April 23, 1999

Jonathan G. Katz

Secretary

Securities and Exchange Commission

450 Fifth Street, N.W. Stop 6-9

Washington D.C. 20549

 

Re: File No. S7-30-98

        The "Aircraft Carrier" Release

Dear Mr. Katz:

On behalf of Jacobs Engineering Group Inc. ("Jacobs", or the "Company"), I am writing to express our comments and some concerns regarding certain aspects of the Commission’s Release No. 33-7606A; 34-40632A; and IC-23519A (together, the "Release"). In accordance with your instructions, we are sending you the original of this letter, plus three copies.

Our comments and concerns deal strictly with your proposed rule changes affecting the Securities Exchange Act of 1934 (the "Exchange Act"). Included in the section headings of our response is an indication of whether we agree or disagree with the proposed rule change.

We are very concerned that the Exchange Act proposals in the Release reflect an emphasis on speed of disclosure at the expense of accuracy of disclosure. We believe that a disclosure prepared under intense time pressure may contain inaccuracies or errors of emphasis that will result in more harm to the issuer’s shareholders and the trading market than a disclosure that was prepared carefully, balancing accuracy against the need for timely disclosure.

The Commission proposes to extend risk factor disclosures to Exchange Act reports (for Jacobs, this rule change would have its greatest impact on our quarterly reports on Form 10-Q and our annual reports on Form 10-K). In summary, we do not believe that risk factor disclosures should be required in quarterly reports on Form 10-Q and we are very doubtful of the utility of requiring such disclosure in the annual reports on Form 10-K of most companies.

To begin, we disagree with the rationale for proposing this change. The Commission notes that risk factor disclosures were first promulgated for Securities Act filings "because it assists investors in comprehending more fully whether the securities present an appropriate level of risk for them as an investment" (page 221 of the Release). We agree that such disclosures would be appropriate for Securities Act filings, we don’t agree that such disclosures are necessary for Exchange Act filings.

In Securities Act filings, companies are trying to raise capital. Accordingly, companies need to explain to potential investors in their Securities Act filings, among other things, (i) what they intend to do with the money they seek to raise, and (ii) what the risks are for the investor if they choose to invest in that particular company operating in that particular industry.

For a company that has been public for more than, say, five years (as is the case with Jacobs), its Exchange Act filings provide the necessary information and history about its operations that any reasonably prudent and intelligent investor ought to have in order to assess the investment risk of that company. We have always interpreted the spirit of the requirements for Items 101, 102, 103, 301, 303 and 305 of Regulation S-K to encourage meaningful discussion of the Company’s business, properties, legal proceedings, financial condition and results of operations in such a way that the investment risk is explained. Although no one section of our Form 10-K includes all risk factors, the Form 10-K in its entirety, along with the Company’s previous Form 10-K filings, provide a fair, accurate and sufficient picture of the Company’s operations and the inherent risk factors in our business.

Furthermore, since there are an unlimited number of factors that may, at any one time, constitute or contribute to the overall investment risk of a particular company, and because such factors may have varying life spans (one factor may be more temporary in nature – resolving itself over a short period of time - while another factor may be more chronic and longer-term in nature), and because the effect of any one factor on a company’s business outlook may itself be influenced by a variety of internal and external factors, a proper discussion of a company’s risk factors does not lend itself to frequent updating. Accordingly, we believe that this proposal, if adopted, would ultimately lead to the use of more "boiler-plate" type language in discussing and updating risk factors to encompass broader and less relevant issues.

We also believe that this proposed rule change may be contrary to the spirit of the Private Securities Litigation Reform Act of 1995. As the Commission is aware, one intent of the 1995 Reform Act was to encourage companies to provide a meaningful forward-looking discussion of their businesses, while protecting them from spurious litigation so long as companies provided meaningful cautionary statements. We believe this proposal, if adopted, may result in greater criticism of forward-looking statements and perhaps lead to increased litigation, using the argument that a company did not properly update its risk factor disclosures, or rank or weight the risks in a particular way.

