUAL MEETING WILL BE HELD
<PAGE>
JACOBS ENGINEERING GROUP INC.
1111 SOUTH ARROYO PARKWAY
PASADENA, CALIFORNIA 91105
----------------
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of Jacobs Engineering Group Inc., a Delaware corporation
(the "Company"), of proxies to be used at the annual meeting of shareholders
of the Company to be held February 10, 1998, and any adjournment thereof. The
expense of the solicitation will be paid by the Company. Some officers and
regular employees may solicit proxies personally and by telephone if deemed
necessary. The proxy is revocable by you by written notice to the Secretary of
the Company at any time prior to the exercise of the authority granted thereby
or by your being present at the meeting and electing to vote in person.
The holders of common stock of record at the close of business on January 2,
1998, the record date fixed by the Board of Directors (the "Record Date"),
will be entitled to one vote per share on all business of the meeting. The
presence in person or by proxy of the holders of a majority of the outstanding
shares of common stock will constitute a quorum for the transaction of
business at the meeting. This proxy statement and the accompanying proxy are
being mailed on or about January 8, 1997, to the shareholders of record on the
Record Date. As of the Record Date the Company had 25,623,760 shares of common
stock outstanding.
In connection with the solicitation of proxies by the Board of Directors for
the Annual Meeting of Shareholders, the Board of Directors has designated
Joseph J. Jacobs, Noel G. Watson and Robert M. Barton as proxies. Shares
represented by all properly executed proxy cards received in time for the
meeting will be voted in accordance with the choice specified on the proxy
card. Unless contrary instructions are indicated on the proxy card, the shares
of common stock will be voted FOR the election of the nominees listed below
under "1. Election of Directors". Where no choice is specified, the shares of
common stock will be voted FOR the appointment of Ernst & Young LLP as the
independent auditors for the Company for the year ending September 30, 1998,
as described under "2. Approval of Ernst & Young LLP as Auditors", below. The
Board of Directors is not aware of any other issue to be brought before the
meeting. If other matters are properly brought before the meeting, then the
proxies will vote in accordance with their best judgment.
Votes cast by proxy or in person at the annual meeting will be tabulated by
the inspectors of election appointed for the meeting who will determine
whether or not a quorum is present. The inspectors of election will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as not voted for purpose of
determining the approval of any matter submitted to the shareholders for a
vote. If a broker indicates on a proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, then those
shares will not be considered as present and entitled to vote with respect to
that matter.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables, based in part upon information supplied by officers,
directors and principal shareholders, set forth certain information regarding
the ownership of the common stock of the Company as of the Record Date by (i)
all those persons known by the Company to be beneficial owners of more than
five percent of the outstanding common stock of the Company; (ii) each
director; (iii) each executive officer named in the compensation tables, below
("Named Executive Officer"); and (iv) all officers and directors of the
Company as a group. Unless otherwise indicated, each of these shareholders has
sole voting and investment power with respect to the shares beneficially
owned, subject to community property laws where applicable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (a)
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NATURE OF OF
NAME AND ADDRESS OWNERSHIP CLASS
- ---------------- ---------- -------
<S> <C> <C>
Joseph J. Jacobs.......................... 3,885,000(b) 15.16%(b)
1111 South Arroyo Parkway
Pasadena, California 91105
The Capital Group
Companies, Inc. ......................... 2,089,100(c) 8.16%(c)
333 South Hope Street
Los Angeles, California 90071
</TABLE>
- --------
(a) Security ownership information for beneficial owners is taken from
statements filed with the Securities and Exchange Commission pursuant to
Sections 13(d), (f) and (g) of the Securities Exchange Act of 1934, as
amended and information made known to the Company.
(b) Dr. Jacobs has sole voting and dispositive power over all shares except
5,000 shares that are owned by Jacobs Family Foundation as to which he
shares voting and dispositive power with the other directors of such
Foundation.
(c) In a Form 13G dated February 12, 1997, The Capital Group Companies, Inc.
reported that on December 31, 1996 certain of its operating subsidiaries
held a total of 2,089,100 shares in investment accounts over which they
exercised sole investment power as to 2,089,100 shares and sole voting
power as to 1,046,500 shares.
3
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND NAMED EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
AMOUNT OF
COMMON STOCK UNEXERCISED PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(a) OPTIONS(b) TOTAL OF CLASS(c)
- ------------------------ --------------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
DIRECTORS (EXCLUDING
OFFICERS):
Joseph F. Alibrandi..... 2,000 4,450 6,450 *
Peter H. Dailey......... 2,000 4,450 6,450 *
Robert B. Gwyn.......... 1,000(d) 2,200 3,200(d) *
Linda K. Jacobs......... 207,735(e) 4,450 212,185(e) 0.83%
James Clayburn LaForce.. 2,000 4,450 6,450 *
Dale R. Laurance........ 1,000 2,950 3,950 *
Linda Fayne Levinson.... -- 1,200 1,200 *
David M. Petrone........ 10,000 4,450 14,450 *
James L. Rainey, Jr. ... 950(f) 3,700 4,650(f) *
NAMED EXECUTIVE OFFICERS
Joseph J. Jacobs........ 3,885,000(e) -- 3,885,000(e) 15.16%
Noel G. Watson.......... 170,905 165,000 335,905 1.31%
William R. Kerler....... 33,862 57,600 91,462 0.36%
Richard J. Slater....... 35,303 32,200 67,503 0.26%
Thomas R. Hammond....... 8,311 36,700 45,011 0.18%
All directors and
executive officers
as a group (27 persons). 4,491,844 613,704 5,105,548 19.93%
</TABLE>
- --------
* Less than 0.1%
(a) Ownership is direct unless indicated otherwise.
(b) Includes only unexercised options exercisable within 60 days following the
date of this proxy statement.
(c) Calculation is based on 25,623,760 shares of Common Stock outstanding as
of January 2, 1998.
(d) Includes 1,000 shares held in a family limited partnership over which Mr.
Gwyn has voting and dispositive power.
(e) Includes 5,000 shares held by the Jacobs Family Foundation as to which Dr.
Linda K. Jacobs and Dr. Joseph J. Jacobs share voting and dispositive
power with the other directors of such Foundation.
(f) Includes 750 shares as to which Mr. Rainey shares voting and dispositive
power.
1. ELECTION OF DIRECTORS
The bylaws of the Company presently provide for eleven directors. The
Certificate of Incorporation and the bylaws of the Company divide the Board of
Directors into three classes with the terms of office of the directors of each
class ending in different years: The terms of Classes I, II and III presently
end at the annual meetings in 2000, 1998 and 1999, respectively. Classes I and
II have four directors, each, and Class III has three directors.
The nominees for Class II are to be voted upon at this annual meeting. The
directors in Classes I and III will continue in office until expiration of
their respective terms. The Board of Directors has nominated Joseph F.
Alibrandi, The Honorable Peter H. Dailey, Robert B. Gwyn and Linda K. Jacobs
for election as Class II directors for three year terms expiring at the 2001
annual meeting.
The persons named as proxies on the accompanying proxy card intend to vote
the shares as to which they are granted authority to vote for the election of
the nominees listed above. The proxies may not vote for a greater number of
persons than four. In the event that anyone other than these individuals
should be nominated for election as a director, the proxies will vote in
accordance with their best judgment.
4
<PAGE>
Although the Board of Directors does not know of any reason why any nominee
will be unavailable for election, in the event any nominee should be
unavailable at the time of the meeting, the proxies may be voted for a
substitute nominee as selected by the Board of Directors.
The following table sets forth information about these nominees and the
directors whose terms of office do not expire at the 1998 annual meeting.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITIONS HELD WITH THE COMPANY CLASS SINCE
---------------------------------------- ----- --------
<S> <C> <C>
JOSEPH J. JACOBS, Chairman of the Board and Director. Dr.
Jacobs, age 81, was chief executive officer of the Company and
its predecessors from 1957 until November 19, 1992. Dr. Jacobs
founded the Company as a sole proprietorship in 1947 and
incorporated it in 1957........................................ III 1974
NOEL G. WATSON, President, Chief Executive Officer and
Director. Mr. Watson, age 61, has been with the Company since
1965 and has been President and Chief Executive Officer of the
Company for more than the past five years...................... I 1986
JOSEPH F. ALIBRANDI, Director. Mr. Alibrandi, age 69, has
served as Chairman of Whittaker Corporation since 1985. From
1974 to 1994 and from 1996 to the present he has also served as
Chief Executive Officer of Whittaker Corporation. In addition,
from 1991 until October 3, 1997, Mr. Alibrandi served as
Chairman of BioWhittaker, Inc., a biotechnology company.
Mr. Alibrandi is also a director of Burlington Northern Santa
Fe Pacific Corp., Catellus Development Corporation, BankAmerica
Corporation, Bank of America, N.T.&S.A. and NewMed Corporation. II 1988
THE HON. PETER H. DAILEY, Director. Mr. Dailey, age 67, is
Chairman of Enniskerry Financial, a private investment firm. He
was formerly U.S. Ambassador to Ireland and Special Envoy to
NATO. Prior to government service, he was Vice-chairman of
Interpublic Group of the Dailey International Group. He is a
Director of Chicago Title and Trust, Pinkerton's, Inc.,
Sizzler, Inc. and Wirthlin Worldwide........................... II 1991
ROBERT B. GWYN, Director. Mr. Gwyn, age 58, is currently a
Managing Director of Amaryn Group, a private investment
company. He was President, CEO and Chairman of the Board of
Agricultural Minerals and Chemicals, Inc., a company engaged in
the fertilizer and methanol businesses, from 1990 until 1994,
when that company was sold. From 1985 until 1990 he was
President of Agrico Chemical Company, a domestic and
international manufacturer of fertilizers...................... II 1995
LINDA K. JACOBS, Director. Dr. Linda K. Jacobs, age 50, is
President of Middle East Technology Assistance, a non-profit
corporation. From 1985 until 1993 she was a principal in
Jabara-Jacobs Associates, a consulting firm. She is a daughter
of Dr. Joseph J. Jacobs........................................ II 1986
JAMES CLAYBURN LAFORCE, Director. Dr. LaForce, age 69, was Dean
of the Anderson Graduate School of Management, University of
California at Los Angeles from 1978 until 1993, when he
retired. Dr. LaForce is a director of Eli Lilly & Co., Rockwell
International Corporation, Imperial Credit Industries, Inc.,
Blackrock Funds, The Timken Company, Motor Cargo Industries,
Inc., Provident Investment Counsel Mutual Funds and Payden and
Rygel Investment Trust......................................... I 1987
DALE R. LAURANCE, Director. Dr. Laurance, age 52, is the
president and a director of Occidental Petroleum Corporation
where he has been an executive since 1983. Dr. Laurance is also
a director of Canadian Occidental Petroleum, Ltd., Leslie's
Poolmart, Inc., the Armand Hammer Museum of Art and Cultural
Center, Inc., the Chemical Manufacturers Association, and the
American Petroleum Institute................................... III 1994
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITIONS HELD WITH THE COMPANY CLASS SINCE
---------------------------------------- ----- --------
<S> <C> <C>
LINDA FAYNE LEVINSON, Director. Ms. Levinson, age 55, has
served as the President of Fayne Levinson Associates, Inc., a
general management consulting firm to consumer and financial
service organizations, since 1982. Ms. Levinson was an
executive at Creative Artists Agency, Inc. from 1993 through
February 1994 and was a partner of Wings Partners, a Los
Angeles-based merchant bank, from 1989 until 1993. From 1984
until 1987 Ms. Levinson was a Senior Vice President of American
Express Travel Related Services Co., Inc., and from 1972
through 1981 she was at McKinsey & Co., a worldwide general
management consulting firm, where she became the first woman
partner in 1979. Ms. Levinson also serves as a member of the
Boards of Genentech Inc., NCR Corporation and Administaff,
Inc. .......................................................... III 1996
DAVID M. PETRONE, Director. Mr. Petrone, age 53, is Chairman of
Housing Capital Company, a real estate lending firm. He was
Vice Chairman of Wells Fargo & Co. from 1986 until March 1,
1992. He is a director of Alexandria Real Estate Equities,
Inc., Spieker Properties, Inc. and Finelite, Inc. ............. I 1987
JAMES L. RAINEY, JR., Director. Mr. Rainey, age 68, is retired.
