JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
SEPTEMBER 30, 1994
SELECTED HIGHLIGHTS
For Fiscal Years Ended September 30
1994 1993 1992
-----------------------------------------------------------------------------------------------------------------
Revenues $1,165,754,100 $1,142,926,100 $1,106,427,400
Net income 18,767,000 28,670,000 26,605,000
-----------------------------------------------------------------------------------------------------------------
Per share information:
Net income $ 0.75 $ 1.15 $ 1.11
Net book value 7.96 6.96 5.81
Closing year-end stock
price 24.375 23.250 29.125
-----------------------------------------------------------------------------------------------------------------
Total assets $ 504,364,200 $ 351,020,100 $ 316,731,100
Stockholders' equity 200,433,300 173,796,600 139,812,800
Return on average equity 10.03% 18.28% 21.56%
Stockholders of record 2,635 2,616 2,468
-----------------------------------------------------------------------------------------------------------------
Backlog:
Engineering services $ 793,060,000 $ 736,600,000 $ 647,100,000
Total 2,500,000,000 1,858,600,000 1,760,000,000
-----------------------------------------------------------------------------------------------------------------
Permanent staff 6,940 5,310 4,530
-----------------------------------------------------------------------------------------------------------------
Net income for fiscal 1994 includes special charges totalling approximately
$10,200,000, or $0.40 per share. Of the total amount recorded, approximately
$8,600,000, or $0.34 per share, relates to the consolidation of offices, asset
write-downs and certain other special charges, and approximately $1,600,000, or
$0.06 per share, relates to the settlement of certain third-party claims and
litigation.
Net income for fiscal 1992 included a net gain of $2,118,000, or $0.09 per
share, from the sale of 40 percent of the Company's holdings of the common stock
of Genetics Institute, Inc.
Jacobs Engineering Group Inc.
and Subsidiaries
Selected Financial Data
For Fiscal Years Ended September 30
1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
Results of Operations:
Revenues $1,165,754,100 $1,142,926,100 $1,106,427,400 $1,036,288,600 $881,756,600 $793,576,800
Net income 18,767,000 28,670,000 26,605,000 20,385,000 14,390,000 10,220,000
- -------------------------------------------------------------------------------------------------------------------------------
Financial Position:
Current ratio 1.41 to 1 1.61 to 1 1.56 to 1 1.41 to 1 1.24 to 1 1.24 to 1
Working capital $106,057,200 $100,688,400 $92,706,100 $60,580,100 $39,544,000 $32,964,600
Current assets 367,484,600 264,948,800 258,206,400 206,576,400 202,403,900 172,489,100
Total assets 504,364,200 351,020,100 316,731,100 260,141,600 253,706,500 212,679,700
Long-term debt 25,000,000 - - - - 6,332,100
Stockholders' equity 200,433,300 173,796,600 139,812,800 106,935,500 82,964,200 58,806,100
Return on average equity 10.03% 18.28% 21.56% 21.47% 20.30% 21.22%
Backlog:
Engineering services $793,060,000 $736,600,000 $647,100,000 $457,300,000 $329,400,000 $222,830,000
Total 2,500,000,000 1,858,600,000 1,760,000,000 1,605,000,000 1,343,300,000 970,010,000
- -------------------------------------------------------------------------------------------------------------------------------
Per Share Information:
Net income $0.75 $1.15 $1.11 $0.86 $0.64 $0.48
Stockholders' equity 7.96 6.96 5.81 4.50 3.70 2.74
- -------------------------------------------------------------------------------------------------------------------------------
Common and Common Stock
Equivalents Outstanding 25,173,200 24,964,500 24,070,000 23,763,300 22,439,100 21,501,000
- -------------------------------------------------------------------------------------------------------------------------------
Net income for fiscal 1994 included special charges totaling approximately
$10,200,000, or $0.40 per share. Of the total amount recorded, approximately
$8,600,000, or $0.34 per share, related to the consolidation of offices, asset
write-downs and certain other special charges, and approximately $1,600,000,
or $0.06 per share, related to the settlement of certain third-party claims
and litigation.
Net income for fiscal 1992 included a net gain of $2,118,000, or $0.09 per
share, from the sale of 40 percent of the Company's holdings of the common
stock of Genetics Institute, Inc.
The increases in revenues, current assets, total assets and backlog from 1987 to
1988 were due primarily to an acquisition.
Jacobs Engineering Group Inc.
and Subsidiaries
Selected Financial Data
For Fiscal Years Ended September 30
1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------
Results of Operations:
Revenues $757,410,000 $320,307,300 $207,589,400 $220,492,800
Net income 6,552,000 3,512,000 850,000 2,020,000
- -----------------------------------------------------------------------------------------------------
Financial Position:
Current ratio 1.18 to 1 1.42 to 1 1.21 to 1 1.13 to 1
Working capital $22,020,900 $26,657,100 $7,889,600 $7,479,100
Current assets 143,950,700 89,628,600 45,379,800 63,543,400
Total assets 179,642,100 116,848,700 75,786,300 95,833,300
Long-term debt 9,244,400 12,276,500 941,300 1,639,700
Stockholders' equity 37,502,800 30,966,500 26,960,400 26,768,700
Return on average equity 19.14% 12.13% 3.16% 7.90%
Backlog:
Engineering services $154,950,000 $87,736,000 $69,017,000 $65,378,000
Total 822,252,000 351,554,000 236,933,000 199,058,000
- -----------------------------------------------------------------------------------------------------
Per Share Information:
Net income $0.34 $0.18 $0.04 $0.10
Stockholders' equity 1.93 1.62 1.41 1.35
- -----------------------------------------------------------------------------------------------------
Common and Common Stock
Equivalents Outstanding 19,390,400 19,150,400 19,066,200 19,849,300
- -----------------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
SPECIAL 4TH QUARTER (FISCAL 1994) CHARGE
During fiscal 1993 and 1994, the Company completed several significant business
acquisitions. In January 1993, the Company acquired H&G Process Contracting
Limited and H&G Contractors Limited (together, "Humphreys & Glasgow"), based
in England. Then in June 1993, the Company acquired the Sigel Group of
companies ("Sigel"), based in Philadelphia, Pennsylvania. In September 1993,
the Company acquired Wolder Engineers and Constructors ("Wolder"), based in
Long Beach, California. And finally, in July 1994, the Company acquired
substantially all of the assets, subject to certain assumed liabilities
of CRS Sirrine Engineers, Inc. ("Sirrine") and all of the issued and
outstanding capital stock of CRSS Constructors, Inc. and CRSS International,
Inc. (together, "CRSS Constructors").
