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, 1999 ------------- ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from_______ to _______ Commission File Number 1-7463 JACOBS ENGINEERING GROUP INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 95-4081636 - -------------------------------------------------------------------------------- (State of incorporation) (I.R.S. employer identification number) 1111 South Arroyo Parkway, Pasadena, California 91105 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (626) 578 - 3500 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check-mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: ( X ) YES - ( ) NO Number of shares of common stock outstanding at August 11, 1999: $25,923,979 Page 1
JACOBS ENGINEERING GROUP INC. INDEX TO FORM 10-Q <TABLE> <CAPTION> Page - --------------------------------------------------------------------------------- <S> <C> Part I - Financial Information Item 1. Financial Statements (unaudited): Consolidated Condensed Balance Sheets - June 30, 1999 and September 30, 1998 3 Consolidated Condensed Statements of Income - Three and nine months ended June 30, 1999 and 1998 4 Consolidated Condensed Statements of Cash Flows - Nine months ended June 30, 1999 and 1998 5 Notes to Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II - Other Information: Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 </TABLE> 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) <TABLE> <CAPTION> June 30, September 30, 1999 1998 ----------- -------------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 52,019 $101,328 Marketable securities 1,837 16,482 Receivables 673,638 394,841 Deferred income taxes 62,874 45,419 Prepaid expenses and other 20,627 7,937 - ---------------------------------------------- ---------- -------- Total current assets 810,995 566,007 - ---------------------------------------------- ---------- -------- Property, Equipment and Improvements, Net 142,980 100,565 - ---------------------------------------------- ---------- -------- Other Noncurrent Assets: Goodwill, net 229,991 77,246 Other 99,642 63,671 - ---------------------------------------------- ---------- -------- Total other noncurrent assets 329,633 140,917 - ---------------------------------------------- ---------- -------- $1,283,608 $807,489 ============================================== ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable $ 5,957 $ 217 Accounts payable 161,831 101,846 Accrued liabilities 257,201 161,552 Customers' advances in excess of related revenues 196,269 85,049 Income taxes payable 16,132 19,684 - ---------------------------------------------- ---------- -------- Total current liabilities 637,390 368,348 - ---------------------------------------------- ---------- -------- Long-term Debt 168,387 26,221 - ---------------------------------------------- ---------- -------- Other Deferred Liabilities 49,600 35,170 - ---------------------------------------------- ---------- -------- Minority Interests 5,545 6,345 - ---------------------------------------------- ---------- -------- 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; 25,913,500 shares issued and outstanding at June 30, 1999; 25,866,795 shares issued in 1998 25,913 25,867 Additional paid-in capital 60,808 55,698 Retained earnings 342,323 300,296 Other (6,358) (2,856) - ---------------------------------------------- ---------- -------- 422,686 379,005 Less, cost of common stock held in treasury (254,028 shares at September 30, 1998) - 7,600 - ---------------------------------------------- ---------- -------- Total stockholders' equity 422,686 371,405 - ---------------------------------------------- ---------- -------- $1,283,608 $807,489 ============================================== ========== ======== </TABLE> See the accompanying Notes to Consolidated Condensed Financial Statements. Page 3
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In thousands, except per-share information) (Unaudited) <TABLE> <CAPTION> For the Three Months For the Nine Months Ended June 30, Ended June 30, -------------------- ----------------------- 1999 1998 1999 1998 -------- -------- ---------- ---------- <S> <C> <C> <C> <C> Revenues $771,905 $525,034 $2,106,951 $1,556,169 - ----------------------------------- -------- -------- ---------- ---------- Costs and Expenses: Direct costs of contracts 663,442 457,679 1,817,876 1,354,240 Selling, general and administrative expenses 79,948 44,881 209,253 137,488 Interest (income) expense, net 2,683 (580) 3,939 (1,755) Other (income) expense, net (986) 301 (861) 604 - ----------------------------------- -------- -------- ---------- ---------- 745,087 502,281 2,030,207 1,490,577 - ----------------------------------- -------- -------- ---------- ---------- Income before taxes 26,818 22,753 76,744 65,592 - ----------------------------------- -------- -------- ---------- ---------- Income Tax Expense 10,058 8,873 28,659 25,582 - ----------------------------------- -------- -------- ---------- ---------- Net Income $ 16,760 $ 13,880 $ 48,085 $ 40,010 =================================== ======== ======== ========== ========== Net Income Per Share: Basic $ 0.65 $ 0.54 $ 1.87 $ 1.55 Diluted $ 0.63 $ 0.53 $ 1.82 $ 1.53 =================================== ======== ======== ========== ========== </TABLE> See the accompanying Notes to Consolidated Condensed Financial Statements. Page 4
