JACOBS ENGINEERING GROUP INC /DE/, 10-K, 1998-12-28

JACOBS ENGINEERING GROUP INC /DE/
10-K, 1998-12-28
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<PAGE>
1998
================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended September 30, 1998

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File Number 1-7463

JACOBS ENGINEERING GROUP INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 95-4081636
(State of incorporation) (I.R.S. employer identification number)

1111 SOUTH ARROYO PARKWAY, PASADENA, CALIFORNIA 91105
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code (626) 578-3500
Securities registered pursuant to Section 12(b) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $1 par value New York Stock Exchange

INDICATE BY CHECK-MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. ( X ) YES ( ) NO

INDICATE BY CHECK-MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF FORM 10-K OR ANY AMENDMENT
TO THIS FORM 10-K. ( )

___________________

The aggregate market value of the Registrant's voting stock held by non-
affiliates was approximately $857,055,000 as of December 24, 1998, based upon
the last reported sales price on the New York Stock Exchange. For this purpose,
the Registrant considers Dr. Joseph J. Jacobs to be its only affiliate.

As of December 24, 1998, the Registrant had outstanding 25,641,040 shares of its
common stock.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement issued in connection
with its 1999 Annual Meeting of Shareholders (Part II and Part III).

================================================================================
<PAGE>

PART I

Item 1. BUSINESS

General
- -------
Jacobs Engineering Group Inc. (the "Company") is one of the largest
professional service firms in the United States providing engineering, design
and consulting services; construction and construction management services; and
process plant maintenance services to a broad range of industrial, commercial
and governmental clients. The Company provides its services through offices and
subsidiaries located in the United States, Europe, India, Mexico and Chile.

The Company focuses its services on selected industry groups and markets
including chemicals; petroleum; semiconductor; pulp and paper; pharmaceuticals
and biotechnology; federal programs; and buildings and infrastructure (this last
group includes transportation and health care projects, commercial and
governmental buildings, and other industrial projects).

Over the past several years, the Company has grown its business through
both internal initiatives and strategic acquisitions. The acquisitions have
allowed the Company to (i) expand or enhance the range of services it provides
its clients; (ii) expand its client base; and (iii) provide access to new
geographical areas.

In Fiscal 1994, the Company acquired CRS Sirrine and CRSS Constructors
(whose principal offices are located primarily within the United States). These
acquisitions greatly expanded the Company's professional staff. They provided
broad-based skills in the pulp and paper market (which was a new market for the
Company at that time), and enhanced the Company's capabilities for its clients
in both the semiconductor and buildings and infrastructure markets. These
acquisitions also strengthened the Company's capabilities in the area of
construction management services, expanded the Company's client base, and
provided increased resources in the southeast region of the United States.

In Fiscal 1997, the Company acquired The Serete Group (headquartered in
Paris, France). This acquisition provided the Company with an established
presence in France, Spain and Italy. It added professional staff, and enhanced
the Company's existing engineering capabilities. It also expanded the Company's
client base in several key market groups. Also in Fiscal 1997, the Company
increased its ownership interest (such that the Company became the majority
owner) in Humphreys & Glasgow Consultants Limited (headquartered in Mumbai,
India). This acquisition gave the Company access to the Southern Asia market,
expanded the Company's client base and added professional staff. Also in Fiscal
1997, the Company acquired certain assets and contracts of an engineering
business specializing in the mining and minerals markets with offices in Denver,
Colorado and Santiago, Chile.

In addition to the particular advantages described above, these
acquisitions have allowed the Company to grow its relationships with its major
clients. By expanding into new geographical areas, and by adding to its
existing technical and project management capabilities, the Company strives to
position itself as a preferred, single-source provider of professional
engineering and construction services to its major clients.

In December 1998, the Company signed an agreement and plan of merger with
the Sverdrup Corporation ("Sverdrup"). If and when the transaction is
completed, Sverdrup Corporation will become a wholly-owned subsidiary of the
Company. Sverdrup is one of the largest professional service firms in the
United States engaged in engineering, architecture, construction and
construction management, and scientific services. Sverdrup employs more than
5,500 people located in more than 30 offices primarily within the United States.
Sverdrup provides its services to clients in three broad business areas: civil
engineering and construction (e.g., providing design and construction services
for wastewater treatment plants, and roads, bridges, railroads and other
transportation facilities); the facilities market (e.g., providing

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design, construction management and program management services on projects for
educational facilities, correctional facilities, and other government and
commercial buildings and programs); and advanced technology (e.g., providing a
wide-range of services, including operations and maintenance services, to
government and private clients for testing facilities, research centers, and
other high-technology facilities). The merger is expected to be completed early
in the second quarter of fiscal 1999.

The Company is a Delaware corporation and was originally incorporated in
1957 as a successor to a business organized by Dr. Joseph J. Jacobs in 1947.
The Company's common stock has been publicly held since 1970 and is currently
listed on the New York Stock Exchange.

Services Provided
- -----------------
The Company offers three broad categories of professional services:
engineering (which includes design, consulting and other related services);
construction and construction management; and plant maintenance. The Company
will often establish a relationship with a client where it is awarded a contract
for the initial phases of an engineering and/or construction project. These
services may include feasibility studies, consulting or design work. Because of
the range of technical expertise the Company possesses, it is often retained for
additional work as the project develops. The scope of services provided by the
Company, therefore, ranges from consulting to complete single-responsibility
contracts.

The following table sets forth the total revenues of the Company from each
of its three basic service categories for each of the five years ended September
30, 1998 (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Engineering Services $ 476,491 $ 588,399 $ 627,622 $ 702,068 $ 822,515
Field Services:
Construction 456,750 881,574 925,681 813,926 1,011,832
Maintenance 232,513 253,084 245,667 264,622 266,798
---------- ---------- ---------- ---------- ----------
$1,165,754 $1,723,057 $1,798,970 $1,780,616 $2,101,145
========== ========== ========== ========== ==========
</TABLE>

Engineering
- -----------
The Company employs all of the engineering and related disciplines needed
to engineer and design modern process plants (including projects for clients in
the chemicals, pharmaceuticals and biotechnology, petroleum, food, and minerals
and fertilizers industries), semiconductor facilities, pulp and paper plants,
and other facilities (such as high technology manufacturing operations and other
specialized plants).

With respect to the Federal Programs area of the Company's business (a
substantial portion of which involve environmental projects), the Company
employs all of the requisite engineering, scientific, public health and related
skills to consult, investigate, study, manage and provide remedial engineering
for major environmental programs. The Company's capabilities in process
engineering and construction combined with its environmental expertise allow it
to offer its clients a wide range of services as a single-source provider.
Accordingly, the Company has been awarded contracts requiring a combination of
traditional process engineering and environmental services.

The Company also employs all of the professional and technical expertise
necessary to provide a broad range of consulting services including: performing
pricing studies, market analyses and financial projections necessary in
determining the feasibility of a project; performing gasoline reformulation
modeling; analyzing and evaluating layout and mechanical designs for complex
processing plants; analyzing automation and control systems; analyzing,
designing and executing biocontainment strategies; developing and performing
process protocols in respect of Federal Drug Administration mandated
qualification/validation requirements; and performing geological and
metallurgical studies.

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Also included in the category of "Engineering" are all of the related
support services necessary for the proper and effective delivery of the
Company's engineering and related services. Among these are cost engineering,
planning, scheduling, procurement, estimating, project accounting, quality and
safety.

Construction
------------
The Company provides traditional field construction as well as construction
management services to private and public sector clients in virtually all of the
industries to which it provides engineering services. The Company can also
provide its clients with Advanced Construction Technology ("ACT")(R). ACT is an
advanced form of off-site engineering, design, fabrication and assembly, and
field erection. ACT provides clients with an alternative approach to
traditional methods of engineering and construction which can compress and
shorten the construction schedule, as well as help to reduce costs. In the
environmental area, recent contract awards from clients in the public sector
require the Company to provide environmental remedial construction services.

Historically, the Company's field construction activities have been focused
primarily on those construction projects for which the Company performed the
related engineering and design work. By focusing its construction efforts on
such projects, the Company seeks to avoid the risk of constructing complex
plants based on designs prepared by others. The financial risk to the Company
of constructing complex plants based on designs prepared by third parties may be
particularly significant on fixed-price contracts.

The Company actively markets all of its services to clients on projects
where the scope of services required is within the Company's fields of
expertise. The Company believes that by integrating and bundling its services
(i.e., providing design, engineering and construction services on the same
project) it can price its services more competitively and can enhance the
overall contract profitability. The Company also believes that clients benefit
from such an approach because they can look to the Company as a single-source
provider of design/build services. However, the Company will continue to pursue
construction-only projects where it can negotiate pricing and other contract
terms acceptable to the Company.

In the area of construction management, the Company can provide a wide
range of services to its clients. The Company may act as the program director,
whereby it oversees, on behalf of the owner of the project, the complete
planning, design and construction phases of the project. Or, its services may
be limited to providing construction consulting, estimating, scheduling or value
engineering services.

Maintenance
-----------
Maintenance generally refers to all of the tasks required to keep a plant
in day-to-day operation, including the repair and replacement of pumps, piping,
heat exchangers and other equipment. It also includes "turnaround" work which
involves major refurbishment which can only be performed when the plant is shut
down. Since shutdowns are expensive to the owners of the plant, turnaround work
will often require maximizing the number of skilled craft personnel that can
work efficiently on a project on a 24 hours per day, seven days per week basis.
The Company employs sophisticated computer scheduling and programming to
complete turnaround projects quickly and it maintains contact with a large pool
of skilled craftsmen it can hire as needed on maintenance and turnaround
projects.

Although the profit margins that can be realized from maintenance services
are generally lower than those associated with the other services the Company
provides, the costs to support maintenance activities are also generally lower
than those associated with the Company's other services. Furthermore, since
maintenance contracts are normally cost-reimbursable in nature, they present
less risk to the Company. Additionally, although engineering and construction
projects may be of a short-term nature, maintenance services often result in
long-term relationships with clients. For example, the Company has been
providing maintenance services at several major process plants for over 30
years. This aspect of maintenance services greatly reduces the selling costs in
respect of such services.

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Industry Groups and Markets
- ---------------------------
The Company focuses its efforts on the following industry groups and
markets: chemicals; buildings and infrastructure; petroleum; pharmaceuticals and
biotechnology; pulp and paper; U.S. federal programs; and semiconductor. The
Company believes these industry groups and markets have sufficient common needs
to permit cross-utilization of the Company's resources which help to mitigate
the negative effects of a downturn in a single industry.

The following table sets forth the total revenues of the Company from each
of these industry groups and markets for each of the five years ended September
30, 1998 (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Chemicals $ 315,991 $ 377,731 $ 452,448 $ 500,446 $ 797,035
Buildings and
Infrastructure 88,228 174,183 189,834 183,004 335,542
Petroleum 372,769 480,472 417,739 248,799 255,578
Pharmaceuticals
and Biotechnology 97,301 123,683 147,840 140,545 211,650
Pulp and Paper 7,258 85,476 170,553 154,135 191,594
Federal Programs 175,846 175,200 145,275 201,644 169,472
Semiconductor 83,477 264,492 268,520 335,595 119,368
Other 24,884 41,820 6,761 16,448 20,906
---------- ---------- ---------- ---------- ----------
$1,165,754 $1,723,057 $1,798,970 $1,780,616 $2,101,145
========== ========== ========== ========== ==========
</TABLE>

Chemicals
---------
The Company has always considered the chemicals industry a cornerstone of
its business. Revenues from this industry group have consistently accounted for
a significant share of each year's total revenues. Historically, whenever the
Company has sought to expand its business, the impact of such expansion on the
Company's chemicals business has always been an important consideration. The
Company's first office outside the United States was opened in support of a
bulk-chemical project for a large, U.S. company seeking to expand its operations
internationally.

Currently, the Company furnishes its full line of services to its clients
operating in the chemicals industries. The Company has provided technical,
financial, marketing and management consulting services to many of the largest
chemical manufacturers in the world. The Company can perform feasibility
studies, as well as preliminary and detailed design and engineering services,
construction, and construction management services to its clients in this
industry. Typical projects range from various basic and intermediate chemical
reactions/separations and high-pressure polymer processes for the production of
bulk chemicals, to low-pressure, multi-product processes for the production of
fine and specialty chemicals. The Company has also completed projects dealing
with the modernization and upgrading of polyethelene and liquid polymer
production facilities. The Company has extensive knowledge of, and experience
with, advanced polymerization reactions and state-of-the-art, post-reactor
processing techniques, as well as many other specialty chemicals.

A significant aspect of the Company's service to this industry is in the
area of contract maintenance. The Company has contracts with several major
chemical producers to provide on-site maintenance and turnaround activities.
Many of these contracts are evergreen in nature and tend to be extended over
many years.

Another important aspect of this industry group has been the development of
performance-based partnering relationships (alliances) with clients. Through an
alliance, a client will award a contract to the Company which can require the
Company to provide a broad scope of services. These services can range from the
Company providing on-site engineering services for projects or tasks as they
arise or are defined by the client, to situations where the Company is assigned
to manage and complete an entire program of capital improvements for the client.
Although alliances typically begin with the Company

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providing engineering services for small capital projects, alliances can
sometimes provide the Company with opportunities to expand its services to
include fully-integrated engineering, procurement, construction and construction
management services.

Buildings and Infrastructure
----------------------------
Buildings and infrastructure refers to those contracts requiring the
Company to provide and/or manage comprehensive architectural, engineering,
design, construction and/or construction management services for projects such
as high technology manufacturing operations, specialized plants for clients in
the food industry, and research and development facilities that require
technically complex structures. It also includes programming, design, program
management and construction management services for public, institutional and
corporate clients.

The Company provides its services on projects that emphasize both new
construction as well as those involving renovation and refurbishment of existing
facilities. The Company has also been successful in applying its skill base to
clients requiring complete program management (referred to as "resourcing").
For such contracts, the Company, often through joint ventures with third
parties, assume full responsibility for the ongoing operations and maintenance
of entire commercial or industrial complexes on behalf of the client.

Typical projects in this area include educational facilities, civic
centers, health care facilities, correctional centers and transportation
systems, as well as multi-purpose buildings for industrial, commercial and
government clients.

Petroleum
---------
The Company provides its full line of services to its clients in the
petroleum industry. Typical projects in the petroleum area include retrofits,
revamps or expansions of existing plants, upgrading individual process units
within refineries, new construction and maintenance services. The Company also
provides a broad range of consulting services to its clients, including process
assessments, feasibility studies, technology evaluations and multi-client
studies. Although the Company's revenues historically have related primarily to
projects associated with petroleum refining and the processes and technologies
required for the conversion of crude oil and gas into petroleum fuels, chemical
feedstocks and lubricants, more recent contract awards have also included
services to pipeline companies and companies in businesses upstream of refiners.