Management believes each of these acquisitions provides the Company with long-
term strategic growth opportunities. As a result of these acquisitions, the
Company now has established operations in new geographic markets and added to
the range of services it can provide its clients. The Company has also added to
its customer base, as well as to the industry groups and markets to which it can
provide its services.
However, in addition to providing the Company entry to new geographic markets,
the acquisitions added offices in geographic markets in which the Company
already had a presence. Furthermore, each of the acquisitions had an overhead
infrastructure that was in certain instances duplicative of resources already
existing within the Company.
Although Humphreys & Glasgow, Sigel and Wolder presented some of the operating
redundancies discussed above, the issue of cost control and office
consolidations became particularly acute after the Company completed the
acquisition of Sirrine and CRSS Constructors in the fourth quarter of fiscal
1994. For example, the acquisition of Sirrine and CRSS Constructors resulted in
the Company having as many as three or more offices in some geographic markets.
After the acquisition of Sirrine and CRSS Constructors, management implemented a
plan to consolidate certain of its offices. Also as a result of the acquisition
of Sirrine and CRSS Constructors, management reviewed where certain projects
were being executed, particularly those projects in the area of bulk chemical
processing, and decided to transfer selected projects to other offices within
the Company. Additionally, management undertook to evaluate the Company's
continuing business activities relating to a joint venture in the U.K.. Lastly,
management reviewed the realizability of assets the Company acquired in recent
years and wrote-down the carrying value of those assets to their estimated net
realizable values.
As a result of these actions, the Company recorded in the fourth quarter of 1994
a total after-tax charge of approximately $10.2 million ($0.40 per share). Of
the total amount recorded, approximately $8.6 million ($0.34 per share) related
to the consolidation and cost reduction activities discussed above, and
approximately $1.6 million ($0.06 per share) related to certain third-party
claims and litigation that were settled during the fourth quarter of 1994. A
more complete description of the components of the $8.6 million after-tax,
special charge follows.
Included in the $8.6 million after-tax, special charge is approximately $3.3
million relating to the consolidation of offices located primarily in Southern
California, New Jersey and Denver, Colorado. The Company has permanently
vacated approximately 90,000 square feet of office space and is in the process
of vacating approximately 75,000 additional square feet of office space. The
charge is net of management's estimate of possible recoveries from subleasing
the vacated space. The gross charge relating to the consolidation of offices
has been included in selling, general and administrative expenses in the 1994
consolidated income statement.
Also included in the special charge is approximately $1.8 million relating to
the Company's investment in Anglian H&G. Anglian H&G was a joint venture
between Anglian Water plc and Humphreys & Glasgow, an interest in which was
acquired by the Company as part of its acquisition of Humphreys & Glasgow in
1993. Anglian H&G provided engineering and construction management services for
granulated activated carbon ( " GAC " ) adsorption facilities. These
regeneration facilities remove pesticides and other contaminants from drinking
water. The highly specialized nature of Anglian H&G's market was inconsistent
with the Company's overall objectives in Europe. Accordingly, during the fourth
quarter of 1994, management decided to cease its long-term participation in the
joint venture and recorded the $1.8 million charge to reflect the loss on its
investment. Effective in the fourth quarter of 1994, the Company is no longer
bidding or pursuing work for GAC regeneration facilities through the joint
venture. The gross charge relating to this loss has been included in direct
costs of contracts and selling, general and administrative expenses in the 1994
consolidated income statement.
The Company did not initiate a significant reduction of its workforce as a
result of these consolidation activities. However, certain terminations did
occur during the fourth quarter. Included in the special charge is
approximately $1.9 million relating primarily to the Company's liability to
terminated employees.
Also included in the special charge is approximately $0.9 million relating to
the write-down of assets to their estimated net realizable values. The larger
items comprising this charge relate to real estate the Company has acquired over
the past several years which is being held for sale, as well as to equipment,
primarily the Company's jet aircraft, which likewise is being held for sale.
The balance of the special charge (approximately $0.7 million) relates to
various other costs resulting primarily from the Company's consolidation and
cost-cutting strategies.
No part of the special charge relates to the assets and liabilities acquired in
connection with the acquisition of Sirrine and CRSS Constructors. Adjustments
to these assets and liabilities were incorporated in the purchase price
allocation of those businesses.
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, 1994 (in thousands):
1994 1993 1992
----------- ----------- -----------
Environmental $ 175,846 $ 161,964 $ 105,608
Refining 372,769 404,462 362,005
Chemical and
pharmaceutical 415,062 386,522 351,336
Facilities 177,193 158,217 224,822
Minerals and fertilizers 24,884 31,761 62,656
---------- ---------- ----------
$1,165,754 $1,142,926 $1,106,427
========== ========== ==========
The following table sets forth total revenues from each of the types of services
the Company provides its customers for each year in the three year period ended
September 30, 1994 (in thousands):
1994 1993 1992
----------- ----------- -----------
Engineering $ 476,491 $ 453,247 $ 355,483
Construction 456,750 424,259 503,406
Maintenance 232,513 265,420 247,538
---------- ---------- ----------
$1,165,754 $1,142,926 $1,106,427
========== ========== ==========
The acquisition of Sirrine and CRSS Constructors was accounted for as a
purchase. Accordingly, the Company's consolidated results of operations include
the results of these businesses since the date of acquisition. Consolidated
revenues for 1994 include $103.5 million relating to Sirrine and CRSS
Constructors. The acquisitions of Humphreys & Glasgow, Sigel and Wolder
contributed $81.7 million of revenues in 1993 (refer to Note 2 to the
consolidated financial statements).
Excluding the effects of the acquisition of Sirrine and CRSS Constructors,
consolidated revenues decreased 7.1 percent from 1993 to 1994. Most of the
decrease occurred in the facilities area, where the construction phase of
certain large international projects were completed. Also posting a slight
decline were revenues in the refining area of the Company's business, which was
similarly attributable to lower levels of construction services (as discussed
below, construction and maintenance services generally provide for lower margins
than engineering services).
On a consolidated basis, engineering services revenues increased 5.1 percent
from 1993 to 1994. Excluding the effects of the acquisition of Sirrine and CRSS
Constructors, in-house engineering services revenues increased 4.6 percent from
1993 to 1994. The increase in engineering services revenues was evidenced by
the increase in the number of professional services hours billed to projects.
Excluding the effects of the acquisition, the Company billed 8.9 million hours
to projects in 1994; 0.4 million more hours than in 1993.
Excluding the effects of the acquisitions of Humphreys & Glasgow, Sigel and
Wolder, consolidated revenues in 1993 were 4.1 percent lower than 1992. This
decline was attributable primarily to reduced construction services and occurred
primarily in the facilities area of the Company's business. On a consolidated
basis, however, revenues for 1993 increased $36.5 million, or 3.3 percent.
