<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 1-6627
<TABLE>
<CAPTION>
MICHAEL BAKER CORPORATION
-------------------------
(Exact name of registrant as specified in its charter)
<S> <C>
PENNSYLVANIA 25-0927646
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Airport Office Park, Building 3, 420 Rouser Road, Coraopolis, PA 15108
- ---------------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(412) 269-6300
--------------
(Registrant's telephone number,
including area code)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
As of September 30, 1996:
-------------------------
<S> <C>
Common Stock 7,050,320 shares
Series B Common Stock 1,349,971 shares
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 1
MICHAEL BAKER CORPORATION
-------------------------
PART I. FINANCIAL INFORMATION
- ------- ---------------------
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Although certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, the Company believes that
the disclosures are adequate to make the information presented not misleading.
The statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the periods
presented. Certain 1995 financial statement amounts have been reclassified to
conform with 1996 classifications. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest annual
report and Form 10-K.
<PAGE>
FORM 10-Q
PART I
PAGE 2
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
=============================================================================
<CAPTION>
For the three months ended
------------------------------------
Sept. 30, 1996 Sept. 30, 1995
- -----------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Total contract revenues $114,710 $90,620
Cost of work performed 102,340 80,215
- -----------------------------------------------------------------------------
Gross profit 12,370 10,405
General and administrative expenses 10,121 8,316
- -----------------------------------------------------------------------------
Income from operations 2,249 2,089
Other income/(expense):
Interest expense (15) (57)
Interest income 65 32
Other, net 34 (15)
- -----------------------------------------------------------------------------
Income before income taxes 2,333 2,049
Provision for income taxes 1,073 1,020
- -----------------------------------------------------------------------------
Net income $1,260 $1,029
=============================================================================
Net income per share $0.15 $0.12
=============================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 3
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
=============================================================================
<CAPTION>
For the nine months ended
- -----------------------------------------------------------------------------
Sept. 30, 1996 Sept. 30, 1995
- -----------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Total contract revenues $301,725 $266,110
Cost of work performed 266,735 234,403
- -----------------------------------------------------------------------------
Gross profit 34,990 31,707
General and administrative expenses 29,748 26,825
- -----------------------------------------------------------------------------
Income from operations 5,242 4,882
Other income/(expense):
Interest expense (61) (316)
Interest income 281 81
Other, net 212 84
- -----------------------------------------------------------------------------
Income before income taxes 5,674 4,731
Provision for income taxes 2,610 2,355
- -----------------------------------------------------------------------------
Net income $3,064 $2,376
=============================================================================
Net income per share $0.36 $0.28
=============================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 4
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
=============================================================================
<CAPTION>
ASSETS Sept. 30, 1996 Dec. 31, 1995
- -----------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Current Assets
Cash $7,547 $14,303
Trade receivables 70,870 53,708
Cost of contracts in progress, plus
estimated earnings recorded,
less billings thereon 22,319 19,104
Prepaid expenses and other 6,886 7,816
- -----------------------------------------------------------------------------
Total current assets 107,622 94,931
- -----------------------------------------------------------------------------
Property, Plant and Equipment, net 12,631 12,558
Other Assets
Goodwill, net of accumulated amortization
of $1,916,000 and $1,649,000 at
September 30, 1996 and December 31, 1995,
respectively 5,386 4,667
Other intangible assets, net of accumulated
amortization of $2,031,000 and $1,625,000
at September 30, 1996 and December 31, 1995,
respectively 2,071 2,467
Other assets 3,253 2,753
- -----------------------------------------------------------------------------
Total other assets 10,710 9,887
- -----------------------------------------------------------------------------
Total assets $130,963 $117,376
=============================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 5
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
=============================================================================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT Sept. 30, 1996 Dec. 31, 1995
- -----------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Current Liabilities
Notes payable $1,526 $1,204
Accounts payable 34,459 30,879
Accrued employee compensation 6,338 5,703
Accrued insurance 6,775 6,204
Other accrued expenses 15,896 15,261
