<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 March 31, 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 March 31, 1998:
---------------------
<S> <C>
Common Stock 6,846,737 shares
Series B Common Stock 1,329,040 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
--------------------------
MARCH 31, 1998 March 31, 1997
- --------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Total contract revenues $111,097 $94,092
Cost of work performed 98,853 83,216
- --------------------------------------------------------------------------
Gross profit 12,244 10,876
Selling, general and administrative expenses 11,188 10,397
- --------------------------------------------------------------------------
Income from operations 1,056 479
Other income/(expense):
Interest expense (10) (18)
Interest income 179 130
Other, net 153 518
- --------------------------------------------------------------------------
Income before income taxes 1,378 1,109
Provision for income taxes 648 532
- --------------------------------------------------------------------------
NET INCOME 730 577
==========================================================================
BASIC AND DILUTED NET INCOME PER SHARE $0.09 $0.07
==========================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
FORM 10-Q
PART I
<TABLE> PAGE 3
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<CAPTION>
ASSETS MARCH 31, 1998 Dec. 31, 1997
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash $9,839 $17,302
Receivables 76,543 80,204
Cost of contracts in progress and estimated
earnings, less billings 25,183 21,478
Prepaid expenses and other 3,735 5,799
- --------------------------------------------------------------------------
Total current assets 115,300 124,783
- --------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 11,675 10,985
OTHER ASSETS
Goodwill and other intangible assets, net 6,322 6,521
Other assets 2,312 2,136
- --------------------------------------------------------------------------
Total other assets 8,634 8,657
- --------------------------------------------------------------------------
TOTAL ASSETS $135,609 $144,425
==========================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- --------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $37,101 $45,868
Accrued employee compensation 7,602 7,908
Accrued insurance 5,682 4,905
Other accrued expenses 12,733 16,879
Excess of billings on contracts in progress
over cost and estimated earnings 16,327 13,003
- --------------------------------------------------------------------------
Total current liabilities 79,445 88,563
- --------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized 44,000,000
shares, issued 7,103,826 and 7,086,623 shares
at March 31, 1998 and Dec. 31, 1997, respectively 7,104 7,087
Series B Common Stock, par value $1, authorized
6,000,000 shares, issued 1,329,040 and 1,343,983
shares at March 31, 1998 and December 31, 1997,
respectively 1,329 1,343
Additional paid-in capital 36,835 36,822
Retained earnings 12,596 11,866
Less 257,089 and 206,980 shares of Common Stock
in treasury, at cost, at March 31, 1998 and
December 31, 1997, respectively (1,700) (1,256)
- --------------------------------------------------------------------------
Total shareholders' investment 56,164 55,862
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $135,609 $144,425
==========================================================================
<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 STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
For the three months ended
---------------------------
MARCH 31, 1998 March 31, 1997
- ---------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $730 $577
Adjustments to reconcile net income to net cash
(used in)/provided by operating activities:
Depreciation and amortization 1,093 1,083
Changes in assets and liabilities:
Decrease in receivables and contracts in progress 3,280 6,803
Decrease in accounts payable and accrued expenses (12,442) (3,938)
Decrease/(increase) in other net assets 1,900 (752)
- ---------------------------------------------------------------------------
Total adjustments (6,169) 3,196
- ---------------------------------------------------------------------------
Net cash (used in)/prov by oper activities (5,439) 3,773
- ---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,596) (406)
- ---------------------------------------------------------------------------
Net cash used in investing activities (1,596) (406)
- ---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 16 0
Payments to acquire treasury stock (444) 0
- ---------------------------------------------------------------------------
Net cash used in financing activities (428) 0
- ---------------------------------------------------------------------------
Net (decrease)/increase in cash (7,463) 3,367
Cash at beginning of year 17,302 10,480
- ---------------------------------------------------------------------------
CASH AT END OF PERIOD $9,839 $13,847
===========================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
Interest paid $14 $15
Income taxes paid $36 $63
===========================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
FORM 10-Q
PART I
PAGE 5
MICHAEL BAKER CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIOD ENDED MARCH 31, 1998
(UNAUDITED)
NOTE 1 - EARNINGS PER SHARE
Basic net income per share computations are based upon weighted averages of
8,190,728 and 8,196,856 shares outstanding for the three-month periods ended
March 31, 1998 and 1997, respectively. Diluted net income per share
computations are based upon weighted averages of 8,318,656 and 8,255,310
shares outstanding for the three-month periods ended March 31, 1998 and 1997,
respectively.
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
quarter 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 March 31, 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 March 31,
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.
NOTE 4 - NEW ACCOUNTING STANDARD
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which requires
companies to disclose information regarding comprehensive income and its
components. Comprehensive income is defined as a change in equity resulting
from nonowner sources (e.g., foreign currency gains and losses, unrealized
gains on securities, pension liability adjustments). The Company does not
have any material items of comprehensive income; accordingly, comprehensive
income has not been presented in the accompanying financial statements.
