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, 2000
Commission file number 1-6627
MICHAEL BAKER CORPORATION
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0927646
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(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
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(Address of principal executive offices) (Zip Code)
(412) 269-6300
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(Registrant's telephone number,
including area code)
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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
AS OF MARCH 31, 2000:
--------------------
Common Stock 6,878,039 shares
Series B Common Stock 1,311,966 shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
The condensed consolidated financial statements which follow have been prepared
by Michael Baker Corporation ("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 on 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 Company. Forward looking statements are
subject to market, operating and economic risks and uncertainties that may cause
the Company's actual results in future periods to be materially different from
any future performance suggested herein. Factors that may cause such differences
include, among others: increased competition, increased costs, changes in
general market conditions, changes in anticipated levels of government spending
on infrastructure, and changes in loan relationships or sources of financing.
Such forward looking statements are made pursuant to the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995.
<PAGE>
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
For the three months ended
------------------------------
MARCH 31, 2000 March 31, 1999
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(In thousands)
<S> <C> <C>
Total contract revenues $108,295 $115,118
Cost of work performed 93,480 101,659
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GROSS PROFIT 14,815 13,459
Selling, general and administrative expenses 10,928 12,719
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INCOME FROM OPERATIONS 3,887 740
Other income/(expense):
Interest income 19 59
Interest expense (400) (118)
Other, net (197) 99
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INCOME BEFORE INCOME TAXES 3,309 780
Provision for income taxes 1,555 367
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NET INCOME $ 1,754 $ 413
================================================================================
BASIC AND DILUTED NET INCOME PER SHARE $ 0.21 $ 0.05
================================================================================
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
ASSETS MARCH 31, 2000 Dec. 31, 1999
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(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,613 $ 3,685
Receivables 70,242 77,964
Cost of contracts in progress and estimated
earnings, less billings 20,592 20,803
Prepaid expenses and other 9,333 7,363
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TOTAL CURRENT ASSETS 103,780 109,815
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PROPERTY, PLANT AND EQUIPMENT, NET 13,609 17,120
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OTHER ASSETS
Goodwill and other intangible assets, net 13,805 14,563
Other assets 8,923 7,693
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TOTAL OTHER ASSETS 22,728 22,256
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TOTAL ASSETS $140,117 $149,191
================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
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CURRENT LIABILITIES
Current portion of long-term debt $ 3,090 $ 3,526
Accounts payable 21,457 28,862
Accrued employee compensation 10,527 10,462
Accrued insurance 8,357 7,884
Other accrued expenses 23,552 19,453
Excess of billings on contracts in progress
over cost and estimated earnings 7,952 13,555
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TOTAL CURRENT LIABILITIES 74,935 83,742
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OTHER LIABILITIES
Long-term debt 12,677 14,867
Other 5,909 5,783
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TOTAL LIABILITIES 93,521 104,392
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SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized 44,000,000
shares, issued 7,181,028 and 7,170,663 shares
at 3/31/00 and 12/31/99, respectively 7,181 7,171
Series B Common Stock, par value $1, authorized
6,000,000 shares, issued 1,311,966 and 1,313,816
shares at 3/31/00 and 12/31/99, respectively 1,312 1,314
<PAGE>
Additional paid-in capital 37,119 37,084
Retained earnings 3,037 1,283
Less 302,989 shares of Common Stock in treasury,
at cost, at 3/31/00 and 12/31/99 (2,053) (2,053)
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TOTAL SHAREHOLDERS' INVESTMENT 46,596 44,799
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $140,117 $149,191
================================================================================
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the three months ended
------------------------------
MARCH 31, 2000 March 31, 1999
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(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,754 $ 413
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,602 1,595
Changes in assets and liabilities:
Decrease in receivables and contracts in progress 1,766 4,859
Decrease in accounts payable and accrued expenses (2,866) (14,699)
