<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Jacobs Engineering Group Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF JACOBS ENGINEERING (R)]
Notice of 1999
Annual Meeting of Shareholders
Proxy Statement
Annual Financial Statements and
Review of Operations
<PAGE>
JACOBS ENGINEERING GROUP INC.
1111 SOUTH ARROYO PARKWAY
PASADENA, CALIFORNIA 91105
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT
TO OUR SHAREHOLDERS
The Annual Meeting of Shareholders of Jacobs Engineering Group Inc. will be
held on Tuesday, February 9, 1999, at 3:30 p.m. at 1111 South Arroyo Parkway,
Pasadena, California, for the following purposes:
1. To elect three directors to hold office until the 2002 annual meeting;
2. To approve amendments to the 1989 Employee Stock Purchase Plan, including a
500,000 share increase and an extension of the Plan to March 31, 2009;
3. To approve the appointment of Ernst & Young LLP as auditors for the year
ending September 30, 1999; and
4. To act upon such other matters as may properly come before the meeting.
The shareholders of record at the close of business on January 4, 1999, will
be entitled to vote at such meeting and any adjournment thereof. This notice
and proxy statement and the accompanying proxy are being mailed to such
shareholders on or about January 8, 1999. The stock transfer books will not
close.
By Order of the Board of Directors
ROBERT M. BARTON
Secretary
Dated: January 4, 1999
YOU ARE URGED TO DATE, SIGN, AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE
ENVELOPE PROVIDED.
PLEASE NOTE THE ADDRESS WHERE THE ANNUAL MEETING WILL BE HELD
<PAGE>
JACOBS ENGINEERING GROUP INC.
1111 SOUTH ARROYO PARKWAY
PASADENA, CALIFORNIA 91105
----------------
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of Jacobs Engineering Group Inc., a Delaware corporation
(the "Company"), of proxies to be used at the annual meeting of shareholders
of the Company to be held on February 9, 1999, and any adjournment thereof.
The expense of the solicitation will be paid by the Company. Some officers and
regular employees may solicit proxies personally and by telephone if deemed
necessary. The proxy is revocable by you by written notice to the Secretary of
the Company at any time prior to the exercise of the authority granted thereby
or by your being present at the meeting and electing to vote in person.
The holders of common stock of record at the close of business on January 4,
1999, the record date fixed by the Board of Directors (the "Record Date"),
will be entitled to one vote per share on all business of the meeting. This
proxy statement and the accompanying proxy are being mailed on or about
January 8, 1999, to the shareholders of record on the Record Date. As of the
Record Date the Company had 25,641,040 shares of common stock outstanding.
In connection with the solicitation of proxies by the Board of Directors for
the Annual Meeting of Shareholders, the Board of Directors has designated
Joseph J. Jacobs, Noel G. Watson and Robert M. Barton as proxies. Shares
represented by all properly executed proxy cards received in time for the
meeting will be voted in accordance with the choice specified on the proxy
card. Unless contrary instructions are indicated on the proxy card, the shares
of common stock will be voted FOR the election of the nominees listed below
under "1. Election of Directors". Where no choice is specified, the shares of
common stock will be voted FOR the amendments to the 1989 Employee Stock
Purchase Plan described below under "2. Approval of Amendments to the 1989
Employee Stock Purchase Plan," and FOR the appointment of Ernst & Young LLP as
the independent auditors for the Company for the year ending September 30,
1999, as described under "3. Approval of Ernst & Young LLP as Auditors",
below. The Board of Directors is not aware of any other issue to be brought
before the meeting. If other matters are properly brought before the meeting,
then the proxies will vote in accordance with their best judgment.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of common stock will constitute a quorum for the
transaction of business at the meeting.
For purposes of the quorum and the discussion below regarding the vote
necessary to take shareholder action, shareholders of record who are present
at the meeting in person or by proxy and who abstain, including brokers
holding customers' shares of record who cause abstentions to be recorded at
the meeting, are considered shareholders who are present and entitled to vote
and they count toward the quorum.
Brokers holding shares of record for customers generally are not entitled to
vote on certain matters unless they receive voting instructions from their
customers. As used herein, "uninstructed shares" means shares held by a broker
who has not received instructions from its customers on such matters and the
broker has so notified the Company on a proxy form in accordance with industry
practice or has otherwise advised the Company that it lacks voting authority.
As used herein, "broker non-votes" means the votes that could have been cast
on the matter in question by brokers with respect to instructed shares if the
brokers had received their customers' instructions.
Directors are elected by a plurality, and the three nominees who receive the
most votes will be elected. Abstentions and broker non-votes will not be taken
into account in determining the outcome of the election.
1
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To be adopted, Proposals 2 and 3 in this Proxy Statement must receive the
affirmative vote of the majority of the shares present in person or by proxy
at the meeting and entitled to vote. Uninstructed shares are not entitled to
vote on this matter, and, therefore, broker non-votes do not affect the
outcome. Abstentions have the effect of negative votes.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables, based in part upon information supplied by officers,
directors and principal shareholders, set forth certain information regarding
the ownership of the common stock of the Company as of the Record Date by (i)
all those persons known by the Company to be beneficial owners of more than
five percent of the outstanding common stock of the Company; (ii) each
director; (iii) each executive officer named in the compensation tables, below
("Named Executive Officer"); and (iv) all officers and directors of the
Company as a group. Unless otherwise indicated, each of these shareholders has
sole voting and investment power with respect to the shares beneficially
owned, subject to community property laws where applicable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (a)
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OWNERSHIP CLASS
---------------- ---------- ----------
<S> <C> <C>
Joseph J. Jacobs..................................... 3,635,000(b) 14.18%(b)
1111 South Arroyo Parkway
Pasadena, California 91105
</TABLE>
- --------
(a) Security ownership information for beneficial owners is taken from
statements filed with the Securities and Exchange Commission pursuant to
Sections 13(d), (f) and (g) of the Securities Exchange Act of 1934, as
amended, and information made known to the Company.
(b) Dr. Jacobs has sole voting and dispositive power over all shares except
5,000 shares that are owned by the Jacobs Family Foundation as to which he
shares voting and dispositive power.
2
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND NAMED EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
AMOUNT OF
COMMON STOCK UNEXERCISED PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(a) OPTIONS(b) TOTAL OF CLASS(c)
- ------------------------ --------------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
DIRECTORS (EXCLUDING
OFFICERS):
Joseph F. Alibrandi..... 2,000 5,400 7,400 *
Peter H. Dailey......... 2,000 5,400 7,400 *
Robert B. Gwyn.......... 1,000(d) 3,400 4,400(d) *
Linda K. Jacobs......... 196,635(e) 5,400 202,035(e) 0.79%
James Clayburn LaForce.. 2,625 5,400 8,025 *
Dale R. Laurance........ 1,000 4,400 5,400 *
Linda Fayne Levinson.... 0 2,150 2,150 *
David M. Petrone........ 10,000 5,400 15,400 *
James L. Rainey, Jr. ... 1,450(f) 4,150 5,600(f) *
NAMED EXECUTIVE OFFICERS
Joseph J. Jacobs........ 3,635,000(e) -- 3,635,000(e) 14.18%
Noel G. Watson.......... 176,226 188,000 364,226 1.42%
William R. Kerler....... 37,307 57,400 94,707 0.37%
Richard J. Slater....... 35,303 43,800 79,103 0.31%
Thomas R. Hammond....... 9,914 42,800 52,714 0.21%
All directors and
executive officers
as a group............. 4,280,542(g) 703,400 4,983,942(g) 19.44%
</TABLE>
- --------
* Less than 0.1%
(a) Ownership is direct unless indicated otherwise.
(b) Includes only unexercised options exercisable within 60 days following the
date of this proxy statement.