Currently, the information required in Part I of Form 10-Q and Form 10-QSB falls outside the scope of liability under Section 18 of the Exchange Act. The proposed rule change, if adopted, would treat such information (the unaudited financial statements and MD&A) as "filed" for purposes of Section 18 liability.

We strongly disagree with this proposed rule change. Taken with the other proposed rule changes contained in the Release that would accelerate reporting and disclosures, which we believe will add substantially to the difficulties of compliance, the result of this proposed rule change will do little more than to increase the exposure of most companies to frivolous securities litigation.

The Release proposes that a company’s management prepare a report to its audit committee that would describe those procedures, if any, which have been established to ensure the accuracy and adequacy of Exchange Act reports. The Release proposes further that such a report would be filed as an exhibit to the company’s Form 10-K, and would be re-filed if and when there was a material change to the company’s procedures.

We oppose this proposal. We do not see such a report as enhancing a reader’s understanding of the information contained in an Exchange Act document. Furthermore, for such a report to accurately describe all of the material processes and procedures within a company that work to ensure the accuracy of the information contained in an Exchange Act filing, the report would have to be of such a length as to discourage its reading. Subsequent updates to such a report would be done by rote – because any substantive update would be too time consuming to prepare.

In the Release, the Commission notes that companies frequently use press releases to disseminate information about their activities. In addition, the Commission has observed that some companies host conference calls shortly after press releases have been issued in order to clarify the information contained in the press releases.

This situation has caused the Commission to conclude that there exists for most companies two distinct groups of shareholders: One group that has access to press releases, WEB sites and conference calls that companies may choose to host, and another group that relies solely on Exchange Act reports for its information about companies in which they invest. In order to close the "perceived" information gap between these two groups, the Commission proposes to change the Form 8-K rules to require companies to file with the Commission on a Form 8-K the information required by Item 301 of Regulation S-K on the earlier of (i) the date a company issues a press release containing earnings information, or (ii) the date that is 30 days after the end of each of a company’s first three fiscal quarters (or, the date that is 60 days after the end of a company’s fiscal year end).

We do not believe the changes proposed by the Commission requiring companies to file information required by Rule 301 of Regulation S-K are necessary or practicable. We believe that (1) not all of the information required by Rule 301 can always be available by the 30^th day following the end of our fiscal quarter; and (2) virtually all of our shareholders have equal and ready access to the financial information we release to the general public through press releases.

In the Release, the Commission notes that, "it appears that companies and their auditors have developed efficiencies over the years that allow them to generate basic financial data quickly" (page 227 of the Release). Although that observation may be true of some companies, in the case of Jacobs, we have expanded and grown our business so dramatically over the years that the efficiencies referred to by the Commission have, for the most part, allowed the Company simply to keep pace with the growth of our operations.

In 1970, Jacobs’ revenues were less than $20 million. Our operations were conducted primarily from three offices located within the United States. Accordingly, financial reporting and the compilation of basic financial information were, from a certain perspective, fairly simple. In contrast, Jacobs expects to report revenues in excess of $3 billion for fiscal 1999. We are executing projects throughout the world, and we maintain close to 100 offices located in the United States, mainland Europe, England, Ireland, Chile, India and Australia. All of our operations located outside the United States maintain their books and records in accordance with local accounting practices and standards. Some of these jurisdictions prescribe a uniform chart of accounts the local company must utilize. The accounting information from our international operations, therefore, must be translated first into U.S. GAAP, and then into U.S. dollars in order for it to be consolidated. Even with the technological improvements made over the years, it is a significant effort to accumulate, categorize, analyze and report even basic financial information.

When Jacobs releases its earnings each quarter, the information we release focuses almost entirely on our results of operations. This is the information we believe our shareholders have come to expect to see in our earnings releases each quarter. It is therefore the information around which we have developed our closing procedures. Rule 301, however, encompasses balance sheet information as well as income statement information. The consolidation of our balance sheets comes at a later point in our closing cycle. We therefore have a real concern that 30 days is insufficient time within which to report complete Rule 301 information to the Commission.

