Jacobs Engineering Group Inc. — Fiscal 2011 First Quarter 10-Q
Reporting period: Three months ended December 31, 2010, compared with the three months ended January 1, 2010. The filing identifies the registrant as Jacobs Engineering Group Inc.; the provided metadata refers to Jacobs Solutions Inc. Results are unaudited.
Key Financial Metrics
| Metric | Q1 FY2011 | Q1 FY2010 | Change |
|---|---|---|---|
| Revenue | $2.356 billion | $2.478 billion | Down 4.9% |
| Operating profit | $103.6 million | $113.5 million | Down 8.7% |
| Operating margin | 4.4% | 4.6% | Down approximately 20 bps |
| Net earnings attributable to Jacobs | $65.8 million | $72.4 million | Down 9.1% |
| Diluted EPS | $0.52 | $0.58 | Down 10.3% |
| Net margin attributable to Jacobs | 2.8% | 2.9% | Down approximately 10 bps |
| Cash flow from operations | $140.3 million | $240.4 million | Down $100.1 million |
| Cash and equivalents at period end | $1.040 billion | $1.055 billion | Down 1.5% year over year |
| Total backlog | $13.0 billion | $14.9 billion | Down 12.8% |
Business Context and Operating Results
- Technical professional services revenue was $1.205 billion, broadly unchanged year over year. Field services revenue declined 8.4% to $1.151 billion, entirely because of lower construction revenue.
- Operations and maintenance revenue increased 30.1%, primarily due to higher turnaround work for refining and oil and gas clients in Canada.
- The largest market declines were in Refining—Downstream and Pharmaceuticals and Biotechnology, reflecting project completions and fewer new awards. Infrastructure, Buildings, and Oil & Gas—Upstream revenue increased.
- Pass-through costs declined $192.4 million to $534.9 million. Management noted that pass-through costs can materially affect reported revenue and direct contract costs without a corresponding effect on gross margins or operating profit.
- SG&A declined 3.5% to $227.4 million. Current-quarter SG&A included $10.1 million of acquisition due-diligence costs; the prior-year quarter included an $11.4 million charge related to an unused Houston office and sublease.
Cash Flow, Debt and Liquidity
- Operating cash flow was $140.3 million, compared with $240.4 million in the prior-year quarter. Management attributed the decrease primarily to working-capital timing, lower net earnings, and lower depreciation; it reported no unusual working-capital activity.
- Investing activities used $58.3 million, including $58.0 million for acquisitions. This was substantially below the prior-year investment outflow of $327.2 million, which included higher acquisition activity.
- Financing activities provided $17.9 million. The company had approximately $1.0 billion of cash and $1.6 billion of working capital at December 31, 2010.
- The company had a $290.0 million unsecured revolving credit facility, with approximately $250.1 million of available capacity. Approximately $39.9 million was utilized through borrowings and letters of credit, including $11.4 million of direct long-term borrowings.
- Approximately $70.4 million was outstanding under a separate short-term credit facility. Management stated that existing liquidity was adequate for operations, acquisitions, and debt service over the next twelve months.
Material Changes, Outlook and Unusual Items
- Backlog declined $1.9 billion year over year to $13.0 billion. Approximately $450 million of field-services backlog was removed after a client elected to procure subcontracts, materials, and equipment directly.
- The company acquired TechTeam Government Solutions, Sula Systems, Damon S. Williams Associates, and two smaller firms during or shortly before the quarter to expand government IT, defense and aerospace, water and wastewater, education, and telecommunications capabilities.
- Jacobs entered into an agreement to acquire certain Aker Solutions Process and Construction operations. Closing was expected in the second quarter of fiscal 2011, with management expecting the transaction to be modestly accretive to fiscal 2011 earnings. The company was negotiating approximately $430 million of additional bilateral credit capacity for the transaction.
- Management provided no specific consolidated revenue or earnings guidance in the provided filing text.
- The company adopted revised variable-interest-entity consolidation guidance effective October 2, 2010; adoption did not materially affect the financial statements.
- Management stated that no material subsequent events occurred after December 31, 2010 requiring recognition or disclosure. Legal proceedings and risk factors were reported as unchanged from the 2010 Form 10-K.
Investor Verification Points
- Verify the registrant identity and subsequent corporate history because the filing names Jacobs Engineering Group Inc., while the request metadata names Jacobs Solutions Inc.
- Assess whether the 12.8% backlog decline, including the $450 million client-directed procurement reclassification, signals weaker demand or primarily changes in contract scope and timing.
- Review contract estimates, claims, incentive fees, percentage-of-completion accounting, and unbilled receivables, which can affect reported revenue and margins.
- Confirm the closing, financing, purchase accounting, and earnings contribution of the planned Aker Solutions acquisition.
- Monitor cash conversion and working-capital trends after the $100.1 million year-over-year decline in operating cash flow.
- Review the 2010 Form 10-K for detailed guarantees, contingencies, litigation, contractual commitments, and risk factors incorporated by reference.