Engineering services revenues in 1993 increased more than 27 percent from 1992.
The increase in engineering services revenues was
evidenced by the increase in the number of professional services hours billed to
projects. The Company billed 8.5 million hours to projects in 1993; 0.7 million
more hours than in 1992. Also contributing to the growth in engineering services
revenues was an increase in the use of professional engineering subcontracts.
The increase in engineering services activities was experienced in the
environmental, refining and the chemical and pharmaceutical industries, while
the decline in construction services occurred primarily in the facilities and
the minerals and fertilizers areas of the Company's business.
As a percent of revenues, direct costs of contracts were 87.9 percent in 1994,
87.1 percent in 1993 and 89.2 percent in 1992. 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 in the years
being compared. Historically, engineering services revenues have higher margins
than either construction or maintenance services. In general, the deterioration
in this percentage relationship from 1993 to 1994 was due substantially to the
effects of the special charge the Company recorded in the fourth quarter of
1994. The improvement in this percentage relationship from 1992 to 1993 was due
to an increasing portion of the Company's total business volume coming from
engineering services relative to construction and maintenance, combined with
increasing margins on all of the Company's services.
Selling, general and administrative ("S,G & A") expenses were $109.6 million
in 1994, $101.5 million in 1993 and $80.9 million in 1992. Of the $8.1 million
increase in S,G & A expenses from 1993 to 1994, $7.7 million relates to the
special charge the Company recorded in the fourth quarter of 1994. Also
included in S,G & A expenses in 1994 is $8.6 million of S,G & A expenses
generated by Sirrine and CRSS Constructors. Of the $20.6 million increase in
S,G & A expenses from 1992 to 1993, approximately $18.5 million were incurred
by the companies acquired in 1993.
The Company's operating profit was $31.8 million in 1994, $46.1 million in 1993
and $38.5 million in 1992. The decrease in operating profit from 1993 to 1994
relates primarily to the special charge the Company recorded in the fourth
quarter of 1994. Excluding the effect of the special charge, the Company's
operating profit would have been $48.7 million for 1994. The increase in
operating profit from 1992 to 1993 was due to an overall increase in business
volume combined with better margin rates, but was adversely affected by an
increased rate of S,G & A spending relative to revenues.
Interest income, net was $0.3 million in 1994, versus $1.3 million in 1993 and
$1.7 million in 1992. The decrease in net interest income from 1993 to 1994 was
due primarily to a lower level of cash invested during 1994 as compared to 1993,
combined with higher levels of borrowing activity in 1994 than in 1993.
Other expense, net totalled $0.7 million in 1994. This compares to other
income, net of $2.0 million in 1993 and $5.6 million in 1992. Included in the
1994 amount is approximately $1.1 million relating to the special charge the
Company recorded in the fourth quarter of 1994. The large amount of other
income, net in 1992 was due primarily to the gain from the sale of 40 percent of
the Company's holdings of the common stock of Genetics Institute, Inc.
BACKLOG
The following table summarizes total backlog information at September 30 for the
years indicated (in millions):
1994 1993 1992
----------------------------------------------------------------------
Engineering services $ 793.1 $ 736.6 $ 647.1
Total 2,500.0 1,858.6 1,760.0
----------------------------------------------------------------------
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, 1994 included approximately $1.1 billion of
contracts for work to be performed either directly or indirectly for agencies of
the federal government. This compares to approximately $1.0 billion at both
September 30, 1993 and 1992. 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).
In accordance with industry practice, substantially all of the Company's
contracts may be terminated by the customer. However, the Company has not
experienced cancellations which have had a material effect on the reported
backlog amounts. In the situation where a customer 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.
Of total backlog at September 30, 1994, the Company estimates that approximately
40 percent will be realized as revenues within the next year.
Of the $641.4 million increase in total backlog from 1993 to 1994, approximately
$326.8 million relates to the acquisition of Sirrine and CRSS Constructors. The
balance of the increase relates primarily to new awards in the environmental
area of the Company's business. Of the $98.6 million increase in backlog from
September 30, 1992 to September 30, 1993, most came from contract awards in the
refining area of the Company's business.
EFFECTS OF INFLATION
The effects of inflation on the Company's financial condition and results of
operations have decreased in recent years due primarily to the Company receiving
an increasing amount of its revenues under cost-plus type contracts.
To the extent permitted by competition, the Company continues to mitigate its
exposure to the effects of inflation by, among other things, emphasizing
contracts which are either cost-plus or negotiated fixed-price.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased $25.1 million during 1994.
This compares to net decreases of $3.4 million in 1993 and $9.1 million in 1992.
The current year increase was due to cash provided by operations ($41.3
million), financing activities ($34.4 million) and the effects of exchange rate
fluctuations on cash ($0.5 million), offset in part by cash used in investing
activities ($51.1 million).
Operations provided $41.3 million of cash and cash equivalents in 1994. This
compares to a net contribution of cash of $21.7 million in 1993 and a net use of
cash of $2.1 million in 1992. Although net income decreased $9.9 million from
1993 to 1994, the Company's 1994 results of operations included the special pre-
tax charge of approximately $21.1 million that did not require the immediate use
of cash. Also contributing to the increase in cash provided by operations in
1994 is a $3.2 million increase in depreciation and amortization. The balance
of the net increase in cash provided by operations in the current year as
compared to last year was due primarily to the timing of cash receipts and
payments on receivables and accrued liabilities and payables, respectively.
The Company's investing activities used $51.1 million of cash and cash
equivalents in 1994. This compares to a net use of cash of $24.5 million in
1993 and $14.0 million in 1992. The increase in the use of cash in 1994 as
compared to 1993 was due primarily to $33.5 million used in 1994 to acquire
Sirrine and CRSS Constructors; this compares to $7.4 million used in 1993 to
acquire Humphreys & Glasgow. Also contributing to the increase in cash used in
investing activities from 1993 to 1994 was a $14.3 million increase in property
and equipment additions. This increase was due primarily to the purchase of an
office building in Baton Rouge, Louisiana. The cash purchase price of the
building was $10.5 million; the Company was previously the principal lessee in
the building. Lastly, the Company's purchases and sales of long-term
investments yielded $7.2 million less cash in 1994 than in 1993. A substantial
part of this difference was attributable to a $5.1 million investment the
Company made in 1994 in a real estate investment trust. In addition to income
and dividends it expects to receive from this investment, the Company believes
the trust offers the potential to provide engineering, design, construction and
construction management services to businesses in the pharmaceutical and
biotechnology markets. Partially offsetting these uses of cash was $24.6
million more cash provided in 1994 from marketable securities transactions than
what was provided last year.