He was President and Chief Executive Officer of Farmland
Industries, Inc., an agricultural cooperative, from 1986 until
1991. Mr. Rainey is a director of ITEQ, Inc., Wirthlin
Worldwide and Envino Nutrients, Inc. .......................... I 1993
</TABLE>
Board Committees. The Board has two standing committees. The Audit Committee
advises the Board on internal and external audit matters affecting the
Company, including recommendations as to the appointment of the independent
auditors of the Company; reviews with such auditors the scope and results of
their examination of the financial statements of the Company and any
investigations by such auditors. During fiscal 1997 the Audit Committee held
two meetings. The members of the Audit Committee are Messrs. Petrone
(Chairman), Alibrandi, Dailey and Rainey and Dr. Linda K. Jacobs.
The Compensation and Benefits Committee approves the salaries and bonuses of
the executive officers and approves all grants of stock options under the
Company's 1981 Executive Incentive Plan other than options issued under the
Outside Director Stock Option provisions of that Plan. During fiscal 1997 this
committee held seven meetings. The members of the Compensation and Benefits
Committee are Dr. LaForce (Chairman), Ms. Levinson, Mr. Gwyn and Dr. Laurance.
Compensation of Directors. The Company pays directors who are not employed
by the Company ("Outside Directors") a retainer at the rate of $25,000 per
year plus a fee of $1,000 for each meeting of the board and each committee on
which they serve that they attend. Pursuant to the terms of the Outside
Director Stock Option Plan, each of the Outside Directors received an option
for 2,000 shares of common stock on April 1, 1993, or on the date of their
first election to the Board, if later, and has received an option for 1,000
shares at an option price equal to the Fair Market Value (as defined in the
Plan) of the common stock on the first day of March of each year commencing
March 1, 1994.
The Board of Directors held nine meetings during the year ended September
30, 1997. All directors attended at least 75% of all meetings of the Board of
Directors and of the committees on which they served during fiscal 1997.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and long-
term compensation of the Chief Executive Officer and the other four most
highly compensated officers ("Named Executive Officers") of the Company for
services in all capacities to the Company and its subsidiaries during its
1995, 1996 and 1997 fiscal years:
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION (1) COMPENSATION
-------------------- OTHER ------------
ANNUAL ALL OTHER
COMPENSATION OPTIONS/SARS COMPENSATION
NAME YEAR SALARY ($) BONUS ($) ($)(2) (SHS)(3) ($)(4)
---- ---- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Noel G. Watson.......... 1997 540,630 516,680 27,670 50,000 4,910
Chief Executive Officer 1996 516,670 453,510 28,340 60,000 4,630
1995 464,310 319,100 27,440 10,000 4,920
Joseph J. Jacobs........ 1997 432,200 400,000 -- -- --
Chairman of the Board 1996 432,200 -- -- -- --
1995 432,200 -- -- -- --
William R. Kerler....... 1997 346,880 331,520 14,360 15,000 4,930
Executive Vice
President 1996 318,760 279,790 14,360 15,000 4,630
1995 284,430 195,480 13,660 9,000 4,920
Richard J. Slater....... 1997 271,320 194,470 9,870 10,000 4,930
Group Vice President 1996 254,670 167,660 10,220 10,000 4,630
1995 239,050 123,220 10,080 8,000 4,920
Thomas R. Hammond....... 1997 265,880 190,570 4,940 10,000 4,750
Group Vice President 1996 239,590 157,730 4,890 10,000 4,750
1995 215,930 111,300 4,670 8,000 5,080
</TABLE>
- --------
(1) Represents amounts earned by the named executive during the year
indicated, and includes amounts deferred under the Jacobs Engineering
Group Inc. 401(k) Plus Savings Plan and Trust (the "(S) 401(k) Plan") and
the Company's nonqualified Executive Deferral Plans (the "EDPs").
(2) These amounts represent interest credited to the employees' deferred
compensation account balance under the EDPs in excess of 120% of the
applicable federal rate in effect at the times the interest crediting
rates were set for the EDPs.
(3) Consists solely of non-qualified stock options pursuant to the 1981
Executive Incentive Plan.
(4) Consists solely of Company contributions to the Section 401(k) Plan.
7
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company's 1981 Executive Incentive plan permits the grant of options and
stock appreciation rights to employees of, and consultants and advisors to,
the Company and its subsidiaries, including officers and directors who are
serving in such capacities. The following table contains information
concerning options granted during the fiscal year 1997 to the only Named
Executive Officers who were granted options that year. No stock appreciation
rights have been granted to date.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUES
MARKET AT ASSUMED RATES OF
PRICE ON STOCK PRICE APPRECIATION
OPTIONS PERCENTAGE EXERCISE DATE OF OVER OPTION TERM (10 YEARS)
GRANTED OF PRICE GRANT EXPIRATION -----------------------------------
NAME (SHARES) (1) TOTAL (2) ($/SHARE) ($/SHARE) DATE 0% ($) 5% ($) 10% ($)
- ---- ------------ ---------- --------- --------- ---------- ------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noel G. Watson.......... 50,000 10.47% $22.500 $22.500 24-Oct-06 -- $ 707,510 $ 1,792,960
William R. Kerler....... 15,000 3.14% 24.125 24.125 27-Mar-07 -- 227,580 576,740
Richard J. Slater....... 10,000 2.09% 24.125 24.125 27-Mar-07 -- 151,720 384,490
Thomas R. Hammond....... 10,000 2.09% 24.125 24.125 27-Mar-07 -- 151,720 384,490
Gain for all shareholders (based on 25,810,860 shares outstanding at September 30,
1997, and a year-end stock price of $30.625 per share)................................ $497,114,530 $1,259,785,820
============ ==============
Gain of named executive officers as a percent of total gain to all shareholders....... 0.25% 0.25%
============ ==============
</TABLE>
- -------
(1) All grants were non-qualified stock options pursuant to the 1981 Plan.
(2) Calculation based upon grants of options for 472,000 shares, and awards of
5,500 shares of restricted stock during fiscal 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION SAR VALUES
The following table sets forth information regarding option exercises during
the fiscal year 1997 by the Named Executive Officers and the value of their
unexercised options of September 30, 1997. All options were granted under the
1981 Executive Incentive Plan.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
TOTAL NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT FYE (SHARES) OPTIONS AT FYE ($)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISES ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Noel G. Watson.......... 12,800 $256,740 123,000 147,000 $858,703 $848,250
William R. Kerler....... 12,000 227,850 57,600 44,400 551,945 307,187
Richard J. Slater....... 14,400 214,380 32,200 32,800 231,356 237,625
Thomas R. Hammond....... 9,700 158,800 34,700 30,800 236,085 195,930
</TABLE>
8
<PAGE>
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The overall objectives of the Company's executive compensation program are
as follows:
To enable the Company to attract, motivate and retain highly-qualified
executives by offering competitive base salaries that are consistent with the
Company's size.
--To reward executives for past performance through a bonus program that
places a substantial component of their pay at risk based on Company
performance as measured by its return on net equity.
--To provide an incentive for continued service and future performance
through the use of stock options.
--To encourage executives to have an equity ownership in the Company.
The Company has no pension plan, but all eligible employees, including
executives, may participate in the Company's Thrift Savings Retirement ((S)
401(k)) Plan and the 1989 Employee Stock Purchase Plan.
The Compensation Committee of the Board of Directors is responsible for
reviewing and approving the compensation of all executive officers and all
stock option grants to all employees.
Base Salary. In setting executive officer base salaries for fiscal 1997 the
Committee considered the recommendations of Dr. Jacobs and Mr. Watson, who
made salary recommendations as to all executive officers except themselves,
the Committee's own evaluations of those executive officers, the salary spread
that has normally been maintained by the Company between levels of management,
and information compiled by the Company regarding prevailing salaries for
professional engineers being offered by companies that the Company regards as
its competitors.
The Committee also considered a regression analysis made by the Company's
financial staff of the executive compensation paid by certain publicly-traded
engineering and construction companies that are comparable to, or greater, in
size than the Company, that compete with the Company for experienced employees
at all levels and for which executive salary information is publicly available
(the "Peer Group"). The Peer Group consists of Guy F. Atkinson, Blount, Inc.,
Fluor Corporation, Foster Wheeler, International Technology, Michael Baker
Corp., Morrison-Knudsen Corp., Stone & Webster, Inc. and the Company. This
analysis relates the revenues of the members of the Peer Group to the base
salaries paid to their five highest paid executives in the order of their
compensation as reported in their annual reports and proxy statements for the
prior year.
Mr. Watson's initial base salary for 1997 was established in the same manner
as the base salaries of the other executive officers of the Company. The
Committee believes that the total salary and bonus paid to Mr. Watson and each
of the Named Executive Officers was reasonable in light of the performance of
the Company for fiscal 1997.
Dr. Jacobs was the Chief Executive Officer of the Company from its
organization in 1957 until he resigned that position in November 1992; he
continues to serve as Chairman of the Board and as a full-time employee of the
Company. The Company has an employment agreement, originally entered into on
October 1, 1987, with Dr. Jacobs, described below under "Employment Contracts
and Termination of Employment and Change-in-Control Arrangements", that
establishes, among other matters, his base salary. The original agreement
received the approval of the Board of Directors of the Company in 1987,
without dissent and with Dr. Jacobs not voting. The Board subsequently
delegated all decisions regarding this agreement to the Committee, which has
approved subsequent
9
<PAGE>
amendments to it, including extensions of its term, which now expires on
September 30, 2002, but there has been no change to Dr. Jacobs' base salary
since 1987. The Committee has approved these amendments based on its judgment
of Dr. Jacobs' past and continuing contributions to the business strategy,
marketing and reputation of the Company.
