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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Quarterly Report on

FORM 10-Q

(Mark one)

Commission File Number 1-7463

JACOBS ENGINEERING GROUP INC.

(Exact name of Registrant as specified in its charter)

(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  ¨

Indicate by check-mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act of 1934).    Yes  x    No  ¨

Number of shares of common stock outstanding at May 13, 2004: 56,270,000

JACOBS ENGINEERING GROUP INC.

INDEX TO FORM 10-Q

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

See the accompanying Notes to Consolidated Financial Statements.

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share information)

(Unaudited)

See the accompanying Notes to Consolidated Financial Statements.

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

See the accompanying Notes to Consolidated Financial Statements.

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended March 31, 2004 and 2003

(In thousands)

(Unaudited)

See the accompanying Notes to Consolidated Financial Statements.

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED

MARCH 31, 2004

1. Unless the context otherwise requires, all references herein to “Jacobs” are to Jacobs Engineering Group Inc. and its predecessors, and references to the “Company”, “we”, “us” or “our” are to both Jacobs Engineering Group Inc. and its consolidated subsidiaries.

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 our consolidated financial statements and the notes thereto included in our latest Annual Report on Form 10-K.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of our consolidated financial position at March 31, 2004 and September 30, 2003, our consolidated results of operations for the three and six months ended March 31, 2004 and 2003, our consolidated comprehensive income for the three and six months ended March 31, 2004 and 2003, and our consolidated cash flows for the six months ended March 31, 2004 and 2003.

Our interim results of operations are not necessarily indicative of the results to be expected for the full year.

2. We account for stock-based compensation 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.

We apply the disclosure provisions of Statement of Financial Accounting Standards No. 123—Accounting for Stock-Based Compensation (“SFAS 123”) as amended by Statement of Financial Accounting Standards No. 148—Accounting for Stock-Based Compensation—Transition and Disclosure (“SFAS 148”). SFAS 123 prescribes an optional, fair-value based method of accounting for stock-based compensation plans.

Had we determined compensation cost under SFAS 123, our net earnings and earnings per share would have been reduced to the pro forma amounts as follows (in thousands, except per share data):

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED—(Continued)

MARCH 31, 2004

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:

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, 2004 and September 30, 2003 were $458.1 million and $398.0 million, respectively, of unbilled receivables, which represent 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, 2004 and September 30, 2003 were contract retentions totaling $32.0 million and $26.9 million, respectively. We anticipate that substantially all of such unbilled amounts will be billed and collected over the next twelve months.

Amounts due from the United States federal government included in “Receivables” in the accompanying consolidated balance sheets totaled $113.5 million and $131.8 million at March 31, 2004 and September 30, 2003, respectively.

In accordance with industry practice, we include in “Receivables” claims representing the recovery of costs incurred on contracts to the extent it is probable that such claims will result in additional contract revenue and the amount of such additional revenues can be reliably estimated. Such amounts included in “Receivables” in the accompanying consolidated balance sheets totaled $39.7 million and $35.4 million at March 31, 2004 and September 30, 2003, respectively. The increase in claims receivables was primarily due to the effect of foreign exchange rate fluctuations on the translation of the claims amounts into the U.S. dollar. Included in total claims receivables were $31.8 million and $25.2 million, at March 31, 2004 and September 30, 2003, respectively, that relate to one claim on a waste incineration project performed in Europe. The dispute involves proper waste feed, content of residues, final acceptance of, and costs of operation and maintenance of the plant. We have initiated litigation against the client and are seeking damages in excess of $54.6 million.

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED—(Continued)

MARCH 31, 2004

4. Property, equipment and improvements, net, are stated at cost in the accompanying consolidated balance sheets and consisted of the following (in thousands):

5. Other non-current assets in the accompanying consolidated balance sheets consisted of the following (in thousands):

Investments declined by approximately $8.3 million primarily due to a $14.8 million minimum pension liability adjustment relating to the pension plan of a joint venture.

