<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report on
FORM 10-Q
(Mark one)
( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1998
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_______ to _______
Commission File Number 1-7463
JACOBS ENGINEERING GROUP INC.
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(Exact name of Registrant as specified in its charter)
Delaware 95-4081636
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(State of incorporation) (I.R.S. employer identification number)
1111 South Arroyo Parkway, Pasadena, California 91105
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(Address of principal executive offices) (Zip code)
(626) 578 - 3500
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(Registrant's telephone number, including area code)
Indicate by check-mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
( X ) YES - ( ) NO
Number of shares of common stock outstanding at August 11, 1998: 25,562,818
Page 1
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JACOBS ENGINEERING GROUP INC.
INDEX TO FORM 10-Q
Page No.
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Part I - Financial Information
Item 1. Financial Statements:
Consolidated Condensed Balance
Sheets at June 30, 1998
and September 30, 1997 3
Consolidated Condensed Statements
of Income for the Three Months
and Nine Months Ended
June 30, 1998 and 1997 4
Consolidated Condensed Statements of
Cash Flows for the Nine Months
Ended June 30, 1998 and 1997 5
Notes to Consolidated Condensed
Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 11
Part II - Other Information
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AT JUNE 30, 1998 AND SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 67,236 $ 55,992
Marketable securities 16,251 21,130
Receivables 381,384 382,051
Deferred income taxes 39,846 40,352
Prepaid expenses and other 14,272 4,396
- -----------------------------------------------------------------------------------
Total current assets 518,989 503,921
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Property, Equipment and Improvements, Net 108,938 93,401
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Other Noncurrent Assets:
Goodwill, net 73,543 75,445
Other 80,069 71,436
Total other noncurrent assets 153,612 146,881
- -----------------------------------------------------------------------------------
$ 781,539 $ 744,203
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- -----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 892 $ 1,443
Accounts payable 80,850 109,098
Accrued liabilities 135,723 129,767
Customers' advances in excess of
related revenues 90,940 77,149
Income taxes payable 25,239 8,261
- -----------------------------------------------------------------------------------
Total current liabilities 333,644 325,718
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Long-term Debt 52,479 54,095
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Other Deferred Liabilities 32,457 34,620
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Minority Interests 5,809 5,462
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Commitments and Contingencies
- -----------------------------------------------------------------------------------
Stockholders' Equity:
Capital stock:
Preferred stock, $1 par value,
authorized - 1,000,000 shares,
issued and outstanding - none - -
Common stock, $1 par value,
authorized - 60,000,000 shares,
issued - 25,858,200 and
25,810,860 shares, respectively 25,858 25,811
Additional paid-in capital 55,173 52,186
Retained earnings 287,352 249,791
Other (4,286) (2,744)
- -----------------------------------------------------------------------------------
364,097 325,044
Cost of common stock held in treasury
(221,100 and 25,000 shares, respectively) (6,947) (736)
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Total stockholders' equity 357,150 324,308
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$ 781,539 $ 744,203
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- -----------------------------------------------------------------------------------
</TABLE>
SEE THE ACCOMPANYING NOTES.
Page 3
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER-SHARE INFORMATION)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
-------------------- -------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 525,034 $ 430,177 $ 1,556,169 $ 1,301,561
Costs and Expenses:
Direct costs of contracts 457,679 373,230 1,354,240 1,136,143
Selling, general and
administrative expenses 44,881 38,351 137,488 112,073
Interest income, net (580) (1,253) (1,755) (2,628)
Other (income) expense, net 301 31 604 (749)
- ----------------------------------------------------------------------------------------------------------------
502,281 410,359 1,490,577 1,244,839
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Income before taxes 22,753 19,818 65,592 56,722
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Income Tax Expense 8,873 7,848 25,582 22,462
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Net Income $ 13,880 $ 11,970 $ 40,010 $ 34,260
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Net Income Per Share:
Basic $ .54 $ .47 $ 1.55 $ 1.33
Diluted $ .53 $ .46 $ 1.53 $ 1.32
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE THE ACCOMPANYING NOTES.
