1998 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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) Registrant's telephone number, including area code (626) 578-3500 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- Common Stock, $1 par value New York Stock Exchange 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 INDICATE BY CHECK-MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. ( ) ___________________ The aggregate market value of the Registrant's voting stock held by non- affiliates was approximately $857,055,000 as of December 24, 1998, based upon the last reported sales price on the New York Stock Exchange. For this purpose, the Registrant considers Dr. Joseph J. Jacobs to be its only affiliate. As of December 24, 1998, the Registrant had outstanding 25,641,040 shares of its common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement issued in connection with its 1999 Annual Meeting of Shareholders (Part II and Part III). ================================================================================
PART I Item 1. BUSINESS General - ------- Jacobs Engineering Group Inc. (the "Company") is one of the largest professional service firms in the United States providing engineering, design and consulting services; construction and construction management services; and process plant maintenance services to a broad range of industrial, commercial and governmental clients. The Company provides its services through offices and subsidiaries located in the United States, Europe, India, Mexico and Chile. The Company focuses its services on selected industry groups and markets including chemicals; petroleum; semiconductor; pulp and paper; pharmaceuticals and biotechnology; federal programs; and buildings and infrastructure (this last group includes transportation and health care projects, commercial and governmental buildings, and other industrial projects). Over the past several years, the Company has grown its business through both internal initiatives and strategic acquisitions. The acquisitions have allowed the Company to (i) expand or enhance the range of services it provides its clients; (ii) expand its client base; and (iii) provide access to new geographical areas. In Fiscal 1994, the Company acquired CRS Sirrine and CRSS Constructors (whose principal offices are located primarily within the United States). These acquisitions greatly expanded the Company's professional staff. They provided broad-based skills in the pulp and paper market (which was a new market for the Company at that time), and enhanced the Company's capabilities for its clients in both the semiconductor and buildings and infrastructure markets. These acquisitions also strengthened the Company's capabilities in the area of construction management services, expanded the Company's client base, and provided increased resources in the southeast region of the United States. In Fiscal 1997, the Company acquired The Serete Group (headquartered in Paris, France). This acquisition provided the Company with an established presence in France, Spain and Italy. It added professional staff, and enhanced the Company's existing engineering capabilities. It also expanded the Company's client base in several key market groups. Also in Fiscal 1997, the Company increased its ownership interest (such that the Company became the majority owner) in Humphreys & Glasgow Consultants Limited (headquartered in Mumbai, India). This acquisition gave the Company access to the Southern Asia market, expanded the Company's client base and added professional staff. Also in Fiscal 1997, the Company acquired certain assets and contracts of an engineering business specializing in the mining and minerals markets with offices in Denver, Colorado and Santiago, Chile. In addition to the particular advantages described above, these acquisitions have allowed the Company to grow its relationships with its major clients. By expanding into new geographical areas, and by adding to its existing technical and project management capabilities, the Company strives to position itself as a preferred, single-source provider of professional engineering and construction services to its major clients. In December 1998, the Company signed an agreement and plan of merger with the Sverdrup Corporation ("Sverdrup"). If and when the transaction is completed, Sverdrup Corporation will become a wholly-owned subsidiary of the Company. Sverdrup is one of the largest professional service firms in the United States engaged in engineering, architecture, construction and construction management, and scientific services. Sverdrup employs more than 5,500 people located in more than 30 offices primarily within the United States. Sverdrup provides its services to clients in three broad business areas: civil engineering and construction (e.g., providing design and construction services for wastewater treatment plants, and roads, bridges, railroads and other transportation facilities); the facilities market (e.g., providing Page 1
design, construction management and program management services on projects for educational facilities, correctional facilities, and other government and commercial buildings and programs); and advanced technology (e.g., providing a wide-range of services, including operations and maintenance services, to government and private clients for testing facilities, research centers, and other high-technology facilities). The merger is expected to be completed early in the second quarter of fiscal 1999. The Company is a Delaware corporation and was originally incorporated in 1957 as a successor to a business organized by Dr. Joseph J. Jacobs in 1947. The Company's common stock has been publicly held since 1970 and is currently listed on the New York Stock Exchange. Services Provided - ----------------- The Company offers three broad categories of professional services: engineering (which includes design, consulting and other related services); construction and construction management; and plant maintenance. The Company will often establish a relationship with a client where it is awarded a contract for the initial phases of an engineering and/or construction