(Increase)/decrease in other net assets (2,708) 1,508
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TOTAL ADJUSTMENTS (2,206) (6,737)
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NET CASH USED IN OPERATING ACTIVITIES (452) (6,324)
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (715) (1,636)
Proceeds from the sale of certain construction assets 748 -
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NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES 33 (1,636)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 309 3,384
Repayments of long-term debt (5) (39)
Proceeds from exercise of stock options 43 34
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NET CASH PROVIDED BY FINANCING ACTIVITIES 347 3,379
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NET DECREASE IN CASH AND CASH EQUIVALENTS (72) (4,581)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,685 5,014
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,613 $ 433
================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
Interest paid $ 237 $ 88
Income taxes paid $ 320 $ 90
================================================================================
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
MICHAEL BAKER CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIOD ENDED MARCH 31, 2000
(UNAUDITED)
NOTE 1 - SALE OF CONSTRUCTION ASSETS
Certain assets held by the Company's Transportation-Construction (heavy and
highway) segment, including substantially all fixed assets and the remaining
contractual rights and obligations associated with eight active construction
projects, were sold to A&L, Inc. ("A&L") in March 2000 in exchange for cash
proceeds of $0.7 million and A&L's assumption of certain debt and lease
obligations. In connection with this sale, charges totaling $1.9 million were
previously recorded during the fourth quarter of 1999. Such charges primarily
reflected writedowns related to fixed asset impairments, equipment lease
termination costs, and lease costs for certain office space permanently idled by
the restructuring. As a result of the sale, the Company remains responsible for
four significant heavy and highway construction projects, all of which are
scheduled for completion by the end of the third quarter of 2000. A&L is
managing these remaining projects for the Company.
NOTE 2 - 1999 RESTRUCTURING CHARGES
During the first quarter of 1999, the Company determined that it would no longer
participate in general construction projects for buildings or transportation
infrastructure. Accordingly, the Company's Buildings unit was restructured, and
the Company recorded related charges totaling $0.8 million during the first
quarter of 1999. Such charges were included entirely within selling, general and
administrative expenses in the accompanying Condensed Consolidated Statement of
Income for the three months ended March 31, 1999, and reflected severance costs
associated with employee terminations, writedowns related to fixed asset
impairments, and lease costs for certain office space permanently idled by the
restructuring.
NOTE 3 - EARNINGS PER SHARE
Basic net income per share computations are based upon weighted averages of
8,188,789 and 8,168,378 shares outstanding for the three-month periods ended
March 31, 2000 and 1999, respectively. Diluted net income per share computations
are based upon weighted averages of 8,210,817 and 8,254,919 shares outstanding
for the three-month periods ended March 31, 2000 and 1999, respectively. The
additional shares included in diluted shares outstanding are entirely
attributable to stock options.
NOTE 4 - BUSINESS SEGMENT INFORMATION
The Company has five operating business units. The Buildings, Energy and
Environmental units each represent separate reportable segments, while the
Transportation and Civil units each comprise two reportable segments.
Accordingly, the Company has the following seven reportable segments:
<PAGE>
o The Buildings unit has historically provided a variety of services
including design-build, construction management, planning, program
management, general contracting, architectural and interior design,
construction inspection and constructability reviews; however, the unit's
offering of general contracting services was discontinued during 1999.
o The Civil unit includes two reportable segments. The Civil-Engineering
segment provides surveying, mapping, geographic information systems,
planning, design and construction management. The Civil-Baker Support
Services Inc. ("BSSI") segment principally provides operations and
maintenance services on U.S. military bases (see Note 7).
o The Energy unit offers services that include operations and maintenance
services for oil and gas production facilities, onsite mechanical services
in connection with turbine overhauls and major power equipment outages, and
training services.
o The Environmental unit provides a combination of engineering and consulting
services in both the public and private markets.
o The Transportation unit includes two reportable segments. The
Transportation-Engineering segment provides planning, design, program
management and software development capabilities. The
Transportation-Construction segment historically provided general
construction services related to highways, bridges, airports, busways and
other transportation facilities; however, all bidding activity ceased
during 1999 and this segment's operations are currently in the process of
being wound down.
