Jacobs Engineering Group Inc. has a market cap of $4.5 billion; its shares were traded at around $35.98 with a P/E ratio of 13.6 and P/S ratio of 0.4. Jacobs Engineering Group Inc. had an annual average earning growth of 18.5% over the past 10 years. GuruFocus rated Jacobs Engineering Group Inc. the business predictability rank of 3.5-star.JEC is in the portfolios of Bruce Kovner of Caxton Associates, Chuck Royce of Royce& Associates, Arnold Van Den Berg of Century Management, Paul Tudor Jones of The Tudor Group, Kenneth Fisher of Fisher Asset Management, LLC, PRIMECAP Management, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc.
Highlight of Business Operations:During the third quarter of fiscal 2010, the Company received an unfavorable court judgment relating to a waste incineration project in France for the SIVOM de Mulhousienne (SIVOM). The SIVOM project was performed by a consortium of contractors that was led by one of Jacobs subsidiaries under a contract that was entered into in 1996, prior to the acquisition of that subsidiary by Jacobs. As a result of the judgment, the Company recorded a pre-tax charge to earnings of $93.3 million. Included in that amount is $25.9 million (representing the net write-off of a claim receivable). The balance of the charge reflects net cash payments the Company is obligated to make pursuant to the judgment. Net of the effects of the charge on the Companys long-term incentive bonus plan and income taxes, the effect on net earnings attributable to Jacobs was approximately $60.3 million, or 0.48 per diluted share. Please refer to Part II, Item 1Legal Proceedings of this Quarterly Report on Form 10-Q for additional details about this matter.
The $93.3 million pre-tax charge is reflected in the accompanying, unaudited Consolidated Statements of Earnings for the third quarter of fiscal 2010 as a $25.9 million reduction in revenues; an approximate $58.7 million increase in direct costs of contracts; and an $8.7 million increase to interest expense (which is net of certain interest the SIVOM has been ordered to pay to the Company). In addition, the SIVOM judgment resulted in a $6.4 million reduction to the Companys incentive bonus plan (the cost of which is included in selling, general, and administrative (SG&A) expenses).
In addition, and in response to the global recession, the Company ceased using one of its offices located in Houston, Texas, and entered into a sublease for the entire property (the Houston Sublease). This transaction occurred in the first quarter of fiscal 2010. Accordingly, included in net earnings for the nine months ended July 2, 2010 is a pre-tax charge of $11.4 million relating to this real estate transaction. Net of the effects on the Companys incentive bonus plan and income taxes, the Houston Sublease resulted in a net, after-tax charge of $5.8 million, or $0.04 per diluted share.
Excluding the effects of the SIVOM judgment, total revenues for the third quarter of fiscal 2010 decreased by $173.1 million, or 6.4%, to $2.5 billion compared to $2.7 billion for the third quarter of fiscal 2009. For the nine months ended July 2, 2010 and excluding the effects of the SIVOM judgment, total revenues decreased by $1.3 billion, or 14.8%, to $7.6 billion compared to $8.9 billion for the corresponding period last year.
Excluding the effects of the SIVOM judgment, direct costs of contracts for the three months ended July 2, 2010 decreased $158.0 million, or 6.8%, to $2.2 billion as compared to $2.3 billion for the corresponding period last year. For the nine months ended July 2, 2010 and excluding the effects of the SIVOM judgment, direct costs of contracts decreased $1.2 billion, or 15.2%, to $6.5 billion as compared to $7.7 billion for the corresponding period last year. The level of direct costs of contracts may fluctuate between reporting periods due to a variety of factors including the amount of pass-through costs we incur during a period. On those projects where we are responsible for subcontract labor or third-party materials and equipment, we reflect the amounts of such items in both revenues and costs (and we refer to such items as pass-through costs). On other projects, where the client elects to pay for such items directly and we have no associated responsibility for such items, these amounts are not considered pass-through costs and are, therefore, not reflected in either revenues or costs. To the extent that we incur a significant amount of pass-through costs in a period, our direct cost of contracts are likely to increase as well.
Excluding the effects of the SIVOM judgment, SG&A expenses for the three months ended July 2, 2010 increased $8.3 million, or 3.7%, to $233.5 million compared to $225.2 million for the three months ended July 3, 2009. For the nine months ended July 2, 2010 and excluding the effects of the SIVOM judgment and the Houston Sublease, SG&A expenses decreased by $13.2 million, or 1.8%, to $701.3 million compared to $714.5 million for the nine months ended July 3, 2009.
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