Annual Incentive Bonuses. Pursuant to the Company's Incentive Bonus Plan,
each year the Compensation Committee approves a target percentage of pre-tax
profits to the net equity of the Company that must be achieved before any
bonuses are paid. This target percentage is established on the basis of the
Committee's judgment of what constitutes a reasonable minimum return for the
shareholders on their investment in the Company. If pre-tax profits exceed the
target, then a predetermined percentage of profits in excess of the target is
placed in the bonus pool; if pre-tax earnings exceed two times the target,
then a larger percentage of the excess is placed into the bonus pool. A major
percentage of the bonus pool is allocated to the officers and key managers of
the Company. Fifty percent of the allocation to the officers and key employees
is then individually allocated to them in proportion to their weighted
salaries, with the salaries of the executive officers given the greatest
weight. The remainder of the executive officer pool is usually allocated in
the same proportions as the initial allocations, but individual allocations
are in some cases adjusted on the basis of the Committee's subjective
evaluations of individual performance. Generally, bonuses are paid in three
annual installments contingent upon continued employment and may be further
deferred by participants in the Company's deferred compensation plans.
The bonus paid to Mr. Watson for 1997 was determined by the Committee in the
same manner as the bonuses of the other executive officers. Dr. Jacobs does
not receive bonuses under the formula in the Incentive Bonus Plan, but he is
eligible to receive discretionary bonuses. The bonus for Dr. Jacobs was
approved by the Committee on the basis of its evaluation of Dr. Jacobs'
continuing contributions to the business strategy, marketing and reputation of
the Company.
Stock Options. In determining stock option awards to executive officers for
1997 the Committee considered Dr. Jacobs' and Mr. Watson's recommendations
with respect to all executive officers other than themselves, the Committee's
own evaluations of the executive officers and previous option awards to the
executive officers. The Committee also considered the stock option awards made
by three of the largest competitors of the Company that are public companies
(Fluor, Foster Wheeler and Morrison-Knudsen), to their executive officers as a
percent of outstanding shares. In general, option grants by the Company as a
percentage of outstanding shares have been the second highest in the named
group, but the Committee considered the fact that the Company is the only
company in the group that has no pension plan in evaluating the significance
of its ranking in the group.
The number of options granted to Mr. Watson for 1997 was determined by the
Committee in the same manner as the option grants to the other executive
officers. Dr. Jacobs has never been eligible for stock options by reason of
his percentage interest in the outstanding stock of the Company.
Tax Deductibility Considerations. In 1993, the Internal Revenue Code was
amended to limit the deductibility of certain compensation paid to the chief
executive officer and the four highest paid executive officers in excess of $1
million to each of them. The Committee believes that the compensation payable
for fiscal year 1998 will not result in any loss of tax deductions for the
Company. It is the Committee's intent to adopt policies to obtain maximum
deductibility of executive compensation, consistent with the objectives of the
Company's executive compensation program outlined above. The Committee will
continue to monitor the regulations issued by the IRS under this provision as
they are finalized to determine whether any program changes are appropriate.
JAMES CLAYBURN LAFORCE, Chairman
LINDA FAYNE LEVINSON
ROBERT B. GWYN
DALE R. LAURANCE
10
<PAGE>
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS
PERFORMANCE GRAPHS
The following graphs show the changes over the past five- and ten-year
periods in the value of $100 invested in (1) the common stock of Jacobs
Engineering Group Inc.; (2) the Standard & Poor's 500 Index; and (3) the Dow
Jones Heavy Construction Group Index. The values of each investment are based
on share price appreciation, with reinvestment of all dividends (assuming any
were paid). For each graph, the investments are assumed to have occurred at
the beginning of each period presented.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG JACOBS ENGINEERING
GROUP INC., THE S&P 500 INDEX, AND THE DOW JONES HEAVY CONSTRUCTION GROUP
INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Jacobs............................................ $100 $ 80 $ 84 $ 85 $ 77 $105
S&P 500........................................... $100 $113 $117 $152 $183 $257
Dow Jones......................................... $100 $102 $113 $123 $132 $136
</TABLE>
11
<PAGE>
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN* AMONG JACOBS ENGINEERING GROUP
INC., THE S&P 500 INDEX, AND THE DOW JONES HEAVY CONSTRUCTION GROUP INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jacobs................... $100 $152 $186 $282 $853 $899 $718 $753 $768 $695 $946
S&P 500.................. $100 $ 88 $117 $106 $139 $154 $174 $181 $234 $282 $396
Dow Jones................ $100 $ 91 $125 $125 $150 $154 $157 $175 $190 $203 $210
</TABLE>
- --------
* The cumulative total return information used to prepare the preceding graphs
was provided by Research Data Group, Inc.
12
<PAGE>
2. APPROVAL OF ERNST & YOUNG LLP AS AUDITORS
The Board of Directors, with the concurrence of the Audit Committee, has
selected Ernst & Young LLP to audit the accounts of the Company for its fiscal
year ending September 30, 1998. The Company has been advised by Ernst & Young
LLP that the firm has no relationship with the Company or its subsidiaries
other than that arising from the firm's engagement as auditors, tax advisors
and consultants.
If the selection of Ernst & Young LLP is not approved by the holders of a
majority of the shares represented at the meeting and voting on the proposal,
or if prior to the Annual Meeting to be held in February, Ernst & Young LLP
should decline to act or otherwise become incapable of acting, or if its
employment should be otherwise discontinued by the Board of Directors, then in
any such case the Board of Directors will appoint other independent auditors
whose employment for any period subsequent to the 1998 Annual Meeting will be
subject to ratification by the shareholders at the 1999 Annual Meeting.
The Company has been advised that representatives of Ernst & Young LLP will
be present at the Annual Meeting where they will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE SELECTION OF ERNST &
YOUNG LLP AS AUDITORS FOR THE YEAR ENDING SEPTEMBER 30, 1998.
3. OTHER BUSINESS
The Board of Directors does not intend to present any other business for
action at the meeting and does not know of any business intended to be
presented by others.
SHAREHOLDERS' PROPOSALS
Proposals of shareholders for consideration at the annual meeting of
shareholders to be held on Tuesday, February 9, 1999, must be received by the
Company no later than September 4, 1998, in order to be included in the
Company's proxy statement and proxy relating to that meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own beneficially more than
ten percent of a registered class of the Company's equity securities to file
with the Securities and Exchange Commission ("SEC") and the New York Stock
Exchange initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company. Officers, directors
and greater than ten-percent shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by them.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations from its
directors and executive officers that no other reports were required, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with on a timely
basis during the fiscal year ended September 30, 1997.
13
<PAGE>
ANNUAL REPORT AND FINANCIAL INFORMATION
The Company's 1997 consolidated financial statements, including management's
discussion and analysis, are attached hereto as Appendix A. A copy of the
Company's 1997 Summary Annual Report is being mailed concurrently with this
Proxy Statement to each shareholder of record on the Record Date.
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF THE COMPANY'S REPORT ON
FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, TO THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION TO ANY PERSON REQUESTING IN
WRITING AND STATING THAT HE WAS THE BENEFICIAL OWNER OF COMMON STOCK OF THE
COMPANY ON JANUARY 2, 1998. THE COMPANY WILL ALSO FURNISH COPIES OF ANY
EXHIBITS TO THE FORM 10-K TO ELIGIBLE PERSONS REQUESTING EXHIBITS AT $0.50 PER
PAGE, PAID IN ADVANCE. THE COMPANY WILL INDICATE THE NUMBER OF PAGES TO BE
CHARGED FOR UPON WRITTEN INQUIRY. REQUESTS AND INQUIRIES SHOULD BE ADDRESSED
TO:
Investor Relations
Jacobs Engineering Group Inc.
P.O. Box 7084
Pasadena, California 91109-7084
Neither the Summary Annual Report, Appendix A attached hereto nor the Form
10-K are to be regarded as proxy soliciting material or as a communication by
means of which a solicitation of proxies is to be made.
By Order of the Board of Directors
ROBERT M. BARTON
Secretary
Pasadena, California
January 2, 1998
14
<PAGE>
APPENDIX A
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
SEPTEMBER 30, 1997
<PAGE>
EXHIBIT 13
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
SELECTED HIGHLIGHTS
FOR FISCAL YEARS ENDED SEPTEMBER 30
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE INFORMATION)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues.................................... $1,780,616 $1,798,970 $1,723,057
Net income.................................. 46,895 40,360 32,242
---------- ---------- ----------
Per-share information:
Net income................................. $ 1.80 $ 1.56 $ 1.27
Net book value............................. 12.48 10.93 9.41
Closing year-end stock price............... 30.625 22.50 24.875
---------- ---------- ----------
Total assets................................ $ 744,203 $ 572,505 $ 533,947
Stockholders' equity........................ 324,308 283,387 238,761
Return on average equity.................... 15.43% 15.46% 14.68%
Stockholders of record...................... 1,592 1,965 2,971
---------- ---------- ----------
Backlog:
Engineering services....................... $ 912,057 $ 845,300 $ 828,400
Total...................................... 3,050,000 2,750,200 2,625,000
---------- ---------- ----------
Permanent staff............................. 9,570 7,350 7,600
---------- ---------- ----------
</TABLE>
A-1
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
FOR FISCAL YEARS ENDED SEPTEMBER 30
(IN THOUSANDS, EXCEPT PER-SHARE INFORMATION)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues............... $1,780,616 $1,798,970 $1,723,057 $1,165,754 $1,142,926
Net income............. 46,895 40,360 32,242 18,767 28,670
---------- ---------- ---------- ---------- ----------
Financial Position:
Current ratio.......... 1.55 to 1 1.68 to 1 1.44 to 1 1.41 to 1 1.61 to 1
Working capital........ $ 178,203 $ 155,569 $ 113,339 $ 106,058 $ 100,688
Current assets......... 503,921 383,644 368,614 367,485 264,949
Total assets........... 744,203 572,505 533,947 504,364 351,020
Long-term debt......... 54,095 36,300 17,799 25,000 --
Stockholders' equity... 324,308 283,387 238,761 200,433 173,797
Return on average
equity................ 15.43% 15.46% 14.68% 10.03% 18.28%
Backlog:
Engineering services.. $ 912,057 $ 845,300 $ 828,400 $ 793,060 $ 736,600
Total................. 3,050,000 2,750,200 2,625,000 2,500,000 1,858,600
---------- ---------- ---------- ---------- ----------
Per-share Information:
Net income............. $ 1.80 $ 1.56 $ 1.27 $ 0.75 $ 1.15
Stockholders' equity... 12.48 10.93 9.41 7.96 6.96
---------- ---------- ---------- ---------- ----------
Average Number of Common
and Common Stock
Equivalents Outstanding. 25,989 25,921 25,384 25,173 24,964
---------- ---------- ---------- ---------- ----------
</TABLE>
Net income for fiscal 1994 included special charges totaling $10,200, or
$0.40 per share.