(c) Calculation is based on 25,641,040 shares of Common Stock outstanding as
of January 4, 1999.
(d) Includes 1,000 shares held in a family limited partnership over which Mr.
Gwyn has voting and dispositive power.
(e) Includes 5,000 shares held by the Jacobs Family Foundation as to which Dr.
Linda K. Jacobs and Dr. Joseph J. Jacobs share voting and dispositive
power with the directors and other officers of such Foundation.
(f) Includes 750 shares held in a trust for the benefit of Mr. Rainey's spouse
as to which Mr. Rainey shares voting and dispositive power.
(g) Includes 12,000 shares owned by five Executive Officers which are subject
to certain restrictions as to transferability.
1. ELECTION OF DIRECTORS
The bylaws of the Company presently provide for twelve directors. The
Certificate of Incorporation and the bylaws of the Company divide the Board of
Directors into three classes with the terms of office of the directors of each
class ending in different years: The terms of Classes I, II and III presently
end at the annual meetings in 2000, 2001 and 1999, respectively. Class I has
four directors, Class II has five directors, and Class III has three
directors.
The nominees for Class III are to be voted upon at this annual meeting. The
directors in Classes I and II will continue in office until expiration of
their respective terms. The Board of Directors has nominated Dr. Joseph J.
Jacobs, Dr. Dale R. Laurance and Linda Fayne Levinson for election as Class
III directors for three year terms expiring at the 2002 annual meeting.
The persons named as proxies on the accompanying proxy card intend to vote
the shares as to which they are granted authority to vote for the election of
the nominees listed above. The proxies may not vote for a greater number of
persons than three.
3
<PAGE>
Although the Board of Directors does not know of any reason why any nominee
will be unavailable for election, in the event any nominee should be
unavailable at the time of the meeting, the proxies may be voted for a
substitute nominee as selected by the Board of Directors.
The following table sets forth information about these nominees and the
directors whose terms of office do not expire at the 1999 annual meeting.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITIONS HELD WITH THE COMPANY CLASS SINCE
---------------------------------------- ----- --------
<S> <C> <C>
JOSEPH J. JACOBS, Chairman of the Board and Director. Dr.
Jacobs, age 82, was chief executive officer of the Company and
its predecessors from 1957 until November 19, 1992. Dr. Jacobs
founded the Company as a sole proprietorship in 1947 and
incorporated it in 1957. ...................................... III 1974
NOEL G. WATSON, President, Chief Executive Officer and
Director. Mr. Watson, age 62, has been with the Company since
1965 and has been President and Chief Executive Officer of the
Company for more than the past five years. .................... I 1986
JOSEPH F. ALIBRANDI, Director. Mr. Alibrandi, age 70, has been
Chairman of the Board and Chief Executive Officer of Whittaker
Corporation for more than five years. Mr. Alibrandi is also a
director of Burlington Northern Southern Pacific Corp. and
Catellus Development Corporation. He was also a director of
BankAmerica Corporation and Bank of America, N.T.&S.A. from
April 1992 to September 1998. ................................. II 1988
THE HON. PETER H. DAILEY, Director. Mr. Dailey, age 68, is
Chairman of Enniskerry Financial, a private investment firm. He
is also Chairman of the Board and a director of Fedco, Inc. He
was formerly U.S. Ambassador to Ireland and Special Envoy to
NATO. Prior to government service, he was Vice-chairman of
Interpublic Group of the Dailey International Group. He is a
Director of Chicago Title and Trust, Pinkerton's, Inc.,
Sizzler, Inc. and Wirthlin Worldwide. ......................... II 1991
ROBERT B. GWYN, Director. Mr. Gwyn, age 59, is retired. He was
a Managing Director of Amaryn Group, a private investment
company, from 1994 until 1998. He was President, CEO and
Chairman of the Board of Agricultural Minerals and Chemicals,
Inc., a company engaged in the fertilizer and methanol
businesses, from 1990 until 1994, when that company was sold. . II 1995
LINDA K. JACOBS, Director. Dr. Linda K. Jacobs, age 51, is
President of Middle East Technology Assistance, a non-profit
corporation. From 1985 until 1993 she was a principal in
Jabara-Jacobs Associates, a consulting firm. She is a daughter
of Dr. Joseph J. Jacobs. ...................................... II 1986
WILLIAM KERLER, Executive Vice President of Operations and
Director. Mr. Kerler, age 69, has been an executive officer of
the Company since 1985. ....................................... II 1998
JAMES CLAYBURN LAFORCE, Director. Dr. LaForce, age 70, was Dean
of the Anderson Graduate School of Management, University of
California at Los Angeles from 1978 until 1993, when he
retired. Dr. LaForce is a director of Rockwell International
Corporation, Imperial Credit Industries, Inc., Blackrock Funds,
The Timken Company, Motor Cargo Industries, Inc., Provident
Investment Counsel Mutual Funds and Payden and Rygel Investment
Trust. ........................................................ I 1987
DALE R. LAURANCE, Director. Dr. Laurance, age 53, is the
president and a director of Occidental Petroleum Corporation
where he has been an executive since 1983. Dr. Laurance is also
a director of Canadian Occidental Petroleum, Ltd., Leslie's
Poolmart, Inc., the Chemical Manufacturers Association, and the
American Petroleum Institute. ................................. III 1994
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AND POSITIONS HELD WITH THE COMPANY CLASS SINCE
---------------------------------------- ----- --------
<S> <C> <C>
LINDA FAYNE LEVINSON, Director. Ms. Levinson, age 56, is a
Principal of Global Retail Partners, L.P., a venture capital
firm that invests in early stage internet and retail companies.
Ms. Levinson served as President of Fayne Levinson Associates
from 1982 until January 1998. Ms. Levinson was an executive at
Creative Artists Agency, Inc. from 1993 through February 1994
and was a partner of Wings Partners, a Los Angeles-based
merchant bank, from 1989 until 1993. From 1984 until 1987 Ms.
Levinson was a Senior Vice President of American Express Travel
Related Services Co., Inc., and from 1972 through 1981 she was
at McKinsey & Co., a worldwide general management consulting
firm, where she became the first woman partner in 1979. Ms.
Levinson also serves as a member of the Boards of Genentech
Inc., NCR Corporation, Administaff, Inc. and Beyond.com., Inc. . III 1996
DAVID M. PETRONE, Director. Mr. Petrone, age 54, is Chairman of
Housing Capital Company, a real estate lending firm. He was Vice
Chairman of Wells Fargo & Co. from 1986 until March 1, 1992. He
is a director of Alexandria Real Estate Equities, Inc., Spieker
Properties, Inc. and Finelite, Inc. ............................ I 1987
JAMES L. RAINEY, JR., Director. Mr. Rainey, age 69, is retired.
He was President and Chief Executive Officer of Farmland
Industries, Inc., an agricultural cooperative, from 1986 until
1991. Mr. Rainey is a director of ITEQ, Inc., Wirthlin Worldwide
and Enviro Nutrients, Inc. ..................................... I 1993
</TABLE>
Board Committees. The Board has two standing committees. The Audit Committee
advises the Board on internal and external audit matters affecting the
Company, including recommendations as to the appointment of the independent
auditors of the Company; reviews with such auditors the scope and results of
their examination of the financial statements of the Company and any
investigations by such auditors. During fiscal 1998 the Audit Committee held
two meetings. The members of the Audit Committee are Messrs. Petrone
(Chairman), Alibrandi, Dailey and Rainey and Dr. Linda K. Jacobs.