<PAGE>
FORM 10-Q
PART I
PAGE 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total Contract Revenues
Total contract revenues were $111.1 million for the first quarter of 1998,
compared to $94.1 million for the same period in 1997, an increase of $17.0
million. With the exception of the Environmental unit, total contract
revenues increased in each of the Company's business units for the first
quarter of 1998. The Transportation, Civil and Energy units had the largest
increases of $8.2 million, $4.4 million and $3.6 million, respectively. Higher
revenues from new construction projects started in 1997 accounted for the
majority of the increase in the Transportation unit. Civil's increase resulted
from revenues on several new operations & maintenance ("O&M") contracts on
which work commenced during the second half of 1997. The Energy unit
benefitted from quarter-over-quarter growth of approximately 30% in both its
domestic and international operations.
Gross Profit
In absolute terms, the Company's gross profit of $12.2 million for the first
quarter of 1998 represents an improvement over the gross profit of $10.9
million from its 1997 first quarter. As a percentage of total contract
revenues, gross profit decreased to 11.0% in the first quarter of 1998 from
11.6% in the first quarter of 1997. Absolute and percentage improvements were
registered in the Energy and Transportation units, but offset by decreases in
the other three business units. The growth in the Energy and Transportation
units is attributable to a combination of the aforementioned revenue growth
with profit percentages that increased slightly. The most significant
decrease came from the Civil unit, which experienced lower profit percentages
on its O&M projects, and which did not have the benefit in the first quarter
of 1998 of the relatively higher margins achieved on its significant
engineering contract in Mexico. Such contract was substantially completed in
1997.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased to $11.2
million for the first quarter of 1998 from $10.4 million in the prior year's
first quarter. This increase principally reflects the Company's international
marketing initiative started during the third quarter of 1997, its anticipated
higher 1998 payouts for incentive compensation, and investments in two new
markets (Buffalo, NY and Orlando, FL) for heavy & highway construction
services. Expressed as a percentage of total contract revenues, SG&A expenses
decreased from 11.0% in the first quarter of 1997 to 10.1% in 1998.
<PAGE>
FORM 10-Q
PART I
PAGE 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Income
Other income for the first quarter of 1998 included approximately $0.1 million
of income from a new 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 quarter of
1998 and 48% for the same period in 1997. The slightly lower 1998 provision
rate primarily reflects the Company's higher level of income before taxes
expected for the full year of 1998.
New Accounting Standard
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). This statement specifies
the circumstances under which internal and external costs incurred in
connection with the implementation of internal-use software should either be
prospectively capitalized or expensed upon adoption. The Company will be
required to adopt this new standard effective January 1, 1999. Based on
management's assessment, the adoption of SOP 98-1 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 was $401 million as of March 31,
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"), was $654 million
as of March 31, 1998 and $649 million as of December 31, 1997.
During the first quarter of 1998, the Company's Environmental and
Transportation units added to their funded and total backlog amounts, while
the funded and total amounts decreased slightly for the Civil, Buildings and
Energy units.
<PAGE>
FORM 10-Q
PART I
PAGE 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $5.4 million for the first three
months of 1998, compared to net cash provided by operating activities of $3.8
million for the same period in 1997. The 1998 cash usage resulted primarily
from the timing of certain normal and recurring payments to construction
subcontractors during the first quarter of 1998, following substantial cash
collections from construction clients during the fourth quarter of 1997.
Net cash used in investing activities approximated $1.6 million for the first
three months of 1998, compared to $0.4 million in the first three months of
1997. These amounts solely comprise capital expenditures for both periods.
The 1998 amount includes computer equipment purchases totaling $1.2 million as
compared with $0.3 million in 1997. During 1997, the Company leased additional
computer equipment valued at $0.4 million. The remaining increase is primarily
attributable to updated computer equipment needed in connection with certain
1998 software upgrades.
Net cash used in financing activities totaled $0.4 million for the first
quarter 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 decreased marginally during the first three months of 1998 to
$35.9 million at March 31, 1998, from $36.2 million at December 31, 1997. The
current ratio was 1.45:1 at the end of the first three months of 1998,
compared to 1.41:1 at year-end 1997.
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 March 31, 1998, no
borrowings were outstanding; letters of credit totaling $2.7 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 & 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.
<PAGE>
FORM 10-Q
PART I
PAGE 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Cont.)
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 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.
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 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K
During the quarter ended March 31, 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>
<CAPTION)
<S> <C>
MICHAEL BAKER CORPORATION
Dated: May 13, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,839
<SECURITIES> 0
<RECEIVABLES> 76,543
<ALLOWANCES> 0
<INVENTORY> 25,183
<CURRENT-ASSETS> 115,300
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 135,609
<CURRENT-LIABILITIES> 79,445
<BONDS> 0
0
0
<COMMON> 8,433
<OTHER-SE> 36,835
<TOTAL-LIABILITY-AND-EQUITY> 135,609
<SALES> 111,097
<TOTAL-REVENUES> 111,097
<CGS> 98,853
<TOTAL-COSTS> 98,853
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 1,378
<INCOME-TAX> 648
<INCOME-CONTINUING> 730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 730
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
