10-Q 1 d10q.htm FORM 10-Q FOR QUARTERLY PERIOD ENDED MARCH 31,2002 Prepared by R.R. Donnelley Financial -- Form 10-Q for quarterly period ended March 31,2002
Table of Contents
 
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 March 31, 2002
 
¨
 
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:  Yes  x  No  ¨
 
Number of shares of common stock outstanding at May 13, 2002:  54,339,313
 

Table of Contents
JACOBS ENGINEERING GROUP INC.
 
 
    
Page
No.
Part I—Financial Information
     
Item 1.    Financial Statements:
     
  
3
  
4
  
5
  
6
  
7-10
  
11-15
      
Part II—Other Information
     
  
16
  
17
  
18

2

Table of Contents
 
Item 1.    Financial Statements
 
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
(Unaudited)
 
    
March 31, 2002
     
September 30, 2001
  
ASSETS
                  
Current Assets:
                  
Cash and cash equivalents
   
$
54,131
 
   
$
49,263
 
Receivables
   
 
764,469
 
   
 
817,160
 
Deferred income taxes
   
 
62,226
 
   
 
64,651
 
Prepaid expenses and other
   
 
15,136
 
   
 
15,085
 
    
  
Total current assets
   
 
895,962
 
   
 
946,159
 
    
  
Property, Equipmentand Improvements, Net
   
 
152,318
 
   
 
149,979
 
    
  
Other Noncurrent Assets
                  
Goodwill, net
   
 
366,442
 
   
 
317,664
 
Other
   
 
143,867
 
   
 
143,238
 
    
  
Total other noncurrent assets
   
 
510,309
 
   
 
460,902
 
    
  
    
$
1,558,589
 
   
$
1,557,040
 
    
  
LIABILITIES AND STOCKHOLDERS' EQUITY
                  
Current Liabilities
                  
Notes payable
   
$
37,502
 
   
$
19,688
 
Accounts payable
   
 
182,216
 
   
 
197,712
 
Accrued liabilities
   
 
344,921
 
   
 
295,763
 
Billings in excess of costs
   
 
115,960
 
   
 
163,833
 
Income taxes payable
   
 
20,510
 
   
 
23,663
 
    
  
Total current liabilities
   
 
701,109
 
   
 
700,659
 
    
  
Long-term Debt
   
 
105,612
 
   
 
164,308
 
    
  
Other Deferred Liabilities
   
 
99,263
 
   
 
95,174
 
    
  
Minority Interests
   
 
5,051
 
   
 
5,098
 
    
  
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—100,000,000 shares, 27,137,004 shares issued at March 31, 2002; 26,872,358 shares issued and outstanding at September 30, 2001
   
 
27,137
 
   
 
26,872
 
Additional paid-in capital
   
 
123,233
 
   
 
105,612
 
Retained earnings
   
 
514,583
 
   
 
472,010
 
Accumulated other comprehensive loss
   
 
(15,295
)
   
 
(10,620
)
    
  
    
 
649,658
 
   
 
593,874
 
Unearned compensation
   
 
(2,104
)
   
 
(2,073
)
    
  
Total stockholders' equity
   
 
647,554
 
   
 
591,801
 
    
  
    
$
1,558,589
 
   
$
1,557,040
 
    
  
See the accompanying Notes to Condensed Consolidated Financial Statements

3

Table of Contents
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three and Six Months Ended March 31, 2002 and 2001
(In thousands, except per-share information)
(Unaudited)
 
    
For the Three Months
Ended March 31,
     
For the Six Months
Ended March 31,
  
    
2002
     
2001
     
2002
     
2001
  
Revenues
   
$
1,146,611
 
   
$
1,009,869
 
   
$
2,174,797
 
   
$
1,939,051
 
Costs and Expenses:
                                    
Direct costs of contracts
   
 
(1,000,071
)
   
 
(888,456
)
   
 
(1,890,736
)
   
