EX-13 4 dex13.htm EXHIBIT F TO THE REGISTRANT'S NOTICE & PROXY STMNT Exhibit F to the Registrant's Notice & Proxy Stmnt
EXHIBIT 13
 
 
JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
CONSOLIDATED FINANCIAL STATEMENTS
 
WITH REPORT OF INDEPENDENT AUDITORS
 
September 30, 2002

F-1


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
SELECTED HIGHLIGHTS
 
For the Years Ended September 30
(Dollars in thousands, except per share information)
 
    
2002

    
2001

    
2000

 
Revenues
  
$
4,555,661
 
  
$
3,956,993
 
  
$
3,418,942
 
Net earnings
  
 
109,690
 
  
 
87,760
 
  
 
50,981
 
    


  


  


Per share information(a):
                          
Basic earnings per share
  
$
2.03
 
  
$
1.65
 
  
$
0.97
 
Diluted earnings per share
  
 
1.98
 
  
 
1.61
 
  
 
0.96
 
Net book value
  
 
12.45
 
  
 
10.86
 
  
 
9.36
 
Closing year-end stock price
  
 
30.88
 
  
 
31.20
 
  
 
20.16
 
    


  


  


Total assets
  
$
1,673,984
 
  
$
1,557,040
 
  
$
1,384,376
 
Stockholders’ equity
  
 
689,613
 
  
 
591,801
 
  
 
495,543
 
Return on average equity
  
 
17.12
%
  
 
16.14
%
  
 
10.80
%
Number of stockholders of record
  
 
986
 
  
 
1,036
 
  
 
1,115
 
    


  


  


Backlog(b):
                          
Technical, professional services
  
$
3,045,600
 
  
$
2,490,100
 
  
$
2,217,200
 
Field services
  
 
3,628,600
 
  
 
3,422,400
 
  
 
3,212,900
 
    


  


  


Total
  
$
6,674,200
 
  
$
5,912,500
 
  
$
5,430,100
 
    


  


  


Permanent staff
  
 
21,932
 
  
 
20,628
 
  
 
18,812
 
    


  


  


 
Net earnings for fiscal 2000 included an after-tax charge of $23.7 million, or $0.45 per diluted share, relating to the settlement of certain litigation.
 
 
(a)
 
Per share information for all prior fiscal years have been restated to reflect the Company’s two-for-one stock split effected in the form of a 100% stock dividend and distributed to stockholders on April 1, 2002.
 
(b)
 
In fiscal 2002, the Company began classifying as “field services” backlog, certain engineering and scientific and systems consulting activities relating to operations and maintenance contracts that had been classified previously as “technical, professional services” backlog. Backlog for fiscal years 1999, 2000 and 2001 have been reclassified to conform to the fiscal 2002 presentation.

F-2


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
SELECTED FINANCIAL DATA
 
For the Years Ended September 30
(In thousands, except per share information)
 
    
2002

      
2001

      
2000

      
1999

      
1998

 
Results of Operation:
                                                    
Revenues
  
$
4,555,661
 
    
$
3,956,993
 
    
$
3,418,942
 
    
$
2,875,007
 
    
$
2,101,145
 
Net earnings
  
 
109,690
 
    
 
87,760
 
    
 
50,981
 
    
 
65,445
 
    
 
54,385
 
    


    


    


    


    


Financial Position:
                                                    
Current ratio
  
 
1.32 to 1
 
    
 
1.35 to 1
 
    
 
1.24 to 1
 
    
 
1.25 to 1
 
    
 
1.54 to 1
 
Working capital
  
$
234,486
 
    
$
245,500
 
    
$
167,160
 
    
$
144,638
 
    
$
197,659
 
Current assets
  
 
974,903
 
    
 
946,159
 
    
 
851,023
 
    
 
729,620
 
    
 
566,007
 
Total assets
  
 
1,673,984
 
    
 
1,557,040
 
    
 
1,384,376
 
    
 
1,220,186
 
    
 
807,489
 
Long-term debt
  
 
85,732
 
    
 
164,308
 
    
 
146,820
 
    
 
135,371
 
    
 
26,221
 
Stockholders’ equity
  
 
689,613
 
    
 
591,801
 
    
 
495,543
 
    
 
448,717
 
    
 
371,405
 
Return on average equity
  
 
17.12
%
    
 
16.14
%
    
 
10.80
%
    
 
15.96
%
    
 
15.63
%
Backlog(b):
                                                    
Technical, professional services
  
$
3,045,600
 
    
$
2,490,100
 
    
$
2,217,200
 
    
$
1,628,100
 
    
$
1,004,500
 
Field services
  
 
3,628,600
 
    
 
3,422,400
 
    
 
3,212,900
 
    
 
2,820,100
 
    
 
2,325,000
 
    


    


    


    


    


Total
  
$
6,674,200
 
    
$
5,912,500
 
    
$
5,430,100
 
    
$
4,448,200
 
    
$
3,329,500
 
    


    


    


    


    


Per Share Information(a):
                                                    
Basic earnings per share
  
$
2.03
 
    
$
1.65
 
    
$
0.97
 
    
$
1.27
 
    
$
1.06
 
Diluted earnings per share
  
 
1.98
 
    
 
1.61
 
    
 
0.96
 
    
 
1.24
 
    
 
1.04
 
Stockholders’ equity
  
 
12.45
 
    
 
10.86
 
    
 
9.36
 
    
 
8.47
 
    
 
7.12
 
Average Number of Common Stock and Common Stock Equivalents Outstanding (Diluted)
  
 
55,396
 
    
 
54,496
 
    
 
52,947
 
    
 
52,956
 
    
 
52,192
 
    


    


    


    


    


 
Net earnings for fiscal 2000 included an after-tax charge of $23.7 million, or $0.45 per diluted share, relating to the settlement of certain litigation.
 
 
(a)
 
Per share information for all prior fiscal years have been restated to reflect the Company’s two-for-one stock split effected in the form of a 100% stock dividend and distributed to stockholders on April 1, 2002.
 
(b)
 
In fiscal 2002, the Company began classifying as “field services” backlog, certain engineering and scientific and systems consulting activities relating to operations and maintenance contracts that had been classified previously as “technical, professional services” backlog. Backlog for fiscal years 1999, 2000 and 2001 have been reclassified to conform to the fiscal 2002 presentation.

F-3


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
SELECTED FINANCIAL DATA
 
For the Years Ended September 30
(In thousands, except per share information)
 
    
1997

      
1996

      
1995

      
1994

      
1993

 
Results of Operation:
                                                    
Revenues
  
$
1,780,616
 
    
$
1,798,970
 
    
$
1,723,057
 
    
$
1,165,754
 
    
$
1,142,926
 
Net earnings
  
 
46,895
 
    
 
40,360
 
    
 
32,242
 
    
 
18,767
 
    
 
28,670
 
    


    


    


    


    


Financial Position:
                                                    
Current ratio
  
 
1.56 to 1
 
    
 
1.68 to 1
 
    
 
1.44 to 1
 
    
 
1.41 to 1
 
    
 
1.61 to 1
 
Working capital
  
$
178,203
 
    
$
155,569
 
    
$
113,339
 
    
$
106,058
 
    
$
100,688
 
Current assets
  
 
497,361
 
    
 
383,644
 
    
 
368,614
 
    
 
367,485
 
    
 
264,949
 
Total assets
  
 
737,643
 
    
 
572,505
 
    
 
533,947
 
    
 
504,364
 
    
 
351,020
 
Long-term debt
  
 
54,095
 
    
 
36,300
 
    
 
17,799
 
    
 
25,000
 
    
 
—  
 
Stockholders’ equity
  
 
324,308
 
    
 
283,387
 
    
 
238,761
 
    
 
200,433
 
    
 
173,797
 
Return on average equity
  
 
15.43
%
    
 
15.46
%
    
 
14.68
%
    
 
10.03
%
    
 
18.28
%
Backlog(b):
                                                    
Technical, professional services
  
$
912,057
 
    
$
845,300
 
    
$
828,400
 
    
$
793,060
 
    
$
736,600
 
Field services
  
 
2,137,943
 
    
 
1,904,900
 
    
 
1,796,600
 
    
 
1,706,940
 
    
 
1,122,000
 
    


    


    


    


    


Total
  
$
3,050,000
 
    
$
2,750,200
 
    
$
2,625,000
 
    
$
2,500,000
 
    
$
1,858,600
 
    


    


    


    


    


Per Share Information(a):
                                                    
Basic earnings per share
  
$
0.91
 
    
$
0.79
 
    
$
0.64
 
    
$
0.38
 
    
$
0.58
 
Diluted earnings per share
  
 
0.90
 
    
 
0.78
 
    
 
0.64
 
    
 
0.37
 
    
 
0.57
 
Stockholders’ equity
  
 
6.24
 
    
 
5.47
 
    
 
4.70
 
    
 
3.98
 
    
 
3.48
 
Average Number of Common Stock and Common Stock Equivalents Outstanding (Diluted)
  
 
51,978
 
    
 
51,842
 
    
 
50,768
 
    
 
50,346
 
    
 
49,929
 
    


    


    


    


    


 
Net earnings for fiscal 1994 included special charges totaling $10.2 million, or $0.20 per diluted share.
 
 
(a)
 
Per share information for all prior fiscal years have been restated to reflect the Company’s two-for-one stock split effected in the form of a 100% stock dividend and distributed to stockholders on April 1, 2002.
 
(b)
 
In fiscal 2002, the Company began classifying as “field services” backlog, certain engineering and scientific and systems consulting activities relating to operations and maintenance contracts that had been classified previously as “technical, professional services” backlog. Backlog for fiscal years 1999, 2000 and 2001 have been reclassified to conform to the fiscal 2002 presentation.

F-4


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
MANAGEMENT’S DISCUSSION AND ANALYSIS
 
Critical Accounting Policies
 
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the Company’s consolidated financial statements, and the financial statements of any business entity performing long-term engineering and construction-type contracts, requires management to make estimates and judgments that affect both the entity’s results of operations as well as the carrying values of its assets and liabilities. Although the Company’s significant accounting polices are described in Note 1 of the Notes to Consolidated Financial Statements, the following discussion is intended to describe those accounting policies most critical to the preparation of the Company’s consolidated financial statements.
 
Revenue Accounting for Contracts—In accounting for long-term, engineering and construction-type contracts, the Company follows the provisions of the AICPA’s Statement of Position 81-1—Accounting for Performance of Construction-Type and Certain Production-Type Contracts. In general, the Company recognizes revenues at the time it provides services. Depending on the commercial terms of the contracts, the Company recognizes revenues either when costs are incurred, or using the percentage-of-completion method of accounting by relating contract costs incurred to date to the total estimated costs at completion. Contract losses are provided for in their entirety in the period they become known, without regard to the percentage-of-completion.
 
The nature of the Company’s business sometimes results in clients, subcontractors or vendors presenting claims against the Company for recovery of costs they incurred in excess of what they expected to incur, or for which they believe they are not contractually responsible. Similarly, and in the normal course of business, the Company may present claims to its clients for costs, which it has incurred, for which it believes it is not contractually responsible. In those situations where a claim against the Company may result in additional costs to the contract, the Company includes in the total estimated costs of the contract (and therefore, the estimated amount of margin to be realized) an estimate, based on the relevant facts and circumstances available, of the additional costs to be incurred. In those situations where the Company has incurred costs for which it believes the client, and not the Company, is contractually responsible, the Company may present a claim to the client for such costs. The Company will include in revenues the amount of costs incurred, without profit, to the extent it is probable that the claims will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated. Costs associated with unapproved change orders are included in revenues using substantially the same criteria used for claims.
 
Certain cost-reimbursable contracts with the U.S. federal government, as well as certain commercial clients, provide that contract costs are subject to audit and adjustment. For all such contracts, revenues are recorded at the time services are performed based upon the amounts the Company expects to realize upon completion of the contracts. In those situations where an audit indicates the Company may have billed a client for costs not allowable under the terms and provisions of the contract, the Company will estimate the amount of such nonbillable costs and adjust its revenues accordingly.
 
As is common in the industry, the Company executes certain contracts jointly with third parties through partnerships and joint ventures. For certain of these contracts (i.e., where the Company has an undivided interest in the assets and liabilities of the venture), the Company recognizes its proportionate share of venture revenues, costs and operating profit in its consolidated statements of earnings.

F-5


 
For contracts that are not long-term, engineering and construction-type contracts, the Company recognizes revenues at the time services are provided. The Company includes in revenues an estimate of fees earned on the contracts based on milestones achieved or other conditions specified in the contract for determining the amount of fees earned and otherwise due.
 
Insurance Matters, Litigation and Contingencies—In the normal course of business, the Company is subject to certain contractual guarantees and litigation. Generally, such guarantees relate to project schedules and plant performance. Most of the litigation involves the Company as a defendant in workers’ compensation, personal injury and other similar lawsuits. The Company maintains insurance coverage for various aspects of its business and operations. However, the Company has elected to retain a portion of losses that may occur through the use of various deductibles, limits and retentions under its insurance programs. This situation may subject the Company to some future liability for which it is only partially insured, or completely uninsured.
 
