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, 1997 ------------- ( ) 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) 251 South Lake Avenue, Pasadena, California 91101 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) (626) 449 - 2171 - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) Indicate by check-mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: ( X ) YES - ( ) NO Number of shares of common stock outstanding at August 11, 1997: 25,753,654 Page 1 JACOBS ENGINEERING GROUP INC. INDEX TO FORM 10-Q Page No. _______________________________________________________________________________ Part I - Financial Information Item 1. Financial Statements: Consolidated Condensed Balance Sheets as of June 30, 1997 and September 30, 1996 3 Consolidated Condensed Statements of Income for the Three Months and Nine Months Ended June 30, 1997 and 1996 4 Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 1997 and 1996 5 Notes to Consolidated Condensed Financial Statements 6 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 10 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 11 Signatures 11 Page 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS AT JUNE 30, 1997 AND SEPTEMBER 30, 1996 (In thousands, except share information) (Unaudited) June 30, September 30, 1997 1996 -------- ------------- ASSETS Current Assets: Cash and cash equivalents $ 80,321 $ 62,865 Marketable securities 20,005 2,764 Receivables 296,508 276,668 Deferred income taxes 39,208 37,564 Prepaid expenses and other 4,128 3,783 - ----------------------------------------------- -------- -------- Total current assets 440,170 383,644 - ----------------------------------------------- -------- -------- Property, Equipment and Improvements, Net 89,332 79,009 - ----------------------------------------------- -------- -------- Other Noncurrent Assets: Goodwill, net 47,951 40,481 Other 73,308 69,371 - ----------------------------------------------- -------- -------- Total other noncurrent assets 121,259 109,852 - ----------------------------------------------- -------- -------- $650,761 $572,505 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to bank $ 2,947 $ 694 Accounts payable 44,425 60,799 Accrued liabilities 152,648 110,061 Customers' advances in excess of related revenues 64,079 47,052 Income taxes payable 9,044 9,469 - ----------------------------------------------- -------- -------- Total current liabilities 273,143 228,075 - ----------------------------------------------- -------- -------- Long-term Debt 33,892 36,300 - ----------------------------------------------- -------- -------- Deferred Gains on Real Estate Transactions 410 1,025 - ----------------------------------------------- -------- -------- Other Deferred Liabilities 28,034 23,718 - ----------------------------------------------- -------- -------- Commitments and Contingencies - ----------------------------------------------- -------- -------- Stockholders' Equity: Capital stock: Preferred stock, $1 par value, authorized - 1,000,000 shares, issued and outstanding - none - - Common stock, $1 par value, authorized - 60,000,000 shares, issued - 25,795,499 and 25,745,329 shares, respectively 25,795 25,745 Additional paid-in capital 51,264 49,191 Retained earnings 238,786 207,639 Other 1,128 1,039 - ----------------------------------------------- -------- -------- 316,973 283,614 Less, cost of common stock held in treasury (63,300 and 10,000 shares, respectively) 1,691 227 - ----------------------------------------------- -------- -------- Total stockholders' equity 315,282 283,387 - ----------------------------------------------- -------- -------- $650,761 $572,505 ======== ======== See the accompanying notes. Page 3 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1997 AND 1996 (In thousands, except per-share information) (Unaudited) For the Three Months For the Nine Months Ended June 30, Ended June 30, --------------------- -------------------- 1997 1996 1997 1996 ----- ---- ---- ---- Revenues $430,177 $436,820 $1,301,561 $1,394,962 - -------------------------------- -------- -------- ---------- ---------- Costs and Expenses: Direct costs of contracts 373,230 383,458 1,136,143 1,239,584 Selling, general and administrative expenses 38,351 36,710 112,073 107,225 Interest income, net (1,253) (339) (2,628) (673) Other (income) expense, net 31 (194) (749) (529) - -------------------------------- -------- -------- ---------- ---------- 410,359 419,635 1,244,839 1,345,607 -------- -------- ---------- ---------- Income before taxes 19,818 17,185 56,722 49,355 - -------------------------------- -------- -------- ---------- ---------- Income Tax Expense 7,848 6,805 22,462 19,545 - -------------------------------- -------- -------- ---------- ---------- Net Income $ 11,970 $ 10,380 $ 34,260 $ 29,810 ================================ ======== ======== ========== ========== Net Income Per Share $ .46 $ .40 $ 1.32 $ 1.15 ================================ ======== ======== ========== ========== See the accompanying