 
(1,704,982
)
Selling, general and administrative expenses
   
 
(104,180
)
   
 
(86,286
)
   
 
(200,699
)
   
 
(165,755
)
    
  
  
  
Operating Profit
   
 
42,360
 
   
 
35,127
 
   
 
83,362
 
   
 
68,314
 
    
  
  
  
Other (Expense) Income:
                                    
Interest income
   
 
443
 
   
 
1,025
 
   
 
1,061
 
   
 
2,011
 
Interest expense
   
 
(1,825
)
   
 
(2,863
)
   
 
(4,088
)
   
 
(5,908
)
Miscellaneous income, net
   
 
375
 
   
 
664
 
   
 
819
 
   
 
1,190
 
    
  
  
  
Total other expense , net
   
 
(1,007
)
   
 
(1,174
)
   
 
(2,208
)
   
 
(2,707
)
    
  
  
  
Earnings Before Taxes
   
 
41,353
 
   
 
33,953
 
   
 
81,154
 
   
 
65,607
 
Income Tax Expense
   
 
(14,473
)
   
 
(12,393
)
   
 
(28,404
)
   
 
(23,947
)
    
  
  
  
Net Earnings
   
$
26,880
 
   
$
21,560
 
   
$
52,750
 
   
$
41,660
 
    
  
  
  
Net Earnings Per Share:
                                    
Basic
   
$
0.50
 
   
$
0.41
 
   
$
0.98
 
   
$
0.79
 
Diluted
   
$
0.49
 
   
$
0.40
 
   
$
0.96
 
   
$
0.77
 
    
  
  
  
 
 
See the accompanying Notes to Condensed Consolidated Financial Statements

4

Table of Contents
 
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months Ended March 31, 2002 and 2001
(In thousands)
(Unaudited)
    
For the Three Months Ended March 31,
     
For the Six Months Ended March 31,
  
    
2002
     
2001
     
2002
     
2001
  
Net Earnings
   
$
26,880
 
   
$
21,560
 
   
$
52,750
 
   
$
41,660
 
    
  
  
  
Other Comprehensive (Loss) Income:
                                    
Unrealized holding gains (losses) on securities
   
 
662
 
   
 
(411
)
   
 
981
 
   
 
436
 
Less: reclassification adjustment for gains realized in net earnings
   
 
(632
)
   
 
(732
)
   
 
(1,372
)
   
 
(1,230
)
    
  
  
  
Unrealized gains (losses) on securities, net of reclassification adjustment
   
 
30
 
   
 
(1,143
)
   
 
(391
)
   
 
(794
)
Foreign currency translation adjustments
   
 
(1,455
)
   
 
(141
)
   
 
(4,452
)
   
 
405
 
    
  
  
  
Other Comprehensive Loss Before Income Tax Benefit
   
 
(1,425
)
   
 
(1,284
)
   
 
(4,843
)
   
 
(389
)
Income Tax Benefit Relating to Other Comprehensive Loss
   
 
4
 
   
 
424
 
   
 
168
 
   
 
302
 
    
  
  
  
Other Comprehensive Loss
   
 
(1,421
)
   
 
(860
)
   
 
(4,675
)
   
 
(87
)
    
  
  
  
Total Comprehensive Income
   
$
25,459
 
   
$
20,700
 
   
$
48,075
 
   
$
41,573
 
    
  
  
  
 
 
 
See the accompanying Notes to Condensed Consolidated Financial Statements.