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) <TABLE> <CAPTION> For the Nine Months Ended June 30 --------------------------------- 1999 1998 --------- -------- <S> <C> <C> - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 48,085 $ 40,010 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization 23,429 18,128 Gain on sale of assets (2,042) - Amortization of deferred gains - (205) Changes in assets and liabilities, excluding the effects of business acquired: Receivables (102,373) (8,923) Prepaid expenses and other current assets (5,399) (2,706) Accounts payable (5,337) (7,834) Accrued liabilities 34,603 (13,397) Customers' advances 73,455 14,341 Income taxes payable (3,084) 17,128 Deferred income taxes (3,713) 506 Other, net 352 269 - ------------------------------------------------------ --------- -------- Net cash provided by operating activities 57,976 57,317 - ------------------------------------------------------ --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of business, net of cash acquired (199,840) - Additions to property and equipment, net of disposals (31,642) (33,380) Proceeds from sales of marketable securities and investments 18,626 4,195 Purchases of marketable securities and investments (1,470) (6,120) Net increase in other noncurrent assets (6,037) (2,616) Other, net - 347 - ------------------------------------------------------ --------- -------- Net cash used by investing activities (220,363) (37,574) - ------------------------------------------------------ --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 170,000 - Repayments of long-term borrowings (63,935) - Exercises of stock options, including the related income tax benefits 7,728 7,290 Increase (decrease) in short-term borrowings, net 3,496 (583) Change in other deferred liabilities, net (701) (1,958) Purchase of common stock for treasury - (12,074) - ------------------------------------------------------ --------- -------- Net cash provided (used) by financing activities 116,588 (7,325) - ------------------------------------------------------ --------- -------- Effect of Exchange Rate Changes (3,510) (1,174) - ------------------------------------------------------ --------- -------- (Decrease) increase in cash and cash equivalents (49,309) 11,244 Cash and cash equivalents at the beginning of period 101,328 55,992 - ------------------------------------------------------ --------- -------- Cash and cash equivalents at the end of period $ 52,019 $ 67,236 ====================================================== ========= ======== </TABLE> See the accompanying Notes to Consolidated Condensed Financial Statements. Page 5
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 1999 1. The accompanying consolidated condensed financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with 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 latest Annual Report on Form 10-K of Jacobs Engineering Group Inc. (the "Company"). In the opinion of management of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the Company's consolidated financial position at June 30, 1999 and September 30, 1998, its consolidated results of operations for the three and nine months ended June 30, 1999 and 1998, and its consolidated cash flows for the nine months ended June, 30 1999 and 1998. The Company's interim results of operations are not necessarily indicative of the results to be expected for the full year. 2. Included in receivables at June 30, 1999 and September 30, 1998 were recoverable amounts under contracts in progress totaling $311,776,800 and $106,072,200, respectively. These represent amounts earned under contracts in progress but not billable at the balance sheet date. The Company anticipates that substantially all of such unbilled amounts will be billed and collected over the next twelve months. 3. Property, equipment and improvements are stated at cost and consisted of the following at June 30, 1999 and September 30, 1998 (in thousands): <TABLE> <CAPTION> June 30, September 30, 1999 1998 - ----------------------------------- ---------- -------------- <S> <C> <C> Land $ 14,999 $ 11,416 Buildings 56,497 33,440 Equipment 167,983 133,379 Leasehold improvements 13,015 10,642 Construction in progress 6,730 12,595 - ----------------------------------- --------- --------- 259,224 201,472 Accumulated depreciation and amortization (116,244) (100,907) - ----------------------------------- --------- --------- $ 142,980 $ 100,565 =================================== ========= ========= =================================== </TABLE> Page 6