A-2
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following table sets forth total revenues from each of the industry
groups and markets serviced by the Company for each year in the three year
period ended September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Chemicals.................................. $ 500,446 $ 452,448 $ 377,731
Semiconductor.............................. 335,595 268,520 264,492
Petroleum.................................. 248,799 417,739 480,472
Federal programs........................... 201,644 145,275 175,200
Buildings and infrastructure............... 183,004 189,834 174,183
Pulp and paper............................. 154,135 170,553 85,476
Pharmaceuticals and biotechnology.......... 140,545 147,840 123,683
Other...................................... 16,448 6,761 41,820
---------- ---------- ----------
$1,780,616 $1,798,970 $1,723,057
========== ========== ==========
</TABLE>
The following table sets forth total revenues from each of the types of
services the Company provides its clients for each year in the three year
period ended September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Engineering services........................ $ 702,068 $ 627,622 $ 588,399
Field services:
Construction.............................. 813,926 925,681 881,574
Maintenance............................... 264,622 245,667 253,084
---------- ---------- ----------
$1,780,616 $1,798,970 $1,723,057
========== ========== ==========
</TABLE>
1997 Compared to 1996
Consolidated revenues in 1997 totalled $1.8 billion, which was substantially
the same as the 1996 amount. Revenues in 1997 from engineering services,
however, increased by $74.4 million, or 11.9 percent, from last year. The
increase in engineering services activity was due in part to certain
acquisitions the Company completed in 1997, and in part to internal growth.
The Company considers the level of engineering services it provides an
important indicator of its overall financial performance. Engineering services
absorb a significant portion of the Company's general and administrative
expenses. In addition, the Company believes that engineering services activity
is a leading indicator of possible future opportunities to provide
construction and construction management services.
Revenues from construction services declined 12.1 percent from 1996 to 1997.
This decline was attributable primarily to the completion of several large
projects late in 1996 and early in 1997, which were not replaced by new
construction projects. Revenues from maintenance services increased
7.7 percent from 1996 to 1997. This increase was due to a pick-up from last
year in the level of turnaround activity, combined with new awards for
maintenance services. Contributing to the decrease in overall field services
revenues from 1996 to 1997 was an $83.0 million decline in subcontract and
procurement activity (the costs of which are included in both revenues and
costs).
A-3
<PAGE>
As a percent of revenues, direct costs of contracts was 86.9 percent in
1997, versus 88.4 percent in 1996. The percentage relationship between direct
costs of contracts and revenues will fluctuate from year to year depending on
a variety of factors, including the mix of business and services in the years
being compared. In general, the decrease in this percentage relationship from
1996 to 1997 was due to a proportionally higher percentage of the Company's
total business volume coming from engineering services relative to field
services.
The Company's selling, general and administrative ("S,G & A") expenses
totalled $160.2 million in 1997; this was $16.7 million, or 11.6 percent, more
than the 1996 amount. Of the increase, approximately $12.8 million was
attributed to businesses acquired during 1997. The increase in S,G & A
expenses corresponds to the increase in the Company's engineering services,
and reflects its continuing efforts to control such costs throughout its
operations.
The Company's operating profit (defined as total revenues, less direct costs
of contracts, and S,G & A expenses) totalled $73.6 million in 1997; this was
$9.0 million more than the 1996 amount. In general, the improvement was due to
the increase in engineering services discussed above, combined with higher
margin rates for all of the Company's services.
Interest income, net totalled $3.0 million in 1997; this was $1.5 million
more than the 1996 amount. The increase in net interest income was due
primarily to higher levels of cash invested during 1997 as compared to 1996,
combined with slightly better rates of interest earned on such investments.
1996 Compared to 1995
Consolidated revenues increased 4.4 percent from 1995 to 1996. This increase
was comprised of a 6.7 percent increase in engineering services revenues and
an overall 3.2 percent increase in field services revenues.
With respect to the Company's field services activity in 1996, and while
revenues from construction activities increased 5.0 percent from 1995,
revenues from maintenance activities were down 2.9 percent from the prior
year. Construction revenues increased during 1996 in spite of the fact the
Company completed construction on two large projects during the year (one for
a client in the petroleum industry, and another for a client in the
semiconductor industry), and it substantially completed construction on a
third major project (for a client in the buildings and infrastructure industry
group). Also contributing to the increase in field services revenues from 1995
to 1996 was an $18.2 million increase in subcontract and procurement activity.
As a percent of revenues, direct costs of contracts was 88.4 percent in
1996, versus 89.0 percent in 1995. In general, the decrease in this percentage
relationship from 1995 to 1996 was due to a proportionally higher percentage
of the Company's total business volume coming from engineering services
relative to field services.
The Company's S,G & A expenses totalled $143.5 million in 1996; this was
only $6.9 million, or 5.0 percent, more than the 1995 amount. The increase in
S,G & A expenses corresponds to the increase in the overall business volume
discussed above, and reflects the Company's continuing efforts to control such
expenses throughout its operations.
The Company's operating profit totalled $64.6 million in 1996; this was
$11.9 million more than the 1995 amount. In general, the improvement was due
to increased business volume, combined with higher margin rates for the
Company's services.
Interest income, net totalled $1.4 million in 1996; this was $1.1 million
more than the 1995 amount. The increase in net interest income was due
primarily to higher levels of cash invested during 1996 as compared to 1995,
combined with slightly better rates of interest earned on such investments.
A-4
<PAGE>
Other income, net totalled $0.8 million in 1996; this was $0.4 million more
than the 1995 amount. The increase in other income, net was due primarily to
higher gains from sales of marketable securities and other assets in 1996 as
compared to 1995.
BACKLOG
The following table summarizes the Company's total backlog at September 30,
1997, 1996, and 1995 (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Engineering services.............................. $ 912.1 $ 845.3 $ 828.4
Total............................................. 3,050.0 2,750.2 2,625.0
======== ======== ========
</TABLE>
At any given time, backlog represents the amount of revenues the Company
expects to record in the future from performing work under contracts that have
been awarded to it. With respect to maintenance projects, however, it is the
Company's policy to include in backlog only the amount of revenues it expects
to receive during the succeeding year, regardless of the remaining life of the
contract, unless the Company does not expect the contract to be renewed. With
respect to contracts relating to projects for agencies of the U.S. federal
government, it is the Company's policy to include in backlog the full contract
award.
Total backlog at September 30, 1997 included approximately $923.0 million of
contracts for work to be performed either directly or indirectly for agencies
of the U.S. federal government. This compares to approximately $1.0 billion
and $1.1 billion of federal backlog at September 30, 1996 and 1995,
respectively. Most of these contracts extend beyond one year. In general,
these contracts must be funded annually (i.e., the amounts to be spent under
the contract must be appropriated by Congress to the procuring agency, and
then the agency must allot these sums to the specific contracts).
Net of work-off, the Company's backlog increased $125.2 million from 1995 to
1996, and it increased by $299.8 million from 1996 to 1997. Most of the 1996
increase was due to new awards from clients in the petroleum and chemicals
industries, combined with scope expansions on a project in the semiconductor
industry. A significant portion of the 1997 increase was also due to new
awards in the petroleum and chemicals industries, combined with backlog
acquired in conjunction with several acquisitions made by the Company in 1997.
Of total backlog at September 30, 1997, the Company estimates that
approximately 40 percent will be realized as revenues within the next year.
In accordance with industry practice, substantially all of the Company's
contracts may be terminated by the client. However, the Company has not
experienced cancellations which have had a material effect on the reported
backlog amounts. In the situation where a client terminates a contract, the
Company would ordinarily be entitled to receive payment for work performed up
to the date of termination and, in certain instances, may be entitled to
allowable termination and cancellation costs. Additionally, the Company's
backlog at any given time is subject to changes in the scope of services to be
provided as well as increases or decreases in costs relating to the contracts
included therein.
EFFECTS OF INFLATION
Because a significant portion of the Company's revenues over recent years
has been earned under cost-reimbursable type contracts, the effects of
inflation on the Company's financial condition and results of operations have
been generally low. However, as the Company expands its business into markets
and geographical areas where fixed-price and lump-sum work is more prevalent,
inflation may begin to have a larger impact on the Company's results of
operations. To the extent permitted by
A-5
<PAGE>
competition, the Company intends to continue to emphasize contracts which are
either cost-reimbursable or negotiated fixed-price. For contracts the Company
accepts with fixed-price or lump-sum payment terms, the Company monitors
closely the actual costs on the project as they compare to the budget
estimates. On these projects, the Company also attempts to secure fixed-price
commitments from key subcontractors and vendors. However, due to the
competitive nature of the Company's industry, combined with the fluctuating
demands and prices associated with personnel, equipment and materials the
Company traditionally needs to perform on its contracts, there can be no
guarantee that inflation will not effect the Company's results of operations
in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $6.9 million during 1997.
This compares to a net increase of $23.7 million in 1996, and a net decrease
of $6.5 million during 1995. The current year decrease was due primarily to
cash used in investing activities ($69.5 million), offset in part by cash
provided by operations ($43.9 million) and financing activities ($20.3
million).
Operations provided $43.9 million of cash and cash equivalents in 1997. This
compares to net contributions of cash of $54.3 million in 1996 and $32.0
million in 1995. The $10.4 million decrease in cash provided by operations
from 1996 to 1997 occurred in spite of higher net income ($6.5 million) and
depreciation and amortization expense ($1.5 million), which was offset in part
primarily by the timing of cash receipts and payments relating to receivables
and prepaid expenses, and trade payables, customer advances and accrued
liabilities, respectively ($19.0 million).
The Company's investing activities used $69.5 million of cash and cash
equivalents in 1997. This compares to net uses of cash of $40.0 million in
1996 and $45.0 million in 1995. The $29.5 million increase in cash used in
investing activities from 1996 to 1997 was due primarily to an increase in
property and equipment additions ($11.3 million), and an increase in additions
to other, long-term assets ($14.1 million). Both the increase in fixed asset
additions and the increase in additions to other, long-term assets relate
primarily to two businesses the Company acquired during 1997.
During 1997, cash used to purchase and make investments decreased $17.2
million as compared to 1996, while cash used to purchase marketable securities
increased $20.0 million. Included in the amount of cash used in 1996 to
purchase and make investments was the Company's purchase of 49 percent
interests in various engineering and construction companies comprising the
Serete Group (which is headquartered in France). No similar investment
transactions occurred in 1997 (although the Company did complete the purchase
of the remaining interests in most of the members of the Serete Group in 1997;
however, the net cash used for this transaction is included in the line
"Acquisition of businesses, net of cash acquired"). Cash used in 1997 to
purchase marketable securities related to a $20.0 million deposit with a U.S.
bank made by the Company under a managed investment program. The bank has full
investment and dispositive powers over the assets held in the account. The
program emphasizes the preservation of capital through investment-grade,
marketable debt instruments which have maximum maturities of ten years.
The Company's financing activities provided $20.3 million of cash and cash
equivalents in 1997. This compares to a net contribution of cash of $9.6
million in 1996 and $6.6 million in 1995. The increase in cash provided from
financing activities from 1996 to 1997 was due primarily to higher cash flows
from the issuance of stock to employees ($2.7 million), and increased
borrowings of long-term bank debt ($2.5 million). Also contributing to the
increase in cash provided by financing activities in 1997 as compared to 1996
was the use in 1996 of $15.7 million to repay short-term bank debt; no similar
use occurred in 1997. Offsetting these sources of additional financing funds
in 1997 as compared to 1996 was an increase in the amount of cash used to
purchase treasury stock ($8.5 million). The Company's stock buy-back program
was initiated during the second half of 1996.