5

Table of Contents
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2002 and 2001
(In thousands)
(Unaudited)
 
    
2002
     
2001
  
Cash Flows from Operating Activities:
                  
Net earnings
   
$
52,750
 
   
$
41,660
 
Adjustments to reconcile net earnings to net cash flows from operations
                  
Depreciation and amortization of property, equipment and improvements
   
 
16,787
 
   
 
16,479
 
Amortization of goodwill
   
 
—  
 
   
 
3,635
 
Gains on sales of assets
   
 
(1,362
)
   
 
(1,564
)
Changes in assets and liabilities, excluding the effects of businesses acquired:
                  
Receivables
   
 
95,174
 
   
 
(42,984
)
Prepaid expenses and other current assets
   
 
2,159
 
   
 
1,666
 
Accounts payable
   
 
(43,642
)
   
 
9,142
 
Accrued liabilities
   
 
26,885
 
   
 
15,946
 
Billings in excess of costs
   
 
(51,616
)
   
 
(26,463
)
Income taxes payable
   
 
(405
)
   
 
10,139
 
Deferred income taxes
   
 
6,798
 
   
 
1,562
 
Other, net
   
 
314
 
   
 
222
 
    
  
Net cash provided by operating activities
   
 
103,842
 
   
 
29,440
 
    
  
Cash Flows from Investing Activities:
 
                  
Acquisition of business, net of cash acquired
   
 
(43,529
)
   
 
—  
 
Additions to property and equipment
   
 
(19,633
)
   
 
(19,899
)
Disposals of property and equipment
   
 
731
 
   
 
13,345
 
Proceeds from sales of marketable securities and investments
   
 
5,007
 
   
 
1,666
 
Purchases of marketable securities and investments
   
 
(1,949
)
   
 
(3,722
)
Net increase in other noncurrent assets
   
 
(8,484
)
   
 
(4,052
)
    
  
Net cash used for investing activities
   
 
(67,857
)
   
 
(12,662
)
    
  
Cash Flows from Financing Activities:
 
                  
Proceeds from long-term borrowings
   
 
200,708
 
   
 
42,000
 
Repayments of long-term borrowings
   
 
(258,111
)
   
 
(26,522
)
Net change in short-term borrowings
   
 
18,786
 
   
 
(13,859
)
Exercises of stock options
   
 
10,154
 
   
 
8,436
 
Purchases of common stock for treasury
   
 
(2,003
)
   
 
(3,892
)
Change in other deferred liabilities
   
 
3,385
 
   
 
9,074
 
    
  
Net cash (used for) provided by financing activities
   
 
(27,081
)
   
 
15,237
 
    
  
Effect of Exchange Rate Changes
   
 
(4,036
)
   
 
(306
)
    
  
 
Increase in Cash and Cash Equivalents
   
 
4,868
 
   
 
31,709
 
Cash and Cash Equivalents at Beginning of Period
   
 
49,263
 
   
 
65,848
 
    
  
Cash and Cash Equivalents at End of Period
   
$
54,131
 
   
$
97,557
 
    
  
 
See the accompanying Notes to Condensed Consolidated Financial Statements.

6

Table of Contents
 
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
 
1.    The accompanying condensed 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. (“Jacobs”, or the “Company”).
 
In the opinion of management of the Company, the accompanying unaudited condensed 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, 2002 and September 30, 2001, its consolidated results of operations for the three and six months ended March 31, 2002 and 2001, its consolidated comprehensive income for the three and six months ended March 31, 2002 and 2001, and its consolidated cash flows for the six months ended March 31, 2002 and 2001.
 
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 March 31, 2002 and September 30, 2001 were recoverable amounts under contracts in progress of $397.3 million and $420.6 million, respectively, that represent amounts earned under contracts in progress but not billable at the respective balance sheet dates. 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 March 31, 2002 and September 30, 2001 (in thousands):
 
    
March 31, 2002
     
September 30, 2001
  
Land
   
7,840
 
   
7,106
 
Buildings
   
51,191
 
   
51,725
 
Equipment
   
239,186
 
   
231,322
 
Leasehold improvements
   
26,703
 
   
16,126
 
Construction in progress
   
11,929
 
   
16,290
 
    
  
    
336,849
 
   
322,569
 
Accumulated depreciation and amortization
   
(184,531
)
   
(172,590
)
    
  
    
152,318
 
   
149,979
 
    
  

7

Table of Contents

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
4.    Other noncurrent assets consisted of the following at March 31, 2002 and September 30, 2001 (in thousands):
 
