<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 June 30, 1998
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 June 30, 1998:
--------------------
<S> <C>
Common Stock 6,855,729 shares
Series B Common Stock 1,327,275 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. 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.
This Quarterly Report on Form 10-Q, and in particular the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section in Part I, contains forward-looking statements concerning future
operations and performance of the Registrant. Forward-looking statements are
subject to market, operating and economic risks and uncertainties that may cause
the Registrant's actual results in future periods to be materially different
from any future performance suggested herein. Such statements are made pursuant
to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of
1995.
<PAGE>
FORM 10-Q
PART I
PAGE 2
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<CAPTION>
For the three months ended
--------------------------
JUNE 30, 1998 June 30, 1997
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Total contract revenues $127,118 $105,477
Cost of work performed 111,376 92,563
- --------------------------------------------------------------------------------
Gross profit 15,742 12,914
Selling, general and administrative expenses 12,828 10,486
- --------------------------------------------------------------------------------
Income from operations 2,914 2,428
Other income/(expense):
Interest expense (7) (16)
Interest income 147 137
Other, net 69 85
- --------------------------------------------------------------------------------
Income before income taxes 3,123 2,634
Provision for income taxes 1,468 1,265
- --------------------------------------------------------------------------------
NET INCOME $1,655 $1,369
================================================================================
BASIC AND DILUTED NET INCOME PER SHARE $0.20 $0.17
================================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</FN>
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 3
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<CAPTION>
For the six months ended
------------------------
JUNE 30, 1998 June 30, 1997
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Total contract revenues $238,215 $199,569
Cost of work performed 210,229 175,779
- --------------------------------------------------------------------------------
Gross profit 27,986 23,790
Selling, general and administrative expenses 24,016 20,883
- --------------------------------------------------------------------------------
Income from operations 3,970 2,907
Other income/(expense):
Interest expense (17) (34)
Interest income 326 267
Other, net 222 603
- --------------------------------------------------------------------------------
Income before income taxes 4,501 3,743
Provision for income taxes 2,116 1,797
- --------------------------------------------------------------------------------
NET INCOME $2,385 $1,946
================================================================================
BASIC AND DILUTED NET INCOME PER SHARE $0.29 $0.24
================================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</FN>
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 4
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<CAPTION>
ASSETS JUNE 30, 1998 Dec. 31, 1997
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash $8,697 $17,302
Receivables 77,765 80,204
Cost of contracts in progress and
estimated earnings, less billings 25,795 21,478
Prepaid expenses and other 3,157 5,799
- --------------------------------------------------------------------------------
Total current assets 115,414 124,783
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 12,770 10,985
OTHER ASSETS
Goodwill and other intangible assets, net 6,064 6,521
Other assets 2,502 2,136
- --------------------------------------------------------------------------------
Total other assets 8,566 8,657
- --------------------------------------------------------------------------------
Total assets $136,750 $144,425
================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $39,595 $45,868
Accrued employee compensation 7,746 7,908
Accrued insurance 5,177 4,905
Other accrued expenses 15,170 16,879
Excess of billings on contracts in progress
over cost and estimated earnings 11,189 13,003
- --------------------------------------------------------------------------------
Total current liabilities 78,877 88,563
- --------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized
44,000,000 shares, issued 7,112,818
and 7,086,623 shares at June 30, 1998 and
December 31, 1997, respectively 7,113 7,087
Series B Common Stock, par value $1,
authorized 6,000,000 shares, issued
1,327,275 and 1,343,983 shares at
June 30, 1998 and December 31, 1997,
respectively 1,327 1,343
Additional paid-in capital 36,882 36,822
Retained earnings 14,251 11,866
Less 257,089 and 206,980 shares of Common
Stock in treasury, at cost, at June 30, 1998
and December 31, 1997, respectively (1,700) (1,256)
- --------------------------------------------------------------------------------
Total shareholders' investment 57,873 55,862
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT $136,750 $144,425
================================================================================
<FN>
The accompanying notes are an integral part of this financial statements.