notes. Page 4 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996 (In thousands) (Unaudited) 1997 1996 --------- --------- Cash Flows from Operating Activities: Net income $ 34,260 $ 29,810 Adjustments to reconcile net income to net cash flows from operations: Depreciation and amortization 14,398 13,002 Amortization of deferred gains (615) (615) Gains on disposals of assets (742) (103) Changes in assets and liabilities, net of businesses acquired: Receivables 1,490 18,794 Prepaid expenses and other current assets (322) (1,029) Accounts payable (16,795) (2,960) Accrued liabilities 39,445 8,604 Customers' advances (45) (580) Income taxes payable (288) (1,123) Deferred income taxes (1,641) (3,620) Other, net 244 - - ------------------------------------------------ -------- -------- Net cash provided 69,389 60,180 - ------------------------------------------------ -------- -------- Cash Flows from Investing Activities: Additions to property and equipment, net of disposals (20,187) (13,237) Purchases of marketable securities (20,000) - Proceeds from sales of marketable securities 2,963 145 Increase in investments (1,705) (21,456) Proceeds from sales of investments 634 - Net increase in other, noncurrent assets (2,820) (2,355) Acquisitions of businesses (7,562) - - ------------------------------------------------ -------- -------- Net cash used (48,677) (36,903) - ------------------------------------------------ -------- -------- Cash Flows from Financing Activities: Exercises of stock options 5,878 5,220 Purchases of treasury stock (7,286) - Net decrease in short-term borrowings (824) (7,792) Net increase in long-term borrowings - 18,371 Other, net (298) 1,631 - ------------------------------------------------ -------- -------- Net cash provided (used) (2,530) 17,430 - ------------------------------------------------ -------- -------- Effect of Exchange Rate Changes (726) 80 - ------------------------------------------------ -------- -------- Increase in Cash and Cash Equivalents 17,456 40,787 Cash and Cash Equivalents at the Beginning of the Period 62,865 39,118 - ------------------------------------------------ -------- -------- Cash and Cash Equivalents at the End of the Period $ 80,321 $ 79,905 ================================================ ======== ======== See the accompanying notes. Page 5 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JUNE 30, 1997 1. The accompanying consolidated condensed financial statements and financial information included herein have been prepared by the Company, without audit, pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Readers of this report should refer to the consolidated financial statements and the notes thereto incorporated into the Company's latest Annual Report on Form 10-K. In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of its consolidated financial position at June 30, 1997 and September 30, 1996, and its consolidated results of operations for the three months and nine months ended June 30, 1997 and June 30, 1996, and its consolidated cash flows for the nine months ended June 30, 1997 and June 30, 1996. The Company's interim results of operations are not necessarily indicative of the results to be expected for the full year. 2. During February 1997, the Company acquired certain physical assets and contracts of an engineering business with operations in Denver, Colorado and Santiago, Chile. Also in February 1997, the Company acquired a controlling interest in an affiliated entity headquartered in Mumbai, India. Then in April 1997, the Company acquired certain assets and liabilities of an engineering business headquartered in Green Bay, Wisconsin. Each of these acquisitions have been accounted for as purchases. The initial purchase price allocation, which may be adjusted further, resulted in goodwill of approximately $7,963,300. The results of operations of these businesses since their respective dates of acquisition were not material. 3. Included in receivables at June 30, 1997 and September 30, 1996 were unbilled amounts totaling $79,847,100 and $50,770,100, respectively. 4. Property, equipment and improvements are stated at cost and consisted of the following at June 30, 1997 and September 30, 1996 (in thousands): June 30, September 30, 1997 1996 -------- ------------- Land $ 9,886 $ 10,028 Buildings 37,862 38,762 Equipment 113,828 100,874 Leasehold improvements 14,586 12,812 - ------------------------------------------ -------- -------- 176,162 162,476 Less - accumulated depreciation and amortization 86,830 83,467 - ------------------------------------------ -------- -------- $ 89,332 $ 79,009 ======== ======== Page 6 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JUNE 30, 1997 5. Other assets consisted of the following at June 30, 1997 and September 30, 1996 (in thousands): June 30, September 30, 1997 1996 -------- ------------- Prepaid pension costs $11,993 $11,201 Cash surrender value of life insurance policies 22,445 20,758 Investments (primarily in affiliates) 34,656 35,000 Miscellaneous 4,214 2,412 - ---------------------------------------------- ------- ------- $73,308 $69,371 ======= ======= 6. During the nine months ended June 30, 1997 and 1996, the Company made cash payments of $1,700,900 and $2,012,600, respectively, for interest and $22,918,900 and $23,302,400, respectively, for income taxes. 