In accordance with Statement of Financial Accounting Standards No. 5—Accounting for Contingencies, the Company records in its consolidated balance sheets amounts representing its estimated liability for claims, guarantees, costs and litigation. The Company employs qualified actuaries to assist it in determining the level of reserves to establish for both claims that are known and have been asserted against the Company, as well as for claims that are believed to have been incurred based on actuarial analysis, but have not yet been reported to the Company’s claims administrators as of the balance sheet date. The Company includes any adjustments to such insurance reserves in its consolidated results of operations.
 
Operations Outside the United States—In general, the Company’s exposure to fluctuating exchange rates relates primarily to the effects of translating the financial statements of its foreign subsidiaries, which are denominated in currencies other than the U.S. dollar, into the U.S. dollar. The Company follows the provisions of Statement of Financial Accounting Standards No. 52—Foreign Currency Translation in preparing its consolidated financial statements.
 
The Company believes its exposure to the effects that fluctuating foreign currencies may have on its consolidated results of operations is limited because the Company’s various operations invoice clients and satisfy their financial obligations primarily in their respective local currencies. In situations where the Company’s operations incur contract costs in currencies other than their functional currencies, the Company strives to have a portion of the related contract revenues denominated in the same currencies as the costs.
 
Results of Operations
 
The following table sets forth the Company’s revenues by type of service for each year ended September 30 (in thousands):
 
    
2002

  
2001

  
2000

Project Services
  
$
1,977,173
  
$
1,807,831
  
$
1,746,148
Construction
  
 
1,932,613
  
 
1,569,781
  
 
1,091,788
Operations and Maintenance
  
 
469,508
  
 
445,742
  
 
462,774
Process, Scientific and Systems Consulting
  
 
176,367
  
 
133,639
  
 
118,232
    

  

  

    
$
4,555,661
  
$
3,956,993
  
$
3,418,942
    

  

  

 
In general, project services revenues include revenues earned from engineering, design and architectural activities. Construction revenues include revenues earned from both traditional field construction and modular construction activities. Operations and maintenance (“O&M”) revenues include

F-6


revenues from contracts requiring the Company to operate and maintain large, complex facilities on behalf of clients, as well as contracts involving process plant maintenance services and activities. Process, scientific and systems consulting services revenues include revenues earned from providing a variety of scientific and consulting services to clients.
 
In fiscal 2002, the Company began classifying certain elements of revenues as Construction that had been classified previously as Project Services. Revenues for fiscal 2001 and 2000 have been reclassified to conform to the fiscal 2002 presentation.
 
The Company focuses its services on certain industry groups and markets which the Company believes have sufficient common needs to permit cross-utilization of its resources. The following table sets forth the Company’s revenues by these industry groups and markets for each year ended September 30 (in thousands):
 
    
2002

  
2001

  
2000

Oil & Gas, and Refining
  
$
1,088,758
  
$
451,103
  
$
280,942
Federal Programs
  
 
973,514
  
 
732,362
  
 
614,048
Pharmaceuticals and Biotechnology
  
 
879,747
  
 
715,407
  
 
481,947
Chemicals and Polymers
  
 
556,011
  
 
653,573
  
 
693,034
Buildings
  
 
349,858
  
 
457,488
  
 
539,691
Infrastructure
  
 
325,029
  
 
246,420
  
 
238,278
Technology and Manufacturing
  
 
187,432
  
 
332,995
  
 
213,557
Pulp and Paper
  
 
72,350
  
 
182,456
  
 
254,861
Other
  
 
122,962
  
 
185,189
  
 
102,584
    

  

  

    
$
4,555,661
  
$
3,956,993
  
$
3,418,942
    

  

  

 
“Other” includes projects for clients operating in a number of industries, including food and beverage, and basic resources (such as mining, minerals and fertilizers).
 
Fiscal 2002 Compared to Fiscal 2001
 
On April 1, 2002, the Company completed a two-for-one stock split which was distributed in the form of a 100% stock dividend to stockholders of record on March 1, 2002. Accordingly, earnings per share calculations for all periods presented have been restated to give effect to the stock split retroactively. See Note 2 of the Notes to Consolidated Financial Statements for a discussion of the stock split transaction.
 
On October 31, 2001, the Company completed the acquisition of McDermott Engineers & Constructors (Canada) Limited (including Delta Catalytic and Delta Hudson Engineering; collectively, “Delta”). As more fully explained in Note 4 of the Notes to Consolidated Financial Statements, Delta provides engineering, construction, and maintenance services to clients in a variety of industries, with significant revenues attributable to clients in the upstream oil and gas, petroleum refining, energy and other industries.
 
The Company’s consolidated results of operations include those of Delta, GIBB and Stork Phase II from the dates of their respective acquisitions. The operations of Stork Phase II and GIBB were acquired and consolidated in the second and third quarters, respectively, of fiscal 2001. The Company’s operating results during the current and prior fiscal periods were not significantly impacted by the operations of Stork Phase II and GIBB. See Note 4 of the Notes to Consolidated Financial Statements for a discussion of the Stork and GIBB transactions.
 
The Company recorded net earnings of $109.7 million, or $1.98 per diluted share, for the fiscal year ended September 30, 2002, compared to net earnings of $87.8 million, or $1.61 per diluted share for fiscal 2001.

F-7


 
Effective October 1, 2001, the Company eliminated the amortization of goodwill in accordance with Statement of Financial Accounting Standards No. 142—Goodwill and Other Intangible Assets. The Company’s results of operations for prior years have not been restated. Goodwill amortization on a pre-tax basis was $7.6 million ($4.9 million after-tax) in fiscal 2001, and $6.9 million ($4.4 million after-tax) in fiscal 2000. See Note 1 of the Notes to Consolidated Financial Statements for additional discussion of SFAS 142.
 
Total revenues for fiscal 2002 increased by $598.7 million, or 15.1%, to $4.6 billion, compared to total revenues of $4.0 billion in fiscal 2001. Approximately 12.4%, or $564.1 million of revenues in fiscal 2002 were generated by Delta’s operations.
 
Selling, general and administrative (“SG&A”) expenses for fiscal 2002 increased by $50.5 million, or 14.0%, to $411.3 million, compared to $360.8 million for fiscal 2001. The increase in SG&A expenses during the current fiscal year reflects the inclusion of the operations of Delta, GIBB and Stork Phase II, which contributed a combined total of $40.2 million to SG&A expenses. Excluding the impact of the Delta and GIBB acquisitions, and the impact of eliminating goodwill amortization in fiscal 2002, SG&A expenses increased by $31.6 million, or 9.3%, in fiscal 2002. As a percentage of revenues, consolidated SG&A expenses was 9.0% in fiscal 2002, compared to 9.1% in fiscal 2001.
 
During fiscal 2002, the Company’s operating profit (defined as revenues, less direct costs of contracts and SG&A expenses) increased by $28.5 million, or 19.8%, to $172.4 million, compared to $143.9 million in fiscal 2001. The increase in the Company’s operating profit for fiscal 2002 compared to fiscal 2001 was due primarily to increases in business volume, combined with the elimination of goodwill amortization, and with keeping direct costs of contracts and SG&A expenses as percentages of revenues at approximately the same levels as fiscal 2001. Operating profit was 3.8% of revenues in fiscal 2002, compared to 3.6% of revenues in fiscal 2001. Excluding the impact of goodwill amortization on last year’s results, operating profit would have been 3.8% of revenues in fiscal 2001.
 
During fiscal 2002, interest expense decreased by $4.2 million, or 36.0%, to $7.5 million, compared to interest expense of $11.7 million during fiscal 2001. The decrease in interest expense was due to significantly reduced borrowing levels. At September 30, 2002, the Company had total debt of $91.7 million, compared to $184.0 million at September 30, 2001. The Company financed the Delta acquisition in October 2001 with a new, short-term $50.0 million credit facility. By September 2002, the Company had converted this credit facility to a long-term, $45.0 million facility due in January 2004. At September 30, 2002, this long-term facility had an outstanding balance of $28.1 million bearing interest of 3.4%. At September 30, 2002 and 2001, outstanding borrowings (and the associated interest rates) under the $230.0 million revolving credit facility were $57.6 million (bearing interest of 4.0%), and $164.3 million (bearing interest of 4.1%), respectively. See Note 7 of the Notes to Consolidated Financial Statements for additional information on the Company’s borrowings.
 
The Company recorded income tax expense of $59.1 million and $50.4 million in fiscal 2002 and 2001, respectively. The Company’s overall effective tax rate was 35.0% for fiscal 2002, compared to an effective tax rate of 36.5% for fiscal 2001.
 
Fiscal 2001 Compared to Fiscal 2000
 
On May 3, 2001, the Company completed the purchase from LawGibb Group Inc. of substantially all of its international engineering and construction management business (the “GIBB” businesses). The Company’s consolidated results of operations for fiscal 2001, which included the results of GIBB’s operations since the date of acquisition, were not significantly impacted by GIBB’s operations. The Company’s consolidated revenues for fiscal 2001 included $46.1 million of revenues from GIBB’s operations.

F-8


 
On February 23, 2001, the Company finalized the second phase of the two-part transaction to acquire from Stork N.V., the Netherlands all of its engineering and contracting business (“Stork Phase II”). The first phase was completed in February 2000. The Company’s consolidated results of operations for fiscal 2001 included the operating results of Stork Phase II since the date of acquisition. The Company’s consolidated results of operations for both fiscal 2001 and 2000 were not significantly impacted by Stork’s operations. The Company’s consolidated revenues for fiscal 2001 included $36.4 million of revenues from Stork Phase II operations.
 
The Company recorded net earnings of $87.8 million, or $1.61 per diluted share for the fiscal year ended September 30, 2001, compared to net earnings of $51.0 million, or $0.96 per diluted share for fiscal 2000.
 
Net earnings for the prior year included a first-quarter, pre-tax provision for litigation settlement of $38.0 million ($23.7 million after-tax). Excluding the after-tax impact of this special litigation charge, the Company’s operations during fiscal 2000 resulted in pro forma net earnings of $74.7 million, or $1.41 per diluted share.
 
Total revenues for fiscal 2001 increased by $538.1 million, or 15.7%, to $4.0 billion, compared to $3.4 billion for fiscal 2000. The Stork Phase II and GIBB transactions contributed approximately $80.8 million of revenues during fiscal 2001.
 
As a percentage of revenues, direct costs of contracts were 87.2% for fiscal 2001 as compared to 87.3% for fiscal 2000. The percentage relationship between direct costs of contracts and revenues generally fluctuate between reporting periods depending on a variety of factors including the mix of business during the reporting periods being compared, as well as the level of margins earned from the various types of services provided by the Company.
 
SG&A expenses for fiscal 2001 increased by $49.7 million, or 16.0%, to $360.8 million, compared to $311.1 million for fiscal 2000. Approximately $19.9 million, or 40% of the increase in SG&A expenses was attributable to the Stork Phase II and GIBB operations. However, as a percentage of revenues, SG&A expenses for fiscal 2001 remained at the prior fiscal year level of 9.1%, reflecting the Company’s continuing efforts to control costs.
 
During fiscal 2001, the Company’s operating profit increased by $19.2 million, or 15.4%, to $143.9 million, compared to $124.6 million in fiscal 2000. The increase in the Company’s operating profit for fiscal 2001 was due primarily to significant increases in business volume while keeping direct costs of contracts and SG&A expenses as percentages of revenues at approximately the same levels as fiscal 2000.
 
During fiscal 2001, interest expense increased minimally by 2.5%, or $0.3 million, to $11.7 million, compared to $11.4 million in fiscal 2000, due to additional borrowings from the Company’s $230.0 million revolving credit facility at lower interest rates. At September 30, 2001 and 2000, outstanding borrowings (and the associated interest rates) under this facility were $164.3 million (bearing interest at 4.1%) and $138.9 million (bearing interest at 8.2%), respectively. During fiscal 2001, the Company borrowed $162.4 million from the same facility, primarily to partially finance the GIBB acquisition for approximately $20.3 million, to fund $9.5 million of stock repurchases as discussed below, and the balance to cover working capital requirements.
 
The Company recorded income tax expense of $50.4 million and $30.3 million in fiscal 2001 and 2000, respectively. The Company’s overall effective tax rate was 36.5% for fiscal 2001, compared to an effective tax rate of 37.3% for fiscal 2000.

F-9


Backlog
 
Backlog represents the total dollar amount of revenues the Company expects to record in the future as a result of performing work under contracts that have been awarded to it. The Company’s policy with respect to O&M contracts, however, is to include in backlog the amount of revenues it expects to receive for one succeeding year, regardless of the remaining life of the contract. For federal programs (other than federal O&M contracts), the Company’s policy is to include in backlog the full contract award, whether funded or unfunded, and exclude option periods.
 
In accordance with industry practice, substantially all of the Company’s contracts are subject to cancellation or termination at the option of the client. However, the Company has not experienced cancellations that have had a material effect on the reported backlog amounts. In a situation where a client terminates a contract, the Company would ordinarily be entitled to receive payment for work performed up to the date of termination and, in certain instances, may be entitled to allowable termination and cancellation costs. While management uses all information available to it to determine backlog, the Company’s backlog at any given time is subject to changes in the scope of services to be provided as well as increases or decreases in costs relating to the contracts included therein.
 
