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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, 2002 | ||
¨ | 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 9, 2002: 54,392,841
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JACOBS ENGINEERING GROUP INC.
Page No. | ||||
| Part I—Financial Information | ||||
| Item 1. Financial Statements: | ||||
Condensed Consolidated Balance Sheets—June 30, 2002 and September 30, 2001 | 3 | |||
Condensed Consolidated Statements of Earnings—Three and Nine Months Ended June 30, 2002 and 2001 | 4 | |||
Condensed Consolidated Statements of Comprehensive Income—Three and Nine Months Ended June 30, 2002 and 2001 | 5 | |||
Condensed Consolidated Statements of Cash Flows—Nine Months Ended June 30, 2002 and 2001 | 6 | |||
| 7–10 | ||||
| 11–15 | ||||
| Part II—Other Information | ||||
Item 6. Exhibits and Reports on Form 8-K | 16 | |||
| Signatures | 17 | |||
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Item 1. Financial Statements
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
(In thousands, except share information)
(Unaudited)
June 30, 2002 | September 30, 2001 | |||||||
ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 50,289 | $ | 49,263 | ||||
| Receivables | 842,478 | 817,160 | ||||||
| Deferred income taxes | 62,697 | 64,651 | ||||||
| Prepaid expenses and other | 17,865 | 15,085 | ||||||
| Total current assets | 973,329 | 946,159 | ||||||
| Property, Equipment and Improvements, Net | 149,600 | 149,979 | ||||||
| Other Noncurrent Assets: | ||||||||
| Goodwill, net | 380,841 | 317,664 | ||||||
| Other | 136,925 | 143,238 | ||||||
| Total other noncurrent assets | 517,766 | 460,902 | ||||||
| $ | 1,640,695 | $ | 1,557,040 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Notes payable | $ | 2,278 | $ | 19,688 | ||||
| Accounts payable | 231,148 | 197,712 | ||||||
| Accrued liabilities | 360,409 | 295,763 | ||||||
| Billings in excess of costs | 118,866 | 163,833 | ||||||
| Income taxes payable | 27,792 | 23,663 | ||||||
| Total current liabilities | 740,493 | 700,659 | ||||||
| Long-term Debt | 115,844 | 164,308 | ||||||
| Other Deferred Liabilities | 96,232 | 95,174 | ||||||
| Minority Interests | 5,689 | 5,098 | ||||||
| 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—100,000,000 shares, issued and outstanding— 54,387,641 and 26,872,358, respectively | 54,388 | 26,872 | ||||||
| Additional paid-in capital | 99,576 | 105,612 | ||||||
| Retained earnings | 540,855 | 472,010 | ||||||
| Accumulated other comprehensive loss | (10,360 | ) | (10,620 | ) | ||||
| 684,459 | 593,874 | |||||||
| Unearned compensation | (2,022 | ) | (2,073 | ) | ||||
| Total stockholders’ equity | 682,437 | 591,801 | ||||||
| $ | 1,640,695 | $ | 1,557,040 | |||||
See the accompanying Notes to Condensed Consolidated Financial Statements
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
For the Three and Nine Months Ended June 30, 2002 and 2001
(In thousands, except per-share information)
(Unaudited)
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | |||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
| Revenues | $ | 1,169,122 | $ | 1,041,417 | $ | 3,343,919 | $ | 2,980,468 | ||||||||
| Costs and Expenses: | ||||||||||||||||
| Direct costs of contracts | (1,021,023 | ) | (911,956 | ) | (2,911,759 | ) | (2,616,938 | ) | ||||||||
| Selling, general and administrative expenses | (104,551 | ) | (92,691 | ) | (305,250 | ) | (258,446 | ) | ||||||||
| Operating Profit | 43,548 | 36,770 | 126,910 | 105,084 | ||||||||||||
| Other (Expense) Income: | ||||||||||||||||
| Interest income | 744 | 890 | 1,805 | 2,901 | ||||||||||||
| Interest expense | (1,714 | ) | (2,797 | ) | (5,802 | ) | (8,705 | ) | ||||||||