The Company's financing activities provided $34.4 million of cash and cash
equivalents in 1994. This compares to a net use of cash of $0.2 million in 1993
and a net contribution of $6.7 million in 1992. The variance from 1993 to 1994
was due primarily to bank borrowings that greatly exceeded the prior year
activity. Substantially all of the borrowing
relates to long-term debt incurred in connection with the acquisition of Sirrine
and CRSS Constructors.
The Company believes it has adequate capital resources available to fund
operations in 1995 and beyond. The Company's consolidated working capital
position totalled $106.1 million at September 30, 1994; $5.4 million more than
the comparable 1993 amount. In order to hedge against future fluctuations in
the U.S. dollar/U.K. pound exchange rate, the Company established lines of
credit with banks providing for short-term, sterling-denominated borrowing
capacity. The Company utilizes such facilities to satisfy the working capital
requirements of its U.K. operations. At September 30, 1994, the Company had a
total of $43.9 million available under all of its bank credit facilities,
against which $9.2 million was outstanding in the form of notes payable
(relating entirely to borrowings by the Company's U.K. subsidiary) and $1.7
million was utilized in support of outstanding letters of credit.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND 1993
1994 1993
- ------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 45,611,600 $ 20,515,000
Marketable securities 2,896,900 20,061,900
Receivables 288,095,200 201,438,800
Deferred income taxes 27,546,100 19,391,900
Prepaid expenses and other 3,334,800 3,541,200
----------------------------------------------------------------------------
Total current assets 367,484,600 264,948,800
-----------------------------------------------------------------------------
Property, Equipment and Improvements, Net 60,002,700 43,516,400
-----------------------------------------------------------------------------
Other Noncurrent Assets:
Goodwill, net 38,641,200 14,930,900
Other 38,235,700 27,624,000
----------------------------------------------------------------------------
Total other noncurrent assets 76,876,900 42,554,900
-----------------------------------------------------------------------------
$504,364,200 $351,020,100
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 9,238,100 $ 6,206,800
Accounts payable 93,117,100 42,918,500
Accrued liabilities 102,205,600 81,908,000
Customers' advances in excess of
related revenues 47,369,300 22,364,700
Income taxes payable 8,469,600 10,862,400
Deferred income taxes 1,027,700 --
----------------------------------------------------------------------------
Total current liabilities 261,427,400 164,260,400
-----------------------------------------------------------------------------
Long-term Debt 25,000,000 --
-----------------------------------------------------------------------------
Deferred Gains on Real Estate Transactions 2,665,000 3,631,100
-----------------------------------------------------------------------------
Other Deferred Liabilities 14,838,500 9,332,000
-----------------------------------------------------------------------------
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 and outstanding - 25,094,874
and 24,757,318 shares, respectively 25,094,900 24,757,300
Additional paid-in capital 37,251,400 30,436,000
Retained earnings 136,205,600 118,555,400
Other 1,881,400 47,900
----------------------------------------------------------------------------
Total stockholders' equity 200,433,300 173,796,600
- ------------------------------------------------------------------------------
$504,364,200 $351,020,100
==============================================================================
See the accompanying notes.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
1994 1993 1992
- --------------------------------------------------------------------------------------
Revenues $1,165,754,100 $1,142,926,100 $1,106,427,400
- --------------------------------------------------------------------------------------
Costs and Expenses:
Direct costs of contracts 1,024,360,500 995,350,000 987,043,600
Selling, general and
administrative expenses 109,573,700 101,519,400 80,870,400
Interest income, net (275,600) (1,304,300) (1,749,000)
Other (income) expense, net 718,400 (1,977,400) (5,609,000)
-------------------------------------------------------------------------------------
1,134,377,000 1,093,587,700 1,060,556,000
- --------------------------------------------------------------------------------------
Income before taxes 31,377,100 49,338,400 45,871,400
- --------------------------------------------------------------------------------------
Provision for Income Taxes 12,610,100 20,668,400 19,266,400
- --------------------------------------------------------------------------------------
Net Income $ 18,767,000 $ 28,670,000 $ 26,605,000
======================================================================================
Net Income Per Share $0.75 $1.15 $1.11
======================================================================================
See the accompanying notes.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
Additional
Common Paid-in Retained
Stock Capital Earnings Other
- ----------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1991 $23,272,700 $17,457,700 $ 64,651,700 $ 1,553,400
Net foreign currency
translation adjustment -- -- -- 1,320,500
Exercise of stock options,
including the related
income tax benefits 419,200 6,726,500 -- --
Repurchase of common
stock (80,400) (225,200) (1,888,300) --
Net income -- -- 26,605,000 --
- ----------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1992 23,611,500 23,959,000 89,368,400 2,873,900
Adjustments for poolings-of-
interests 820,700 -- 1,506,400 --
Net foreign currency
translation adjustment -- -- -- (2,826,000)
Exercise of stock options,
including the related
income tax benefits 371,800 6,681,300 -- --
Repurchase of common
stock (46,700) (204,300) (989,400) --
Net income -- -- 28,670,000 --
- ----------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1993 24,757,300 30,436,000 118,555,400 47,900
Net foreign currency
translation adjustment -- -- -- 1,302,500
Unrealized gains on
marketable securities -- -- -- 531,000
Exercise of stock options,
including the related
income tax benefits 397,300 7,080,600 -- --
Repurchase of common
stock (59,700) (265,200) (1,116,800) --
Net income -- -- 18,767,000 --
- ----------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1994 $25,094,900 $37,251,400 $136,205,600 $ 1,881,400
============================================================================================================================
See the accompanying notes.
