JACOBS ENGINEERING GROUP INC. — Q1 FY2010 Form 10-Q
Reporting period: Three months ended January 1, 2010, compared with the three months ended January 2, 2009. The filing identifies the registrant as Jacobs Engineering Group Inc.; the provided metadata refers to Jacobs Solutions Inc. Financial statements are unaudited.
Business Context and Financial Position
Jacobs provides project services, construction, operations and maintenance, and process, scientific and systems consulting across energy, government, infrastructure, chemicals, pharmaceuticals, buildings, and other markets. Management cited the global recession, project delays, cancellations, and normal project completions as major factors affecting results.
| Metric | January 1, 2010 | October 2, 2009 |
|---|---|---|
| Cash and cash equivalents | $1.055 billion | $1.034 billion |
| Total assets | $4.681 billion | $4.429 billion |
| Current liabilities | $1.450 billion | $1.296 billion |
| Long-term debt | $0.6 million | $0.7 million |
| Stockholders’ equity | $2.723 billion | $2.631 billion |
Key Financial Metrics
| Metric | Q1 FY2010 | Q1 FY2009 | Change |
|---|---|---|---|
| Revenue | $2.478 billion | $3.233 billion | Down 23.4% |
| Operating profit | $113.5 million | $181.1 million | Down 37.3% |
| Operating margin | Approximately 4.6% | Approximately 5.6% | Down approximately 1.0 percentage point |
| Net earnings attributable to Jacobs | $72.4 million | $116.4 million | Down 37.7% |
| Diluted EPS | $0.58 | $0.94 | Down $0.36 |
| Net margin | Approximately 2.9% | Approximately 3.6% | Down approximately 0.7 percentage point |
| Operating cash flow | $240.4 million | $203.0 million | Up $37.3 million |
Direct contract costs were 85.9% of revenue, compared with 86.5% in the prior-year quarter. Pass-through costs declined to $727.3 million from approximately $1.2 billion, contributing approximately $471.0 million of the revenue decrease. Backlog was $14.9 billion, down 6.8% from $16.0 billion a year earlier.
Cash Flow, Debt, and Liquidity
- Cash increased $21.4 million during the quarter, ending at $1.055 billion.
- Operating activities generated $240.4 million of cash.
- Investing activities used $327.2 million, including $220.1 million for business acquisitions and $112.8 million for net investment purchases.
- Financing activities provided $107.4 million, primarily from a $97.5 million increase in short-term borrowings.
- Approximately $112.9 million was outstanding under a short-term facility used in connection with the AWE acquisition.
- The company had approximately $289.4 million of available capacity under its $290.0 million unsecured revolving credit facility; $0.6 million was drawn under that facility. Management stated that liquidity was adequate for operations, acquisitions, and debt service over the next twelve months.
Material Changes and Unusual Items
- Revenue declined across all reported service categories and most industry markets, primarily because of recession-related project delays, cancellations, and project wind-downs.
- SG&A declined 8.0% year over year but included an $11.4 million charge related to ceasing use of and subleasing a Houston office. The after-tax impact was $5.8 million, or $0.04 per diluted share.
- Jacobs acquired TYBRIN Corporation on December 18, 2009. TYBRIN had approximately 1,500 employees and serves U.S. defense, NASA, and other government clients. The purchase price allocation was incomplete; approximately $207 million of goodwill was recorded at quarter-end.
- Jacobs completed its acquisition of a one-third interest in AWE Management Ltd. during the quarter.
- Goodwill increased to $1.133 billion from $929.8 million, primarily reflecting acquisitions.
- Net periodic pension cost increased to $11.2 million from $7.2 million. The company contributed approximately $10.0 million to pension plans during the quarter and expected an additional $28.5 million of contributions during the remainder of fiscal 2010.
- No material subsequent events requiring recognition or disclosure were identified through the filing date.
Outlook, Risks, and Contingencies
Management stated that it believed Jacobs was well positioned to withstand the recession through cost discipline, long-term relationships with government and multinational clients, and monitoring opportunities related to the American Recovery and Reinvestment Act. The filing does not provide specific revenue, earnings, margin, or backlog guidance.
- Backlog can change because of contract cancellations, scope changes, funding decisions, and cost changes. Substantially all contracts may be cancelled or terminated at the client’s option.
- The company is exposed to project execution risk, contract claims, government audits, pricing and cost-allocation reviews, foreign currency movements, interest-rate changes, and potentially higher future borrowing costs.
- Jacobs is pursuing more than €40.0 million, approximately $57.7 million, in damages in a European waste-incineration dispute. The client filed a counterclaim, which Jacobs believes lacks merit; the ultimate outcome is uncertain.
- Jacobs also faced litigation related to the I-35W bridge collapse. Management did not expect the matter to have a material adverse effect, although certain motions to dismiss were denied and an appeal was filed.
- Management concluded that disclosure controls were effective as of January 1, 2010, with no material changes to internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the registrant identity and corporate name, because the filing is for Jacobs Engineering Group Inc., not the later Jacobs Solutions Inc. name.
- Assess whether the revenue and backlog declines reflect temporary pass-through-cost timing or sustained weakness in underlying project activity.
- Review the TYBRIN and AWE acquisition accounting, including the unfinished purchase price allocation and approximately $207 million of TYBRIN goodwill.
- Evaluate dependence on short-term borrowings, available revolver capacity, acquisition spending, and the company’s stated twelve-month liquidity assessment.
- Review the European waste-incineration claim, I-35W litigation, government contract audits, and related reserves or insurance coverage.
- Compare subsequent filings for changes in recession exposure, project cancellations, backlog, pension funding, and any formal financial guidance.