| Miscellaneous income, net | 377 | 601 | 1,196 | 1,791 | ||||||||||||
| Total other expense net | (593 | ) | (1,306 | ) | (2,801 | ) | (4,013 | ) | ||||||||
| Earnings Before Taxes | 42,955 | 35,464 | 124,109 | 101,071 | ||||||||||||
| Income Tax Expense | (15,035 | ) | (12,944 | ) | (43,439 | ) | (36,891 | ) | ||||||||
| Net Earnings | $ | 27,920 | $ | 22,520 | $ | 80,670 | $ | 64,180 | ||||||||
| Net Earnings Per Share: | ||||||||||||||||
| Basic | $ | 0.51 | $ | 0.42 | $ | 1.49 | $ | 1.21 | ||||||||
| Diluted | $ | 0.50 | $ | 0.41 | $ | 1.46 | $ | 1.18 | ||||||||
See the accompanying Notes to Condensed Consolidated Financial Statements.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
For the Three and Nine Months Ended June 30, 2002 and 2001
(Unaudited)
For the Three Months Ended June 30, | For the Nine Months Ended June 30, | |||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
(In thousands) | ||||||||||||||||
| Net Earnings | $ | 27,920 | $ | 22,520 | $ | 80,670 | $ | 64,180 | ||||||||
| Other Comprehensive Income (Loss): | ||||||||||||||||
| Unrealized holding gains on securities | 751 | 2,275 | 1,732 | 2,711 | ||||||||||||
| Less: reclassification adjustment for gains realized in net earnings | (971 | ) | (355 | ) | (2,343 | ) | (1,585 | ) | ||||||||
| Unrealized (losses) gains on securities, net of reclassification adjustment | (220 | ) | 1,920 | (611 | ) | 1,126 | ||||||||||
| Foreign currency translation adjustments | 5,060 | (1,035 | ) | 608 | (630 | ) | ||||||||||
| Other Comprehensive Income (Loss) Before Income Tax Benefit (Expense) | 4,840 | 885 | (3 | ) | 496 | |||||||||||
| Income Tax Benefit (Expense) Relating to Other Comprehensive Income (Loss) | 95 | (697 | ) | 263 | (395 | ) | ||||||||||
| Other Comprehensive Income | 4,935 | 188 | 260 | 101 | ||||||||||||
| Total Comprehensive Income | $ | 32,855 | $ | 22,708 | $ | 80,930 | $ | 64,281 | ||||||||
See the accompanying Notes to Condensed Consolidated Financial Statements.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
For the Nine Months Ended June 30, 2002 and 2001
(In thousands)
(Unaudited)
2002 | 2001 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net earnings | $ | 80,670 | $ | 64,180 | ||||
| Adjustments to reconcile net earnings to net cash flows from operations: | ||||||||
| Depreciation and amortization of property, equipment and improvements | 25,952 | 24,565 | ||||||
| Amortization of goodwill | — | 5,583 | ||||||
| Gains on sales of assets | (2,239 | ) | (2,489 | ) | ||||
| Changes in assets and liabilities, excluding the effects of businesses acquired: | ||||||||
| Receivables | 42,388 | (20,833 | ) | |||||
| Prepaid expenses and other current assets | 616 | 319 | ||||||
| Accounts payable | 5,114 | (27,282 | ) | |||||
| Accrued liabilities | 31,443 | 22,758 | ||||||
| Billings in excess of costs | (62,105 | ) | (10,443 | ) | ||||
| Income taxes payable | 7,692 | 2,767 | ||||||
| Deferred income taxes | 6,176 | 2,293 | ||||||
| Other, net | 507 | 347 | ||||||
| Net cash provided by operating activities | 136,214 | 61,765 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Acquisition of business, net of cash acquired | (43,529 | ) | (28,605 | ) | ||||
| Additions to property and equipment | (25,982 | ) | (32,910 | ) | ||||
| Disposals of property and equipment | 2,552 | 13,383 | ||||||
| Proceeds from sales of marketable securities and investments | 6,709 | 2,536 | ||||||
| Purchases of marketable securities and investments | (1,705 | ) | (3,588 | ) | ||||
| Net increase in other noncurrent assets | (9,376 | ) | (5,518 | ) | ||||
| Net cash used for investing activities | (71,331 | ) | (54,702 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from long-term borrowings | 299,077 | 77,871 | ||||||