    
March 31,
2002
   
September 30,
2001
Cash surrender value of life insurance policies
   
$
45,197
   
$
42,800
Investments
   
 
26,784
   
 
31,801
Deferred tax asset
   
 
18,874
   
 
18,054
Prepaid pension costs
   
 
16,047
   
 
16,377
Reimbursable pension costs
   
 
9,960
   
 
11,388
Notes receivable
   
 
10,239
   
 
9,764
Miscellaneous
   
 
16,766
   
 
13,054
    
  
    
$
143,867
   
$
143,238
    
  
 
5.    On February 12, 2002, the Company’s Board of Directors approved a two-for-one stock split. The stock split was distributed on April 1, 2002 in the form of a 100% stock dividend to shareholders of record on March 1, 2002.
 
The stock split resulted in the issuance of 27.1 million shares of common stock. Par value of the stock is unchanged at $1 per share and accordingly, $27.1 million was transferred from additional paid in capital to common stock on April 1, 2002.
 
The effect of the stock split has been recognized retroactively in all per share data in the accompanying condensed consolidated financial statements. 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,
    
2002
   
2001
   
2002
   
2001
Weighted average shares outstanding (denominator used to compute basic EPS)
   
53,953
   
53,012
   
53,876
   
52,938
Effect of employee and outside director stock
options
   
1,229
   
1,285
   
1,302
   
1,149
    
  
  
  
Denominator used to compute diluted EPS
   
55,182
   
54,297
   
55,178
   
54,087
    
  
  
  
 
6.    During the six months ended March 31, 2002 and 2001, the Company made cash payments of approximately $3.6 million and $5.7 million, respectively, for interest and $19.7 million and $13.0 million, respectively, for income taxes.

8

Table of Contents

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
7.    On October 31, 2001, the Company completed the acquisition of McDermott Engineers & Constructors (Canada) Limited (including Delta Catalytic and Delta Hudson Engineering) (collectively, “Delta”). Delta provides engineering, construction, and maintenance services to various industries including upstream oil and gas, petroleum refining, petrochemicals, and chemicals. The total purchase price of $47.5 million in cash was financed with a new, short-term $50.0 million credit facility. The Delta acquisition was accounted for as a purchase. Accordingly, the Company’s consolidated results of operations include those of Delta from the date of acquisition. 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 $40.1 million.
 
In January 1999, the Company completed its Agreement and Plan of Merger with Sverdrup Corporation (“Sverdrup”). In accordance with the merger agreement, each outstanding share of common stock of Sverdrup was converted into the right to receive (i) a proportional share of the total amount of initial merger consideration of $198.0 million paid at closing; and, (ii) a proportional amount of any additional merger consideration payable after each of the first three anniversaries of the date of the merger (“Deferred Merger Consideration”). The maximum amount payable as Deferred Merger Consideration at March 31, 2002 was $10.0 million.
 
8.    Effective October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142—Goodwill and Other Intangible Assets (“SFAS 142”). 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.
 
At September 30, 2001, the Company’s goodwill was $317.7 million. The Company is required to complete the initial step of a transitional impairment test of such existing goodwill. An impairment loss, if any, resulting from the transitional impairment test will be recorded as a cumulative effect of a change in accounting principle.
 
The Company completed the initial impairment test of its goodwill during the second quarter of fiscal 2002. The test indicated no impairment and accordingly the Company has made no adjustments to its goodwill balances.
 
The Company will also be required to test the value of its goodwill annually. Subsequent impairment losses, if any, will be reflected as a charge to income in the Company’s consolidated statement of earnings in the period they become known.

