<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, 1997
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, 1997:
-------------------------
<S> <C>
Common Stock 6,877,358 shares
Series B Common Stock 1,343,983 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. All such adjustments are of a normal and recurring nature unless
specified otherwise. The 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, 1997 Sept. 30, 1996
- ------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Total contract revenues $116,627 $114,710
Cost of work performed 103,214 102,340
- ------------------------------------------------------------------------------
Gross profit 13,413 12,370
General and administrative expenses 10,656 10,121
- ------------------------------------------------------------------------------
Income from operations 2,757 2,249
Other income/(expense):
Interest expense (8) (15)
Interest income 140 65
Other, net 53 34
- ------------------------------------------------------------------------------
Income before income taxes 2,942 2,333
Provision for income taxes 1,412 1,073
- ------------------------------------------------------------------------------
NET INCOME $1,530 $1,260
==============================================================================
NET INCOME PER SHARE $0.18 $0.15
==============================================================================
<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, 1997 Sept. 30, 1996
- -----------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Total contract revenues $316,196 $301,725
Cost of work performed 278,993 266,735
- -----------------------------------------------------------------------------
Gross profit 37,203 34,990
General and administrative expenses 31,539 29,748
- -----------------------------------------------------------------------------
Income from operations 5,664 5,242
Other income/(expense):
Interest expense (42) (61)
Interest income 407 281
Other, net 656 212
- -----------------------------------------------------------------------------
Income before income taxes 6,685 5,674
Provision for income taxes 3,209 2,610
- -----------------------------------------------------------------------------
Net income 3,476 3,064
=============================================================================
Net income per share $0.42 $0.36
=============================================================================
<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, 1997 Dec. 31, 1996
- -----------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash $13,002 $10,480
Receivables 80,879 69,621
Cost of contracts in progress and estimated
earnings, less billings 17,056 16,276
Prepaid expenses and other 5,878 6,370
- -----------------------------------------------------------------------------
Total current assets 116,815 102,747
- -----------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 11,030 12,265
OTHER ASSETS
Goodwill and other intangible assets, net 6,770 7,242
Other assets 4,725 3,828
- -----------------------------------------------------------------------------
Total other assets 11,495 11,070
- -----------------------------------------------------------------------------
TOTAL ASSETS $139,340 $126,082
=============================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- -----------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $38,756 34,960
Accrued employee compensation 7,939 6,596
Accrued insurance 5,878 5,425
Other accrued expenses 18,225 19,045
Excess of billings on contracts in progress
over cost and estimated earnings 14,167 9,304
- -----------------------------------------------------------------------------
Total current liabilities 84,965 75,330
- -----------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized 44,000,000
shares, issued 7,084,518 and 7,055,784 shares at
Sept. 30, 1997 and December 31, 1996, resp. 7,085 7,056
Series B Common Stock, par value $1, authorized
6,000,000 shares, issued 1,343,983 and 1,348,632
shares at Sept. 30, 1997 and Dec. 31, 1996, resp. 1,344 1,349
Additional paid-in capital 36,814 36,694
Retained earnings 10,389 6,913
Less 207,160 and 207,560 shares of Common Stock in
treasury, at cost, at Sept. 30, 1997 and Dec. 31,
1996, respectively (1,257) (1,260)
- ------------------------------------------------------------------------------
Total shareholders' investment 54,375 50,752
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $139,340 $126,082
==============================================================================
<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 STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
For the nine months ended
------------------------------
SEPT. 30, 1997 Sept. 30, 1996
- -----------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $3,476 $3,064
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization 3,265 3,673
Deferred income taxes 1,731 1,094
Changes in assets and liabilities:
Increase in receivables and contracts
in progress (7,176) (15,776)
Increase in accounts payable and
accrued expenses 4,772 5,753
Increase in other net assets (1,992) (1,434)
- -----------------------------------------------------------------------------
Total adjustments 600 (6,690)
- -----------------------------------------------------------------------------
Net cash provided by/(used in)
operating activities 4,076 (3,626)
- -----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,554) (3,118)
- -----------------------------------------------------------------------------
Net cash used in investing activities (1,554) (3,118)
- -----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt 0 (12)
- -----------------------------------------------------------------------------
Net cash used in financing activities 0 (12)
- -----------------------------------------------------------------------------
Net increase/(decrease) in cash 2,522 (6,756)
Cash at beginning of year 10,480 14,303
- -----------------------------------------------------------------------------
CASH AT END OF PERIOD $13,002 $7,547
=============================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
Interest paid $40 $57
Income taxes paid $490 $324
=============================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 6
MICHAEL BAKER CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 1 - LONG-TERM DEBT AND BORROWING ARRANGEMENTS
In June 1997, the Company entered into an unsecured credit agreement (the
Agreement") with Mellon Bank, N.A. (the "Bank"). The Agreement provides for a
commitment of $25 million through May 31, 2000. The commitment includes the
sum of the principal amount of revolving credit loans outstanding and the
aggregate face value of outstanding letters of credit. Significant changes in
terms from the previous agreement with the Bank included the release of all
security in Company assets previously held, a reduction in the borrowing rate
to the Bank's prime rate or other indexed rates that may be lower, and a
reduction in the commitment fees to 3/8% per year based on the unused portion
of the commitment.