project. These services may include feasibility studies, consulting or design work. Because of the range of technical expertise the Company possesses, it is often retained for additional work as the project develops. The scope of services provided by the Company, therefore, ranges from consulting to complete single-responsibility contracts. The following table sets forth the total revenues of the Company from each of its three basic service categories for each of the five years ended September 30, 1998 (in thousands of dollars): <TABLE> <CAPTION> 1994 1995 1996 1997 1998 ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> Engineering Services $ 476,491 $ 588,399 $ 627,622 $ 702,068 $ 822,515 Field Services: Construction 456,750 881,574 925,681 813,926 1,011,832 Maintenance 232,513 253,084 245,667 264,622 266,798 ---------- ---------- ---------- ---------- ---------- $1,165,754 $1,723,057 $1,798,970 $1,780,616 $2,101,145 ========== ========== ========== ========== ========== </TABLE> Engineering - ----------- The Company employs all of the engineering and related disciplines needed to engineer and design modern process plants (including projects for clients in the chemicals, pharmaceuticals and biotechnology, petroleum, food, and minerals and fertilizers industries), semiconductor facilities, pulp and paper plants, and other facilities (such as high technology manufacturing operations and other specialized plants). With respect to the Federal Programs area of the Company's business (a substantial portion of which involve environmental projects), the Company employs all of the requisite engineering, scientific, public health and related skills to consult, investigate, study, manage and provide remedial engineering for major environmental programs. The Company's capabilities in process engineering and construction combined with its environmental expertise allow it to offer its clients a wide range of services as a single-source provider. Accordingly, the Company has been awarded contracts requiring a combination of traditional process engineering and environmental services. The Company also employs all of the professional and technical expertise necessary to provide a broad range of consulting services including: performing pricing studies, market analyses and financial projections necessary in determining the feasibility of a project; performing gasoline reformulation modeling; analyzing and evaluating layout and mechanical designs for complex processing plants; analyzing automation and control systems; analyzing, designing and executing biocontainment strategies; developing and performing process protocols in respect of Federal Drug Administration mandated qualification/validation requirements; and performing geological and metallurgical studies. Page 2
Also included in the category of "Engineering" are all of the related support services necessary for the proper and effective delivery of the Company's engineering and related services. Among these are cost engineering, planning, scheduling, procurement, estimating, project accounting, quality and safety. Construction ------------ The Company provides traditional field construction as well as construction management services to private and public sector clients in virtually all of the industries to which it provides engineering services. The Company can also provide its clients with Advanced Construction Technology ("ACT")(R). ACT is an advanced form of off-site engineering, design, fabrication and assembly, and field erection. ACT provides clients with an alternative approach to traditional methods of engineering and construction which can compress and shorten the construction schedule, as well as help to reduce costs. In the environmental area, recent contract awards from clients in the public sector require the Company to provide environmental remedial construction services. Historically, the Company's field construction activities have been focused primarily on those construction projects for which the Company performed the related engineering and design work. By focusing its construction efforts on such projects, the Company seeks to avoid the risk of constructing complex plants based on designs prepared by others. The financial risk to the Company of constructing complex plants based on designs prepared by third parties may be particularly significant on fixed-price contracts. The Company actively markets all of its services to clients on projects where the scope of services required is within the Company's fields of expertise. The Company believes that by integrating and bundling its services (i.e., providing design, engineering and construction services on the same project) it can price its services more competitively and can enhance the overall contract profitability. The Company also believes that clients benefit from such an approach because they can look to the Company as a single-source provider of design/build services. However, the Company will continue to pursue construction-only projects where it can negotiate pricing and other contract terms acceptable to the Company. In the area of construction management, the Company can provide a wide range of services to its clients. The Company may act as the program director, whereby it oversees, on behalf of the owner of the project, the complete planning, design and construction phases of the project. Or, its services may be limited to providing construction consulting, estimating, scheduling or value engineering services. Maintenance ----------- Maintenance generally refers to all of the tasks required to keep a plant in day-to-day operation, including the repair and replacement of pumps, piping, heat exchangers and other equipment. It also includes "turnaround" work which involves major refurbishment which can only be performed when the plant is shut down. Since shutdowns are expensive to the owners of the plant, turnaround work will often require maximizing the number of skilled craft personnel that can work efficiently on a project on a 24 hours per day, seven days per week basis. The Company employs sophisticated computer scheduling and programming to complete turnaround projects quickly and it maintains contact with a large pool of skilled craftsmen it can hire as needed on maintenance and turnaround projects. Although the profit margins that can be realized from maintenance services are generally lower than those associated with the other services the Company provides, the costs to support maintenance activities are also generally lower than those associated with the Company's other services. Furthermore, since maintenance contracts are normally cost-reimbursable in nature, they present less risk to the Company. Additionally, although engineering and construction projects may be of a short-term nature, maintenance services often result in long-term relationships with clients. For example, the Company has been providing maintenance services at several major process plants for over 30 years. This aspect of maintenance services greatly reduces the selling costs in respect of such services. Page 3
