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 December 31, 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.
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(Exact name of Registrant as specified in its charter)
Delaware 95-4081636
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(State of incorporation) (I.R.S. employer identification number)
1111 South Arroyo Parkway, Pasadena, California 91105
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(Address of principal executive offices) (Zip code)
(626) 578 - 3500
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(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 February 11, 1998: 25,643,301
Page 1
JACOBS ENGINEERING GROUP INC.
INDEX TO FORM 10-Q
Page No.
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Part I - Financial Information
Item 1. Financial Statements:
Consolidated Condensed Balance
Sheets as of December 31, 1997
and September 30, 1997 3
Consolidated Condensed Statements
of Income for the Three Months
Ended December 31, 1997 and 1996 4
Consolidated Condensed Statements of
Cash Flows for the Three Months
Ended December 31, 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 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11 - 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share information)
(Unaudited)
December 31, September 30,
1997 1997
------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 56,131 $ 55,992
Marketable securities 21,802 21,130
Receivables 390,430 382,051
Deferred income taxes 40,337 40,352
Prepaid expenses and other 4,609 4,396
- ---------------------------------------------- -------- --------
Total current assets 513,309 503,921
- ---------------------------------------------- -------- --------
Property, Equipment and Improvements, Net 95,354 93,401
- ---------------------------------------------- -------- --------
Other Noncurrent Assets:
Goodwill, net 74,950 75,445
Other 75,177 71,436
- ---------------------------------------------- -------- --------
Total other noncurrent assets 150,127 146,881
- ---------------------------------------------- -------- --------
$758,790 $744,203
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 499 $ 1,443
Accounts payable 116,549 109,098
Accrued liabilities 110,257 129,767
Customers' advances in excess of
related revenues 88,614 77,149
Income taxes payable 15,300 8,261
- ---------------------------------------------- -------- --------
Total current liabilities 331,219 325,718
- ---------------------------------------------- -------- --------
Long-term Debt 53,395 54,095
- ---------------------------------------------- -------- --------
Other Deferred Liabilities 35,875 34,620
- ---------------------------------------------- -------- --------
Minority Interests 5,379 5,462
- ---------------------------------------------- -------- --------
Commitments and Contingencies
- ----------------------------------------------
Stockholders' Equity:
Capital stock:
Preferred stock, $1 par value,
authorized - 1,000,000 shares,
issued and outstanding - none - -
Common stock, $1 par value,
authorized - 60,000,000 shares,
issued - 25,816,360 and
25,810,860 shares, respectively 25,816 25,811
Additional paid-in capital 52,306 52,186
Retained earnings 262,601 249,791
Other (2,765) (2,744)
- ---------------------------------------------- -------- --------
337,958 325,044
Less, cost of common stock held
in treasury (192,600 shares and
25,000 shares, respectively) 5,036 736
- ---------------------------------------------- -------- --------
Total stockholders' equity 332,922 324,308
- ---------------------------------------------- -------- --------
$758,790 $744,203
======== ========
See the accompanying notes.
Page 3
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(In thousands, except per-share information)
(Unaudited)
1997 1996
--------- ---------
Revenues $506,359 $433,649
- ------------------------------------------------- -------- --------
Costs and Expenses:
Direct costs of contracts 440,787 380,207
Selling, general and administrative expenses 45,322 36,452
Interest income, net (686) (665)
Other income, net (65) (342)
- ------------------------------------------------- -------- --------
485,358 415,652
-------- --------
Income before taxes 21,001 17,997
- ------------------------------------------------- -------- --------
Income Tax Expense 8,191 7,127
- ------------------------------------------------- -------- --------
Net Income $ 12,810 $ 10,870
================================================= ======== ========
Net Income Per Share:
Basic $ .50 $ .42
Diluted $ .49 $ .42
================================================= ======== ========
See the accompanying notes.