Page 4
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 40,010 $ 34,260
Adjustments to reconcile net income
to net cash flows from operations:
Depreciation and amortization 18,128 14,398
Amortization of deferred gains (205) (615)
Gains on disposals of assets - (742)
Changes in assets and liabilities, net:
Receivables (8,923) 1,490
Prepaid expenses and other
current assets (2,706) (322)
Accounts payable (7,834) (16,795)
Accrued liabilities (13,397) 39,445
Customers' advances 14,341 (45)
Income taxes payable 17,128 (288)
Deferred income taxes 506 (1,641)
Other, net 269 244
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Net cash provided 57,317 69,389
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Cash Flows from Investing Activities:
Additions to property and equipment, net
of disposals (33,380) (20,187)
Purchases of marketable securities
and investments (6,120) (21,705)
Proceeds from sales of marketable securities
and investments 4,195 3,597
Net increase in other noncurrent assets (2,616) (2,820)
Acquisitions of businesses - (7,562)
Other, net 347 -
- ---------------------------------------------------------------------------------
Net cash used (37,574) (48,677)
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Cash Flows from Financing Activities:
Exercises of stock options, including the
related income tax benefits 7,290 5,878
Purchases of treasury stock (12,074) (7,286)
Net decrease in short-term borrowings (583) (824)
Net reduction in other deferred liabilities (1,958) -
Other, net - (298)
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Net cash used (7,325) (2,530)
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Effect of Exchange Rate Changes (1,174) (726)
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Increase in Cash and Cash Equivalents 11,244 17,456
Cash and Cash Equivalents at the Beginning
of the Period 55,992 62,865
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Cash and Cash Equivalents at the End
of the Period $ 67,236 $ 80,321
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- ---------------------------------------------------------------------------------
</TABLE>
SEE THE ACCOMPANYING NOTES.
Page 5
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
1. The accompanying consolidated condensed financial statements and financial
information included herein have been prepared by the Company, without
audit, pursuant to the interim period reporting requirements of Form 10-Q.
Therefore, certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Readers of this
report should refer to the consolidated financial statements and the notes
thereto incorporated into the Company's latest Annual Report on Form 10-K.
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary for the fair presentation of its
consolidated financial position at June 30, 1998 and September 30, 1997,
and its consolidated results of operations for the three months and nine
months ended June 30, 1998 and June 30, 1997, and its consolidated cash
flows for the nine months ended June 30, 1998 and June 30, 1997.
The Company's interim results of operations are not necessarily indicative
of the results to be expected for the full year.
2. Included in receivables at June 30, 1998 and September 30, 1997 were
unbilled amounts totaling $109,865,600 and $82,972,400, respectively.
3. Property, equipment and improvements are stated at cost and consisted of
the following at June 30, 1998 and September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Land $ 13,097 $ 12,983
Buildings 46,618 38,876
Equipment 126,427 114,127
Leasehold improvements 20,450 18,411
- ---------------------------------------------------------------------------------
206,592 184,397
Less - accumulated depreciation
and amortization 97,654 90,996
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$ 108,938 $ 93,401
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</TABLE>
Page 6
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
4. Other assets consisted of the following at June 30, 1998 and September 30,
1997 (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Prepaid pension costs $ 11,838 $ 11,509
Cash surrender value of life
insurance policies 26,922 23,775
Investments 23,622 17,014
Notes receivable 14,397 14,602
Miscellaneous 3,290 4,536
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$ 80,069 $ 71,436
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- ---------------------------------------------------------------------------------
</TABLE>
5. During the nine month periods ended June 30, 1998 and 1997, the Company
made cash payments of $1,806,600 and $1,700,900, respectively, for
interest and $19,202,800 and $22,818,900, respectively, for income taxes.