Industry Groups and Markets - --------------------------- The Company focuses its efforts on the following industry groups and markets: chemicals; buildings and infrastructure; petroleum; pharmaceuticals and biotechnology; pulp and paper; U.S. federal programs; and semiconductor. The Company believes these industry groups and markets have sufficient common needs to permit cross-utilization of the Company's resources which help to mitigate the negative effects of a downturn in a single industry. The following table sets forth the total revenues of the Company from each of these industry groups and markets for each of the five years ended September 30, 1998 (in thousands of dollars): <TABLE> <CAPTION> 1994 1995 1996 1997 1998 ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> Chemicals $ 315,991 $ 377,731 $ 452,448 $ 500,446 $ 797,035 Buildings and Infrastructure 88,228 174,183 189,834 183,004 335,542 Petroleum 372,769 480,472 417,739 248,799 255,578 Pharmaceuticals and Biotechnology 97,301 123,683 147,840 140,545 211,650 Pulp and Paper 7,258 85,476 170,553 154,135 191,594 Federal Programs 175,846 175,200 145,275 201,644 169,472 Semiconductor 83,477 264,492 268,520 335,595 119,368 Other 24,884 41,820 6,761 16,448 20,906 ---------- ---------- ---------- ---------- ---------- $1,165,754 $1,723,057 $1,798,970 $1,780,616 $2,101,145 ========== ========== ========== ========== ========== </TABLE> Chemicals --------- The Company has always considered the chemicals industry a cornerstone of its business. Revenues from this industry group have consistently accounted for a significant share of each year's total revenues. Historically, whenever the Company has sought to expand its business, the impact of such expansion on the Company's chemicals business has always been an important consideration. The Company's first office outside the United States was opened in support of a bulk-chemical project for a large, U.S. company seeking to expand its operations internationally. Currently, the Company furnishes its full line of services to its clients operating in the chemicals industries. The Company has provided technical, financial, marketing and management consulting services to many of the largest chemical manufacturers in the world. The Company can perform feasibility studies, as well as preliminary and detailed design and engineering services, construction, and construction management services to its clients in this industry. Typical projects range from various basic and intermediate chemical reactions/separations and high-pressure polymer processes for the production of bulk chemicals, to low-pressure, multi-product processes for the production of fine and specialty chemicals. The Company has also completed projects dealing with the modernization and upgrading of polyethelene and liquid polymer production facilities. The Company has extensive knowledge of, and experience with, advanced polymerization reactions and state-of-the-art, post-reactor processing techniques, as well as many other specialty chemicals. A significant aspect of the Company's service to this industry is in the area of contract maintenance. The Company has contracts with several major chemical producers to provide on-site maintenance and turnaround activities. Many of these contracts are evergreen in nature and tend to be extended over many years. Another important aspect of this industry group has been the development of performance-based partnering relationships (alliances) with clients. Through an alliance, a client will award a contract to the Company which can require the Company to provide a broad scope of services. These services can range from the Company providing on-site engineering services for projects or tasks as they arise or are defined by the client, to situations where the Company is assigned to manage and complete an entire program of capital improvements for the client. Although alliances typically begin with the Company Page 4
providing engineering services for small capital projects, alliances can sometimes provide the Company with opportunities to expand its services to include fully-integrated engineering, procurement, construction and construction management services. Buildings and Infrastructure ---------------------------- Buildings and infrastructure refers to those contracts requiring the Company to provide and/or manage comprehensive architectural, engineering, design, construction and/or construction management services for projects such as high technology manufacturing operations, specialized plants for clients in the food industry, and research and development facilities that require technically complex structures. It also includes programming, design, program management and construction management services for public, institutional and corporate clients. The Company provides its services on projects that emphasize both new construction as well as those involving renovation and refurbishment of existing facilities. The Company has also been successful in applying its skill base to clients requiring complete program management (referred to as "resourcing"). For such contracts, the Company, often through joint ventures with third parties, assume full responsibility for the ongoing operations and maintenance of