9

Table of Contents

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
As required by SFAS 142, the Company eliminated the amortization of goodwill effective October 1, 2001. Prior year results have not been restated. Had the Company been accounting for its goodwill under SFAS 142 for all periods presented, the Company’s net earnings and earnings per share data would have been as follows (in thousands, except per share data):
 
    
For the Three Months Ended March 31
   
For the Six Months Ended March 31
    
2002
   
2001
   
2002
   
2001
Net Earnings:
                            
As reported
   
$
26,880
   
$
21,560
   
$
52,750
   
$
41,660
Goodwill amortization, net of tax
   
 
—  
   
 
1,304
   
 
—  
   
 
3,001
    
  
  
  
As adjusted
   
$
26,880
   
$
22,864
   
$
52,750
   
$
44,661
    
  
  
  
Basic Earnings Per Share:
                            
As reported
   
$
0.50
   
$
0.41
   
$
0.98
   
$
0.79
Goodwill amortization, net of tax
   
 
—  
   
 
0.02
   
 
—  
   
 
0.05
    
  
  
  
As adjusted
   
$
0.50
   
$
0.43
   
$
0.98
   
$
0.84
    
  
  
  
Diluted Earnings Per Share:
                            
As reported
   
$
0.49
   
$
0.40
   
$
0.96
   
$
0.77
Goodwill amortization, net of tax
   
 
—  
   
 
0.02
   
 
—  
   
 
0.05
    
  
  
  
As adjusted
   
$
0.49
   
$
0.42
   
$
0.96
   
$
0.82
    
  
  
  

10

Table of Contents
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
March 31, 2002
 
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 Operations (incorporated by reference from pages C-5 through C-12 of Exhibit 13 to the Company’s 2001 Annual Report on Form 10-K).
 
Results of Operations
 
On April 1, 2002, the Company completed a two-for-one stock split which was distributed in the form of a 100% stock dividend to shareholders of record on March 1, 2002. Accordingly, earnings per share calculations for all periods presented have been restated to give effect to the stock split retroactively. See Note 5 of the Notes to Condensed Consolidated Financial Statements for a discussion of the stock split transaction.
 
On October 31, 2001, the Company completed the acquisition of McDermott Engineers & Constructors (Canada) Limited (including Delta Catalytic and Delta Hudson Engineering) (collectively, “Delta”). See Note 7 of the Notes to Condensed Consolidated Financial Statements for a discussion of the Delta transaction.
 
The Company’s consolidated results of operations for the second quarter and six months ending March 31, 2002 include those of Delta, GIBB and Stork Phase II from the dates of their respective acquisitions. The operations of Stork Phase II and GIBB were consolidated in the second and third quarters, respectively, of fiscal 2001. The Company’s operating results during the current fiscal periods were not significantly impacted by the operations of Stork Phase II.
 
The Company recorded net earnings of $26.9 million, or $0.49 per diluted share, for the three months ended March 31, 2002, compared to net earnings of $21.6 million, or $0.40 per diluted share for the same period last year. For the six months ended March 31, 2002, the Company recorded net earnings of $52.8 million, or $0.96 per diluted share, compared to net earnings of $41.7 million, or $0.77 per diluted share, for the same period last year.
 
Effective October 1, 2001, the Company eliminated the amortization of goodwill in accordance with Statement of Financial Accounting Standard No. 142—“Goodwill and Other Intangible Assets”. The results for the prior year periods have not been restated. Had goodwill amortization not been recorded in the quarter and six months ended March 31, 2001, net earnings would have been $22.9 million, or $0.42 per diluted share, and $44.7 million, or $0.82 per diluted share, respectively. See Note 8 of the Notes to Condensed Consolidated Financial Statements for additional discussion of SFAS 142.

11

Table of Contents
During the three months ended March 31, 2002, total revenues increased by $136.7 million, or 13.5%, to $1.1 billion, compared to total revenues of $1.0 billion for the same period in fiscal 2001. Approximately 17%, or $198.3 million of revenues during the second quarter of fiscal 2002 were generated by the Delta and GIBB acquisitions combined.
 