The Compensation and Benefits Committee approves the salaries and bonuses of
the executive officers and approves all grants of stock options and awards of
restricted stock under the Company's 1981 Executive Incentive Plan other than
options issued under the Outside Director Stock Option provisions of that
Plan. The Compensation and Benefits Committee also administers the 1989
Employee Stock Purchase Plan, and approves the employment contract between the
Company and Dr. Joseph J. Jacobs. During fiscal 1998 this committee held
eleven meetings. The members of the Compensation and Benefits Committee are
Dr. LaForce (Chairman) and Ms. Levinson, Mr. Gwyn and Dr. Laurance.
Compensation of Directors. The Company pays directors who are not employed
by the Company ("Outside Directors") a retainer at the rate of $25,000 per
year plus a fee of $1,000 for each meeting of the board and each committee on
which they serve that they attend. Pursuant to the terms of the Outside
Director Stock Option Plan, each of the Outside Directors receive an option
for 2,000 shares of common stock on the date of their first election to the
Board and also receive an option for 1,000 shares at an option price equal to
the Fair Market Value (as defined in the Plan) of the common stock on the
first day of March of each year.
The Board of Directors held nine meetings during the year ended September
30, 1998. All directors attended at least 75% of all meetings of the Board of
Directors and of the committees on which they served during fiscal 1998.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU GRANT THE PROXIES AUTHORITY TO
VOTE FOR DRS. JACOBS AND LAURANCE AND MS. LEVINSON AS DIRECTORS.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and long-
term compensation of the Chief Executive Officer and the other four most
highly compensated officers ("Named Executive Officers") of the Company for
services in all capacities to the Company and its subsidiaries during its
1996, 1997 and 1998 fiscal years:
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION
-------------------- OTHER ANNUAL ------------
COMPENSATION OPTIONS/SARS
NAME YEAR SALARY ($) BONUS ($) ($)(2) (SHARES)(3) OTHER(4)
- ---- ---- ---------- --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Noel G. Watson.......... 1998 591,160 542,350 7,420 100,000 5,120
Chief Executive Officer 1997 540,630 516,680 27,670 50,000 4,910
1996 516,670 453,510 28,340 60,000 4,630
Joseph J. Jacobs........ 1998 432,200 450,000 -- -- --
Chairman of the Board 1997 432,200 400,000 -- -- --
1996 432,200 -- -- -- --
William R. Kerler....... 1998 370,810 340,200 3,250 12,000 5,120
Executive Vice 1997 346,880 331,520 14,360 15,000 4,930
President 1996 318,760 279,790 14,360 15,000 4,630
Richard J. Slater....... 1998 297,040 219,740 2,430 59,000 5,160
Executive Vice 1997 271,320 194,470 9,870 10,000 4,930
President 1996 254,670 167,660 10,220 10,000 4,630
Thomas R. Hammond....... 1998 294,850 218,230 1,230 59,000 5,000
Executive Vice 1997 265,880 190,570 4,940 10,000 5,660
President 1996 239,590 157,730 4,890 10,000 4,750
</TABLE>
- --------
(1) Represents amounts earned by the named executive during the year
indicated, and includes amounts deferred under the Jacobs Engineering
Group Inc. 401(k) Plus Savings Plan and Trust (the "401(k) Plan") and the
Company's nonqualified Executive Deferral Plans (the "EDPs").
(2) These amounts represent interest credited to the employees' deferred
compensation account balance under the EDPs in excess of 120% of the
applicable federal rate in effect at the times the interest crediting
rates were set for the EDPs.
(3) Consists solely of non-qualified stock options pursuant to the 1981 Plan.
(4) Consists solely of Company contributions to the 401(k) Plan.
6
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company's 1981 Executive Incentive plan permits the grant of options and
stock appreciation rights to employees of, and consultants and advisors to,
the Company and its subsidiaries, including officers and directors who are
serving in such capacities. The following table contains information
concerning options granted during the fiscal year 1998 to the only Named
Executive Officers who were granted options that year. No stock appreciation
rights have been granted to date.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
MARKET ASSUMED ANNUAL RATES OF STOCK
EXERCISE PRICE ON PRICE APPRECIATION FOR OPTION TERM
OPTIONS PERCENTAGE OR BASE DATE OF (10 YRS.)
GRANTED OF TOTAL PRICE GRANT EXPIRATION -----------------------------------
NAME (SHARES) (1) (2) ($/SHARE) ($/SHARE) DATE 0% ($) 5% ($) 10% ($)
- ---- ------------ ---------- --------- --------- ---------- ------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noel G. Watson.......... 100,000 17.32% 31.938 31.938 26-Mar-08 -- 2,008,530 5,090,010
William R. Kerler....... 12,000 2.08% 31.938 31.938 26-Mar-08 -- 241,020 610,800
Richard J. Slater....... 9,000 1.56% 31.938 31.938 26-Mar-08 -- 180,770 458,110
50,000 8.66% 28.563 28.563 10-Aug-08 -- 898,140 2,276,060
Thomas R. Hammond....... 9,000 1.56% 31.938 31.938 26-Mar-08 -- 180,770 458,110
10,000 1.73% 24.278 24.278 10-Aug-08 -- 152,680 386,930
50,000 8.66% 28.563 28.563 10-Aug-08 -- 898,140 2,2760,060
Gain for all shareholders (based on 25,612,770 shares outstanding at September 30,
1998, and a September 30, 1998 closing price of $31.000 per share)................... $499,339,740 $1,265,424,930
============ ==============
Gain to Named Executive Officers as a percent of total gain to all shareholders....... 0.95% 0.95%
============ ==============
</TABLE>
- -------
(1) All grants were non-qualified options pursuant to the 1981 Plan.
(2) Calculation based upon grants of options for 577,500 shares during fiscal
1998
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION SAR VALUES
The following table sets forth information regarding option exercises during
the fiscal year 1998 by the Named Executive Officers and the value of their
unexercised options of September 30, 1998. All options were granted under the
1981 Executive Incentive Plan. The Company has not granted any stock
appreciation rights.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
TOTAL NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT FYE (SHARES) OPTIONS AT FYE ($)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISES ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Noel G. Watson.......... 24,000 341,760 146,000 200,000 820,693 624,750
William R. Kerler....... 16,000 213,840 57,400 40,600 456,155 199,387
Richard J. Slater....... -- -- 43,800 80,200 335,443 279,787
Thomas R. Hammond....... 3,500 50,059 42,800 88,200 273,125 319,644
</TABLE>
7
<PAGE>
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The overall objectives of the Company's executive compensation program are
as follows:
--To enable the Company to attract, motivate and retain highly-qualified
executives by offering competitive base salaries that are consistent with the
Company's size.
--To reward executives for past performance through a bonus program that
places a substantial component of their pay at risk based on Company
performance as measured by its return on net equity.
--To provide an incentive for continued service and future performance
through the use of stock options.
--To encourage executives to have an equity ownership in the Company.
The Company has no pension plan, but all eligible employees, including
executives, may participate in the Company's Thrift Savings Retirement ((S)
401(k)) Plan and the 1989 Employee Stock Purchase Plan.
The Compensation Committee of the Board of Directors is responsible for
reviewing and approving the compensation of all executive officers and all
stock option grants to all employees.
Base Salary. In setting executive officer base salaries for fiscal 1998 the
Committee considered the recommendations of Dr. Jacobs and Mr. Watson, who
made salary recommendations as to all executive officers except themselves,
the Committee's own subjective evaluations of those executive officers, the
salary spread that has normally been maintained by the Company between levels
of management, and information compiled by the Company regarding prevailing
salaries for professional engineers being offered by companies that the
Company regards as its competitors.
The Committee also considered a study by an outside compensation and
benefits consulting company that it had commissioned. The consulting company
reviewed the compensation and benefits of the Company's executive officers
against two peer groups that were developed by the consulting company: an
industry peer group and a peer group with market capitalization levels between
$800 million and $1.2 billion. The consultants concluded that the industry
peer group would provide information regarding the competitive pay structure
of the Company's direct competitors, while the market capitalization peer
group would provide information regarding the competitive pay structure for
companies employing similar resources.