6. In August 2003, we entered into a new, five year $290.0 million unsecured revolving bank agreement with a syndicate of United States, Canadian and European banks, and terminated the then existing revolving credit facilities that had an aggregate borrowing capacity of $275.0 million. The terminated facilities that were replaced were scheduled to expire on January 11, 2004. The new facility expires in August 2008, and provides for unsecured borrowings at either fixed rates offered by the banks at the time of borrowing, or at variable rates based on the agent bank’s base rate, LIBOR or the latest federal funds rate. The agreement requires us to maintain certain minimum levels of net worth, a minimum coverage ratio of certain fixed charges, and a minimum leverage ratio of earnings before interest, taxes, depreciation and amortization to funded debt (all as defined in the agreements). The agreement also restricts the payment of cash dividends and requires the Company to pay a facility fee based on the total amount of the commitments. Amounts outstanding under the new facility totaled $19.0 million bearing interest of 2.8% at March 31, 2004, compared to $37.1 million bearing interest of 3.6% outstanding at March 31, 2003 under the terminated revolving credit facilities.

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED—(Continued)

MARCH 31, 2004

7. Accrued liabilities in the accompanying consolidated balance sheets consisted of the following (in thousands):

8. Other deferred liabilities in the accompanying consolidated balance sheets consisted of the following (in thousands):

9. When we are directly responsible for subcontract labor, or third-party materials and equipment, we reflect the costs of such items in both revenues and costs. On other projects, where the client elects to pay for such items directly and we have 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 2004 and 2003 totaled $219.6 million and $501.9 million, and $377.2 million and $804.0 million, respectively.

10. 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):

11. During the six months ended March 31, 2004 and 2003, the Company made cash payments of approximately $1.0 million and $2.1 million, respectively, for interest, and $29.3 million and $21.7 million, respectively, for income taxes.

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED—(Continued)

MARCH 31, 2004

12. 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.

13. As is common to the industry, we execute certain contracts jointly with third parties through partnerships and joint ventures. In general, such contracts fall within the scope of AICPA Statement of Position 81-1—Accounting for Performance of Construction Type and Certain Production Type Contracts (“SOP 81-1”). We therefore account for these investments in accordance with SOP 81-1 and Emerging Issues Task Force Issue 00-01 —Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures.

Almost all of our joint ventures have no employees. Although the joint ventures own and hold the contracts with the clients, the services are performed by the Company with its partners or subcontractors under subcontracting agreements. The assets of our joint ventures, therefore, consist almost entirely of cash and receivables (representing amounts due from the clients); and the liabilities of our joint ventures consist almost entirely of amounts due to the joint venture partners (for services required by the client and which are provided under the subcontracts between the joint ventures and the partners) and other subcontractors. At any given time, the equity of our joint ventures represents the undistributed profits under the contracts with the clients. None of our joint ventures have third-party debt or credit facilities. The joint ventures are simply mechanisms used to deliver engineering and construction services to clients. They do not, in and of themselves, present any risk of loss to our partners or to us. Under accounting principles generally accepted in the United States, our share of losses associated with the contracts held by the joint ventures, if and when they occur, has always been reflected in our consolidated financial statements.

In accordance with the provisions of FASB Interpretation No. 46—Consolidation of Variable Interest Entities (“FIN 46”), we have analyzed our joint ventures and have classified them into two groups: the first group consists of those variable interest entities (“VIEs”) of which we are the primary beneficiary; the second group consists of those VIEs of which we are not the primary beneficiary. We account for our investment in material VIEs of which we are the primary beneficiary in accordance with FIN 46.

At March 31, 2004, the total assets and liabilities of those VIEs of which we are the primary beneficiary were $108.5 million and $98.9 million, respectively. At March 31, 2004, the total assets and liabilities of those VIEs of which we are not the primary beneficiary were $25.9 million and $26.4 million, respectively.

We previously had a contractual relationship with a VIE acquired prior to fiscal 2003. This VIE owned real property in Houston, Texas which we lease for office space. During the fourth quarter of fiscal 2003, we completed a restructuring arrangement whereby the real property subject to the lease was sold to an unrelated third party that is not a VIE. The lease agreement that we entered into with the unrelated third party gives us the option to purchase the real property at the end of the lease term in 2011 for $49.0 million. We also have the right to request an extension of the lease, or we may assist the owner in selling the property at the end of the lease term. The proceeds from any such sale would be used to reduce our end-of-term return payment obligation of $35.3 million. We have determined that the fair value of the end-of-term return payment obligation is zero at March 31, 2004.