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 1999 4. Other noncurrent assets consisted of the following at June 30, 1999 and September 30, 1998 (in thousands): <TABLE> <CAPTION> June 30, September 30, - ------------------------------------- -------- ------------- <S> <C> <C> Prepaid pension costs $22,918 $11,929 Cash surrender value of life insurance policies 29,996 26,920 Investments 31,486 20,277 Notes receivable 6,035 1,785 Miscellaneous 9,207 2,760 - ------------------------------------- ------- ------- $99,642 $63,671 ======= ======= </TABLE> 5. Basic earnings per share ("EPS") shown in the accompanying consolidated condensed statements of income was computed by dividing net income by the weighted average number of shares of common stock outstanding for the period. Diluted EPS was computed by dividing net income by the weighted average number of shares of common stock and dilutive securities outstanding (consisting solely of nonqualified stock options). The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS (in thousands): <TABLE> <CAPTION> Three Months Ended Nine Months Ended June 30, June 30, -------- -------- 1999 1998 1999 1998 -------- -------- ------- ------- <S> <C> <C> <C> <C> Weighted average shares outstanding (denominator used to compute Basic EPS) 25,899 25,773 25,745 25,731 Effect of employee and outside director stock options 772 511 742 364 ------ ------ ------ ------ Denominator used to compute Diluted EPS 26,671 26,284 26,487 26,095 ====== ====== ====== ====== </TABLE> 6. Effective October 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires the disclosure of comprehensive income, either in a separate statement of comprehensive income, or as part of a combined statement of income and comprehensive income in a full-set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non- owner sources. SFAS 130 requires that the unrealized gains and losses from the Company's available-for-sale securities, and foreign currency translation adjustments be included in comprehensive income. However, SFAS 130 does not have any effect on the Company's net income or stockholders' equity, or how these items are computed. Page 7
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 1999 For the three months and nine months ended June 30, 1999, total comprehensive income (net of taxes) was $18,486,700 and $46,836,700, respectively. For the three months and nine months ended June 30, 1998, total comprehensive income (net of taxes) was $13,923,200 and $38,983,500, respectively. 7. During the nine months ended June 30, 1999 and 1998, the Company made cash payments of approximately $5,341,000 and $1,806,600, respectively, for interest and $35,329,800 and $19,202,800, respectively, for income taxes. 8. On January 14, 1999, the Company completed its Agreement and Plan of Merger with the Sverdrup Corporation ("Sverdrup"). Sverdrup provides engineering, architecture, construction and scientific services for the development, design, construction and operation of capital facilities, infrastructure projects and advanced technical systems for public and private sector clients in the United States and internationally. Sverdrup employs more than 5,600 people in 35 offices. Under the terms of the merger agreement, at closing, a wholly-owned subsidiary of the Company ("Merger Subsidiary") was merged with and into Sverdrup. Thereupon, each outstanding share of common stock of Sverdrup was converted into the right to receive a proportional share of the total amount of initial merger consideration of $198.0 million paid at closing. Each outstanding share of common stock of Sverdrup will also receive a proportional amount of any additional merger consideration that may be paid in the future ("Deferred Merger Consideration"). Amounts payable as Deferred Merger Consideration, if any, will be payable shortly after each of the first three anniversaries of the date of the merger agreement, and is contingent upon the Company's stock price exceeding certain price thresholds as defined in the merger agreement. The total amount payable as Deferred Merger Consideration is limited to a maximum of $31.0 million. After the merger and conversion, the Merger Subsidiary ceased to exist, and Sverdrup survives as a new, wholly-owned subsidiary of the Company. The terms of the merger were arrived at by arms-length negotiations between the parties. Of the total initial merger consideration of $198.0 million paid at closing, $10.0 million was paid into an escrow account, the purpose of which will be to settle certain claims or disputes relating to certain contracts and litigation matters identified in the merger agreement. Page 8