During the six months ended March 31, 2002, total revenues increased by $235.7 million, or 12.2%, to $2.2 billion, compared to $1.9 billion for the same period in fiscal 2001. Approximately 15%, or $324.4 million of revenues during the first half of fiscal 2002 were generated by the Delta and GIBB acquisitions combined.
 
The following tables set forth the Company’s revenues by type of service for the quarter and six months ended March 31 of each fiscal year (in thousands):
 
Three months ended March 31:
 
    
2002
   
2001
   
% Change
  
Project Services
   
$
489,910
   
$
422,185
   
16.0
%
Construction
   
 
503,125
   
 
439,436
   
14.5
%
Operations and Maintenance
   
 
106,477
   
 
116,472
   
(8.6
)%
Process, Scientific and Systems Consulting
   
 
47,099
   
 
31,776
   
48.2
%
    
  
  
    
$
1,146,611
   
$
1,009,869
   
13.5
%
    
  
  
 
Six months ended March 31:
 
    
2002
   
2001
   
% Change
  
Project Services
   
$
965,868
   
$
842,205
   
14.7
%
Construction
   
 
895,757
   
 
806,631
   
11.1
%
Operations and Maintenance
   
 
222,371
   
 
229,505
   
(3.1
)%
Process, Scientific and Systems Consulting
   
 
90,801
   
 
60,710
   
49.6
%
    
  
  
    
$
2,174,797
   
$
1,939,051
   
12.2
%
    
  
  
 
As a percentage of revenues, direct costs of contracts was 87.2% and 86.9%, respectively, for the three and six months ended March 31, 2002, compared to 88.0% and 87.9% for the same periods in fiscal 2001. 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 types of services provided by the Company.
 
Selling, general and administrative (“SG&A”) expenses for the second quarter of fiscal 2002 increased by $17.9 million, or 20.7%, to $104.2 million, compared to $86.3 million for the second quarter of fiscal 2001. For the first half of fiscal 2002, SG&A expenses increased by $34.9 million, or 21.1%, to $200.7 million, compared to $165.8 million for the same period last year. The increases in SG&A expenses during the current fiscal periods reflect the inclusion of the operations of Delta, GIBB and Stork Phase II, which contributed a total of $9.6 million and $19.4 million, respectively, to SG&A expenses during the second quarter and first half of fiscal 2002. Excluding the impact of the acquisitions that were completed after the first half of fiscal 2001, and the impact of eliminating goodwill amortization in fiscal 2002, SG&A expenses increased by $9.8 million, or 11.6%, and by $19.1 million, or 11.8%, respectively, during the second quarter and first half of fiscal 2002 compared to the same periods last year. As a percentage of revenues, consolidated SG&A expenses for the second quarter and first half of fiscal 2002 increased to 9.1% and 9.2%, respectively, compared to 8.5% and 8.6%, respectively, for the same periods last year.

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During the second quarter ended March 31, 2002, the Company’s operating profit (defined as revenues, less direct costs of contracts and SG&A expenses) increased by $7.2 million, or 20.6%, to $42.4 million, compared to $35.1 million during the same period last year. For the first half of fiscal 2002, the Company’s operating profit increased by $15.0 million, or 22.0%, to $83.4 million, compared to $68.3 million during the same period last year. The increases in the Company’s operating profit for the second quarter and first half of fiscal 2002 as compared to the same periods in fiscal 2001 were due primarily to significant increases in business volume and the elimination of goodwill amortization. Operating profit was 3.7% and 3.8% of revenues, respectively, in the second quarter and first half of fiscal 2002, compared to 3.5% of revenues in both the second quarter and first half of fiscal 2001. Excluding the impact of goodwill amortization on last year’s results, operating profit would have been 3.6% and 3.7% of revenues, respectively, in the second quarter and first half of fiscal 2001.
 