The following table summarizes the Company’s total backlog at September 30, 2002, 2001 and 2000 (in millions):
 
    
2002

  
2001

  
2000

Technical, professional services
  
$
3,045.6
  
$
2,490.1
  
$
2,217.2
Total
  
 
6,674.2
  
 
5,912.5
  
 
5,430.1
    

  

  

 
In fiscal 2002, the Company began classifying as “field services” backlog, certain engineering and scientific and systems consulting activities relating to operations and maintenance contracts that had been classified previously as “technical, professional services” backlog. Backlog for fiscal years 2001 and 2000 have been reclassified to conform to the fiscal 2002 presentation.
 
Total backlog at September 30, 2002 included approximately $1.8 billion, or 27.6% of total backlog, relating to work to be performed either directly or indirectly for the U.S. federal government and its agencies. This compares to approximately $1.9 billion (or 32.4%) and $1.4 billion (or 26.4%) of U.S. federal backlog at September 30, 2001 and 2000, respectively. Most of these federal contracts extend beyond one year. In general, these contracts must be funded annually (i.e., the amounts to be spent under the contract must be appropriated by Congress to the procuring agency, and then the agency must allot these sums to the specific contracts).
 
The Company’s backlog for fiscal 2002 increased by $761.7 million, or 12.9%, to $6.7 billion, compared to fiscal 2001, and increased in fiscal 2001 by $482.4 million, or 8.9%, to $5.9 billion, compared to fiscal 2000. The increase in fiscal 2002 as compared to fiscal 2001 was attributable primarily to energy and refining backlog added as a result of the Delta acquisition, combined with new awards in both the civil and infrastructure, and the U.S. federal programs sectors of the Company’s business. The increase in fiscal 2001 as compared to fiscal 2000 was attributable primarily to new awards in the defense and aerospace, and exploration, production and refining areas of the Company’s business, and the impact of the acquisitions of Stork and GIBB.
 
The Company estimates that approximately $3.7 billion, or 55.7% of total backlog at September 30, 2002 will be realized as revenues within the next fiscal year.
 
Effects of Inflation
 
During fiscal 2002 and 2001, approximately 85% and 81%, respectively, of the Company’s consolidated revenues were realized from cost-reimbursable type contracts. Because a significant

F-10


portion of the Company’s revenues continues to be earned under cost-reimbursable type contracts, the effects of inflation on the Company’s financial condition and results of operations have been generally low. However, as the Company expands its business into markets and geographic areas where fixed-price and lump-sum work is more prevalent, inflation may begin to have a larger impact on the Company’s results of operations. To the extent permitted by competition, the Company intends to continue to emphasize contracts which are either cost-reimbursable or negotiated fixed-price. For contracts with fixed-price and lump-sum terms, the Company monitors closely the actual costs on the project as compared to the original estimates. On these projects, the Company also attempts to secure fixed-price commitments from key subcontractors and vendors. However, due to the competitive nature of the Company’s business, combined with the fluctuating demands and prices associated with personnel, equipment and materials the Company traditionally needs in order to perform on its contracts, there can be no guarantee that inflation will not effect the Company’s results of operations in the future.
 
Liquidity and Capital Resources
 
During fiscal 2002, the Company’s cash and cash equivalents decreased by $0.8 million, to $48.5 million. This compares to a net decrease of $16.6 million, to $49.3 million, during fiscal 2001, and to a net increase of $12.4 million, to $65.8 million during fiscal 2000. During fiscal 2002, the Company experienced net cash outflows from investing and financing activities, and the effect on cash of exchange rate changes, of $92.5 million, $64.7 million, and $4.3 million, respectively. These outflows were offset by net cash inflows from operating activities of $160.8 million.
 
Operations resulted in net cash inflows of $160.8 million during fiscal 2002. This compares to net cash inflows of $15.1 million and $81.3 million during fiscal 2001 and 2000, respectively. The $145.7 million increase in cash provided by operations in fiscal 2002 as compared to fiscal 2001 was due primarily to an increase in inflows of $135.7 million relating to the timing of cash receipts and payments within the Company’s working capital accounts, increases in net earnings and depreciation and amortization of fixed assets of $21.9 million and $3.7 million, respectively, partially offset by decreases in inflows relating to deferred income taxes, and to the elimination of the amortization of goodwill, of $7.7 million and $7.6 million, respectively.
 
The Company’s investing activities resulted in net cash outflows of $92.5 million during fiscal 2002. This compares to net cash outflows of $63.6 million and $106.7 million during fiscal 2001 and 2000, respectively. The net increase of $28.9 million in cash used for investing activities during fiscal 2002 as compared to fiscal 2001 was due primarily to a net increase in other noncurrent assets of $16.1 million, an increase of $14.9 million in net cash used for acquisitions, and a decrease in disposals of property and equipment of $12.1 million. These outflows were partially offset by a decrease of $7.3 million in additions to property and equipment, an increase of $5.5 million in proceeds from sales of investments, and a decrease of $1.5 million in purchases of investments.
 
The Company’s financing activities resulted in net cash outflows of $64.7 million during fiscal 2002. This compares to net cash inflows of $32.2 million and $42.8 million during fiscal 2001 and 2000, respectively. The $96.9 million net increase in cash used for financing activities during fiscal 2002 as compared to fiscal 2001 was due primarily to increases in repayments of long-term borrowings of $397.3 million. These outflows were partially offset by increases in proceeds from long-term and short-term borrowings of $262.5 million and $24.1 million, respectively, and by decreases in purchases of common stock for treasury, and an increase in proceeds from issuances of common stock of $7.5 million and $3.5 million, respectively. Total borrowing activity for fiscal 2002 resulted in net repayments of $93.6 million, compared to net additional borrowings of $17.1 million and $35.3 million, in fiscal 2001 and 2000, respectively.

F-11


 
The Company believes it has adequate capital resources to fund its operations in fiscal 2003 and beyond. The Company’s consolidated working capital position was $234.5 million at September 30, 2002. As discussed earlier, the Company has long-term, revolving credit facilities totaling $275.0 million at September 30, 2002, against which $85.7 million was outstanding at that date in the form of direct borrowings. At September 30, 2002, the Company had $46.2 million available through committed short-term credit facilities, against which $6.0 million was outstanding in the form of direct borrowings.
 
Under its stock repurchase program, the Company is authorized to buy-back up to 6.0 million shares of its common stock in the open market. Repurchases of common stock will be financed from existing credit facilities and available cash balances. From inception of the program through September 30, 2002, the Company had repurchased a total of 3,732,400 shares of its common stock in the open market at a total cost of $59.0 million. During fiscal 2002, the Company repurchased 61,000 shares of its common stock at a total cost of $2.0 million. Substantially all shares of common stock held in treasury were eventually reissued for the Company’s employee stock purchase and incentive stock plans.
 
The Company has filed a protective claim with the Internal Revenue Service. The nature of the claim involves monies the Company believes it is due from the government relating to the research and development tax credit for fiscal years 1991 through 1998. Although the Company has been working on quantifying the amount of the credit, the final tax refund amount has not yet been determined. Based on a preliminary review of the information available, the ultimate refund amount may have a significant and positive effect on the Company’s overall liquidity.
 
Current Accounting Pronouncements
 
In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 143—Accounting for Asset Retirement Obligations (“SFAS 143”). SFAS 143 establishes accounting standards for recognition and measurement of a liability for the costs of asset retirement obligations. Under SFAS 143, the costs of retiring an asset will be recorded as a liability when the retirement obligation arises, and will be amortized to expense over the life of the asset. SFAS 143 is effective for fiscal years beginning after June 15, 2002.
 
In October 2001, the FASB issued SFAS No. 144—Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). SFAS 144 supercedes SFAS No. 121—Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS 144 requires that long-lived assets be reported at the lower of the carrying amount or fair value, less costs to sell, whether included in continuing operations or in discontinued operations. SFAS 144 is effective for fiscal years beginning after December 15, 2001.
 
In July 2002, the FASB issued Statements of Financial Accounting Standards No. 146—Accounting for Costs Associated with Exit and Disposal Activities (“SFAS 146”). SFAS 146 revises the accounting for exit and disposal activities under EITF Issue No. 94-3—Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. Under SFAS 146, a formal commitment to a plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a cost for most exit and disposal costs. Instead, companies will record exit or disposal costs when they are incurred and can be measured at fair value, and will subsequently adjust the recorded liability for changes in estimated cash flows. The provisions of SFAS 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Companies may not restate previously issued financial statements for the effect of the provisions of SFAS 146 and liabilities that a company previously recorded under EITF Issue No. 94-3 are not affected.
 

F-12


The Company does not believe the adoption of any of the aforementioned standards will have a material effect on its consolidated financial statements.
 
Forward-Looking Statements
 
Statements included in this Management’s Discussion and Analysis that are not based on historical facts are “forward-looking statements”, as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s current estimates, expectations and projections about the issues discussed, the industries in which the Company’s clients operate and the services the Company provides. By their nature, such forward-looking statements involve risks and uncertainties. The Company has tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and words and terms of similar substance in connection with any discussion of future operating or financial performance. The Company cautions the reader that a variety of factors could cause business conditions and results to differ materially from what is contained in its forward-looking statements including the following:
 
 
 
increase in competition by foreign and domestic competitors;
 
 
 
changes in global business, economic, political and social conditions;
 
 
 
availability of qualified engineers, architects, designers and other professional staff needed to execute contracts;
 
 
 
the timing of new awards and the funding of such awards;
 
 
 
cancellations of, or changes in the scope to, existing contracts;
 
 
 
the ability of the Company to meet performance or schedule guarantees;
 
 
 
cost overruns on fixed, maximum or unit priced contracts;
 
 
 
the outcome of pending and future litigation and any governmental audits, investigations, or proceedings;
 
 
 
the cyclical nature of the individual markets in which the Company’s clients operate;
 
 
 
delays or defaults by clients in making payments due under contracts; and
 
 
 
the successful closing and/or subsequent integration of any merger or acquisition transaction.
 
The preceding list is not all-inclusive, and the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Readers of this Management’s Discussion and Analysis should also read the Company’s most recent Annual Report on Form 10-K for a further description of the Company’s business, legal proceedings and other information that describes factors that could cause actual results to differ from such forward-looking statements.

F-13


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
September 30, 2002 and 2001
(In thousands, except share information)
 
    
2002

    
2001

 
ASSETS
                 
Current Assets:
                 
Cash and cash equivalents
  
$
48,469
 
  
$
49,263
 
Receivables
  
 
845,360
 
  
 
817,160
 
Deferred income taxes
  
 
66,609
 
  
 
64,651
 
Prepaid expenses and other
  
 
14,465
 
  
 
15,085
 
    


  


Total current assets
  
 
974,903
 
  
 
946,159
 
    


  


Property, Equipment and Improvements, Net
  
 
149,905
 
  
 
149,979
 
    


  


Other Noncurrent Assets:
                 
Goodwill, net
  
 
390,953
 
  
 
317,664
 
Other
  
 
158,223
 
  
 
143,238
 
    


  


Total other noncurrent assets
  
 
549,176
 
  
 
460,902
 
    


  


    
$
1,673,984
 
  
$
1,557,040
 
    


  


LIABILITIES AND STOCKHOLDERS’ EQUITY
                 
Current Liabilities:
                 
Notes payable
  
$
5,962
 
  
$
19,688
 
Accounts payable
  
 
229,579
 
  
 
197,712
 
Accrued liabilities
  
 
322,618
 
  
 
295,763
 
Billings in excess of costs
  
 
155,114
 
  
 
163,833
 
Income taxes payable
  
 
27,144
 
  
 
23,663
 
    


  


Total current liabilities
  
 
740,417
 
  
 
700,659
 
    


  


Long-term Debt
  
 
85,732
 
  
 
164,308
 
    


  


Other Deferred Liabilities
  
 
152,340
 
  
 
95,174
 
    


  


Minority Interests
  
 
5,882
 
  
 
5,098
 
    


  


Commitments and Contingencies
                 
Stockholders’ Equity:
                 
Capital stock:
                 
Preferred stock, $1 par value, authorized—1,000,000 shares; issued and outstanding—none
  
 
—  
 
  
 
—  
 
Common stock, $1 par value, authorized—100,000,000 shares; issued and outstanding—54,765,374 shares and 26,872,358 shares, respectively
  
 
54,765
 
  
 
26,872
 
Additional paid-in capital
  
 
110,778
 
  
 
105,612
 
Retained earnings
  
 
568,957
 
  
 
472,010
 
Accumulated other comprehensive loss
  
 
(42,582
)
  
 
(10,620
)
    


  


    
 
691,918
 
  
 
593,874
 
Unearned compensation
  
 
(2,305
)
  
 
(2,073
)
    


  


Total stockholders’ equity
  
 
689,613
 
  
 
591,801
 
    


  


    
$
1,673,984
 
  
$
1,557,040
 
    


  


 
See the accompanying Notes to Consolidated Financial Statements.