Excess of billings on contracts in progress
over cost and estimated earnings recorded
thereon 15,095 10,494
- -----------------------------------------------------------------------------
Total current liabilities 80,089 69,745
- -----------------------------------------------------------------------------
Shareholders' Investment
Common Stock, par value $1, authorized
44,000,000 shares, issued 7,050,000 and
7,012,000 shares at September 30, 1996
and December 31, 1995, respectively 7,050 7,012
Series B Common Stock, par value $1, authorized
6,000,000 shares, issued 1,350,000 and
1,352,000 shares at September 30, 1996
and December 31, 1995, respectively 1,350 1,352
Paid-in surplus 36,677 36,534
Retained earnings 5,797 2,733
- -----------------------------------------------------------------------------
Total shareholders' investment 50,874 47,631
- -----------------------------------------------------------------------------
Total liab. and shareholders' investment $130,963 $117,376
=============================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 6
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
=============================================================================
<CAPTION>
For the nine months ended
- -----------------------------------------------------------------------------
Sept. 30, 1996 Sept. 30, 1995
- -----------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $3,064 $2,376
Adjustments to reconcile net income to net cash
(used in)/provided by operating activities:
Depreciation and amortization 3,673 3,937
Deferred income taxes 1,094 327
Changes in assets and liabilities:
(Increase)/decrease in receivables,
contracts in prog. and advance billings (15,776) 15,745
Increase/(decrease) in accounts payable
and accrued expenses 5,753 (13,836)
Increase in other net assets (1,434) (448)
- -----------------------------------------------------------------------------
Total adjustments (6,690) 5,725
- -----------------------------------------------------------------------------
Net cash (used in)/prov. by operating act. (3,626) 8,101
- -----------------------------------------------------------------------------
Cash Flows from Investing Activities
Additions to property, plant and equipment (3,118) (2,521)
- -----------------------------------------------------------------------------
Net cash used in investing activities (3,118) (2,521)
- -----------------------------------------------------------------------------
Cash Flows from Financing Activities
Repayments of revolving credit loans 0 (2,035)
Repayments of long-term debt (12) (1,415)
- -----------------------------------------------------------------------------
Net cash used in financing activities (12) (3,450)
- -----------------------------------------------------------------------------
Net (decrease)/increase in cash (6,756) 2,130
Cash at beginning of year 14,303 3,605
- -----------------------------------------------------------------------------
Cash at end of period $7,547 $5,735
=============================================================================
Supplemental Disclosure of Cash Flow Data
Interest paid $57 $520
Income taxes paid $324 $518
=============================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 7
MICHAEL BAKER CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1996
(Unaudited)
NOTE 1 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995
-------------------------------
<S> <C> <C>
Land $ 693 $ 693
Buildings and improvements 6,334 5,952
Equipment and vehicles 30,377 28,202
- ------------------------------------------------------------------------
Total, at cost 37,404 34,847
Less - Accumulated depreciation (24,773) (22,289)
- ------------------------------------------------------------------------
Net property, plant and equipment $12,631 $12,558
========================================================================
</TABLE>
NOTE 2 - LONG-TERM DEBT AND BORROWING ARRANGEMENTS
In March 1996, the Company entered into an amended secured credit agreement
(the "Agreement") with Mellon Bank, N.A. Under its terms, the Agreement
provides for a commitment of $25 million through May 31, 1998. Under the
Agreement, the commitment includes the sum of the principal amount of
revolving credit borrowings outstanding and the aggregate face value of
outstanding letters of credit.
As of September 30, 1996, no borrowings were outstanding; however, letters of
credit totaling $4.0 million were outstanding under the Agreement.
NOTE 3 - EARNINGS PER SHARE
Earnings per share computations are based upon weighted average shares of
8,401,760 and 8,371,838 for the three-month periods, and 8,403,296 and
8,366,314 for the nine-month periods, ended September 30, 1996 and 1995,
respectively.
<PAGE>
FORM 10-Q
PART I
PAGE 8
MICHAEL BAKER CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1996
(Unaudited)
NOTE 3 - EARNINGS PER SHARE (Cont.)
The Company's 1995 Stock Incentive Plan and 1996 Nonemployee Directors' Stock
Incentive Plan had no significant impact on earnings per share for the three-
month or nine-month periods ended September 30, 1996 and 1995.
NOTE 4 - LITIGATION
The Company has been named as a defendant or co-defendant in legal proceedings
wherein substantial damages are claimed. Such proceedings are not uncommon to
the Company's business. After consultations with counsel, management believes
that the Company has recognized adequate provisions for these proceedings and
their ultimate resolutions will not have a material adverse effect on the
consolidated financial position or annual results of operations of the
Company.