The volume of business activity in this industry group is sometimes
influenced by government regulations. For example, as the government issues
regulations requiring the reduction of the sulfur content of motor fuels,
capital spending by clients for desulfurization projects have increased. There
are also significant levels of economically-driven work associated with
reconfiguring refineries to handle increasing levels of imported, heavy sour
crude feedstocks. The Company is actively involved in both such government and
economically-driven projects.

The Company has also utilized its off-site construction capabilities on a
number of projects in the petroleum industry. Due to the age of many U.S.
refineries, and the close proximity within these refineries of their various
production and distillation processing units, the Company believes the use of
off-site construction can help decongest the construction site and allow for
parallel construction to proceed simultaneously with the modular activity.

Like the chemicals industry, the Company provides a significant amount of
maintenance services to its clients in the petroleum industry. Also like the
chemicals industry, the Company has established a number of formal alliances
with various clients in the petroleum industry. Some of these alliances have
been national in scope.

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Pharmaceuticals and Biotechnology
---------------------------------
The Company furnishes its full line of services to its clients operating in
the pharmaceuticals and biotechnology industries. The scope of services the
Company can provide its clients in these markets include feasibility studies,
preliminary and detailed design and engineering services, construction, and
construction management services. The Company can also provide conceptual
design services with emphasis on production strategy, current good manufacturing
practices ("cGMP") compliance, regulatory compliance and
qualification/validation services for pharmaceutical and biotechnology research,
development and production facilities. Accordingly, the Company is fully
capable of executing multi-million dollar, single-responsibility projects in the
areas of pharmaceuticals and biotechnology.

Typical projects for clients in this industry include laboratories and
research and development facilities, vivariums, pilot plants, chemical
production facilities, full-scale biotechnology production facilities, and fill-
and-finish facilities. These projects will often employ state-of-the-art know-
how in regulatory, barrier technology, and micro-environmental systems, as well
as automation, manufacturing and distribution management.

The Company has also established formal alliances with various clients in
the pharmaceuticals industry.

Pulp and Paper
--------------
The Company provides a broad range of engineering and construction services
to its clients in the pulp and paper industry. Additionally, the Company
provides strategic planning and conceptual studies for many of its clients, as
well as environmental services relating to compliance with USEPA emission
standards. Typical projects in the pulp and paper area range from small mill
projects to complex, multi-million dollar paper machine rebuilds, mill
expansions and construction of new facilities. Such projects encompass all
areas of a mill, including woodyards, pulping and bleaching, papermaking,
chemical recovery, material handling and power and steam generation. In the
area of papermaking, the Company's expertise includes tissue and towel, coated
and uncoated fine papers, newsprint and linerboard. The Company's expertise
also includes the converting and packaging of paper products for consumer use.
The Company has been instrumental in the design and installation of state-of-
the-art facilities for recycle fiber, deinking and pulp bleaching. Chemical
recovery and power generation are an integral part of the papermaking process.
The Company has broad experience in these areas and has applied its expertise in
the engineering and construction of such facilities for the pulp and paper
industry.

The Company has also established formal alliances with various clients in
the pulp and paper industry.

Federal Programs
----------------
A significant portion of the Company's Federal Programs revenues are
derived from environmental projects. The Company believes it is one of the
leading providers of environmental restoration, engineering and consulting
services, including hazardous waste management and site cleanup and closure in
the United States. Many of the projects for the U.S. government span several
years. For larger programs, the scope of services is such that the Company
sometimes teams with other companies in order to execute the project. The
Company is currently providing environmental restoration, engineering,
construction and site operations and maintenance services for a number of U.S.
federal government agencies including the U.S. Department of Energy ("DOE"), the
Department of Defense ("DOD") and the U.S. Environmental Protection Agency
("USEPA").

Historically, typical projects for U.S. government agencies included the
preparation of feasibility studies and performance of remedial investigations,
engineering, design and remediation services on several national programs. Many
of the Company's contracts related to the Comprehensive Environmental Response
Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") and the related
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), as reauthorized
in 1990.

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More recently, as government spending has shifted from studying
environmental problems to cleaning-up contaminated sites, the Company has been
awarded multi-year contracts to provide such services. For example, the Company
was awarded a contract from the U.S. Air Force to provide full-service remedial
action services for the U.S. Air Force Center for Environmental Excellence
("AFCEE") at several bases located in the U.S., as well as a "nationwide" award
to provide services under the U.S. Base Realignment and Closure ("BRAC")
program. And in 1995, the Company was awarded the Alaska TERC (Total
Environmental Restoration Contract) to provide engineering and site cleanup
services throughout that state.

Demand for the Company's services in this area is strongly affected by the
level of enforcement of environmental laws and regulations, and the spending
patterns of public and private clients. Currently, there are numerous proposals
being offered for consideration to overhaul the U.S. federal regulatory process,
the ultimate outcome of which cannot yet be determined. Nevertheless, the
Company believes that the DOE and DOD will continue to devote increasingly more
of their resources to site remediation and cleanup.

In addition to contracts involving the remediation of contaminated sites,
the government has let contracts to private contractors to provide full
operations and maintenance ("O&M") services to entire government facilities.
The Company has been awarded several such O&M contracts, which require the
Company to provide facilities management and maintenance services, utilities
operations and maintenance services, property management and disposition and
construction support services. The Company believes it is uniquely qualified to
execute O&M contracts given its financial strength, and the history the Company
has of managing large, long-term projects in both the private and government
sectors of the economy.

Semiconductor
-------------
The Company provides engineering, procurement, construction, and
construction management services to its clients in the semiconductor industry.
Typical projects in this industry range from on-site plant engineering and tool
hook-ups, to multi-million dollar state-of-the-art wafer fabrication and crystal
growing facilities used to produce microprocessors for computers and other
consumer electronic devices. Generally, projects in the semiconductor industry
are more complex than other facilities projects and have greater emphasis on
cleanroom, and similar high-end technologies.

Backlog
- -------
For information regarding the Company's backlog, reference should be made
to Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations, incorporated by reference in this report.

Customers
- ---------
For the years ended September 30, 1994, 1995, 1996, 1997 and 1998, revenues
directly or indirectly from agencies of the U.S. federal government accounted
for 15.4%, 11.4%, 8.7%, 12.0% and 12.1%, respectively, of total revenues. Due
to the amount of pass-through costs (see "Contracts" below) that may be incurred
on construction and maintenance projects, it is not unusual for a client in the
private sector to account for more than 10% of revenues in any given year. One
client in the private sector accounted for 11.6% and 13.1% of total revenues in
1994 and 1995, respectively. A different client accounted for 15.3% of total
revenues in 1997. No single client in the private sector accounted for 10% or
more of total revenues in 1996 or 1998.

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Foreign Operations
- ------------------
For the years ended September 30, 1994, 1995, 1996, 1997 and 1998, revenues
from the Company's international operations were approximately 5.6%, 5.4%,
10.3%, 23.5% and 20.2%, respectively, of total revenues. For fiscal years 1994
through 1996, substantially all such revenues related to the Company's offices
in the U.K. and Ireland. In 1997, as discussed above, the Company completed the
acquisitions of the Serete Group and HGC India. The Serete Group has operations
throughout Europe, and executes projects for commercial clients in the
chemicals, pharmaceuticals and semiconductor industries, as well as buildings
and infrastructure projects for both commercial and governmental clients. HGC
India has operations in India and executes projects for commercial clients in
the chemical, pharmaceuticals and petroleum markets. Revenues earned in fiscal
1997 and 1998 from the Company's offices in Mexico and Chile were not material.

Contracts
- ---------
While there is considerable variation in the pricing provisions of the
contracts undertaken by the Company, they can generally be grouped into three
broad categories: Cost-reimbursable; fixed-price and guaranteed maximum price.
The following table sets forth the percentages of total revenues represented by
these types of contracts during each of the five years ended September 30, 1998:

1994 1995 1996 1997 1998
----- ----- ----- ----- -----
Cost-reimbursable 83% 88% 82% 82% 81%
Fixed-price 9 11 16 16 18
Guaranteed maximum price 8 1 2 2 1

In accordance with industry practice, most of the Company's contracts are
subject to termination at the discretion of the client. Contracts typically
provide for reimbursement of costs incurred and payment of fees earned through
the date of such termination.

When the Company is directly responsible for engineering, design,
procurement and construction of a project or the maintenance of a process plant,
the Company reflects the cost of materials, equipment and subcontracts in both
revenues and costs. On other projects, where the client elects to pay for such
items directly, these amounts are not reflected in either revenues or costs.
The following table presents the approximate amount of such pass-through costs
included in revenues for the years ended September 30, 1994, 1995, 1996, 1997
and 1998 (in millions):

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
$ 629.0 $ 1,001.3 $ 1,019.5 $ 919.6 $ 1,066.4

Cost-reimbursable contracts
---------------------------
Cost-reimbursable contracts provide for reimbursement of costs incurred by
the Company plus a predetermined fee, or a fee based on a percentage of the
costs incurred. The Company prefers this type of contract since it believes
that the primary basis for its selection should be its technical expertise and
professional qualifications rather than price considerations.

Fixed-price contracts
---------------------
Fixed-price contracts include both "negotiated fixed-price" contracts and
"lump sum bid" contracts. Under a negotiated fixed-price contract, the Company
is first selected as the contractor, and then the contract price is negotiated.
Negotiated fixed-price contracts frequently exist in single-responsibility
arrangements where the Company has the opportunity to perform engineering and
design work before negotiating the total price of the project. Under lump sum
bid contracts, the Company must bid against other contractors based upon
specifications furnished by the client. This type of pricing presents certain
inherent risks, including the possibility of ambiguities in the specifications,
problems with new technologies

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and economic and other changes that may occur over the contract period, that are
reduced by the negotiation process. Thus, although both types of contracts
involve a firm price for the client, the lump sum bid contract provides the
greater degree of risk to the Company. However, because of economies that may be
realized during the contract term, both negotiated fixed-price and lump sum bid
contracts may offer greater profit potential than the other types of contracts.

Guaranteed maximum price contracts
----------------------------------
Guaranteed maximum price contracts are performed in the same manner as
cost-reimbursable contracts; however, the total actual cost plus the fee cannot
exceed the guaranteed price negotiated with the client. If the total actual
cost of the contract exceeds the guaranteed maximum price, then the Company will
bear all or a portion of the excess. In those cases where the total actual cost
and fee are less than the guaranteed price, the Company will often share the
savings on a predetermined basis with the client.

Competition
- -----------
The Company is engaged in a highly competitive business. Some of its
competitors are larger than the Company, or are subsidiaries of larger
companies, and may possess greater resources than the Company. Furthermore,
because the engineering aspect of the business does not usually require large
amounts of capital, there is relative ease of market entry for a new potential
entrant possessing acceptable professional qualifications. Accordingly, the
Company competes with both national and international firms in sizes ranging
from very large to a wide variety of small, regional and specialty firms.

The extent of the Company's competition varies according to the industries
and markets it serves, as well as the geographical areas in which the Company
operates. The Company's largest competitors for engineering, construction and
maintenance services for process plants include such well-known companies as
Bechtel Group, Inc., Fluor Corporation, Foster-Wheeler Corp., Raytheon
Engineers, M.W. Kellogg, Parsons Co., Kellogg Brown & Root, and Kvaerner. In
the semiconductor industry, the Company's principal competitors include
Industrial Design Corporation. In the area of pulp and paper, the Company's
principal competitors include BE&K, Kellogg Brown & Root, and Raytheon
Engineers. And in the area of environmental engineering and hazardous waste
cleanup, the Company's principal competitors include many of the companies
listed above, as well as Morrison Knudsen Corporation, and other specialized
companies such as IT Group, Inc., ICF Kaiser and Roy F. Weston.

Employees
- ---------
At September 30, 1998, the Company had approximately 10,080 full-time
employees. Additionally, as of September 30, 1998, there were approximately
7,160 persons employed by the Company in the field on a project basis. The
number of such field employees varies in relation to the number and size of the
maintenance and construction projects in progress at any particular time.

Page 9
<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

Pursuant to the requirements of Item 401(b) and 401(e) of Regulation S-K,
the following information is being furnished with respect to the Company's
executive officers:
<TABLE>
<CAPTION>

Year Joined
Name Age Position with the Company the Registrant
- --------------------------- --- ------------------------------------------------ --------------
<S> <C> <C> <C>
Joseph J. Jacobs 82 Director and Chairman of the Board 1947
Noel G. Watson 62 President, Chief Executive Officer
and Director 1965
Robert M. Barton 76 Secretary 1957
William R. Kerler 69 Executive Vice President, Operations
and Director 1980
Thomas R. Hammond 47 Executive Vice President, Operations 1975
Richard J. Slater 52 Executive Vice President, Operations 1980
Donald J. Boutwell 61 Group Vice President, Field Services 1984
Robert M. Clement 50 Group Vice President, Central Region 1990
Warren M. Dean 54 Group Vice President, Buildings & Infrastructure 1994
Stephen K. Fritschle 55 Group Vice President, Southern Region 1989
George A. Kunberger, Jr. 46 Group Vice President, Northern Region 1975
Gregory J. Landry 50 Group Vice President, International Operations 1984
John McLachlan 52 Group Vice President, International Operations 1974
Roger L. Williams 60 Group Vice President, Federal Operations 1983
Andrew E. Carlson 65 Senior Vice President, Quality and Safety 1990
Michael J. Higgins 54 Senior Vice President, Federal Programs 1994
Craig L. Martin 49 Senior Vice President, General Sales
and Marketing 1994
John W. Prosser, Jr. 53 Senior Vice President, Finance and
Administration and Treasurer 1974
Nazim G. Thawerbhoy 51 Senior Vice President and Controller 1979
William C. Markley, III 53 Vice President, Law 1981
</TABLE>

All of the officers listed in the preceding table serve in their respective
capacities at the pleasure of the Board of Directors and, with the exception of
Messrs. Dean, Martin and Higgins, have served in executive capacities with the
Company or have been part of its management for more than five years. Prior to
joining the Company in 1994, Messrs. Dean and Martin were part of the management
of CRSS Inc., or one of its subsidiaries for at least five years. Before he
joined the Company in 1994, Mr. Higgins was President and Chief Executive
Officer of HazWaste Industries Inc. from 1989 to 1994.

Page 10
<PAGE>

Item 2. PROPERTIES

The Company owns and leases offices for its professional, technical and
administrative staff. It also owns property (located in Charleston, South
Carolina) which is the principal manufacturing facility for the Company's
modular construction activities. The total amount of space used by the Company
for all its operations is approximately 2.0 million square feet. The following
is a list of the Company's principal locations:

Country State City
------- ----- ----
U.S.A. California Pasadena
Long Beach
Sacramento
Arizona Phoenix
Colorado Denver
Florida Lakeland
Louisiana Baton Rouge
New Mexico Albuquerque
North Carolina Raleigh
Ohio Cincinnati
Oregon Portland
Pennsylvania Philadelphia
South Carolina Greenville
Charleston
Texas Houston
Tennessee Oak Ridge
Virginia Arlington
Wisconsin Green Bay
United Kingdom - London
- Glasgow
- Manchester
Republic of Ireland - Cork
- Dublin
France - Paris
- Lyon
Italy - Milan
Spain - Madrid
India - Mumbai
- New Delhi
- Calcutta
Chile - Santiago

In addition to these properties, the Company leases smaller, project
offices located throughout the United States and, to a certain extent, France.
The Company maintains sales offices at many of its principal locations. The
Company has equipment yards located in Houston, Texas and Baton Rouge,
Louisiana. The majority of the Company's offices are leased. The Company also
rents a portion of its construction equipment on a short-term basis.