A-6
<PAGE>
The Company believes it has adequate capital resources available to fund
operations in 1998 and beyond. The Company's consolidated working capital
position totalled $178.2 million at September 30, 1997; this was $22.6 million
more than the comparable 1996 amount. At September 30, 1997, the Company had a
total of $48.0 million available under all of its short-term bank credit
facilities, against which $1.3 million was outstanding in the form of direct
borrowings.
COSTS ASSOCIATED WITH "YEAR 2000 ISSUE"
The Company continues to evaluate what effects, if any, Year 2000 issues may
have on its operations. At present, the Company does not believe such issues
will have any material adverse effect on its consolidated financial
statements.
EFFECT OF RECENTLY-ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 128--Earnings per Share ("SFAS No.
128"). SFAS No. 128 simplifies the standards for calculating earnings per
share, and makes them comparable to international accounting standards. SFAS
128 will be effective for the Company beginning with the first fiscal quarter
of 1998. The Company does not believe the adoption of SFAS 128 will have a
material effect on its consolidated results of operations.
A-7
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 55,992 $ 62,865
Marketable securities...................................... 21,130 2,764
Receivables................................................ 382,051 276,668
Deferred income taxes...................................... 40,352 37,564
Prepaid expenses and other................................. 4,396 3,783
-------- --------
Total current assets...................................... 503,921 383,644
-------- --------
Property, Equipment and Improvements, Net................... 93,401 79,009
-------- --------
Other Noncurrent Assets:
Goodwill, net.............................................. 75,445 40,481
Other...................................................... 71,436 69,371
-------- --------
Total other noncurrent assets............................. 146,881 109,852
-------- --------
$744,203 $572,505
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable.............................................. $ 1,443 $ 694
Accounts payable........................................... 109,098 60,799
Accrued liabilities........................................ 129,767 110,061
Customers' advances in excess of related revenues.......... 77,149 47,052
Income taxes payable....................................... 8,261 9,469
-------- --------
Total current liabilities................................. 325,718 228,075
-------- --------
Long-term Debt.............................................. 54,095 36,300
-------- --------
Other Deferred Liabilities, Including Deferred Gains on Real
Estate Transactions......................................... 34,620 24,743
-------- --------
Minority Interests.......................................... 5,462 --
-------- --------
Commitments and Contingencies
Stockholders' Equity:
Capital stock:
Preferred stock, $1 par value, authorized -- 1,000,000
shares, issued and outstanding -- none.................... -- --
Common stock, $1 par value, authorized -- 60,000,000
shares, issued -- 25,810,860 and 25,745,329 shares,
respectively.............................................. 25,811 25,745
Additional paid-in capital................................ 52,186 49,191
Retained earnings.......................................... 249,791 207,639
Other...................................................... (2,744) 1,039
-------- --------
325,044 283,614
Less, cost of common stock held in treasury (25,000 shares
in 1997, 10,000 shares in 1996)............................ 736 227
-------- --------
Total stockholders' equity................................ 324,308 283,387
-------- --------
$744,203 $572,505
======== ========
</TABLE>
See the accompanying notes.
A-8
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
(IN THOUSANDS, EXCEPT PER-SHARE INFORMATION)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................... $1,780,616 $1,798,970 $1,723,057
---------- ---------- ----------
Costs and Expenses:
Direct costs of contracts................ 1,546,898 1,590,906 1,533,832
Selling, general and administrative
expenses................................ 160,157 143,456 136,562
Interest income, net..................... (2,959) (1,444) (359)
Other income, net........................ (929) (769) (359)
---------- ---------- ----------
1,703,167 1,732,149 1,669,676
---------- ---------- ----------
Income before taxes..................... 77,449 66,821 53,381
---------- ---------- ----------
Income Tax Expense......................... 30,554 26,461 21,139
---------- ---------- ----------
Net Income................................. $ 46,895 $ 40,360 $ 32,242
========== ========== ==========
Net Income Per Share....................... $ 1.80 $ 1.56 $ 1.27
========== ========== ==========
</TABLE>
See the accompanying notes.
A-9
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TREASURY
COMMON PAID-IN RETAINED STOCK
STOCK CAPITAL EARNINGS OTHER (AT COST)
------- ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balances, September 30, 1994.. $25,095 $37,251 $136,206 $ 1,881 $ --
Net foreign currency
translation adjustment...... -- -- -- 293 --
Net unrealized gains on
marketable securities........ -- -- -- 213 --
Repurchases of common stock.. (52) (900) (245) -- --
Exercises of stock options,
including the related income
tax benefits................. 392 6,317 -- -- --
Issuance of restricted stock,
net of amortization.......... 61 1,289 -- (1,282) --
Net income................... -- -- 32,242 -- --
------- ------- -------- ------- --------
Balances, September 30, 1995.. 25,496 43,957 168,203 1,105 --
Net foreign currency
translation adjustment....... -- -- -- 8 --
Net unrealized losses on
marketable securities........ -- -- -- (123) --
Repurchases of common stock.. (13) (23) (716) -- (3,590)
Exercises of stock options,
including the related income
tax benefits................. 253 5,028 (208) -- 3,363
Issuance of restricted stock,
net of amortization.......... 9 229 -- 49 --
Net income................... -- -- 40,360 -- --
------- ------- -------- ------- --------
Balances, September 30, 1996.. 25,745 49,191 207,639 1,039 (227)
Net foreign currency
translation adjustment....... -- -- -- (3,444) --
Net unrealized losses on
marketable securities........ -- -- -- (507) --
Repurchases of common stock.. (73) (446) (1,896) -- (12,075)
Exercises of stock options,
including the related income
tax benefits................. 133 3,285 (2,847) -- 11,566
Issuance of restricted stock,
net of amortization.......... 6 156 -- 168 --
Net income................... -- -- 46,895 -- --
------- ------- -------- ------- --------
Balances, September 30, 1997.. $25,811 $52,186 $249,791 $(2,744) $ (736)
======= ======= ======== ======= ========
</TABLE>
See the accompanying notes.
A-10
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 46,895 $ 40,360 $ 32,242
Adjustments to reconcile net income to net cash
flows from operations:
Depreciation and amortization.................. 19,626 18,118 15,013
Amortization of deferred gains................. (820) (820) (820)
(Gains) losses on disposals of property,
equipment and other assets..................... (742) (259) 22
Changes in assets and liabilities, excluding
the effects of businesses acquired:
Receivables................................... (34,849) 15,255 (7,402)
Prepaid expenses and other current assets..... (416) (1,182) 737
Accounts payable.............................. 783 (2,911) (24,146)
Accrued liabilities........................... 18,537 (1,588) 11,791
Customers' advances........................... (1,685) (7,420) 7,082
Income taxes payable.......................... (932) (1,743) 2,725
Deferred income taxes.......................... (2,784) (3,818) (5,313)
Other, net..................................... 330 287 68
-------- -------- --------
Net cash provided............................... 43,943 54,279 31,999
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............. (28,025) (16,694) (34,971)
Disposals of property and equipment............. 289 745 784
Increase in other assets, net................... (16,780) (2,689) (3,228)
Additions to investments........................ (4,491) (21,705) (3,001)
Proceeds from sales of investments.............. 936 301 --
Purchases of marketable securities.............. (20,000) -- --
Proceeds from sales of marketable securities.... 1,837 -- 91
Acquisitions of businesses, net of cash
acquired....................................... (3,307) -- (4,683)
-------- -------- --------
Net cash used................................... (69,541) (40,042) (45,008)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercises of stock options, including the
related income tax benefits..................... 10,970 8,258 6,521
Purchases of treasury stock..................... (12,075) (3,590) --
Increases to long-term debt..................... 21,415 18,881 17,799
Payments on long-term debt...................... -- -- (25,000)
Increase (decrease) in short-term borrowings.... -- (15,739) 7,242
Other, net...................................... -- 1,768 --
-------- -------- --------
Net cash provided............................... 20,310 9,578 6,562
-------- -------- --------
Effect of Exchange Rate Changes.................. (1,585) (68) (46)
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents. (6,873) 23,747 (6,493)
Cash and Cash Equivalents at Beginning of Period. 62,865 39,118 45,611
-------- -------- --------
Cash and Cash Equivalents at End of Period....... $ 55,992 $ 62,865 $ 39,118
======== ======== ========
</TABLE>
See the accompanying notes.
A-11
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Jacobs
Engineering Group Inc. and its subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated. Certain 1996
balances in the accompanying consolidated balance sheet have been reclassified
to conform to the 1997 presentation.
Description of the Business
The Company's principal business is that of providing professional
engineering, construction and construction management, and maintenance
services to its industrial, commercial and government clients. The Company
provides its services from offices located primarily throughout the United
States, Europe and India. The Company provides its services under cost-
reimbursable, cost-reimbursable with a guaranteed maximum, and fixed-price
contracts. The percentage of revenues realized from each of these types of
contracts in each of the years ended September 30, 1997, 1996, and 1995 was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cost-reimbursable............................................. 82% 82% 88%
Guaranteed maximum............................................ 2 2 1
Fixed-price................................................... 16 16 11
</TABLE>
For the years ended September 30, 1997, 1996, and 1995, projects with or for
the benefit of agencies of the U.S. federal government accounted for 12.0
percent, 8.7 percent and 11.4 percent, respectively, of total revenues. Within
the private sector, one client accounted for 15.3 percent of total revenues in
1997, and a different client accounted for 13.1 percent of revenues in 1995.
No single private-sector client accounted for 10 percent or more of total
revenues in 1996.
Revenue Accounting for Contracts
In general, the Company recognizes revenues at the time services are
performed. On cost-reimbursable contracts, revenue is recognized as costs are
incurred, and includes applicable fees earned through the date services are
provided. On fixed-price contracts, revenues are recorded using the
percentage-of-completion method of accounting by relating contract costs
incurred to date to total estimated contract costs at completion. Contract
costs include both direct and indirect costs. Contract losses are provided for
in their entirety in the period they become known, without regard to the
percentage-of-completion.
Some of the Company's contracts with the U.S. federal government, as well as
certain contracts with commercial clients, provide that contract costs
(including indirect costs) are subject to audit and adjustment. For all such
contracts, revenues have been recorded based upon those amounts expected to be
realized upon final settlement.
As is common in the industry, the Company executes certain contracts jointly
with third parties through partnerships and joint ventures. For certain of
these contracts, the Company recognizes its proportionate share of venture
revenues, costs and operating income in its consolidated statements of income.
A-12
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Foreign Operations
In 1995, 1996, and for most of 1997, the Company's operations outside of the
United States were conducted primarily through its offices in the U.K. and
Ireland. Then in 1997, as more fully discussed in Note 2 below, the Company
acquired controlling interests in various engineering and construction
companies located in India, France, Spain, Italy and Santiago, Chile. The
following table summarizes certain financial information of the Company for
geographic areas outside the United States (in thousands):
<TABLE>
<CAPTION>
OPERATING IDENTIFIABLE
REVENUES PROFIT ASSETS
-------- --------- ------------
<S> <C> <C> <C>
1997:
Europe...................................... $412,298 $15,659 $107,493
Southern Asia (India)....................... 5,302 483 39,139
-------- ------- --------
1996 (principally Europe).................... 176,427 6,494 83,917
-------- ------- --------
1995 (principally Europe).................... 92,514 1,053 74,265
-------- ------- --------
</TABLE>
Revenues were earned from unaffiliated customers located primarily within
the respective geographic areas. Operating profit is defined as total
revenues, less direct costs of contracts, and selling general and
administrative expenses, and excludes corporate expenses. Identifiable
assets exclude general corporate assets (such as cash in excess of local
working capital requirements, and investments). The results of the
Company's operations in Chile in 1997 were not material.