F-14


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF EARNINGS
 
For the Years Ended September 30, 2002, 2001 and 2000
(In thousands, except per share information)
 
    
2002

    
2001

    
2000

 
Revenues
  
$
4,555,661
 
  
$
3,956,993
 
  
$
3,418,942
 
Costs and Expenses:
                          
Direct costs of contracts
  
 
(3,971,984
)
  
 
(3,452,320
)
  
 
(2,983,247
)
Selling, general and administrative expenses
  
 
(411,307
)
  
 
(360,821
)
  
 
(311,082
)
    


  


  


Operating Profit
  
 
172,370
 
  
 
143,852
 
  
 
124,613
 
    


  


  


Other (Expense) Income:
                          
Interest income
  
 
2,359
 
  
 
3,718
 
  
 
3,961
 
Interest expense
  
 
(7,496
)
  
 
(11,705
)
  
 
(11,420
)
Miscellaneous income, net
  
 
1,521
 
  
 
2,341
 
  
 
2,168
 
Provision for litigation settlement
  
 
—  
 
  
 
—  
 
  
 
(38,000
)
    


  


  


Total other expense, net
  
 
(3,616
)
  
 
(5,646
)
  
 
(43,291
)
    


  


  


Earnings Before Taxes
  
 
168,754
 
  
 
138,206
 
  
 
81,322
 
Income Tax Expense
  
 
(59,064
)
  
 
(50,446
)
  
 
(30,341
)
    


  


  


Net Earnings
  
$
109,690
 
  
$
87,760
 
  
$
50,981
 
    


  


  


Net Earnings Per Share:
                          
Basic
  
$
2.03
 
  
$
1.65
 
  
$
0.97
 
Diluted
  
$
1.98
 
  
$
1.61
 
  
$
0.96
 
    


  


  


 
 
See the accompanying Notes to Consolidated Financial Statements.

F-15


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
For the Years Ended September 30, 2002, 2001 and 2000
(In thousands)
 
    
2002

      
2001

      
2000

 
Net Earnings
  
$
109,690
 
    
$
87,760
 
    
$
50,981
 
    


    


    


Other Comprehensive (Loss) Income:
                              
Unrealized holding gains on securities
  
 
816
 
    
 
2,395
 
    
 
3,556
 
Less—reclassification adjustment for gains realized in net earnings
  
 
(3,667
)
    
 
(2,083
)
    
 
(1,455
)
    


    


    


Unrealized (loss) gains on securities, net of reclassification adjustment
  
 
(2,851
)
    
 
312
 
    
 
2,101
 
Foreign currency translation adjustments
  
 
1,048
 
    
 
(324
)
    
 
(8,236
)
Minimum pension liability adjustment
  
 
(47,904
)
    
 
—  
 
    
 
—  
 
    


    


    


Other Comprehensive Loss Before Income Taxes
  
 
(49,707
)
    
 
(12
)
    
 
(6,135
)
Income Tax Benefit (Expense) Relating to Other Comprehensive Loss
  
 
17,745
 
    
 
(93
)
    
 
(785
)
    


    


    


Other Comprehensive Loss
  
 
(31,962
)
    
 
(105
)
    
 
(6,920
)
    


    


    


Total Comprehensive Income
  
$
77,728
 
    
$
87,655
 
    
$
44,061
 
    


    


    


 
 
See the accompanying Notes to Consolidated Financial Statements.

F-16


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 
For the Years Ended September 30, 2002, 2001 and 2000
(In thousands)
 
    
2002

      
2001

      
2000

 
Common Stock:
                              
Balance at the beginning of the year
  
$
26,872
 
    
$
26,386
 
    
$
26,143
 
Two-for-one stock split, paid in the form of a stock dividend (see Note 2)
  
 
27,137
 
    
 
—  
 
    
 
—  
 
Issuances under stock purchase and stock option plans, net
  
 
892
 
    
 
625
 
    
 
440
 
Repurchases under stock plans
  
 
(158
)
    
 
(187
)
    
 
(197
)
Issuances of restricted stock, net of forfeitures
  
 
22
 
    
 
48
 
    
 
—  
 
    


    


    


Balance at the end of the year
  
 
54,765
 
    
 
26,872
 
    
 
26,386
 
    


    


    


Additional Paid-in Capital:
                              
Balance at the beginning of the year
  
 
105,612
 
    
 
79,352
 
    
 
68,049
 
Two-for-one stock split, paid in the form of a stock dividend (see Note 2)
  
 
(27,137
)
    
 
—  
 
    
 
—  
 
Issuances of common stock under stock purchase and stock option plans, net
  
 
31,957
 
    
 
24,910
 
    
 
12,078
 
Repurchases of common stock under stock plans
  
 
(543
)
    
 
(696
)
    
 
(764
)
Issuances of restricted stock, net of forfeitures
  
 
889
 
    
 
2,046
 
    
 
(11
)
    


    


    


Balance at the end of the year
  
 
110,778
 
    
 
105,612
 
    
 
79,352
 
    


    


    


Retained Earnings:
                              
Balance at the beginning of the year
  
 
472,010
 
    
 
400,791
 
    
 
358,958
 
Net earnings
  
 
109,690
 
    
 
87,760
 
    
 
50,981
 
Issuances of treasury stock for option exercises
  
 
(380
)
    
 
(1,381
)
    
 
(2,922
)
Repurchases of common stock under stock plans
  
 
(12,363
)
    
 
(15,160
)
    
 
(6,226
)
    


    


    


Balance at the end of the year
  
 
568,957
 
    
 
472,010
 
    
 
400,791
 
    


    


    


Accumulated Other Comprehensive (Loss) Income:
                              
Balance at the beginning of the year
  
 
(10,620
)
    
 
(10,515
)
    
 
(3,595
)
Foreign currency translation adjustments
  
 
1,048
 
    
 
(324
)
    
 
(8,236
)
Net unrealized (losses) gains on securities
  
 
(1,783
)
    
 
219
 
    
 
1,316
 
Minimum pension liability adjustment
  
 
(31,227
)
    
 
—  
 
    
 
—  
 
    


    


    


Balance at the end of the year
  
 
(42,582
)
    
 
(10,620
)
    
 
(10,515
)
    


    


    


Unearned Compensation:
                              
Balance at the beginning of the year
  
 
(2,073
)
    
 
(471
)
    
 
(838
)
Issuances of restricted stock
  
 
(911
)
    
 
(2,094
)
    
 
(153
)
Amortization
  
 
679
 
    
 
492
 
    
 
520
 
    


    


    


Balance at the end of the year
  
 
(2,305
)
    
 
(2,073
)
    
 
(471
)
    


    


    


Treasury Stock, at Cost:
                              
Balance at the beginning of the year
  
 
—  
 
    
 
—  
 
    
 
—  
 
Purchases of common stock for treasury
  
 
(2,003
)
    
 
(9,523
)
    
 
(13,714
)
Reissuances of treasury stock for stock option exercises
  
 
2,003
 
    
 
9,523
 
    
 
13,714
 
    


    


    


Balance at the end of the year
  
 
—  
 
    
 
—  
 
    
 
—  
 
    


    


    


Total Stockholders’ Equity
  
$
689,613
 
    
$
591,801
 
    
$
495,543
 
    


    


    


 
See the accompanying Notes to Consolidated Financial Statements.

F-17


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Years Ended September 30, 2002, 2001 and 2000
(In thousands)
 
    
2002

      
2001

      
2000

 
Cash Flows from Operating Activities:
                              
Net earnings
  
$
109,690
 
    
$
87,760
 
    
$
50,981
 
Adjustments to reconcile net earnings to net cash flows from operations:
                              
Depreciation and amortization of property, equipment and improvements
  
 
35,087
 
    
 
31,388
 
    
 
33,192
 
Amortization of goodwill
  
 
—  
 
    
 
7,552
 
    
 
6,906
 
Gains on sales of assets
  
 
(3,922
)
    
 
(3,318
)
    
 
(3,143
)
Changes in assets and liabilities, excluding the effects of businesses acquired:
                              
Receivables
  
 
36,935
 
    
 
(68,669
)
    
 
(105,541
)
Prepaid expenses and other current assets
  
 
4,187
 
    
 
(1,482
)
    
 
142
 
Accounts payable
  
 
11,458
 
    
 
(27,849
)
    
 
35,807
 
Accrued liabilities
  
 
(12,301
)
    
 
(17,906
)
    
 
(10,497
)
Billings in excess of costs
  
 
(24,850
)
    
 
(7,313
)
    
 
50,134
 
Income taxes payable
  
 
7,438
 
    
 
10,356
 
    
 
8,526
 
Deferred income taxes
  
 
(3,639
)
    
 
4,097
 
    
 
14,437
 
Other, net
  
 
680
 
    
 
492
 
    
 
357
 
    


    


    


Net cash provided by operating activities
  
 
160,763
 
    
 
15,108
 
    
 
81,301
 
    


    


    


Cash Flows from Investing Activities:
                              
Acquisition of businesses, net of cash acquired
  
 
(43,529
)
    
 
(28,605
)
    
 
(27,284
)
Additions to property and equipment
  
 
(37,182
)
    
 
(44,451
)
    
 
(44,369
)
Disposals of property and equipment
  
 
5,376
 
    
 
17,506
 
    
 
3,357
 
Net increase in other, non-current assets
  
 
(23,009
)
    
 
(6,892
)
    
 
(33,806
)
Purchases of investments
  
 
(2,686
)
    
 
(4,209
)
    
 
(7,772
)
Proceeds from sales of investments
  
 
8,499
 
    
 
3,023
 
    
 
3,169
 
    


    


    


Net cash used for investing activities
  
 
(92,531
)
    
 
(63,628
)
    
 
(106,705
)
    


    


    


Cash Flows from Financing Activities:
                              
Proceeds from long-term borrowings
  
 
424,892
 
    
 
162,403
 
    
 
103,900
 
Repayments of long-term borrowings
  
 
(542,791
)
    
 
(145,516
)
    
 
(78,244
)
Net change in short-term borrowings
  
 
24,288
 
    
 
235
 
    
 
9,622
 
Proceeds from issuances of common stock
  
 
21,672
 
    
 
18,198
 
    
 
16,006
 
Purchases of common stock for treasury
  
 
(2,003
)
    
 
(9,523
)
    
 
(13,714
)
Other, net
  
 
9,239
 
    
 
6,354
 
    
 
5,277
 
    


    


    


Net cash (used for) provided by investing activities
  
 
(64,703
)
    
 
32,151
 
    
 
42,847
 
    


    


    


Effect of Exchange Rate Changes
  
 
(4,323
)
    
 
(216
)
    
 
(5,077
)
    


    


    


(Decrease) Increase in Cash and Cash Equivalents
  
 
(794
)
    
 
(16,585
)
    
 
12,366
 
Cash and Cash Equivalents at Beginning of Period
  
 
49,263
 
    
 
65,848
 
    
 
53,482
 
    


    


    


Cash and Cash Equivalents at End of Period
  
$
48,469
 
    
$
49,263
 
    
$
65,848
 
    


    


    


 
 
See the accompanying Notes to Consolidated Financial Statements.

F-18


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Accounting Policies
 
Basis of Presentation
 
The consolidated financial statements include the accounts of Jacobs Engineering Group Inc. and its subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated.
 
Description of the Business
 
The Company’s principal business is to provide a broad range of technical, professional, and construction services. Such services include engineering, design, and architectural services; construction and construction management services; operations and maintenance services; and process, scientific, and systems consulting services. The Company provides its services primarily through offices and subsidiaries located in the United States, Canada, Europe, Asia, Mexico and Australia. The Company provides its services under cost-reimbursable, cost-reimbursable with a guaranteed maximum price, and fixed-price contracts. The percentage of revenues realized from each of these types of contracts for each `year ended September 30 was as follows:
 
    
2002

    
2001

    
2000

 
Cost-reimbursable
  
85 
%
  
81 
%
  
77 
%
Fixed-price
  
13
 
  
16
 
  
18
 
Guaranteed maximum price
  
2
 
  
3
 
  
5
 
 
Revenue Accounting for Contracts
 
In general, the Company recognizes revenues at the time services are performed. On cost-reimbursable contracts, revenue is recognized as costs are incurred, and includes applicable fees earned through the date services are provided. On fixed-price contracts, revenues are recorded using the percentage-of-completion method of accounting by relating contract costs incurred to date to total estimated contract costs at completion. Contract costs may include both direct and indirect costs. Contract losses are provided for in their entirety in the period they become known, without regard to the percentage-of-completion. The Company recognizes as revenues costs associated with claims and unapproved change orders to the extent it is probable that such claims and change orders will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated.
 
Some of the Company’s contracts with the U.S. federal government, as well as certain contracts with commercial clients, provide that contract costs (including indirect costs) are subject to audit and adjustment. For all such contracts, revenues have been recorded at the time services were performed based upon those amounts expected to be realized upon completion of the contracts.
 
As is common in the industry, the Company executes certain contracts jointly with third parties through partnerships and joint ventures. For certain of these contracts (i.e., where the Company has an undivided interest in the assets and liabilities of the venture), the Company recognizes its proportionate share of venture revenues, costs and operating profit in its consolidated statements of earnings.
 