The only significant proceeding relates to a lawsuit brought in 1987 in the
Supreme Court of the State of New York, Bronx County, by the Dormitory
Authority of the State of New York against a number of parties, including the
Company and one of its wholly-owned subsidiaries, that asserts breach of
contract and alleges damages of $13 million. The Company, which was not a
party to the contract underlying the lawsuit, contends that there is no
jurisdiction with respect to the Company and that it cannot be held liable for
any conduct of the subsidiary. Both the Company and the subsidiary are
contesting liability issues and have filed cross-claims and third-party claims
against other entities involved in the project.
<PAGE>
FORM 10-Q
PART I
PAGE 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
TOTAL CONTRACT REVENUES
Total contract revenues were $114.7 million for the third quarter of 1996,
compared to $90.6 million for the same period in 1995, an increase of
$24.1 million. The Buildings unit accounted for $12.1 million of this overall
increase, while the Civil unit contributed an additional $10.5 million. The
increase in the Buildings unit's revenue was almost entirely attributable to
its significant construction contract for an airport terminal in Buffalo. The
Civil unit's increase resulted primarily from its engineering division having
generated third quarter revenues totaling $7.0 million from its contract to
provide engineering services in Mexico. Both of these contracts were awarded
in late 1995 and contributed no third quarter 1995 revenues.
Total contract revenues were $301.7 million for the first nine months of 1996
compared to $266.1 million for the same period in 1995, an increase of
$35.6 million. The Civil unit was responsible for $21.7 million of this
overall revenue increase, whereas the Buildings and Transportation units had
increases of $6.4 million and $5.3 million, respectively. Again, the Civil
unit's increase primarily relates to its significant engineering contract in
Mexico.
GROSS PROFIT
The Company's gross profit of $12.4 million for the third quarter of 1996
represents a 19% improvement over the gross profit of $10.4 million from its
year ago third quarter. The most significant components of this overall
increase emanated from the Energy and Civil units. As a percentage of total
contract revenues, gross profit decreased to 10.8% in the third quarter of
1996 from 11.5% in the third quarter of 1995. While the Civil unit increased
its gross profit in the third quarter of 1996, its gross profit expressed as a
percentage of total contract revenues decreased. Civil's decrease in
profitability percentages explains the majority of the Company's related
overall decrease and is related to its contract in Mexico which has
realized lower than normal margins to date. These lower margins are
attributable to this project's more significant subcontracted components (on
which lower margins are earned) than are typical for engineering contracts and
a conservative reporting of earnings pending the resolution of certain project-
related issues. This contract is expected to be completed in early 1997. The
Energy unit recorded third quarter improvements in both its gross profit and
profitability percentages. This resulted mainly from Baker/MO having received
several awards of profitable new work since the prior year.
<PAGE>
FORM 10-Q
PART I
PAGE 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GROSS PROFIT (Cont.)
Gross profit for the first nine months of 1996 was $35.0 million versus
$31.7 million for the first nine months of 1995, a 10% increase. The Civil,
Energy and Transportation units each contributed to this overall increase.
The Transportation unit's nine-month improvement was partially attributable to
a construction contract litigation settlement which adversely affected its
1995 results. The Civil and Energy units increased for the same reasons as
mentioned in the preceding paragraph. As a percentage of total contract
revenues, gross profit was 11.6% for the first nine months of 1996 versus
11.9% for the same period in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses increased to $10.1 million for the
third quarter of 1996 from $8.3 million in the prior year third quarter. This
increase in G&A expenses primarily reflects the 1996 general increase in
revenue volumes. Expressed as a percentage of total contract revenues, G&A
expenses decreased from 9.2% in the third quarter of 1995 to 8.8% in 1996.
G&A expenses increased by $2.9 million to $29.7 million for the first nine
months of 1996 versus $26.8 million for the same period in 1995. This increase
is also related to the 1996 increase in revenue volumes. G&A expenses
expressed as a percentage of total contract revenues decreased slightly from
10.1% for the first nine months of 1995 to 9.9% over the same period in 1996.
INCOME TAXES
The Company had provisions for income taxes of 46.0% for the third quarter and
first nine months of 1996 and 49.8% for the same periods in 1995. The 1996
provision rate decrease primarily reflects certain current year tax benefits
attributable to prior year expenditures, as partially offset by a 1996
increase in foreign taxes paid.