| Repayments of long-term borrowings | (388,111 | ) | (45,521 | ) | ||||
| Net change in short-term borrowings | 21,246 | (5,960 | ) | |||||
| Exercises of stock options | 11,545 | 10,441 | ||||||
| Purchases of common stock for treasury | (2,003 | ) | (6,722 | ) | ||||
| Change in other deferred liabilities | (128 | ) | (849 | ) | ||||
| Net cash (used for) provided by financing activities | (58,374 | ) | 29,260 | |||||
| Effect of Exchange Rate Changes | (5,483 | ) | (2,240 | ) | ||||
| Increase in Cash and Cash Equivalents | 1,026 | 34,083 | ||||||
| Cash and Cash Equivalents at Beginning of Period | 49,263 | 65,848 | ||||||
| Cash and Cash Equivalents at End of Period | $ | 50,289 | $ | 99,931 | ||||
See the accompanying Notes to Condensed Consolidated Financial Statements.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
June 30, 2002
| 1. | The accompanying condensed consolidated financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. Readers of this report should refer to the consolidated financial statements and the notes thereto incorporated into the latest Annual Report on Form 10-K of Jacobs Engineering Group Inc. (“Jacobs”, or the “Company”). |
In the opinion of management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the Company’s consolidated financial position at June 30, 2002 and September 30, 2001, its consolidated results of operations for the three and nine months ended June 30, 2002 and 2001, its consolidated comprehensive income for the three and nine months ended June 30, 2002 and 2001, and its consolidated cash flows for the nine months ended June 30, 2002 and 2001.
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, 2002 and September 30, 2001 were recoverable amounts under contracts in progress of $412.4 million and $420.6 million, respectively, that represent amounts earned under contracts in progress but not billable at the respective balance sheet dates. The Company anticipates that substantially all of such unbilled amounts will be billed and collected over the next twelve months. |
| 3. | Property, equipment and improvements are stated at cost and consisted of the following at June 30, 2002 and September 30, 2001 (in thousands): |
June 30, 2002 | September 30, 2001 | |||||||
| Land | $ | 7,851 | $ | 7,106 | ||||
| Buildings | 52,823 | 51,725 | ||||||
| Equipment | 249,366 | 231,322 | ||||||
| Leasehold improvements | 27,018 | 16,126 | ||||||
| Construction in progress | 2,534 | 16,290 | ||||||
| 339,592 | 322,569 | |||||||
| Accumulated depreciation and amortization | (189,992 | ) | (172,590 | ) | ||||
| $ | 149,600 | $ | 149,979 | |||||
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
| 4. | Other noncurrent assets consisted of the following at June 30, 2002 and September 30, 2001 (in thousands): |
June 30, 2002 | September 30, 2001 | |||||
| Cash surrender value of life Insurance policies | $ | 46,396 | $ | 42,800 | ||
| Investments | 27,960 | 31,801 | ||||
| Deferred tax asset | 18,916 | 18,054 | ||||
| Prepaid pension costs | 16,642 | 16,377 | ||||
| Reimbursable pension costs | 9,917 | 11,388 | ||||
| Notes receivable | 10,106 | 9,764 | ||||
| Miscellaneous | 6,988 | 13,054 | ||||
| $ | 136,925 | $ | 143,238 | |||
| 5. | On February 12, 2002, the Company’s Board of Directors approved a two-for-one stock split. The stock split was distributed on April 1, 2002 in the form of a 100% stock dividend to shareholders of record on March 1, 2002. |
The stock split resulted in the issuance of 27.1 million shares of common stock. Par value of the stock is unchanged at $1 per share and accordingly, $27.1 million was transferred from additional paid in capital to common stock on April 1, 2002.
