(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)

ASSETS

Current Assets:

Cash and cash equivalents

$

76,884

$

48,469

Receivables

822,365

845,360

Deferred income taxes

59,520

66,609

Prepaid expenses and other

15,560

14,465

Total current assets

974,329

974,903

Property, Equipment and Improvements, Net

147,470

149,905

Other Noncurrent Assets:

Goodwill

393,469

390,953

Other

146,267

158,223

Total other noncurrent assets

539,736

549,176

$

1,661,535

$

1,673,984

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Notes payable

$

37,685

$

5,962

Accounts payable

201,952

229,579

Accrued liabilities

325,689

322,618

Billings in excess of costs

126,015

155,114

Income taxes payable

33,948

27,144

Total current liabilities

725,289

740,417

Long-term Debt

—  

85,732

Other Deferred Liabilities

160,580

152,340

Minority Interests

5,204

5,882

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, 55,287,167 shares issued and outstanding at March 31, 2003; 54,765,374 shares issued and outstanding at September 30, 2002

55,287

54,765

Additional paid-in capital

124,701

110,778

Retained earnings

629,445

568,957

Accumulated other comprehensive loss

(36,663

)

(42,582

)

772,770

691,918

Unearned compensation

(2,308

)

(2,305

)

Total stockholders’ equity

770,462

689,613

$

1,661,535

$

1,673,984

For the Three Months
Ended March 31,

For the Six Months
Ended March 31,

2003

2002

2003

2002

Revenues

$

1,202,606

$

1,146,611

$

2,421,286

$

2,174,797

Costs and Expenses:

Direct costs of contracts

(1,043,745

)

(1,000,071

)

(2,111,379

)

(1,890,736

)

Selling, general and administrative expenses

(110,347

)

(104,180

)

(214,550

)

(200,699

)

Operating Profit

48,514

42,360

95,357

83,362

Other (Expense) Income:

Interest income

139

443

390

1,061

Interest expense

(777

)

(1,825

)

(2,008

)

(4,088

)

Miscellaneous income, net

555

375

1,061

819

Total other expense, net

(83

)

(1,007

)

(557

)

(2,208

)

Earnings Before Taxes

48,431

41,353

94,800

81,154

Income Tax Expense

(16,951

)

(14,473

)

(33,180

)

(28,404

)

Net Earnings

$

31,480

$

26,880

$

61,620

$

52,750

Net Earnings Per Share:

Basic

$

0.57

$

0.50

$

1.12

$

0.98

Diluted

$

0.56

$

0.49

$

1.10

$

0.96

For the Three Months
Ended March 31,

For the Six Months
Ended March 31,

2003

2002

2003

2002

Net Earnings

$

31,480

$

26,880

$

61,620

$

52,750

Other Comprehensive Income (Loss):

Unrealized holding (losses) gains on securities

(30

)

662

(18

)

981

Less: reclassification adjustment for gains realized in net earnings

(637

)

(632

)

(1,949

)

(1,372

)

Unrealized (losses) gains on securities, net of reclassification adjustment

(667

)

30

(1,967

)

(391

)

Foreign currency translation adjustments

4,132

(1,455

)

7,158

(4,452

)

Other Comprehensive Income (Loss) Before Income Tax Benefit

3,465

(1,425

)

5,191

(4,843

)

Income Tax Benefit Relating to Other Comprehensive Income (Loss)

246

4

728

168

Other Comprehensive Income (Loss)

3,711

(1,421

)

5,919

(4,675

)

Total Comprehensive Income

$

35,191

$

25,459

$

67,539

$

48,075

2003

2002

Cash Flows from Operating Activities:

Net earnings

$

61,620

$

52,750

Adjustments to reconcile net earnings to net cash flows from operations:

Depreciation and amortization of property, equipment and improvements

17,688

16,787

Gains on sales of assets

(2,424

)

(1,362

)

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

Receivables

49,295

95,174

Prepaid expenses and other current assets

(257

)

2,159

Accounts payable

(36,626

)

(43,642

)

Accrued liabilities

9,077

26,885

Billings in excess of costs

(32,987

)

(51,616

)

Income taxes payable

14,143

(405

)