During the second quarter of fiscal 2002, interest expense decreased by $1.0 million, or 36.3%, to $1.8 million, compared to interest expense of $2.9 million for the same period last year. During the first half of fiscal 2002, interest expense decreased by $1.8 million, or 30.8%, to $4.1 million, compared to interest expense of $5.9 million for the same period last year. The decreases in interest expense in the current fiscal periods as compared to the same periods last year were due to a combination of lower interest rates and reduced borrowing levels. At March 31, 2002, the Company had total debt of $143.1 million, compared to $165.1 million at March 31, 2001. Total debt at March 31, 2002 included $35.5 million outstanding under a short-term credit facility that was used to finance the acquisition of Delta. At March 31, 2002 and 2001, outstanding borrowings under the $230.0 million revolving credit facility were $105.6 million bearing interest of 3.7% and $160.6 million bearing interest of 6.3%, respectively.
 
Backlog Information
 
Beginning with the second quarter of fiscal 2002, the Company reclassified certain engineering and scientific and systems consulting activities related to operations and maintenance contracts from technical professional services backlog to field services backlog. Backlog for the comparable prior period has been revised accordingly.
 
The following table summarizes the Company’s backlog at March 31, 2002 and 2001 (in millions):
 
    
2002
   
2001
Technical professional services
   
$
2,769.5
   
$
2,393.0
Field services
   
 
3,757.8
   
 
3,487.0
    
  
Total backlog
   
$
6,527.3
   
$
5,880.0
    
  
 
Liquidity and Capital Resources
 
During the six months ended March 31, 2002, the Company’s cash and cash equivalents increased by $4.9 million, to $54.1 million. This compares to a net increase of $31.7 million, to $97.6 million, during the same period in fiscal 2002. During the first half of fiscal 2002, the Company experienced net cash inflows from operating activities of $103.8 million, offset in part by net cash outflows from investing and financing activities, and the effect on cash of exchange rate changes, of $67.9 million, $27.1 million, and $4.0 million, respectively.

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Operations resulted in net cash inflows of $103.8 million during the six months ended March 31, 2002. This compares to a net contribution of $29.4 million during the same period in fiscal 2001. The $74.4 million increase in cash provided by operations in the first half of fiscal 2002 as compared to the first half of fiscal 2001 was due primarily to an increase in inflows of $61.1 million relating to the timing of cash receipts and payments within the Company’s working capital accounts, increases in net earnings and deferred income taxes of $11.1 million and $5.2 million, respectively, partially offset by a decrease in inflows of $3.6 million relating to the elimination of the amortization of goodwill beginning in the current fiscal year.
 
The Company’s investing activities resulted in net cash outflows of $67.9 million during the six months ended March 31, 2002. This compares to net cash outflows of $12.7 million during the same period last year. The net increase of $55.2 million in cash used for investing activities in the first half of fiscal 2002 as compared to the first half of fiscal 2001 was due primarily to $43.5 million of net cash used for the acquisition of Delta, a decrease in disposals to property and equipment of $12.6 million, and a net increase in other noncurrent assets of $4.4 million. These outflows were partially offset by an increase of $3.3 million in proceeds from sales of marketable securities and investments, and a decrease of $1.8 million in purchases of marketable securities and investments.
 
The Company’s financing activities resulted in net cash outflows of $27.1 million during the six months ended March 31, 2002. This compares to net cash inflows of $15.2 million during the same period last year. The $42.3 million net increase in cash used for financing activities in the current period as compared to last year was due primarily to increases in repayments of long-term borrowings of $231.6 million. These outflows were partially offset by increases in proceeds from long-term and short-term borrowings of $158.7 million and $32.6 million, respectively. Total borrowing activity for the first half of fiscal 2002 resulted in net repayments of $38.6 million, compared to net additional borrowings of $1.6 million in the same period last year.
 
The Company believes it has adequate capital resources to fund its operations during the remainder of fiscal 2002 and beyond. The Company’s consolidated working capital position was $194.9 million at March 31, 2002. As discussed earlier, the Company has a long-term $230.0 million revolving credit facility against which $105.6 million was outstanding at March 31, 2002 in the form of direct borrowings. At March 31, 2002, the Company had $106.4 million available through committed short-term credit facilities, which included the $50.0 million credit facility established for the Delta acquisition. At March 31, 2002, these short-term credit facilities had $35.7 million outstanding in the form of direct borrowings.
 