Page 4
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(In thousands)
(Unaudited)
1997 1996
--------- ---------
Cash Flows from Operating Activities:
Net income $ 12,810 $ 10,870
Adjustments to reconcile net income
to net cash flows from operations:
Depreciation and amortization 5,269 4,795
Amortization of deferred gains (205) (205)
Gains on disposals of assets - (203)
Changes in assets and liabilities, net:
Receivables (10,873) 18,252
Prepaid expenses and other
current assets (221) 72
Accounts payable 8,020 (12,337)
Accrued liabilities (19,055) (1,015)
Customers' advances 12,907 (4,772)
Income taxes payable 7,156 6,260
Deferred income taxes 15 242
Other, net 5 79
- ------------------------------------------------ -------- --------
Net cash provided 15,828 22,038
- ------------------------------------------------ -------- --------
Cash Flows from Investing Activities:
Additions to property and equipment, net
of disposals (7,665) (3,445)
Purchases of investments and marketable
securities (4,211) (1,677)
Net increase in other noncurrent assets (572) (2,214)
Proceeds from sales of marketable securities - 2,963
- ------------------------------------------------ -------- --------
Net cash used (12,448) (4,373)
- ------------------------------------------------ -------- --------
Cash Flows from Financing Activities:
Exercises of stock options, including the
related income tax benefits 125 349
Purchases of treasury stock (4,300) (1,540)
Increase (decrease) in bank borrowings, net (933) 618
Change in other deferred liabilities, net 1,460 (462)
- ------------------------------------------------ -------- --------
Net cash used (3,648) (1,035)
- ------------------------------------------------ -------- --------
Effect of Exchange Rate Changes 407 303
- ------------------------------------------------ -------- --------
Increase in Cash and Cash Equivalents 139 16,933
Cash and Cash Equivalents at the Beginning
of the Period 55,992 62,865
- ------------------------------------------------ -------- --------
Cash and Cash Equivalents at the End
of the Period $ 56,131 $ 79,798
================================================ ======== ========
See the accompanying notes.
Page 5
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 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 December 31, 1997 and September 30,
1997, and its consolidated results of operations and cash flows for the
three months ended December 31, 1997 and 1996.
The Company's interim results of operations are not necessarily indicative
of the results to be expected for the full year.
2. Included in receivables at December 31, 1997 and September 30, 1997 were
unbilled amounts totaling $83,791,900 and $82,972,400, respectively.
3. Property, equipment and improvements are stated at cost and consisted of
the following at December 31, 1997 and September 30, 1997 (in thousands):
December 31, September 30,
1997 1997
------------ -------------
Land $ 12,734 $ 12,983
Buildings 38,413 38,876
Equipment 117,552 114,127
Leasehold improvements 22,051 18,411
- ------------------------------------------ -------- --------
190,750 184,397
Less - accumulated depreciation
and amortization 95,396 90,996
- ------------------------------------------ -------- --------
$ 95,354 $ 93,401
======== ========
Page 6
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Other assets consisted of the following at December 31, 1997 and September
30, 1997 (in thousands):
December 31, September 30,
1997 1997
------------ -------------
Prepaid pension costs $11,712 $11,509
Cash surrender value of life
insurance policies 23,980 23,775
Investments 20,427 17,014
Notes receivable 14,565 14,602
Miscellaneous 4,493 4,536
- ------------------------------------- ------- -------
$75,177 $71,436
======= =======
5. During the three months ended December 31, 1997 and 1996, the Company made
cash payments of $563,800 and $605,000, respectively, for interest and
$1,048,900 and $332,500, respectively, for income taxes.
6. Effective with the first quarter of fiscal 1998, the Company adopted, and
retroactively applied, Statement of Financial Accounting Standards No. 128
- Earnings per Share. Accordingly, basic earnings per share was computed
by dividing net income for each of the periods shown by the weighted
average number of shares of common stock outstanding during each period.
Diluted earnings per share was computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents outstanding. Common stock equivalents consist solely of stock
options.
Page 7
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
December 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
- -------
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operation
(incorporated by reference from pages A-3 through A-7 of Exhibit 13 of the
Company's 1997 Annual Report on Form 10-K).
Results of Operations
- ---------------------
Revenues for the three months ended December 31, 1997 (the "first quarter of
fiscal 1998") were $506.4 million. This was $72.7 million more than the amount
for the three months ended December 31, 1996 (the "first quarter of fiscal
1997"). Approximately 63% of the increase in revenues is attributable to the
Company's continuing U.S. and European operations (that is, those offices
operating during both the first quarter of fiscal 1998 and the first quarter of
fiscal 1997). The balance of the increase was due principally to the operations
of the Serete Group and HGC-India (two entities acquired by the Company after
the first quarter of fiscal 1997). With respect to revenues from the types of
services the Company provides, most of the increase in revenues in fiscal 1998
as compared to last year is attributable to higher engineering services
activity, as opposed to field services.