The following tables reflect the required disclosures for the Company's seven
segments (in millions):
<TABLE>
<CAPTION>
For the three months ended
------------------------------
MARCH 31, 2000 March 31, 1999
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<S> <C> <C>
TOTAL CONTRACT REVENUES:
Buildings unit $ 6.0 $ 22.3
Civil unit:
Engineering 20.9 15.4
BSSI 14.1 12.7
Energy unit 25.6 19.3
Environmental unit 5.6 6.7
Transportation unit:
Engineering 26.2 18.3
Construction 9.8 20.4
- --------------------------------------------------------------------------------
SUBTOTAL - SEGMENTS 108.2 115.1
Corporate 0.1 -
- --------------------------------------------------------------------------------
TOTAL $108.3 $115.1
================================================================================
<PAGE>
For the three months ended
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MARCH 31, 2000 March 31, 1999
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INCOME/(LOSS) BEFORE TAXES:
Buildings unit $ 0.7 $ (1.2)
Civil unit:
Engineering 0.8 0.6
BSSI 0.3 -
Energy unit 0.8 1.2
Environmental unit 0.3 0.3
Transportation unit:
Engineering 1.1 0.4
Construction (0.7) (0.5)
- --------------------------------------------------------------------------------
SUBTOTAL - SEGMENTS 3.3 0.8
Corporate/Insurance - -
- --------------------------------------------------------------------------------
TOTAL $ 3.3 $ 0.8
================================================================================
MARCH 31, 2000 Dec. 31, 1999
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SEGMENT ASSETS:
Buildings unit $ 5.4 $ 7.4
Civil unit:
Engineering 21.5 23.3
BSSI 16.2 15.8
Energy unit 41.9 40.3
Environmental unit 4.3 4.8
Transportation unit:
Engineering 31.5 28.9
Construction 7.8 17.4
- --------------------------------------------------------------------------------
SUBTOTAL - SEGMENTS 128.6 137.9
Corporate/Insurance 11.5 11.3
- --------------------------------------------------------------------------------
TOTAL $140.1 $149.2
================================================================================
</TABLE>
<PAGE>
NOTE 5 - LONG-TERM DEBT AND BORROWING ARRANGEMENTS
The Company has a secured credit agreement (the "Agreement") with Mellon Bank,
N.A., which provides for a commitment of $25 million through May 31, 2001. The
commitment includes the sum of the principal amount of revolving credit loans
outstanding and the aggregate face value of outstanding letters of credit. As of
March 31, 2000, borrowings totaling $10.4 million were outstanding under the
Agreement (and included in long-term debt in the accompanying Condensed
Consolidated Balance Sheet), along with outstanding letters of credit totaling
$2.2 million.
NOTE 6 - CONTINGENCIES
The Company has reviewed the status of contingencies outstanding at March 31,
2000. Except as noted below, management 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, 1999.
With respect to the Company's litigation with Universal City Development
Partners ("UCDP"), on May 1, 2000, the Company and UCDP settled their claims
related to a contact entered into by the Company's subsidiary, Baker Mellon
Stuart Construction, Inc., for the construction of the CityWalk project at the
Universal Studios theme park in Orlando, Florida. The previously announced
conditional settlement, which was subject to and conditioned upon acceptance and
signature by the Project Policy Insurer, expired by its extended terms in early
April. The current settlement, which is final, does not involve participation by
the Project Policy Insurer but does preserve the Company's rights against
Hellmuth, Obata & Kassabaum, Inc. ("HOK"), the company which designed the
project; the Project Policy Insurer; and HOK's other insurers. The Company also
remains responsible for all subcontractor and vendor claims arising from the
project. The Company believes it has made adequate provisions for these claims
as of March 31, 2000.
On April 10, 2000, the Company reached a settlement of the arbitration
previously reported between the Company and the former owner of GeoResearch,
Inc. The arbitration arose from the Company's September 30, 1998 purchase of
GeoResearch. Under the terms of the settlement, the Company paid the former
owner $500,000 and the parties entered into mutual releases. The Company was
adequately reserved for this settlement as of March 31, 2000.