</FN>
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 5
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
For the six months ended
------------------------
JUNE 30, 1998 June 30, 1997
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,385 $1,946
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,300 2,147
Changes in assets and liabilities:
Increase in receivables and contracts
in progress (3,691) (3,739)
Decrease in accounts payable and accrued
expenses (7,871) (812)
Decrease in other net assets 2,361 191
- --------------------------------------------------------------------------------
Total adjustments (6,901) (2,213)
- --------------------------------------------------------------------------------
Net cash used in operating activities (4,516) (267)
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (3,679) (796)
- --------------------------------------------------------------------------------
Net cash used in investing activities (3,679) (796)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 34 0
Payments to acquire treasury stock (444) 0
- --------------------------------------------------------------------------------
Net cash used in financing activities (410) 0
- --------------------------------------------------------------------------------
Net decrease in cash (8,605) (1,063)
Cash at beginning of year 17,302 10,480
- --------------------------------------------------------------------------------
CASH AT END OF PERIOD $8,697 $9,417
================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
Interest paid $36 $31
Income taxes paid $419 $89
================================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</FN>
</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 JUNE 30, 1998
(Unaudited)
NOTE 1 - EARNINGS PER SHARE
Basic net income per share computations are based upon weighted averages of
8,178,792 and 8,199,277 shares outstanding for the three-month periods, and
8,184,727 and 8,198,073 for the six-month periods, ended June 30, 1998 and 1997,
respectively. Diluted net income per share computations are based upon weighted
averages of 8,322,090 and 8,257,297 shares outstanding for the three-month
periods, and 8,320,373 and 8,256,304 for the six-month periods, ended June 30,
1998 and 1997, respectively. The additional shares included in diluted shares
outstanding are entirely attributable to stock options.
NOTE 2 - CAPITAL STOCK
During 1996, the Board of Directors authorized the repurchase of up to 500,000
shares of the Company's Common Stock in the open market. During the first six
months of 1998, the Company repurchased 50,109 treasury shares at market prices
ranging from $8.49 to $8.97 per share, for a total price of $444,000. As of June
30, 1998, treasury shares totaling 257,669 had been repurchased under this
program.
NOTE 3 - CONTINGENCIES
The Company has reviewed the status of contingencies outstanding at June 30,
1998, and believes that there have been no significant changes to the
information disclosed in its Annual Report on Form 10-K for the year ended
December 31, 1997.
<PAGE>
FORM 10-Q
PART I
PAGE 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total Contract Revenues
Total contract revenues were $127.1 million for the second quarter of 1998,
compared to $105.5 million for the same period in 1997. All of the Company's
business units experienced increases in total contract revenues for the second
quarter of 1998. The Transportation, Buildings and Civil units posted the
largest increases of $8.4 million, $6.5 million and $4.4 million, respectively.
Higher revenues from new construction projects started during 1997 accounted for
the majority of the 1998 increase in both the Transportation and Buildings
units. Civil's increase resulted from revenues on several new operations &
maintenance ("O&M") contracts on which work commenced during the second half of
1997.
Total contract revenues were $238.2 million for the first six months of 1998,
compared to $199.6 million for the same period in 1997. For the first half of
1998, all units except Environmental recorded increases in total contract
revenues. The Transportation, Civil and Buildings units had the largest
increases of $16.6 million, $8.8 million and $8.2 million, respectively. These
increases are attributable to the same reasons stated in the preceding
paragraph.
Gross Profit
The Company's gross profit of $15.7 million for the second quarter of 1998
represents a 22% improvement over its gross profit of $12.9 million for the
second quarter of 1997. As a percentage of total contract revenues, gross profit
increased slightly to 12.4% for the second quarter of 1998 from 12.2% in the
second quarter of 1997. Absolute dollar and percentage improvements in gross
profit were registered in each of the Company's business units except Buildings.