The effect of the stock split has been recognized retroactively in all per share data in the accompanying condensed consolidated financial statements. The following table reconciles the denominator used to compute basic earnings per share to the denominator used to compute diluted earnings per share (in thousands):
Three Months Ended June 30, | Nine Months Ended June 30, | |||||||
2002 | 2001 | 2002 | 2001 | |||||
Weighted average shares outstanding (denominator used to compute basic EPS) | 54,334 | 53,478 | 54,019 | 53,117 | ||||
| Effect of employee and outside director stock options | 1,347 | 1,430 | 1,323 | 1,278 | ||||
| Denominator used to compute diluted EPS | 55,681 | 54,908 | 55,342 | 54,395 | ||||
| 6. | During the nine months ended June 30, 2002 and 2001, the Company made cash payments of approximately $5.0 million and $8.6 million, respectively, for interest and $25.0 million and $31.4 million, respectively, for income taxes. |
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
| 7. | On October 31, 2001, the Company completed the acquisition of McDermott Engineers & Constructors (Canada) Limited (including Delta Catalytic and Delta Hudson Engineering) (collectively, “Delta”). Delta provides engineering, construction, and maintenance services to various industries including upstream oil and gas, petroleum refining, petrochemicals, and chemicals. The total purchase price of $47.5 million in cash was financed with a new, short-term $50.0 million credit facility. The Delta acquisition was accounted for as a purchase. Accordingly, the Company’s consolidated results of operations include those of Delta from the date of acquisition. The purchase price has been allocated to the assets and liabilities acquired based on their estimated fair values. The purchase price allocation, which may be adjusted further, resulted in goodwill of approximately $43.9 million. |
In January 1999, the Company completed its Agreement and Plan of Merger with Sverdrup Corporation (“Sverdrup”). In accordance with the merger agreement, each outstanding share of common stock of Sverdrup was converted into the right to receive (i) a proportional share of the total amount of initial merger consideration of $198.0 million paid at closing; and, (ii) a proportional amount of any additional merger consideration payable after each of the first three anniversaries of the date of the merger (“Deferred Merger Consideration”). The final amount payable as Deferred Merger Consideration of $10.0 million was paid on July 16, 2002.
| 8. | Effective October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142 –Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 eliminates the amortization of goodwill and intangible assets deemed to have indefinite lives. Instead, these assets must be tested for impairment using a fair value approach in accordance with SFAS 142. |
The Company completed the initial impairment test of its goodwill during the second quarter of fiscal 2002. The test indicated no impairment and accordingly the Company has made no adjustments to its goodwill balances.
The Company will also be required to test the value of its goodwill annually. Subsequent impairment losses, if any, will be reflected as a charge to income in the Company’s consolidated statement of earnings in the period they become known.
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
As required by SFAS 142, the Company eliminated the amortization of goodwill effective October 1, 2001. Prior year results have not been restated. Had the Company been accounting for its goodwill under SFAS 142 for all periods presented, the Company’s net earnings and earnings per share data would have been as follows (in thousands, except per share data):
For the Three Months Ended June 30 | For the Nine Months Ended June 30 | |||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||
| Net Earnings: | ||||||||||||
| As reported | $ | 27,920 | $ | 22,520 | $ | 80,670 | $ | 64,180 | ||||
| Goodwill amortization, net of tax | — | 1,611 | — | 4,612 | ||||||||
| As adjusted | $ | 27,920 | $ | 24,131 | $ | 80,670 | $ | 68,792 | ||||
| Basic Earnings Per Share: | ||||||||||||
| As reported | $ | 0.51 | $ | 0.42 | $ | 1.49 | $ | 1.21 | ||||
| Goodwill amortization, net of tax | — | 0.03 | — | 0.09 | ||||||||
| As adjusted | $ | 0.51 | $ | 0.45 | $ | 1.49 | $ | 1.30 | ||||
| Diluted Earnings Per Share: | ||||||||||||
| As reported | $ | 0.50 | $ | 0.41 | $ | 1.46 | $ | 1.18 | ||||
| Goodwill amortization, net of tax | — | 0.03 | — | 0.08 | ||||||||
| As adjusted | $ | 0.50 | $ | 0.44 | $ | 1.46 | $ | 1.26 | ||||
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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
June 30, 2002
Item |
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 from pages C-5 through C-12 of Exhibit 13 to the Company’s 2001 Annual Report on Form 10-K).