The consultants approached their analysis using two methods: First, they
compared the Company's top five officers (ranked by total cash compensation)
to the top five officers in the industry and market capitalization groups.
Second, they compared the compensation levels of the CEO and the Executive
Vice President of Operations to the top two positions in both the industry and
market capitalization groups, and the remaining executive officers of the
Company to the fifth highest paid position in both peer groups. Lastly, the
consultants compared the compensation levels of all of the Company's executive
officers to certain published survey information.
Mr. Watson's base salary for 1998 was established in the same manner as the
base salaries of the other executive officers of the Company. The Committee
believes that the total salary and bonus paid to Mr. Watson and each of the
Named Executive Officers was reasonable in light of the performance of the
Company for fiscal 1998.
Dr. Jacobs was the Chief Executive Officer of the Company from its
organization in 1957 until he resigned that position in November 1992; he
continues to serve as Chairman of the Board and as a full-time employee of the
Company. The Company has an employment agreement, originally entered
8
<PAGE>
into on October 1, 1987, with Dr. Jacobs, described below under "Employment
Contracts and Termination of Employment and Change-in-Control Arrangements",
that establishes, among other matters, his base salary. The original agreement
received the approval of the Board of Directors of the Company in 1987,
without dissent and with Dr. Jacobs not voting. The Board subsequently
delegated all decisions regarding this agreement to the Committee, which has
approved subsequent amendments to it, including extensions of its term, which
now expires on September 30, 2003, but there has been no change to Dr. Jacobs'
base salary since 1987. The Committee has approved these amendments based on
its subjective judgment of Dr. Jacobs' past and continuing contributions to
the business strategy, marketing and reputation of the Company.
Annual Incentive Bonuses. Pursuant to the Company's Incentive Bonus Plan,
each year the Compensation Committee approves a target percentage of pre-tax
profits to the net equity of the Company that must be achieved before any
bonuses are paid. This target percentage is established on the basis of the
Committee's judgment of what constitutes a reasonable minimum return for the
shareholders on their investment in the Company. If pre-tax profits exceed the
target, then a predetermined percentage of profits in excess of the target is
placed in the bonus pool; if pre-tax earnings exceed two times the target,
then a larger percentage of the excess is placed into the bonus pool. A major
percentage of the bonus pool is allocated to the officers and key managers of
the Company. Fifty percent of the allocation to the officers and key employees
is then individually allocated to them in proportion to their weighted
salaries, with the salaries of the executive officers given the greatest
weight. The remainder of the executive officer pool is usually allocated in
the same proportions as the initial allocations, but individual allocations
are in some cases adjusted on the basis of the Committee's subjective
evaluations of individual performance. Generally, bonuses are paid in three
annual installments contingent upon continued employment and may be further
deferred by participants in the Company's deferred compensation plans.
Stock Options. In determining stock option awards to executive officers for
1998 the Committee considered Dr. Jacobs' and Mr. Watson's recommendations
with respect to all executive officers other than themselves, the Committee's
own subjective evaluations of the executive officers and previous option
awards to the executive officers. The Committee also considered the stock
option awards made by three of the largest competitors of the Company that are
public companies (Fluor, Foster Wheeler and Morrison-Knudsen) to their
executive officers as a percent of outstanding shares. In general, option
grants by the Company as a percentage of outstanding shares have been the
second highest in the named group, but the Committee considered the fact that
the Company is the only company in the group that has no pension plan in
evaluating the significance of its ranking in the group.
The number of options granted to Mr. Watson for 1998 was determined by the
Committee in the same manner as the option grants to the other executive
officers. Dr. Jacobs has never been eligible for stock options by reason of
his percentage interest in the outstanding stock of the Company.
Tax Deductibility Considerations. In 1993, the Internal Revenue Code was
amended to limit the deductibility of certain compensation and to the chief
executive officer and the four highest paid executive officers in excess of $1
million to each of them. The Committee believes that the compensation payable
for fiscal year 1999 will not result in any loss of tax deductions for the
Company. It is the Committee's intent to adopt policies to obtain maximum
deductibility of executive compensation, consistent with the objectives of the
Company's executive compensation program outlined above. The Committee will
continue to monitor the regulations issued by the IRS under this provision as
they are finalized to determine whether any program changes are appropriate.
JAMES CLAYBURN LAFORCE, Chairman
ROBERT B. GWYN
DALE R. LAURANCE
LINDA FAYNE LEVINSON
9
<PAGE>
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS
PERFORMANCE GRAPHS
The following graphs show the changes over the past five- and ten-year
periods in the value of $100 invested in (1) the common stock of Jacobs
Engineering Group Inc.; (2) the Standard & Poor's 500 Index; and (3) the Dow
Jones Heavy Construction Group Index. The values of each investment are based
on share price appreciation, with reinvestment of all dividends (assuming any
were paid). For each graph, the investments are assumed to have occurred at
the beginning of each period presented.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG JACOBS ENGINEERING GROUP INC., THE S&P 500 INDEX, AND
THE DOW JONES HEAVY CONSTRUCTION GROUP INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------------------------
9/93 9/94 9/95 9/96 9/97 9/98
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Jacobs................................ 100.00 104.84 106.99 96.77 131.72 133.33
S&P 500............................... 100.00 103.69 134.53 161.89 227.37 247.93
Dow Jones Heavy Construction.......... 100.00 111.36 120.76 129.53 133.58 95.29
</TABLE>
10
<PAGE>
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN*
AMONG JACOBS ENGINEERING GROUP INC., THE S&P 500 INDEX, AND
THE DOW JONES HEAVY CONSTRUCTION GROUP INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
9/88 9/89 9/90 9/91 9/92 9/93 9/94 9/95 9/96 9/97 9/98
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jacobs.................. 100.00 122.15 184.81 559.49 589.87 470.89 493.67 503.80 455.70 620.25 627.85
S&P 500................. 100.00 133.01 120.71 158.34 175.83 198.69 206.02 267.30 321.66 451.76 492.63
Dow Jones Heavy
Construction........... 100.00 137.12 136.91 164.52 169.75 172.72 192.35 208.59 223.72 230.73 164.59
</TABLE>
- -------
* The cumulative total return information used to prepare the preceding graphs
was provided by Research Data Group, Inc.
11
<PAGE>
2. APPROVAL OF AMENDMENTS TO THE 1989 EMPLOYEE STOCK PURCHASE PLAN
There will be presented to the meeting a proposal to approve the 1989
Employee Stock Purchase Plan (the "Stock Purchase Plan" or the "Plan") as it
has been amended by action of the Board of Directors. These amendments include
an extension of the termination date of the Stock Purchase Plan to March 31,
2009 and an increase in the number of shares reserved for the Stock Purchase
Plan of 500,000 shares of Common Stock. The complete text of the Stock
Purchase Plan reflecting all amendments approved by the Board of Directors
will be found in Exhibit I to this Proxy Statement. The following discussion
is qualified in all respects by reference to Exhibit I.
The Stock Purchase Plan was originally adopted by the Board of Directors on
December 15, 1988, and by the shareholders on February 14, 1989. When the
Stock Purchase Plan was adopted in 1989 the shareholders reserved 200,000
shares of Common Stock. The 200,000 shares was subsequently increased by two
two-for-one stock splits to 800,000 shares. In 1992 the shareholders approved
an increase in the number of shares reserved for the Plan of 606,777 shares,
and in 1996 the shareholders approved an additional increase in the number of
shares reserved for the Plan of 1,500,000. As a result, a total of 2,906,777
shares has been reserved for the Stock Purchase Plan. Of these shares a total
of 2,213,811 shares has been purchased by employees. The amended Plan being
presented to the shareholders reflects the addition of 500,000 shares to the
reserve, and shows a total of 692,966 shares reserved for the Plan.