Cash Equivalents
The Company considers all highly liquid investments with original maturities
of less than three months as cash equivalents. Cash equivalents at September
30, 1997 and 1996 consisted primarily of time certificates of deposit.
Marketable Securities and Investments
The Company's investments in equity and debt securities are classified as
either trading securities (shown as "Marketable securities" in the
accompanying consolidated balance sheets), held-to-maturity securities or
available-for-sale securities (the latter two are included as long-term
investments in "Other noncurrent assets" in the accompanying consolidated
balance sheets). Management determines the appropriate classification of all
its investments at the time of purchase and reviews such designations at each
balance sheet date.
Trading securities are stated at fair value with unrealized gains or losses
included in "Other income, net" in the accompanying consolidated statements of
income. Held-to-maturity securities are carried at cost, or amortized cost if
a premium was paid or a discount received at the time of purchase. Marketable
equity securities not held for trading and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are stated at fair value, with the unrealized gains or losses, net
of taxes, reported in the "Other" component of stockholders' equity. The
amount of unrealized gains, net of taxes, recorded at September 30, 1997 and
1996 totalled $114,000 and $621,600, respectively.
A-13
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes certain information regarding the Company's
available-for-sale equity securities at September 30, 1997 and 1996, and for
each of the years then ended (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ------
<S> <C> <C>
Total cost (specific identification method)..................... $117 $ 368
Gross unrealized gains.......................................... 190 1,351
Estimated fair value............................................ 307 1,719
Gross realized gains............................................ 686 156
Gross proceeds from sales....................................... 937 201
</TABLE>
Included in marketable securities at September 30, 1997 was a $20,000,000
deposit with a U.S. bank made under a managed investment program. The bank has
full investment and dispositive powers over the assets held in the account.
The program emphasizes the preservation of capital through investment-grade,
marketable debt instruments which have maximum maturities of ten years.
Receivables and Customers' Advances
Included in receivables at September 30, 1997 and 1996 were unbilled amounts
of $82,972,400 and $50,770,100, respectively. Unbilled receivables represent
amounts earned under contracts in progress, but not yet billable under the
terms of those contracts. These amounts become billable according to the
contract terms which usually consider the passage of time, achievement of
certain milestones or completion of the project. Included in unbilled
receivables at September 30, 1997 and 1996 were contract retentions totaling
$5,708,100 and $12,616,000, respectively. Substantially all unbilled
receivables are billed and collected in the subsequent fiscal year.
Customers' advances in excess of related revenues represent cash collected
from clients on contracts in advance of revenues earned thereon, as well as
billings to clients in excess of costs and earnings on uncompleted contracts.
Substantially all such amounts are earned in the subsequent fiscal year.
Property, Equipment and Improvements
Property, equipment and improvements are stated at cost and consisted of the
following at September 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land....................................................... $ 12,983 $ 10,028
Buildings.................................................. 38,876 38,762
Equipment.................................................. 114,127 100,874
Leasehold improvements..................................... 18,411 12,812
-------- --------
184,397 162,476
Less -- accumulated depreciation and amortization......... 90,996 83,467
-------- --------
$ 93,401 $ 79,009
======== ========
</TABLE>
A-14
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Depreciation and amortization are provided using primarily the straight-line
method over the estimated useful lives of the assets, or, in the case of
leasehold improvements, over the remaining term of the lease, if shorter.
Estimated useful lives range from 20 to 40 years for buildings, from 3 to 10
years for equipment and from 4 to 10 years for leasehold improvements.
Other Noncurrent Assets
Goodwill represents the costs in excess of the fair values of the net assets
of acquired companies and is amortized against earnings using the straight-
line method over periods not exceeding 40 years. Goodwill is shown in the
accompanying consolidated balance sheets net of accumulated amortization of
$6,908,000 and $4,997,700 at September 30, 1997 and 1996, respectively.
Other noncurrent assets consisted of the following at September 30, 1997 and
1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Prepaid pension costs....................................... $11,509 $11,201
Cash surrender value of life insurance policies............. 23,775 20,758
Investments................................................. 17,014 35,000
Notes receivable............................................ 14,602 749
Miscellaneous............................................... 4,536 1,663
------- -------
$71,436 $69,371
======= =======
</TABLE>
In 1996, the Company purchased 49 percent interests in various engineering
and construction companies comprising the Serete Group (which is headquartered
in France). The purchase price was $18,881,300. In 1997, the Company purchased
substantially all of the remaining interests of most of the entities in the
Serete Group (see Note 2., below). Prior to the 1997 transaction, the Company
had been accounting for its investment in the Serete Group using the equity
method.
Net Income Per Share
Net income per share has been computed in accordance with Accounting
Principles Board ("APB") Opinion No. 15 -- Earnings per Share. Accordingly,
net income per share has been computed based on the weighted average number of
shares of common stock and, if dilutive, common stock equivalents outstanding
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Average number of shares
of common stock
outstanding............ 25,727 25,613 25,208
Average number of common
stock equivalents
outstanding............ 262 308 176
------ ------ ------
25,989 25,921 25,384
====== ====== ======
</TABLE>
The Company will adopt the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128 (also titled "Earnings per Share") beginning with
the first fiscal quarter of 1998.
Stock-based Compensation
The Company accounts for stock issued to employees and outside directors in
accordance with APB Opinion No. 25 -- Accounting for Stock Issued to Employees
("APB No. 25"). APB No. 25 prescribes an intrinsic value based method for
accounting for stock options. Since the stock issued to
A-15
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
participants in Company's stock purchase and stock option plans (described in
Note 4., below) have little or no intrinsic value as of the grant date, no
compensation cost is recorded.
Concentrations of Credit Risk/Use of Estimates
The Company's cash balances and short-term investments are maintained in
accounts held by major banks and financial institutions in the U.S. and
Europe. Also, as is customary in the industry, the Company grants
uncollateralized credit to its clients, which include the federal government
and large, multi-national corporations operating in a broad range of
industries. In order to mitigate its credit risk, the Company continually
evaluates the credit worthiness of its major commercial clients.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that necessarily affect certain amounts reported in its
consolidated financial statements. The more significant estimates affecting
amounts reported in the consolidated financial statements relate to revenues
under long-term construction contracts and self-insurance accruals. Actual
results could differ from those estimates.
Deferred Gains on Real Estate Transactions
In 1983, the Company entered into a real estate transaction which resulted
in a gain totaling $12,299,800. Since the transaction involved a long-term
lease agreement, the gain was deferred and is being amortized ratably into
income over the lease term (which ends December 31, 1997).
2. ACQUISITIONS
In February 1997, the Company acquired for cash certain physical assets and
contracts of an engineering business with operations in Denver, Colorado and
Santiago, Chile. Also in February 1997, the Company acquired for cash a 51
percent controlling interest in an affiliated entity headquartered in Mumbai,
India (this interest was increased to 70 percent in a cash transaction in
September 1997). In April 1997, the Company acquired for cash and notes
certain assets and liabilities of an engineering business headquartered in
Green Bay, Wisconsin. Finally, in July 1997, the Company completed the
acquisition of the remaining interests of most of the entities in the Serete
Group.
The sum of the individual purchase prices totalled $29,781,500. Each of
these acquisitions have been accounted for as a purchase, and the results of
operations of each acquired business have been included in the Company's
consolidated results of operations since the respective dates of acquisition.
The initial purchase price allocations, which may be adjusted further,
resulted in goodwill of approximately $36,054,000. The pro forma effects on
the Company's consolidated results of operations assuming these acquisitions
had occurred at the beginning of fiscal 1996 and fiscal 1997 are not material.
3. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT
Short-term Credit Arrangements
At September 30, 1997, the Company had approximately $47,978,000 available
through multiple bank lines of credit, under which the Company may borrow on
an overdraft or short-term basis. Interest under these lines is determined at
the time of borrowing based on the banks' prime or base rates, rates paid on
certificates of deposit, the banks' actual costs of funds or other variable
rates. Most of the agreements require the payment of a fee based on the amount
of the facility. The Company is also required to maintain certain minimum
levels of working capital and net worth. Two of the agreements limit
borrowings by the amount of letters of credit outstanding under the facility.
Borrowings under the lines are generally unsecured, and the lines extend
through the second and third fiscal quarters of 1998.
A-16
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other information regarding the lines of credit for the years ended
September 30, 1997, 1996, and 1995 follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Amount outstanding at year end.................... $1,317 $ 694 $16,587
Weighted average interest rate at year end........ 8.23% 7.00% 7.63%
Weighted average borrowings outstanding during the
year.............................................. $ 183 $12,270 $12,328
Weighted average interest rate during the year.... 9.48% 7.10% 7.11%
Maximum amount outstanding during the year........ $1,368 $17,406 $28,203
</TABLE>
Long-term Debt and Credit Arrangements
Long-term debt consisted of the following at September 30, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Mortgage loan, due May 2000................................. $16,045 $17,640
Borrowings under the Company's unsecured, $45,000 revolving
credit agreement............................................ 38,050 18,660
------- -------
$54,095 $36,300
======= =======
</TABLE>
The mortgage loan was incurred in connection with the purchase of the
Company's real property located in Dublin, Ireland, and is secured by the
property. The loan bears interest at variable rates for selected periods from
one to twelve months based on the Dublin Interbank Offered Rate, and is
payable at the end of each selected period. The interest rate in effect at
September 30, 1997 was 6.86 percent.
Borrowings under the revolving credit agreement bear interest at either
fixed rates offered by the banks at the time of borrowing, or at variable
rates based on the agent bank's base rate, LIBOR or the latest federal funds
rate. The agreement requires the Company to maintain a minimum tangible net
worth of at least $160,000,000 plus 50 percent of consolidated net income
after October 1, 1994, a minimum coverage ratio of certain defined fixed
charges and a minimum ratio of debt to tangible net worth. The agreement also
restricts the payment of cash dividends and requires the Company to pay a
facility fee of 0.15 percent of the total amount of the commitment. The
agreement extends through August 2000.
Interest expense for the years ended September 30, 1997, 1996, and 1995 was
$2,958,700, $2,777,400 and $2,216,000, respectively, and has been included
with interest income in the accompanying consolidated statements of income.
Interest payments made during each of these years totalled $1,801,500,
$2,552,300 and $2,044,500, respectively.
A-17
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK PURCHASE AND STOCK OPTION PLANS
Stock Purchase Plan
The Company's 1989 Employee Stock Purchase Plan (the "1989 ESPP") provides
for the granting of options to participating employees to purchase shares of
the Company's common stock. The participants' purchase price is the lower of
90 percent of the common stock's closing market price on either the first or
last day of the option period (as defined). A summary of shares issued through
the 1989 ESPP for the years ended September 30, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Aggregate purchase price................... $7,067,700 $6,310,960 $5,604,570
Shares purchased........................... 325,110 290,430 314,300
</TABLE>
At September 30, 1997, there were 995,502 shares reserved for issuance under
the 1989 ESPP.