6. Effective with the first quarter of fiscal 1998, the Company adopted, and
retroactively applied, Statement of Financial Accounting Standards No. 128
- EARNINGS PER SHARE ("SFAS No. 128"). Accordingly, basic earnings per
share ("EPS") was computed by dividing net income for each of the periods
shown by the weighted average number of shares of common stock outstanding
during each such period. Diluted EPS was computed by dividing net income
by the weighted average number of shares of common stock and dilutive
securities outstanding (consisting solely of nonqualified stock options).
The following table reconciles the denominator used to compute basic EPS
to the denominator used to compute diluted EPS (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -------------------
1998 1997 1998 1997
------ ------ ----- ------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding (denominator
used to compute Basic EPS) 25,773 25,741 25,731 25,714
Effect of employee and outside
director stock options 511 272 364 241
------ ------ ------ ------
Denominator used to compute
Diluted EPS 26,284 26,013 26,095 25,955
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Page 7
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
JUNE 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The following discussion should be read in conjunction with Management's
Discussion and Analysis of financial condition and results of operations
incorporated by reference into the Company's latest Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Revenues for the three months ended June 30, 1998 (the "third quarter of 1998")
were $525.0 million; this was $94.9 million more than the amount for the three
months ended June 30, 1997 (the "third quarter of 1997"). This increase in
revenues was attributable to an increase in the overall business volume
relating to the Company's continuing U.S. and European operations (that is,
those offices operating during the comparable periods of both fiscal 1998 and
fiscal 1997), combined with the additive effect of companies acquired in fiscal
1997.
For the nine months ended June 30, 1998, revenues totaled $1,556.2 million;
this was $254.6 million more than the amount for the corresponding period last
year. Approximately one-half of this increase was attributable to the
Company's continuing U.S. and European operations with the balance attributable
to companies acquired last year.
Including acquisitions, revenues for the third quarter of 1998 from engineering
services were approximately 22.2% higher than the amount for the third quarter
of 1997, and revenues from field services were approximately 21.9% higher than
the comparable 1997 amount. For the nine months ended June 30, 1998, revenues
from engineering services were approximately 30.8% higher than the 1997 amount,
and field services revenues showed an approximate 13.5% increase as compared to
last year.
As a percent of revenues, direct costs of contracts were 87.2% for the third
quarter of 1998, as compared to 86.8% for the third quarter of 1997. The
percentage relationship between direct costs of contracts and revenues will
fluctuate between reporting periods depending on a variety of factors including
the mix of business during the reporting periods being compared, as well as the
level of margins earned from the various services provided by the Company. In
general, the increase in this percentage relationship during the current
quarter as compared to last year was due to an increase in field services
activity. For the nine months ended June 30, 1998, direct costs of contracts
were 87.0% of revenues, as compared to 87.3% for the nine months ended June 30,
1997. In general, the improvement in this percentage relationship during the
current nine-month period as compared to last year was due to a proportionately
higher amount of the Company's total business volume coming from engineering
services relative to construction and maintenance services.
Page 8
<PAGE>
Selling, general and administrative ("SG & A") expenses for the third quarter
of 1998 totaled $44.9 million; this was $6.5 million more than the amount for
the third quarter of 1997. For the nine months ended June 30, 1998, SG & A
expenses totaled $137.5 million; this was $25.4 million more than the amount
for the nine months ended June 30, 1997. These increases were due almost
entirely to the results of operations of the Serete Group and HGC-India (the
Serete Group was acquired during the fourth quarter of 1997; majority ownership
in HGC-India was acquired during the second quarter of 1997). With respect to
the Company's continuing U.S. and European operations, SG & A expenses for the
nine months ended June 30, 1998 were lower as compared to the corresponding
period last year.