NOTE 7 - SUBSEQUENT EVENT
On May 3, 2000, the Company announced that it has reached a definitive agreement
for the sale of its Baker Support Services, Inc. ("BSSI") subsidiary to SKE
International, LLC. This definitive agreement, which remains subject to normal
closing conditions, is currently expected to become final during the second
quarter.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-----------------------------------------------------------------------
RESULTS OF OPERATIONS
TOTAL CONTRACT REVENUES
Total contract revenues were $108.3 million for the first quarter of 2000,
compared to $115.1 million for the first quarter of 1999. Revenue improvements
in the Company's Civil and Energy units were more than offset by significant
decreases in the Buildings and Transportation units and a minor decrease in the
Environmental unit. The revenue decreases in the Buildings and Transportation
units are directly attributable to the restructuring of the Company's general
construction divisions, which posted combined first quarter 2000 revenues of
only $10.9 million versus $39.6 million in the first quarter of 1999. Excluding
the Company's general construction revenues from the first quarter of both
years, the Company would have shown a 29% increase in revenues for the first
quarter of 2000. With respect to the more significant revenue improvements, the
Transportation-Engineering segment continued its trend of higher revenues as a
result of state transportation funding increases associated with the U.S.
government's 1998 TEA-21 legislation. In the Energy unit, the first quarter 2000
revenue improvement was primarily attributable to two significant new contracts
to provide operations and maintenance services to clients in the Gulf of Mexico
under its BakerOPCO(SM) operating model. The Civil-Engineering segment also
posted higher first quarter 2000 revenues due to several new contracts and
higher revenues on existing projects.
GROSS PROFIT
Gross profit increased to $14.8 million in the first quarter of 2000 from $13.5
million in the first quarter of 1999. As a percentage of total contract
revenues, the first quarter's gross profit also increased to 13.7% in 2000 from
11.7% in 1999. The most significant overall improvements were registered in the
Company's Transportation-Engineering, Energy and Civil-BSSI segments, with help
from its Buildings-Engineering division. In the Transportation-Engineering
segment, significant revenue growth pushed its gross profit in dollars higher
than the comparable first quarter results for 1999. Similarly, the Energy unit's
gross profit improvement is primarily attributable to the revenue growth from
the aforementioned two new contracts, as well as the receipt of a performance
bonus on another contract. BSSI's increase in gross profit is primarily
attributable to a significant new joint venture project to provide base
operating support services, which began during the fourth quarter of 1999.
Finally, in the Company's Buildings-Engineering division, several new contracts
resulted in significant improvements to both its gross profit in dollars and its
gross profit percentage.
Excluding the Company's discontinued construction businesses, the gross profit
percentages would have been 14.8% and 16.0% for the quarters ended March 31,
2000 and 1999, respectively. The first quarter 2000 revenue growth in most of
the Company's continuing segments came at the expense of slightly lower margins.
These lower margins are primarily attributable to a higher use of subcontractors
in the Company's Civil and Transportation engineering segments during the first
quarter of 2000.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses decreased to $10.9 million
in the first quarter of 2000 from $12.7 million in the first quarter of 1999.
Expressed as a percentage of total contract revenues, SG&A expenses also
decreased to 10.1% for the first quarter of 2000, as compared with 11.0% for the
first quarter of 1999. Excluding the restructuring charges of $0.8 million (see
Note 2 to the accompanying financial statements), SG&A expenses would have been
10.4% of total contract revenues for the first quarter of 1999. The overall
dollar and percentage decreases for the first quarter of 2000 are primarily
attributable to the discontinuance of the Company's general construction
operations (see Notes 1 and 2 to the accompanying financial statements).
