JACOBS ENGINEERING GROUP INC. — Form 10-Q Summary
Business context and reporting period
This filing covers the quarter and nine months ended June 30, 2009, the third quarter of fiscal 2009. The registrant identified in the filing is Jacobs Engineering Group Inc.; the supplied metadata refers to Jacobs Solutions Inc. Results were affected by the global recession, project delays, cancellations, and the normal completion of projects.
Key financial metrics
| Metric | Three months ended June 30, 2009 | Three months ended June 30, 2008 | Nine months ended June 30, 2009 | Nine months ended June 30, 2008 |
|---|---|---|---|---|
| Revenue | $2.707 billion | $2.919 billion | $8.915 billion | $8.056 billion |
| Operating profit | $146.7 million | $168.9 million | $498.4 million | $464.3 million |
| Operating margin | 5.4% | 5.8% | 5.6% | 5.8% |
| Net earnings | $94.9 million | $108.7 million | $320.5 million | $306.4 million |
| Diluted EPS | $0.76 | $0.87 | $2.58 | $2.46 |
| Net margin | 3.5% | 3.7% | 3.6% | 3.8% |
- Net cash provided by operating activities was $481.2 million for the first nine months, compared with $173.4 million in the prior-year period.
- Cash and cash equivalents increased to $1.059 billion at June 30, 2009 from $604.4 million at September 30, 2008.
- Working capital was approximately $1.5 billion, up $293.5 million from fiscal year-end.
- Total debt was approximately $47.8 million, consisting of $34.5 million of notes payable and $13.3 million of long-term debt. The company had $276.7 million of unused capacity under its $290.0 million unsecured revolving credit facility.
- Backlog was $15.8 billion, including $8.4 billion of technical professional services and $7.4 billion of field services.
Material changes versus the prior comparable period
- Third-quarter revenue declined $212.2 million, or 7.3%, primarily because of project delays, cancellations, and project completions. Nine-month revenue increased $859.3 million, or 10.7%, year over year.
- Third-quarter net earnings declined 12.7% and diluted EPS declined from $0.87 to $0.76. Nine-month net earnings increased 4.6% and diluted EPS increased from $2.46 to $2.58.
- Direct contract costs represented 86.3% of third-quarter revenue and 86.4% of nine-month revenue, versus 84.5% and 84.2%, respectively, in the prior-year periods. Management attributed the higher ratio primarily to a greater mix of construction and pass-through costs and lower professional-services margins.
- SG&A expense declined 20.4% in the quarter and 11.8% for the nine-month period as management reduced costs amid weaker conditions and benefited from currency effects.
- Backlog declined 13.6% from $18.3 billion at June 30, 2008. The prior-year backlog included approximately $2.4 billion related to an upstream oil and gas project later canceled. Approximately $665 million was removed from backlog in the current quarter because of project cancellations and the transfer of pass-through costs to project owners.
- Operating cash flow improved by $307.7 million year over year, driven mainly by working-capital timing, higher stock-based compensation, and higher earnings. Management stated that the working-capital improvement was not indicative of a fundamental trend.
- Investing cash outflows fell to $54.3 million from $320.6 million, primarily because of lower acquisition spending and capital expenditures.
Guidance, outlook, risks, contingencies, and unusual items
- Management expects the effects of the economic downturn and project delays to continue for the next few fiscal quarters, although it believes the company is positioned to withstand the environment.
- The company was pursuing potential work associated with the American Recovery and Reinvestment Act, but the timing, size, and scope of such work could not be predicted.
- Substantially all contracts may be canceled or terminated at the client’s option, subject to payment rights for work performed and potentially certain termination costs.
- The company reported a dispute involving a European waste-incineration project and is seeking more than €40.0 million in damages. The client filed a counterclaim; the ultimate outcome is uncertain.
- Jacobs faces customary litigation, contractual guarantees, government contract audits, investigations, claims, and tax audits. Management does not expect these matters, including claims related to the I-35W bridge collapse, to have a material adverse effect on consolidated financial statements.
- An additional payment related to the purchase of a one-third interest in AWE Management Limited may be required after resolution of contingencies; the amount was not estimable at the filing date.
- Nine-month 2008 results included a one-time $10.6 million gain from selling an investment, equal to approximately $0.04 per diluted share.
- SFAS 141R and SFAS 160 were scheduled to become effective October 1, 2009 and could materially affect accounting for acquisitions and noncontrolling interests. The company was evaluating the potential impact of SFAS 167.
- Management stated that liquidity and capital resources were adequate for operations, acquisitions, and debt service over the next twelve months. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Confirm the correct issuer identity and corporate history, because the filing names Jacobs Engineering Group Inc., not Jacobs Solutions Inc.
- Assess whether backlog conversion, cancellations, and further project delays could pressure revenue and margins.
- Review the sustainability of the unusually strong operating cash flow and the related working-capital movements.
- Evaluate contract claims, government audits, termination provisions, and the European waste-incineration dispute, including the unrecognized potential recovery and counterclaim exposure.
- Monitor pass-through costs and service mix, which materially affect reported revenue, direct-cost ratios, and margins.
- Review the AWE contingent payment and the subsequent adoption effects of SFAS 141R, SFAS 160, and SFAS 167.