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 18,767,000 $ 28,670,000 $ 26,605,000
Adjustments to reconcile net income to net
cash flows from operations:
Special charge not requiring cash 21,140,500 -- --
Depreciation and amortization 11,973,500 8,812,100 7,728,600
Amortization of deferred gains (966,200) (966,200) (966,200)
Gains on disposals of property,
equipment and other assets (1,057,900) (2,148,200) (7,856,100)
Changes in assets and liabilities,
excluding the effects of
businesses acquired:
Receivables (17,506,200) 7,940,900 (43,812,400)
Prepaid expenses and other 510,400 418,000 (933,000)
Accounts payable 941,200 (18,826,600) 6,721,400
Accrued liabilities 504,600 (4,571,600) 17,929,200
Customers' advances 14,861,700 3,291,000 (5,269,700)
Income taxes payable (2,427,100) 2,688,600 1,513,800
Deferred income taxes (5,474,000) (3,638,500) (3,755,700)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) 41,267,500 21,669,500 (2,095,100)
-----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of a business (33,513,000) (7,405,300) --
Additions to property and equipment (24,270,500) (9,930,500) (12,052,600)
Disposals of property and equipment 416,600 1,187,400 701,900
Increase in other assets, net (6,399,700) (3,664,700) (2,525,100)
Proceeds from sales of marketable
securities 18,039,600 -- 2,893,300
Purchases of marketable securities (872,900) (7,452,900) (12,002,700)
Proceeds from sales of investments 641,600 2,720,900 9,487,800
Purchases of investments (5,150,000) -- (463,700)
-----------------------------------------------------------------------------------------------------------------------------------
Net cash used (51,108,300) (24,545,100) (13,961,100)
-----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Exercise of stock options, including the
related income tax benefits 6,823,600 6,544,100 6,681,500
Net borrowings (repayments) of
bank debt 27,608,000 (6,762,200) --
-----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) 34,431,600 (218,100) 6,681,500
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes 505,800 (302,600) 292,500
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents 25,096,600 (3,396,300) (9,082,200)
Cash and Cash Equivalents at Beginning
of Period 20,515,000 22,753,700 31,835,900
Adjustment for Poolings-of-Interests -- 1,157,600 --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 45,611,600 $ 20,515,000 $ 22,753,700
====================================================================================================================================
See the accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
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 reclassifications have been made to the 1993 consolidated balance
sheet to conform to the 1994 presentation.
Revenue Accounting for Contracts
--------------------------------
The Company's principal business is that of providing professional
engineering, construction and construction management and maintenance services
under cost-plus, cost-plus 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, 1994, 1993 and 1992 was as
follows:
1994 1993 1992
----------------------------------------------------------------------
Cost-plus 83% 90% 87%
Guaranteed maximum 8 3 4
Fixed-price 9 7 9
----------------------------------------------------------------------
Revenues are recorded based on 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. When the
Company is responsible for the procurement of materials and equipment, craft
labor or subcontracts, it includes such amounts in both revenues and costs.
The approximate amount of such pass-through costs included in revenues for
each of the years ended September 30, 1994, 1993 and 1992 was $629,001,000,
$610,731,000 and $659,238,000, respectively.
Foreign Operations
------------------
The Company conducts its business from offices located throughout
the continental United States, as well as the United Kingdom and Ireland.
Revenues from the Company's U.K. and Irish operations totalled $64,790,400,
$120,410,200 and $176,464,500 for the years ended September 30, 1994, 1993 and
1992, respectively, and were earned from unaffiliated customers located
primarily in Europe. Included in revenues for the U.K. and Irish operations
in 1994, 1993 and 1992 were approximately $16,510,000, $69,614,000 and
$126,768,000, respectively, of pass-through costs.
Operating profit (defined as total revenues, less direct costs of
contracts, and selling, general and administrative expenses) for the U.K. and
Irish operations was approximately $618,000, $2,164,000 and $3,713,000 for
1994, 1993 and 1992, respectively. Identifiable assets of the U.K. and Irish
operations totalled $44,903,000 and $41,376,000 at September 30, 1994 and
1993, respectively.
Customers
---------
For the years ended September 30, 1994, 1993 and 1992, agencies of the
federal government accounted for 15.4 percent, 14.1 percent and 9.4 percent,
respectively, of total revenues. Within the private sector, one customer
accounted for 11.6 percent of total revenues in 1994. No one customer
accounted for more than 10 percent of revenues in 1993. Two customers
accounted for 12.5 percent and 10.8 percent, respectively, of total revenues
in 1992.
Cash Equivalents
----------------
The Company considers all highly liquid investments with a maturity of
less than three months as cash equivalents. Cash equivalents at September 30,
1994 and 1993 consisted primarily of time certificates of deposit.
Marketable Securities and Investments
-------------------------------------
The Company has adopted Statement of Financial Accounting Standards No.
115 - Accounting for Certain Investments in Debt and Equity Securities
("SFAS No. 115"). As permitted by SFAS No. 115, the Company adopted the new
standard as of September 30, 1994 and prior year financial statements have not
been restated to reflect the change in accounting principle. SFAS No. 115
applies to investments in equity securities that have readily determinable
fair values and to all investments in debt securities. The Company's
investment in equity and debt securities have been classified as either
trading securities (shown as "Marketable securities" in the accompanying
consolidated balance sheet), held-to-maturity securities or available-for-sale
securities (both are included as long-term investments in "Other noncurrent
assets" in the accompanying consolidated balance sheet). Management determines
the appropriate classification of all its investments at the time of purchase
and reevaluates such designation as of each balance sheet date.
The Company's investment in trading securities are stated at fair value
with unrealized gains or losses included in "Other income, net" in the
accompanying consolidated statement 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-for-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
recorded at September 30, 1994 totalled $531,000, net of income taxes.
Included in "Other noncurrent assets" in the accompanying consolidated
balance sheet at September 30, 1994 are investments consisting primarily of
available-for-sale equity securities having a total cost of approximately
$380,000, gross unrealized gains of approximately $890,000 and an estimated
fair value of approximately $1,270,000. The gross realized gains included in
income in 1994 and the gross proceeds received from sales of such securities
was approximately $484,000 and $621,000, respectively. Cost was determined
using the specific identification method.
Also included in investments at September 30, 1994 is $5,000,000 of
8.5 percent convertible notes issued by a private company. These notes are
stated at cost and interest income earned under the notes is included in
"Interest income, net" in the accompanying consolidated statement of income.
Receivables and Customers' Advances
-----------------------------------
Included in receivables at September 30, 1994 and 1993 were unbilled
amounts of $70,252,200 and $38,445,500, 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, 1994 and 1993 were contract retentions totalling
$22,064,800 and $5,936,800, 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 customers on contracts in advance of revenues earned thereon,
as well as billings to customers 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, 1994 and 1993:
1994 1993
----------------------------------------------------------------
Land $ 6,963,600 $ 5,484,600
Buildings 24,549,500 15,520,000
Equipment 74,687,100 60,861,400
Leasehold improvements 11,948,800 11,462,300
--------------------------------------------------------------
118,149,000 93,328,300
Less - accumulated depreciation
and amortization 58,146,300 49,811,900
----------------------------------------------------------------
$ 60,002,700 $43,516,400
================================================================
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.
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 primarily over 30 years. Goodwill is shown in the
accompanying consolidated balance sheets net of accumulated amortization of
$2,850,400 and $2,335,800 at September 30, 1994 and 1993, respectively.
Other noncurrent assets consisted of the following at September 30, 1994
and 1993:
1994 1993
------------------------------------------------------------
Prepaid pension costs $11,378,800 $10,864,000
Cash surrender value of life
insurance policies 11,676,700 8,846,000
Investments 8,202,100 3,304,100
Deferred income taxes 1,104,700 -
Miscellaneous 5,873,400 4,609,900
------------------------------------------------------------
$38,235,700 $27,624,000
============================================================
Income Taxes
------------
The Company has adopted Statement of Financial Accounting Standards No.