Page 11
<PAGE>

Item 3. LEGAL PROCEEDINGS

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.

In March 1998, the U.S. Attorney for the Central District of California
announced that it was intervening in a lawsuit filed against the Company by a
former employee under the False Claims Act. The lawsuit alleges that the
Company overbilled the U.S. government for lease costs paid by the Company and
relating to its former headquarters building located in Pasadena, California.
The building had once been owned by the Company, but was sold by it in calendar
1982, at which time the Company entered into a 15-year lease of the property.
The lawsuit seeks unspecified damages against the Company, which may be trebled
under certain provisions of the Act. Additional remedies available to the
government include possible administrative or civil liabilities, and the
imposition of civil penalties for each violation.

The Company has denied any wrongdoing in the method it accounted for the
lease costs in question. The Company contends it has billed the government for
only those costs it actually incurred, and believes its accounting treatment of
the lease costs complied with all applicable regulations. Furthermore, the sale
and lease-back transaction that is the subject of the lawsuit occurred nearly 15
years prior to the initiation by the Department of Justice of its investigation.
The transaction had been fully disclosed in numerous public filings made by the
Company since the date of the transaction, and the Company's Final Indirect Cost
Rate Proposals, which the Company had filed regularly and routinely with the
Defense Contract Audit Agency ("DCAA") and which included the lease costs, had
been audited by the DCAA for many years without the DCAA taking exception to the
Company's accounting treatment of the lease costs.

Although the final outcome of this matter cannot be determined at the
present time, the Company intends to vigorously defend itself against the
lawsuit.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

Page 12
<PAGE>

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The information required by this Item is hereby incorporated by reference
from page A-30 of Exhibit 13 to this report.

Item 6. SELECTED FINANCIAL DATA

The information required by this Item is hereby incorporated by reference
from page A-2 of Exhibit 13 to this report.

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

The information required by this Item is hereby incorporated by reference
from pages A-3 through A-11 of Exhibit 13 to this report.

Item 7A. QUALITATIVE and QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is hereby incorporated by reference
from pages A-12 through A-31 of Exhibit 13 to this report.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL AND
DISCLOSURE MATTERS

Not applicable.

Page 13
<PAGE>

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Paragraph (a) and Paragraphs (c) through (g) of
Item 401 and by Item 405 of Regulation S-K is hereby incorporated by reference
from the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after the close of the Company's
fiscal year.

See the information under the caption "Executive Officers of the Company"
in Part I of this report for information required by Paragraph (b) of Item 401
of Regulation S-K.

Item 11. EXECUTIVE COMPENSATION

The information required by this Item is hereby incorporated by reference
from the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after the close of the Company's
fiscal year.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Page 14
<PAGE>

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The Company's consolidated financial statements at September 30, 1998
and 1997 and for each of the three years in the period ended September
30, 1998, together with the report of the independent auditors on
those consolidated financial statements are hereby incorporated by
reference from Exhibit 13 to this report.

(b) Not applicable.

(c) Exhibits and Index to Exhibits:
<TABLE>
<S> <C>
2.1 Purchase Agreement dated July 29, 1994 between Jacobs
Engineering Group Inc. and CRSS Inc. including a schedule of
annexes and exhibits. Filed as Exhibit 1. to the Registrant's
Current Report on Form 8-K dated August 5, 1994 and
incorporated herein by reference.

3.1 Certificate of Incorporation of the Registrant, as amended.
Filed as Exhibit 3.1 to the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1995 and incorporated
herein by reference.

(S) 3.2 Bylaws of the Registrant, as amended.

4.1 See Sections 5 through 18 of Exhibit 3.1.

4.2 See Article II, Section 3.03 of Article III, Article VI and
Section 8.04 of Article VIII of Exhibit 3.2.

4.3 Rights Agreement dated as of December 20, 1990 by and between
Registrant and First Interstate Bank, Ltd. as Rights Agent.
Filed as Exhibit 4.4 to Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1995 and incorporated herein
by reference.

10.1 The Jacobs Engineering Group Inc. 1981 Executive Incentive Plan
(As Amended and Restated). Filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the period ended
June 30, 1995 and incorporated herein by reference.

10.2 The Jacobs Engineering Group Inc. Incentive Bonus Plan for
Officers and Key Managers. Filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the period ended
June 30, 1995 and incorporated herein by reference.

10.3 Agreement dated as of November 30, 1993 between the Registrant
and Dr. Joseph J. Jacobs. Filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the period ended
June 30, 1995 and incorporated herein by reference.

(S) 10.4 Agreement dated as of December 3, 1998 between the Registrant
and Dr. Joseph J. Jacobs.

10.5 The Executive Security Program of Jacobs Engineering Group Inc.
Filed as Exhibit 10.4 to the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1995 and incorporated
herein by reference.
</TABLE>

Page 15
<PAGE>

<TABLE>
<S> <C>
10.6 Jacobs Engineering Group Inc. and Subsidiaries 1991 Executive
Deferral Plan, effective June 1, 1991. Filed as Exhibit 10.5 to
the Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1995 and incorporated herein by reference.

10.7 Jacobs Engineering Group Inc. and Subsidiaries 1993 Executive
Deferral Plan, effective December 1, 1993. Filed as Exhibit
10.6 to the Registrant's Quarterly Report on Form 10-Q for the
period ended March 31, 1995 and incorporated herein by
reference.

10.8 The Jacobs Engineering Group Inc. 1989 Employee Stock Purchase
Plan. Filed as Exhibit 10.9 to the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1995 and
incorporated herein by reference.

10.9 Form of Indemnification Agreement entered into between the
Registrant and its officers and directors. Filed as Exhibit
10.10 to the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1995 and incorporated herein by
reference.

10.10 Jacobs Engineering Group Inc. 401(k) Plus Savings Plan and
Trust. Filed as Exhibit 10.11 to the Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1995 and
incorporated herein by reference.

11. Statement of computation of net income per outstanding share of
common stock is hereby incorporated by reference from Appendix
A to the Registrant's Notice of 1999 Annual Meeting of
Shareholders and Proxy Statement, copies of which are being
delivered to (but not filed with, except to the extent
incorporated herein) the Commission as an exhibit to this
report.

(S) 13. Appendix A to the Registrant's Notice of 1999 Annual Meeting of
Shareholders and Proxy Statement (which contains the annual
financial statements and financial information of Jacobs
Engineering Group Inc. for the fiscal year ended September 30,
1998).

(S) 21. List of Subsidiaries of Jacobs Engineering Group Inc.

(S) 23. Consent of Independent Auditors.

(S) 27.1 Financial Data Schedules.
</TABLE>
___________________________________________

(S) Being filed herewith.

Page 16
<PAGE>

UNDERTAKINGS

For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned Registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into the Registrant's Registration Statements on Form
S-8 Nos. 33-45914 (filed February 21, 1992) and 333-01317 (filed February 29,
1996):

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by final adjudication of such issue.

Page 17
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

JACOBS ENGINEERING GROUP INC.

Dated: December 28, 1998 By: /s/ NOEL G. WATSON
-----------------------------
Noel G. Watson
President, Chief Executive
Officer and Director
(Principal Executive Officer)

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ NOEL G. WATSON Director and December 28, 1998
- ---------------------------------------- Principal Executive Officer
Noel G. Watson

/s/ JOSEPH J. JACOBS Director December 28, 1998
- ----------------------------------------
Joseph J. Jacobs

- ---------------------------------------- Director December 28, 1998
Joseph F. Alibrandi

/s/ PETER H. DAILEY Director December 28, 1998
- ----------------------------------------
Peter H. Dailey
Director December 28, 1998
- ----------------------------------------
Robert B. Gwyn

/s/ LINDA K. JACOBS Director December 28, 1998
- ----------------------------------------
Linda K. Jacobs

/s/ WILLIAM R. KERLER Director December 28, 1998
- ----------------------------------------
William R. Kerler

/s/ J. CLAYBURN LaFORCE Director December 28, 1998
- ----------------------------------------
J. Clayburn LaForce

/s/ DALE R. LAURANCE Director December 28, 1998
- ----------------------------------------
Dale R. Laurance

/s/ LINDA FAYNE LEVINSON Director December 28, 1998
- ----------------------------------------
Linda Fayne Levinson

/s/ DAVID M. PETRONE Director December 28, 1998
- ----------------------------------------
David M. Petrone

/s/ JAMES L. RAINEY, JR. Director December 28, 1998
- ----------------------------------------
James L. Rainey, Jr.
</TABLE>

Page 18
<PAGE>

<TABLE>
<S> <C> <C>
/s/ JOHN W. PROSSER, JR. Senior Vice President
- ------------------------------- Finance and Administration, December 28, 1998
John W. Prosser, Jr. and Treasurer (Principal
Financial Officer)

/s/ NAZIM G. THAWERBHOY Senior Vice President and
- ------------------------------- Controller (Principal Accounting December 28, 1998
Nazim G. Thawerbhoy Officer)
</TABLE>

Page 19

<PAGE>

EXHIBIT 3.2

BYLAWS OF
JACOBS ENGINEERING GROUP INC.
(A DELAWARE CORPORATION)

(COMPOSITE CONFORMED COPY)

ARTICLE I.

OFFICES

SECTION 1.01 REGISTERED OFFICE. The registered office of Jacobs
Engineering Group Inc. (hereinafter called the "Corporation") in the State of
Delaware shall be at 1209 Orange Street, Wilmington, and the name of the
registered agent at that address shall be The Corporation Trust Company.

SECTION 1.02 PRINCIPAL OFFICE. The principal office for the transaction of
the business of the Corporation shall be at 1111 South Arroyo Parkway, Pasadena,
California. The Board of Directors (hereinafter called the "Board") is hereby
granted full power and authority to change said principal office from one
location to another.

SECTION 1.03 OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.

ARTICLE II.

MEETINGS OF STOCKHOLDERS

SECTION 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings shall be held on the
second Tuesday in February of each year if not a legal holiday, and if a legal
holiday, then on the next business day following, at 3:30 P.M., or at such other
time or date as the Board shall determine by resolution.

SECTION 2.02 SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose or purposes may be called by the Board, by a committee of the Board
that has been duly designated by the Board and whose powers and authority, as
provided in a resolution of the Board or in these Bylaws, include the power to
call such meetings or by the Chairman of the Board. Unless otherwise prescribed
by statute or by the Certificate of Incorporation, special meetings may not be
called by any other person or persons. No business may be transacted at any
special meeting of stockholders other than such business as may be designated in
the notice calling such meeting.

1
<PAGE>

SECTION 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall be
held at such places, within or without the State of Delaware, as may from time
to time be designated by the person or persons calling the respective meeting
and specified in the respective notices or waivers of notice thereof.

SECTION 2.04 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) nor less than ten (10) days prior to any other action.

If the Board does not so fix a record date:

(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the
day on which the meeting is held.

(ii) The record date for determining stockholders for any other
purpose shall be at the day on which the first written consent is
expressed.

(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.

SECTION 2.05 NOTICE OF MEETINGS. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than twenty (20) nor more than sixty (60) days before the date of
the meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to him personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to him at his post office address furnished by him to the Secretary of
the Corporation for such purpose or, if he shall not have furnished to the
Secretary of the Corporation his address for such purpose, then at his post
office address last known to the Secretary, or by transmitting a notice thereof
to him at such address by telegraph, cable, or wireless. Except as otherwise
expressly required by law, no publication of any notice of a meeting of the
stockholders shall be required. Every notice of a meeting of the stockholders
shall state the

2
<PAGE>

place, date and hour of the meeting, and, in the case of a special meeting,
shall also state the purpose or purposes for which the meeting is called.
Notice of any meeting of stockholders shall not be required to be given to any
stockholder who shall have waived such notice and such notice shall be deemed
waived by any stockholders who shall attend such meeting in person or by proxy,
except as for stockholders who shall attend such meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Except as
otherwise expressly required by law, notice of any adjourned meeting of the
stockholders need not be given if the time and place thereof are announced at
the meeting at which the adjournment is taken.

SECTION 2.06 ADVANCE NOTICE OF STOCKHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this Section 2.06 shall
be eligible for election as Directors. Nominations of persons for election to
the Board of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board or by any stockholder of the Corporation entitled to
vote in the election of Directors at the meeting who complies with the notice
procedures set forth in this Section 2.06. Such nominations, other than those
made by or at the direction of the Board, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the 10th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposed to nominate for election or re-election a
Director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of Directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including without limitation such
persons' written consent to being named in the proxy statement, if any, as a
nominee and to serving as a Director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the Corporation's
books, of such stockholder and (ii) the class and number of shares of the
Corporation that are beneficially owned by such stockholder. At the request of
the Board any person nominated by the Board for election as a Director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a Director of the Corporation unless
nominated in accordance with the procedures set forth in this Section 2.06. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the bylaws, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.

3
<PAGE>

SECTION 2.07 QUORUM. Except in the case of any meeting for the election of
directors summarily ordered as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the stockholders of the
Corporation or any adjournment thereof. In the absence of a quorum at any
meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all the stockholders, any officer entitled to preside
at, or to act as secretary of, such meeting may adjourn such meeting from time
to time. At any such adjourned meeting at which a quorum is present any
business may be transacted that might have been transacted at the meeting as
originally called.

SECTION 2.08 VOTING.

(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation that has voting rights on the matter in question and
that has been held by him and registered in his name on the books of the
Corporation:

(i) on the date fixed pursuant to Section 6.05 of these Bylaws as the
record date for the determination of stockholders entitled to notice of and
to vote at such meeting, or

(ii) if no such record date shall have been so fixed, then (a) at the
close of business on the day next preceding the day on which notice of the
meeting shall be given or (b) if notice of the meeting shall be waived, at
the close of business on the day next preceding the day on which the
meeting shall be held.

(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he shall have expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or with respect to
which two or more persons have the same fiduciary relationship, shall be voted
in accordance with the provisions of the General Corporation Law of the State of
Delaware.

(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized and
delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall

4
<PAGE>

provide for a longer period. The attendance at any meeting of a stockholder who
may theretofore have given a proxy shall not have the effect of revoking the
same unless he shall in writing so notify the secretary of the meeting prior to
the voting of the proxy. At any meeting of the stockholders all matters, except
as otherwise provided by the Certificate of Incorporation, in these Bylaws or by
law, shall be decided by the vote of a majority of the shares present in person
or by proxy and entitled to vote thereat and thereon, a quorum being present.
The vote at any meetings of the stockholders on any question need not be by
ballot, unless so directed by the chairman of the meeting. On a vote by ballot
each ballot shall be signed by the stockholder voting, or by his proxy, if there
be such proxy, and it shall state the number of shares voted.