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JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED—(Continued)

MARCH 31, 2004

14. At March 31, 2004, 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 three to twelve months. Payment by the Company would be required upon default by the unconsolidated affiliate. The maximum potential amount of future payments, which we could be required to make under these guarantees at March 31, 2004, is $7.5 million. We have determined that the aggregate fair value of these financial guarantees is zero at March 31, 2004.

15. The components of net periodic benefit costs relating to our defined benefit pension plans are as follows (in thousands):

We made cash contributions of $6.2 million to our defined benefit pension plans during the first half of fiscal 2004. We expect to make cash contributions of between $8.6 million and $9.2 million in fiscal 2004, including the cash contributions made in the first half of fiscal 2004.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

Certain statements in this report constitute “forward-looking statements”. These forward-looking statements represent management’s best judgment as to what may occur in the future. However, Jacobs’ actual outcome and results are subject to various risks, uncertainties and assumptions (“Future Factors”), and may differ materially from what is expressed. For a description of Future Factors that could cause actual results to differ materially from such forward-looking statements, see the discussion under the section “Forward Looking Statements” included herein.

The following discussion should be read in conjunction with the accompanying consolidated financial statements and notes. Readers should also refer to our audited consolidated financial statements and notes thereto, and Item 7 included in the Company’s 2003 Annual Report on Form 10-K.

Executive Summary

Our operating results for the first half of fiscal 2004 reflected normal growth in earnings. Although revenues for the second quarter and first half of fiscal 2004 were 6.5% and 6.7% lower as compared to the same periods in fiscal 2003, the decreases were attributable primarily to lower levels of pass-through costs recognized through our books. When we are responsible for subcontract labor or third-party materials and equipment, we reflect the costs of such items in both revenues and costs. Since pass-through costs (which are incurred primarily on projects requiring field services) typically do not have significant margins, we can experience a decline in revenues without experiencing a corresponding significant decline in our gross margins (defined as revenues less direct costs of contracts) and operating profit margins (defined as gross margins less selling, general and administrative (“SG&A”) expenses).

This shift in our business mix to increased revenues from technical professional services resulted in better gross and operating profit margins. Gross profit margins increased by 5.7% and 6.5%, respectively, during the second quarter and first half of fiscal 2004, compared to the same periods in fiscal 2003. Operating profit margins increased by 8.8% and 10.3%, respectively, during the second quarter and first half of fiscal 2004, compared to the same periods in fiscal 2003. As a percentage of revenues, gross margins and operating profit margins increased to 14.9% and 4.7%, respectively, in the second quarter of fiscal 2004 compared to 13.2% and 4.0%, respectively, in the same quarter last year, and to 14.6% and 4.7%, respectively, in the first half of fiscal 2004, compared to 12.8% and 3.9%, respectively, in the first half of fiscal 2003.

Our backlog continued to grow during the second quarter of fiscal 2004. Backlog at March 31, 2004 increased by $546.5 million to $7.2 billion as compared to the March 31, 2003 backlog amount. Since many of our contracts require us to provide services that span over a number of fiscal quarters (and sometimes over fiscal years), we evaluate our backlog on a year-over-year basis, rather than on a sequential, quarter-over-quarter basis. The growth in backlog during the current fiscal quarter was due primarily to new awards from clients in the oil & gas and refining industries, combined with new United States federal program awards. We continue to see interest in new projects and inquiries from our clients in the oil & gas and refining, pharmaceuticals and biotechnology, federal programs, and buildings industry groups and markets.

Our cash balances also continued to increase. Cash and cash equivalents totaled $172.0 million at March 31, 2004 compared to $126.2 million at September 30, 2003, and $76.9 million at March 31, 2003. Our cash balances, combined with a borrowing capacity of $290.0 million under our long-term revolving credit facility, present sufficient capital resources for us to complete one or more strategic acquisitions. Strategic acquisitions have been and will continue to be an integral part of maintaining our long-term growth.

Additions to property and equipment totaled $15.6 million during the first half of fiscal 2004, an amount that was not significantly different from what we spent on capital expenditures during the comparable period last year. No major capital expenditure programs are planned.

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Critical Accounting Policies and Estimates

We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s 2003 Annual Report on Form 10-K. The discussion below describes those accounting policies most critical to the preparation of our consolidated financial statements.