109 - Accounting for Income Taxes ( " SFAS No. 109 " ). As permitted by SFAS
No. 109, the Company adopted the new standard as of October 1, 1993 and prior
year financial statements have not been restated to reflect the change in
accounting principle. The cumulative effect as of October 1, 1993 of adopting
SFAS No. 109 was not material.
SFAS 109 requires an asset and liability approach to accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior to
the adoption of SFAS No. 109, the Company recorded income tax expense using
the deferral method. Under this method, deferred tax expense was based on
items of income and expense that were reported in different years in the
Company's financial statements and tax returns, and were measured at the tax
rate in effect in the year the difference originated.
Deferred Gains on Real Estate Transactions
------------------------------------------
In 1983, the Company entered into a real estate transaction which
resulted in a gain totalling $12,299,800. Since the transaction involved a
long-term lease agreement, the gain was deferred and is being amortized
ratably into income over the lease term (which ends December 31, 1997).
Concentrations of Credit Risk
-----------------------------
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.
As is customary in the industry, the Company grants uncollateralized
credit to its customers, which include the federal government and large,
multi-national corporations operating in the refining, chemical and
pharmaceutical industries, among others. In order to mitigate its credit
risk, the Company continually evaluates the credit worthiness of its major
commercial customers.
Net Income Per Share
--------------------
Net income per share has been computed based on the weighted average
number of shares of common stock and, if dilutive, common stock equivalents
outstanding as follows:
1994 1993 1992
----------------------------------------------------------------
Average number of
shares of common
stock outstanding 24,916,200 24,524,700 23,421,000
Average number of
common stock
equivalents outstanding 257,000 439,800 649,000
----------------------------------------------------------------
25,173,200 24,964,500 24,070,000
================================================================
2. BUSINESS COMBINATIONS
Effective July 31, 1994, the Company acquired the engineering and
construction management services businesses of CRSS, Inc. In the transaction,
the Company purchased substantially all of the assets of CRS Sirrine
Engineers, Inc. ("Sirrine"), subject to certain assumed liabilities, and
all of the issued and outstanding equity securities of CRSS Constructors, Inc.
and CRSS International, Inc. (together, "CRSS Constructors") The cash
purchase price was $33,500,000 and is subject to adjustment. The funds used
to acquire the businesses were provided by operations and long-term debt.
The acquisition has been accounted for as a purchase. Accordingly, 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 $23,256,000, and is
being amortized over 30 years on a straight-line basis. The Company's
consolidated results of operations include the results of operations of
Sirrine and CRSS Constructors since the date of acquisition.
The following table presents certain unaudited pro forma combined
information of the Company, Sirrine and CRSS Constructors assuming the
acquisition of Sirrine and CRSS Constructors occurred at the beginning of the
periods presented. It does not purport to be indicative of the results that
actually would have occurred had the acquisition been completed at the
beginning of the periods presented, nor is it intended to be a projection of
future results of operations (in thousands, except earnings per share):
1994 1993
------------------------------------------------------------
Revenues $1,505,713 $1,416,376
Net income $17,112 $25,993
Earnings per share $0.68 $1.04
------------------------------------------------------------
Effective September 1, 1993, the Company acquired all of the assets and
liabilities of Wolder Engineers and Constructors, Inc. and certain of its
affiliated companies ("Wolder"), in exchange for approximately 379,000
shares of the Company's common stock. Wolder provides engineering, design,
construction and construction management services to clients primarily in the
petroleum refining, gas transmission, chemical and mining businesses.
Effective June 1, 1993, the Company acquired all of the assets and
liabilities of the Sigel Group of companies ("Sigel"), in exchange for
approximately 442,000 shares of the Company's common stock. Sigel provides
engineering and design services to clients primarily in the
biotechnology/pharmaceutical industry worldwide.
The acquisitions of Sigel and Wolder have been accounted for as poolings-
of-interests. Because of immateriality, the Company's consolidated results of
operations for periods prior to 1993 were not restated. The acquisitions of
Sigel and Wolder have been reflected in the accompanying consolidated
financial statements as an adjustment to 1993 beginning balances, and the
Company's consolidated results of operations include the results of Sigel and
Wolder beginning October 1, 1992.
Effective January 1, 1993, the Company acquired all of the outstanding
ordinary shares of H & G Process Contracting Limited and H & G Contractors
Limited (together, "Humphreys & Glasgow"), an engineering and construction
business with offices located in the United Kingdom. The cash purchase price
was approximately $7,405,000, net of cash acquired. The acquisition of
Humphreys & Glasgow has been accounted for as a purchase. Accordingly, the
purchase price has been allocated to the assets and liabilities acquired based
on their estimated fair values. The purchase price allocation resulted in
goodwill of approximately $5,845,000. The Company's consolidated results of
operations include Humphreys & Glasgow from the date of acquisition.
3. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT
Short-term Borrowing Arrangements
---------------------------------
At September 30, 1994, the Company had $43,884,500 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. The agreements require payment of a fee of 0.25 percent of the average
unused portion of the facilities, as well as require the Company to maintain
certain minimum levels of working capital and net worth. One of the
agreements limits borrowings by the amount of letters of credit outstanding
under the facility. Borrowings under the lines are unsecured and the lines
generally extend through March 1995.
Other information regarding the lines of credit for the years ended
September 30, 1994, 1993 and 1992 was as follows:
1994 1993 1992
------------------------------------------------------------------------
Amount outstanding at
year end $ 9,152,200 $ 6,206,800 $ -
Weighted average interest
rate at year end 6.18% 6.89% -
Weighted average borrowings
outstanding during the
year $ 9,684,800 $ 6,369,400 $ 1,344,000
Weighted average interest
rate during the year 5.45% 6.32% 4.30%
Maximum amount outstanding
during the year $24,762,600 $12,300,000 $11,600,000
------------------------------------------------------------------------
Long-term Debt
--------------
On July 15, 1994, the Company amended one of its short-term bank lines of
credit increasing the borrowing capacity thereunder by $55,000,000. On July
29, 1994, the Company borrowed $25,000,000 against this amended credit line
and completed the acquisition of Sirrine and CRSS Constructors (see Note 2,
above). On December 22, 1994, the Company entered into a definitive, three
year, $45,000,000 revolving loan agreement with certain banks which
effectively replaces the amended, short-term line of credit. Accordingly, the
Company has classified as long-term debt at September 30, 1994 all of the
outstanding borrowings under the amended, short-term credit facility.