Stock Option Plan
The Company has an incentive stock plan (the "1981 Plan") which provides for
the issuance of shares of common stock to employees and outside directors. The
Company may grant four types of incentive awards under the 1981 Plan:
incentive stock options, nonqualified stock options, stock appreciation
rights, and restricted stock. At September 30, 1997, there were 3,195,204
shares of common stock reserved for issuance under the 1981 Plan.
Information regarding the number of shares under options granted through the
1981 Plan for each of the years ended September 30, 1997, 1996, and 1995
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at the beginning of fiscal:
1995..................................................... 1,412,959 $19.63
1996..................................................... 1,576,059 19.80
1997..................................................... 1,789,323 21.69
--------- ------
Options granted during fiscal:
1995..................................................... 324,000 $19.04
1996..................................................... 406,000 25.30
1997..................................................... 472,000 22.66
--------- ------
Options exercised during fiscal:
1995..................................................... 77,400 $10.28
1996..................................................... 134,686 10.96
1997..................................................... 270,969 15.35
--------- ------
Options expired or canceled during fiscal:
1995..................................................... 83,500 $22.80
1996..................................................... 58,050 20.72
1997..................................................... 61,520 20.46
--------- ------
Options outstanding at the end of fiscal:
1995..................................................... 1,576,059 $19.80
1996..................................................... 1,789,323 21.69
1997..................................................... 1,928,834 22.85
========= ======
</TABLE>
A-18
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Certain other information regarding the Company's stock options follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Range of option prices for
options outstanding at the end
of the year.................... $5.31 to $28.56 $5.31 to $28.56 $4.25 to $28.20
Options exercisable at the end
of the year................... 807,034 781,653 637,229
Range of exercise prices for
options exercised during the
year........................... $7.94 to $27.88 $4.25 to $25.84 $5.07 to $19.34
Options available for grant at
the end of the year............ 1,266,370 484,350 839,300
Weighted-average fair value of
options granted during the
year........................... $22.66 $27.69
</TABLE>
The following tables present certain additional information regarding
options outstanding at September 30, 1997 (contractual life is expressed in
whole years):
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
--------------------
REMAINING
RANGE OF CONTRACTUAL EXERCISE
EXERCISE PRICES NUMBER LIFE PRICE
--------------- --------- ----------- --------
<S> <C> <C> <C>
$ 5.31........................................ 7,200 2 $ 5.31
$15.86 - 16.58................................ 113,804 1 $15.91
$17.32 - 18.17................................ 102,600 4 $17.50
$18.81 - 19.87................................ 218,950 5 $19.52
$20.40 - 23.27................................ 495,680 7 $21.07
$23.63 - 24.88................................ 442,900 7 $24.23
$25.45 - 26.24................................ 178,500 3 $26.13
$27.50 - 28.56................................ 369,200 7 $27.96
--------- --- ------
1,928,834 6 $22.85
========= === ======
</TABLE>
OPTIONS EXERCISABLE AT SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF EXERCISE
EXERCISE PRICES NUMBER PRICE
--------------- ------- --------
<S> <C> <C>
$ 5.31...................................................... 7,200 $ 5.31
$15.86 - 16.58.............................................. 106,004 $15.89
$17.32 - 18.17.............................................. 55,000 $17.44
$18.81 - 19.87.............................................. 78,850 $19.51
$20.40 - 23.27.............................................. 128,880 $21.04
$23.63 - 24.88.............................................. 109,400 $24.55
$25.45 - 26.24.............................................. 147,000 $26.23
$27.50 - 28.56.............................................. 174,700 $27.94
------- ------
807,034 $22.74
======= ======
</TABLE>
A-19
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options outstanding at September 30, 1997 consisted entirely of nonqualified
stock options. The 1981 Plan allows participants to satisfy the exercise price
on exercises of stock options by tendering to the Company shares of the
Company's common stock already owned by the participants. Shares so tendered
are retired and canceled by the Company and are shown as repurchases of common
stock in the accompanying consolidated statements of stockholders' equity.
The Company issued 5,500, 9,000 and 61,000 shares of restricted stock under
the 1981 Plan during each of the years ended September 30, 1997, 1996, and
1995, respectively. Upon issuance of restricted stock, unearned compensation
equivalent to the market value of the stock issued (determined on the date of
grant) is charged to stockholders' equity and subsequently amortized against
income over the periods during which the restrictions lapse ($329,900,
$285,800 and $67,500 of compensation expense was recognized in 1997, 1996 and
1995, respectively). The restrictions generally relate to the recipient's
ability to sell or otherwise transfer the stock. There are also restrictions
that subject the stock to forfeiture back to the Company until earned by the
recipient through continued employment. The restrictions lapse over five
years.
Pro Forma Disclosures
As discussed in Note 1., above, the Company accounts for stock issued to
employees and outside directors in accordance with APB No. 25. In October
1995, the Financial Accounting Standards Board adopted SFAS No. 123 --
Accounting for Stock-Based Compensation. SFAS No. 123 prescribes an optional,
fair-value based method of accounting for stock issued to employees and
others. The Company's pro forma net income and net income per share in 1997
and 1996 using the Black-Scholes option valuation model for stock awards in
those years follows, along with a summary of the significant assumptions used
in the valuation (dollars in thousands, except earnings per share):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Pro forma net income....................................... $43,022 $39,218
Pro forma net income per share............................. 1.66 1.51
Assumptions used:
Dividend yield............................................ 0% 0%
Expected volatility....................................... 21.57% 28.50%
Risk-free interest rate................................... 6.50% 6.48%
Expected life (years)..................................... 6.25 6.68
======= =======
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. Additionally, option valuation
models require the use of highly subjective assumptions including the
expected volatility of the underlying stock price. Because the Company's
stock options possess characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, the Company believes that
existing models do not necessarily provide a reliable single measure of the
fair value of its stock options.
The pro forma effects of SFAS No. 123 on reported net income as presented
above is not necessarily representative of the pro forma effects in future
years.
A-20
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SAVINGS, DEFERRED COMPENSATION AND PENSION PLANS
Savings Plans
The Company maintains employee savings plans (qualified 401(k) retirement
plans) covering substantially all of the Company's domestic, nonunion
employees. For the years ended September 30, 1997, 1996, and 1995, Company
contributions to these plans totalled $8,710,500, $8,000,100 and $7,719,400,
respectively.
Deferred Compensation Plans
The Company's Executive Security Plan ("ESP") and Executive Deferral Plans
("EDP") are nonqualified deferred compensation programs that provide benefits
payable to directors, officers and certain key employees or their designated
beneficiaries at specified future dates, upon retirement or death. Benefit
payments under both plans are funded by a combination of contributions from
participants and the Company, and most of the participants are covered by life
insurance policies with the Company designated as the beneficiary. Amounts
charged to expense relating to these programs for the years ended September
30, 1997, 1996, and 1995 were $1,672,600, $1,781,200 and $1,601,000,
respectively. Included in other deferred liabilities in the accompanying
consolidated balance sheets at September 30, 1997 and 1996 was $23,446,800 and
$19,092,700, respectively, relating to the ESP and EDP plans.
Pension Plans
In the United States, the Company contributes to various trusteed pension
plans covering hourly construction 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.
Information from the plans' administrators is not available to permit the
Company to determine its share of unfunded benefits, if any. Company
contributions to these plans totalled $2,694,700, $3,538,900 and $5,044,400
for the years ended September 30, 1997, 1996, and 1995, respectively.
The Company's U.K. subsidiary sponsors a contributory defined benefit
pension plan covering substantially all permanent, full-time employees at
least 21 years of age. Benefits are based on length of service and the
employee's highest average salary for any three consecutive years in the plan,
or, if higher, the employee's salary in the final year in the plan. The
Company's funding policy is to fund the actuarially-determined accrued
benefits, allowing for projected compensation increases using the projected
unit method. The following table presents the funded status of the plan as of
September 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Fair value of plan assets................................. $97,984 $84,996
------- -------
Actuarial present value of benefit obligations (all
vested).................................................. 75,498 69,604
------- -------
Accumulated benefit obligation............................ 75,498 69,604
Effect of projected compensation increases................ 3,478 2,368
------- -------
Projected benefit obligation.............................. 78,976 71,972
------- -------
Plan assets in excess of projected benefit obligation..... 19,008 13,024
Unrecognized gains........................................ (7,499) (1,823)
------- -------
Prepaid pension asset..................................... $11,509 $11,201
======= =======
</TABLE>
A-21
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of net periodic pension cost for each of the years ended
September 30, 1997, 1996, and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Service costs................................... $ 1,484 $ 1,258 $ 1,283
Interest........................................ 6,621 5,624 5,399
Actual return on plan assets.................... (14,094) (14,242) (8,092)
Net amortization and deferral................... 6,074 7,418 1,530
-------- -------- -------
Net pension cost................................ $ 85 $ 58 $ 120
======== ======== =======
</TABLE>
The significant actuarial assumptions used in determining the funded status
of the plan were as follows: weighted average discount rate -- 8 percent;
weighted average rate of increase in compensation -- 6 percent; and, weighted
average rate of return on pension assets -- 8.5 percent. At September 30,
1997, the majority of the plan's assets were invested in equity securities
(primarily those of companies trading in the U.K. and other European stock
markets) and fixed income securities.
6. PROVISION FOR INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109 --
Accounting for Income Taxes. Accordingly, deferred tax assets and liabilities
are determined based on the differences between the financial reporting and
tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Consolidated income tax expense for the years ended September 30, 1997,
1996, and 1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Taxes currently payable:
Federal......................................... $23,255 $22,927 $19,071
State........................................... 4,515 5,316 4,026
Foreign......................................... 4,519 1,577 1,359
------- ------- -------
32,289 29,820 24,456
------- ------- -------
Taxes deferred:
Federal......................................... (1,563) (2,768) (2,870)
State........................................... (172) (591) (447)
------- ------- -------
(1,735) (3,359) (3,317)
------- ------- -------
$30,554 $26,461 $21,139
======= ======= =======
</TABLE>
A-22
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their related amounts used for income tax purposes. The
significant components of the Company's deferred tax assets (liabilities) at
September 30, 1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Assets:
Liabilities relating to employee benefit plans........... $24,306 $21,733
Self-insurance reserves.................................. 10,395 11,038
Contract revenues and costs.............................. 8,018 5,559
Accruals for office consolidations and other special
charges................................................. 344 914
Deferred gains on real estate transactions............... 50 293
------- -------
Total deferred tax assets................................ 43,113 39,537
------- -------
Liabilities:
Depreciation and amortization............................ (3,809) (3,816)
Unremitted foreign earnings.............................. (2,065) (1,102)
State income and franchise taxes......................... (1,564) (1,410)
Other, net............................................... (234) (271)
------- -------
Total deferred tax liabilities........................... (7,672) (6,599)
------- -------
Net deferred tax asset.................................... $35,441 $32,938
======= =======
</TABLE>
Included in "Other deferred liabilities" in the accompanying consolidated
balance sheets at September 30, 1997 and 1996 are deferred tax liabilities of
$4,911,000 and $4,626,000, respectively.