Revenue Accounting for Contracts—In accounting for long-term, engineering and construction-type contracts, we follow the provisions of the AICPA’s Statement of Position 81-1—Accounting for Performance of Construction-Type and Certain Production-Type Contracts. In general, we recognize revenues at the time we provide services. Depending on the commercial terms of the contracts, we recognize revenues either when costs are incurred, or using the percentage-of-completion method of accounting by relating contract costs incurred to date to the total estimated costs at completion. Contract losses are provided for in their entirety in the period they become known, without regard to the percentage-of-completion.

The nature of our business results in clients, subcontractors or vendors occasionally presenting claims against us for recovery of costs they incurred in excess of what they expected to incur, or for which they believe they are not contractually responsible. Similarly, and in the normal course of business, we may present claims to our clients for costs we have incurred for which we believe we are not contractually responsible. In those situations where a claim against us may result in additional costs to the contract, we include in the total estimated costs of the contract (and therefore, the estimated amount of margin to be earned under the contract) an estimate, based on the relevant facts and circumstances available, of the additional costs to be incurred. In those situations where we have incurred additional costs for which we believe the client is contractually responsible, we may present a claim to the client for such costs. In such situations, we include in revenues the amount of costs incurred, without profit, to the extent it is probable that the claims will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated. Costs associated with unapproved change orders are included in revenues using substantially the same criteria used for claims.

Certain cost-reimbursable contracts with the United States federal government as well as certain commercial clients provide that contract costs are subject to audit and adjustment. In this situation, revenues are recorded at the time services are performed based upon the amounts we expect to realize upon completion of the contracts. In those situations where an audit indicates that we may have billed a client for costs not allowable under the terms of the contract, we estimate the amount of such nonbillable costs and adjust our revenues accordingly.

As is common in the industry, we execute certain contracts jointly with third parties through partnerships and joint ventures. For certain of these contracts (i.e., where we have an undivided interest in the assets and liabilities of the venture), we recognize our proportionate share of joint venture revenues, costs and operating profit in our consolidated statement of earnings. For other investments in engineering and construction joint ventures, we use the equity method of accounting.

Insurance Matters, Litigation, Claims, and Contingencies—In the normal course of business, we are 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, environmental, environmental exposure, professional liability, and other similar lawsuits. We maintain insurance coverage for various aspects of our business and operations. However, we have elected to retain a portion of losses that may occur through the use of various deductibles, limits and retentions under our insurance programs. This situation may subject us to some future liability for which we are only partially insured, or completely uninsured.

Additionally, our income, franchise and similar tax returns and filings are subject to audit and investigation by the Internal Revenue Service, most states in the United States, as well as by various government agencies representing jurisdictions outside the United States in which we operate.

In accordance with Statement of Financial Accounting Standards No. 5—Accounting for Contingencies, we record in our consolidated balance sheets amounts representing our estimated liability relating to such claims,

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guarantees, litigation, and audits and investigations. We rely on qualified actuaries to assist us in determining the level of reserves to establish for both insurance-related claims that are known and have been asserted against us as well as for insurance-related claims that are believed to have been incurred based on actuarial analysis, but have not yet been reported to our claims administrators as of the respective balance sheet dates. We include any adjustments to such insurance reserves in our consolidated results of operations.

Testing Goodwill for Impairment—In accordance with Statement of Financial Accounting Standards No. 142—Goodwill and Other Intangible Assets (“SFAS 142”), the amount of goodwill carried on our consolidated balance sheet is tested annually for possible impairment. In conducting the impairment test, we may apply, in accordance with the provisions of SFAS 142, various techniques to estimate the fair value of our reporting units. These techniques are inherently subjective and the resulting values are not necessarily representative of the values we might obtain in a sale of our reporting units to a willing third party. Since the adoption of SFAS 142 in fiscal 2002, we have not recorded any impairment loss associated with goodwill.

Operations Outside the United States—In general, our principal exposure to fluctuating exchange rates relates to the effects of translating the financial statements of our foreign subsidiaries, which are denominated in currencies other than the U.S. dollar, into the U.S. dollar. We follow the provisions of Statement of Financial Accounting Standards No. 52—Foreign Currency Translation in preparing our consolidated financial statements.

