Jacobs Engineering - 10-Q quarterly report FY

(Mark one)

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2003

o

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)

x  Yes

o  No

Page No.

Part I –FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets -
March 31, 2003 (Unaudited) and September 30, 2002

3

Consolidated Statements of Earnings - Unaudited
Three and Six Months Ended March 31, 2003 and 2002

4

Consolidated Statements of Comprehensive Income  - Unaudited
Three and Six Months Ended March 31, 2003 and 2002

5

Consolidated Statements of Cash Flows - Unaudited
Six Months Ended March 31, 2003 and 2002

6

Notes to Consolidated Financial Statements - Unaudited

7 - 11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

12 - 17

Item 3.

Qualitative and Quantitative Disclosures about Market Risks

17

Item 4.

Controls and Procedures

17

Part II –OTHER INFORMATION

Item 4.

Submission of Matters to a Vote of Security Holders

18

Item 6.

Exhibits and Reports on Form 8-K

19

Signatures

19

CERTIFICATIONS

20 - 21

Item 1.

Financial Statements.

March 31,
2003

September 30,
2002

(Unaudited)

Current Assets:

Receivables

822,365

845,360

Prepaid expenses and other

15,560

14,465

Goodwill

393,469

390,953

Current Liabilities:

Accounts payable

201,952

229,579

Billings in excess of costs

126,015

155,114

Stockholders’ Equity:

Preferred stock, $1 par value, authorized - 1,000,000 shares, issued and outstanding - none

—  

—  

Additional paid-in capital

124,701

110,778

Accumulated other comprehensive loss

(36,663

)

(42,582

)

Unearned compensation

(2,308

)

(2,305

)

For the Three Months
Ended March 31,

For the Six Months
Ended March 31,

2003

2002

2003

2002

Costs and Expenses:

Selling, general and administrative expenses

(110,347

)

(104,180

)

(214,550

)

(200,699

)

Interest income

139

443

390

1,061

Miscellaneous income, net

555

375

1,061

819

Income Tax Expense

(16,951

)

(14,473

)

(33,180

)

(28,404

)

Basic

$

0.57

$

0.50

$

1.12

$

0.98

For the Three Months
Ended March 31,

For the Six Months
Ended March 31,

2003

2002

2003

2002

Unrealized holding (losses) gains on securities

(30

)

662

(18

)

981

Foreign currency translation adjustments

4,132

(1,455

)

7,158

(4,452

)

Income Tax Benefit Relating to Other Comprehensive Income (Loss)

246

4

728

168

2003

2002

Net earnings

$

61,620

$

52,750

Depreciation and amortization of property, equipment and improvements

17,688

16,787

Changes in assets and liabilities, excluding the effects of businesses acquired:

Prepaid expenses and other current assets

(257

)

2,159

Accrued liabilities

9,077

26,885

Income taxes payable

14,143

(405

)

Other, net

462

314

Acquisitions of businesses, net of cash acquired

—  

(43,529

)

Disposals of property and equipment

2,856

731

Purchases of marketable securities and investments

(1,944

)

(1,949

)

Proceeds from long-term borrowings

164,354

200,708

Net change in short-term borrowings

(44,346

)

18,786

Purchases of common stock for treasury

—  

(2,003

)

Cash and Cash Equivalents at Beginning of Period

48,469

49,263

1.

The accompanying consolidated 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 accounting principles generally accepted in the United States 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. and subsidiaries (the “Company”).

In the opinion of management of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the Company’s consolidated financial position at March 31, 2003 and September 30, 2002, its consolidated results of operations for the three and six months ended March 31, 2003 and 2002, its consolidated comprehensive income for the three and six months ended March 31, 2003 and 2002, and its consolidated cash flows for the six months ended March 31, 2003 and 2002.

The Company’s interim results of operations are not necessarily indicative of the results to be expected for the full year.

2.

As allowed by Statement of Financial Accounting Standards No. 123 – Accounting for Stock-Based Compensation (“SFAS 123”) – the Company has elected to continue to account for stock issued to its employees and outside directors in accordance with APB Opinion No. 25 – Accounting for Stock Issued to Employees (“APB 25”).  Accordingly, compensation cost is measured based on the excess, if any, of the market price of the Company’s common stock over the exercise price of a stock option, determined on the date the option is granted.