SECTION 2.09 LIST OF STOCKHOLDERS. The Secretary of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder for any purpose germane to the meeting
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the duration
thereof, and may be inspected by any stockholder who is present. Such list
shall presumptively determine the identity of the stockholders entitled to
notice of and to vote at the meeting and the number of shares held by each of
them.

SECTION 2.10 JUDGES. If at any meeting of the stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of his
ability. Such judges shall decide upon the qualification of the voters and
shall report the number of shares represented at the meeting and entitled to
vote on such question, shall conduct and accept the votes, and, when the voting
is completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The
judges need not be stockholders of the Corporation, and any officer of the
Corporation may be a judge on any question other than a vote for or against a
proposal in which he shall have a material interest.

SECTION 2.11 ACTION WITHOUT A MEETING NOT PERMITTED. No action shall be
taken by the stockholders except at an annual or special meeting of
stockholders. The power of the stockholders to consent in writing without a
meeting to the taking of any action is specifically denied.

SECTION 2.12 CONDUCT OF MEETINGS OF STOCKHOLDERS. Subject to the
following, meetings of stockholders generally shall follow accepted rules of
parliamentary procedure.

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(a) The chairman of the meeting shall have absolute authority over matters
of procedure and there shall be no appeal from the ruling of the chairman. If
the chairman, in his absolute discretion, deems it advisable to dispense with
the rules of parliamentary procedure as to any one meeting of stockholders or
part thereof, the chairman shall so state and shall clearly state the rules
under which the meeting or appropriate part thereof shall be conducted.

(b) If disorder should arise that prevents continuation of the legitimate
business of the meeting, the chairman may quit the chair and announce the
adjournment of the meeting; and, upon his so doing, the meeting shall be
immediately adjourned.

(d) A resolution or motion shall be considered for vote only if proposed
by a stockholder or duly authorized proxy and seconded by an individual who is a
stockholder or a duly authorized proxy, other than the individual who proposed
the resolution or motion.

ARTICLE III.

BOARD OF DIRECTORS

SECTION 3.01 GENERAL POWERS. The property, business and affairs of the
Corporation shall be managed by the Board.

SECTION 3.02 NUMBER AND TERM OF OFFICE. The authorized number of directors
shall be twelve (12) until changed by a duly adopted amendment to this bylaw.
Each of the directors of the Corporation shall hold office until his successor
shall have been duly elected and shall qualify or until he shall resign or shall
have been removed in the manner hereinafter provided.

SECTION 3.03 ELECTION OF DIRECTORS. The directors shall be elected by the
stockholders of the Corporation, and at each election the persons receiving the
greatest number of votes, up to the number of directors then to be elected,
shall be the persons then elected. The election of directors is subject to any
provisions contained in the Certificate of Incorporation relating thereto,
including any provisions for cumulative voting.

SECTION 3.04 RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.

SECTION 3.05 VACANCIES. Except as otherwise provided in the Certificate of
Incorporation, any vacancy in the Board, whether because of death, resignation,
disqualification, an increase in the number of directors, or any other cause,
may be filled by vote of the majority

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of the remaining directors, although less than a quorum. Each director so
chosen to fill a vacancy shall hold office until his successor shall have been
elected and shall qualify or until he shall resign or shall have been removed in
the manner hereinafter provided.

SECTION 3.06 PLACE OF MEETING. The Board may hold any of its meetings at
such place or places within or without the State of Delaware as the Board may
from time to time by resolution designate or as shall be designated by the
person or persons calling the meeting or in the notice or a waiver of notice of
any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.

SECTION 3.07 FIRST MEETING. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.

SECTION 3.08 REGULAR MEETINGS. Regular meetings of the Board may be held
at such times as the Board may from time to time by resolution determine. If
any day fixed for a regular meeting shall be a legal holiday at the place where
the meeting is to be held, then the meeting shall be held at the same hour and
place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.

SECTION 3.09 SPECIAL MEETINGS. Special meetings of the Board may be called
by the Chairman of the Board of Directors or the President and shall be called
by the President or Secretary on the written request of two directors. Notice
of all special meetings of the Board shall be given to each director at such
director's address as it appears on the records of the Corporation, as follows:

(a) by first-class mail, postage prepaid, deposited in the United
States mail in the city where the principal office of the Corporation is
located at least five (5) days before the date of such meeting; or

(b) by telegram, charges prepaid, such notice to be delivered to the
telegraph company in the city of the principal office of the Corporation at
least forty-eight (48) hours before the time of holding such meeting; or

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Such notice may be waived by any director and any meeting shall be a legal
meeting without notice having been given if all the directors shall be present
thereat or if those not present shall, either before or after the meeting, sign
a written waiver of notice of, or a consent to, such meeting or shall after the
meeting sign the approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or be made a part of the
minutes of the meeting.

SECTION 3.10 QUORUM AND MANNER OF ACTING. Except as otherwise provided in
the Certificate of Incorporation or these Bylaws or by law, the presence of a
majority of the total number of directors then in office shall be required to
constitute a quorum for the transaction of business at any meeting of the Board.
Except as otherwise provided in the Certificate of Incorporation or these Bylaws
or by law, all matters shall be decided at any such meeting, a quorum being
present, by the affirmative votes of a majority of the directors present. In
the absence of a quorum, a majority of directors present at any meeting may
adjourn the same from time to time until a quorum shall be present. Notice of
any adjourned meeting need not be given. The directors shall act only as a
Board, and the individual directors shall have no power as such.

SECTION 3.11 ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.

SECTION 3.12 MANIFESTATION OF DISSENT. A director of the Corporation who
is present at a meeting of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.

SECTION 3.13 COMPENSATION. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him on account of his attendance at
any meetings of the Board or Committees of the Board. Neither the payment of
such compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.

SECTION 3.14 EXECUTIVE COMMITTEE. There may be an Executive Committee of
three or more directors appointed by the Board, who may meet at stated times, or
on notice to all members of such Committee by any of their own number, during
the intervals between the

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meetings of the Board; they shall advise and aid the officers of the Corporation
in all matters concerning its interests and the management of its business, and
generally perform such duties and exercise such powers as may be directed or
delegated by the Board from time to time. To the full extent permitted by law,
the Board may delegate to such Committee authority to exercise all the powers of
the Board while the Board is not in session. Vacancies in the members of the
Committee shall be filled by the Board at a regular meeting or at a special
meeting for that purpose. The Executive Committee shall keep written minutes of
its meeting and report the same to the Board when required. The provisions of
Sections 3.08, 3.09 and 3.11 of these Bylaws shall apply, mutatis
mutandis, to any Executive Committee of the Board.

SECTION 3.15 EMERGENCY MANAGEMENT COMMITTEE. The Board of Directors, by
resolution, may provide for an Emergency Management Committee and appoint
members or designate the manner in which membership of the Committee shall be
determined. The emergency powers granted hereunder shall be operative during
any emergency resulting from an attack on the United States or during any
nuclear or atomic disaster or during the existence of any catastrophe, or other
similar emergency condition, as a result of which a quorum of the Board of
Directors or a standing committee thereof cannot readily be convened for action
(an "emergency condition"). Said Committee shall have and may exercise all of
the powers of the Board of Directors in the management of the business and
affairs of the Corporation. It shall act only during such emergency condition
and so long as the number of Directors able to act shall have been reduced to
fewer than five, and until a Board of Directors has been elected by the
stockholders. Such Committee shall meet as promptly as possible after the
commencement of such an emergency condition as would activate the Committee and
at such subsequent time or times as it may designate until a Board of Directors
has been duly elected. Such Committee shall as the first order of business
elect an Emergency Executive Committee from among its members and a chairman
thereof, who shall be the chief executive officer of the Corporation. Such
Executive Committee shall function in the same manner and possess the same
powers as the Executive Committee of the Board of Directors, as provided in
Article III of these Bylaws, and shall have as many members as shall be provided
by resolution of the Board. Such Committees shall make their own rules of
procedure except to the extent otherwise provided by resolution of the Board. A
majority of the members of the Committees able to act shall constitute a quorum.
The physical presence of a member shall not be required if his vote on an action
to be taken can be obtained by available means of communication. Any vacancy
occurring in said Committees caused by resignation, death or other incapacity
may be filled by a majority of the remaining members of the Emergency Management
Committee and any member so chosen shall serve until a Board of Directors has
been duly elected.

SECTION 3.16 OTHER COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more other committees, each such
committee to consist of one or more of the directors of the Corporation. To the
full extent permitted by law, any such committee shall have and may exercise
such powers and authority as the Board may designate in such resolution.
Vacancies in the membership of a committee shall be filled by the Board at a
regular meeting or a special meeting for that purpose. Any such committee shall
keep written minutes of its meetings and report the same to the Board when
required. The

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provisions of Sections 3.08, 3.09, 3.10, 3.11 and 3.12 of these Bylaws shall
apply, mutatis mutandis, to any such committee of the Board.

ARTICLE IV.

OFFICERS

SECTION 4.01 NUMBER. The officers of the Corporation shall be a Chairman
of the Board, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chief Executive Officer of the Corporation shall be such officer
as the Board shall from time to time designate. The Board may also elect one or
more Assistant Secretaries and Assistant Treasurers. A person may hold more
than one office providing the duties thereof can be consistently performed by
the same person.

SECTION 4.02 OTHER OFFICERS. The Board may appoint such other officers as
it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.

SECTION 4.03 ELECTION. Each of the officers of the Corporation, except
such officers as may be appointed in accordance with the provisions of Section
4.02 or Section 4.05 of this Article, shall be chosen annually by the Board and
shall hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and qualified.

SECTION 4.04 SALARIES. The salaries of all officers of the Corporation
shall be fixed by the Board.

SECTION 4.05 REMOVAL; VACANCIES. Subject to the express provisions of a
contract authorized by the Board, any officer may be removed, either with or
without cause, at any time by the Board or by any officer upon whom such power
of removal may be conferred by the Board. Any vacancy occurring in any office
of the Corporation shall be filled by the Board.

SECTION 4.06 THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and directors and shall have such
other powers and duties as may be prescribed by the Board or by applicable law.
He shall be an ex-officio member of standing committees, if so provided in the
resolutions of the Board appointing the members of such committees.

SECTION 4.07 THE VICE CHAIRMAN OF THE BOARD. In the absence of the
Chairman of the Board the Vice Chairman of the Board, if there be such an
officer, shall have all the powers and shall exercise all the duties of the
Chairman of the Board.

SECTION 4.08 THE PRESIDENT. The President shall be the managing officer of
the Corporation. Subject to the control of the Board, the President shall have
general supervision,

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control and management of the affairs and business of the Corporation, and
general charge and supervision of all officers, agents and employees of the
Corporation; shall see that all orders and resolutions of the Board are carried
into effect; shall, in the absence of the Chairman of the Board and Vice
Chairman of the Board, preside at all meetings of the stockholders and the
Board; and in general shall exercise all powers and perform all duties incident
to the office of President and managing officer of the Corporation and such
other powers and duties as may from time to time be assigned to him by the Board
or as may be prescribed in these Bylaws.

The President may execute bonds, mortgages and other contracts requiring a
seal, under the seal of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board to some other
officer or agent of the Corporation.

The President shall be an ex-officio member of standing committees, if so
provided in the resolutions of the Board appointing the members of such
committees.

SECTION 4.09 THE VICE PRESIDENTS. In the absence of the President or in
the event of his inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties and have such
other powers as the Board or the President may from time to time prescribe.

SECTION 4.10 THE SECRETARY AND ASSISTANT SECRETARY. The Secretary shall
attend all meetings of the Board and all meetings of the stockholders and record
all the proceedings of the meetings of the Corporation and of the Board in a
book to be kept for that purpose and shall perform like duties for the standing
and special committees of the Board when required. He shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board, and shall perform such other duties as may be prescribed by the Board or
President, under whose supervision he shall act. He shall have custody of the
corporate seal of the Corporation and he, or an assistant secretary, shall have
authority to affix the same to an instrument requiring it and, when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing of his signature.

The assistant secretary, or if there be more than one, the assistant
secretaries in the order determined by the Board (or if there be no such
determination, then in the order of their election), shall, in the absence of
the Secretary or in the event of his inability or his refusal to act, perform
the duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.

SECTION 4.11 THE TREASURER. The Treasurer shall be the chief financial
officer of the Corporation and may be referred to by that title shall have the
custody of the corporate funds

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and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board.

The Treasurer shall disburse the funds of the Corporation as may be ordered
by the Board, making proper vouchers for such disbursements, and shall render to
the President and the Board, at its regular meetings, or when the Board so
requires, an account of all his transactions as Treasurer and of the financial
condition of the Corporation.

If required by the Board, the Treasurer shall give the Corporation a bond
in such sum and with such surety as shall be satisfactory to the Board for the
faithful performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.

SECTION 4.12 THE ASSISTANT TREASURER. The assistant treasurer, or if there
be more than one, the assistant treasurers in the order determined by the Board
(or if there be no such determination, then in the order of their election),
shall, in the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board may from
time to time prescribe.

ARTICLE V.

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

SECTION 5.01 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness payable by the
Corporation shall be signed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board. Each such
person or persons shall give such bond, if any, as the Board may require.

SECTION 5.02 DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may select, or as may
be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the President, any
Vice President or the Treasurer (or any other officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation who
shall from time to time be determined by the Board) may endorse, assign and
deliver checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation.

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SECTION 5.03 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from time to
time authorize the opening and keeping of general and special bank accounts with
such banks, trust companies or other depositories as the Board may select or as
may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.

ARTICLE VI.

SHARES AND THEIR TRANSFER

SECTION 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
Chairman, Vice Chairman or President or a Vice President, and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any of or
all of the signatures on the certificates may be a facsimile. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may nevertheless be issued by the Corporation with the same
effect as though the person who signed such certificate, or whose facsimile
signature has been placed upon, any such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may nevertheless be issued by the Corporation with the same
effect as though the person who signed such certificate, or whose facsimile
signature shall have been placed thereupon, were such officer, transfer agent or
registrar at the date of issue. A record shall be kept of the respective names
of the persons, firms or corporations owning the stock represented by such
certificates, the number and class of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation, the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases provided
for in Section 6.04.

SECTION 6.02 TRANSFERS OF STOCK. Transfers of shares of stock of the
Corporation shall be registered on the books of the Corporation or a transfer
agent appointed as provided in Section 6.03, only upon surrender of the
certificate or certificates for such shares properly endorsed by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed, and the payment of all taxes thereon. The person in whose name
shares of stock stand on the books of the Corporation shall be deemed the owner
thereof for all purpose as regards the Corporation. Whenever any transfer of
shares shall be made for collateral security, and not absolutely, such fact
shall be so expressed in the entry of transfer if, when the

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certificate or certificates shall be presented to the Corporation for
registration of transfer, both the transferor and the transferee request the
Corporation to do so.

SECTION 6.03 REGULATIONS. The Board may make such rules and regulations as
it may deem expedient, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.