As of September 30, 1997, no loans were outstanding; however, letters of
credit totaling $5,955,000 were outstanding under the Agreement.
NOTE 2 - EARNINGS PER SHARE
Earnings per share computations are based upon weighted averages of 8,327,289
and 8,401,760 shares outstanding for the three-month periods, and 8,279,965
and 8,403,296 for the nine-month periods, ended September 30, 1997 and 1996,
respectively.
NOTE 3 - CONTINGENCIES
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.<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, 1997
(Unaudited)
NOTE 3 - CONTINGENCIES (Cont.)
In the Company's ordinary course of business, many of its public contracts are
subject to recurring audits by the Defense Contract Audit Agency ("DCAA") and
other governmental entities. DCAA has commenced an audit of certain contracts
for the years 1992 through 1995. DCAA has not yet issued its preliminary
audit report and, at this time, management is unable to determine the
significance, if any, of this matter.
The only significant legal 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 $13,000,000. 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 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
TOTAL CONTRACT REVENUES
Total contract revenues were $116.6 million for the third quarter of 1997,
compared to $114.7 million for the same period in 1996. The Energy and
Transportation units achieved the most significant increases in total contract
revenues for the third quarter of 1997, totaling $3.1 million and $2.5
million, respectively. An expansion of revenues from its offshore platform
operations primarily accounted for the increase in the Energy unit. Activity
on several heavy and highway construction contracts on which work commenced
in 1997, contributed to the third quarter increase in the Transportation unit.
The third quarter 1997 decrease of $1.8 million for the Buildings unit was
attributed to the completion or near completion of several construction
projects that provided significant revenues during the third quarter of 1996.
Total contract revenues were $316.2 million for the first nine months of 1997,
compared to $301.7 million for the same period in 1996. With the exception of
the Environmental unit, total contract revenues increased in all business
units for the first nine months of 1997 relative to the first nine months of
1996. The Civil and Energy units had the largest increases of $7.6 million
and $8.2 million, respectively. Civil's increase resulted from higher 1997
revenues from new operations and maintenance ("O&M") contracts on which work
commenced during the fourth quarter of 1996 or in 1997, and from an increase
in revenues on existing O&M contracts. Energy's improvement is mainly
attributable to new, recurring O&M contracts that were added during the second
and third quarters of 1996.
GROSS PROFIT
The Company's gross profit of $13.4 million for the third quarter of 1997
represents an 8% improvement over the gross profit of $12.4 million from its
1996 third quarter. As a percentage of total contract revenues, gross profit
increased to 11.5% in the third quarter of 1997 from 10.8% in the third
quarter of 1996. The most significant contributors to these overall
improvements were the Civil and Transportation units due to changes in
contract mix in these units' engineering divisions. In addition, these two
units also benefitted during the third quarter of 1997 from lower casualty
insurance costs due to a reassessment of their exposures relative to their
reserves.
<PAGE>
FORM 10-Q
PART I
PAGE 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GROSS PROFIT (Cont.)
Gross profit for the first nine months of 1997 increased by 6% to $37.2
million from $35.0 million in the first nine months of 1996. As a percentage
of total contract revenues, gross profit increased slightly to 11.8% for the
first nine months of 1997 from 11.6% for the comparable 1996 period. In
addition to the reasons cited in the preceding paragraph, the Transportation
unit's percentage increase for the first nine months of 1997 was also
attributable to higher than expected profitability on a construction project
completed in the second quarter of 1997. The Civil unit realized higher
profit margins on both new and existing O&M projects during 1997. The Energy
unit's profit percentage decreased primarily due to lower margins associated
with its contracts in Nigeria.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses increased to $10.7 million for the
third quarter of 1997 from $10.1 million in the third quarter of 1996.
Expressed as a percentage of total contract revenues, G&A expenses remained
relatively constant at approximately 9% for the third quarter of both years.