We agree that it is important to get information about our results of operations out to the investing community as quickly as they become available. We have found that our current practice of issuing press releases (we do not host conference calls, nor do we maintain an Internet site) is very effective in disseminating company information.

You noted in the Release that companies operate in a computerized world, where instantaneous communications and electronic data transmission ought to allow companies to report information more quickly than they currently do. However, a close corollary to this assertion is that the investing public have made similar strives to gain access to information. We believe our shareholders have very quick access to our earnings releases and other news items through the Internet and entities such as Yahoo!, Stockmaster, AP, Reuters and other similar free WEB sites. Our belief is not without basis. We talk to our shareholders – virtually every day – and we are of the opinion that our press releases are in fact reaching a very wide audience. And since our press releases (at least the ones that have been filed as exhibits to Form 8-K) usually appear on these free sites sometimes up to several days before they appear on EDGAR, we believe that these WEB sites are very efficient at disseminating information.

For those shareholders who prefer paper copies of our press releases, Jacobs maintains a list of people who have called the Company and made such a request. Shortly after a news item is released to the general public, we FAX the item to each person on the list. There are currently 119 recipients on our FAX-list (we have approximately 1,300 shareholders of record). More importantly, to the best of our knowledge, we have never received a complaint by a shareholder that he or she does not have access to the information Jacobs makes available to the public through our press releases. Nor are we aware of a shareholder who has complained that by the time our financial information appears in an Exchange Act filing, the shareholder knew portions of the filing (e.g., earnings data) had been released previously through news agencies. We simply don’t receive such complaints from our shareholders.

Like the Commission, we too believe our shareholders can be grouped into two categories. Unlike the Commission, however, those categories are not the "haves" and "have nots"; but rather, they are the "wants" and the "want nots". We make company information and earnings data available to our shareholders in the most efficient and cost-effective manner possible. A shareholder who will not and does not access the information we make available certainly is not going to retrieve the information from the SEC’s EDGAR archive, or visit an office of the SEC to obtain paper copies of our filings that contain the information.

The Commission is requesting comment on whether it should accelerate the due dates for filing Form 10-Q and Form 10-K. We read the Release to mean this proposal was being offered as an alternative to the Commission’s proposal to require domestic companies to file Rule 301 information on a Form 8-K within 30 days after the end of a company’s fiscal quarter, and within 60 days after the end of its fiscal year.

Although the due dates for filing Form 10-Q and Form 10-K have not changed for a number of years, we think it is incorrect for the Commission to conclude that, based on the improvements in computer technology and telecommunications, companies can make their Exchange Act filings sooner than is currently required without suffering undue burden.

In a static environment, the Commission’s conclusions would be more supportable. However, the business environment in which Jacobs operates has not remained static. As discussed above, Jacobs’ operations and business activities have grown significantly over the past 30 years. The engineering and construction business is somewhat unique in that the results of our operations for any period is merely the sum total of the results of operations of literally hundreds of separate and distinct projects, which are individually immaterial to the Company’s consolidated totals. These projects are being executed throughout the world, and require the delivery of a wide range of services to a wide range of commercial and government clients under contracts that contain a wide range of commercial terms and conditions. Accordingly, we believe the current due dates are fair and appropriate given the amount of effort management requires to analyze its results of operations. Any emphasis on the speed in which we make our Exchange Act filings may compromise the accuracy and reliability of such filings.

Another factor the Commission needs to consider is the exponential growth in disclosure requirements that has occurred over the past 30 years.

The very first annual report Jacobs filed as a public company in 1970 contained audited financial statements consisting all of three (3) pages. Today, due to enhanced disclosure requirements enacted by both the FASB and the Commission, the financial statement section of our most recent annual report comprises 32 pages.

The deluge in disclosure requirements conflicts with a company’s ability to accelerate its quarterly and annual reporting cycles. Currently, Jacobs is working to comply with the new disclosure requirements relating to segment reporting and employee benefit programs.