Results of Operations
On April 1, 2002, the Company completed a two-for-one stock split which was distributed in the form of a 100% stock dividend to shareholders of record on March 1, 2002. Accordingly, earnings per share calculations for all periods presented have been restated to give effect to the stock split retroactively. See Note 5 of the Notes to Condensed Consolidated Financial Statements for a discussion of the stock split transaction.
On October 31, 2001, the Company completed the acquisition of McDermott Engineers & Constructors (Canada) Limited (including Delta Catalytic and Delta Hudson Engineering) (collectively, “Delta”). See Note 7 of the Notes to Condensed Consolidated Financial Statements for a discussion of the Delta transaction.
The Company’s consolidated results of operations include those of Delta, GIBB and Stork Phase II from the dates of their respective acquisitions. The operations of Stork Phase II and GIBB were consolidated in the second and third quarters, respectively, of fiscal 2001. The Company’s operating results during the current and prior fiscal periods were not significantly impacted by the operations of Stork Phase II and GIBB.
The Company recorded net earnings of $27.9 million, or $0.50 per diluted share, for the three months ended June 30, 2002, compared to net earnings of $22.5 million, or $0.41 per diluted share for the same period last year. For the nine months ended June 30, 2002, the Company recorded net earnings of $80.7 million, or $1.46 per diluted share, compared to net earnings of $64.2 million, or $1.18 per diluted share, for the same period last year.
Effective October 1, 2001, the Company eliminated the amortization of goodwill in accordance with Statement of Financial Accounting Standard No. 142—“Goodwill and Other Intangible Assets”. The results for the prior year periods have not been restated. Had goodwill amortization not been recorded in the quarter and nine months ended June 30, 2001, net earnings would have been $24.1 million, or $0.44 per diluted share, and $68.8 million, or $1.26 per diluted share, respectively. See Note 8 of the Notes to Condensed Consolidated Financial Statements for additional discussion of SFAS 142.
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During the three months ended June 30, 2002, total revenues increased by $127.7 million, or 12.3%, to $1.2 billion, compared to total revenues of $1.0 billion for the same period in fiscal 2001. Approximately 12%, or $145.9 million of revenues during the third quarter of fiscal 2002 were generated by Delta’s operations.
During the nine months ended June 30, 2002, total revenues increased by $363.5 million, or 12.2%, to $3.3 billion, compared to $3.0 billion for the same period in fiscal 2001. Approximately 13%, or $425.9 million of revenues during the first nine months of fiscal 2002 were generated by Delta’s operations.
The following tables set forth the Company’s revenues by type of service for the quarter and nine months ended June 30 of each fiscal year (in thousands):
Three months ended June 30:
2002 | 2001 | % Change | |||||||
| Project Services | $ | 518,298 | $ | 463,342 | 11.9 | % | |||
| Construction | 497,013 | 436,099 | 14.0 | % | |||||
| Operations and Maintenance | 115,345 | 107,789 | 7.0 | % | |||||
| Process, Scientific and | |||||||||
| Systems Consulting | 38,466 | 34,187 | 12.5 | % | |||||
| $ | 1,169,122 | $ | 1,041,417 | 12.3 | % | ||||
Nine months ended June 30:
2002 | 2001 | % Change | |||||||
| Project Services | $ | 1,484,166 | $ | 1,305,547 | 13.7 | % | |||
| Construction | 1,392,770 | 1,242,730 | 12.1 | % | |||||
| Operations and Maintenance | 337,716 | 337,294 | 0.1 | % | |||||
| Process, Scientific and | |||||||||
| Systems Consulting | 129,267 | 94,897 | 36.2 | % | |||||
| $ | 3,343,919 | $ | 2,980,468 | 12.2 | % | ||||
As a percentage of revenues, direct costs of contracts was 87.3% and 87.1%, respectively, for the three and nine months ended June 30, 2002, compared to 87.6% and 87.8% for the same periods in fiscal 2001. 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 types of services provided by the Company.