Borrowings under the long-term credit agreement are unsecured and 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, 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. At
September 30, 1994, the Company was not in compliance with certain covenants
contained in the amended, short-term line of credit agreement discussed above,
which has since been cured. Borrowings outstanding at September 30, 1994 bore
interest at 5.6 percent. The Company believes the fair value of its long-term
debt approximates its carrying value at September 30, 1994.
Interest expense for the years ended September 30, 1994, 1993 and 1992
was $792,000, $844,800 and $341,800, respectively, and has been included with
interest income in the accompanying consolidated statements of income.
Interest payments made during each of these years totalled $595,400,
$1,058,200 and $642,700, respectively.
4. STOCK PLANS
The Company's 1989 Employee Stock Purchase Plan (the " 1989 ESPP " )
provides for the granting of options to participating employees to purchase a
maximum of 1,406,777 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).
Shares of stock to be delivered under the 1989 ESPP may be made available from
the authorized but unissued common stock of the Company, or from shares that
may be purchased by the Company from individual sellers. During 1994, a total
of 222,337 shares of common stock were sold to participating employees at an
average price of $21.77 per share. Through September 30, 1994, a total of
981,571 shares have been sold to employees under the 1989 ESPP.
The Company has an incentive stock option plan (the " 1981 Plan " ) which
provides for the issuance of shares of common stock to employees and outside
directors. Under the 1981 Plan, the Company may grant four types of incentive
awards: incentive stock options, nonqualified stock options, restricted stock
and stock appreciation rights. At September 30, 1994, there were 2,553,759
shares of common stock reserved for issuance under the 1981 Plan, and all
options outstanding at that date consisted of nonqualified stock options.
Stock option activity and other related information for the 1981 Plan for
the years ended September 30, 1994, 1993 and 1992 follows:
1994 1993 1992
-----------------------------------------------------------------------
Options outstanding at
beginning of year 1,237,000 1,088,600 1,158,680
Options granted 438,000 350,300 226,000
Options exercised (174,941) (169,800) (268,680)
Options expired or canceled (87,100) (32,100) (27,400)
-----------------------------------------------------------------------
Options outstanding at
end of year 1,412,959 1,237,000 1,088,600
=======================================================================
Average price of options
exercised $ 9.30 $ 7.94 $ 5.23
Range of prices of options
outstanding $ 4.25 - $ 4.25 - $ 1.69 -
$ 28.20 $ 28.25 $ 26.99
Average price of options
outstanding $ 19.63 $ 17.82 $ 13.57
Options exercisable 413,919 269,800 155,600
Options available for future
grant 1,140,800 1,491,700 1,809,900
-----------------------------------------------------------------------
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.
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. Contributions to these plans totalled $6,000,200, $5,602,300 and
$4,790,900 for the years ended September 30, 1994, 1993 and 1992,
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, or upon retirement or
death. Admissions to the ESP were suspended in December 1983. The EDP was
established in June 1991. 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, 1994, 1993 and 1992 were
$5,567,800, $1,970,500 and $1,796,400, respectively. Included in other
deferred liabilities in the accompanying consolidated balance sheets at
September 30, 1994 and 1993 was $12,460,000 and $8,960,000, 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. Contributions to
these plans totalled $2,631,900, $2,180,600 and $2,065,400 for the years ended
September 30, 1994, 1993 and 1992, 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 in respect of the plan 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, 1994 and 1993:
1994 1993
-------------------------------------------------------------
Fair value of plan assets $75,578,700 $85,402,000
-------------------------------------------------------------
Actuarial present value of
benefit obligations (all
vested) 61,210,400 72,900,000
-------------------------------------------------------------
Accumulated benefit obligation 61,210,400 72,900,000
Effect of projected
compensation increases 1,785,900 1,638,000
-------------------------------------------------------------
Projected benefit obligation 62,996,300 74,538,000
-------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 12,582,400 10,864,000
Unrecognized gains (1,203,600) -
-------------------------------------------------------------
Prepaid pension asset $11,378,800 $10,864,000
=============================================================
The decrease in plan assets and projected benefit obligation from 1993 to
1994 was due in part to the transfer to an unrelated plan of assets and
obligations relating to employees excluded from the acquisition of Humphreys &
Glasgow. The components of net periodic pension cost (benefit) for the year
ended September 30, 1994 and the period ended September 30, 1993 were as
follows:
1994 1993
------------------------------------------------------------------
Service costs $ 1,205,900 $ 665,000
Interest 4,877,700 2,918,000
Actual return on plan assets (3,815,500) (7,821,000)
Net amortization and deferral (2,346,700) 4,384,000
------------------------------------------------------------------
Net periodic pension cost (benefit) $ (78,600) $ 146,000
==================================================================
The significant actuarial assumptions used in determining the funded
status of the plan were as follows: weighted average discount rate - 8
percent; weighted average rate of increase in compensation - 6 percent; and,
weighted average rate of return on pension assets - 8.5 percent. At September
30, 1994, the majority of the plan's assets were invested in equity securities
of companies trading in the U.K. and other European stock markets.
6. PROVISION FOR INCOME TAXES
As discussed in Note 1 to the consolidated financial statements, the
Company adopted SFAS No. 109 effective October 1, 1993. Prior year financial
statements have not been restated to reflect this change in accounting
principle.
For the years ended September 30, 1994, 1993 and 1992, the provisions for
income taxes consisted of the following:
1994 1993 1992
---------------------------------------------------------------------
Taxes currently payable:
Federal $13,195,800 $17,553,000 $18,307,200
State 2,912,500 4,162,100 3,385,100
Foreign 245,600 687,200 1,294,700
---------------------------------------------------------------------
16,353,900 22,402,300 22,987,000
---------------------------------------------------------------------
Taxes deferred:
Federal (3,057,400) (1,544,100) (3,025,000)
State (686,400) (189,800) (695,600)
---------------------------------------------------------------------
(3,743,800) (1,733,900) (3,720,600)
---------------------------------------------------------------------
$12,610,100 $20,668,400 $19,266,400
=====================================================================
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and their related amounts used for income tax
purposes. The significant components of the Company's deferred tax assets
(liabilities) at September 30, 1994 were as follows:
Assets:
Liabilities relating to employee
benefit plans $14,120,800
Self-insurance reserves 9,450,700
Accruals for office
consolidations and other
special charges 2,997,400
Deferred gains on real
estate transactions 1,104,700
Contract revenues and costs 800,300
Other, net 176,900
--------------------------------------------------
Total deferred tax assets 28,650,800
--------------------------------------------------
Liabilities:
Unremitted foreign earnings (1,102,000)
State income and franchise taxes (1,027,700)
Depreciation and amortization (922,500)
---------------------------------------------------
Total deferred tax liabilities (3,052,200)
---------------------------------------------------
Net deferred tax asset $25,598,600
==================================================
The reconciliations of the tax provisions recorded for the years ended
September 30, 1994, 1993 and 1992 to those based on the federal statutory rate
were as follows:
1994 1993 1992
-----------------------------------------------------------------
Statutory amount $10,982,000 $17,144,100 $15,596,200
State taxes, net of
the federal benefit 1,447,000 2,592,000 1,775,100
Other, net 181,100 932,300 1,895,100
-----------------------------------------------------------------
$12,610,100 $20,668,400 $19,266,400
=================================================================
Rate used to compute
statutory amount 35.00% 34.75% 34.00%
=================================================================
For the years ended September 30, 1993 and 1992, deferred income taxes
were provided for timing differences as follows:
1993 1992
---------------------------------------------------
Accrued liabilities $(1,362,800) $(5,103,200)
Contract revenues
and costs 76,100 1,164,700
Deferred gains on
real estate
transactions 315,100 338,100
Other, net (762,300) (120,200)
---------------------------------------------------
$(1,733,900) $(3,720,600)
===================================================
For the years ended September 30, 1994, 1993 and 1992, the Company paid
approximately $20,351,000, $18,882,000 and $19,038,000, respectively, in
income taxes.