When the Company is directly responsible for subcontractor labor, or third-party materials and equipment, the Company reflects the costs of such items in both revenues and costs. On other projects, where the client elects to pay for such items directly and the Company has no associated

F-19


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

responsibility for such items, these amounts are not reflected in either revenues or costs. The amount of such “pass-through” costs included in revenues during fiscal 2002, 2001 and 2000 totaled $1.5 billion, $1.3 billion and $1.4 billion, respectively.
 
Cash Equivalents
 
The Company considers all highly liquid investments with original maturities of less than three months as cash equivalents. Cash equivalents at September 30, 2002 and 2001 consisted primarily of time certificates of deposit.
 
Marketable Securities and Investments
 
The Company’s investments in equity and debt securities are classified as trading securities, held-to-maturity securities or available-for-sale securities. Management determines the appropriate classification of all its investments at the time of purchase and reviews such designations at each balance sheet date.
 
Trading securities are recorded at fair value. Changes in the fair value of trading securities are recognized in earnings in the period in which the change occurs and is included in “Miscellaneous income, net “ in the accompanying consolidated statements of earnings.
 
Held-to-maturity securities and available-for-sale securities are included as long-term investments in “Other Noncurrent Assets” in the accompanying consolidated balance sheets. Held-to-maturity securities are carried at cost, or amortized cost, adjusted for the amortization (accretion) of any related premiums (discounts) over the estimated remaining period until maturity. Marketable equity securities that are not held for trading, and debt securities that are not classified as held-to-maturity, are classified as available-for-sale securities. Securities designated as available-for-sale are recorded at fair value. Changes in the fair value of securities available-for-sale are recorded as unrealized gains or losses, net of the related tax effect in “Accumulated Other Comprehensive (Loss) Income” in the accompanying consolidated statements of changes in stockholders’ equity.
 
Receivables and Billings in Excess of Costs
 
Included in “Receivables” in the accompanying consolidated balance sheets at September 30, 2002 and 2001 were $440.9 million and $420.6 million, respectively, representing amounts earned and reimbursable under contracts in progress at the respective balance sheet dates. These amounts become billable according to the contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project. Included in these unbilled receivables at September 30, 2002 and 2001 were contract retentions totaling $24.2 million and $6.6 million, respectively. The Company anticipates that substantially all of such unbilled amounts will be billed and collected over the next twelve months.
 
“Billings in excess of costs” represent cash collected from clients on contracts in advance of revenues earned thereon, as well as advanced billings to clients in excess of costs and earnings on uncompleted contracts. The Company anticipates that substantially all such amounts will be earned over the next twelve months.
 
Amounts due from the U.S. federal government included in “Receivables” in the accompanying consolidated balance sheets totaled $141.2 million and $137.4 million at September 30, 2002 and 2001, respectively.
 

F-20


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In accordance with industry practice, the Company includes in “Receivables” claims representing the recovery of costs incurred on contracts to the extent it is probable that such claims will result in additional contract revenue and the amount of such additional revenues can be reliably estimated. Such amounts included in “Receivables” in the accompanying consolidated balance sheets totaled $25.3 million and $10.6 million at September 30, 2002 and 2001, respectively, of which $18.4 million and $7.3 million, respectively, relate to one claim on a project being performed in Europe.
 
Property, Equipment and Improvements
 
Property, equipment and improvements are stated at cost in the accompanying consolidated balance sheets. Depreciation and amortization of property and equipment is computed primarily by using the straight-line method over the estimated useful lives of the assets. The cost of leasehold improvements is amortized using the straight-line method over the lesser of the estimated useful life of the asset or the remaining term of the related lease. Estimated useful lives range from 20 to 40 years for buildings, from 3 to 10 years for equipment and from 4 to 10 years for leasehold improvements.
 
Goodwill
 
Effective October 1, 2001, with the adoption of Statement of Financial Accounting Standards No. 142—Goodwill and Other Intangible Assets (“SFAS 142”), goodwill is no longer amortized, but instead tested for impairment using a fair value approach in accordance with SFAS 142. There was no impairment of goodwill upon adoption of SFAS 142.
 
The Company’s results for prior years have not been restated for SFAS 142. Goodwill amortization on a pre-tax basis was $7.6 million ($4.9 million after-tax) in fiscal 2001, and $6.9 million ($4.4 million after-tax) in fiscal 2000. Had goodwill amortization not been recorded in fiscal 2001 and 2000, net earnings would have been $94.0 million (or $1.73 per diluted share) and $56.0 million (or $1.06 per diluted share), respectively.
 
Earnings Per Share
 
Earnings per share (“EPS”) is calculated in accordance with Statement of Financial Accounting Standards No. 128—Earnings per Share. Basic EPS is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted EPS gives effect to all dilutive securities that were outstanding during the period. The Company’s dilutive securities consisted solely of nonqualified stock options.
 
Stock-based Compensation
 
The Company accounts for stock issued to employees and outside directors in accordance with APB Opinion No. 25—Accounting for Stock Issued to Employees (“APB 25”). Accordingly, compensation cost is measured based on the excess, if any, of the market price of the Company’s common stock over the exercise price of a stock option, determined on the date the option is granted. With respect to the issuance of restricted stock, unearned compensation expense equivalent to the market value of the stock issued on the date of award is charged to stockholders’ equity and subsequently amortized against earnings over the periods during which the restrictions lapse. During fiscal years 2002, 2001 and 2000, the Company recognized compensation expense on restricted stock of $0.7 million, $0.5 million and $0.5 million, respectively.
 

F-21


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Concentrations of Credit Risk, Uncertainties and Use of Estimates
 
The Company’s cash balances and short-term investments are maintained in accounts held by major banks and financial institutions located primarily in the United States, Europe, Canada and Asia. In the normal course of its business and consistent with industry practices, the Company grants credit to its clients without requiring collateral. Concentrations of credit risk is the risk that, if the Company extends a significant portion of its credit to clients in a specific geographic area or industry, the Company may experience disproportionately high levels of default, if those clients are adversely affected by factors particular to their geographic area or industry. Concentrations of credit risk relative to trade receivables are limited due to the Company’s diverse client base, which includes the U.S. federal government and multi-national corporations operating in a broad range of industries and geographic areas. Additionally, in order to mitigate credit risk, the Company continually evaluates the credit worthiness of its major commercial clients.
 
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods covered. The more significant estimates affecting amounts reported in the consolidated financial statements relate to revenues under long-term construction contracts and self-insurance accruals. Actual results could differ significantly from those estimates and assumptions.
 
2.    Stock Split
 
On February 12, 2002, the Company’s Board of Directors approved a two-for-one stock split. The stock split was distributed on April 1, 2002 in the form of a 100% stock dividend to stockholders of record on March 1, 2002.
 
The stock split resulted in the issuance of 27.1 million shares of common stock. Par value of the common stock is unchanged at $1 per share and accordingly, $27.1 million was transferred from additional paid-in capital to common stock on April 1, 2002.
 
The effect of the stock split has been recognized retroactively. Accordingly, all references in the financial statements to price per share and stock option plan data have been restated to reflect the stock split.
 
3.    Earnings Per Share
 
The following table reconciles the denominator used to compute basic EPS to the denominator used to compute diluted EPS for each year ended September 30 (in thousands):
 
    
2002

  
2001

  
2000

Weighted average shares outstanding (denominator used to compute Basic EPS)
  
54,136
  
53,230
  
52,358
Effect of employee and outside director stock options
  
1,260
  
1,266
  
589
    
  
  
Denominator used to compute Diluted EPS
  
55,396
  
54,496
  
52,947
    
  
  

F-22


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
4.    Business Combinations
 
On October 31, 2001, the Company completed the acquisition of McDermott Engineers & Constructors (Canada) Limited (including Delta Catalytic and Delta Hudson Engineering) (collectively, “Delta”). At that date, Delta had $67.2 million in total assets (including $63.8 million in current assets) and $56.8 million in total liabilities (substantially all of which were current liabilities). The primary purpose for acquiring Delta was to expand the Company’s business in North America in several markets, including upstream oil and gas, petroleum refining, petrochemicals, chemicals and energy. Delta has approximately 3,500 employees, providing engineering, construction, and maintenance services to clients in these industries. The total cash purchase price was $47.5 million, and was determined through negotiations with Delta’s owner, McDermott International, Inc. The purchase price was financed with a new, short-term $50.0 million credit facility. The Delta acquisition was accounted for as a purchase. Accordingly, the Company’s consolidated results of operations include those of Delta from the date of acquisition. The purchase price has been allocated to the assets and liabilities acquired based on their estimated fair values. The purchase price allocation resulted in goodwill, net of related tax benefits, of approximately $51.5 million.
 
On May 3, 2001, the Company completed the purchase from LawGibb Group Inc. of substantially all of its international engineering and construction management businesses (the “GIBB” businesses). GIBB is a leading international engineering consultancy firm, providing technical, professional services in the fields of transportation, civil and structural engineering, water and wastewater, environmental and geotechnical services, infrastructure, building and building services, information technology, defense, finance and commerce. GIBB has approximately 900 employees conducting operations located primarily in the United Kingdom, southern Africa, and certain other countries located primarily in Europe. The total purchase price of $34.5 million in cash was financed with a combination of internal funds and borrowings made under the Company’s $230.0 million revolving credit facility. The GIBB transaction was accounted for as a purchase. Accordingly, the Company’s consolidated results of operations include the results of GIBB’s operations since the date of acquisition. The purchase price has been allocated to the assets and liabilities acquired based on their estimated fair values. The purchase price allocation resulted in goodwill, net of related tax benefits, of approximately $31.3 million.
 
On February 23, 2001, the Company finalized the second phase of a two-part transaction to acquire from Stork N.V., the Netherlands (“Stork N.V.”) the balance of its engineering and contracting businesses (“Stork Phase II”). This second phase involved the remainder of Stork N.V.’s engineering and construction operations in the Netherlands and the Middle East. These offices employ approximately 500 technical, professional staff. The second phase of the transaction was accounted for as a purchase. Accordingly, the Company’s consolidated results of operations include the operating results of Stork Phase II since the date of acquisition. The purchase price for Stork Phase II has been allocated to the assets and liabilities acquired based on their estimated fair values. The purchase price allocation resulted in goodwill, net of related tax benefits, of approximately $29.9 million.
 
During the second quarter of fiscal 2000, the Company completed the first phase of the Stork transaction. The first phase included Stork N.V.’s operations in Belgium, Germany, Southeast Asia and certain locations in the Netherlands. These offices employ approximately 1,500 technical, professional staff. The purchase price of EUR 25.0 million (approximately $24.2 million) was financed in part by long-term borrowings of EUR 15.0 million (approximately $14.8 million) under the Company’s $230.0 million revolving credit facility. The transaction was accounted for as a purchase. Accordingly, the purchase price has been allocated to the assets and liabilities acquired based on their estimated fair

F-23


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

values. The purchase price allocation resulted in goodwill, net of related tax benefits, of approximately $29.0 million.
 
In January 1999, the Company completed its Agreement and Plan of Merger with Sverdrup Corporation (“Sverdrup”). In accordance with the merger agreement, each outstanding share of common stock of Sverdrup was converted into the right to receive (i) a proportional share of the total amount of initial merger consideration of $198.0 million paid at closing; and, (ii) a proportional amount of any additional merger consideration payable after each of the first three anniversaries of the date of the merger (“Deferred Merger Consideration”). The final amount payable as Deferred Merger Consideration of $11.1 million was paid during fiscal 2002.
 
5.    Investments
 
At September 30, 2002, the Company had available-for-sale securities of $5.4 million included in “Other Noncurrent Assets” in the accompanying consolidated balance sheet, for which a net unrealized loss of $1.8 million was recorded in stockholders’ equity during fiscal 2002. At September 30, 2001, the Company had available-for-sale securities of $10.2 million, for which a net unrealized gain of $0.2 million was recorded in stockholders’ equity during fiscal 2001.
 
The following table summarizes certain information regarding the Company’s available-for-sale equity securities at September 30, 2002 and 2001, and for each year ended September 30 (in thousands):
 
    
2002

  
2001

Total cost (specific identification method)
  
$
2,318
  
$
4,297
Gross unrealized gains
  
$
3,032
  
$
5,883
Estimated fair value
  
$
5,350
  
$
10,180
Gross realized gains
  
$
3,435
  
$
2,847
Gross proceeds from sales
  
$
5,414
  
$
3,023
 
6.    Property, Equipment and Improvements, Net
 
Property, equipment and improvements, net, consisted of the following at September 30, 2002 and 2001 (in thousands):
 
    
2002

    
2001

 
Land
  
$
7,903
 
  
$
7,106
 
Buildings
  
 
54,010
 
  
 
51,725
 
Equipment
  
 
239,159
 
  
 
231,322
 
Leasehold improvements
  
 
27,987
 
  
 
16,126
 
Construction in progress
  
 
2,990
 
  
 
16,290
 
    


  


    
 
332,049
 
  
 
322,569
 
Accumulated depreciation and amortization
  
 
(182,144
)
  
 
(172,590
)
    


  


    
$
149,905
 
  
$
149,979
 
    


  


F-24


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
Operating expenses include provisions for depreciation and amortization of $35.1 million, $31.4 million and $33.2 million for fiscal 2002, 2001 and 2000, respectively.
 