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 1999 The initial merger consideration was financed in part by a new, $230.0 million revolving credit facility obtained by the Company from a group of banks led by Bank of America NT&SA. Amounts borrowed under this facility initially were used to fund that portion of the initial merger consideration not financed using existing internal funds, and the repayment of certain Sverdrup indebtedness existing at closing. 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 $160.3 million, which is being amortized over 40 years on a straight-line basis. The following unaudited pro forma financial information presents the combined results of operations of Jacobs and Sverdrup, after giving effect to certain adjustments, including amortization of goodwill, additional interest expense, and related income tax effects, and assuming the acquisition occurred at the beginning of the periods presented. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had Jacobs and Sverdrup constituted a single entity during such periods (in thousands, except per-share data): <TABLE> <CAPTION> Nine Months Ended June 30, ----------------------- 1999 1998 - -------------------------------- ---------- ---------- <S> <C> <C> Pro forma revenues $2,366,523 $2,289,266 Pro forma net income 48,545 39,617 Pro forma earnings per share: Basic 1.89 1.54 Diluted 1.83 1.52 - -------------------------------- ---------- ---------- </TABLE> Page 9
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES June 30, 1999 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-11 of Exhibit 13 of the Company's 1998 Annual Report on Form 10-K). Results of Operations - --------------------- On January 14, 1999, the Company completed its merger with the Sverdrup Corporation ("Sverdrup"). Sverdrup provides engineering, architecture, construction and scientific services for public and private sector clients in the United States and internationally. The Sverdrup transaction 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 $160.3 million, which is being amortized over 40 years on a straight-line basis. The Company's consolidated results of operations include the results of Sverdrup's operations since January 1, 1999. See Note 8 to Consolidated Condensed Financial Statements for additional discussion of the Sverdrup transaction. The Company recorded net income of $16.8 million, or $0.63 per diluted share, for the three months ended June 30, 1999, compared to net income of $13.9 million, or $0.53 per diluted share, for the same period last year. For the nine months ended June 30, 1999, the Company recorded net income of $48.1 million, or $1.82 per diluted share, compared to net income of $40.0 million, or $1.53 per diluted share, for the same period last year. During the three months ended June 30, 1999, total revenues increased by $246.9 million, or 47.0 %, to $771.9 million, compared to $525.0 million for the same quarter in fiscal 1998. This increase was attributable primarily to the business volume generated by Sverdrup's operations, which contributed 28% to the Company's revenues during the current quarter. Total revenues for the nine months ended June 30, 1999 increased by $550.8 million, or 35.4%, to $2,107.0 million, compared to $1,556.2 million for the same period in fiscal 1998. Approximately 81% of this increase was generated by Sverdrup's operations, with the balance attributable to the Company's continuing U.S. and European operations (that is, those offices operating during the comparable periods of both fiscal 1999 and fiscal 1998). Page 10
Revenues from field (construction and maintenance) service activities increased by $163.3 million, or 49.4%, to $493.8 million during the third quarter of fiscal 1999, compared to $330.4 million for the third quarter of fiscal 1998. For the nine months ended June 30, 1999, revenues from field services increased by $386.8 million, or 40.4%, to $1,344.3 million, compared to $957.4 million for the same period in fiscal 1998. Approximately 77% of the increase in field service revenues during the first nine months of fiscal 1999 was generated by Sverdrup's operations, with the balance attributable to the Company's continuing U.S. and European operations. Revenues from engineering service activities increased by $83.5 million, or 42.9%, to $278.1 million during the third quarter of fiscal 1999, compared to $194.6 million for the third quarter of fiscal 1998. For the nine months ended June 30, 1999, revenues from engineering services increased by $163.9 million, or 27.4%, to $762.7 million, compared to $598.7 million for the same period in fiscal 1998. Approximately 88% of the increase in engineering service revenues during the first nine months of fiscal 1999 was generated by Sverdrup's operations, with the balance attributable to the Company's continuing U.S. and European operations. As a percentage of revenues, direct costs of contracts decreased to 86.0% and 86.3%, respectively, for the three and nine months ended June 30, 1999, respectively, compared to 87.2% and 87.0% for the third quarter and the first nine months of fiscal 1998, respectively. 