Deferred income taxes

269

6,798

Other, net

462

314

Net cash provided by operating activities

80,260

103,842

Cash Flows from Investing Activities:

Acquisitions of businesses, net of cash acquired

—  

(43,529

)

Additions to property and equipment

(15,685

)

(19,633

)

Disposals of property and equipment

2,856

731

Proceeds from sales of marketable securities and investments

3,367

5,007

Purchases of marketable securities and investments

(1,944

)

(1,949

)

Net decrease (increase) in other noncurrent assets

5,430

(8,484

)

Net cash used for investing activities

(5,976

)

(67,857

)

Cash Flows from Financing Activities:

Proceeds from long-term borrowings

164,354

200,708

Repayments of long-term borrowings

(178,629

)

(258,111

)

Net change in short-term borrowings

(44,346

)

18,786

Proceeds from issuances of common stock

13,240

10,154

Purchases of common stock for treasury

—  

(2,003

)

Change in other deferred liabilities

(694

)

3,385

Net cash used for financing activities

(46,075

)

(27,081

)

Effect of Exchange Rate Changes

206

(4,036

)

Increase in Cash and Cash Equivalents

28,415

4,868

Cash and Cash Equivalents at Beginning of Period

48,469

49,263

Cash and Cash Equivalents at End of Period

$

76,884

$

54,131

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

Net earnings as reported

$

31,480

$

26,880

$

61,620

$

52,750

Fair value of stock based compensation cost, net of tax

2,657

2,913

4,281

4,334

Pro forma net earnings

$

28,823

$

23,967

$

57,339

$

48,416

Earnings per share:

Basic:

As reported

$

0.57

$

0.50

$

1.12

$

0.98

Pro forma

$

0.52

$

0.44

$

1.05

$

0.90

Diluted:

As reported

$

0.56

$

0.49

$

1.10

$

0.96

Pro forma

$

0.51

$

0.43

$

1.02

$

0.88

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

Dividend yield

—  

—  

—  

—  

Expected volatility

23.85

%

35.62

%

36.03

%

37.36

%

Risk-free interest rates

3.74

%

4.51

%

3.74

%

4.51

%

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

Land

$

7,855

$

7,903

Buildings

56,098

54,010

Equipment

230,966

239,159

Leasehold improvements

29,446

27,987

Construction in progress

5,752

2,990

330,117

332,049

Accumulated depreciation and amortization

(182,647

)

(182,144

)

$

147,470

$

149,905

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

Deferred tax asset

$

43,221

$

43,195

Cash surrender value of life insurance policies

41,889

44,083

Investments

21,920

27,691

Prepaid pension costs

15,297

15,993

Notes receivable

8,860

10,483

Reimbursable pension costs

9,678

9,928

Miscellaneous

5,402

6,850

$

146,267

$

158,223

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

Accrued payroll and related liabilities

$

186,975

$

181,016

Insurance liabilities

35,966

42,761

Project related accruals

40,577

40,460

Other

62,171

58,381

$

325,689

$

322,618

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 defined benefit pension and early retirement plans

$

88,535

$

88,689

Liabilities relating to nonqualified deferred compensation arrangements

44,364

36,346

Deferred income taxes

15,355

16,058

Other

12,326

11,247

$

160,580

$

152,340

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

Weighted average shares outstanding (denominator used to compute basic EPS)

54,940

53,953

54,868

53,876

Effect of employee and outside director stock options

1,251

1,229

1,141

1,302

Denominator used to compute diluted EPS

56,191

55,182

56,009

55,178

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

Project Services

$

486,741

$

489,910

(0.6

)%

Construction

538,933

503,125

7.1

%

Operations and Maintenance

120,806

106,477

13.5

%

Process, Scientific and Systems Consulting

56,126

47,099

19.2

%

$

1,202,606

$

1,146,611

4.9

%

2003

2002

% Change

Project Services

$

956,498

$

965,868

(1.0

)%

Construction

1,119,093

895,757

24.9

%

Operations and Maintenance

234,960

222,371

5.7

%

Process, Scientific and Systems Consulting

110,735

90,801

21.9

%

$

2,421,286

$

2,174,797

11.3

%

2003

2002