OTHER INCOME
Interest income was lower and interest expense was higher for the first quarter
of 2000 due primarily to the Company's increased borrowings under its credit
agreement with Mellon Bank, N.A. ("Mellon"), and debt associated with the
Company's third quarter 1999 acquisition of Steen Production Service, Inc. Other
expense was $197,000 for the first quarter of 2000, compared to other income of
$99,000 for the first quarter of 1999. Unfavorably affecting the first quarter
2000 other expense amount were lower profitability associated with
unconsolidated joint ventures and higher expense associated with the minority
interest in the income of a consolidated Energy unit venture.
INCOME TAXES
The Company had provisions for income taxes of 47% for the first quarters of
both 2000 and 1999.
CONTRACT BACKLOG
The funded backlog of work to be performed was $286 million as of March 31,
2000, compared to funded backlog of $365 million at December 31, 1999. 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), decreased
to $568 million at March 31, 2000, from $657 million as of December 31, 1999.
During the first quarter of 2000, funded and total backlog for the Company's
discontinued construction operations decreased by $43 million, of which $32
million resulted from the sale of certain heavy and highway contracts to A&L,
Inc. (as discussed in Note 1 to the accompanying financial statements).
Otherwise, the Company added slightly to its funded backlog in the Environmental
unit and to both funded and total backlog in its Buildings-Engineering division,
while the Civil, Transportation-Engineering and Energy segments experienced
reductions in funded and total backlog. The Company is currently negotiating
several new contracts and change orders on existing contracts, which are
expected to add significantly to its backlog during the second quarter of 2000.
With reference to the Company's 1999 restructuring, funded backlog related to
the businesses that will be continued by the Company (i.e., excluding the two
construction divisions) was $281 million as of March 31, 2000, as compared with
$316 million as of December 31, 1999. Total backlog for these businesses was
$563 million and $608 million as of March 31, 2000 and December 31, 1999,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities decreased to $0.5 million for the first
quarter of 2000 from $6.3 million for the same period in 1999. This improvement
was primarily attributable to the higher net income for the first quarter of
<PAGE>
2000, as well as significant first quarter 1999 reductions in the Buildings
unit's trade payables and reserves, resulting from subcontractor payments made
on the Universal Studios and several other construction contracts.
Net cash provided by investing activities was essentially a break-even for the
first quarter of 2000, compared to net cash used in investing activities of $1.6
million for the same period in 1999. The minor amount of net cash provided by
investing activities for the first quarter of 2000 comprises proceeds from the
sale of certain heavy and highway construction assets totaling $0.7 million (see
Note 1 to the accompanying financial statements), as offset by capital
expenditures of ($0.7) million. The 1999 net cash used amount solely represents
capital expenditures for the first quarter.
Net cash provided by financing activities totaled $0.3 million for the first
quarter of 2000, compared to $3.4 million for the same period in 1999. During
the first quarter of 2000, the Company received proceeds of only $0.3 million
from borrowings under its credit agreement with Mellon, as compared to proceeds
of $3.4 million received during the same period in 1999.
Working capital increased to $28.8 million at March 31, 2000 from $26.1 million
at December 31, 1999. The current ratio was 1.38:1 at the end of the first
quarter of 2000, compared to 1.31:1 at year-end 1999. These improvements are
predominantly attributable to the wind-down of the Company's construction
operations.
The Company has a secured credit agreement, which expires on May 31, 2001, with
Mellon. This agreement provides for a commitment of $25 million, which covers
borrowings and letters of credit. As of March 31, 2000, borrowings totaling
$10.4 million were outstanding under the agreement, along with outstanding
letters of credit totaling $2.2 million. Management believes that the credit
agreement will be adequate to meet its borrowing and letter of credit
requirements 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 could affect the Company. The current federal transportation
legislation (TEA-21) will provide significant increases in funding for
transportation infrastructure projects during the remainder of 2000 and beyond.
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 historically been required to provide bid and performance
bonding on certain construction contracts, and continues to have a $500 million
bonding line available through Travelers Casualty & Surety Company of America.
