Jacobs Engineering Group Inc. — Fiscal 2013 First-Quarter Form 10-Q
Business context and reporting period
The filing is for Jacobs Engineering Group Inc. and its subsidiaries, the predecessor name of the company identified in the request metadata as Jacobs Solutions Inc. It covers the three months ended December 28, 2012, compared with the three months ended December 30, 2011. The financial statements are unaudited and presented under U.S. GAAP.
Financial performance and position
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Revenue | $2.760 billion | $2.632 billion | Up $127.9 million, or 4.9% |
| Operating profit | $160.3 million | $142.0 million | Up 12.9% |
| Operating margin | 5.8% | 5.4% | Improved approximately 40 basis points |
| Net earnings attributable to Jacobs | $99.0 million | $89.7 million | Up 10.4% |
| Diluted EPS | $0.76 | $0.70 | Up $0.06 |
| Effective tax rate | 33.1% | 34.5% | Decreased 140 basis points |
| Operating cash flow | $246.7 million | $146.2 million | Up $100.5 million |
Net earnings attributable to Jacobs represented approximately 3.6% of revenue, compared with approximately 3.4% in the prior-year quarter. Direct costs of contracts were $2.324 billion, or 84.2% of revenue, versus 84.0% previously. Pass-through costs were $546.4 million, substantially unchanged year over year.
Cash and cash equivalents were $1.242 billion at December 28, 2012, up from $1.032 billion at September 28, 2012. Working capital was approximately $1.94 billion, up $79.5 million from fiscal year-end. Cash used in investing activities was $25.4 million, primarily capital expenditures; there were no business acquisitions during the quarter. Financing activities used $10.5 million, including $21.1 million of long-term debt repayments.
Long-term debt was $513.1 million, including approximately $512.2 million drawn under the company’s $1.21 billion unsecured revolving credit facility. Remaining borrowing capacity was $680.7 million after $12.1 million of letters of credit. The company also had $234.6 million of total letters of credit outstanding. Management stated that the company was in compliance with debt covenants and had adequate liquidity for the next twelve months.
Material changes versus the prior comparable period
- Revenue increased 4.9%, led by higher Project Services revenue and Construction revenue. Operations and Maintenance revenue declined.
- Oil and Gas—Upstream revenue increased 54.1% to $221.6 million, primarily due to improvement in the Canadian oil and gas business.
- Chemicals and Polymers revenue increased 18.5% to $520.6 million, supported by shale-gas-related projects and low natural-gas feedstock costs.
- Refining—Downstream revenue decreased 11.5% to $522.2 million, mainly because the prior-year period included substantial pass-through costs from a large project winding down.
- Buildings revenue decreased 8.6% to $195.6 million, primarily due to lower U.S. government spending.
- Backlog increased 11.8% year over year to $16.2 billion, comprising $10.4 billion of technical professional services backlog and $5.8 billion of field services backlog.
- Operating cash flow improved substantially, reflecting stronger earnings, working-capital timing, and lower pension contributions.
- Comprehensive income attributable to Jacobs declined to $89.3 million from $103.5 million, primarily because foreign-currency translation produced a $11.0 million loss versus a $11.6 million gain in the prior-year period.
Guidance, outlook, risks and unusual items
Management reported no significant change from its fiscal 2012 outlook. It expected strength in Chemicals and Polymers, Oil and Gas—Upstream, Refining—Downstream, Pharmaceuticals and Biotechnology, and selected private-sector Buildings activity. North American infrastructure was expected to remain generally flat, while additional U.K. infrastructure spending was anticipated.
Management cautioned that potential U.S. government sequestration could slow agency work releases, with effects potentially beginning in late fiscal 2013. Mining and Minerals faced weaker client capital spending because of slower Chinese economic growth and lower commodity prices. Contract awards are generally subject to client cancellation or termination, and backlog timing may vary materially.
The company is exposed to contract-performance risk, incentive-fee estimates, claims and change orders, audits of government contracts, litigation, insurance coverage limitations, pension obligations, foreign-exchange movements, and interest-rate changes. Management stated that existing guarantees, litigation, government audits, and tax investigations were not expected to have a material adverse effect.
A $54 million settlement related to the Carter & Burgess litigation was reached in December 2012. Insurers agreed to fund the settlement but reserved their rights; the company expected insurance coverage and indemnification rights to prevent a material adverse effect. A separate Clark County, Nevada matter was proceeding to arbitration, with a merits hearing anticipated in September 2013.
Management concluded that disclosure controls and procedures were effective as of December 28, 2012, with no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the company-name transition and whether this historical Jacobs Engineering filing is being evaluated as part of Jacobs Solutions’ predecessor reporting.
- Reconcile the $16.2 billion backlog with subsequent awards, cancellations, funding levels, and revenue conversion.
- Monitor U.S. government sequestration and other public-sector spending effects on National Government Programs and Buildings.
- Assess the sustainability of earnings growth after considering pass-through costs, contract mix, incentive fees, and project-level margins.
- Review the $512.2 million revolving-credit draw, available capacity, covenant compliance, and future debt repayments.
- Track collection of billed and unbilled receivables, contract claims, billings in excess of costs, and working-capital timing.
- Follow the Carter & Burgess insurance coverage and indemnification outcome and the Clark County arbitration.
- Evaluate foreign-currency translation volatility, pension contributions, and potential government-contract or tax audit adjustments.