PURPOSE OF THE PLAN
The Board of Directors believes that the opportunity for all eligible, full-
time employees to acquire shares of common stock of the Company through
participation in the Stock Purchase Plan provides an important incentive to
the employees of the Company and that the Stock Purchase Plan assists the
Company in attracting new employees.
ADMINISTRATION
The Stock Purchase Plan is administered by Compensation and Benefits
Committee of the Board of Directors (the "Committee"). The members of the
Committee must be directors who are not eligible to receive options under the
Stock Purchase Plan or awards of stock, stock options or stock appreciation
rights under any other plan of the Company other than automatic option grants
under the Outside Director Stock Option Plan, and who have not been eligible
to receive such options or other awards for at least one year prior to their
service on the Committee. The Committee is authorized to construe and
interpret the Stock Purchase Plan, to prescribe rules and regulations for its
administration and to take any other necessary action in relation to the Plan.
ELIGIBILITY
All employees of the Company and its domestic subsidiaries and all employees
of any foreign subsidiaries designated from time to time by the Board of
Directors, except employees who normally work fewer than 20 hours each week or
five or fewer months during any fiscal year and employees who have completed
less than one year of service with the Company or a participating subsidiary,
receive options under the Plan. Any employee who would own five percent or
more of the common stock immediately after an option is granted will not be
eligible to receive options. At January 1, 1999 approximately 10,500 employees
were eligible to receive options under the Stock Purchase Plan.
TERMS OF OPTIONS
The Stock Purchase Plan permits eligible employees of the Company to
purchase shares of common stock from the Company by electing to exercise
options to purchase common stock. These
12
<PAGE>
options are granted in the form of successive six-month options on March 1 and
September 1 of each year. An employee may exercise an option in amounts based
upon a percentage of his or her salary or wages ranging from 2% to 15% of
basic compensation. An employee may elect to participate or not to participate
on each March 1 and September 1 commencement date. The Company will make
withholdings from the employee's salary or wages during the six-month term of
the option, and the employee's purchases of the shares are effected without
any further action on the part of the employee at the completion of the six-
month period. If an employee ceases to be an employee for any reason during
any six-month period, then that employee's option will immediately terminate,
and the Company will refund to the employee, or the employee's designated
beneficiary in the case of the employee's death, the full amount of all
withholdings without interest.
The price at which shares may be purchased is the lesser of 90% of the fair
market value of the common stock on the first day of a six-month term of each
option that is exercised, or 90% of the fair market value of the common stock
on the last day of the six-month term of the option. However, as amended, the
Plan now permits the Committee, if it deems such change desirable and in the
best interests of the Company, to approve a price equal to the fair market
value of the shares on the last day of the six month option periods multiplied
by a percentage figure of from 85% to 100% as selected by the Committee.
The fair market value for the purpose of these formulas is the closing price
of the common stock as reported in the New York Stock Exchange Composite
Transactions report for the relevant date. The maximum fair market value of
common stock that an employee may purchase under the Stock Purchase Plan in
any calendar year is $25,000.
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend or terminate the Stock Purchase
Plan, except that no such amendment may be made without the approval of the
shareholders if it would increase the number of shares of common stock
authorized to be issued under the Stock Purchase Plan, materially increase the
benefits accruing to employees under the Stock Purchase Plan, materially
modify the requirements as to eligibility for participation or withdraw
administration of the Stock Purchase Plan from the Committee.
As amended, the Stock Purchase Plan will terminate on March 31, 2009, unless
the Board of Directors terminates the Stock Purchase Plan at an earlier date
or the shares reserved for the Stock Purchase Plan are exhausted, and the
shareholders do not vote to reserve additional shares for it.
FEDERAL TAX CONSEQUENCES
The Stock Purchase Plan is intended to be an "employee stock purchase plan"
as defined in Section 423 of the Internal Revenue Code of 1986, which provides
that an employee does not have to pay any federal income tax either when he or
she elects to exercise an option under such a stock purchase plan, or when the
six-month option period ends and the employee receives shares of common stock
of the Company. The employee is, however, required to pay federal income tax
on any gain realized on the sale of the shares, as described below.
If the employee has owned shares purchased through the Stock Purchase Plan
for more than one year and disposes of them at least two years after the
commencement date of the six-month option term of the option pursuant to which
they were purchased, then the employee will be taxed as follows: If the sale
price is greater than the price paid under the Stock Purchase Plan, then the
employee will recognize ordinary income in an amount equal to the lesser of
(i) the excess of the market price of the shares on the date the offering
commenced over the price paid, or (ii) the excess of the sale price over the
price paid. Any further gain is treated as a long-term capital gain.
13
<PAGE>
If the market price of the shares on the date they are sold is equal to or
less than the price paid for the shares under the Stock Purchase Plan, then
the employee will incur a long-term capital loss in the amount equal to the
price paid over the sale price.
If the employee sells the shares before he has owned them for more than one
year or before the expiration of the two-year period commencing on the date
the option period commenced, then the employee will recognize ordinary income
on the amount of the difference between the actual purchase price and the
market price of the shares on the date of purchase, and the Company will
receive a deduction for federal income tax purposes for the same amount. The
employee will recognize a long-term capital gain or loss on the difference
between the sale price and the fair market value on the date of purchase.
If the employee still owns shares purchased under the Stock Purchase Plan at
the time of death, the employee's estate will recognize ordinary income in the
year of death equal to the lower of (i) the amount by which the fair market
value of the shares on the date of death exceeds the purchase price, or (ii)
ten percent (10%) of the fair market value of the shares on the commencement
date of the six month option period during which the shares were acquired.
ADJUSTMENTS OF OPTIONS
In the event of a stock split, stock dividend, merger or other like
recapitalization or reorganization the Board of Directors is required to make
appropriate and proportionate adjustments in the maximum number of shares
subject to the Plan and the price per share subject to outstanding options,
or, in the event of a merger or reorganization, the substitution of shares in
any successor corporation for common stock of the Company.
CHANGE OF CONTROL OF THE COMPANY
As amended, the Plan now provides that the purchase of shares being paid for
pursuant to the exercise of options under the Plan will be accelerated if the
Company were to be acquired by merger or sale of all or substantially all of
its assets or outstanding stock (a "change of control"). If a change of
control were to occur, then on the effective date of the change of control all
amounts withheld from the compensation of employees who had exercised options
under the Plan would be used to purchase shares of common stock at a price
equal to 90% of the lower of (i) the fair market value of the shares on the
first day of the option period during which the change of control occurs and
(ii) the fair market value of the shares immediately prior to the effective
date of the change of control. However, in no event will the clause (i) fair
market value be less than the fair market value per share on the commencement
date of the six month option period in which the change of control occurs.
CURRENT ACCOUNTING TREATMENT
The issuance of common stock under the Stock Purchase Plan will not, under
current generally accepted accounting principles, result in a direct
compensation expense chargeable against the reported earnings of the Company.
However, the Company must disclose in pro-forma statements to its financial
statements the impact that the options granted under the Stock Purchase Plan
would have upon the reported earnings of the Company if the value of the
options were treated as compensation expense.
STOCK ISSUANCES PURSUANT TO THE STOCK PURCHASE PLAN
The table below shows, as to each Named Executive Officer named in the
Summary Compensation Table, above, all executive officers as a group and all
employees who are not executive officers, as a group, the number of shares
purchased under the Stock Purchase Plan between September 1, 1997 and August
31, 1998, the most recent purchase date under the Plan, and the weighted
average purchase price paid per share.