As a result of its 1999 restructuring, the Company will become increasingly less
reliant on its bonding line during the remainder of 2000. Accordingly,
management believes that its bonding line will be sufficient to meet its bid and
performance needs for at least the next year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company's primary interest rate risk relates to its long-term debt
obligations. As of March 31, 2000 and December 31, 1999, the Company had total
long-term debt obligations, including the current portion of those obligations,
totaling $15.8 million and $18.4 million, respectively. Of these amounts, fixed
rate obligations totaled $0.1 million and $2.7 million, and variable rate
obligations totaled $15.7 million and $15.7 million, as of March 31, 2000 and
December 31, 1999, respectively. The 2000 decrease in the fixed rate obligation
<PAGE>
amount relates primarily to the March 2000 sale of certain assets of the
Company's Transportation-Construction segment to A&L (see Note 1 to the
accompanying financial statements). Assuming a 10% increase in interest rates on
the Company's variable rate obligations (i.e., an increase from the actual
weighted average interest rate of 9.00% as of March 31, 2000, to a weighted
average interest rate of 9.90%), annual interest expense would be approximately
$141,000 higher in 2000 based on the outstanding balance of variable rate
obligations as of March 31, 2000. The Company has no interest rate swap or
exchange agreements.
Less than 1% of the Company's total assets and total contract revenues as of and
for the periods ended March 31, 2000 and 1999 were denominated in currencies
other than the U.S. Dollar; accordingly, the Company has no material exposure to
foreign currency exchange risk. This materiality assessment is based on the
assumption that the foreign currency exchange rates could change unfavorably by
10%. The Company has no foreign currency exchange contracts.
Based on the nature of the Company's business, it has no direct exposure to
commodity price risk.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
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 probable and reasonably
estimable liabilities associated with these proceedings, and that their ultimate
resolutions will not have a material adverse effect on the consolidated
financial position or annual results of operations of the Company.
With reference to Item 3 of the Company's 1999 Annual Report on Form 10-K, the
Company had previously reported litigation with Universal City Development
Partners ("UCDP"). On May 1, 2000, the Company and UCDP settled their claims
related to a contact entered into by the Company's subsidiary, Baker Mellon
Stuart Construction, Inc. ("BMSCI"), for the construction of the CityWalk
project at the Universal Studios theme park in Orlando, Florida. The previously
announced conditional settlement, which was subject to and conditioned upon
acceptance and signature by the Project Policy Insurer, expired by its extended
terms in early April. The current settlement, which is final, does not involve
participation by the Project Policy Insurer but does preserve the Company's
rights against Hellmuth, Obata & Kassabaum, Inc. ("HOK"), the company which
designed the project; the Project Policy Insurer; and HOK's other insurers. The
Company also remains responsible for all subcontractor and vendor claims arising
from the project. The most material of these claims involves a suit brought by
ADF International, Inc. ("ADF"), BMSCI's subcontractor for structural steel and
miscellaneous metals.
On November 24, 1998, ADF filed suit in the Federal District Court in the Middle
District of Florida against BMSCI and Travelers Casualty and Surety Company of
America ("Travelers"), which provided performance and payment bonds on behalf of
BMSCI, seeking damages for alleged breaches of contract relating to the project.
BMSCI and Travelers answered the complaint (and amended complaint) and BMSCI
filed a counterclaim. BMSCI and its counsel believe it has valid claims against
ADF and defenses to claims by ADF. BMSCI intends to pursue and defend these
claims vigorously. BMSCI further intends to engage in negotiations to settle all
other subcontractor and vendor claims. The Company believes it has made adequate
provisions for all subcontractor and vendor claims, including ADF, in its
consolidated financial statements as of and for the period ended March 31, 2000.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(b) REPORTS ON FORM 8-K
-------------------
During the quarter ended March 31, 2000, 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.
MICHAEL BAKER CORPORATION
/s/ RICHARD L. SHAW Dated: May 12, 2000
- -----------------------------------
Richard L. Shaw
Chief Executive Officer
/s/ CRAIG O. STUVER Dated: May 12, 2000
- -----------------------------------
Craig O. Stuver
Vice President and Corporate Controller
(Principal Financial and Accounting Officer)
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<NAME> Michael Baker Corporation
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