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 the current periods, compared to the same periods last year, were due primarily to the relatively higher margins on Sverdrup's engineering and field services operations. Also contributing to the improvement was the favorable effect of the proportionately higher margins earned on the new volume of engineering services activities generated, relative to field services activities. Selling, general and administrative ("SG & A") expenses for the third quarter of fiscal 1999 increased by $35.1 million, or 78.1%, to $79.9 million, compared to $44.9 million for the third quarter of fiscal 1998. For the nine months ended June 30, 1999, SG & A expenses increased by $71.8 million, or 52.2%, to $209.3 million, compared to $137.5 million for the same period in fiscal 1998. The increases in SG & A expenses during the three and nine months ended June 30, 1999 were due almost entirely to the results of operations of Sverdrup. During the third quarter of fiscal 1999, the Company's operating profit (defined as revenues, less direct costs of contracts and SG & A expenses) increased by $6.0 million, or 26.9%, to $28.5 million, compared to $22.5 million for the third quarter of fiscal 1998. For the nine months ended June 30, 1999, the Company's operating profit increased by $15.4 million, or 23.9%, to $79.8 million, compared to $64.4 million for the same period in fiscal 1998. Page 11
The Company recorded $2.7 million and $3.9 million, respectively, of net interest expense during the three and nine months ended June 30, 1999, compared to net interest income of $0.6 million and $1.8 million, respectively, for the comparable periods in fiscal 1998. During the prior fiscal period ended June 30, 1998, the Company was a net investor of excess cash. During the current fiscal period ended June 30, 1999, as a result of the merger with Sverdrup Corporation, the Company became a net borrower of cash. As discussed above, the Company financed the merger price with a new, $230.0 million revolving credit facility, under which the Company initially borrowed $165.0 million. At June 30, 1999, outstanding borrowings relating to the Sverdrup merger under this facility were $130.0 million. The Company recorded $1.0 million and $0.9 million, respectively, of net other income during the three and nine months ended June 30, 1999, compared to net other expense of $0.3 million and $0.6 million, respectively, for the comparable periods in fiscal 1998. The increases in net other income during the current quarter and year to date periods were due primarily to higher gains realized on the sales of securities, partially offset by an increase in other miscellaneous expenses. The Company's overall effective tax rates were 37.5% and 37.3%, for the third quarter of fiscal 1999 and the nine months ended June 30, 1999, respectively. This compares to an effective tax rate of 39.0% for both the three and nine months ended June 30, 1998. The reduction in the Company's effective tax rate is attributable primarily to a lower tax rate on the Company's non-U.S. operations. Backlog Information - ------------------- The following table summarizes the Company's backlog at June 30, 1999 and 1998 (in millions): <TABLE> <CAPTION> 1999 1998 -------- -------- <S> <C> <C> Engineering services backlog $1,614.2 $1,000.5 Total backlog $4,340.0 $3,210.5 </TABLE> Liquidity and Capital Resources - ------------------------------- During the nine months ended June 30, 1999, the Company's cash and cash equivalents decreased by $49.3 million, to $52.0 million. This compares to a net increase of $11.2 million, to $67.2 million, during the same period in fiscal 1998. During the nine months ended June 30, 1999, the Company experienced net cash outflows from investing activities and the effect of exchange rate changes, of $220.4 million and $3.5 million, respectively, offset in part by net cash inflows from financing and operating activities of $116.6 million and $58.0 million, respectively. Page 12