entire commercial or industrial complexes on behalf of the client. Typical projects in this area include educational facilities, civic centers, health care facilities, correctional centers and transportation systems, as well as multi-purpose buildings for industrial, commercial and government clients. Petroleum --------- The Company provides its full line of services to its clients in the petroleum industry. Typical projects in the petroleum area include retrofits, revamps or expansions of existing plants, upgrading individual process units within refineries, new construction and maintenance services. The Company also provides a broad range of consulting services to its clients, including process assessments, feasibility studies, technology evaluations and multi-client studies. Although the Company's revenues historically have related primarily to projects associated with petroleum refining and the processes and technologies required for the conversion of crude oil and gas into petroleum fuels, chemical feedstocks and lubricants, more recent contract awards have also included services to pipeline companies and companies in businesses upstream of refiners. The volume of business activity in this industry group is sometimes influenced by government regulations. For example, as the government issues regulations requiring the reduction of the sulfur content of motor fuels, capital spending by clients for desulfurization projects have increased. There are also significant levels of economically-driven work associated with reconfiguring refineries to handle increasing levels of imported, heavy sour crude feedstocks. The Company is actively involved in both such government and economically-driven projects. The Company has also utilized its off-site construction capabilities on a number of projects in the petroleum industry. Due to the age of many U.S. refineries, and the close proximity within these refineries of their various production and distillation processing units, the Company believes the use of off-site construction can help decongest the construction site and allow for parallel construction to proceed simultaneously with the modular activity. Like the chemicals industry, the Company provides a significant amount of maintenance services to its clients in the petroleum industry. Also like the chemicals industry, the Company has established a number of formal alliances with various clients in the petroleum industry. Some of these alliances have been national in scope. Page 5
Pharmaceuticals and Biotechnology --------------------------------- The Company furnishes its full line of services to its clients operating in the pharmaceuticals and biotechnology industries. The scope of services the Company can provide its clients in these markets include feasibility studies, preliminary and detailed design and engineering services, construction, and construction management services. The Company can also provide conceptual design services with emphasis on production strategy, current good manufacturing practices ("cGMP") compliance, regulatory compliance and qualification/validation services for pharmaceutical and biotechnology research, development and production facilities. Accordingly, the Company is fully capable of executing multi-million dollar, single-responsibility projects in the areas of pharmaceuticals and biotechnology. Typical projects for clients in this industry include laboratories and research and development facilities, vivariums, pilot plants, chemical production facilities, full-scale biotechnology production facilities, and fill- and-finish facilities. These projects will often employ state-of-the-art know- how in regulatory, barrier technology, and micro-environmental systems, as well as automation, manufacturing and distribution management. The Company has also established formal alliances with various clients in the pharmaceuticals industry. Pulp and Paper -------------- The Company provides a broad range of engineering and construction services to its clients in the pulp and paper industry. Additionally, the Company provides strategic planning and conceptual studies for many of its clients, as well as environmental services relating to compliance with USEPA emission standards. Typical projects in the pulp and paper area range from small mill projects to complex, multi-million dollar paper machine rebuilds, mill expansions and construction of new facilities. Such projects encompass all areas of a mill, including woodyards, pulping and bleaching, papermaking, chemical recovery, material handling and power and steam generation. In the area of papermaking, the Company's expertise includes tissue and towel, coated and uncoated fine papers, newsprint and linerboard. The Company's expertise also includes the converting and packaging of paper products for consumer use. The Company has been instrumental in the design and installation of state-of- the-art facilities for recycle fiber, deinking and pulp bleaching. Chemical recovery and power generation are an integral part of the papermaking process. The Company has broad experience in these areas and has applied its expertise in the engineering and construction of such facilities for the pulp and paper industry. The Company has also established formal alliances with various clients in the pulp and paper industry. Federal Programs ---------------- A significant portion of the Company's Federal Programs revenues are derived from environmental projects. The Company believes it is one of the leading providers of environmental restoration, engineering and consulting services, including hazardous waste management and site cleanup and closure in the United States. Many of the projects for the U.S. government span several years. For larger programs, the scope of services is such that the Company sometimes teams with other companies in order to execute the project. The Company is currently providing environmental restoration, engineering, construction and site operations and maintenance services for a number of U.S. federal government agencies including the U.S. Department of Energy ("DOE"), the Department of Defense ("DOD") and the U.S. Environmental Protection Agency ("USEPA"). Historically, typical projects for U.S. government agencies included the preparation of feasibility studies and performance of remedial investigations, engineering, design and remediation services on several national programs. Many of the Company's contracts related to the Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") and the related Superfund Amendments and Reauthorization Act of 1986 ("SARA"), as reauthorized in 1990. Page 6