In principle, we agree with the concept of expanding the list of events that would require reporting on Form 8-K to include most of the events discussed in the Release. However, we disagree with the extent to which the Release proposes to accelerate the due dates for making Form 8-K filings.

First, the Release proposes varying time periods within which companies would be required to make their Form 8-K filings. Certain periods are expressed in terms of a particular number of "calendar days", while other periods are expressed in terms of a particular number of "business days". We believe that having more than one definition of "day" is inherently confusing, and that all time periods ought to be based on a uniform definition. We suggest that the Commission consider adopting a "business day" as the standard unit of measure for reporting an event on Form 8-K.

Second, we believe that the one-business-day due date proposed in the Release for certain events is entirely unrealistic. Since Jacobs is headquartered on the West Coast (and therefore three hours behind Washington D.C.), we would not have enough time to (1) draft a coherent Form 8-K; (2) review the document properly; (3) send the document to a financial printer for conversion into EDGAR format; and (4) distribute the document to our board members for their review (another requirement proposed in the Release), all within the time period proposed in the Release. A one-business-day due date is simply impossible to comply with.

If the Commission is steadfastly committed to changing the due dates of Form 8-K, we suggest it consider the following alternative due dates:

* This is a new reportable event under the Release.

The above alternative due dates are reasonable. These dates give a company sufficient time not only to report the event, but also to provide additional relevant information investors may want and appreciate having. For example, if auditors inform a client-company that they will not consent to the use of a prior audit report, five business days would allow the client-company to report not only the event (the auditors’ refusal) but also the reasons why the auditors refused to give their consent.

With respect to the proposal that the departure of a company’s CEO, COO or CFO be reported on a Form 8-K, we hope that the Commission reconsiders this requirement. Recognizing that most departures are for fairly benign reasons, we think the Commission could fashion a rule that focuses on reporting the removal of any of these officers by a company’s board of directors. Such action by a company’s board of directors would be a type of event more worthy of reporting on a Form 8-K, as opposed to a departure that was due, for example, to personal reasons, or a departure that was due to retirement.

Although the alternative due dates outlined above represent the maximum time allowed, we hope the Commission realizes that in many instances registrants are motivated to make the disclosure as soon as possible, and will endeavor to do so, in order to avoid the situation where important information leaks-out to the public, outside an official forum.

Lastly, please note that we intentionally omitted from the above table the proposal to file selected financial information on a Form 8-K within 30 and 60 days of a company’s quarter-end and fiscal year-end, respectively. As discussed on Page 3 of this letter, we oppose this proposed rule change in its entirety.

The Commission proposes several changes to the Exchange Act signature requirements. The proposed changes that would have the greatest effect on Jacobs’ reporting processes are: (i) the proposed change that would require our principal executive officers (plural), as well as a majority of our board of directors to sign the Form 10-Q; (ii) the proposed change that would require the Company’s signatory on any Form 8-K it files to certify that he or she had provided a copy of the Form 8-K to the members of the board of directors; and (iii) the change that would require all signatories of an Exchange Act filing to certify that they have read the document, and they know of no untrue statement of a material fact or omission of a material fact necessary in order to make the statements contained in the filing not misleading.

First, it is counter-intuitive to suggest, on the one hand, that the due date for filing a company’s Form 10-Q be accelerated, and then to suggest on the other hand that the Form 10-Q be distributed to a majority of board members for approval prior to its signing. If the signors of our Form 10-Q will be required to certify that they have read the document and know of no untrue or misleading statements contained therein, it would be incumbent upon the Company to allow our board members sufficient time to read the document and to make whatever inquiries of management they deem appropriate regarding the document. This process will require more time to complete and file a Form 10-Q - not less.