SECTION 6.04 LOST, STOLEN, DESTROYED, AND MUTILATED CERTIFICATES. In any
case of loss, theft, destruction or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sums as the Board may direct; provided, however, that a
new certificate may be issued without requiring any bond when, in the judgment
of the Board, it is proper so to do.

SECTION 6.05 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any other
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than sixty (60) nor less than twenty (20) days before the date of such meeting,
nor more than sixty (60) days prior to any other action. If in any case
involving the determination of stockholders for any purpose other than notice of
or voting at a meeting of stockholders the Board shall not fix such a record
date, the record date for determining stockholders for such purpose shall be the
close of business on the day on which the Board shall adopt the resolution
relating thereto. A determination of stockholders entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of such
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.

ARTICLE VII.

INDEMNIFICATION

SECTION 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body, against expenses
(including attorneys' fees), judgments, fines

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and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.

SECTION 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or as a member of any committee or similar
body, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.

SECTION 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 7.01 and 7.02. Such determination shall be made
(i) by the Board by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.

SECTION 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.

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SECTION 7.05 ADVANCE OF EXPENSES. Expenses incurred in defending a civil
or criminal action, suit or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding as authorized by the
Board upon receipt of an undertaking by or on behalf of the director or officer,
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board deems appropriate.

SECTION 7.06 OTHER RIGHTS AND REMEDIES. The benefits provided by this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any statute, Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

SECTION 7.07 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him or hold him harmless against
such liability under the provisions of this Article.

SECTION 7.08 CONSTITUENT CORPORATIONS. For the purposes of this Article,
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation, and
shall also include without limitation Jacobs Engineering Group Inc., a
California corporation, so that any person who is or was a director, officer,
employee or agent of such a constituent corporation or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this Article
with respect to the resulting or surviving corporation as he would if he had
served the resulting or surviving corporation in the same capacity.

SECTION 7.09 EMPLOYEE BENEFIT PLANS. For purposes of this Article,
references to "other enterprises" shall include employee benefit plans, and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation that
imposes a duty on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries.

SECTION 7.10 BROADEST LAWFUL INDEMNIFICATION. In addition to the
foregoing, the Corporation shall, to the broadest and maximum extent permitted
by Delaware law, as the same exists from time to time (but, in case of any
amendment to or change in Delaware law, only to

16
<PAGE>

the extent that such amendment or change permits the Corporation to provide
broader rights of indemnification than is permitted to the Corporation prior to
such amendment or change), indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding than is permitted to the
Corporation prior to such amendment or change), pay to such person any and all
expenses (including attorneys' fees) incurred in defending or settling any such
action, suit or proceeding in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer, to repay such amount if it shall ultimately be determined
by a final judgment or other final adjudication that he is not entitled to be
indemnified by the Corporation as authorized in this Section 7.10. The first
sentence of this Section 7.10 to the contrary notwithstanding, the Corporation
shall not indemnify any such person with respect to any of the following
matters: (i) remuneration paid to such person if it shall be determined by a
final judgment or other final adjudication that such remuneration was in
violation of law; or (ii) any accounting of profits made from the purchase or
sale by such person of the Corporation's securities within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law; or (iii)
actions brought about or contributed to by the dishonesty of such person, if a
final judgment or other final adjudication adverse to such person establishes
that acts of active and deliberate dishonesty were committed or attempted by
such person with actual dishonest purpose and intent and were material to the
adjudication; or (iv) actions based on or attributable to such person having
gained any personal profit or advantage to which he was not entitled, in the
event that a final judgment or other final adjudication adverse to such person
establishes that such person in fact gained such personal profit or other
advantage to which he was not entitled; or (v) any matter in respect of which a
final decision by a court with competent jurisdiction shall determine that
indemnification is unlawful; provided, however, that the Corporation shall
perform its obligations under the second sentence of this Section 7.10 on behalf
of such person until such time as it shall be ultimately determined by a final
judgment or other final adjudication that he is not entitled to be indemnified
by the Corporation as authorized by the first sentence of this Section 7.10 by
virtue of any of the preceding clauses (i), (ii), (iii), (iv) or (v).

SECTION 7.11 INDEMNITY FUND. Upon resolution passed by the Board, the
Corporation may establish a trust or other designated account, grant a security
interest or use other means (including, without limitation, a letter of credit),
to ensure the payment of any or all of its obligations arising under this
Article VII and/or any agreements that may be entered into between the
Corporation and its officers and directors from time to time.

SECTION 7.12 SEVERABILITY. If any part of this Article VII shall be found,
in any action, suit or proceeding or appeal therefrom or in any other
circumstances or as to any particular

17
<PAGE>

officer, director, employee or agent to be unenforceable, ineffective or invalid
for any reason, the enforceability, effect and validity of the remaining parts
or of such parts in other circumstances shall not be affected, except as
otherwise required by applicable law.

SECTION 7.13 AMENDMENTS. The foregoing provisions of this Article VII
shall be deemed to constitute an agreement between the Corporation and each of
the persons entitled to indemnification hereunder, for as long as such
provisions remain in effect. Any amendment to the foregoing provisions of this
Article VII which limits or otherwise adversely affects the scope of
indemnification or rights of any such persons hereunder shall, as to such
persons, apply only to claims arising, or causes of action based on actions or
events occurring, after such amendment and delivery of notice of such amendment
is given to the person or persons so affected. Until notice of such amendment
is given to the person or persons whose rights hereunder are adversely affected,
such amendment shall have no effect on such rights of such persons hereunder.
Any person entitled to indemnification under the foregoing provisions of this
Article VII shall as to any act or omission occurring prior to the date of
receipt of such notice, be entitled to indemnification to the same extent as had
such provisions continued as Bylaws of the Corporation without such amendment.

ARTICLE VIII.

MISCELLANEOUS

SECTION 8.01 SEAL. The Board shall provide a corporate seal, which shall
be in the form of a circle and shall bear the name of the Corporation and words
and figures showing that the Corporation was incorporated in the State of
Delaware and the year of incorporation.

SECTION 8.02 WAIVER OF NOTICES. Whenever notice is required to be given by
these Bylaws or the Certificate of Incorporation or by law, the person entitled
to said notice may waive such notice in writing, either before or after the time
stated therein, and such waiver shall be deemed equivalent to notice.

SECTION 8.03 FISCAL YEAR. The fiscal year of the Corporation shall begin
the first day of October in each year.

SECTION 8.04 AMENDMENTS. Subject to the provisions of the Certificate of
Incorporation, these Bylaws and applicable law, these Bylaws or any of them may
be amended or repealed and new Bylaws may be adopted (a) by the Board, by vote
of a majority of the number of directors then in office or (b) by the vote of
the holders of not less than seventy-five (75%) percent of the total voting
power of all outstanding shares of voting stock of the Corporation in an annual
meeting of stockholders, without previous notice, or at any special meeting of
stockholders, provided that notice of such proposed amendment, repeal or
adoption is given in the notice of special meeting. Subject to the provisions
of the Certificate of Incorporation, any Bylaws adopted or amended by the
stockholders may be amended or repealed by the Board or the stockholders.

18
<PAGE>

SECTION 8.05 VOTING STOCK. Unless otherwise ordered by the Board, the
Chairman of the Board, the President and each Vice President shall have full
power and authority on behalf of the Corporation to attend and to act and vote
at any meeting of the stockholders of any corporation in which the Corporation
may hold stock and at any such meeting shall possess and may exercise any and
all rights and powers that are incident to the ownership of such stock and which
as the owner thereof the Corporation may have possessed and exercised if
present. The Board by resolution from time to time may confer like powers upon
any other person or persons.

<PAGE>

EXHIBIT 10.4

AGREEMENT
---------

This agreement is made as of the 3rd day of December, 1998, between
JACOBS ENGINEERING GROUP INC., a Delaware corporation ("Company") and
JOSEPH J. JACOBS ("Jacobs").

In accordance with previous practice, the term for the ending of the
outstanding November 30, 1993 employment agreement between the parties is
extended from September 30, 2002 to September 30, 2003. All of the other
provisions of the agreement shall remain in force.

IN WITNESS WHEREOF, the Company has caused this agreement to be
executed by its duly authorized representatives and Jacobs has affixed his
signature, as of the date first above written.

JOSEPH J. JACOBS
("Jacobs")

s/n Joseph J. Jacobs
---------------------
335 West Bellevue Avenue
Pasadena, California 91105

JACOBS ENGINEERING GROUP INC.
("Company")

By: s/n Noel G. Watson
-------------------
Noel G. Watson,
President

By: s/n John W. Prosser, Jr.
-------------------------
John W. Prosser, Jr.,
Senior Vice President
Finance and Administration

<PAGE>

EXHIBIT 13

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

WITH REPORT OF INDEPENDENT AUDITORS

SEPTEMBER 30, 1998
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
SELECTED HIGHLIGHTS
FOR FISCAL YEARS ENDED SEPTEMBER 30
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE INFORMATION)

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues.................................... $2,101,145 $1,780,616 $1,798,970
Net income.................................. 54,385 46,895 40,360
---------- ---------- ----------
Per-share information:
Basic EPS.................................. $ 2.12 $ 1.82 $ 1.58
Diluted EPS................................ 2.08 1.80 1.56
Net book value............................. 14.23 12.48 10.93
Closing year-end stock price............... 31.00 30.625 22.50
---------- ---------- ----------
Total assets................................ $ 807,489 $ 737,643 $ 572,505
Stockholders' equity........................ 371,405 324,308 283,387
Return on average equity.................... 15.63% 15.43% 15.46%
Stockholders of record...................... 1,352 1,592 1,965
---------- ---------- ----------
Backlog:
Engineering services....................... $1,004,500 $ 912,057 $ 845,300
Total...................................... 3,329,500 3,050,000 2,750,200
---------- ---------- ----------
Permanent staff............................. 10,080 9,570 7,350
---------- ---------- ----------
</TABLE>

Effective October 1, 1997, the Company adopted SFAS No. 128 -- Earnings per
Share. Earnings per share ("EPS") for prior years have been restated to
conform to the provisions of SFAS No. 128.

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>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues............... $2,101,145 $1,780,616 $1,798,970 $1,723,057 $1,165,754
Net income............. 54,385 46,895 40,360 32,242 18,767
---------- ---------- ---------- ---------- ----------
Financial Position:
Current ratio.......... 1.54 to 1 1.56 to 1 1.68 to 1 1.44 to 1 1.41 to 1
Working capital........ $ 197,659 $ 178,203 $ 155,569 $ 113,339 $ 106,058
Current assets......... 566,007 497,361 383,644 368,614 367,485
Total assets........... 807,489 737,643 572,505 533,947 504,364
Long-term debt......... 26,221 54,095 36,300 17,799 25,000
Stockholders' equity... 371,405 324,308 283,387 238,761 200,433
Return on average
equity................ 15.63% 15.43% 15.46% 14.68% 10.03%
Backlog:
Engineering services.. $1,004,500 $ 912,057 $ 845,300 $ 828,400 $ 793,060
Total................. 3,329,500 3,050,000 2,750,200 2,625,000 2,500,000
---------- ---------- ---------- ---------- ----------
Per-share Information:
Basic EPS.............. $ 2.12 $ 1.82 $ 1.58 $ 1.28 $ 0.75
Diluted EPS............ 2.08 1.80 1.56 1.27 0.75
Stockholders' equity... 14.23 12.48 10.93 9.41 7.96
---------- ---------- ---------- ---------- ----------
Average Number of Common
and Common Stock
Equivalents Outstanding
(Diluted)............... 26,096 25,989 25,921 25,384 25,173
---------- ---------- ---------- ---------- ----------
</TABLE>

Effective October 1, 1997, the Company adopted SFAS No. 128 -- Earnings per
Share. Earnings per share ("EPS") for prior years have been restated to
conform to the provisions of SFAS No. 128.

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, 1998 (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Chemicals.................................. $ 797,035 $ 500,446 $ 452,448
Buildings and infrastructure............... 335,542 183,004 189,834
Petroleum.................................. 255,578 248,799 417,739
Pharmaceuticals and biotechnology.......... 211,650 140,545 147,840
Pulp and paper............................. 191,594 154,135 170,553
Federal programs........................... 169,472 201,644 145,275
Semiconductor.............................. 119,368 335,595 268,520
Other...................................... 20,906 16,448 6,761
---------- ---------- ----------
$2,101,145 $1,780,616 $1,798,970
========== ========== ==========
</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, 1998 (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Engineering services........................ $ 822,515 $ 702,068 $ 627,622
Field services:
Construction.............................. 1,011,832 813,926 925,681
Maintenance............................... 266,798 264,622 245,667
---------- ---------- ----------
$2,101,145 $1,780,616 $1,798,970
========== ========== ==========
</TABLE>

1998 Compared to 1997

Consolidated revenues in fiscal 1998 totalled $2.1 billion; this was $320.5
million, or 18.0 percent, more than fiscal 1997's total revenues. More than
half of this increase was attributable to the Company's comparable U.S. and
European operations (that is, those offices operating during the comparable
periods of both 1998 and 1997). The balance of the increase was attributable
to the effect of companies acquired in 1997, and in particular, to the Serete
Group.

Revenues in 1998 from engineering services were $120.4 million higher than
the comparable 1997 amount. 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. Engineering services revenues in 1998 from the Company's comparable
U.S. and European operations were approximately 8 percent higher than the 1997
amount, with the balance of the increase attributable to businesses the
Company acquired in 1997.

Revenues from construction services increased $197.9 million, or 24.3
percent, from 1997 to 1998. This increase occurred in spite of the fact that
the Company completed construction on a large semiconductor project late last
year. Revenues in 1998 from maintenance services were substantially the same
as the 1997 amount. Also contributing to the overall increase in field
services revenues from 1997 to 1998 was a $96.2 million increase 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 87.1 percent in
1998, versus 86.9 percent in 1997. 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 increase in the direct costs of the Company's
services as a percentage of revenues from 1997 to 1998 was due to a
proportionally higher percentage of the Company's total business volume coming
from field services relative to engineering services, off-set in part by an
increase in the profit margin on the Company's field services activities in
total.

The Company's selling, general and administrative ("S,G & A") expenses
totalled $184.0 million in 1998; this was $23.9 million, or 14.9 percent, more
than the 1997 amount. The increase was attributable to the full-year effects
of the businesses acquired during 1997. The 1998 operating S,G & A expenses of
the Company's comparable U.S. and European operations were approximately $1.2
million lower than the corresponding 1997 amount.

The Company's operating profit (defined as total revenues, less direct costs
of contracts, and S,G & A expenses) totalled $86.5 million in 1998; this was
$12.9 million higher than the comparable 1997 amount. In general, the
improvement in operating profit was due to the overall increase in business
volume in 1998 as compared to 1997, combined with better S,G & A expense
control throughout much of the Company's comparable U.S. and European
operations.