More recently, as government spending has shifted from studying environmental problems to cleaning-up contaminated sites, the Company has been awarded multi-year contracts to provide such services. For example, the Company was awarded a contract from the U.S. Air Force to provide full-service remedial action services for the U.S. Air Force Center for Environmental Excellence ("AFCEE") at several bases located in the U.S., as well as a "nationwide" award to provide services under the U.S. Base Realignment and Closure ("BRAC") program. And in 1995, the Company was awarded the Alaska TERC (Total Environmental Restoration Contract) to provide engineering and site cleanup services throughout that state. Demand for the Company's services in this area is strongly affected by the level of enforcement of environmental laws and regulations, and the spending patterns of public and private clients. Currently, there are numerous proposals being offered for consideration to overhaul the U.S. federal regulatory process, the ultimate outcome of which cannot yet be determined. Nevertheless, the Company believes that the DOE and DOD will continue to devote increasingly more of their resources to site remediation and cleanup. In addition to contracts involving the remediation of contaminated sites, the government has let contracts to private contractors to provide full operations and maintenance ("O&M") services to entire government facilities. The Company has been awarded several such O&M contracts, which require the Company to provide facilities management and maintenance services, utilities operations and maintenance services, property management and disposition and construction support services. The Company believes it is uniquely qualified to execute O&M contracts given its financial strength, and the history the Company has of managing large, long-term projects in both the private and government sectors of the economy. Semiconductor ------------- The Company provides engineering, procurement, construction, and construction management services to its clients in the semiconductor industry. Typical projects in this industry range from on-site plant engineering and tool hook-ups, to multi-million dollar state-of-the-art wafer fabrication and crystal growing facilities used to produce microprocessors for computers and other consumer electronic devices. Generally, projects in the semiconductor industry are more complex than other facilities projects and have greater emphasis on cleanroom, and similar high-end technologies. Backlog - ------- For information regarding the Company's backlog, reference should be made to Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations, incorporated by reference in this report. Customers - --------- For the years ended September 30, 1994, 1995, 1996, 1997 and 1998, revenues directly or indirectly from agencies of the U.S. federal government accounted for 15.4%, 11.4%, 8.7%, 12.0% and 12.1%, respectively, of total revenues. Due to the amount of pass-through costs (see "Contracts" below) that may be incurred on construction and maintenance projects, it is not unusual for a client in the private sector to account for more than 10% of revenues in any given year. One client in the private sector accounted for 11.6% and 13.1% of total revenues in 1994 and 1995, respectively. A different client accounted for 15.3% of total revenues in 1997. No single client in the private sector accounted for 10% or more of total revenues in 1996 or 1998. Page 7
Foreign Operations - ------------------ For the years ended September 30, 1994, 1995, 1996, 1997 and 1998, revenues from the Company's international operations were approximately 5.6%, 5.4%, 10.3%, 23.5% and 20.2%, respectively, of total revenues. For fiscal years 1994 through 1996, substantially all such revenues related to the Company's offices in the U.K. and Ireland. In 1997, as discussed above, the Company completed the acquisitions of the Serete Group and HGC India. The Serete Group has operations throughout Europe, and executes projects for commercial clients in the chemicals, pharmaceuticals and semiconductor industries, as well as buildings and infrastructure projects for both commercial and governmental clients. HGC India has operations in India and executes projects for commercial clients in the chemical, pharmaceuticals and petroleum markets. Revenues earned in fiscal 1997 and 1998 from the Company's offices in Mexico and Chile were not material. Contracts - --------- While there is considerable variation in the pricing provisions of the contracts undertaken by the Company, they can generally be grouped into three broad categories: Cost-reimbursable; fixed-price and guaranteed maximum price. The following table sets forth the percentages of total revenues represented by these types of contracts during each of the five years ended September 30, 1998: 1994 1995 1996 1997 1998 ----- ----- ----- ----- ----- Cost-reimbursable 83% 88% 82% 82% 81% Fixed-price 9 11 16 16 18 Guaranteed maximum price 8 1 2 2 1 In accordance with industry practice, most of the Company's contracts are subject to termination at the discretion of the client. Contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of such termination. When the Company is directly responsible for engineering, design, procurement and construction of a project or the maintenance of a process plant, the Company reflects the cost of materials, equipment and subcontracts in both revenues and costs. On other projects, where the client elects to pay for such items directly, these amounts are not reflected in either revenues or costs. The following table presents the approximate amount of such pass-through costs included in revenues for the years