<PAGE>
FORM 10-Q
PART I
PAGE 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTRACT BACKLOG
The funded backlog of work to be performed was $311 million as of
September 30, 1996, compared to funded backlog of $300 million at
December 31, 1995. Funded backlog represents that portion of work supported
by signed contracts and for which the procuring agency has appropriated and
allocated the funds to pay for the work.
Total backlog, which incrementally includes that portion of contract value for
which options are still to be exercised ("unfunded backlog"), was $506 million
as of September 30, 1996 and $508 million as of December 31, 1995. Among the
more significant new projects added during the third quarter of 1996 were
three five-year Civil unit contracts totaling $22.4 million to provide
communications equipment maintenance for two military bases and multi-family
housing maintenance at another base, a $9.8 million Environmental unit
subcontract for engineering services to be provided to the U.S. Navy under its
ten-year CLEAN II Program, a $7.7 million Buildings unit contract to construct
a parking garage, and two Energy unit contracts totaling $9.3 million to
provide operations and maintenance services for certain off-shore and shore-
based oil and gas production facilities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $3.6 million for the first nine
months of 1996, compared to net cash provided by operating activities of
$8.1 million for the same period in 1995. The 1996 increase in cash used
resulted from higher receivables associated with the overall higher revenue
volumes achieved during the third quarter.
Net cash used in investing activities approximated $3.1 million for the first
nine months of 1996 compared to $2.5 million in the first nine months of 1995.
These amounts solely comprise capital expenditures for both periods.
Net cash used in financing activities was negligible for the first nine months
of 1996, as compared with net cash used in financing activities of
$3.4 million for the first nine months of 1995. The Company repaid all
borrowings under its revolving credit facility during the first nine months
of 1995.
Working capital increased marginally during the first nine months of 1996 to
$27.5 million at September 30, 1996, from $25.2 million at December 31, 1995.
The current ratio was 1.34:1 at the end of the first nine months of 1996,
compared to 1.36:1 at year-end 1995.
<PAGE>
FORM 10-Q
PART I
PAGE 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Cont.)
In March 1996, the Company entered into an amended secured credit agreement
with Mellon Bank, N.A. Under its terms, the agreement provides for a
commitment of $25 million, which covers borrowings and letters of credit,
through May 31, 1998. As of September 30, 1996, no borrowings were
outstanding; however, letters of credit totaling $4.0 million were outstanding
under the agreement.
The Company is required to provide bid and performance bonding on certain
construction contracts, and has a $350 million bonding line available through
Aetna Casualty and Surety Company of America. Management believes that its
bonding line will be sufficient to meet its bid and performance needs for the
foreseeable future.
A significant portion of the Company's cash flow is dependent upon
appropriations of public funds and financial terms under long-term contracts.
The Company's short- and long-term liquidity will be affected by the improved
but still narrow margins on construction work in backlog, and its ability to
sustain profitable operations and to control costs during periods of lower
volumes. Additional external factors such as price fluctuations in the energy
industry and the effects of interest rates on private construction projects
could affect the Company. At this time, management believes that its funds
generated from operations, its existing credit facility and its longer-term
borrowing capabilities will be sufficient to meet its operating requirements
for the foreseeable future.
<PAGE>
FORM 10-Q
PART II
PAGE 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K
During the quarter ended September 30, 1996, the Company filed
no reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
MICHAEL BAKER CORPORATION
Dated: November 4, 1996 By: /s/ J. Robert White
--------------------
Executive Vice President, Chief
Financial Officer and Treasurer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,547
<SECURITIES> 0
<RECEIVABLES> 70,870
<ALLOWANCES> 0
<INVENTORY> 22,319
<CURRENT-ASSETS> 107,622
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 130,963
<CURRENT-LIABILITIES> 80,089
<BONDS> 0
0
0
<COMMON> 8,400
<OTHER-SE> 36,677
<TOTAL-LIABILITY-AND-EQUITY> 130,963
<SALES> 301,725
<TOTAL-REVENUES> 301,725
<CGS> 266,735
<TOTAL-COSTS> 266,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 5,674
<INCOME-TAX> 2,610
<INCOME-CONTINUING> 3,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,064
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