Interest income, net totalled $2.7 million in 1998; this was $0.2 million
less than the 1997 amount. The decrease in net interest income was due
primarily to a reduction of rates earned on slightly higher levels of average
cash invested during 1998 as compared to 1997, combined with a small increase
in consolidated interest expense.

Other expense, net totalled $0.4 million in 1998, as compared to other
income, net of $0.9 million in 1997. Included in the 1998 amount was the
approximate $8.8 million gain realized by the Company on the sale of its
office building located in Dublin, Ireland (known as "Merrion House"). Merrion
House was purchased in 1995, and the Company will continue to occupy a minor
portion of the property under a lease agreement. Off-setting the Merrion House
gain were reserves recorded in the fourth quarter of 1998 for certain settled
and pending litigation.

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 1996. The increase
in engineering services activity was due in part to certain acquisitions the
Company completed in 1997, and in part to internal growth.

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 1996 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.

As a percent of revenues, direct costs of contracts was 86.9 percent in
1997, versus 88.4 percent in 1996. 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 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

A-4
<PAGE>

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 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.

BACKLOG

The following table summarizes the Company's total backlog at September 30,
1998, 1997 and 1996 (in millions):

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Engineering services.............................. $1,004.5 $ 912.1 $ 845.3
Total............................................. 3,329.5 3,050.0 2,750.2
======== ======== ========
</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, 1998 included approximately $800.0 million of
contracts for work to be performed either directly or indirectly for agencies
of the U.S. federal government. This compares to approximately $923.0 million
and $1.0 billion of federal backlog at September 30, 1997 and 1996,
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).

The Company's backlog increased $299.8 million from 1996 to 1997, and it
increased by $279.5 million from 1997 to 1998. A significant portion of the
1997 increase was due to new awards in the petroleum and chemicals industries,
combined with backlog acquired in conjunction with the acquisitions made by
the Company in 1997. Most of the 1998 increase was due to new awards in the
chemicals, refining and pharmaceuticals areas of the Company's business.

Of total backlog at September 30, 1998, the Company estimates that
approximately 50 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.

A-5
<PAGE>

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 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 increased $45.3 million during 1998.
This compares to a net decrease of $6.9 million during 1997, and a net
increase of $23.7 million in 1996. The current year increase was due primarily
to cash provided by operations ($90.5 million), offset in part by cash used in
investing activities ($9.6 million) and financing activities ($35.4 million).

Operations provided $90.5 million of cash and cash equivalents in 1998. This
compares to net contributions of cash of $43.9 million in 1997, and $54.3
million in 1996. The $46.5 million increase in cash provided by operations in
1998 as compared to 1997 was due primarily to an increase in net income ($7.5
million) combined with the positive effects on cash of the timing of cash
receipts and payments within the Company's working capital accounts (which
resulted in a net increase to cash of $44.9 million, comparing 1998 activity
to 1997). This favorable increase was off-set in part by higher gains on
disposals of fixed assets in 1998 as compared to 1997 ($7.8 million).

The Company's investing activities used $9.6 million of cash and cash
equivalents in 1998. This compares to net uses of cash of $69.5 million in
1997 and $40.0 million in 1996. The $59.9 million decrease in cash used in
investing activities in 1998 as compared to 1997 was due primarily to the
increases in cash provided from sales of property and equipment ($26.5
million; most of which related to the sale of Merrion House) and marketable
securities ($8.2 million). Also contributing to the decrease in cash used for
investing activities in 1998 as compared to 1997 was the net decrease in other
assets (consisting primarily of collections of certain notes receivable which
resulted in an increase to cash of $25.4 million, comparing 1998 activity to
1997). Lastly, the Company used $20.0 million in 1997 for purchases of
marketable securities; only $5.4 million was used for such purposes in 1998,
which also contributed to the net reduction of cash used for investing
activities in 1998 as compared to 1997 ($14.6 million).

These positive changes in cash flows from investing activities were off-set
in part by an increase in cash used for property and equipment additions
($18.3 million). Included in the 1998 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 latter 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.

A-6
<PAGE>

The Company's financing activities used $35.4 million of cash and cash
equivalents in 1998. This compares to a net contribution of cash of $20.3
million in 1997 and $9.6 million in 1996. The $55.7 million decrease from 1997
to 1998 in cash flows from financing activities was due primarily to cash used
by the Company in 1998 to reduce its long-term debt, as compared to 1997
wherein the Company was a net borrower under this facility (creating a
negative variance of $50.7 million). Also contributing to the decrease in cash
flows from financing activities from 1997 to 1998 was an overall increase in
purchases of treasury stock ($6.0 million). Off-setting these negative
variances in part was a slight increase from 1997 to 1998 in cash flows from
the exercise of stock options, and other miscellaneous financing items ($0.9
million).

The Company believes it has adequate capital resources available to fund
operations in 1999 and beyond. The Company's consolidated working capital
position totalled $197.7 million at September 30, 1998; this was $19.5 million
more than the comparable 1997 amount. At September 30, 1998, the Company had a
total of $42.7 million available under all of its short-term bank credit
facilities, against which $0.2 million was outstanding in the form of direct
borrowings. The amounts outstanding at September 30, 1998 relate entirely to
borrowings by the Company's Chilean subsidiary (in order to hedge against
possible fluctuations in foreign currency exchange rates, the Company
typically establishes lines of credit with banks providing for short-term
borrowing capacity in local currencies). In addition to its short-term credit
facilities, the Company also had $18.8 million of borrowing capacity available
to it at September 30, 1998 under its long-term, revolving credit agreement.

As discussed in Note 10 to the Consolidated Financial Statements, in
December 1998, the Company signed an agreement and plan of merger with the
Sverdrup Corporation ("Sverdrup"). The agreement is subject to the approval of
the shareholders of Sverdrup, the expiration or termination of the Hart-Scott-
Rodino Act waiting period, and other contingencies. As a result of the
transactions contemplated in the merger agreement, Sverdrup will become, upon
closing of the transaction (which is not expected to occur until early in the
second quarter of fiscal 1999), a wholly-owned subsidiary of the Company.
Total consideration to be paid by the Company at closing will be approximately
$198.0 million. The Company intends to finance the merger price through a
combination of bank borrowings (under a new, long-term revolving credit
facility) and internal funds. The Company does not believe that the financing
of this transaction or the possible ownership of Sverdrup will have a
materially adverse affect on its liquidity during 1999.

YEAR 2000 READINESS

The following discussion of the Year 2000 issue contains numerous "forward-
looking statements". See "Forward-Looking Statements and Other Safe Harbor
Applications", below, for a discussion of factors to be considered in reading
forward-looking statements.

This discussion of "Year 2000" (or "Y2k") relates to the possible inability
of computers, hardware or software to perform properly because they are unable
to interpret date information correctly after December 31, 1999, and includes
all of the associated consequences of such failures on the Company's
operations. If not corrected, such situations could result in computer-system
failures or miscalculations causing disruptions in the Company's operations,
including a temporary inability to process transactions, pay employees,
vendors and subcontractors, send invoices or engage in similar, normal
business activities.

The Year 2000 Task Force

The Company began its assessment of its Year 2000 readiness during fiscal
1997. In that year the Company organized a Year 2000 task force comprised
primarily of Company employees. The Company has identified four information
technology ("IT") and non-IT areas for which Y2k compliance is critical to the
normal and routine operations of the Company. These areas are: (1) internally-

A-7
<PAGE>

developed computer software; (2) commercial off-the-shelf software; (3)
computer hardware and embedded processors; and (4) facilities-related
applications and processes, such as telecommunications and equipment with
embedded chips.

Also included in the Company's Year 2000 compliance program are the
hardware, software, and other applications issues relating to the Company's
financial and accounting systems. In 1997 the Company embarked under a
completely separate initiative (referred to as the "Global Financial Systems
Project") to migrate most of its existing financial and accounting systems to
a single accounting system, which eventually will be utilized by all of the
Company's operations worldwide. The Global Financial Systems Project will make
use of commercial off-the-shelf software with internally-developed program
interfaces. Based on assurances from the third-party provider of the commercial
off-the-shelf software, and discussions with the third-party consultants
employed by the Company to assist in the system conversion, the Company believes
its Global Financial Systems Project will be Y2k compliant by the year 2000.

The Year 2000 Program

The Company's plan to address the Year 2000 problem involves the following
phases: inventory, assessment, remediation, testing and implementation.

The "inventory" phase describes the process of identifying all hardware
and software components within each of the aforementioned areas of the
Company's business which need to be made Y2k compliant, as well as defining
the business impacts of failing to make such components Y2k compliant.

The "assessment" phase requires that an evaluation be made of each
affected system to determine what actions need to occur to make such
systems Y2k compliant.

The "remediation" phase involves the actual repair or replacement of
those hardware and software components critical to each affected business
process.

After remediation, the "testing" phase will verify if the affected
systems have been properly repaired. If during this phase it is determined
that additional repairs are required, such repairs will be made, or
alternative corrective actions taken.

The purpose of the "implementation" phase will be to bring the repaired
systems on-line and integrated with the rest of the Company's operations.

Third Party Compliance

The Company is also evaluating the possible effects of the Year 2000 issue
on its clients, suppliers, subcontractors and vendors. Although the possible
effects of the Year 2000 issue on these parties are beyond the control of the
Company, the Company has initiated a process to communicate with these parties
to inform them of the Company's Year 2000 strategy and to determine their own
Year 2000 strategy and progress.

Cost of the Year 2000 Program

The Company estimates the total cost of its Year 2000 compliance program at
approximately $5.8 million, consisting of both internal and external costs,
and including a maximum of $2.0 million for new hardware and software
(although a substantial portion of such new hardware and software would have
been purchased by the Company through the regular and routine upgrading of
systems). Such hardware and software will be capitalized and depreciated over
the estimated useful lives of the related assets. All other expenditures will
be charged to expense. As of September 30, 1998, the Company had spent
approximately $0.4 million against its estimated budget.

A-8
<PAGE>

Progress of the Year 2000 Program

As of September 30, 1998, the Company was actively engaged in one or more
compliance phases with respect to each of the four business areas described
above. Although there can be no guarantee of complete readiness by the year
2000, the Company believes each of the business areas described above will be
Y2k compliant by November 1999, or be substantially compliant by that time
such that further remediation and testing, if any, will not be significant to
its operations. However, as discussed above, the Company has not completed its
Year 2000 compliance program. In the event the Company does not complete its
program, or fails to properly identify and modify critical business
applications, there may be an interruption to the Company's business that may
have a materially adverse affect on its future financial condition and results
of operations. In addition, year 2000-related disruptions in the economy in
general may also have a materially adverse affect on its future financial
condition and results of operations.

Risks

The failure to identify and correct a Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. The Company does not expect such failures to have a materially
adverse effect on its results of operations or financial condition. However,
because of the general uncertainty about Year 2000 readiness throughout the
world economy, which results in uncertainties regarding the readiness of the
Company's vendors, contractors and clients, the Company is currently unable to
determine whether Year 2000 problems may have a materially adverse effect on
its results of operations or financial condition. As the Company's Year 2000
compliance program progresses, the level of uncertainty about this matter is
being reduced, especially as to uncertainties about the Company's own degree
of Year 2000 compliance and the compliance of its suppliers, contractors and
clients.

Worst Case Scenario

It is not presently possible to describe a reasonably likely "worst case
Year 2000 scenario" without making numerous assumptions. The Company presently
believes that a most likely worst case scenario would make it necessary for
the Company to replace some suppliers or contractors, rearrange some work
plans, or perhaps interrupt some office and field activities. Assuming this
assessment is correct, the Company does not believe that such circumstances
would have a materially adverse effect on its financial condition or results
of operations, even if it is necessary to incur additional costs to correct
unanticipated compliance failures.

Contingency Plans

The Company currently has no contingency plans in place in the event it does
not complete all phases of its Year 2000 compliance program by December 31,
1999. However, it expects to have completed enough of its compliance work by
March 1999 that it will be able to identify those business areas for which
contingency plans will be necessary, and it will develop the required
contingency plans at that time. The Company continues to monitor carefully the
progress of its Year 2000 program and its state of readiness on a regular
basis. Any future contingency plan will be based on its best estimates of
numerous factors, which, in turn will be derived by relying on numerous
assumptions about future events. However, there can be no assurance that these
assumptions or estimates will have been correctly made, or that the Company
will have anticipated all relevant factors, or that there will not be a delay
in or increased costs associated with the Company's Year 2000 program. Any
delay in implementation of the Year 2000 program could affect the Company's
Year 2000 readiness. Specific factors that might cause the actual outcome to
differ from the projected outcome include, without limitation, the continued
availability of personnel and consultants trained in the computer programming
skills necessary for remediation of Year 2000 problems, the ability to locate
and correct all relevant

A-9
<PAGE>

computer codes and embedded software, timely responses by third parties,
including suppliers, contractors and clients, and the ability to implement
interfaces between new systems and systems not being replaced.

The foregoing discussion does not cover the degree of Year 2000 compliance
achieved by Sverdrup Corporation. Additionally, this discussion regarding the
Year 2000 issue is a "Year 2000 Readiness Disclosure" as that term is
discussed in the Year 2000 Information and Readiness Disclosure Act of 1998.

EFFECTS OF RECENTLY-ISSUED ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board ("FASB") adopted
Statement of Financial Accounting Standards ("SFAS") No. 130 -- Reporting
Comprehensive Income, and it also adopted SFAS No. 131 -- Disclosures about
Segments of an Enterprise and Related Information. In February 1998, the FASB
adopted SFAS No. 132 -- Employers' Disclosures about Pensions and Other
Postretirement Benefits. And in June 1998, the FASB adopted SFAS No. 133 --
Accounting for Derivative Instruments and Hedging Activities.

SFAS No. 130 will be effective for the Company beginning with the first
quarter of fiscal 1999. This standard establishes guidelines for the reporting
and display of "comprehensive income" and its components. Comprehensive income
is defined to include all changes in the Company's equity from nonowner
sources, and would include cumulative foreign currency translation adjustments
and unrealized gains and losses on certain marketable securities, among other
items.

SFAS No. 131 will also be effective for the Company beginning with the first
quarter of fiscal 1999. This standard supersedes SFAS No. 14, and establishes
standards for the way public companies report information about their
operating segments in both annual and interim financial statements. It also
requires public companies to report descriptive information about the way
their operating segments were determined, the products and services provided
by their operating segments, and information about their major customers.

SFAS No. 132 will be effective for the Company's 1999 year-end consolidated
financial statements. This standard amends existing disclosure requirements
regarding pension plans and other plans providing postretirement benefits, and
specifically requires additional information on changes in benefit obligations
and fair values of plan assets.

SFAS No's. 130, 131 and 132 are all disclosure-oriented pronouncements. That
is, they do not effect the way in which the Company will account for any item
or transaction included in its consolidated financial statements. Rather, they
require that certain information be presented differently, or additional
information provided, or that the information presented be discussed by the
Company. The Company does not believe that SFAS No. 133 applies to it.