SFAS 123 prescribes an optional, fair-value based method of accounting for stock-based compensation plans.  The following table illustrates the effect on net earnings and earnings per share if the Company determined compensation cost under SFAS 123 (in thousands, except per share data):

Three Months Ended
March 31,

Six Months Ended
March 31,

2003

2002

2003

2002

Fair value of stock based compensation cost, net of tax

2,657

2,913

4,281

4,334

Basic:

Pro forma

$

0.52

$

0.44

$

1.05

$

0.90

As reported

$

0.56

$

0.49

$

1.10

$

0.96

The fair value of each option was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

Three Months Ended
March 31,

Six Months Ended
March 31,

2003

2002

2003

2002

Expected volatility

23.85

%

35.62

%

36.03

%

37.36

%

Expected life of options (in years)

7.6

7.0

7.6

7.0

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. Like all option-pricing models, the Black-Scholes model requires the use of highly subjective assumptions including the expected volatility of the underlying stock price. Since the Company’s stock options possess characteristics significantly different from those of traded options, changes in the subjective input assumptions can materially affect the fair value estimates of the Company’s options. The Company believes that existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

The effects of applying SFAS 123 for these pro forma disclosures are not likely to be representative of the effects on reported earnings for future years as options vest over several years and additional awards are generally made each year.

3.

Included in “Receivables” in the accompanying consolidated balance sheets at March 31, 2003 and September 30, 2002 were $369.0 million and $440.9 million, respectively, representing amounts earned and reimbursable under contracts in progress at the respective balance sheet dates.  These amounts become billable according to the contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project.  Included in these unbilled receivables at March 31, 2003 and September 30, 2002 were contract retentions totaling $24.3 million and $24.2 million, respectively.  The Company anticipates that substantially all of such unbilled amounts will be billed and collected over the next twelve months.

Amounts due from the U.S. federal government included in “Receivables” in the accompanying consolidated balance sheets totaled $129.7 million and $141.2 million at March 31, 2003 and September 30, 2002, respectively.

4.

Property, equipment and improvements, net, are stated at cost in the accompanying consolidated balance sheets and consisted of the following at March 31, 2003 and September 30, 2002 (in thousands):

March 31,
2003

September 30,
2002

Buildings

56,098

54,010

Leasehold improvements

29,446

27,987

Accumulated depreciation and amortization

(182,647

)

(182,144

)

5.

Other noncurrent assets in the accompanying consolidated balance sheets consisted of the following at March 31, 2003 and September 30, 2002 (in thousands):

March 31,
2003

September 30,
2002

Cash surrender value of life insurance policies

41,889

44,083

Prepaid pension costs

15,297

15,993

Reimbursable pension costs

9,678

9,928

6.

Accrued liabilities in the accompanying consolidated balance sheets consisted of the following at March 31, 2003 and September 30, 2002 (in thousands):

March 31,
2003

September 30,
2002

Insurance liabilities

35,966

42,761

Other

62,171

58,381

7.

Other deferred liabilities in the accompanying consolidated balance sheets consisted of the following at March 31, 2003 and September 30, 2002 (in thousands):

March 31,
2003

September 30,
2002

Liabilities relating to nonqualified deferred compensation arrangements

44,364

36,346

Other

12,326

11,247

8.

When the Company is directly responsible for subcontract labor, or third-party materials and equipment, the Company reflects the costs of such items in both revenues and costs.  On other projects, where the client elects to pay for such items directly and the Company has no associated responsibility for such items, these amounts are not reflected in either revenues or costs.  The amount of such “pass-through” costs included in revenues during the second quarter and first half of fiscal 2003 and 2002 totaled $377.2 million and $804.0 million, and $374.0 million and $688.8 million, respectively.

9.

The following table reconciles the denominator used to compute basic earnings per share to the denominator used to compute diluted earnings per share (in thousands):

Three Months Ended
March 31,

Six Months Ended
March 31,

2003

2002

2003

2002

Effect of employee and outside director stock options

1,251

1,229

1,141

1,302

10.

