Business Context and Reporting Period
This Form 10-Q was filed by Jacobs Engineering Group Inc., not Jacobs Solutions Inc., for the fiscal quarter ended April 2, 2010. The filing presents unaudited results for the three and six months ended April 2, 2010, with comparisons to April 3, 2009. The company provides engineering, construction, operations and maintenance, and process, scientific and systems consulting services.
Key Financial Metrics
| Metric | Three Months Ended April 2, 2010 | Three Months Ended April 3, 2009 | Six Months Ended April 2, 2010 | Six Months Ended April 3, 2009 |
|---|---|---|---|---|
| Revenue | $2.587 billion | $2.975 billion | $5.065 billion | $6.208 billion |
| Operating profit | $122.0 million | $170.7 million | $235.5 million | $351.8 million |
| Net earnings attributable to Jacobs | $77.5 million | $109.3 million | $149.9 million | $225.6 million |
| Diluted EPS | $0.62 | $0.88 | $1.20 | $1.82 |
| Operating margin | 4.7% | 5.7% | 4.6% | 5.7% |
| Net margin | 3.0% | 3.7% | 3.0% | 3.6% |
For the six months, net cash provided by operating activities was $117.2 million, versus $201.1 million in the prior-year period. Investing activities used $406.1 million, including $261.9 million for acquisitions and $121.7 million for investments. Financing activities provided $92.8 million, primarily from increased short-term borrowings.
Cash and cash equivalents were $839.1 million at April 2, 2010, down from $1.034 billion at October 2, 2009. Working capital was approximately $1.4 billion. The company reported approximately $95.2 million outstanding under a short-term acquisition-related facility and approximately $0.6 million outstanding under its $290.0 million long-term revolving credit facility; approximately $256.5 million of revolving borrowing capacity was available.
Total debt was low relative to liquidity: current notes payable were $95.6 million and long-term debt was $0.6 million. Receivables increased to $1.699 billion from $1.619 billion at fiscal year-end.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue declined 13.1%; six-month revenue declined 18.4%, primarily reflecting recessionary conditions, project completions and lower construction, energy and refining, and upstream oil and gas activity.
- Second-quarter operating profit fell 28.5% and net earnings fell 29.1%. Six-month net earnings declined approximately 33.5%.
- Direct contract costs declined faster than revenue, and direct costs as a percentage of revenue improved to 86.0% from 86.4% for the quarter and to 85.9% from 86.5% for the six-month period. Management attributed the improvement principally to business mix and better project performance.
- Second-quarter revenue increased 4.4% sequentially from the first quarter of fiscal 2010, while operating profit rose 7.5% and net earnings rose 7.0%.
- Backlog decreased 11.9% year over year to $14.7 billion, including $8.3 billion of technical professional services and $6.4 billion of field services. Field-services backlog fell substantially, partly offset by higher technical professional-services backlog.
- SG&A increased 3.5% year over year in the quarter, partly due to acquisitions and amortization of acquired intangibles, but declined 2.5% for the six-month period.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management did not provide a clear numerical earnings or revenue forecast in the filing. It stated that the company expected to remain well positioned during the recession, while acknowledging that no assurance could be given.
- Management planned to continue cost control, pursue strategic acquisitions, and target opportunities in the Middle East, India, China, aerospace and defense, water and wastewater, upstream oil and gas, power, and minerals. The timing and scope of work associated with the American Recovery and Reinvestment Act could not be predicted.
- The company acquired Jordan, Jones and Goulding, Inc. on February 16, 2010, and also acquired TYBRIN and completed its acquisition of AWE during the six-month period. The purchase price allocation for JJG was incomplete at quarter-end; approximately $37.3 million of goodwill had been recorded.
- A Houston office exit and sublease resulted in an $11.4 million SG&A charge and an after-tax charge of $5.8 million, or $0.04 per diluted share, for the six-month period.
- The company is involved in contractual guarantees, litigation, government contract audits and investigations, and tax audits. Management stated that these matters were not expected to have a material adverse effect, but the company retains certain uninsured or partially insured risks.
- A European waste-incineration dispute included a company claim for more than €40.0 million, approximately $54.1 million at the reporting date, and a client counterclaim. The company recorded a related claim receivable of $35.2 million.
- Claims related to the I-35W bridge collapse remained outstanding against the company, although management did not expect a material adverse financial effect. The company had appealed the denial of motions to dismiss certain claims.
- Principal market risks were interest-rate and foreign-currency fluctuations. The company stated that it did not hold exchange-rate-sensitive instruments expected to have a material effect on consolidated results.
- Management concluded that disclosure controls and procedures were effective as of April 2, 2010, with no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Jacobs Engineering Group Inc. and predates the stated Jacobs Solutions Inc. designation.
- Assess whether the recession-related revenue decline and 11.9% backlog reduction were temporary or reflected continuing deterioration in construction and energy markets.
- Review acquisition results, purchase price allocations, goodwill, intangible amortization, and acquisition-related financing, including the AWE facility.
- Evaluate receivables, claims receivable, unbilled amounts, and the collectability and timing of the European waste-incineration claim.
- Monitor cash conversion, short-term borrowings, available revolving capacity, pension contributions, and the effect of additional acquisitions on liquidity.
- Review the company’s full risk-factor, legal-proceedings, contractual-guarantee, government-audit, and insurance disclosures in the 2009 Form 10-K and subsequent filings.