The most significant improvements occurred in the Transportation and Energy
units, where the aforementioned revenue growth came with the additional benefit
of higher margins. Despite its higher revenues, Buildings' decreases in gross
profit and its profitability percentage were attributable to its contract mix
being not as rich as in 1997.
Gross profit for the first six months of 1998 increased by 18% to $28.0 million
from $23.8 million in the first six months of 1997; however, as a percentage of
total contract revenues, gross profit remained relatively constant at nearly 12%
in the first half of both years. The Transportation and Energy units had the
greatest improvements for the six month period, primarily for the same reasons
expressed in the previous paragraph. The most significant decreases for the
first half of 1998 were in the Buildings unit, whose 1998 contract mix again was
not as rich as in 1997.
<PAGE>
FORM 10-Q
PART I
PAGE 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased to $12.8 million
for the second quarter of 1998 from $10.5 million in the second quarter of 1997.
This increase is due in part to the Company's anticipated higher 1998 payouts
for incentive compensation, its international marketing initiative started
during the third quarter of 1997, and investments in technological support costs
and new transportation markets. Expressed as a percentage of total contract
revenues, SG&A expenses increased slightly to 10.1% for the second quarter of
1998 from 9.9% in the second quarter of 1997.
SG&A expenses increased to $24.0 million for the first six months of 1998 from
$20.9 million for the same period in 1997. Expressed as a percentage of total
contract revenues, SG&A expenses decreased to 10.1% for the first half of 1998
from 10.5% for the same period in 1997. The 1998 increase in absolute dollars is
attributable to the reasons cited above.
Other Income
Other income for the first six months of 1998 included $0.2 million of income
from a joint venture related to work in the Gulf of Mexico, whereas the
comparable 1997 amount included a gain of $0.5 million from the sale of an
investment in preferred stock.
Income Taxes
The Company had provisions for income taxes of 47% for the first six months of
1998 and 48% for the comparable period in 1997. The slightly lower 1998
provision rate primarily reflects management's expectations of lower payments of
foreign taxes and a higher level of income before taxes for the full year of
1998.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). As suggested by its title, this statement
establishes accounting and disclosure requirements for derivative instruments
and hedging activities. The Company is required to adopt this new standard in
the third quarter of 1999. Based on management's assessment, the adoption of
SFAS 133 will not have a material effect on the Company's consolidated results
of operations or financial position.
CONTRACT BACKLOG
The funded backlog of work to be performed reached a record high of $466 million
as of June 30, 1998, compared to funded backlog of $393 million at December 31,
1997. 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"), also reached a
record high of $725 million at June 30, 1998, as compared to $649 million as of
December 31, 1997.
<PAGE>
FORM 10-Q
PART I
PAGE 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTRACT BACKLOG (Cont.)
During the second quarter of 1998, the Company added significant funded and
total backlog in the Energy and Transportation units, while the Buildings, Civil
and Environmental units experienced reductions in funded and total backlog. The
most significant second quarter backlog growth came from the Energy unit, which
added two new long-term contracts to provide operations and maintenance services
to major U.S. oil companies.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $4.5 million for the first six months
of 1998, compared to $0.3 million for the same period in 1997. The 1998 cash
usage resulted primarily from the timing of certain normal and recurring
payments to subcontractors during the first quarter of 1998, following
substantial cash collections from clients during the fourth quarter of 1997.
Net cash used in investing activities was $3.7 million for the first six months
of 1998, compared to $0.8 million for the first six months of 1997. These
amounts solely comprise capital expenditures for both periods. The 1998 amount
includes computer equipment purchases totaling $2.5 million as compared with
$0.4 million in 1997. During the first half of 1997, the Company leased
additional computer equipment valued at $0.8 million. The remaining 1998
increase is primarily attributable to updated computer equipment needed in
connection with certain software upgrades.
Net cash used in financing activities totaled $0.4 million for the first six
months of 1998 and zero for the same period in 1997. Pursuant to a stock
repurchase program announced in late 1996, the Company paid $0.4 million to
acquire approximately 50,000 additional treasury shares during the first quarter
of 1998.