For the years ended September 30, 1994, 1993 and 1992, consolidated
income before income taxes included $3,017,500, $2,729,200 and $5,638,400,
respectively, from foreign operations. Included in consolidated retained
earnings at September 30, 1994 were undistributed earnings of foreign
subsidiaries of approximately $11,139,000 for which no provision has been made
for federal income taxes as management has determined these earnings to be
indefinitely reinvested to expand its foreign operations. Should these
earnings be repatriated, approximately $3,141,000 of taxes would be payable.
Beginning October 1, 1986, the Company began providing for federal income
taxes, net of available credits, on foreign earnings.
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment under
operating leases with net aggregate future lease payments of $111,042,100 at
September 30, 1994 payable as follows:
Year ending September 30,
1995 $ 24,307,900
1996 21,519,200
1997 20,046,100
1998 13,586,100
1999 10,805,300
Thereafter 28,703,100
-------------------------------------------------------------
118,967,700
Less - amounts representing
sublease income 7,925,600
-------------------------------------------------------------
$111,042,100
=============================================================
Rent expense for the years ended September 30, 1994, 1993 and 1992 was
approximately $22,235,000, $19,338,000 and $17,948,000, respectively, and was
offset by sublease income of approximately $1,085,000, $1,547,000 and
$1,464,000, respectively.
Although the Company historically has carried liability insurance with
broad scopes of coverage providing significant liability limits, it is
presently difficult and costly to obtain insurance with such broad scopes of
coverage and limits. This development, while not unique to the Company or its
industry, 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.
The Company has entered into an employment agreement expiring September
30, 1999 with the chairman of its board of directors. The agreement provides
for base payments of $425,000 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
construction schedules and plant performance. Management believes, after
consultation with counsel, that these guarantees and litigation should not
have any material adverse effect on the Company's consolidated financial
statements.
Letters of credit outstanding at September 30, 1994 totalled $31,759,600.
8. COMMON AND PREFERRED STOCK
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.
9. OTHER FINANCIAL INFORMATION
Accrued liabilities at September 30, 1994 and 1993 consisted of the
following:
1994 1993
------------------------------------------------------
Accrued payroll and
related liabilities $ 43,931,400 $43,872,800
Insurance reserves 25,107,200 30,549,200
Office consolidations
and other special
charges 16,670,600 -
Other 16,496,400 7,486,000
------------------------------------------------------
$102,205,600 $81,908,000
======================================================
10. QUARTERLY DATA - UNAUDITED
Summarized quarterly financial information for the years ended September
30, 1994, 1993 and 1992 is presented below in thousands of dollars, except per
share amounts:
First Second Third Fourth Fiscal
1994 Quarter Quarter Quarter Quarter Year
--------------------------------------------------------------------
Revenues $260,610 $272,646 $263,768 $368,730 $1,165,754
Income (loss)
before
taxes 12,339 12,172 12,045 (5,179) 31,377
Net income
(loss) 7,280 7,300 7,275 (3,088) 18,767
Net income
(loss)
per share .29 .29 .29 (.12) .75
Stock price:
High 26.625 26.875 24.500 24.750 26.875
Low 22.000 23.250 18.000 19.875 18.000
--------------------------------------------------------------------
1993
--------------------------------------------------------------------
Revenues $298,612 $286,296 $273,890 $284,128 $1,142,926
Income
before
taxes 11,952 12,346 12,504 12,536 49,338
Net income 6,917 7,222 7,261 7,270 28,670
Net income
per share .28 .29 .29 .29 1.15
Stock price:
High 31.000 29.875 28.375 25.250 31.000
Low 24.375 25.750 20.000 20.000 20.000
--------------------------------------------------------------------
1992
--------------------------------------------------------------------
Revenues $253,673 $270,053 $283,421 $299,280 $1,106,427
Income
before
taxes 9,898 13,948 10,801 11,224 45,871
Net income 5,740 8,090 6,265 6,510 26,605
Net income
per share .24 .34 .26 .27 1.11
Stock price:
High 28.000 36.500 30.750 29.125 36.500
Low 22.500 27.125 22.375 21.625 21.625
--------------------------------------------------------------------
The Company's results of operations for fiscal 1994 include the results
of operations of CRS Sirrine Engineers, Inc., CRSS Constructors, Inc. and CRSS
International, Inc. beginning August 1, 1994 - see Note 2 to the consolidated
financial statements.
Net income for the fourth quarter of 1994 includes special charges
totalling approximately $10,200,000, or $0.40 per share. Of the total amount
recorded, approximately $8,600,000, or $0.34 per share, relates to the
consolidation of offices, asset write-downs and certain other special charges,
and approximately $1,600,000, or $0.06 per share, relates to the settlement of
certain third-party claims and litigation.
Net income for the first three quarters of 1993 differ from amounts
previously reported due to the acquisitions accounted for as poolings-of-
interests - see Note 2 to the consolidated financial statements. Net income for
the second quarter of 1992 included a gain of $2,118,000 relating to the sale of
certain marketable securities.
The Company's common stock is listed on the New York Stock Exchange. At
September 30, 1994, there were 2,635 shareholders of record.
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, 1994 and 1993, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1994. 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, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1994, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
November 2, 1994,
except for Note 3 - Long-term Debt, as to which the date is
December 22, 1994
MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING
The consolidated financial statements and other information included in this
annual report 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 financial information
contained elsewhere in this report 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 appears above this report. 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.