During the six months ended March 31, 2003 and 2002, the Company made cash payments of approximately $2.1 million and $3.6 million, respectively, for interest and $21.7 million and $19.7 million, respectively, for income taxes.

11.

The Company adopted Statement of Financial Accounting Standards No. 142 – Goodwill and Other Intangible Assets (“SFAS 142”) in fiscal 2002.  SFAS 142 eliminates the amortization of goodwill and intangible assets deemed to have indefinite lives.  Instead, these assets must be tested for impairment using a fair value approach in accordance with SFAS 142.  There has been no impairment of goodwill since adoption of SFAS 142.

12.

In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 - Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”).  FIN 45 requires that, upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee.  In addition, FIN 45 requires additional disclosures about the guarantees that an entity has issued. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002.

At March 31, 2003, the Company had guaranteed certain financial liabilities, the majority of which relate to debt obligations of unconsolidated affiliates.  The term of each of the guarantees is equal to the remaining term of the underlying debt, which ranges from two to twelve months.  Payment by the Company would be required upon default by the unconsolidated affiliate.  The maximum potential amount of future payments, which the Company could be required to make under these guarantees at March 31, 2003, is $7.6 million.  Additionally, the Company had guaranteed the residual value ($35.3 million) of the synthetic lease agreement associated with its offices in Houston, Texas.  The guarantee extends through the maturity of the lease in 2011.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

2003

2002

% Change

Construction

538,933

503,125

7.1

%

Process, Scientific and Systems Consulting

56,126

47,099

19.2

%

2003

2002

% Change

Construction

1,119,093

895,757

24.9

%

Process, Scientific and Systems Consulting

110,735

90,801

21.9

%

2003

2002

Total backlog

6,677.2

6,527.3

•

increase in competition by foreign and domestic competitors;

•

changes in global business, economic, political and social conditions;

•

availability of qualified engineers, architects, designers and other professional staff needed to execute contracts;

•

the timing of new awards and the funding of such awards;

•

cancellations of, or changes in the scope to, existing contracts;

•

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 any governmental audits, investigations, or proceedings;

•

the cyclical nature of the individual markets in which the Company’s clients operate;

•

delays or defaults by clients in making payments due under contracts;

•

the ability of the Company to successfully negotiate and syndicate a new long-term credit facility; and

•

the successful closing and/or subsequent integration of any merger or acquisition transaction.

Item 3.

Qualitative and Quantitative Disclosures About Market Risk.

Item 4.

Controls and Procedures.

Item 4.

Submission of Matters to a Vote of Security Holders

1.

To elect four directors to hold office until the 2006 annual meeting;

2.

To approve an amendment to the Company’s 1999 Stock Incentive Plan, increasing the number of authorized shares by 1,600,000; and,

3.

To approve the appointment of Ernst & Young LLP as independent auditors for the year ending September 30, 2003.

Votes For

Votes Against
or Withheld

Abstentions

Broker
Non-votes

Noel G. Watson

48,056,863

316,565

-0-

-0-

Thomas M.T. Niles

47,938,725

434,703

-0-

-0-

2.

Approval of an Amendment to the 1999 Stock Incentive Plan, increasing the number of authorized shares by 1,600,000

43,915,551

4,344,939

112,938

-0-

Item 6.

Exhibits and Reports on Form 8-K.

(a)

Exhibits

99.1 –

Certification Pursuant to 18 U.S.C. Section 1350

(b)

Reports on Form 8-K

None.

JACOBS ENGINEERING GROUP INC.

By:

/s/ JOHN W. PROSSER, JR.

John W. Prosser, Jr.
Senior Vice President,
Finance and Administration

Date:

May 13, 2003

1.

I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2003 of Jacobs Engineering Group Inc.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)

Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  May 13, 2003

/s/ NOEL G. WATSON

Noel G. Watson
Chief Executive Officer

1.

I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2003 of Jacobs Engineering Group Inc.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)

Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  May 13, 2003

/s/ JOHN W. PROSSER, JR.

John W. Prosser, Jr.
Senior Vice President
Finance and Administration