Working capital increased marginally during the first six months of 1998 to
$36.5 million at June 30, 1998, from $36.2 million at December 31, 1997. The
current ratio was 1.46:1 at the end of the second quarter of 1998, compared to
1.41:1 at year-end 1997.
<PAGE>
FORM 10-Q
PART I
PAGE 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Cont.)
The Company maintains 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 June 30, 1998, no borrowings were
outstanding; letters of credit totaling $4.6 million were outstanding under the
agreement. Management believes that the credit agreement will be adequate to
meet its borrowing and letter of credit requirements for at least the next year.
The Company is required to provide bid and performance bonding on certain
construction contracts, and has a $500 million bonding line available through
Travelers Casualty and 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.
The Company has completed an assessment of its internal exposures relative to
the upcoming change to the 21st century. While the Company continues to modify
its own noncompliant systems and equipment that are integral to its business,
management expects that its internal systems will be fully compliant before the
turn of the new century. Management is also attempting to monitor the compliance
of third parties with which it interacts, but has found the compliance of these
parties more difficult to monitor and control. Based on information currently
available, management does not believe that the incremental costs associated
with Year 2000 compliance will be material to the Company's consolidated results
of operations or financial position.
<PAGE>
FORM 10-Q
PART II
PAGE 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Company's annual meeting of shareholders was held on April
23, 1998.
(b) Each of management's nominees to the board of directors, as
listed in the Company's proxy statement, was elected. There was
no solicitation in opposition to management's nominees.
(c) The first matter voted upon at the meeting was the election of
the Company's directors to one-year terms or until their
respective successors have been elected. The votes cast by
holders of the Company's Common Stock and Series B Common Stock
in approving the following directors were:
<TABLE>
<CAPTION>
Name of Director Votes for Votes withheld
---------------- --------- --------------
<S> <C> <C>
Robert N. Bontempo 17,813,846 1,203,887
Charles I. Homan 17,771,465 1,246,268
Thomas D. Larson 17,764,209 1,253,524
Richard L. Shaw 17,784,800 1,232,933
Konrad M. Weis 17,781,400 1,236,333
J. Robert White 17,824,812 1,192,921
The votes cast by holders of the Company's Common Stock in
approving the following directors were:
Name of Director Votes for Votes withheld
---------------- --------- --------------
William J. Copeland 5,713,492 563,281
Roy V. Gavert, Jr. 5,724,344 552,429
John E. Murray 5,723,644 553,129
</TABLE>
The second and final matter voted upon at the meeting was the
approval of amendments to the Company's 1995 Stock Incentive
Plan, to increase the total number of shares of the Company's
Common Stock which may be issued thereunder, and increase the
maximum number of shares as to which stock options may be
granted to any one employee during a calendar year. The votes
cast by holders of the Company's Common Stock and Series B
Common Stock in approving such amendments were 9,895,983 votes
in favor, 6,823,525 votes against, and 1,014,533 abstentions.
<PAGE>
FORM 10-Q
PART II
PAGE 12
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K
During the quarter ended June 30, 1998, 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: August 14, 1998 By:/s/ J. Robert White
--------------------------
J. Robert White
Executive Vice President, Chief
Financial Officer and Treasurer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 8697
<SECURITIES> 0
<RECEIVABLES> 77765
<ALLOWANCES> 0
<INVENTORY> 25795
<CURRENT-ASSETS> 115414
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 136750
<CURRENT-LIABILITIES> 78877
<BONDS> 0
0
0
<COMMON> 8440
<OTHER-SE> 36882
<TOTAL-LIABILITY-AND-EQUITY> 136750
<SALES> 238215
<TOTAL-REVENUES> 238215
<CGS> 210229
<TOTAL-COSTS> 210229
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 4501
<INCOME-TAX> 2116
<INCOME-CONTINUING> 2385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2385
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