We believe our exposure to the effects that fluctuating foreign currencies may have on our consolidated results of operations is limited because our various operations invoice clients and satisfy their financial obligations primarily in their respective local currencies. In situations where our operations incur contract costs in currencies other than their functional currencies, we strive to have a portion of the related contract revenues denominated in the same currencies as the costs.

Results of Operations

Our business is focused exclusively on providing technical, professional, and construction services to a large number of industrial, commercial, and governmental clients around the world. The services we provide generally fall into four broad categories: project services (which includes engineering, design, architectural, and similar

services); construction services (which includes revenues earned from traditional field construction activities as well as modular construction activities); operations and maintenance (“O&M”) services (which includes revenues from contracts requiring us to operate and maintain large, complex facilities on behalf of clients as well as contracts involving process plant maintenance services and activities); and process, scientific, and systems consulting services (which includes revenues earned from providing a wide variety of scientific and consulting services to clients).

The scope of services we provide our clients, therefore, ranges from consulting and conceptual design services (which are often required by clients in the very early stages of a project) to complete, single-responsibility, design-build-operate contracts.

The following tables set forth our revenues by type of service for the second quarter and first half of fiscal 2004 and 2003 (in thousands):

Three months ended March 31:

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Six months ended March 31:

We focus our services on certain industry groups and markets that we believe have sufficient common needs to permit cross-utilization of our resources. The following table sets forth our revenues by these industry groups and markets for the second quarter and first half of fiscal 2004 and 2003 (in thousands):

Three months ended March 31:

Six months ended March 31:

“Other” includes projects for clients operating in a number of industries including food and consumer products, and basic resources (such as mining, minerals and fertilizers).

We recorded net earnings of $34.8 million, or $0.61 per diluted share for the second quarter of fiscal 2004, compared to net earnings of $31.5 million, or $0.56 per diluted share for the second quarter of fiscal 2003. For the first half of fiscal 2004, we recorded net earnings of $68.6 million, or $1.20 per diluted share, compared to net earnings of $61.6 million, or $1.10 per diluted share, for the same period in fiscal 2003.

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Total revenues for the second quarter ended March 31, 2004 decreased by $78.7 million, or 6.5%, to $1.1 billion compared to $1.2 billion for the same period in fiscal 2003. Total revenues also decreased on a year-to-date basis by $162.3 million, or 6.7%, to $2.3 billion in the current period, compared to $2.4 billion in the prior fiscal period. The decreases in revenues during the current fiscal quarter and year-to-date periods compared to the same periods last year were primarily attributable to declines in pass-through costs. The amount of pass-through costs included in revenues during the second quarter and first half of fiscal 2004 totaled $219.6 million and $501.9 million, respectively, compared to $377.2 million and $804.0 million, respectively, during the second quarter and first half of fiscal 2003. The level of pass-through costs included in revenues and costs will vary between reporting periods depending principally on the amount of procurement that clients choose to do themselves as opposed to using our services as well as on the normal winding down of field services activities on construction and O&M projects. See Note 9 of the Notes to Consolidated Financial Statements for a discussion of pass-through costs.

As a percentage of revenues, direct costs of contracts were 85.1% and 85.4%, respectively, for the three and six months ended March 31, 2004, compared to 86.8% and 87.2% for the same periods in fiscal 2003. 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. The improvement in the percentage relationship between direct costs of contracts and revenues during the current fiscal quarter and year-to-date periods compared to the same periods last year were due primarily to the reduction of pass-through costs as discussed above.

SG&A expenses for the quarter ended March 31, 2004 increased by $4.8 million, or 4.3%, to $115.1 million, compared to $110.3 million for the same period last year. For the first six months of fiscal 2004, SG&A expenses increased by $10.4 million, or 4.9%, to $225.0 million, compared to $214.6 million for the same period in fiscal 2003. The percentage increases in SG&A during the current fiscal periods compared to the same periods in the prior fiscal year are consistent with our historical spending trends, and relate to the growth in our technical professional services revenues. As a percentage of revenues, consolidated SG&A expenses increased to 10.2% and 10.0%, respectively, during the second quarter and first half of fiscal 2004, compared to 9.2% and 8.9%, respectively, during the same periods in fiscal 2003.

