Jacobs Engineering Group Inc. Form 10-Q Summary
Reporting period: Three and nine months ended June 29, 2012, compared with July 1, 2011. The filing identifies the registrant as Jacobs Engineering Group Inc.; the supplied metadata refers to Jacobs Solutions Inc. The financial statements are unaudited.
Business Context and Reporting Period
Jacobs provides technical professional services, construction, operations and maintenance, and related engineering and consulting services across government, industrial, infrastructure, energy, buildings, pharmaceutical and other markets. Fiscal 2012 included the acquisitions of KlingStubbins and Unique World. Results also reflected a full period of contributions from the Aker entities acquired in fiscal 2011.
Key Financial Metrics
| Metric | Three months ended June 29, 2012 | Three months ended July 1, 2011 | Nine months ended June 29, 2012 | Nine months ended July 1, 2011 |
|---|---|---|---|---|
| Revenue | $2.773 billion | $2.744 billion | $8.107 billion | $7.658 billion |
| Operating profit | $153.4 million | $139.4 million | $428.5 million | $371.0 million |
| Net earnings attributable to Jacobs | $97.9 million | $90.7 million | $271.5 million | $236.7 million |
| Diluted EPS | $0.76 | $0.71 | $2.11 | $1.86 |
| Operating margin | 5.5% | 5.1% | 5.3% | 4.8% |
| Net margin attributable to Jacobs | 3.5% | 3.3% | 3.3% | 3.1% |
| Cash flow from operations | Not separately provided | Not separately provided | $141.7 million | $124.2 million |
- Direct contract costs were 84.4% of revenue in the quarter and 84.2% for the nine-month period, improving from 85.0% and 85.2%, respectively.
- SG&A expense was $279.7 million in the quarter and $851.9 million for the nine months, with the nine-month increase driven primarily by acquired businesses.
- The effective tax rate was 33.3% for the quarter and 33.9% for the nine months, down from 34.9% and 35.4% in the comparable periods.
- Cash and cash equivalents were $898.6 million at June 29, 2012, compared with $905.6 million at September 30, 2011.
- Receivables increased to $2.208 billion from $2.077 billion at fiscal year-end, while working capital increased by $635.0 million to approximately $1.73 billion.
- Long-term debt was $510.6 million, and notes payable were $1.8 million. The company had $522.8 million utilized under its new revolving facility, including $12.2 million of letters of credit.
- The company reported $537.2 million of remaining borrowing capacity and $191.8 million of total letters of credit outstanding.
- Net cash used in investing was $144.3 million, including $70.3 million of capital expenditures and $73.4 million for acquisitions. Net cash used in financing was $11.1 million.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue increased $28.7 million, or 1.0%, while nine-month revenue increased $449.1 million, or 5.9%.
- Third-quarter net earnings attributable to Jacobs increased $7.2 million, or 8.0%; nine-month earnings increased $34.8 million, or 14.7%.
- Revenue growth was strongest in refining-downstream, chemicals and polymers, pharmaceuticals and biotechnology, and mining and minerals. Infrastructure, buildings and operations and maintenance revenue declined.
- Technical professional services revenue increased 2.9% in the quarter and 12.7% for the nine months. Field services revenue declined 1.6% in the quarter and 2.8% for the nine months.
- Backlog increased 11.4% year over year to $15.601 billion from $14.002 billion, including $10.175 billion of technical professional services backlog and $5.426 billion of field services backlog.
- Operating cash flow increased $17.5 million year over year for the nine-month period, despite higher receivables and changes in pension-related obligations.
- Investing cash outflows declined substantially from $783.0 million to $144.3 million because of lower acquisition activity.
Guidance, Outlook, Risks and Unusual Items
- Management stated that cash on hand, the revolving facility and other credit arrangements were adequate for operations, acquisitions and debt service for the next twelve months. No specific earnings or revenue guidance was provided.
- A new $1.06 billion unsecured, five-year revolving credit facility was entered into on March 29, 2012. The company was in compliance with its debt covenants at June 29, 2012.
- Approximately $75.0 million was accrued for contingencies associated with the pre-acquisition activities of CES. Management stated that the related purchase price accounting adjustments and the CES acquisition were not material to consolidated results.
- Business risks include contract cancellations or terminations, contract cost and margin estimates, government audits and investigations, claims and change orders, professional liability, litigation, foreign currency exposure, pension obligations and potential uninsured losses.
- The company remains subject to litigation and claims, including a Minnesota I-35W bridge matter and continuing claims by the California Administrative Office of the Courts. Management does not expect these matters to have a material adverse effect, although the California matter could affect results if the remaining claim is decided adversely.
- Interim results are not necessarily indicative of full-year results. Management identified no material changes to previously disclosed risk factors and concluded that disclosure controls were effective.
Investor Verification Checklist
- Verify the registrant identity because the supplied metadata names Jacobs Solutions Inc., while the filing names Jacobs Engineering Group Inc.
- Review backlog quality, funding, cancellation provisions and expected timing of conversion to revenue; substantially all contracts may be terminated at the client’s option.
- Assess receivable growth, unbilled receivables of approximately $1.031 billion and claims receivable of $19.8 million against operating cash flow.
- Confirm debt utilization, available revolver capacity, letters of credit and compliance with credit-facility covenants.
- Evaluate the $75.0 million CES contingency accrual and whether additional acquisition-related liabilities or purchase-price allocation changes could arise.
- Review exposure to government contract audits, litigation, professional liability, pension funding and foreign currency movements.