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