FORWARD-LOOKING STATEMENTS AND OTHER SAFE HARBOR APPLICATIONS

Statements included in this Management's Discussion and Analysis 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. Such
statements are based on management's current estimates, expectations and
projections about the issues discussed, 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, but are not necessarily limited to, 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

A-10
<PAGE>

new awards and the funding of 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; the cyclical nature of the individual markets in
which the Company's customers operate; the outcome or closing of any merger or
acquisition transaction, including the nature and extent of any related
financing, and the amount of any contingent consideration the Company may be
required to make in the future in connection with any merger or acquisition
transaction; and the Company's success in dealing with the Year 2000 issues
discussed above under "Year 2000 Readiness". 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 Management's Discussion and Analysis
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.

A-11
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $101,328 $ 55,992
Marketable securities..................................... 16,482 21,130
Receivables............................................... 394,841 373,228
Deferred income taxes..................................... 45,419 40,352
Prepaid expenses and other................................ 7,937 6,659
-------- --------
Total current assets..................................... 566,007 497,361
-------- --------
Property, Equipment and Improvements, Net.................. 100,565 93,401
-------- --------
Other Noncurrent Assets:
Goodwill, net............................................. 77,246 75,445
Other..................................................... 63,671 71,436
-------- --------
Total other noncurrent assets............................ 140,917 146,881
-------- --------
$807,489 $737,643
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable............................................. $ 217 $ 1,443
Accounts payable.......................................... 101,846 109,098
Accrued liabilities....................................... 161,552 123,207
Customers' advances in excess of related revenues......... 85,049 77,149
Income taxes payable...................................... 19,684 8,261
-------- --------
Total current liabilities................................ 368,348 319,158
-------- --------
Long-term Debt............................................. 26,221 54,095
-------- --------
Other Deferred Liabilities................................. 35,170 34,620
-------- --------
Minority Interests......................................... 6,345 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 --25,866,795 and 25,810,860 shares,
respectively............................................. 25,867 25,811
Additional paid-in capital............................... 55,698 52,186
Retained earnings......................................... 300,296 249,791
Other..................................................... (2,856) (2,744)
-------- --------
379,005 325,044
Less, cost of common stock held in treasury (254,028
shares in 1998, 25,000 shares in 1997).................... 7,600 736
-------- --------
Total stockholders' equity............................... 371,405 324,308
-------- --------
$807,489 $737,643
======== ========
</TABLE>

See the accompanying notes.

A-12
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER-SHARE INFORMATION)

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................... $2,101,145 $1,780,616 $1,798,970
---------- ---------- ----------
Costs and Expenses:
Direct costs of contracts................. 1,830,618 1,546,898 1,590,906
Selling, general and administrative
expenses................................. 184,043 160,157 143,456
Interest income, net...................... (2,736) (2,959) (1,444)
Other (income) expense, net............... 436 (929) (769)
---------- ---------- ----------
2,012,361 1,703,167 1,732,149
---------- ---------- ----------
Income before taxes..................... 88,784 77,449 66,821
---------- ---------- ----------
Income Tax Expense......................... 34,399 30,554 26,461
---------- ---------- ----------
Net Income................................. $ 54,385 $ 46,895 $ 40,360
========== ========== ==========
Net Income per Share:
Basic..................................... $ 2.12 $ 1.82 $ 1.58
Diluted................................... 2.08 1.80 1.56
========== ========== ==========
</TABLE>

See the accompanying notes.

A-13
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS OTHER (AT COST)
------- ---------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
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)
Net foreign currency
translation adjustment....... -- -- -- (9) --
Net unrealized losses on
marketable securities........ -- -- -- (113) --
Repurchases of common stock.. (59) (353) (1,608) -- (18,046)
Exercises of stock options,
including the related income
tax benefits................. 103 3,521 (2,272) -- 11,182
Issuance of restricted stock,
net of amortization.......... 12 344 -- 10 --
Net income................... -- -- 54,385 -- --
------- ------- -------- ------- --------
Balances, September 30, 1998.. $25,867 $55,698 $300,296 $(2,856) $ (7,600)
======= ======= ======== ======= ========
</TABLE>

See the accompanying notes.

A-14
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 54,385 $ 46,895 $ 40,360
Adjustments to reconcile net income to net cash
flows from operations:
Depreciation and amortization.................. 23,184 19,626 18,118
Amortization of deferred gains................. (205) (820) (820)
Gains on disposals of property, equipment and
other assets.................................. (8,577) (742) (259)
Changes in assets and liabilities, excluding
the effects of
businesses acquired:
Receivables................................... (25,135) (34,849) 15,255
Prepaid expenses and other current assets..... 6,010 (416) (1,182)
Accounts payable.............................. 10,076 783 (2,911)
Accrued liabilities........................... 16,757 18,537 (1,588)
Customers' advances........................... 7,384 (1,685) (7,420)
Income taxes payable.......................... 11,280 (932) (1,743)
Deferred income taxes.......................... (5,067) (2,784) (3,818)
Other, net..................................... 366 330 287
-------- -------- --------
Net cash provided............................... 90,458 43,943 54,279
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............. (46,335) (28,025) (16,694)
Disposals of property and equipment............. 26,766 289 745
(Increase) decrease in other assets, net........ 8,620 (16,780) (2,689)
Purchases of marketable securities.............. (5,386) (20,000) --
Proceeds from sales of marketable securities.... 10,034 1,837 --
Additions to investments........................ (3,319) (4,491) (21,705)
Proceeds from sales of investments.............. -- 936 301
Acquisitions of businesses, net of cash
acquired....................................... -- (3,307) --
-------- -------- --------
Net cash used................................... (9,620) (69,541) (40,042)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercises of stock options, including the
related income tax benefits..................... 11,496 10,970 8,258
Purchases of treasury stock..................... (18,046) (12,075) (3,590)
Increases to long-term debt..................... -- 21,415 18,881
Payments on long-term debt...................... (29,264) -- --
Decrease in short-term borrowings, net.......... (1,257) -- (15,739)
Other, net...................................... 1,639 -- 1,768
-------- -------- --------
Net cash provided (used)........................ (35,432) 20,310 9,578
-------- -------- --------
Effect of Exchange Rate Changes.................. (70) (1,585) (68)
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents. 45,336 (6,873) 23,747
Cash and Cash Equivalents at Beginning of Period. 55,992 62,865 39,118
-------- -------- --------
Cash and Cash Equivalents at End of Period....... $101,328 $ 55,992 $ 62,865
======== ======== ========
</TABLE>

See the accompanying notes.

A-15
<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 balances
in the accompanying 1997 consolidated balance sheet have been reclassified to
conform to the 1998 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, 1998, 1997 and 1996 was as
follows:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cost-reimbursable............................................. 81% 82% 82%
Fixed-price................................................... 18 16 16
Guaranteed maximum............................................ 1 2 2
</TABLE>

For the years ended September 30, 1998, 1997 and 1996, projects with or for
the benefit of agencies of the U.S. federal government accounted for 12.1
percent, 12.0 percent and 8.7 percent, respectively, of total revenues. Within
the private sector, no single client accounted for 10 percent or more of total
revenues in either 1998 or 1996. One private-sector client accounted for 15.3
percent of total revenues in 1997.

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-16
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Foreign Operations

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>
1998:
Europe...................................... $410,944 $19,297 $223,820
Southern Asia (India)....................... 13,204 2,449 19,951
-------- ------- --------
1997:
Europe...................................... $412,298 $15,659 $107,493
Southern Asia (India)....................... 5,302 483 39,139
-------- ------- --------
1996:
Europe...................................... $176,427 $ 6,494 $ 83,917
-------- ------- --------
</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 Mexico and Chile were not material in either 1998 or 1997.

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, 1998 and 1997 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, 1998 and
1997 totalled $900 and $114,000, respectively.

A-17
<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, 1998 and 1997, and for
each of the years then ended (in thousands):

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Total cost (specific identification method)....................... $117 $117
Gross unrealized gains............................................ 2 190
Estimated fair value.............................................. 119 307
Gross realized gains.............................................. -- 686
Gross proceeds from sales......................................... -- 937
</TABLE>

Included in marketable securities at September 30, 1998 was a $16,059,200
deposit with a U.S. bank made under a managed investment program ($20,000,000
was on deposit with the same bank at September 30, 1997). 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, 1998 and 1997 were unbilled amounts
of $106,072,200 and $75,220,700, 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, 1998 and 1997 were contract retentions totaling
$11,808,000 and $5,708,100, 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, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land....................................................... $ 11,416 $ 12,983
Buildings.................................................. 33,440 38,876
Equipment.................................................. 133,379 114,127
Leasehold improvements..................................... 10,642 12,115
Construction in progress................................... 12,595 6,296
-------- --------
201,472 184,397
Less -- accumulated depreciation and amortization......... 100,907 90,996
-------- --------
$100,565 $ 93,401
======== ========
</TABLE>

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.

A-18
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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
$9,317,300 and $6,908,000 at September 30, 1998 and 1997, respectively.

Other noncurrent assets consisted of the following at September 30, 1998 and
1997 (in thousands):

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Prepaid pension costs....................................... $11,929 $11,509
Cash surrender value of life insurance policies............. 26,920 23,775
Investments................................................. 20,277 17,014
Notes receivable............................................ 1,785 14,602
Miscellaneous............................................... 2,760 4,536
------- -------
$63,671 $71,436
======= =======
</TABLE>

Net Income Per Share

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") has been computed by dividing net income by the weighted average
number of shares of common stock outstanding during each period presented.
Diluted EPS has been 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>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Weighted average shares outstanding (denominator used
to compute Basic EPS)................................. 25,689 25,727 25,613
Effect of employee and outside director stock options. 407 262 308
------ ------ ------
Denominator used to compute Diluted EPS............... 26,096 25,989 25,921
====== ====== ======
</TABLE>

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 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.

A-19
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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 increased, in a cash
transaction, its ownership interest from 40 percent to 51 percent 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
several engineering and construction companies comprising the Serete Group,
which is headquartered in France.

The sum of the individual purchase prices totalled $29,781,500. Each of
these acquisitions has 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 purchase price allocations resulted in goodwill of approximately
$39,035,700. 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, 1998, the Company had approximately $42,748,000 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 1999.

Other information regarding the lines of credit for the years ended
September 30, 1998, 1997 and 1996 follows (dollars in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Amount outstanding at year end..................... $ 217 $1,317 $ 694
Weighted average interest rate at year end......... 24.6% 8.23% 7.00%
Weighted average borrowings outstanding during the
year.............................................. $ 537 $ 183 $12,270
Weighted average interest rate during the year..... 11.54% 9.48% 7.10%
Maximum amount outstanding during the year......... $3,313 $1,368 $17,406
</TABLE>

The amount outstanding at September 30, 1998 and the weighted average
interest rate at year-end relate entirely to Chilean peso borrowings by the
Company's subsidiary in Chile.

A-20
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Long-term Debt and Credit Arrangements

Long-term debt consisted of the following at September 30, 1998 and 1997 (in
thousands):

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Borrowings under the Company's unsecured, $45,000 revolving
credit agreement........................................... $26,221 $38,050
Mortgage loan payable...................................... -- 16,045
------- -------
$26,221 $54,095
======= =======
</TABLE>

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 ($247,020,000 at September 30, 1998), 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.

The mortgage loan was incurred in connection with the purchase of the
Company's offices located in Dublin, Ireland. The loan was paid-off when the
Company sold the property in the fourth quarter of 1998.

Interest expense for the years ended September 30, 1998, 1997 and 1996 was
$2,356,400, $2,226,100 and $2,777,400, respectively, and has been included
with interest income in the accompanying consolidated statements of income.
Interest payments made during each of these years totalled $2,517,100,
$1,801,500 and $2,552,300, respectively.

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, 1998, 1997 and 1996 follows:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Aggregate purchase price................... $7,495,590 $7,067,700 $6,310,960
Shares purchased........................... 302,514 325,110 290,430
</TABLE>

At September 30, 1998, there were 692,966 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, 1998, there were 2,963,300 shares of
common stock reserved for issuance under the 1981 Plan.

A-21
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Information regarding the number of shares under options granted through the
1981 Plan for each of the years ended September 30, 1998, 1997 and 1996
follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at the beginning of fiscal:
1996..................................................... 1,576,059 $19.80
1997..................................................... 1,789,323 21.69
1998..................................................... 1,928,834 22.85
--------- ------
Options granted during fiscal:
1996..................................................... 406,000 $25.30
1997..................................................... 472,000 22.66
1998..................................................... 577,500 28.80
--------- ------
Options exercised during fiscal:
1996..................................................... 134,686 $10.96
1997..................................................... 270,969 15.35
1998..................................................... 216,904 18.78
--------- ------
Options expired or canceled during fiscal:
1996..................................................... 58,050 $20.72
1997..................................................... 61,520 20.46
1998..................................................... 74,980 23.50
--------- ------
Options outstanding at the the end of fiscal:
1996..................................................... 1,789,323 $21.69
1997..................................................... 1,928,834 22.85
1998..................................................... 2,214,450 24.79
========= ======
</TABLE>

Certain other information regarding the Company's stock options follows:

<TABLE>
<CAPTION>
1998 1997 1996
---------------- --------------- ---------------
<S> <C> <C> <C>
Range of option prices for
options outstanding at the end
of the year................... $16.58 to $31.94 $5.31 to $28.56 $5.31 to $28.56
Options exercisable at the end
of the year.................. 907,900 807,034 781,653
Range of exercise prices for
options exercised during the
year Option................... $5.31 to $27.88 $7.94 to $27.88 $4.25 to $25.84
Options available for grant at
the end of the year........... 748,850 1,266,370 484,350
Weighted-average fair value of
options granted during the
year.......................... $13.79 $10.83 $12.10
</TABLE>

A-22
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following tables present certain additional information regarding
options outstanding at September 30, 1998 (contractual life is expressed in
whole years):

OPTIONS OUTSTANDING AT SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
--------------------
REMAINING
RANGE OF CONTRACTUAL EXERCISE
EXERCISE PRICES NUMBER LIFE PRICE
--------------- --------- ----------- --------
<S> <C> <C> <C>
$16.56 - 18.50................................ 98,800 3 $17.47
$18.75 - 20.41................................ 208,650 4 $19.56
$20.45 - 22.39................................ 397,100 6 $20.91
$22.40 - 24.25................................ 348,700 8 $23.71
$24.27 - 25.98................................ 221,000 5 $25.06
$26.00 - 28.00................................ 521,200 6 $27.32
$28.10 - 30.00................................ 190,000 9 $28.55
$31.00 - 32.00................................ 229,000 9 $31.94
--------- --- ------
2,214,450 6 $24.79
========= === ======
</TABLE>

OPTIONS EXERCISABLE AT SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF EXERCISE
EXERCISE PRICES NUMBER PRICE
--------------- ------- --------
<S> <C> <C>
$16.56 - 18.50.............................................. 72,800 $17.45
$18.75 - 20.41.............................................. 111,100 $19.52
$20.45 - 22.39.............................................. 172,300 $20.95
$22.40 - 24.25.............................................. 95,700 $23.72
$24.27 - 25.98.............................................. 115,000 $24.96
$26.00 - 28.00.............................................. 304,000 $27.28
$28.10 - 30.00.............................................. 37,000 $28.34
$31.00 - 32.00.............................................. -- $ 0
------- ------
907,900 $23.71
======= ======
</TABLE>

Options outstanding at September 30, 1998 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.