Despite a decrease in total revenues during the second quarter and first half of fiscal 2004, our operating profit increased by $4.3 million, or 8.8%, to $52.8 million, and by $9.8 million, or 10.3%, to $105.2 million, respectively, compared to $48.5 million and $95.4 million, respectively, during the same periods in fiscal 2003. As a percentage of revenues, operating profit increased to 4.7% in both the second quarter and first half of fiscal 2004, from 4.0% and 3.9%, respectively, in the comparable periods last year. The increase in our operating profit was due primarily to a shift in our business mix to increased revenues from technical professional services, which typically generate higher margins than field services.

Interest expense remained relatively unchanged at $0.8 million in the second quarter of fiscal 2004, compared to the second quarter of fiscal 2003. During the six months ended March 31, 2004, interest expense decreased by $0.4 million, or 21.7%, to $1.6 million, compared to interest expense of $2.0 million for the same period last year, due to significantly reduced borrowing levels. On a sequential basis, interest expense during the second quarter of fiscal 2004 decreased by 7.4% compared to the first quarter of fiscal 2004. In August 2003 we entered into a new, five year $290.0 million unsecured revolving bank credit agreement and terminated the existing revolving credit facilities that had an aggregate borrowing capacity of $275.0 million. Amounts outstanding under this facility totaled $19.0 million bearing interest of 2.8% at March 31, 2004, compared to $37.1 million bearing interest of 3.6% outstanding at March 31, 2003 under the terminated revolving credit facilities. See Note 6 of the Notes to Consolidated Financial Statements for additional information on our borrowings.

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Backlog Information

The following table summarizes our total backlog at March 31, 2004 and 2003 (in millions):

Our backlog at March 31, 2004 increased by $546.5 million, or 8.2%, to $7.2 billion, compared to $6.7 billion at March 31, 2003, primarily attributable to new awards from clients in the oil & gas and refining industries, combined with new United States federal program awards.

Liquidity and Capital Resources

We finance our operations primarily through cash provided by operations. At March 31, 2004, our principal source of liquidity consisted of $172.0 million of cash and cash equivalents, and a five-year $290.0 million revolving credit facility as discussed above.

During the first half of fiscal 2004, our cash and cash equivalents increased by $45.8 million, to $172.0 million. This compares to a net increase of $28.4 million, to $76.9 million during the first half of fiscal 2003. During the first half of fiscal 2004, we experienced net cash inflows from operating and financing activities of $51.8 million and $13.0 million, respectively. These inflows were offset by net cash outflows from investing activities, and the effect on cash of exchange rate changes, of $18.5 million and $0.5 million, respectively.

Our operations provided net cash of $51.8 million during the six months ended March 31, 2004. This compares to net cash inflows of $80.3 million during the comparable period in fiscal 2003. The $28.5 million decrease in cash provided by operations during the current fiscal period as compared to last year was due primarily to a decrease in inflows of $40.0 million relating to the timing of cash receipts and payments within our working capital accounts, partially offset by increases in net earnings and deferred income taxes of $7.0 million and $2.4 million, respectively, and a decrease of $2.4 million in gains on sales of assets.

We used $18.5 million of cash for investing activities during the first half of fiscal 2004. This compares to net cash outflows of $6.0 million during the same period in fiscal 2003. The net increase of $12.5 million in cash used for investing activities during the current fiscal period as compared to last year was due primarily to a net increase in other non-current assets of $10.3 million, and a decrease of $3.1 million in proceeds from sales of investments. These outflows were partially offset by a decrease of $1.2 million in purchases of investments.

Our financing activities provided net cash of $13.0 million during the first half of fiscal 2004. This compares to net cash outflows of $46.1 million during the first half of fiscal 2003. The $59.1 million net increase in cash provided by financing activities during the current fiscal period as compared to last year was due primarily to a decrease of $58.7 million in repayments of long-term borrowings and a net increase of $44.7 million in short-term borrowings. These outflows were partially offset by a decrease in proceeds from long-term borrowings of $44.3 million. Our total borrowing activity for the first half of fiscal 2004 resulted in net borrowings of $0.5 million, compared to net repayments of $58.6 million for the first half of fiscal 2003.