7.    Borrowings
 
Short-term Credit Arrangements
 
At September 30, 2002, the Company had approximately $46.2 million available through multiple bank lines of credit, under which the Company may borrow on an overdraft or short-term basis. Interest under these lines is determined at the time of borrowing based on the banks’ prime or base rates, rates paid on certificates of deposit, the banks’ actual costs of funds or other variable rates. Most of the agreements require the payment of a fee based on the amount of the facility. The Company is also required to maintain certain minimum levels of working capital and net worth.
 
Other information regarding the lines of credit for each year ended September 30 follows (dollars in thousands):
 
    
2002

      
2001

      
2000

 
Amount outstanding at year end
  
$
5,962
 
    
$
19,688
 
    
$
18,077
 
Weighted average interest rate at year end
  
 
5.40
%
    
 
5.19
%
    
 
8.80
%
Weighted average borrowings outstanding during the year
  
$
6,699
 
    
$
5,748
 
    
$
7,952
 
Weighted average interest rate during the year
  
 
5.99
%
    
 
6.90
%
    
 
6.77
%
Maximum amount outstanding during the year
  
$
13,798
 
    
$
19,688
 
    
$
30,955
 
 
Long-term Debt and Credit Arrangements
 
Long-term debt consisted of the following at September 30 (in thousands):
 
    
2002

  
2001

Borrowings under long-term, revolving credit agreements:
             
$230.0 million agreement
  
$
57,632
  
$
164,308
$45.0 million agreement
  
 
28,100
  
 
—  
    

  

    
$
85,732
  
$
164,308
    

  

 
In October 2001, the Company financed the Delta acquisition with a new, short-term $50.0 million credit facility (See Note 4., above). In May 2002, this short-term facility was converted into a long-term, $40.0 million facility. In September 2002, the commitment was increased to $45.0 million.
 
The Company’s $230.0 million and $45.0 million long-term, revolving credit agreements expire in January 2004. Borrowings under these agreements are unsecured, and bear interest at either fixed rates offered by the banks at the time of borrowing, or at variable rates based on the agent bank’s base rate, LIBOR or the latest federal funds rate. During fiscal 2002 and 2001, the weighted average interest rates on these borrowings were 3.35% and 6.02%, respectively. The agreements require the Company to maintain certain minimum levels of net worth, a minimum coverage ratio of certain fixed charges, and a minimum leverage ratio of earnings before interest, taxes, depreciation and amortization to funded debt (all as defined in the agreements). The agreements also restrict the payment of cash dividends and require the Company to pay a facility fee based on the total amount of the commitments.

F-25


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
Interest payments made during fiscal 2002, 2001 and 2000 totaled $6.2 million, $11.1 million and $11.8 million, respectively.
 
8.    Pension Plans
 
Company-only Sponsored Plans
 
The Company sponsors various pension plans covering employees of certain U.S. domestic and international subsidiaries. There are two pension plans in the United States, both of which were acquired by the Company in connection with the 1999 merger with Sverdrup Corporation. One of the Sverdrup pension plans covers certain employees assigned to a particular operating contract with the U.S. government; it is the intention of the parties to the contract that the cost of this plan be fully reimbursed by the U.S. government in accordance with applicable cost accounting standards. The second Sverdrup pension plan was frozen in 1999, allowing no new participants to enter.
 
The pension plans (U.S. and international) provide pension benefits that are based on the employee’s compensation and years of service. The Company’s funding policy is to fund the actuarially determined accrued benefits, allowing for projected compensation increases using the projected unit method.
 
The following table sets forth the change in the plans’ net benefit obligation for each year ended September 30 (in thousands):
 
    
2002

    
2001

 
Net benefit obligation at the beginning of the year
  
$
326,964
 
  
$
309,590
 
Service cost
  
 
10,298
 
  
 
10,216
 
Interest cost
  
 
23,507
 
  
 
22,527
 
Participants’ contributions
  
 
3,162
 
  
 
2,903
 
Actuarial losses
  
 
15,931
 
  
 
5,083
 
Benefits paid
  
 
(31,818
)
  
 
(22,712
)
Effect of plan amendments
  
 
—  
 
  
 
(1,050
)
Effect of exchange rate changes
  
 
6,841
 
  
 
407
 
    


  


Net benefit obligation at the end of the year
  
$
354,885
 
  
$
326,964
 
    


  


 
The following table sets forth the change in the fair value of the plans’ assets for each year ended September 30 (in thousands):
 
    
2002

    
2001

 
Fair value of plan assets at the beginning of the year
  
$
303,503
 
  
$
324,707
 
Actual return on plan assets
  
 
(8,254
)
  
 
(9,291
)
Employer contributions
  
 
11,219
 
  
 
11,162
 
Participants’ contributions
  
 
3,162
 
  
 
2,903
 
Gross benefits paid
  
 
(31,818
)
  
 
(22,712
)
Client note payment
  
 
(1,236
)
  
 
(2,961
)
Effect of exchange rate changes
  
 
5,852
 
  
 
(332
)
Other
  
 
(451
)
  
 
27
 
    


  


Fair value of plan assets at the end of the year
  
$
281,977
 
  
$
303,503
 
    


  


F-26


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
The following table reconciles the funded status of the plans, as well as amounts recognized and not recognized in the accompanying consolidated balance sheets at September 30, 2002 and 2001 (in thousands):
 
    
2002

    
2001

 
Funded status at the end of the year
  
$
(72,908
)
  
$
(23,461
)
Unrecognized actuarial losses
  
 
86,170
 
  
 
37,987
 
Additional minimum liability
  
 
(47,904
)
  
 
—  
 
Effect of exchange rate changes
  
 
1,502
 
  
 
199
 
Other
  
 
(307
)
  
 
(10
)
    


  


Net amount recognized at the end of the year
  
$
(33,447
)
  
$
14,715
 
    


  


 
Amounts recognized in the accompanying consolidated balance sheets at September 30, 2002 and 2001 consisted of the following (in thousands):
 
    
2002

    
2001

 
Prepaid pension asset
  
$
15,993
 
  
$
16,377
 
Additional minimum liability
  
 
(47,904
)
  
 
—  
 
Accrued benefit liability
  
 
(1,536
)
  
 
(1,662
)
    


  


Net benefit obligation at the end of the year
  
$
(33,447
)
  
$
14,715
 
    


  


 
At September 30, 2002, all three of the Company’s pension plans are in a net, under-funded status by $72.9 million. At September 30, 2001, two of the pension plans were under-funded by a total of $23.6 million (the aggregate fair value of plan assets and net benefit obligations of these plans were approximately $197.3 million and $220.9 million, respectively).
 
Included in “Other Noncurrent Assets” in the accompanying consolidated balance sheets at September 30, 2002 and 2001 is approximately $9.9 million and $11.4 million, respectively, representing the accumulated excess funding of benefits over the amounts reimbursed by the U.S. government in connection with an operating contract.
 
The components of net periodic pension cost included in the accompanying consolidated statements of earnings for each year ended September 30 were as follows (in thousands):
 
    
2002

    
2001

    
2000

 
Service cost
  
$
10,298
 
  
$
10,216
 
  
$
10,530
 
Interest cost
  
 
23,507
 
  
 
22,527
 
  
 
22,902
 
Expected return on plan assets
  
 
(27,997
)
  
 
(28,233
)
  
 
(28,978
)
Other
  
 
22
 
  
 
—  
 
  
 
9
 
    


  


  


Net pension cost, before settlement charge
  
 
5,830
 
  
 
4,510
 
  
 
4,463
 
Settlement charge
  
 
4,560
 
  
 
—  
 
  
 
—  
 
    


  


  


Total, net periodic pension cost
  
$
10,390
 
  
$
4,510
 
  
$
4,463
 
    


  


  


 
Included in other comprehensive income for fiscal 2002 is an after-tax charge of $31.2 million relating to an additional minimum liability for the pension plans. In general, Statement of Financial Accounting Standards No. 87—Employers’ Accounting for Pensions requires companies to record a liability in the amount by which a pension plan’s accumulated benefit obligation exceeds the fair value of its assets. This non-cash charge to stockholders’ equity will be reviewed next year in connection with the annual actuarial valuation of the pension plans and is subject to adjustment at that time.

F-27


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
The significant actuarial assumptions used in determining the funded status of the plans for each year ended September 30 were as follows:
 
    
2002

  
2001

  
2000

Weighted average discount rates
  
6.3% to 7.5%
  
6.5% to 7.8%
  
6.1% to 7.8%
Rates of compensation increases
  
3.5% to 4.3%
  
4.0% to 4.5%
  
4.0% to 4.5%
Expected rates of return on plan assets
  
8.0% to 9.5%
  
8.0% to 9.5%
  
7.3% to 9.5%
 
In connection with the acquisition of the Stork group of companies (see Note 4, above), the Company is obligated to form a pension plan and an early-retirement plan (“VUT”) for substantially all of its employees located in the Netherlands. These plans will replace existing programs sponsored by Stork N.V. When the replacement plans are formed, the Company will negotiate with both Stork N.V. and the trustees of the existing multi-employer plans to set a value of the assets to be transferred into the replacement plans. Although the Company has not finalized the design of the replacement pension and VUT plans and thus has not commenced negotiations of the value of the assets to be transferred into the replacement plans, the Company expects that the value of the assets to be transferred will be less than the value of the assumed benefit obligations. Included in “Other Deferred Liabilities” in the accompanying consolidated balance sheet at September 30, 2002 is approximately $35.0 million relating to the replacement pension and VUT plans.
 
Multiemployer Plans
 
In the United States, the Company contributes to various trusteed pension plans covering hourly construction employees under industry-wide agreements. In selected operations in the Netherlands and the U.K., the Company contributes to multi-employer plans covering both hourly and certain salaried employees. Contributions are based on the hours worked by employees covered under these agreements and are charged to direct costs of contracts on a current basis. Information from the plans’ administrators is not available to permit the Company to determine its share of unfunded benefits, if any. Company contributions to these plans totaled $12.1 million, $7.9 million and $5.7 million for each of the three years ended September 30, 2002, 2001 and 2000, respectively.
 
9.    Savings and Deferred Compensation Plans
 
Savings Plans
 
The Company maintains savings plans for substantially all of its domestic, nonunion employees, which allow participants to make contributions by salary deduction pursuant to section 401(k) of the Internal Revenue Code. The Company’s contributions to these plans totaled $21.8 million, $20.8 million and $19.6 million, for fiscal 2002, 2001 and 2000, respectively. Company contributions are voluntary for most of the savings plans, and represent a partial matching of employee contributions.
 
Deferred Compensation Plans
 
The Company’s Executive Security Plan (“ESP”) and Executive Deferral Plans (“EDP”) are nonqualified deferred compensation programs that provide benefits payable to directors, officers and certain key employees or their designated beneficiaries at specified future dates, upon retirement, or death. Benefit payments under both plans are funded by a combination of contributions from participants and the Company, and most of the participants are covered by life insurance policies with the Company designated as the beneficiary. Amounts charged to expense relating to these programs for each of the three years ended September 30, 2002, 2001 and 2000 were $2.8 million, $2.6 million and $5.7 million, respectively.

F-28


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
10.    Stock Purchase and Stock Option Plans
 
Broad-based, Employee Stock Purchase Plans
 
The Company sponsors two broad-based, employee stock purchase plans: the Jacobs Engineering Group Inc. 1989 Employee Stock Purchase Plan (the “1989 ESPP”) and the Jacobs Engineering Group Inc. Global Employee Stock Purchase Plan (the “GESPP”). Both plans provide for the granting of options to participating employees to purchase shares of the Company’s common stock. The purchase price for the stock varies by plan. Under the 1989 ESPP, the purchase price is generally the lower of (i) 90% of the common stock’s closing market price on the first day of the option period, or (ii) 90% of the common stock’s closing market price on the last day of the option period. Under the GESPP, the purchase price varies by sub-plan (there being one sub-plan for each foreign country where a participating subsidiary is domiciled), but may not be less than the lower of (i) 90% of the common stock’s closing market price on the first day of the option period, or (ii) 90% of the common stock’s closing market price on the last day of the option period. Under both the 1989 ESPP and GESPP, option periods are six months in duration, running from September 1 to February 28 or 29, and from March 1 to August 31.
 
A summary of shares issued under the 1989 ESPP and the GESPP during each year ended September 30 follows:
 
    
2002

  
2001

  
2000

Aggregate Purchase Price Paid for Shares Sold:
                    
Under the 1989 ESPP
  
$
17,571,800
  
$
13,538,734
  
$
12,685,179
Under the GESPP
  
 
592,531
  
 
—  
  
 
—  
    

  

  

Total
  
$
18,164,331
  
$
13,538,734
  
$
12,685,179
    

  

  

Aggregate Number of Shares Sold:
                    
Under the 1989 ESPP
  
 
628,669
  
 
654,404
  
 
998,064
Under the GESPP
  
 
20,173
  
 
—  
  
 
—  
    

  

  

Total
  
 
648,842
  
 
654,404
  
 
998,064
    

  

  

 
Both the 1989 ESPP and the GESPP have been approved by the Company’s stockholders. At September 30, 2002, there were 2,734,617 shares reserved for issuance under the 1989 ESPP, and there were 579,827 shares reserved for issuance under the GESPP.
 
