Back to GetFilings.com
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):
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
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
========== ========== ========== ========== ==========
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):
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
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
========== ========== ========== ========== ==========
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:
Year Joined
Name Age Position with the Company the Registrant
- --------------------------- --- ------------------------------------------------ --------------
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
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:
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.
Page 15
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.
___________________________________________
(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:
SIGNATURE TITLE DATE
/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.
Page 18
/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)
Page 19