G&A expenses increased to $31.5 million for the first nine months of 1997 from
$29.7 million for the same period in 1996. G&A expenses were just under 10%
of total contract revenues in both years' nine-month periods.
OTHER INCOME
Other income for the first nine months of 1997 included a first-quarter gain
of $0.5 million from the sale of an investment in preferred stock.
INCOME TAXES
The Company had provisions for income taxes of 48% for the first nine months
of 1997 and 46% for the comparable period in 1996. The higher 1997 provision
rate reflects increases in foreign income and withholding taxes.
<PAGE>
FORM 10-Q
PART I
PAGE 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
which changes the computation and presentation of earnings per share ("EPS").
SFAS 128 must be adopted for interim and annual periods ending after December
15, 1997. Early adoption is prohibited, although previously reported EPS
amounts will have to be restated upon adoption.
The Company will adopt SFAS 128 in the fourth quarter of 1997. Based upon
management's computations, adoption of the new standard will not have a
material effect on previously reported EPS amounts for the third quarter or
first nine months of 1997 and all of 1996.
CONTRACT BACKLOG
The funded backlog of work to be performed reached a record high of $410
million as of September 30, 1997, compared to funded backlog of $333 million
at December 31, 1996. 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 reached a record high of $663 million
for the Company as of September 30, 1997, as compared to $544 million as of
December 31, 1996. During the first nine months of 1997, all of the Company's
business units added to their total backlog and thereby contributed to the
record high.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.1 million for the first nine
months of 1997, compared to net cash used in operating activities of $3.6
million for the same period in 1996. The 1997 improvement in cash generated
by operating activities is attributable to the collection of retention amounts
totaling $3.0 million on a significant construction project during the first
nine months of 1997, and to slower receivable collections in the first nine
months of 1996 related to the Civil unit's significant engineering project in
Mexico.
Net cash used in investing activities was $1.6 million for the first nine
months of 1997, compared to $3.1 million for the first nine months of 1996.
These amounts solely comprise purchases of property, plant and equipment for
both periods. The 1997 decrease is attributable to higher expenditures for
building improvements and office equipment related to the Buildings unit's
1996 relocation from Pittsburgh to Coraopolis, PA, and higher vehicle and
equipment purchases during the first nine months of 1996 to meet the
requirements of new O&M projects in the Civil unit.
<PAGE>
FORM 10-Q
PART I
PAGE 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Cont.)
Working capital increased during the first nine months of 1997 to $31.9
million at September 30, 1997, from $27.4 million at December 31, 1996. The
current ratio was 1.37:1 at the end of the first nine months of 1997, compared
to 1.36:1 at year-end 1996.
In June 1997, the Company entered into an unsecured credit agreement with
Mellon Bank, N.A. The agreement provides for a commitment of $25 million,
which covers borrowings and letters of credit, through May 31, 2000. As of
September 30, 1997, no loans were outstanding; however, letters of credit
totaling approximately $6.0 million were outstanding under the agreement.
The Company is required to provide bid and performance bonding on certain
construction contracts. In October 1997, the Company's available bonding line
was increased from $350 million to $500 million by Travelers Casualty & Surety
Company of America (formerly Aetna Casualty & Surety Company of America).
Management believes that its bonding line will be sufficient to meet its bid
and performance needs for at least the next year.
Short and long-term liquidity is dependent upon appropriations of public funds
for infrastructure and other government-funded projects, capital spending
levels in the private sector, and the demand for the Company's services in the
oil and gas markets. 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 and its existing credit
facility will be sufficient to meet its operating and capital expenditure
requirements for at least the next year.
<PAGE>
FORM 10-Q
PART II
PAGE 12
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, 1997, 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>
<CAPTION>
<S> <C>
MICHAEL BAKER CORPORATION
Dated: November 14, 1997 By: /s/ J. Robert White
-------------------------
J. Robert White
Executive Vice President,
Chief Financial Officer
and Treasurer
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,002
<SECURITIES> 0
<RECEIVABLES> 80,879
<ALLOWANCES> 0
<INVENTORY> 17,056
<CURRENT-ASSETS> 116,815
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 139,340
<CURRENT-LIABILITIES> 84,965
<BONDS> 0
0
0
<COMMON> 8,429
<OTHER-SE> 36,814
<TOTAL-LIABILITY-AND-EQUITY> 139,340
<SALES> 316,196
<TOTAL-REVENUES> 316,196
<CGS> 278,993
<TOTAL-COSTS> 278,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 6,685
<INCOME-TAX> 3,209
<INCOME-CONTINUING> 3,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,476
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