14
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN TRANSACTIONS
<TABLE>
<CAPTION>
SHARES PURCHASED DURING THE YEAR
---------------------------------
AS A PERCENTAGE WEIGHTED
OF THE TOTAL AVERAGE
NUMBER OF PURCHASE
SHARES PRICE
NAME NUMBER PURCHASED ($)
---- ------- --------------- --------
<S> <C> <C> <C>
Noel G. Watson.............................. 0 0 0
Chief Executive Officer
William R. Kerler........................... 0 0 0
Executive Vice President of Operations
Joseph J. Jacobs............................ 0 0 0
Chairman of the Board
Richard J. Slater........................... 0 0 0
Executive Vice President of Operations
Thomas R. Hammond........................... 464 Less than 1% $24.78
Executive Vice President of Operations
All current Executive Officers as a group
(19 persons)............................... 1,573 Less than 1% $24.78
All employees as a group, including all
officers who are not Executive Officers
(1,643 persons)............................ 302,514 100% $24.78
</TABLE>
Since the adoption of the 1989 Employee Stock Purchase Plan, persons who
were Executive Officers at any time during that period purchased a total of
19,546 shares of stock through the Plan, at an average price of $19.45 per
share. This includes purchases by individuals prior to their becoming
Executive Officers, as well as Executive Officers who are no longer with the
Company. The 19,546 shares is less than 1% of the 2,213,811 total shares
purchased by all employees of the Company during this period.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE AMENDED 1989
EMPLOYEE STOCK PURCHASE PLAN.
3. APPROVAL OF ERNST & YOUNG LLP AS AUDITORS
The Board of Directors, with the concurrence of the Audit Committee, has
selected Ernst & Young LLP to audit the accounts of the Company for its fiscal
year ending September 30, 1999. The Company has been advised by Ernst & Young
LLP that the firm has no relationship with the Company or its subsidiaries
other than that arising from the firm's engagement as auditors, tax advisors
and consultants.
If the selection of Ernst & Young LLP is not approved by the holders of a
majority of the shares represented at the meeting and voting on the proposal,
or if prior to the Annual Meeting to be held in February, Ernst & Young LLP
should decline to act or otherwise become incapable of acting, or if its
employment should be otherwise discontinued by the Board of Directors, then in
any such case the Board of Directors will appoint other independent auditors
whose employment for any period subsequent to the 1999 Annual Meeting will be
subject to ratification by the shareholders at the 2000 Annual Meeting.
The Company has been advised that representatives of Ernst & Young LLP will
be present at the Annual Meeting where they will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE SELECTION OF ERNST &
YOUNG LLP AS AUDITORS FOR THE YEAR ENDING SEPTEMBER 30, 1999.
15
<PAGE>
4. OTHER BUSINESS
The Board of Directors does not intend to present any other business for
action at the meeting and does not know of any business intended to be
presented by others.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own beneficially more than
ten percent of a registered class of the Company's equity securities to file
with the Securities and Exchange Commission ("SEC") and the New York Stock
Exchange initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company. Officers, directors
and greater than ten-percent shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by them.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations from its
directors and executive officers that no other reports were required, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with on a timely
basis during the fiscal year ended September 30, 1998 except that Dr. Linda K.
Jacobs filed a Form 4 one day late.
EXECUTIVE OFFICERS
For information about the Executive Officers of the Company, see Exhibit II
to this Proxy Statement.
SHAREHOLDERS' PROPOSALS
Under the bylaws of the Company shareholders who wish to nominate persons
for election to the Board of Directors must submit their nominations to the
Company not less than 60 nor more than 90 days prior to the date of the
shareholders' meeting at which they wish a nomination to be considered. The
last day for shareholders to submit nominations for the annual meeting on
Tuesday, February 8, 2000 will be December 10, 1999. Nominations must include
certain information concerning the nominee and the proponent's ownership of
common stock of the Company. Nominations not meeting these requirements will
not be entertained at the annual meeting. The Secretary of the Company should
be contacted in writing at the address on the first page of this proxy
statement to submit a nomination or to obtain additional information as to the
proper form of a nomination.
Proposals other than nominations for consideration at the annual meeting of
shareholders on February 8, 2000 must be submitted to the Company no later
than November 24, 1999.
However, in order to be included in the Company's proxy statement and proxy
relating to the annual meeting of shareholders on February 8, 2000, proposals
of shareholders must be received by the Company no later than September 6,
1999.
16
<PAGE>
ANNUAL REPORT AND FINANCIAL INFORMATION
Appendix A to the Notice of Annual Meeting to which this Proxy Statement is
attached contains the Annual Financial Statements and Review of Operations of
the Company. A copy of the Company's Summary Annual Report for the year ended
September 30, 1998, is being mailed concurrently with this Proxy Statement to
each shareholder of record on the Record Date.
THE COMPANY'S ANNUAL REPORT ON FORM 10-K IS AVAILABLE FROM THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION AT ITS WEB SITE: HTTP://WWW.SEC.GOV/CGI-
BIN/SRCH-EDGAR?0000052988. THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF
THE COMPANY'S REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO, TO THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION TO
ANY PERSON REQUESTING IN WRITING AND STATING THAT HE OR SHE WAS THE BENEFICIAL
OWNER OF COMMON STOCK OF THE COMPANY ON JANUARY 4, 1999. THE COMPANY WILL ALSO
FURNISH COPIES OF ANY EXHIBITS TO THE FORM 10-K TO ELIGIBLE PERSONS REQUESTING
EXHIBITS AT $0.50 PER PAGE, PAID IN ADVANCE. THE COMPANY WILL INDICATE THE
NUMBER OF PAGES TO BE CHARGED FOR UPON WRITTEN INQUIRY. REQUESTS AND INQUIRIES
SHOULD BE ADDRESSED TO:
Investor Relations
Jacobs Engineering Group Inc.
1111 South Arroyo Parkway
Pasadena, California 91105
Neither the Summary Annual Report, Appendix A nor the Form 10-K is to be
regarded as proxy soliciting material or as a communication by means of which
a solicitation of proxies is to be made.
By Order of the Board of Directors
ROBERT M. BARTON
Secretary
Pasadena, California
January 4, 1999
17
<PAGE>
EXHIBIT I
JACOBS ENGINEERING GROUP INC.
1989 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED AND RESTATED)
1. Purposes of the Plan.
This Employee Stock Purchase Plan (the "Plan") is intended to encourage
stock ownership by employees of Jacobs Engineering Group Inc. (the "Company")
and certain subsidiaries of the Company. The Plan is intended to qualify as an
employee stock purchase plan under Section 423 of the Internal Revenue Code
(the "Code").
2. Administration.
The Plan shall be administered by a committee (the "Committee") appointed by
the Board of Directors of the Company (the "Board") from among its members and
shall be comprised of not less than three (3) members of the Board. Unless and
until its members are not qualified to serve on the Committee pursuant to the
provisions of the Plan, the Compensation and Benefits Committee of the Board
shall function as the Committee. Members of the Committee shall be members of
the Board who are not eligible to participate under the Plan or any other plan
of the Company or its affiliates authorizing discretionary grants or awards of
stock, stock options or stock appreciation rights and who have not been
eligible to so participate for at least one (1) year prior to service as an
administrator of the Plan. Eligibility requirements for members of the
Committee shall comply with Rule 16b-3 promulgated pursuant to the Securities
Exchange Act of 1934, as amended (the "1934 Act") or any successor rule or
regulation. No person, other than members of the Committee, shall have any
discretion concerning decisions regarding the Plan except as otherwise
provided in this Plan. The Committee is authorized to construe and interpret
the Plan, to define the terms used herein, to prescribe, amend and rescind
rules and regulations for the administration of the Plan, and to take any
other action in connection with the administration of the Plan and Options
granted hereunder that it deems proper.
3. Grant of Options.
(a) The Company shall grant to all Eligible Employees Options ("Options") to
purchase Common Stock of the Company ("Shares") in accordance with this Plan.