The Company's operating activities contributed $58.0 million of cash and cash equivalents during the first nine months of fiscal 1999. This compares to a net contribution of $57.3 million during the same period in fiscal 1998. Cash flows from operating activities were benefited by an $8.1 million increase in net income during the first nine months of fiscal 1999 as compared to fiscal 1998, and a $5.3 million increase in depreciation and amortization expense (which are non-cash charges), offset in part by a $6.7 million increase in net cash outflows relating to the timing of cash receipts and payments within the Company's working capital accounts. Net cash outflows from deferred income tax benefits and gains on sales of assets account for the remainder of the change in cash flows from operating activities in fiscal 1999 as compared to last year. The Company's investing activities resulted in a net cash outflow of $220.4 million during the nine months ended June 30, 1999, compared to a net cash outflow of $37.6 million during the comparable period last year. The $182.8 million net increase in cash used by investing activities during the first nine months of fiscal 1999 as compared to fiscal 1998 was due primarily to the merger with Sverdrup, requiring $199.8 million in cash (which included the associated costs of the merger), combined with a $3.4 million net increase in other noncurrent assets. Offsetting these cash outflows in part was a $14.4 million increase from fiscal 1998 to fiscal 1999 in proceeds from sales of marketable securities and investments. The proceeds from the sales of marketable securities and investments in fiscal 1999 were used to partially fund the merger with Sverdrup and pay down indebtedness relating to the merger. The Company's financing activities generated $116.6 million in cash and cash equivalents during the first nine months of fiscal 1999 compared to a net cash outflow of $7.3 million during the same period last year. In January 1999, in connection with the merger with Sverdrup, the Company terminated its existing long-term $45.0 million revolving credit agreement and entered into a new, $230.0 million revolving credit agreement. The Company borrowed $165.0 million under the new facility to pay the initial merger consideration and related costs of $199.8 million, and $21.0 million of Sverdrup indebtedness existing at closing. During the June 30, 1999 quarter, the Company paid down $40.0 million of its long-term, $230.0 million revolving credit facility relating primarily to the Sverdrup transaction. See Note 8 to Consolidated Condensed Financial Statements for additional discussion of the Sverdrup transaction. The Company has adequate capital resources to fund its operations for the remainder of fiscal 1999 and beyond. As discussed above, the Company entered into a new, long-term, $230.0 million revolving credit facility during the second quarter of the current fiscal year, against which $151.0 million was outstanding at June 30, 1999 in the form of direct borrowings. These borrowings relate to the merger indebtedness, and other refinanced amounts that were outstanding under the old $45.0 million revolving credit agreement. The Company's committed short-term credit facilities totaled $30.8 million at June 30, 1999, against which $11.4 million was outstanding in the form of direct borrowings and letters of credit. Page 13
Year 2000 Readiness-Update - ---------------------------- The Company has had an ongoing Year 2000 ("Y2K") program that began in fiscal 1997 to ensure that its operational and financial systems would not be adversely affected by Y2K data processing hardware and software failures arising from processing errors involving calculations using the Year 2000 date. (Readers should refer to pages A-7 through A-10 of Exhibit 13 to the Company's 1998 Annual Report on Form 10-K for a more complete discussion of the Company's Y2K compliance program). As of June 30, 1999, the Company continues to be actively engaged in one or more compliance phases with respect to each of the business areas it has identified as critical to normal and routine operations. Additionally, the Company has integrated the Y2K compliance program of Sverdrup into the Company's overall Y2K compliance program. Sverdrup's separate Y2K compliance program was begun prior to the completion of the merger. The Company is also continuing its communications program with third parties (clients, vendors and suppliers) regarding the Company's Y2K readiness. 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; the cyclical nature of the individual markets in which the Company's customers operate; and the ability to integrate successfully the operations of Sverdrup Corporation. 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 14
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 None Page 15
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. - ----------------------------- (Registrant) By: /s/ John W. Prosser, Jr. ___________________________ John W. Prosser, Jr. Senior Vice President, Finance and Administration and Treasurer Date: August 12, 1999 Page 16