Under its stock repurchase program, the Company is authorized to buy-back up to 3.0 million shares of its common stock in the open market. Repurchases of common stock will be financed from existing credit facilities and available cash balances. From inception of the program through December 31, 2001, the Company had repurchased a total of 1,866,200 shares of its common stock in the open market at a total cost of $59.0 million. Substantially all of these treasury shares were eventually reissued for the Company’s employee stock purchase and incentive stock plans. There were no repurchases of common stock for treasury during the second fiscal quarter ending March 31, 2002.

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Forward-Looking Statements
 
Statements included in this Management’s Discussion and Analysis 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. Such statements are based on management’s current estimates, expectations and projections about the issues discussed, the industries in which the Company’s clients operate and the services the Company provides. By their nature, such forward-looking statements involve risks and uncertainties. The Company has tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and words and terms of similar substance in connection with any discussion of future operating or financial performance. 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 including 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 the funding of 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 successful closing and/or subsequent integration of any merger or acquisition transaction.
 
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 Management’s Discussion and Analysis 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.

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PART II—OTHER INFORMATION
 
Item 4.     Submission of Matters to a Vote of Security Holders
 
The Company's 2002 Annual Meeting of Shareholders was held at the Company’s headquarters on February 12, 2002, as previously announced in its Notice of Annual Meeting of Shareholders and Proxy Statement dated January 7, 2002, copies of which have been filed with the Commission pursuant to Regulation 14A.
 
There were three matters voted upon by the stockholders at the Annual Meeting. Those matters were:
 
1.    To elect a slate of directors as nominated in the proxy statement (Dr. Joseph J. Jacobs, Dr. Dale R. Laurance, and Linda Fayne Levinson);
 
2.    To approve the Company’s Global Employee Stock Purchase Plan; and,
 
3.    To approve the appointment of Ernst & Young LLP as independent auditors for the year ending September 30, 2002.
 
The results of the shareholder voting were as follows (all shares voted were voted by proxy):
 
    
Votes For
   
Votes Against
or Withheld
   
Abstentions
     
Broker
Non-votes
1.  Election of Directors:
                      
Dr. Joseph J. Jacobs
   
20,185,269
   
4,519,384
   
-0-
     
-0-
Dr. Dale R. Laurance
   
24,611,945
   
92,708
   
-0-
     
-0-
Linda Fayne Levinson
   
24,611,386
   
93,267
   
-0-
     
-0-
2.  Approval of the Company’s
                      
Global Employee
Stock Purchase Plan
   
24,273,376
   
395,935
   
35,342
     
-0-
3.  Ratification of the
Appointment of
Ernst & Young LLP
as independent
auditors
   
24,584,027
   
98,447
   
22,179
     
-0-
 
The Directors who did not stand for election at the Annual Meeting and whose terms of office continued after the Annual Meeting were: Messrs. Noel G. Watson, David M. Petrone, James L. Rainey, Jr., and Dr. James Clayburn LaForce; and Messrs. Peter H. Dailey, Robert C. Davidson, Jr., Robert B. Gwyn, Benjamin F. Montoya, and Dr. Linda K. Jacobs.

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Item 6.     Exhibits and Reports on Form 8-K.
 
(a) Exhibits
 
None
 
(b) Reports on Form 8-K
 
On February 14, 2002, the Company filed with the Securities and Exchange Commission a Form 8-K dated February 12, 2002, announcing that the board of directors of the Company had approved a two-for-one stock split, to be effected in the form of a 100% stock dividend payable on April 1, 2002 to shareholders of record on March 1, 2002.

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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/n    JOHN W. PROSSER, JR.         
   
John W. Prosser, Jr.
Senior Vice President, Finance
and Administration and Treasurer
Date: May 13, 2002

18