ended September 30, 1994, 1995, 1996, 1997 and 1998 (in millions): 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- $ 629.0 $ 1,001.3 $ 1,019.5 $ 919.6 $ 1,066.4 Cost-reimbursable contracts --------------------------- Cost-reimbursable contracts provide for reimbursement of costs incurred by the Company plus a predetermined fee, or a fee based on a percentage of the costs incurred. The Company prefers this type of contract since it believes that the primary basis for its selection should be its technical expertise and professional qualifications rather than price considerations. Fixed-price contracts --------------------- Fixed-price contracts include both "negotiated fixed-price" contracts and "lump sum bid" contracts. Under a negotiated fixed-price contract, the Company is first selected as the contractor, and then the contract price is negotiated. Negotiated fixed-price contracts frequently exist in single-responsibility arrangements where the Company has the opportunity to perform engineering and design work before negotiating the total price of the project. Under lump sum bid contracts, the Company must bid against other contractors based upon specifications furnished by the client. This type of pricing presents certain inherent risks, including the possibility of ambiguities in the specifications, problems with new technologies Page 8
and economic and other changes that may occur over the contract period, that are reduced by the negotiation process. Thus, although both types of contracts involve a firm price for the client, the lump sum bid contract provides the greater degree of risk to the Company. However, because of economies that may be realized during the contract term, both negotiated fixed-price and lump sum bid contracts may offer greater profit potential than the other types of contracts. Guaranteed maximum price contracts ---------------------------------- Guaranteed maximum price contracts are performed in the same manner as cost-reimbursable contracts; however, the total actual cost plus the fee cannot exceed the guaranteed price negotiated with the client. If the total actual cost of the contract exceeds the guaranteed maximum price, then the Company will bear all or a portion of the excess. In those cases where the total actual cost and fee are less than the guaranteed price, the Company will often share the savings on a predetermined basis with the client. Competition - ----------- The Company is engaged in a highly competitive business. Some of its competitors are larger than the Company, or are subsidiaries of larger companies, and may possess greater resources than the Company. Furthermore, because the engineering aspect of the business does not usually require large amounts of capital, there is relative ease of market entry for a new potential entrant possessing acceptable professional qualifications. Accordingly, the Company competes with both national and international firms in sizes ranging from very large to a wide variety of small, regional and specialty firms. The extent of the Company's competition varies according to the industries and markets it serves, as well as the geographical areas in which the Company operates. The Company's largest competitors for engineering, construction and maintenance services for process plants include such well-known companies as Bechtel Group, Inc., Fluor Corporation, Foster-Wheeler Corp., Raytheon Engineers, M.W. Kellogg, Parsons Co., Kellogg Brown & Root, and Kvaerner. In the semiconductor industry, the Company's principal competitors include Industrial Design Corporation. In the area of pulp and paper, the Company's principal competitors include BE&K, Kellogg Brown & Root, and Raytheon Engineers. And in the area of environmental engineering and hazardous waste cleanup, the Company's principal competitors include many of the companies listed above, as well as Morrison Knudsen Corporation, and other specialized companies such as IT Group, Inc., ICF Kaiser and Roy F. Weston. Employees - --------- At September 30, 1998, the Company had approximately 10,080 full-time employees. Additionally, as of September 30, 1998, there were approximately 7,160 persons employed by the Company in the field on a project basis. The number of such field employees varies in relation to the number and size of the maintenance and construction projects in progress at any particular time. Page 9
EXECUTIVE OFFICERS OF THE COMPANY Pursuant to the requirements of Item 401(b) and 401(e) of Regulation S-K, the following information is being furnished with respect to the Company's executive officers: <TABLE> <CAPTION> Year Joined Name Age Position with the Company the Registrant - --------------------------- --- ------------------------------------------------ -------------- <S> <C> <C> <C> Joseph J. Jacobs 82 Director and Chairman of the Board 1947 Noel G. Watson 62 President, Chief Executive Officer and Director 1965 Robert M. Barton 76 Secretary 1957 William R. Kerler 69 Executive Vice President, Operations and Director 1980 Thomas R. Hammond 47 Executive Vice President, Operations 1975 Richard J. Slater 52 Executive Vice President, Operations 1980 Donald J. Boutwell 61 Group Vice President, Field Services 1984 Robert M. Clement 50 Group Vice President, Central Region 1990 Warren M. Dean 54 Group Vice President, Buildings & Infrastructure 1994 Stephen K. Fritschle 55 Group Vice President, Southern Region 1989 George A. Kunberger, Jr. 46 Group Vice President, Northern Region 1975 Gregory J. Landry 50 Group Vice President, International Operations 1984 John McLachlan 52 Group Vice President, International Operations 1974 Roger L. Williams 60 Group Vice President, Federal Operations 1983 Andrew E. Carlson 65 Senior Vice President, Quality and Safety 1990 Michael J. Higgins 54 Senior Vice President, Federal Programs 1994 Craig L. Martin 49 Senior Vice President, General Sales and Marketing 1994 John W. Prosser, Jr. 53 Senior Vice President, Finance and Administration and Treasurer 1974 Nazim G. Thawerbhoy 51 Senior Vice President and Controller 1979 William C. Markley, III 53 Vice President, Law 1981 </TABLE> All of the officers listed in the preceding table serve in their respective capacities at the pleasure of the Board of Directors and, with the exception of Messrs. Dean, Martin and Higgins, have served in executive capacities with the Company or have been part of its management for more than five years. Prior to joining the Company in 1994, Messrs. Dean and Martin were part of the management of CRSS Inc., or one of its subsidiaries for at least five years. Before he joined the Company in 1994, Mr. Higgins was President and Chief Executive Officer of HazWaste Industries Inc. from 1989 to 1994. Page 10