The Company's operating profit (defined as revenues, less direct costs of
contracts and SG & A expenses) was $22.5 million for the third quarter of 1998;
this was $3.9 million more than the amount for the third quarter of 1997. For
the nine months ended June 30, 1998, the Company's operating profit was $64.4
million; this was $11.1 million more than the amount for the nine months ended
June 30, 1997. These increases in operating profit were due to the business
growth of the Company's continuing U.S. and European operations discussed
above, the improvement in SG & A expense control among those continuing
operations and the operating profit contributed by the businesses acquired in
1997.
The Company's overall effective tax rate was 39.0% for both the third quarter
of 1998 and the nine months ended June 30, 1998. This compares to an effective
tax rate of 39.6% for both the third quarter of 1997 and the nine months ended
June 30, 1997. The reduction in the Company's effective tax rate is
attributable primarily to a lower tax rate on the Company's non-U.S.
operations.
BACKLOG INFORMATION
The following table summarizes the Company's backlog at June 30, 1998 and 1997
(in millions):
1998 1997
-------- -------
Engineering services backlog $1,000.5 $ 885.0
Total backlog 3,210.5 2,940.0
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased $11.2 million during the nine
months ended June 30, 1998. This compares to a net increase of $17.5 million
of cash and cash equivalents during the corresponding period last year. The
current year increase in cash and cash equivalents was due to cash provided by
operations ($57.3 million), offset in part by cash used in investing activities
($37.6 million), financing activities ($7.3 million), and the effect of
exchange rate changes ($1.2 million).
Page 9
<PAGE>
Operations contributed $57.3 million of cash and cash equivalents during the
nine months ended June 30, 1998. This compares to net contributions of cash of
$69.4 million during the nine months ended June 30, 1997. The $12.1 million
decrease in cash provided by operations in 1998 as compared to 1997 occurred in
spite of a $5.8 million increase in net income and a $4.1 million increase in
non-cash charges (net of noncash sources of income), and was due primarily to
the timing of cash receipts and payments relating primarily to receivables, and
trade payables, accrued liabilities, customer advances and income taxes
payable, respectively.
The Company's investing activities used $37.6 million of cash and cash
equivalents during the nine months ended June 30, 1998. This compares to a net
use of cash of $48.7 million during the nine months ended June 30, 1997. The
decrease in the amount of cash used in investing activities during the nine
months ended June 30, 1998 as compared to last year was due primarily to a
$16.2 million decline in purchases of marketable securities and investments
(net of sales), and a $7.6 million reduction in cash used for the acquisition
of businesses. These decreases were offset in part by a $13.2 million increase
in cash used for additions to property and equipment (net of disposals).
Included in the 1998 figure for additions to property and equipment were costs
incurred and capitalized relating to the Company's new, leased headquarters
facility in Pasadena, California. Also included were costs incurred in
connection with the purchase of certain real property located in Charleston,
South Carolina. This property is being developed into a new, modular design
and manufacturing facility, which will enhance and expand the Company's
existing modular construction capabilities. The total estimated cost of the
project is approximately $19.0 million, and will be financed through working
capital and the sale of the Company's existing modular construction facilities
located in Orangeburg, South Carolina.
The Company's financing activities used $7.3 million in cash and cash
equivalents during the nine months ended June 30, 1998. This compares to a net
use of cash of $2.5 million during the nine months ended June 30, 1997. The
increase in the amount of cash used in financing activities during the nine
months ended June 30, 1998 as compared to last year was due primarily to a $4.8
million increase in cash used to purchase treasury stock, and $2.0 million used
to pay-down other deferred liabilities. These uses of cash and cash
equivalents were offset in part by a $1.4 million increase in cash received in
connection with the exercise of stock options (including shares sold through
the employee stock purchase plan).
The Company believes it has adequate capital resources to fund its operations
for the remainder of 1998 and beyond. At June 30, 1998, the Company's short-
term committed credit facilities totaled $48.4 million through banks located
primarily in the U.S., the U.K., France, India and Chile, against which only
$0.9 million was outstanding in the form of direct borrowings.