Stock Option Plans
 
In February 2000, the Company’s stockholders approved the 1999 Stock Incentive Plan and the 1999 Outside Director Stock Plan (the “1999 Plans”). The 1999 Plans replaced the Company’s 1981 Executive Incentive Plan (the “1981 Plan”), which would have expired on March 1, 2001. Effective February 14, 2000, the Company’s Board of Directors resolved that no further incentive awards would be made under the 1981 Plan.
 
The 1999 Stock Incentive Plan authorizes the issuance of incentive stock options, nonqualified stock options and restricted stock to employees to acquire up to an aggregate of 4,000,000 shares of the Company’s common stock. The total number of shares of restricted stock that can be awarded under the 1999 Stock Incentive Plan is limited to 10% (or 400,000 shares) of the total number of shares authorized, and any forfeited shares of restricted stock awarded is available again for issuance as restricted stock.

F-29


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
The 1999 Outside Director Stock Plan reserves 400,000 shares of the Company’s common stock for grants of nonqualified stock options and awards of stock and restricted stock to nonemployee directors.
 
At September 30, 2002, there were 4,074,851 shares of common stock reserved for issuance under the 1999 Plans (3,693,851 shares of common stock reserved for issuance under the 1999 Stock Incentive Plan, and 381,000 shares of common stock reserved for issuance under the 1999 Outside Director Stock Plan).
 
The following is a summary of the stock option activity under the 1981 Plan and the 1999 Plans (collectively, the “Stock Option Plans”) for each year ended September 30:
 
    
Number
of
Options

    
Weighted
Average
Exercise
Price

Outstanding at September 30, 1999
  
5,000,462
 
  
$
13.67
Granted
  
1,120,500
 
  
$
16.51
Exercised
  
(802,562
)
  
$
12.18
Cancelled or expired
  
(231,200
)
  
$
14.44
    

      
Outstanding at September 30, 2000
  
5,087,200
 
  
$
14.50
Granted
  
1,344,000
 
  
$
29.84
Exercised
  
(1,216,336
)
  
$
12.17
Cancelled or expired
  
(213,750
)
  
$
16.04
    

      
Outstanding at September 30, 2001
  
5,001,114
 
  
$
19.10
Granted
  
842,000
 
  
$
36.50
Exercised
  
(846,503
)
  
$
14.49
Cancelled or expired
  
(56,900
)
  
$
16.84
    

      
Outstanding at September 30, 2002
  
4,939,711
 
  
$
22.88
    

      
 
Options outstanding at September 30, 2002 consisted entirely of nonqualified stock options. Included in the number of options outstanding at September 30, 2002 are options to purchase 1,943,110 shares of common stock granted under the defunct 1981 Plan.
 
Certain other information regarding the Company’s stock options follows:
 
    
2002

  
2001

  
2000

At September 30:
              
Range of exercise prices for options outstanding
  
$9.79–$39.19
  
$9.56–$32.88
  
$8.66–$19.66
Number of options exercisable
  
2,049,661
  
1,749,238
  
2,001,600
Number of options available for future grants
  
1,078,250
  
1,931,750
  
3,331,500
For the fiscal year ended September 30:
              
Range of prices relating to options exercised
  
$9.57–$32.88
  
$8.66–$18.68
  
$8.29–$15.46
Estimated weighted average fair values of options granted
  
$17.18
  
$15.21
  
$7.68

F-30


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
The following table presents information regarding options outstanding, and options exercisable at September 30, 2002:
 
    
Options Outstanding

  
Options Exercisable

Range of Exercise Prices

  
Number

    
Weighted
Average
Remaining
Contractual
Life
(years)

  
Weighted
Average
Price

  
Number

  
Weighted
Average
Exercise
Price

$9.79–$11.35
  
199,510
    
4.2
  
$
10.48
  
187,110
  
$
10.46
$11.85–$15.52
  
959,900
    
5.3
  
$
13.71
  
724,700
  
$
13.51
$15.78–$19.13
  
1,725,241
    
7.0
  
$
17.19
  
842,791
  
$
17.12
$19.66–$23.30
  
126,560
    
8.3
  
$
22.60
  
28,310
  
$
22.39
$25.44–$27.21
  
24,000
    
9.1
  
$
26.81
  
3,000
  
$
26.73
$27.52–$31.27
  
319,000
    
8.7
  
$
28.06
  
52,750
  
$
27.73
$31.40–$34.78
  
1,003,500
    
8.9
  
$
32.74
  
211,000
  
$
32.88
$38.16–$39.19
  
582,000
    
9.6
  
$
39.18
  
—  
  
$
—  
    
    
  

  
  

    
4,939,711
    
7.4
  
$
22.88
  
2,049,661
  
$
17.22
    
    
  

  
  

 
The Stock Option Plans allow participants to satisfy the exercise price by tendering shares of the Company’s common stock that have been owned by the participants for at least six months. Shares so tendered are retired and canceled by the Company and are shown as repurchases of common stock in the accompanying consolidated statements of stockholders’ equity.
 
During the years ended September 30, 2002, 2001 and 2000, the Company issued 27,000, 96,000 and 10,000 shares, respectively, of restricted stock under the Stock Option Plans. The restrictions generally relate to the recipient’s ability to sell or otherwise transfer the stock. There are also restrictions that subject the stock to forfeiture back to the Company until earned by the recipient through continued employment or service.
 
Pro Forma Disclosures
 
As discussed in Note 1, the Company accounts for stock issued to employees and outside directors in accordance with APB 25. Statement of Financial Accounting Standards No. 123—Accounting for Stock-Based Compensation (“SFAS 123”) prescribes an optional, fair-value based method of accounting for stock issued to employees and others. Had the Company determined compensation cost under SFAS 123, the Company’s net earnings and earnings per share for each year ended September 30 would have been reduced to the pro forma amounts as follows (in thousands, except per share data):
 
    
2002

  
2001

  
2000

Net earnings:
                    
As reported
  
$
109,690
  
$
87,760
  
$
50,981
Pro forma
  
$
97,475
  
$
75,876
  
$
42,355
Earnings per share:
                    
Basic:
                    
As reported
  
$
2.03
  
$
1.65
  
$
0.97
Pro forma
  
$
1.80
  
$
1.43
  
$
0.81
Diluted:
                    
As reported
  
$
1.98
  
$
1.61
  
$
0.96
Pro forma
  
$
1.76
  
$
1.39
  
$
0.80

F-31


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
 
    
2002

    
2001

    
2000

 
Dividend yield
  
0
%
  
0
%
  
0
%
Expected volatility
  
37.46
%
  
39.72
%
  
27.62
%
Risk-free interest rates
  
4.67
%
  
4.29
%
  
6.70
%
Expected life of options (in years)
  
6.26
 
  
6.63
 
  
6.85
 
 
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. Like all option-pricing models, the Black-Scholes model requires the use of highly subjective assumptions including the expected volatility of the underlying stock price. Since the Company’s stock options possess characteristics significantly different from those of traded options, changes in the subjective input assumptions can materially affect the fair value estimates of the Company’s options. The Company believes that existing models do not necessarily provide a reliable single measure of the fair value of its stock options.
 
The effects of applying SFAS 123 for these pro forma disclosures are not likely to be representative of the effects on reported earnings for future years as options vest over several years and additional awards are generally made each year.
 
11.    Income Taxes
 
The following is a summary of the Company’s consolidated income tax expense for each year ended September 30 (in thousands):
 
    
2002

  
2001

    
2000

 
Current taxes:
                        
Federal
  
$
33,669
  
$
31,882
 
  
$
14,980
 
State
  
 
7,810
  
 
6,570
 
  
 
4,707
 
Foreign
  
 
10,089
  
 
5,519
 
  
 
4,810
 
    

  


  


Total current tax expense
  
 
51,568
  
 
43,971
 
  
 
24,497
 
    

  


  


Deferred taxes:
                        
Federal
  
 
7,452
  
 
6,707
 
  
 
6,948
 
State
  
 
44
  
 
(232
)
  
 
(1,104
)
    

  


  


Total deferred tax expense
  
 
7,496
  
 
6,475
 
  
 
5,844
 
    

  


  


Consolidated income tax expense
  
$
59,064
  
$
50,446
 
  
$
30,341
 
    

  


  


 

F-32


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred taxes reflect the tax effects of differences between the amounts recorded as assets and liabilities for financial reporting purposes and the amounts recorded for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The components of the Company’s net deferred tax asset at September 30, 2002 and 2001 were as follows (in thousands):
 
    
2002

    
2001

 
Deferred tax assets:
                 
Liabilities relating to employee benefit plans
  
$
45,810
 
  
$
41,420
 
Contract revenues and costs
  
 
20,304
 
  
 
26,483
 
Defined benefit pension plans
  
 
16,677
 
  
 
—  
 
Liabilities relating to self-insurance programs
  
 
16,161
 
  
 
16,798
 
Settlement of pension obligations
  
 
7,330
 
  
 
7,649
 
Foreign deferred taxes
  
 
6,274
 
  
 
—  
 
Accrual for office consolidations
  
 
—  
 
  
 
682
 
    


  


Gross deferred tax assets
  
 
112,556
 
  
 
93,032
 
    


  


Deferred tax liabilities:
                 
Depreciation and amortization
  
 
(11,292
)
  
 
(5,680
)
Unremitted foreign earnings
  
 
(4,366
)
  
 
(5,521
)
State income and franchise taxes
  
 
(1,986
)
  
 
(2,251
)
Unrealized gains on available-for-sale securities
  
 
(1,130
)
  
 
(2,198
)
Foreign deferred taxes
  
 
—  
 
  
 
(1,545
)
Other, net
  
 
(36
)
  
 
(1,221
)
    


  


Gross deferred tax liabilities
  
 
(18,810
)
  
 
(18,416
)
    


  


Net deferred tax assets
  
$
93,746
 
  
$
74,616
 
    


  


 
Included in the change in “Income taxes payable” in the accompanying consolidated statements of cash flows for fiscal 2002, 2001 and 2000 are income tax benefits of $6.1 million, $7.3 million and $1.4 million, respectively, realized by the Company upon the exercises of nonqualified stock options.
 
The reconciliation from the statutory federal income tax expense to the consolidated effective income tax expense for each year ended September 30 follows (dollars in thousands):
 
    
2002

    
2001

    
2000

 
Statutory amount
  
$
59,064
 
  
$
48,372
 
  
$
28,463
 
State taxes, net of the federal benefit
  
 
5,105
 
  
 
4,119
 
  
 
2,341
 
Other, net
  
 
(5,105
)
  
 
(2,045
)
  
 
(463
)
    


  


  


    
$
59,064
 
  
$
50,446
 
  
$
30,341
 
    


  


  


Rates used to compute statutory amount
  
 
35.0
%
  
 
35.0
%
  
 
35.0
%
    


  


  


Consolidated effective income tax rates
  
 
35.0
%
  
 
36.5
%
  
 
37.3
%
    


  


  


F-33


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
During fiscal 2002, 2001 and 2000, the Company paid approximately $41.1 million, $29.6 million and $19.5 million, respectively, in income taxes.
 
Consolidated earnings before taxes consisted of the following for each year ended September 30 (in thousands):
 
    
2002

  
2001

  
2000

United States earnings
  
$
130,927
  
$
103,419
  
$
64,125
Foreign earnings
  
 
37,827
  
 
34,787
  
 
17,197
    

  

  

    
$
168,754
  
$
138,206
  
$
81,322
    

  

  

 
United States income taxes, net of applicable credits, have been provided on the undistributed earnings of foreign subsidiaries, except in those instances where the earnings are expected to be permanently reinvested. At September 30, 2002, $7.8 million of such undistributed earnings was expected to be permanently reinvested. Should these earnings be repatriated, approximately $2.1 million of income taxes would be payable.
 
12.    Commitments and Contingencies
 
 
The Company leases certain of its facilities and equipment under operating leases with net aggregate future lease payments of approximately $268.4 million at September 30, 2002 payable as follows (in thousands):
 
Year ending September 30,
        
2003
  
$
56,975
 
2004
  
 
50,583
 
2005
  
 
43,261
 
2006
  
 
36,998
 
2007
  
 
31,121
 
Thereafter
  
 
89,769
 
    


    
 
308,707
 
Amounts representing sublease income
  
 
(40,275
)
    


    
$
268,432
 
    


 
Rent expense for fiscal years 2002, 2001 and 2000 amounted to $65.2 million, $57.5 million and $54.8 million, respectively, and was offset by sublease income of approximately $3.4 million, $3.9 million and $3.6 million, respectively.
 
Included in the lease payout table above are the amounts due under the Company's lease agreement for its offices in Houston, Texas. This agreement constitutes a “synthetic lease” whereby an unrelated entity owns the real property that is the subject of the lease. Under accounting principles generally accepted in the United States, the Houston lease is properly accounted for as an operating lease relating to real property with a depreciated value to the owner of approximately $45.4 million at September 30, 2002 (and associated debt of approximately $49.0 million). The lease agreement gives the Company the option to purchase the property at the end of the lease term in 2011 for $49.0 million. Under the terms of the lease agreement, the Company may request an extension to the lease term, or it may assist the owner in selling the property to a third party. The proceeds from any third-party sale would be used to reduce the Company's end-of-term return payment obligation of $35.3 million.