During the years ended September 30, 1998, 1997 and 1996, the Company issued
12,000, 5,500 and 9,000 shares, respectively, of restricted stock under the
1981 Plan. 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 ($366,300, $329,900 and
$285,800 of compensation expense was recognized in 1998, 1997 and 1996,
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.

A-23
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 1998,
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>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Pro forma net income.............................. $50,418 $43,022 $39,218
Pro forma net income per share:
Basic............................................ 1.96 1.67 1.53
Diluted.......................................... 1.93 1.66 1.51
Assumptions used:
Dividend yield................................... 0% 0% 0%
Expected volatility.............................. 24.22% 21.57% 28.50%
Risk-free interest rate.......................... 5.62% 6.50% 6.48%
Expected life (years)............................ 7.4 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.

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, 1998, 1997 and 1996, Company
contributions to these plans totalled $9,568,700, $8,710,500 and $8,000,100,
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, 1998, 1997 and 1996 were $1,588,800, $1,672,600 and $1,781,200,
respectively. Included in other deferred liabilities in the accompanying
consolidated

A-24
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

balance sheets at September 30, 1998 and 1997 was $22,847,700 and $23,446,800,
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 $4,025,300, $2,694,700 and $3,538,900
for the years ended September 30, 1998, 1997 and 1996, 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, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Fair value of plan assets................................ $122,449 $97,984
-------- -------
Actuarial present value of benefit obligations (all
vested)................................................. 101,399 75,498
-------- -------
Accumulated benefit obligation........................... 101,399 75,498
Effect of projected compensation increases............... 4,458 3,478
-------- -------
Projected benefit obligation............................. 105,857 78,976
-------- -------
Plan assets in excess of projected benefit obligation.... 16,592 19,008
Unrecognized gains....................................... (4,663) (7,499)
-------- -------
Prepaid pension asset.................................... $ 11,929 $11,509
======== =======
</TABLE>

The components of net periodic pension cost for each of the years ended
September 30, 1998, 1997 and 1996 were as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service costs.................................. $ 2,451 $ 1,484 $ 1,258
Interest....................................... 6,468 6,621 5,624
Actual return on plan assets................... (19,899) (14,094) (14,242)
Net amortization and deferral.................. 11,640 6,074 7,418
-------- -------- --------
Net pension cost............................... $ 660 $ 85 $ 58
======== ======== ========
</TABLE>

The significant actuarial assumptions used in determining the funded status
of the plan were as follows: weighted average discount rate -- 6.5 percent;
weighted average rate of increase in compensation -- 4.5 percent; and,
weighted average rate of return on pension assets -- 7.0 percent. At September
30, 1998, 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.

A-25
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. PROVISION FOR INCOME TAXES

The Company's income tax expense includes income taxes currently payable,
and income taxes deferred due to the temporary differences between the
financial reporting and tax bases of its assets and liabilities.

Consolidated income tax expense for the years ended September 30, 1998, 1997
and 1996 consisted of the following (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Taxes currently payable:
Federal......................................... $25,873 $23,255 $22,927
State........................................... 4,729 4,515 5,316
Foreign......................................... 6,528 4,519 1,577
------- ------- -------
37,130 32,289 29,820
------- ------- -------
Taxes deferred:
Federal......................................... (2,340) (1,563) (2,768)
State........................................... (391) (172) (591)
------- ------- -------
(2,731) (1,735) (3,359)
------- ------- -------
$34,399 $30,554 $26,461
======= ======= =======
</TABLE>

Deferred tax assets and liabilities are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
The significant components of the Company's deferred tax assets (liabilities)
at September 30, 1998 and 1997 were as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Assets:
Liabilities relating to employee benefit plans........... $27,177 $24,306
Self-insurance reserves.................................. 8,838 10,395
Contract revenues and costs.............................. 10,481 8,018
Accruals for office consolidations and other special
charges................................................. 161 344
Other, net............................................... 150 50
------- -------
Total deferred tax assets................................ 46,807 43,113
------- -------
Liabilities:
Depreciation and amortization............................ (4,805) (3,809)
Unremitted foreign earnings.............................. (2,458) (2,065)
State income and franchise taxes......................... (1,732) (1,564)
Other, net............................................... -- (234)
------- -------
Total deferred tax liabilities........................... (8,995) (7,672)
------- -------
Net deferred tax asset.................................... $37,812 $35,441
======= =======
</TABLE>

Included in "Other deferred liabilities" in the accompanying consolidated
balance sheets at September 30, 1998 and 1997 are deferred tax liabilities of
$7,606,700 and $4,910,900, respectively.

A-26
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The reconciliations of the tax provisions recorded for the years ended
September 30, 1998, 1997 and 1996 to those based on the federal statutory rate
were as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Statutory amount.................................. $31,075 $27,107 $23,388
State taxes, net of the federal benefit........... 2,819 2,824 3,071
Other, net........................................ 505 623 2
------- ------- -------
$34,399 $30,554 $26,461
======= ======= =======
Rate used to compute statutory amount............. 35.00% 35.00% 35.00%
======= ======= =======
</TABLE>

For the years ended September 30, 1998, 1997 and 1996, the Company paid
approximately $26,240,900, $32,038,000 and $30,940,000, respectively, in
income taxes.

For the years ended September 30, 1998, 1997 and 1996, consolidated income
before income taxes included $26,591,300, $16,029,300 and $4,707,100,
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, 1998). Should these earnings
be repatriated, approximately $2,070,700 of income taxes would be payable.

7. COMMITMENTS AND CONTINGENCIES

The Company leases certain of its facilities and equipment under operating
leases with net aggregate future lease payments of approximately $105,152,400
at September 30, 1998 payable as follows (in thousands):

<TABLE>
<S> <C>
Year ending September 30,
1999............................................................. $ 27,856
2000............................................................. 24,317
2001............................................................. 17,961
2002............................................................. 13,447
2003............................................................. 11,649
Thereafter....................................................... 34,760
--------
129,990
Less -- amounts representing sublease income....................... 24,838
--------
$105,152
========
</TABLE>

Rent expense for the years ended September 30, 1998, 1997 and 1996 was
approximately $29,393,000, $29,978,000 and $27,190,200, respectively, and was
offset by sublease income of approximately $4,112,000, $2,780,000 and
$2,313,500, 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.

A-27
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company has entered into an employment agreement expiring September 30,
2003 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
project 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, 1998 totalled approximately
$53,839,600.

8. COMMON AND PREFERRED STOCK

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

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.

A-28
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. OTHER FINANCIAL INFORMATION

Accrued liabilities at September 30, 1998 and 1997 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accrued payroll and related liabilities................... $103,626 $ 86,330
Insurance liabilities..................................... 23,154 26,903
Other..................................................... 34,772 9,974
-------- --------
$161,552 $123,207
======== ========
</TABLE>

10. SUBSEQUENT EVENT

In December 1998, the Company signed an agreement and plan of merger with
the Sverdrup Corporation ("Sverdrup"). The agreement is subject to the
approval of the shareholders of Sverdrup, as well as the expiration or
termination of the Hart-Scott-Rodino Act waiting period. As a result of the
transactions contemplated in the merger agreement, Sverdrup Corporation will
become, upon closing of the transaction, a wholly-owned subsidiary of the
Company. Total consideration to be paid by the Company at closing will be
approximately $198,000,000. The Company intends to finance the merger price
through a combination of bank borrowings (under a new, long-term revolving
credit facility) and internal funds. The merger agreement also requires the
Company to pay additional cash consideration to the former shareholders of
Sverdrup at each of the first three anniversaries of closing if the stock
price of the Company exceeds certain minimum prices as specified in the merger
agreement. These future payments in total cannot exceed $31,000,000. The
merger will be accounted for as a purchase, and is expected to be completed
early in the second quarter of fiscal 1999.

A-29
<PAGE>

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. QUARTERLY DATA -- UNAUDITED

Summarized quarterly financial information for the years ended September 30,
1998, 1997 and 1996 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>
1998
Revenues......................... $506,359 $524,776 $525,034 $544,976 $2,101,145
Income before taxes.............. 21,001 21,838 22,753 23,192 88,784
Net income....................... 12,810 13,320 13,880 14,375 54,385
Earnings per share:
Basic........................... .50 .52 .54 .56 2.12
Diluted......................... .49 .51 .53 .55 2.08
Stock price:
High............................ 31.000 32.375 34.250 33.250 34.250
Low............................. 24.688 24.750 29.500 25.125 24.688
-------- -------- -------- -------- ----------
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
Earnings per share:
Basic........................... .42 .44 .47 .49 1.82
Diluted......................... .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
Earnings per share:
Basic........................... .37 .39 .40 .41 1.58
Diluted......................... .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
-------- -------- -------- -------- ----------
</TABLE>

Effective October 1, 1997, the Company adopted SFAS No. 128 -- Earnings per
Share. Earnings per share for prior years have been restated to conform to the
provisions of SFAS No. 128.

The Company's common stock is listed on the New York Stock Exchange. At
September 30, 1998, there were 1,352 shareholders of record.

A-30
<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, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1998.
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, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
November 4, 1998,
except for Note 10 as to which
the date is December 21, 1998

A-31
<PAGE>

MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING

The consolidated financial statements and other information included in this
appendix to this proxy statement 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 other financial information contained in this appendix 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-32

<PAGE>

EXHIBIT 21.

JACOBS ENGINEERING GROUP INC.

PARENTS AND SUBSIDIARIES

The following table sets forth all subsidiaries of the Company other than
subsidiaries that, when considered in the aggregate, would not constitute a
significant subsidiary, including the percentage of issued and outstanding
voting securities beneficially owned by the Company.

Jacobs Engineering Company, a California corporation 100.00%

Jacobs Engineering Group of Ohio, Inc., an Ohio corporation 100.00%

Jacobs Services Company, a California corporation 100.00%

Jacobs Engineering, Inc., a Delaware corporation 100.00%

Jacobs Computing Services Limited, A Republic of Ireland company 100.00%

Pegasus Engineering Holdings Limited, a Republic of Ireland company 100.00%

Jacobs/Pegasus Engineering Limited, a Republic of Ireland company 100.00%

Jacobs Sereland SA, a Spanish company 86.76%

Jacobs Sereland SA, an Argentinian company 100.00%

JE Finance, LLC, a Delaware company 100.00%

Jacobs France, SARL, a French company 100.00%

Jacobs Finance SA, a French company 100.00%

Jacobs Engineering SA, a French company 100.00%

Jacobs Serete SA a DCS, a French company 100.00%

3S SA, a French company 100.00%

Jacobs Serete Italia SPA, an Italian company 100.00%

Jacobs Construction Management (Malaysia) Sdn. Bhd.,
a Malaysian company 100.00%

Jacobs Engineering Singapore Pte. Ltd., a Singapore company 100.00%

Jacobs Pan American Corp., a Virgin Islands company 100.00%

Jacobs International Limited, Inc., a Panama corporation 100.00%

Jacobs International Limited, a Republic of Ireland company 100.00%

Jacobs Engineering Limited, an English company 100.00%

JE Professional Resources Limited, an English company 100.00%

Jacobs/H&G Engineering Limited, an English company 100.00%

Jacobs/Humphreys & Glasgow Limited, an English company 100.00%

Jacobs H&G Limited, an Indian company 69.98%

HGC Constructors, Ltd., an Indian company 56.00%

Niryaat Overseas (India) Ltd., an Indian company 100.00%

Jacobs Constructors, Inc., a Louisiana corporation 100.00%

Jacobs Constructors of California Inc., a California corporation 100.00%

Jacobs Maintenance, Inc., a Louisiana corporation 100.00%

JE Merit Constructors, Inc., a Texas corporation 100.00%

JE Remediation Technologies, Inc., a Louisiana corporation 100.00%

JE Professional Resources, Inc., a California corporation 100.00%

The Pace Consultants, Inc., a Texas corporation 100.00%

Payne & Keller Company, Inc., a Louisiana corporation 100.00%

Jacobs Applied Technology, Inc., a Delaware corporation 100.00%

Applied Engineering Company - Ohio, Inc., a South
Carolina corporation 100.00%

Triad Technologies, Inc., a Delaware corporation 100.00%
<PAGE>

KDW Engineering, Inc., a California corporation 100.00%

Willow Street Properties, Inc., a California corporation 100.00%

CRSS Constructors, Inc., a Delaware corporation 100.00%

CRSS International, Inc., a South Carolina corporation 100.00%

CRSS of New York, Inc., a New York corporation 100.00%

Jacobs Engineering Foreign Sales Corporation, a Barbados corporation 100.00%

Jacobs Engineering, S.A. de C.V., a Mexican corporation 100.00%

Jacobs Engineering, S.A., a Chile corporation 100.00%

Rocky Flats Closure Site Services LLC, a Delaware company 100.00%

All subsidiaries and affiliates are included in the Consolidated Financial
Statements.

Dr. Joseph J. Jacobs may be deemed to be a "parent" of Jacobs Engineering
Group Inc. under the federal securities laws. Refer to Item 12 of the
accompanying report on Form 10-K for information about Dr. Jacobs' share
ownership and position with the Company.

<PAGE>

EXHIBIT 23.

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Jacobs Engineering Group Inc. of our report dated November 4, 1998, except as
to Note 10 as to which the date is December 21, 1998, included in Appendix A to
the Company's 1999 Annual Notice and Proxy Statement.

We also consent to the incorporation by reference in both the Registration
Statement (Form S-8 No. 33-45914) pertaining to the Jacobs Engineering Group
Inc. 1981 Executive Incentive Plan and in the Registration Statement (Form S-8
No. 333-01317) pertaining to the Jacobs Engineering Group Inc. 1989 Employee
Stock Purchase Plan of our report dated November 4, 1998, except as to Note 10
as to which the date is December 21, 1998, with respect to the consolidated
financial statements of Jacobs Engineering Group Inc. and subsidiaries
incorporated by reference in the Annual Report (Form 10-K) for the year ended
September 30, 1998.

ERNST & YOUNG LLP

Los Angeles, California
December 28, 1998

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 101,328
<SECURITIES> 16,482
<RECEIVABLES> 394,841
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 566,007
<PP&E> 201,472
<DEPRECIATION> 100,907
<TOTAL-ASSETS> 807,489
<CURRENT-LIABILITIES> 368,348
<BONDS> 0
25,867
0
<COMMON> 0
<OTHER-SE> 345,538
<TOTAL-LIABILITY-AND-EQUITY> 807,489
<SALES> 0
<TOTAL-REVENUES> 2,101,145
<CGS> 0
<TOTAL-COSTS> 1,830,618
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,736)
<INCOME-PRETAX> 88,784
<INCOME-TAX> 34,399
<INCOME-CONTINUING> 54,385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,385
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.08

</TABLE>