In addition to the time problems this proposed rule change would cause, there is the practical concern that "too many cooks" can spoil the filing. Our board of directors elects the officers of the Company to do, among other things, the job of making the Company’s Exchange Act filings. Our board of directors expects those officers charged with the responsibility of making the Company’s Exchange Act filings to diligently follow all of the applicable rules and regulations. The board of directors recognizes that this requires officers to exercise judgment in identifying disclosure issues and preparing the disclosure itself. We believe that by requiring a majority of board members to sign-off on a Form 10-Q and to make the attestation required in the Release, the Commission will be disturbing the traditional roles of boards of directors. For example, with twelve directors, whose opinion of materiality will the Company use to determine whether a particular matter is of such significance as to require disclosure and discussion in a Form 10-Q? Will such issues be decided by consensus opinion? The existing time constraints on filing a Form 10-Q – let alone the shortened time periods proposed in the Release - will make it impractical for Jacobs to prepare a Form 10-Q and have it properly reviewed prior to its filing. Further, the additional rule change that would require the signors of the Form 10-Q to give comfort over the accuracy of the document will lead to a very confusing and burdensome reporting process.

Lastly, we question the rationale behind this proposed change. In the Release, the Commission states that this proposed rule change, "is based on the Advisory Committee’s finding that the disclosures made in Exchange Act reports tend to be of a lesser quality than the disclosures made in Securities Act filings . . . [and] one way to improve Exchange Act disclosures would be to require senior management to review the Exchange Act reports filed on behalf of the company they manage" (page 240 of the Release).

Jacobs does not make many Securities Act filings, other than an occasional Form S-8. Nevertheless, we would disagree with the Commission’s assertion that disclosures in Securities Act filings tend to be better than those contained in Exchange Act filings. We believe the qualitative aspects of the disclosures contained in these two types of documents is relative, based entirely on their differing purposes. A Securities Act filing is intended to raise money – plain and simple. Underwriters and promoters typically get involved with Securities Act filings, which lead to the inevitable colored charts and multi-media style presentations that get included in the documents. This material is neither better nor worse than the information contained in Exchange Act filings; it is simply different. The information contained in most Securities Act filings has been tailored by the authors of the documents to meet the needs and expectations of the target audiences.

We believe our Exchange Act documents are adequately reviewed prior to their being filed. At Jacobs, we have a management structure that is organized into (i) Operating units, and (ii) Selling and Administrative units. Operating units generate revenues, costs and expenses. Selling and Administrative units (which include our sales groups, our marketing groups, and our accounting, legal, information services and risk management departments) generally generate only costs and expenses. Operating units are headed-up by Group Vice Presidents and, due to the complexity and diversity of their operations, report to one of three Executive Vice Presidents. The Executive Vice Presidents report to the CEO. Selling and Administrative units are headed-up by Senior Vice Presidents who report directly to the CEO.

Currently, our Form 10-Q’s are reviewed by the CEO, two (of three) Executive Vice Presidents, and two (of five) Senior Vice Presidents before they are filed. This process is in addition to selected individuals outside the Company who also review our Form 10-Q’s. Again, we believe our Form 10-Qs are adequately reviewed prior to their filing. We do not believe that having more executive officers and board members sign our Form 10-Q will necessarily improve the disclosures contained therein. It will simply prolong the review process, potentially delaying the prompt filing of the document.

The above discussion reflects our comments and concerns regarding the Commission’s proposed changes to the rules and regulations governing Exchange Act filings.

We understand that, every generation or so, the Commission re-examines the securities laws to update the offering process. We also understand that this was in fact the genesis of the Release – to address developments and to anticipate trends that can affect the capital formation process. We believe many of the proposed changes that make it easier for companies to register securities offerings are valuable and workable. However, the rule changes proposed in the Release should have been limited to the Securities Act.

By and large, the changes proposed in the Release affecting Exchange Act disclosures and processes are unnecessary and will be too burdensome to implement for most companies. In particular, we disagree strongly with those changes to the Exchange Act that were proposed because of a misconceived notion that shareholders do not have adequate and timely access to the information we make public, or because of a notion that there are groups of shareholders who receive preferential access to information.

Lastly, as of the date of this letter, we have reviewed and agree with the comments made by Covington & Burling in their comment letter dated March 16, 1999 filed on behalf of the Association of Publicly Traded Companies and the National Venture Capital Association.

Sincerely yours,

John W. Prosser, Jr.

Senior Vice President

Finance and Administration