All employees granted Options under the Plan shall have the same rights and
privileges.
(b) The Options granted under this Plan shall be granted effective only on
the first day of a six-month election period referred to in Paragraph 5 of the
Plan ("Election Period"). No Option shall be treated as granted prior to the
first day of such Election Period.
4. Eligible Employees.
(a) The employees eligible to receive Options under the Plan ("Eligible
Employee") shall be all employees of the Company and all corporations that now
are or hereafter become domestic United States subsidiary corporations (as
defined in Section 424(f) of the Code) and all employees of any foreign
subsidiary corporation designated from time to time by the Board of Directors.
The Board of Directors of the Company may change the designation of the
subsidiaries participating in the Plan ("participating subsidiaries") at any
time.
(b) However, the following employees shall not be Eligible Employees under
the Plan:
(i) Employees who normally work fewer than 20 hours per week;
1
<PAGE>
(ii) Employees who normally work five or fewer months during the fiscal
year of the Company;
(iii) Employees who have completed less than one year of employment by
the Company or a participating subsidiary of the Company; and
(iv) Employees who are not actively employed by the Company at the
beginning of a six month Election Period, including employees who are on
disability leave or leave of absence.
(c) Employees of participating subsidiaries that have become subsidiaries by
reason of having been acquired by the Company or a subsidiary and companies
that have been merged with the Company or a subsidiary shall, in the
discretion of the Committee, receive credit for the time they have worked for
such acquired or merged company.
(d) Any employee who would own more than five percent of the Common Stock in
the Company immediately after an Option under this Plan is granted shall also
be excluded from eligibility. Stock that the employee may purchase under all
outstanding stock options granted to him by the Company shall be treated as
stock owned by the employee for such purposes, even though the option is not
presently exercisable.
5. Exercise of Option.
(a) An Eligible Employee may exercise his or her Option to acquire Common
Stock by completing a Payroll Deduction Authorization Form in such form as
shall have been approved from time to time by the Committee. The election to
exercise the Option shall be effective for a six month election period. The
six-month Election Periods shall be from September 1 to February 28/29, and
from March 1 to August 31 of each year. An Eligible Employee's election to
participate in this Plan shall be irrevocable during each Election Period.
(b) Eligible Employees who have elected to exercise their Options for any
Election Period are sometimes referred to as "Participants" in this Plan.
(c) In no event may an Option be exercised later than the period of time
specified in Section 423(b)(7)(B) of the Code. Except as otherwise provided in
Paragraph 12, an Option shall be treated as exercised on the last day of the
six-month Election Period.
6. Payment of Purchase Price.
(a) Each Participant shall pay for the stock subject to his or her option
with after-tax salary reduction contributions. The Company shall reduce each
Participant's salary or wages by any whole percentage from 2% to 15% of basic
compensation. A Participant's basic compensation shall include only regular
fixed basic compensation, and shall not include any bonus, overtime payment,
contribution to an employee benefit plan or other similar payment or
contribution.
(b) Each Participant shall specify the amount of salary reduction on a
Payroll Deduction Authorization Form to be furnished by the Company. The
salary reduction contributions shall continue throughout the six-month
Election Period.
(c) The Company shall begin salary reductions during the pay periods as
close as practicable to each March 1 and September 1 of each year and shall
cease such reductions during the pay periods as close as practicable to each
February 28/29 and August 31 of each year.
(d) As soon as practicable after the end of each six-month Election Period,
the Company shall issue to the Participants who have exercised their Options
Common Stock of the Company at the prices specified in Paragraph 8 of this
Plan. The number of Shares purchased shall be based upon
2
<PAGE>
the aggregate amount of salary reduction contributions during the six-month
Election Period plus any excess contributions carried forward from any
previous Election Period. No interest shall accrue on the salary reduction
contributions.
7. Fractional Shares.
The Company shall not issue or transfer fractional Shares under the Plan. In
the event that the amount of salary reduction contributions of any employee is
not exactly equal to the purchase price for a whole number of Shares, then any
excess amount shall be used to purchase additional Shares during the next six-
month Election Period, or refunded to the Participant without interest if the
Participant is not, for any reason, a Participant in the Plan during the next
six-month Election Period.
8. Purchase Price.
(a) The purchase price for the Shares shall be the lower of (a) 90% of the
fair market value of the Shares on the first day of a six-month Election
Period for which an Option has been exercised, or (b) 90% of the fair market
value of the Shares on the last day of such Election Period; provided,
however, that the Committee may at such time as it deems such change desirable
and in the best interests of the Company, approve, in lieu of the foregoing
formula for determining the exercise price of Options under this Plan, the
fair market value of the Shares on the last day of the Election Period
multiplied by any percentage figure from 85% to 100% as selected by the
Committee. Such approval may be for one or more Election Periods and shall
remain in effect until changed by the Committee.
In no event, however, may the Committee select a purchase price that would
be lower than that allowed under Section 423(b)(6) of the Code or any
successor section.
(b) The fair market value for such purposes shall be the closing price of
the Shares on the composite transactions report of the national securities
exchange on which the Shares are then listed for the day on which the value is
to be determined. If such date is a Saturday, Sunday, legal holiday or other
date on which such exchange is closed, then the fair market value shall be
determined as the closing price on the first immediately preceding trading
date.
9. Stock Subject to the Plan.
The total number of Shares of Common Stock authorized to be issued under
this Plan is 3,406,777 Shares, subject to adjustment as provided in Paragraph
17. These Shares may be authorized but unissued Shares, or issued Shares which
have been reacquired by the Company from any person.
10. Maximum Amount of Option Stock.
(a) The maximum fair market value of Shares that an employee may accrue the
right to purchase under the Plan and any other employee stock purchase plan of
the Company or any subsidiary in any calendar year may not exceed $25,000 or
such greater amount as Section 423(b)(8)(C) of the Code, or any successor
section, may hereafter allow. The fair market value of the Shares for such
purposes shall be determined on the first day of each six-month Election
Period.
(b) The maximum number of Shares that a Participant may purchase for any
six-month Election Period shall be determined on the first day of each
Election Period. The maximum number shall be determined by dividing 15 percent
of total salary or wages to be earned by each Participant during the six-month
Election Period (based on the assumption that the Participant's basic
compensation does not change after the first day of the Election Period) by an
amount equal to 90% of the fair market value of the Shares on the first day of
the Election Period.
(c) Any excess withholdings shall be refunded to the Participant without
interest.
3
<PAGE>
11. Restrictions on Transferability.
A Participant may not transfer an Option other than by will or the laws of
descent and distribution. Only the Participant may exercise an Option during
his lifetime.
12. Termination of Employment.
In the event that a Participant ceases to be employed by the Company or a
participating subsidiary for any reason, including death, disability,
retirement or voluntary or involuntary termination, then the Participant's
rights under the Plan shall terminate. Except as provided in Paragraph 13,
below, the Company shall refund to the Participant without interest the salary
reduction contributions made by the Participant during the Election Period in
which termination occurs.
13. Designation of Beneficiary.
(a) Participant may file, in a manner prescribed by the Committee, a written
designation of a beneficiary who is to receive any Shares or cash under this
Plan in the event of such participant's death. If a Participant's death occurs
subsequent to the end of an Election Period but prior to the delivery to him
or her of any Shares deliverable under the terms of this Plan, such Shares and
any remaining balance of cash shall be delivered to such beneficiary (or such
other person as set forth in Section 13(b)) as soon as administratively
practicable after the Company receives notice of such Participant's death the
Participant's Option shall terminate. If a Participant's death occurs at any
other time, the balance of such Participant's contributions shall be paid to
such beneficiary (or such other person as set forth in Section 13(b)) in cash
as soon as administratively practicable after the Company receives notice of
such Participant's death and such Participant's Option shall terminate. If a
Participant is married and the designated beneficiary is not his or her
spouse, spousal consent shall be required for such designation to be
effective.