Page 10
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements included in this Quarterly Report on Form 10-Q that are not based on
historical facts are "forward-looking statements", as that term is discussed in
the Private Securities Litigation Reform Act of 1995. These statements are
based on management's current estimates, expectations and projections about the
industries in which the Company operates and the services it provides. By
their nature, such forward-looking statements involve risks and uncertainties.
The Company cautions the reader that a variety of factors could cause business
conditions and results to differ materially from what is contained in its
forward-looking statements. These factors include the following: increase in
competition by foreign and domestic competitors; availability of qualified
engineers and other professional staff needed to execute contracts; the timing
of new awards and of funding for such awards; the ability of the Company to
meet performance or schedule guarantees; cost overruns on fixed, maximum or
unit priced contracts; the outcome of pending and future litigation and
governmental proceedings; and the cyclical nature of the individual markets in
which the Company's customers operate. The preceding list is not all-
inclusive, and the Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Readers of this Form 10-Q should also read the Company's most recent Annual
Report on Form 10-K for a further description of the Company's business, legal
proceedings and other information that describes factors that could cause
actual results to differ from such forward-looking statements.
Page 11
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
JUNE 30, 1998
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
SHAREHOLDERS' PROPOSALS:
By reason of a recent amendment to the Proxy Rules of the Securities and
Exchange Commission, the statement under the caption "Shareholders' Proposals"
on page 13 of the Company's Proxy Statement dated January 2, 1998 is hereby
amended to add the following language:
"A shareholder who desires to present a proposal or to
nominate a person for election to the Board of Directors at
the annual meeting of shareholders of the Company to be held
on February 9, 1999 must notify the Company of the business to
be presented at that meeting. Such notice must be received by
the Company at its principal office at 1111 South Arroyo
Parkway, Pasadena, California 91105 prior to November 25,
1998.
"If timely notice of the business to be presented is not
given, then persons named on the proxy cards to be distributed
by the Company with its Proxy Statement for that annual
meeting may use the discretionary voting authority granted to
them by those proxy cards when the proposal is raised at the
annual meeting whether or not there is any discussion of the
matter in the Proxy Statement."
GOVERNMENT INVESTIGATION:
In Item 5 of the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1998, the Company disclosed that on March 9, 1998, the U.S. Attorney
for the Central District of California announced that it was intervening in a
Whistleblower Federal False Claims Act suit filed by a former employee of the
Company. The Whistleblower lawsuit, which has been now served on the Company,
alleges that the Company overbilled the government for lease charges arising
out of the 1982 sale and lease of its former headquarters building. It is the
Company's position that the real estate transaction that is the subject of the
suit occurred over 15 years ago and has been consistently disclosed to the
government every year since that time, and that the Company did not bill for
any charges that it did not in fact incur and believes its accounting treatment
of the questioned lease charges complied with the applicable regulations. The
Company is vigorously defending the action.
Page 12
<PAGE>
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
JUNE 30, 1998
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 Financial Data Schedule.
(b) Reports on Form 8-K:
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JACOBS ENGINEERING GROUP INC.
s/n John W. Prosser, Jr.
- --------------------------------
John W. Prosser, Jr.
Senior Vice President, Finance
and Administration and Treasurer
Date: August 12, 1998
Page 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 67,236
<SECURITIES> 16,251
<RECEIVABLES> 381,384
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 518,989
<PP&E> 206,592
<DEPRECIATION> 97,654
<TOTAL-ASSETS> 781,539
<CURRENT-LIABILITIES> 333,644
<BONDS> 0
0
0
<COMMON> 25,858
<OTHER-SE> 331,292
<TOTAL-LIABILITY-AND-EQUITY> 781,539
<SALES> 0
<TOTAL-REVENUES> 1,556,169
<CGS> 0
<TOTAL-COSTS> 1,354,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,755)
<INCOME-PRETAX> 65,592
<INCOME-TAX> 25,582
<INCOME-CONTINUING> 40,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,010
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.53
</TABLE>