7. Net income per share for the three months and nine months ended June 30, 1997 and 1996 has been computed based upon the weighted average number of shares of common stock and, if dilutive, common stock equivalents outstanding as follows (in thousands): Three Months Ended Nine Months Ended June 30, June 30, ------------------- -------------------- 1997 1996 1997 1996 ----- ---- ----- ----- Average number of shares of common stock outstanding 25,741 25,721 25,714 25,599 Average number of shares of common stock equivalents outstanding 272 378 241 358 ------ ------ ------ ------ 26,013 26,099 25,955 25,957 ====== ====== ====== ====== Page 7 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES June 30, 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with management's discussion and analysis of financial condition and results of operations incorporated by reference into the Company's latest Annual Report on Form 10-K. Results of Operations - --------------------- Revenues for the three months ended June 30, 1997 (the "third quarter of 1997") were $430.2 million; this was $6.6 million less than the amount for the three months ended June 30, 1996 (the "third quarter of 1996"). For the nine months ended June 30, 1997, revenues totaled $1,301.6 million; this was $93.4 million less than the amount for the corresponding period last year. These differences were due to lower construction activity, and reflect the completion and/or winding-down of several large projects during fiscal 1996. However, revenues from engineering services for the third quarter of 1997 were approximately 7.1% higher than the amount for the third quarter of 1996. For the nine months ended June 30, 1997, revenues from engineering services were approximately 2.8% higher than the comparable 1996 amount. As a percent of revenues, direct costs of contracts were 86.8% for the third quarter of 1997, as compared to 87.8% for the third quarter of 1996. For the nine months ended June 30, 1997, direct costs of contracts comprised 87.3% of revenues, as compared to 88.9% for the nine months ended June 30, 1996. The percentage relationship between direct costs of contracts and revenues will fluctuate between reporting periods depending on a variety of factors including the mix of business during the reporting periods being compared, as well as the level of margins earned from the various services provided by the Company. The improvements in this percentage relationship during both the current quarter and the current year-to-date period as compared to the corresponding periods last year were due to a proportionately higher level of the Company's overall business volume coming from engineering services relative to construction and maintenance services. Selling, general and administrative ("SG & A") expenses for the third quarter of 1997 totaled $38.4 million; this was $1.6 million more than the amount for the third quarter of 1996. For the nine months ended June 30, 1997, SG & A expenses totaled $112.1 million; this was $4.8 million more than the amount for the nine months ended June 30, 1996. Included in the 1997 amounts is $2.1 million of SG & A expenses associated with businesses acquired during the year. Also contributing to the increase in SG & A expenses for the current year-to-date period as compared to the corresponding period last year was higher sales and marketing activity. The Company's operating profit (defined as revenues, less direct costs of contracts and SG & A expenses) was $18.6 million for the third quarter of 1997; this was $1.9 million more than the amount for the third quarter of 1996. For the nine months ended June 30, 1997, the Company's operating profit was $53.3 million; this was $5.2 million more than the amount for the nine months ended June 30, 1996. These increases in operating profit were due primarily to the higher level of engineering services activity discussed above, combined with improved margin rates for all of the Company's services. Page 8 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES June 30, 1997 Interest income, net totaled $1.3 million for the third quarter of 1997; this was $0.9 million more than the amount for the third quarter of 1996. For the nine months ended June 30, 1997, net interest income totaled $2.6 million; this was $2.0 million more than the amount for the comparable period last year. In general, the increases in net interest income were due to higher average cash balances kept on deposit during 1997 as compared to 1996, combined with a slight increase in the average yield earned on the deposits. In addition, the amount of short-term bank debt outstanding during 1997 was substantially less than the average amount outstanding