(b) Beneficiary designations may be changed by the Participant (and his or
her spouse, if required) at any time on forms provided and in the manner
prescribed by the Committee. If a Participant dies with no validly designated
beneficiary under this Plan who is living at the time of such Participant's
death, then the Participant's surviving spouse, if any, shall be deemed to be
the beneficiary. If a Participant dies without a surviving spouse and with no
validly designated beneficiary under this Plan who is living at the time of
such Participant's death, the Company shall deliver all Shares and/or cash
payable pursuant to the terms hereof to the executor or administrator of the
estate of the Participant, or if no such executor or administrator has been
appointed, the Company, in its discretion, may deliver such Shares and/or cash
to any one or more dependents or relatives of the Participant, or if no
dependent or relative is known to the Company, then to such other person as
the Committee deems appropriate.
14. Rights as a Stockholder.
No Participant shall have any rights as a stockholder as to Shares being
purchased during any six-month Election Period until after the end of such
six-month Election Period when the Common Stock has actually been issued to
the Participant. No adjustment shall be made or additional amount paid as a
result of dividends or other rights for which the record date is prior to the
date of such issuance.
15. Listing, Registration and Qualification of Shares.
The issuance of Shares under this Plan shall be subject to applicable
securities and other laws, including listing of the Shares on all stock
exchanges on which the Shares may be, from time to time, listed and the
registration of the Shares and Options under the Securities Act of 1933.
4
<PAGE>
16. Term of the Plan.
The term of the Plan shall be for a period commencing on March 1, 1989 and
ending on March 31, 2009.
17. Amendments.
(a) The Board may terminate the Plan, in whole or in part, may suspend the
Plan, in whole or in part, from time to time and may amend the Plan from time
to time, including the adoption of amendments deemed necessary or desirable to
qualify the Plan under the laws of various countries (including tax laws) and
under rules and regulations promulgated by the Securities and Exchange
Commission (the "SEC") with respect to employees who are subject to the
provisions of Section 16 of the 1934 Act, or to correct any defect or supply
an omission or reconcile any inconsistency in the Plan or in any Option
granted thereunder, without the approval of the stockholders of the Company;
provided, however, that no action shall be taken without the approval of the
stockholders of the Company to increase the number of Shares of Stock on which
Options may be granted, or materially increase the benefits accruing to
participants under the Plan, or materially modify the requirements as to
eligibility for participation in the Plan, or withdraw administration from the
Committee, or permit any person while a member of the Committee to be eligible
to receive, other than pursuant to a non-discretionary formula plan, a grant
or award of a stock option, a stock appreciation right or other equity
security of the Company. Without limiting the foregoing, the Committee may
make amendments or adopt rules and procedures applicable or inapplicable only
to Participants who are subject to Section 16 of the 1934 Act.
(b) No amendment or termination or modification of the Plan shall in any
manner affect any Option theretofore granted without the consent of the
optionee, except that the Committee may amend or modify the Plan in a manner
that does affect Options theretofore granted upon a finding by the Committee
that such amendment or modification is in the best interest of holders of
outstanding Options affected thereby.
(c) This Plan is intended to comply with all applicable requirements of Rule
16b-3 or its successors under the 1934 Act, insofar as participants subject to
Section 16 of that Act are concerned. To the extent any provision of the Plan
does not so comply, and cannot for any reason be amended by the Board, the
provision shall, to the extent permitted by law and deemed advisable by the
Committee, be deemed null and void with respect to such participants.
18. Adjustments for Changes in Common Stock.
(a) In the event of any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization or other similar event, the Board shall
make appropriate and proportionate adjustments, including the substitution and
issuance of securities of any successor corporation for the Shares of the
Company to be issued under the Plan, to the maximum number of Shares subject
to the Plan, and the price per share subject to outstanding Options.
(b) If the Company is acquired by merger or sale of all or substantially all
of the Company's assets or outstanding voting stock, then all outstanding
Options under the Plan will automatically be exercised immediately prior to
the effective date of such acquisition. The exercise price in such event shall
be equal to 90% of the lower of (i) the fair market value per share of the
Common Stock on the first day of the Election Period in which such acquisition
occurs and (ii) the fair market value per share of the Common Stock
immediately prior to the effective date of such acquisition.
19. Miscellaneous.
This Plan is subject to all of the requirements of Section 423 of the Code
and the regulations thereunder.
5
<PAGE>
This Plan shall not confer any right on an employee to continue in the
employment of the Company or any subsidiary or division of the Company.
The Company shall not be obligated to issue any Shares under the Plan unless
and until there has been compliance with such laws and regulations as the
Company deems applicable.
6
<PAGE>
EXHIBIT II
EXECUTIVE OFFICERS OF THE COMPANY
The following table presents the names and ages of each Executive Officer of
the Company, as well as their current positions and the year in which they
first joined the Company.
<TABLE>
<CAPTION>
YEAR JOINED
NAME AGE POSITION WITH THE COMPANY THE COMPANY
---- --- ------------------------- -----------
<C> <C> <S> <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>
APPENDIX A
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>
- --------------------------------------------------------------------------------
PROXY
SOLICITED BY THE BOARD OF DIRECTORS OF JACOBS ENGINEERING GROUP INC.
ANNUAL MEETING OF SHAREHOLDERS--Tuesday February 9, 1999
JACOBS ENGINEERING GROUP INC.
THE UNDERSIGNED hereby appoints Joseph J. Jacobs, Noel G. Watson and Robert
M. Barton his true and lawful proxies (with full power of substitution) to
vote in his name, place and stead all shares in Jacobs Engineering Group Inc.
that the undersigned owns or is entitled to vote at the Annual Meeting of
Shareholders to be held February 9, 1999, and at any adjournment thereof, upon
the matters listed below in accordance with the following instructions:
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. PLEASE SPECIFY CHOICES,
DATE, SIGN AND RETURN THE PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED IF RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes as [X]
indicated in
this example
IF ANY OF THE FOLLOWING BOXES ARE CHECKED, THE SHARES COVERED BY THIS PROXY
WILL BE VOTED IN ACCORDANCE THEREWITH. IF NO BOX IS CHECKED UNDER ANY OF THE
FOLLOWING, THE SHARES WILL BE VOTED FOR THE PERSONS NOMINATED AS DIRECTORS BY
THE BOARD OF DIRECTORS AND FOR THE APPROVAL OF ITEMS 2 AND 3. ON OTHER MATTERS
PRESENTED, THE SHARES WILL BE VOTED IN ACCORDANCE WITH THE PROXIES' BEST
JUDGMENT.
WITHHELD
1. To elect Dr. Joseph J. Jacobs, FOR FOR ALL
Dr. Dale R. Laurance and Linda Fayne [_] [_]
Levinson as directors.
2. To approve amendments to 1989 FOR AGAINST ABSTAIN
Employee Stock Purchase Plan. [_] [_] [_]
3. To approve Ernst & Young LLP FOR AGAINST ABSTAIN
as auditors. [_] [_] [_]
(To withhold authority to vote for any individual nominee write that nominee's
name in the space provided below.)
- -------------------------------------------------------------------------------
Receipt of the Jacobs Engineering Group Inc. Proxy Statement dated January 4,
1999, including Appendix A thereto, is hereby acknowledged. Please vote my
(our) shares as indicated above.
Signature(s) ___________________________ Date _________________, 1999
NOTE: Attorneys, executors, trustees, etc. should show such capacity when
signing and unless the certificate(s) is (are) registered in their names,
should submit a Proxy from the record owner. Evidence of their authority
should accompany the Proxy. Joint owners should each sign individually.