The reconciliations of the tax provisions recorded for the years ended
September 30, 1997, 1996, and 1995 to those based on the federal statutory
rate were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Statutory amount.................................. $27,107 $23,388 $18,683
State taxes, net of the federal benefit........... 2,824 3,071 2,326
Other, net........................................ 623 2 130
------- ------- -------
$30,554 $26,461 $21,139
======= ======= =======
Rate used to compute statutory amount............. 35.00% 35.00% 35.00%
======= ======= =======
</TABLE>
For the years ended September 30, 1997, 1996, and 1995, the Company paid
approximately $32,038,000, $30,940,000 and $22,153,000, respectively, in
income taxes.
For the years ended September 30, 1997, 1996, and 1995, consolidated income
before income taxes included $16,029,300, $4,707,100 and $380,200,
respectively, from foreign operations. U.S. income taxes, net of applicable
credits, have been provided on the undistributed profits of foreign
subsidiaries, except in those instances where such profits are expected to be
permanently reinvested (the amount of such profits expected to be permanently
reinvested totalled $7,830,800 at September 30, 1997). Should these earnings
be repatriated, approximately $2,070,700 of income taxes would be payable.
A-23
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment under operating
leases with net aggregate future lease payments of approximately $113,220,000
at September 30, 1997 payable as follows (in thousands):
<TABLE>
<S> <C>
Year ending September 30,
1998............................................................. $ 27,002
1999............................................................. 23,189
2000............................................................. 19,858
2001............................................................. 14,598
2002............................................................. 10,332
Thereafter....................................................... 42,631
--------
137,610
Less -- amounts representing sublease income....................... 24,390
--------
$113,220
========
</TABLE>
Rent expense for the years ended September 30, 1997, 1996, and 1995 was
approximately $29,978,000, $27,190,200 and $24,601,700, respectively, and was
offset by sublease income of approximately $2,780,000, $2,313,500 and
$1,326,700, respectively.
The Company maintains insurance coverage for various aspects of its business
and operations. The Company has elected, however, to retain a portion of
losses that occur through the use of various deductibles, limits and
retentions under its insurance programs. This situation may subject the
Company to some future liability for which it is only partially insured, or
completely uninsured. The Company intends to mitigate any such future
liability by continuing to exercise prudent business judgment in negotiating
the terms and conditions of its contracts.
The Company has entered into an employment agreement expiring September 30,
2002 with the Chairman of its Board of Directors. The agreement provides for
base payments of $432,000 per year to either the Chairman or, in the event of
his death, his beneficiary. The agreement also provides that the Chairman may
participate in any bonus plan sponsored by the Company, specifies certain
promotional and other activities to be performed by the Chairman in the event
he leaves employment with the Company and contains other provisions, including
some intended to prevent the Chairman from entering into any form of
competition with the Company.
In the normal course of business, the Company is subject to certain
contractual guarantees and litigation. Generally, such guarantees relate to
construction schedules and plant performance. Most of the litigation involves
the Company as a defendant in workers' compensation, personal injury, and
other similar lawsuits. In addition, as a contractor for many agencies of the
United States Government, the Company is subject to many levels of audits,
investigations and claims by, or on behalf of, the government with respect to
its contract performance, pricing, costs, cost allocations and procurement
practices. Management believes, after consultation with counsel, that such
guarantees, litigation, and United States Government contract-related audits,
investigations and claims should not have any material adverse effect on the
Company's consolidated financial statements.
Letters of credit outstanding at September 30, 1997 totalled approximately
$62,854,000.
A-24
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMON AND PREFERRED STOCK
Pursuant to the Company's 1990 Stockholder Rights Plan, each outstanding
share of common stock has attached to it one stock purchase right (a "Right").
Each Right entitles the common stockholder to purchase, in certain
circumstances generally relating to a change in control of the Company, one
two-hundredth of a share of the Company's Series A Junior Participating
Cumulative Preferred Stock, par value $1.00 per share (the "Series A Preferred
Stock") at the exercise price of $90 per share, subject to adjustment.
Alternatively, the Right holder may purchase common stock of the Company
having a market value equal to two times the exercise price, or may purchase
shares of common stock of the acquiring corporation having a market value
equal to two times the exercise price.
The Series A Preferred Stock confers to its holders rights as to dividends,
voting and liquidation which are in preference to common stockholders. The
Rights are nonvoting, are not presently exercisable and currently trade in
tandem with the common shares. The Rights may be redeemed at $0.01 per Right
by the Company in accordance with the Rights Plan. The Rights will expire on
December 20, 2000, unless earlier exchanged or redeemed.
9. OTHER FINANCIAL INFORMATION
Accrued liabilities at September 30, 1997 and 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accrued payroll and related liabilities.................... $ 86,330 $ 60,772
Insurance liabilities...................................... 26,903 27,888
Office consolidations and other special charge reserves.... 1,287 4,677
Other...................................................... 15,247 16,724
-------- --------
$129,767 $110,061
======== ========
</TABLE>
A-25
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. QUARTERLY DATA -- UNAUDITED
Summarized quarterly financial information for the years ended September 30,
1997, 1996, and 1995 is presented below (in thousands, except per-share
amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
1997
Revenues......................... $433,649 $437,735 $430,177 $479,055 $1,780,616
Income before taxes.............. 17,997 18,907 19,818 20,727 77,449
Net income....................... 10,870 11,420 11,970 12,635 46,895
Net income per share............. .42 .44 .46 .48 1.80
Stock price:
High............................ 25.000 28.500 27.875 32.563 32.563
Low............................. 21.250 23.500 23.250 26.250 21.250
-------- -------- -------- -------- ----------
1996
Revenues......................... $471,121 $487,021 $436,820 $404,008 $1,798,970
Income before taxes.............. 15,811 16,358 17,185 17,467 66,821
Net income....................... 9,550 9,880 10,380 10,550 40,360
Net income per share............. .37 .38 .40 .41 1.56
Stock price:
High............................ 25.375 29.375 28.375 27.375 29.375
Low............................. 21.500 24.750 25.625 19.625 19.625
-------- -------- -------- -------- ----------
1995
Revenues......................... $412,356 $396,746 $444,626 $469,329 $1,723,057
Income before taxes.............. 12,086 12,505 13,909 14,881 53,381
Net income....................... 7,300 7,552 8,402 8,988 32,242
Net income per share............. .29 .30 .33 .35 1.27
Stock price:
High............................ 24.250 20.750 22.250 25.750 25.750
Low............................. 16.875 17.250 19.125 21.625 16.875
-------- -------- -------- -------- ----------
</TABLE>
The Company's common stock is listed on the New York Stock Exchange. At
September 30, 1997, there were 1,592 shareholders of record.
A-26
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Jacobs Engineering Group Inc.
We have audited the accompanying consolidated balance sheets of Jacobs
Engineering Group Inc. and subsidiaries as of September 30, 1997 and 1996, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jacobs
Engineering Group Inc. and subsidiaries at September 30, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
November 5, 1997
A-27
<PAGE>
MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING
The consolidated financial statements and other information included in this
annual report have been prepared by management, which is responsible for their
fairness, integrity, and objectivity. The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with prior years and contain some amounts that
are based upon management's best estimates and judgment. The financial
information contained elsewhere in this report has been prepared in a manner
consistent with the preparation of the financial statements.
In meeting its responsibility for the fair presentation of the Company's
financial statements, management necessarily relies on the Company's system of
internal accounting controls. This system is designed to provide reasonable,
but not absolute, assurance that assets are safeguarded and that transactions
are executed in accordance with management's instructions and are properly
recorded in the Company's books and records. The concept of reasonable
assurance is based on the recognition that in any system of internal controls,
there are certain inherent limitations and that the cost of such systems
should not exceed the benefits to be derived. We believe the Company's system
of internal accounting controls is cost-effective and provides reasonable
assurance that material errors and irregularities will be prevented, or
detected and corrected on a timely basis.
The Company's consolidated financial statements have been audited by
independent auditors, whose report thereon was based on examinations conducted
in accordance with generally accepted auditing standards and is presented on
the preceding page. As part of their audit, the independent auditors perform a
review of the Company's system of internal accounting controls for the purpose
of determining the amount of reliance to place on those controls relative to
the audit tests they perform.
The Company's Board of Directors, through its Audit Committee which is
composed entirely of nonemployee directors, meets regularly with both
management and the independent auditors to review the Company's financial
results and to ensure that both management and the independent auditors are
properly performing their respective functions.
A-28
<PAGE>
[LOGO OF JACOBS ENGINEERING]
<PAGE>
- -------------------------------------------------------------------------------
PROXY
SOLICITED BY THE BOARD OF DIRECTORS OF JACOBS ENGINEERING GROUP INC.
ANNUAL MEETING OF SHAREHOLDERS--Tuesday February 10, 1998
JACOBS ENGINEERING GROUP INC.
THE UNDERSIGNED hereby appoints Joseph J. Jacobs, Noel G. Watson and Robert
M. Barton his true and lawful proxies (with full power of substitution) to
vote in his name, place and stead all shares in Jacobs Engineering Group Inc.
that the undersigned owns or is entitled to vote at the Annual Meeting of
Shareholders to be held February 10, 1998, and at any adjournment thereof,
upon the matters listed below in accordance with the following instructions:
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. PLEASE SPECIFY CHOICES,
DATE, SIGN AND RETURN THE PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED IF RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
- --------------------------------------------------------------------------------
Please mark
your votes as [X]
indicated in
this example
IF ANY OF THE FOLLOWING BOXES ARE CHECKED, THE SHARES COVERED BY THIS PROXY
WILL BE VOTED IN ACCORDANCE THEREWITH. IF NO BOX IS CHECKED UNDER ANY OF THE
FOLLOWING, THE SHARES WILL BE VOTED FOR THE PERSONS NOMINATED AS DIRECTORS BY
THE BOARD OF DIRECTORS AND FOR THE APPROVAL OF ITEM 2. ON OTHER MATTERS
PRESENTED, THE SHARES WILL BE VOTED IN ACCORDANCE WITH THE PROXIES' BEST
JUDGMENT.
WITHHELD
FOR FOR ALL
1. To elect Joseph F. Alibrandi, [ ] [ ]
Hon. Peter H. Dailey, Robert B. Gwyn
and Linda K. Jacobs as directors
FOR AGAINST ABSTAIN
2. To approve Ernst & Young LLP as auditors. [ ] [ ] [ ]
(To withhold authority to vote for any individual nominee write that nominee's
name in the space provided below.)
- --------------------------------------------------------------------------------
Receipt of the Jacobs Engineering Group
Inc. Proxy Statement dated January 2,
1998 and Summary Annual Report for the
year ended September 30, 1997 is hereby
acknowledged. Please vote my (our) shares
as indicated on the face of this proxy.
Signature(s) ____________________________ Date ______________________________
NOTE: Attorneys, executors, trustees, etc. should show such capacity when
signing and unless the certificate(s) is (are) registered in their names,
should submit a Proxy from the record owner. Evidence of their authority
should accompany the Proxy. Joint owners should each sign individually.
- --------------------------------------------------------------------------------