As a percent of revenues, direct costs of contracts were 87.1% for the first
quarter of fiscal 1998, as compared to 87.7% for the first quarter of 1997. The
percentage relationship between direct costs of contracts and revenues will
fluctuate between reporting periods depending on a variety of factors including
the mix of business during the reporting periods being compared, as well as the
level of margins earned from the various services provided by the Company. The
improvement in this percentage relationship during the current quarter as
compared to the corresponding period last year was 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 first quarter of
1998 totaled $45.3 million. This was $8.9 million more than the amount of SG &
A expenses for the comparable period in fiscal 1997. Of the $8.9 million
increase in SG&A expenses, approximately 13% related to the Company's continuing
U.S. and European operations, with the balance of the increase being attributed
to the Serete Group and HGC-India.
The Company's operating profit (defined as revenues, less direct costs of
contracts and SG & A expenses) was $20.2 million for the first quarter of fiscal
1998. This was $3.3 million more than the amount for the first quarter of
fiscal 1997. The increase in operating profit was due primarily to the higher
level of engineering services activity discussed above, combined with improved
margin rates for those services.
Page 8
The Company's overall effective tax rate was 39.0% for the first quarter of
fiscal 1998, as compared to 39.6% for the first quarter of fiscal 1997. The
reduction in the Company's effective tax rate is attributable primarily to a
lower tax rate on the Company's non-U.S. operations.
Backlog Information
- -------------------
The following table summarizes the Company's backlog at December 31, 1997 and
1996 (in millions):
1997 1996
-------- --------
Engineering services backlog $ 934.2 $ 852.0
Total backlog 3,045.2 2,847.0
Liquidity and Capital Resources
- -------------------------------
The Company's cash and cash equivalents increased $0.1 million during the three
months ended December 31, 1997. This compares to a net increase of $16.9
million during the three months ended December 31, 1996. The Company's
operating activities provided a total of $15.8 million of cash and cash
equivalents during the first quarter of fiscal 1998. However, these funds were
almost entirely employed through the Company's investing activities (which used
$12.4 million of cash and cash equivalents during the first quarter of fiscal
1998) and financing activities (which used $3.6 million).
As disclosed above, operating activities contributed $15.8 million of cash and
cash equivalents during the first quarter of fiscal 1998. This compares to net
contributions of cash of $22.0 million during the first quarter of fiscal 1997.
The $6.2 million decrease in cash provided by operations in the first quarter of
1998 as compared to the corresponding period last year occurred in spite of a
$1.9 million increase in net income, and was due primarily to the timing of cash
receipts and payments relating to receivables and prepaid expenses, and trade
payables, accrued liabilities and customer advances, respectively.
The Company's investing activities used $12.4 million of cash and cash
equivalents during the three months ended December 31, 1997. This compares to a
net use of cash of $4.4 million during the three months ended December 31, 1996.
The increase in the amount of cash used in investing activities in the first
quarter of fiscal 1998 as compared to last year was due primarily to a $4.2
million increase in purchases of property and equipment (net of disposals), and
a $2.5 million increase in purchases of investments and marketable securities.
Cash flows from financing activities used $3.6 million in cash and cash
equivalents during the three months ended December 31, 1997. This compares to a
net use of cash of $1.0 million during the three months ended December 31, 1996.
The increase in the amount of cash used in financing activities in the first
quarter of fiscal 1998 as compared to last year was due primarily to an increase
in treasury stock purchases. The Company began it's stock buy-back program
during the third quarter of fiscal 1996. Through December 31, 1997, the Company
has purchased a total of 773,400 shares in the open market at a total cost of
$19,965,300.
Page 9
The Company believes it has adequate capital resources to fund its operations
for the remainder of 1998 and beyond. At December 31, 1997, the Company's
short-term committed credit facilities totaled $48.3 million through banks in
the U.S., the U.K., France, India and Chile, against which $0.5 million was
outstanding in the form of direct borrowings.
Forward-Looking Statements
- --------------------------
Statements included in this Quarterly Report on Form 10-Q that are not based on
historical facts are "forward-looking statements", as that term is discussed in
the Private Securities Litigation Reform Act of 1995. These statements are
based on management's current estimates, expectations and projections about the
industries in which the Company operates and the services it provides. By their
nature, such forward-looking statements involve risks and uncertainties. The
Company cautions the reader that a variety of factors could cause business
conditions and results to differ materially from what is contained in its
forward-looking statements. These factors include the following: increase in
competition by foreign and domestic competitors; availability of qualified
engineers and other professional staff needed to execute contracts; the timing
of new awards and of funding for such awards; the ability of the Company to meet
performance or schedule guarantees; cost overruns on fixed, maximum or unit
priced contracts; the outcome of pending and future litigation and governmental
proceedings; and the cyclical nature of the individual markets in which the
Company's customers operate. The preceding list is not all-inclusive, and the
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
Readers of this Form 10-Q should also read the Company's most recent Annual
Report on Form 10-K for a further description of the Company's business, legal
proceedings and other information that describes factors that could cause actual
results to differ from such forward-looking statements.