We believe we have adequate liquidity and capital resources to fund our operations and service our debt for the foreseeable future. We had $172.0 million in cash and cash equivalents at March 31, 2004, compared to $126.2 million at September 30, 2003, and $76.9 million a year ago. Our consolidated working capital position at March 31, 2004 was $450.9 million, compared to $358.7 million at September 30, 2003, and $249.0 million a year ago. As discussed above, we signed a new, five-year $290.0 million unsecured revolving bank credit agreement, which replaced the terminated revolving credit facilities that had an aggregate borrowing capacity of $275.0 million. Management believes that the capacity, terms and conditions of the new facility will be sufficient

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for the Company’s working capital and general business requirements. We also have $46.1 million available through committed short-term credit facilities. At March 31, 2004, $0.9 million and $19.0 million were outstanding in the form of direct borrowings under the $46.1 million and $290.0 million credit facilities, respectively.

Under our stock repurchase program, we are authorized by our Board of Directors to buy-back up to 6.0 million shares of the common stock of the Company in the open market. Repurchases of common stock are financed from available cash balances and existing credit facilities. From inception of the program through September 30, 2002, we have repurchased a total of 3,732,400 shares of common stock in the open market at a total cost of $59.0 million. No shares of common stock were repurchased since fiscal 2002. Substantially all shares of common stock held in treasury were eventually reissued for our employee stock purchase and incentive stock plans.

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 defined 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 our clients operate and the services we provides. By their nature, such forward-looking statements involve risks and uncertainties. We have 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. We caution the reader that a variety of factors could cause business conditions and results to differ materially from what is contained in our forward-looking statements including the following:

The preceding list is not all-inclusive, and we undertake 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 our 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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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We do not enter into derivative financial instruments for trading, speculation or other purposes that would expose the Company to market risk. In the normal course of business, our results of operations are exposed to risks associated with fluctuations in interest rates and currency exchange rates.

Interest Rate Risk

Our only source for long-term credit is a $290.0 million revolving credit facility. The total amount outstanding under this facility at March 31, 2004 was $19.0 million. This agreement expires in August of 2008, and provides for both fixed-rate and variable-rate borrowings. Our objectives in managing our interest rate risk are to limit the impact of interest rate changes on earnings and cash flows, and to lower our overall borrowing costs.

Foreign Currency Risk

In general, our exposure to fluctuating exchange rates relates to the effects of translating the financial statements of our subsidiaries operating outside the United States, which are denominated in currencies other than the U.S. dollar, into the U.S. dollar. We follow the provisions of Statement of Financial Accounting Standards No. 52—Foreign Currency Translation in preparing our consolidated financial statements.

We believe our exposure to the effects that fluctuating foreign currencies may have on our consolidated results of operations is limited because, in general, our various operations invoice customers and satisfy their financial obligations in their respective local currencies. In situations where our operations incur contract costs in currencies other than their own functional currencies, we strive to have a portion of the related contract revenues denominated in the same currencies as the costs.

Item 4. Controls and Procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on 10-Q, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. In designing and evaluating the disclosure controls and procedures, the Company’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures.

There were no significant changes in our internal controls over financial reporting (as defined by the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) that occurred during the period covered by this Quarterly Report on Form 10-Q, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

On March 10, 2004, in connection with an ongoing federal investigation into the award of a contract for the expansion of McCormick Place in Chicago, Illinois, we received a letter from the United States Attorney for the Northern District of Illinois which stated for the first time that the Company was a subject of the investigation. The Company has been cooperating with the investigation and intends to continue to do so. Also in March 2004, two former employees of the Company subsidiary that won the contract under scrutiny pleaded guilty to lying to investigators and agreed to cooperate in the investigation. No other employee has been charged with any wrongdoing. It is the opinion of its outside counsel that the Company did not, and based on its own investigation of the circumstances of the contract award the Company continues to believe that it did not, violate any Illinois or federal laws. The Company believes that the outcome of the investigation should not have a material adverse effect on its financial position.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

The Company’s 2004 Annual Meeting of Shareholders was held at its headquarters on February 10, 2004, as previously announced in its Notice of Annual Meeting of Shareholders and Proxy Statement dated January 5, 2004, copies of which have been filed with the Commission pursuant to Regulation 14A.

There were two matters voted upon by the stockholders at the Annual Meeting. Those matters were:

The results of the shareholder voting were as follows (all shares voted were voted by proxy):