Selling, general and administrative (“SG&A”) expenses for the third quarter of fiscal 2002 increased by $11.9 million, or 12.8%, to $104.6 million, compared to $92.7 million for the third quarter of fiscal 2001. For the first nine months of fiscal 2002, SG&A expenses increased by $46.8 million, or 18.1%, to $305.2 million, compared to $258.4 million for the same period last year. The increases in SG&A expenses during the current fiscal periods reflect the inclusion of the operations of Delta, GIBB and Stork Phase II, which contributed a total of $10.2 million and $29.7 million, respectively, to SG&A expenses during the third quarter and nine months ended June 30, 2002. Excluding the impact of the Delta and GIBB acquisitions, and the impact of eliminating goodwill amortization in fiscal 2002, SG&A expenses increased by $6.8 million, or 7.8%, and by $25.9 million, or 10.4%, respectively, during the third quarter and first nine months of fiscal 2002 compared to the same periods last year. As a percentage of revenues, consolidated SG&A expenses was 8.9% during the third quarters of both fiscal 2002 and 2001, and 9.1% during the first nine months of fiscal 2002 compared to 8.7% for the same period last year.
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During the third quarter ended June 30, 2002, the Company’s operating profit (defined as revenues, less direct costs of contracts and SG&A expenses) increased by $6.8 million, or 18.4%, to $43.5 million, compared to $36.8 million during the same period last year. For the nine months ended June 30, 2002, the Company’s operating profit increased by $21.8 million, or 20.8%, to $126.9 million, compared to $105.1 million during the same period last year. The increases in the Company’s operating profit for the third quarter and first nine months of fiscal 2002 as compared to the same periods in fiscal 2001 were due primarily to increases in business volume and the elimination of goodwill amortization. Operating profit was 3.7% and 3.8% of revenues, respectively, in the third quarter and first nine months of fiscal 2002, compared to 3.5% of revenues in both the third quarter and first nine months of fiscal 2001. Excluding the impact of goodwill amortization on last year’s results, operating profit would have been 3.7% in both the third quarter and first nine months of fiscal 2001.
During the third quarter of fiscal 2002, interest expense decreased by $1.1 million, or 38.7%, to $1.7 million, compared to interest expense of $2.8 million for the same period last year. During the nine months ended June 30, 2002, interest expense decreased by $2.9 million, or 33.4%, to $5.8 million, compared to interest expense of $8.7 million for the same period last year. The decreases in interest expense in the current fiscal periods as compared to the same periods last year were due to a combination of lower interest rates and reduced borrowing levels. At June 30, 2002, the Company had total debt of $118.1 million, compared to $191.2 million at June 30, 2001. During the current quarter, the Company converted its short-term, $50.0 million credit facility that was used to finance the acquisition of Delta in the first quarter of fiscal 2002, to a long-term, $40.0 million facility due in January 2004. At June 30, 2002, this long-term facility had an outstanding balance of $38.4 million bearing interest of 3.3%. At June 30, 2002 and 2001, outstanding borrowings under the $230.0 million revolving credit facility were $77.5 million bearing interest of 3.5% and $177.7 million bearing interest of 4.9%, respectively.
Backlog Information
Beginning with the second quarter of fiscal 2002, the Company reclassified certain engineering and scientific and systems consulting activities related to operations and maintenance contracts from technical professional services backlog to field services backlog. Backlog for the comparable prior period has been revised accordingly.
The following table summarizes the Company’s backlog at June 30, 2002 and 2001 (in millions):
2002 | 2001 | |||||
| Technical professional services | $ | 2,989.4 | $ | 2,437.5 | ||
| Field services | 3,638.6 | 3,472.3 | ||||
| Total backlog | $ | 6,628.0 | $ | 5,909.8 | ||
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Liquidity and Capital Resources
During the nine months ended June 30, 2002, the Company’s cash and cash equivalents increased by $1.0 million, to $50.3 million. This compares to a net increase of $34.1 million, to $99.9 million, during the same period in fiscal 2001. During the nine months ended June 30, 2002, the Company experienced net cash inflows from operating activities of $136.2 million, offset in part by net cash outflows from investing and financing activities, and the effect on cash of exchange rate changes, of $71.3 million, $58.4 million, and $5.5 million, respectively.