F-34


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
Letters of credit outstanding at September 30, 2002 totaled $69.1 million.
 
The Company maintains insurance coverage for various aspects of its business and operations. The Company has elected, however, to retain a portion of losses that occur through the use of various deductibles, limits and retentions under its insurance programs. This situation may subject the Company to some future liability for which it is only partially insured, or completely uninsured. The Company intends to mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms and conditions of its contracts.
 
In the normal course of business, the Company is subject to certain contractual guarantees and litigation. Generally, such guarantees relate to project schedules and plant performance. Most of the litigation involves the Company as a defendant in workers’ compensation, personal injury and other similar lawsuits. In addition, as a contractor for many agencies of the United States Government, the Company is subject to many levels of audits, investigations and claims by, or on behalf of, the Government with respect to its contract performance, pricing, costs, cost allocations and procurement practices. Management believes, after consultation with counsel, that such guarantees, litigation, and United States Government contract-related audits, investigations and claims should not have any material adverse effect on the Company’s consolidated financial statements.
 
Included in “Other Expense” in the accompanying consolidated statement of earnings for fiscal 2000 is a $38.0 million charge relating to a negotiated settlement of a lawsuit between the Company and the U.S. federal government, which was originally filed against the Company by a former employee under the False Claims Act. The subject of the lawsuit was the accounting treatment of the occupancy costs associated with the Company’s former headquarters building, which the Company sold and leased back in 1982, and then permanently vacated in 1997. The charge, which has no continuing impact on the Company’s operating results, consisted of the settlement amount of $35.0 million (which was paid in March 2000) and $3.0 million of related costs and expenses.
 
13.    Common and Preferred Stock
 
The Company is authorized to issue two classes of capital stock: common stock and preferred stock (each has a par value of $1.00 per share). The preferred stock may be issued in one or more series. The number of shares to be included in a series, as well as each series’ designation, relative powers, dividend and other preferences, rights and qualifications, redemption provisions and restrictions are to be fixed by the Company’s Board of Directors at the time each series is issued. Except as may be provided by the Board of Directors in a preferred stock designation, or otherwise provided for by statute, the holders of the Company’s common stock have the exclusive right to vote for the election of Directors and all other matters requiring stockholder action. The holders of the Company’s common stock are entitled to dividends if and when declared by the Board of Directors from whatever assets are legally available for that purpose.
 
Pursuant to the Company’s Amended and Restated Rights Agreement dated December 20, 2000, each outstanding share of common stock has attached to it one stock purchase right (a “Right”). Each Right entitles the common stockholder to purchase, in certain circumstances generally relating to a change in control of the Company, one one-hundredth of a share of the Company’s Series A Junior Participating Cumulative Preferred Stock, par value $1.00 per share (the “Series A Preferred Stock”) at the exercise price of $87.50 per share, subject to adjustment. Alternatively, the Right holder may purchase common stock of the Company having a market value equal to two times the exercise price,

F-35


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

or may purchase shares of common stock of the acquiring corporation having a market value equal to two times the exercise price.
 
The Series A Preferred Stock confers to its holders rights as to dividends, voting and liquidation which are in preference to common stockholders. The Rights are nonvoting, are not presently exercisable and currently trade in tandem with the common shares. In accordance with the Rights Plan, the Company may redeem the Rights at $0.01 per Right. The Rights will expire on December 20, 2010, unless earlier exchanged or redeemed.
 
14.    Other Financial Information
 
Other noncurrent assets consisted of the following at September 30, 2002 and 2001 (in thousands):
 
    
2002

  
2001

Cash surrender value of life insurance policies
  
$
44,083
  
$
42,800
Deferred tax asset
  
 
43,195
  
 
18,054
Investments
  
 
27,691
  
 
31,801
Prepaid pension costs
  
 
15,993
  
 
16,377
Notes receivable
  
 
10,483
  
 
9,764
Reimbursable pension costs
  
 
9,928
  
 
11,388
Miscellaneous
  
 
6,850
  
 
13,054
    

  

    
$
158,223
  
$
143,238
    

  

 
Accrued liabilities consisted of the following at September 30, 2002 and 2001 (in thousands):
 
    
2002

  
2001

Accrued payroll and related liabilities
  
$
181,016
  
$
150,978
Insurance liabilities
  
 
42,761
  
 
41,439
Project related accruals
  
 
40,460
  
 
28,922
Other
  
 
58,381
  
 
74,424
    

  

    
$
322,618
  
$
295,763
    

  

 
Other deferred liabilities consisted of the following at September 30, 2002 and 2001 (in thousands):
 
    
2002

  
2001

Liabilities relating to defined benefit pension and early retirement plans
  
$
88,689
  
$
41,120
Liabilities relating to nonqualified deferred compensation arrangements
  
 
36,346
  
 
37,089
Deferred income taxes
  
 
16,058
  
 
8,090
Other
  
 
11,247
  
 
8,875
    

  

    
$
152,340
  
$
95,174
    

  

 
15.    Comprehensive Income
 
The Company has disclosed the components of comprehensive income in the accompanying consolidated statements of comprehensive income and consolidated statements of changes in stockholders’ equity.
 

F-36


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The accumulated balances related to each component of other comprehensive income (loss), net of related income tax, for each year ended September 30 follows (in thousands):
 
    
Unrealized
Gains on
Securities

    
Foreign
Currency
Translation
Adjustments

    
Minimum
Pension
Liability
Adjustment

      
Total
Accumulated
Other
Comprehensive
Loss

 
Balances at September 30, 1999
  
$
2,152
 
  
$
(5,747
)
  
$
—  
 
    
$
(3,595
)
Changes during the year
  
 
1,316
 
  
 
(8,236
)
  
 
—  
 
    
 
(6,920
)
    


  


  


    


Balances at September 30, 2000
  
 
3,468
 
  
 
(13,983
)
  
 
—  
 
    
 
(10,515
)
Changes during the year
  
 
219
 
  
 
(324
)
  
 
—  
 
    
 
(105
)
    


  


  


    


Balances at September 30, 2001
  
 
3,687
 
  
 
(14,307
)
  
 
—  
 
    
 
(10,620
)
Changes during the year
  
 
(1,783
)
  
 
1,048
 
  
 
(31,227
)
    
 
(31,962
)
    


  


  


    


Balances at September 30, 2002
  
$
1,904
 
  
$
(13,259
)
  
$
(31,227
)
    
$
(42,582
)
    


  


  


    


 
16.    Segment Information
 
As discussed above, the Company’s principal business is to provide a broad range of technical, professional, and construction services. The Company provides its services primarily from offices located throughout the United States and Europe. With the acquisition of the Delta companies in fiscal 2002, the Company expanded its North American operations to include Canada. The Company also has offices located in selected regions of Asia, Mexico and Australia.
 
All of the Company’s operations share similar economic characteristics. For example, all of the Company’s operations are highly influenced by the general availability of qualified engineers and other technical, professional staff. They also provide similar services, as well as share similar processes for delivering the Company’s services. In addition, the use of technology is highly similar and consistent throughout the Company’s organization, as is the Company’s client base (with the exception of the Company’s operations outside the United States which perform very little work for the U.S. federal government), and the Company’s quality assurance and safety programs. Accordingly, based on these similarities, the Company has concluded that its operations may be aggregated into one reportable segment for purposes of this disclosure.
 

F-37


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents certain information by geographic area for fiscal 2002, 2001 and 2000 (in thousands):
 
    
2002

  
2001

  
2000

Revenues (for the fiscal years ended September 30):
                    
United States
  
$
3,040,373
  
$
3,075,969
  
$
2,858,197
Europe
  
 
892,050
  
 
825,456
  
 
532,887
Canada
  
 
564,144
  
 
—  
  
 
—  
Asia
  
 
34,965
  
 
44,345
  
 
22,448
Other
  
 
24,129
  
 
11,223
  
 
5,410
    

  

  

Total
  
$
4,555,661
  
$
3,956,993
  
$
3,418,942
    

  

  

Long-Lived Assets (at September 30):
                    
United States
  
$
114,319
  
$
116,196
  
$
120,396
Europe
  
 
21,917
  
 
22,332
  
 
17,486
Canada
  
 
2,069
  
 
—  
  
 
—  
Asia
  
 
11,242
  
 
11,322
  
 
12,609
Other
  
 
358
  
 
129
  
 
—  
    

  

  

Total
  
$
149,905
  
$
149,979
  
$
150,491
    

  

  

 
Revenues were earned from unaffiliated clients located primarily within the respective geographic areas. Long-lived assets consist of property and equipment, net of accumulated depreciation and amortization. “Other” consists primarily of the Company’s operations in Australia and the Middle East.
 
For each of the three years ended September 30, 2002, 2001 and 2000, projects with or for the benefit of agencies of the U.S. federal government accounted for 21.5%, 19.0% and 20.0%, respectively, of total revenues.
 

F-38


JACOBS ENGINEERING GROUP INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

17.    Quarterly Data—Unaudited
 
Summarized quarterly financial information for each year ended September 30 is presented below (in thousands, except per share amounts):
 
    
First
Quarter

    
Second
Quarter

  
Third
Quarter

  
Fourth
Quarter

  
Fiscal
Year

2002
                                    
Revenues
  
$
1,028,186
 
  
$
1,146,611
  
$
1,169,122
  
$
1,211,742
  
$
4,555,661
Operating profit
  
 
41,002
 
  
 
42,360
  
 
43,548
  
 
45,460
  
 
172,370
Earnings before taxes
  
 
39,801
 
  
 
41,353
  
 
42,955
  
 
44,645
  
 
168,754
Net earnings
  
 
25,870
 
  
 
26,880
  
 
27,920
  
 
29,020
  
 
109,690
Earnings per share:
                                    
Basic
  
 
0.48
 
  
 
0.50
  
 
0.51
  
 
0.53
  
 
2.03
Diluted
  
 
0.47
 
  
 
0.49
  
 
0.50
  
 
0.52
  
 
1.98
Stock price:
                                    
High
  
 
37.85
 
  
 
36.50
  
 
42.90
  
 
36.70
  
 
42.90
Low
  
 
29.65
 
  
 
29.06
  
 
33.40
  
 
28.20
  
 
28.20
2001
                                    
Revenues
  
$
929,182
 
  
$
1,009,869
  
$
1,041,417
  
$
976,525
  
$
3,956,993
Operating profit
  
 
33,187
 
  
 
35,127
  
 
36,770
  
 
38,768
  
 
143,852
Earnings before taxes
  
 
31,654
 
  
 
33,953
  
 
35,464
  
 
37,135
  
 
138,206
Net earnings
  
 
20,100
 
  
 
21,560
  
 
22,520
  
 
23,580
  
 
87,760
Earnings per share:
                                    
Basic
  
 
0.38
 
  
 
0.41
  
 
0.42
  
 
0.44
  
 
1.65
Diluted
  
 
0.37
 
  
 
0.40
  
 
0.41
  
 
0.43
  
 
1.61
Stock price:
                                    
High
  
 
24.59
 
  
 
29.50
  
 
37.84
  
 
35.29
  
 
37.84
Low
  
 
18.98
 
  
 
21.12
  
 
28.20
  
 
25.35
  
 
18.98
2000
                                    
Revenues
  
$
809,088
 
  
$
881,799
  
$
857,828
  
$
870,227
  
$
3,418,942
Operating profit
  
 
30,028
 
  
 
30,208
  
 
31,709
  
 
32,668
  
 
124,613
(Loss) earnings before taxes
  
 
(9,232
)
  
 
28,962
  
 
30,560
  
 
31,032
  
 
81,322
Net (loss) earnings
  
 
(5,769
)
  
 
18,100
  
 
19,100
  
 
19,550
  
 
50,981
(Loss) earnings per share:
                                    
Basic
  
 
(0.11
)
  
 
0.35
  
 
0.36
  
 
0.37
  
 
0.97
Diluted
  
 
(0.11
)
  
 
0.34
  
 
0.36
  
 
0.37
  
 
0.96
Stock price:
                                    
High
  
 
17.88
 
  
 
16.56
  
 
18.41
  
 
20.19
  
 
20.19
Low
  
 
14.62
 
  
 
13.09
  
 
14.69
  
 
16.44
  
 
13.09
 
The Company’s common stock is listed on the New York Stock Exchange. At September 30, 2002, there were 986 stockholders of record.

F-39


Report of Ernst & Young LLP
Independent Auditors
 
The Board of Directors and Stockholders
Jacobs Engineering Group Inc.
 
We have audited the accompanying consolidated balance sheets of Jacobs Engineering Group Inc. and subsidiaries as of September 30, 2002 and 2001, and the related consolidated statements of earnings, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jacobs Engineering Group Inc. and subsidiaries at September 30, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States.
 
ERNST & YOUNG LLP
 
Los Angeles, California
October 30, 2002

F-40