Page 10
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
December 31, 1997
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 Annual Meeting of Shareholders was held at the Company's
headquarters on February 10, 1998, as previously announced in its Notice of
Annual Meeting of Shareholders and Proxy Statement dated January 2, 1998, copies
of which have been filed with the Commission pursuant to Regulation 14A.
There were two matters voted upon by the stockholders at the Annual Meeting.
Those matters were:
1. To elect a slate of directors as nominated in the proxy statement
(Mr. Joseph F Alibrandi, the Honorable Peter H. Dailey, Mr.
Robert B. Gwyn, and Dr. Linda K. Jacobs); and,
2. To approve the appointment of Ernst & Young LLP as independent
auditors for the year ending September 30, 1998.
The results of the shareholder voting were as follows (all shares voted were
voted by proxy):
Votes Against Broker
Votes For or Withheld Abstentions Non-votes
--------- ------------ ----------- ---------
1. Election of Directors:
Joseph F. Alibrandi 21,738,021 229,082 -0- -0-
Peter H. Dailey 21,740,961 226,142 -0- -0-
Robert B. Gwyn 21,741,659 225,444 -0- -0-
Linda K. Jacobs 21,739,459 227,644 -0- -0-
2. Ratification of the
Appointment of
Ernst & Young LLP 21,908,882 30,988 27,233 -0-
The Directors who did not stand for election at the Annual Meeting and whose
terms of office continued after the Annual Meeting were: Joseph J. Jacobs,
James Clayburn LaForce, Dale R. Laurance, Linda Fayne Levinson, David M.
Petrone, James L. Rainey, Jr., and Noel G. Watson.
ITEM 5. OTHER INFORMATION
Stock Repurchase Program:
- ------------------------
At its 1998 Annual Meeting of Shareholders, the Company announced that the Board
of Directors had approved an additional 2,000,000 shares of the Company's common
stock to be added to the Company's stock repurchase program. The repurchase plan
was originally approved by the Board of Directors in June 1996 with the
authorization of 1,000,000 shares. Against the original authorization, the
Company has purchased a total of 773,400 shares in the open market at a total
cost of $19,965,300. Taking into consideration the recent action by the Board of
Directors, the Company may purchase in the future up to 2,226,600 shares of its
common stock. Shares repurchased may be used by the Company to meet the common
stock requirements of certain of its benefit plans, as well as for other
corporate purposes.
Page 11
Government Investigation:
- ------------------------
As a contractor providing services to various agencies of the U.S. government,
the Company undergoes regular audits of its books and records by the Defense
Contract Audit Agency (the "DCAA"). During a recent audit, the DCAA questioned
the Company's method of accounting for rent associated with a building which the
Company sold in 1982 then leased from 1983 through 1997. On this issue, the
Company has since received a subpoena for information in a civil investigation
underway by an Assistant U.S. Attorney for the Central District of California.
The Company is cooperating fully with the government and expects to continue to
provide documents and make personnel available to the government. Civil
subpoenas of this nature usually pertain either to a Department of Justice
investigation of a referral from a government agency or as a result of a civil
"qui tam" lawsuit which may be under Court seal. In qui tam lawsuits, a private
plaintiff alleges violation of the False Claims Act and receives a portion of
the government's recovery, if any. During the time a private action is sealed,
the government investigates the issues raised by the lawsuit. Additional
remedies available to the government include administrative, civil or criminal
liabilities, imposition of reimbursements, fines or penalties, and under the
False Claims Act, assessment of civil penalties per violation, plus treble the
amount of any damages sustained by the government. Whether it is an agency
referral, private action, or other procedure and what the result of the
government's review of the accounting issues will be or what actions the
government may take, if it takes any at all, is unknown at this time. The
Company has not been given notice nor served with any claim or lawsuit.
Since no actual claim or lawsuit has been served on the Company, the Company
does not possess sufficient information to determine the amount of loss, if any,
the Company may sustain, or to reasonably estimate the amount of loss, if any,
as a consequence of these accounting issues.
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: February 11, 1998
Page 12