Item 2. PROPERTIES The Company owns and leases offices for its professional, technical and administrative staff. It also owns property (located in Charleston, South Carolina) which is the principal manufacturing facility for the Company's modular construction activities. The total amount of space used by the Company for all its operations is approximately 2.0 million square feet. The following is a list of the Company's principal locations: Country State City ------- ----- ---- U.S.A. California Pasadena Long Beach Sacramento Arizona Phoenix Colorado Denver Florida Lakeland Louisiana Baton Rouge New Mexico Albuquerque North Carolina Raleigh Ohio Cincinnati Oregon Portland Pennsylvania Philadelphia South Carolina Greenville Charleston Texas Houston Tennessee Oak Ridge Virginia Arlington Wisconsin Green Bay United Kingdom - London - Glasgow - Manchester Republic of Ireland - Cork - Dublin France - Paris - Lyon Italy - Milan Spain - Madrid India - Mumbai - New Delhi - Calcutta Chile - Santiago In addition to these properties, the Company leases smaller, project offices located throughout the United States and, to a certain extent, France. The Company maintains sales offices at many of its principal locations. The Company has equipment yards located in Houston, Texas and Baton Rouge, Louisiana. The majority of the Company's offices are leased. The Company also rents a portion of its construction equipment on a short-term basis. Page 11
Item 3. LEGAL PROCEEDINGS In the normal course of business, the Company is subject to certain contractual guarantees and litigation. Generally, such guarantees relate to project schedules and plant performance. Most of the litigation involves the Company as a defendant in workers' compensation, personal injury and other similar lawsuits. In addition, as a contractor for many agencies of the United States Government, the Company is subject to many levels of audits, investigations and claims by, or on behalf of, the government with respect to its contract performance, pricing, costs, cost allocations and procurement practices. Management believes, after consultation with counsel, that such guarantees, litigation, and United States Government contract-related audits, investigations and claims should not have any material adverse effect on the Company's consolidated financial statements. In March 1998, the U.S. Attorney for the Central District of California announced that it was intervening in a lawsuit filed against the Company by a former employee under the False Claims Act. The lawsuit alleges that the Company overbilled the U.S. government for lease costs paid by the Company and relating to its former headquarters building located in Pasadena, California. The building had once been owned by the Company, but was sold by it in calendar 1982, at which time the Company entered into a 15-year lease of the property. The lawsuit seeks unspecified damages against the Company, which may be trebled under certain provisions of the Act. Additional remedies available to the government include possible administrative or civil liabilities, and the imposition of civil penalties for each violation. The Company has denied any wrongdoing in the method it accounted for the lease costs in question. The Company contends it has billed the government for only those costs it actually incurred, and believes its accounting treatment of the lease costs complied with all applicable regulations. Furthermore, the sale and lease-back transaction that is the subject of the lawsuit occurred nearly 15 years prior to the initiation by the Department of Justice of its investigation. The transaction had been fully disclosed in numerous public filings made by the Company since the date of the transaction, and the Company's Final Indirect Cost Rate Proposals, which the Company had filed regularly and routinely with the Defense Contract Audit Agency ("DCAA") and which included the lease costs, had been audited by the DCAA for many years without the DCAA taking exception to the Company's accounting treatment of the lease costs. Although the final outcome of this matter cannot be determined at the present time, the Company intends to vigorously defend itself against the lawsuit. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. Page 12
PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is hereby incorporated by reference from page A-30 of Exhibit 13 to this report. Item 6. SELECTED FINANCIAL DATA The information required by this Item is hereby incorporated by reference from page A-2 of Exhibit 13 to this report. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is hereby incorporated by reference from pages A-3 through A-11 of Exhibit 13 to this report. Item 7A. QUALITATIVE and QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is hereby incorporated by reference from pages A-12 through A-31 of Exhibit 13 to this report. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL AND DISCLOSURE MATTERS Not applicable. Page 13
PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Paragraph (a) and Paragraphs (c) through (g) of Item 401 and by Item 405 of Regulation S-K is hereby incorporated by reference from the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. See the information under the caption "Executive Officers of the Company" in Part I of this report for information required by Paragraph (b) of Item 401 of Regulation S-K. Item 11. EXECUTIVE COMPENSATION The information required by this Item is hereby incorporated by reference from the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is hereby incorporated by reference from the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is hereby incorporated by reference from the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the close of the Company's fiscal year. Page 14
PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The Company's consolidated financial statements at September 30, 1998 and 1997 and for each of the three years in the period ended September 30, 1998, together with the report of the independent auditors on those consolidated financial statements are hereby incorporated by reference from Exhibit 13 to this report. (b) Not applicable. (c) Exhibits and Index to Exhibits: <TABLE> <S> <C> 2.1 Purchase Agreement dated July 29, 1994 between Jacobs Engineering Group Inc. and CRSS Inc. including a schedule of annexes and exhibits. Filed as Exhibit 1. to the Registrant's Current Report on Form 8-K dated August 5, 1994 and incorporated herein by reference. 3.1 Certificate of Incorporation of the Registrant, as amended. Filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. (S) 3.2 Bylaws of the Registrant, as amended. 4.1 See Sections 5 through 18 of Exhibit 3.1. 4.2 See Article II, Section 3.03 of Article III, Article VI and Section 8.04 of Article VIII of Exhibit 3.2. 4.3 Rights Agreement dated as of December 20, 1990 by and between Registrant and First Interstate Bank, Ltd. as Rights Agent. Filed as Exhibit 4.4 to Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. 10.1 The Jacobs Engineering Group Inc. 1981 Executive Incentive Plan (As Amended and Restated). Filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. 10.2 The Jacobs Engineering Group Inc. Incentive Bonus Plan for Officers and Key Managers. Filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. 10.3 Agreement dated as of November 30, 1993 between the Registrant and Dr. Joseph J. Jacobs. Filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. (S) 10.4 Agreement dated as of December 3, 1998 between the Registrant and Dr. Joseph J. Jacobs. 10.5 The Executive Security Program of Jacobs Engineering Group Inc. Filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. </TABLE> Page 15
<TABLE> <S> <C> 10.6 Jacobs Engineering Group Inc. and Subsidiaries 1991 Executive Deferral Plan, effective June 1, 1991. Filed as Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1995 and incorporated herein by reference. 10.7 Jacobs Engineering Group Inc. and Subsidiaries 1993 Executive Deferral Plan, effective December 1, 1993. Filed as Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1995 and incorporated herein by reference. 10.8 The Jacobs Engineering Group Inc. 1989 Employee Stock Purchase Plan. Filed as Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. 10.9 Form of Indemnification Agreement entered into between the Registrant and its officers and directors. Filed as Exhibit 10.10 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. 10.10 Jacobs Engineering Group Inc. 401(k) Plus Savings Plan and Trust. Filed as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1995 and incorporated herein by reference. 11. Statement of computation of net income per outstanding share of common stock is hereby incorporated by reference from Appendix A to the Registrant's Notice of 1999 Annual Meeting of Shareholders and Proxy Statement, copies of which are being delivered to (but not filed with, except to the extent incorporated herein) the Commission as an exhibit to this report. (S) 13. Appendix A to the Registrant's Notice of 1999 Annual Meeting of Shareholders and Proxy Statement (which contains the annual financial statements and financial information of Jacobs Engineering Group Inc. for the fiscal year ended September 30, 1998). (S) 21. List of Subsidiaries of Jacobs Engineering Group Inc. (S) 23. Consent of Independent Auditors. (S) 27.1 Financial Data Schedules. </TABLE> ___________________________________________ (S) Being filed herewith. Page 16
UNDERTAKINGS For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into the Registrant's Registration Statements on Form S-8 Nos. 33-45914 (filed February 21, 1992) and 333-01317 (filed February 29, 1996): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by final adjudication of such issue. Page 17
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JACOBS ENGINEERING GROUP INC. Dated: December 28, 1998 By: /s/ NOEL G. WATSON ----------------------------- Noel G. Watson President, Chief Executive Officer and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated: <TABLE> <CAPTION> SIGNATURE TITLE DATE <S> <C> <C> /s/ NOEL G. WATSON Director and December 28, 1998 - ---------------------------------------- Principal Executive Officer Noel G. Watson /s/ JOSEPH J. JACOBS Director December 28, 1998 - ---------------------------------------- Joseph J. Jacobs - ---------------------------------------- Director December 28, 1998 Joseph F. Alibrandi /s/ PETER H. DAILEY Director December 28, 1998 - ---------------------------------------- Peter H. Dailey Director December 28, 1998 - ---------------------------------------- Robert B. Gwyn /s/ LINDA K. JACOBS Director December 28, 1998 - ---------------------------------------- Linda K. Jacobs /s/ WILLIAM R. KERLER Director December 28, 1998 - ---------------------------------------- William R. Kerler /s/ J. CLAYBURN LaFORCE Director December 28, 1998 - ---------------------------------------- J. Clayburn LaForce /s/ DALE R. LAURANCE Director December 28, 1998 - ---------------------------------------- Dale R. Laurance /s/ LINDA FAYNE LEVINSON Director December 28, 1998 - ---------------------------------------- Linda Fayne Levinson /s/ DAVID M. PETRONE Director December 28, 1998 - ---------------------------------------- David M. Petrone /s/ JAMES L. RAINEY, JR. Director December 28, 1998 - ---------------------------------------- James L. Rainey, Jr. </TABLE> Page 18
<TABLE> <S> <C> <C> /s/ JOHN W. PROSSER, JR. Senior Vice President - ------------------------------- Finance and Administration, December 28, 1998 John W. Prosser, Jr. and Treasurer (Principal Financial Officer) /s/ NAZIM G. THAWERBHOY Senior Vice President and - ------------------------------- Controller (Principal Accounting December 28, 1998 Nazim G. Thawerbhoy Officer) </TABLE> Page 19