during the corresponding period last year, which contributed to an overall reduction in the amount of interest expense. Backlog Information - ------------------- The following table summarizes the Company's backlog at June 30, 1997 and 1996 (in millions): 1997 1996 -------- -------- Engineering services backlog $ 885.0 $ 830.0 Total backlog 2,940.0 2,680.4 Liquidity and Capital Resources - ------------------------------- The Company's cash and cash equivalents increased $17.5 million during the nine months ended June 30, 1997. This compares to a net increase of $40.8 million of cash and cash equivalents during the corresponding period last year. The current year increase in cash and cash equivalents was due to cash provided by operations ($69.4 million), offset in part by cash used in investing activities ($48.7 million), financing activities ($2.5 million), and the effect of exchange rate changes ($0.7 million). Operations contributed $69.4 million of cash and cash equivalents during the nine months ended June 30, 1997. This compares to net contributions of cash of $60.2 million during the nine months ended June 30, 1996. The $9.2 million increase in cash provided by operations during 1997 as compared to 1996 was due to a $4.5 million increase in net income, and a $1.4 million increase in depreciation and amortization expense. Also contributing to the increase in cash provided by operations during 1997 as compared to 1996 were the effects resulting from the timing of cash receipts and payments relating to the Company's trade receivables, payables and accrued liabilities. The Company's investing activities used $48.7 million of cash and cash equivalents during the nine months ended June 30, 1997. This compares to a net use of cash of $36.9 million during the nine months ended June 30, 1996. Net of disposals, the Company spent $20.2 million in additions to property and equipment during the nine months ended June 30, 1997. This is $6.9 million more than the amount spent during the comparable period last year. However, included in the 1997 figure is approximately $3.8 million of additions originating from the Company's newly-acquired Indian subsidiary. Page 9 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES June 30, 1997 The Company's 1996 investing activities included the purchase of a 49% interest in the engineering and construction operations of the Serete Group of France for approximately $19.0 million. No similar transaction of that magnitude occurred during the first nine months of 1997; however, the Company spent $7.6 million in cash acquiring several businesses. Subsequent to June 30, 1997, the Company completed the acquisition of the remaining interest in the Serete Group. Total cash paid for the balance of the business was approximately $9.5 million. In addition, at the time of closing, the Company loaned to the former majority owner of the Serete Group approximately $12.5 million. The Company's 1997 investing activities included the deposit of $20.0 million with a U.S. bank under a managed investment program. The investment manager has full investment and dispositive powers over the securities included in the program. The program emphasizes the preservation of capital through investment- grade, marketable debt instruments which have maximum maturities of ten years. Cash flows from financing activities used $2.5 million in cash and cash equivalents during the nine months ended June 30, 1997. This compares to a net source of cash of $17.4 million during the nine months ended June 30, 1996. Included in the 1996 figure were bank borrowings made under the Company's long- term revolving credit agreement used to finance the purchase of its 49% interest in the Serete Group. During 1997, the Company repurchased 292,900 shares of its common stock under a buy-back program it initiated during the second half of 1996. Total cost of the shares repurchased during 1997 was $7.3 million. Since initiating this repurchase program last year, the Company has bought-back a total of 445,900 shares of its common stock at a total cost of $10.9 million. The Company believes it has adequate capital resources to fund its operations for the remainder of 1997 and beyond. At June 30, 1997, the Company's short- term committed credit facilities totaled $40.9 million through banks located primarily in the U.S. and the U.K., against which $0.5 million was outstanding in the form of direct borrowings (relating entirely to the Company's U.K. subsidiary), and another $4.9 million was utilized in support of outstanding letters of credit. Page 10 JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES June 30, 1997 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 27. Financial Data Schedule. (b) Reports on Form 8-K: Not applicable. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JACOBS ENGINEERING GROUP INC. /s/ John W. Prosser, Jr. ___________________________ John W. Prosser, Jr. Senior Vice President, Finance and Administration and Treasurer Date: August 12, 1997 Page 11