Operations resulted in net cash inflows of $136.2 million during the nine months ended June 30, 2002. This compares to a net contribution of $61.8 million during the same period in fiscal 2001. The $74.4 million increase in cash provided by operations in the first nine months of fiscal 2002 as compared to the same period in fiscal 2001 was due primarily to an increase in inflows of $57.9 million relating to the timing of cash receipts and payments within the Company’s working capital accounts, increases in net earnings and deferred income taxes of $16.5 million and $3.9 million, respectively, partially offset by a decrease in inflows of $5.6 million relating to the elimination of the amortization of goodwill beginning in the current fiscal year.
The Company’s investing activities resulted in net cash outflows of $71.3 million during the nine months ended June 30, 2002. This compares to net cash outflows of $54.7 million during the same period last year. The net increase of $16.6 million in cash used for investing activities in the first nine months of fiscal 2002 as compared to the same period in fiscal 2001 was due primarily to an increase of $14.9 million of net cash used for acquisitions, a decrease in disposals of property and equipment of $10.8 million, and a net increase in other noncurrent assets of $3.9 million. These outflows were partially offset by a decrease of $6.9 million in additions to property and equipment, an increase of $4.2 million in proceeds from sales of marketable securities and investments, and a decrease of $1.9 million in purchases of marketable securities and investments.
The Company’s financing activities resulted in net cash outflows of $58.4 million during the nine months ended June 30, 2002. This compares to net cash inflows of $29.3 million during the same period last year. The $87.6 million net increase in cash used for financing activities in the current period as compared to last year was due primarily to increases in repayments of long-term borrowings of $342.6 million. These outflows were partially offset by increases in proceeds from long-term and short-term borrowings of $221.2 million and $27.2 million, respectively, and by a decrease of $4.7 million in purchases of common stock for treasury. Total borrowing activity for the first nine months of fiscal 2002 resulted in net repayments of $67.8 million, compared to net additional borrowings of $26.4 million in the same period last year.
The Company believes it has adequate capital resources to fund its operations during the remainder of fiscal 2002 and beyond. The Company’s consolidated working capital position was $232.8 million at June 30, 2002. As discussed earlier, the Company has a long-term $230.0 million revolving credit facility and a long-term $40.0 million facility (originally established as a short-term credit facility in connection with the Delta acquisition), against which $77.5 million and $38.4 million, respectively, were outstanding at June 30, 2002 in the form of direct borrowings. At June 30, 2002, the Company had $48.1 million available through committed short-term credit facilities, against which $2.3 million was outstanding in the form of direct borrowings.
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Under its stock repurchase program, the Company is authorized to buy-back up to 3.0 million shares of its common stock in the open market. Repurchases of common stock will be financed from existing credit facilities and available cash balances. From inception of the program through December 31, 2001, the Company had repurchased a total of 1,866,200 shares of its common stock in the open market at a total cost of $59.0 million. Substantially all of these treasury shares were eventually reissued for the Company’s employee stock purchase and incentive stock plans. There were no repurchases of common stock for treasury during the second and third quarters of fiscal 2002.
Forward-Looking Statements
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’s clients operate and the services the Company provides. By their nature, such forward-looking statements involve risks and uncertainties. The Company has tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and words and terms of similar substance in connection with any discussion of future operating or financial performance. 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 including 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 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; and, |
· | the successful closing and/or subsequent integration of any merger or acquisition transaction. |
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.
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PART II — OTHER INFORMATION
Item |
| (a) | Exhibits |
99.1 – Statement by Chief Executive Officer and by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| (b) | Reports on Form 8-K |
On April 2, 2002, the Company filed with the Securities and Exchange Commission a Form 8-K dated April 1, 2002, announcing the completion of a previously announced two-for-one stock split, that was paid in the form of a 100% stock dividend to shareholders of record on March 1, 2002.
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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. (Registrant) | ||
| By: | /s/ JOHN W. PROSSER, JR. | |
| John W. Prosser, Jr. | ||
| Senior Vice President, Finance | ||
| and Administration and Treasurer | ||
Date: August 12, 2002
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