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, 1997
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 June 30, 1997:
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Common Stock 6,856,719 shares
Series B Common Stock 1,344,737 shares
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. 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.
FORM 10-Q
PART I
PAGE 2
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For the three months ended
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JUNE 30, 1997 June 30, 1996
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(In thousands, except per share amounts)
Total contract revenues $105,477 $102,996
Cost of work performed 92,563 90,782
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Gross profit 12,914 12,214
General and administrative expenses 10,486 10,049
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Income from operations 2,428 2,165
Other income/(expense):
Interest expense (16) (15)
Interest income 137 85
Other, net 85 158
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Income before income taxes 2,634 2,393
Provision for income taxes 1,265 1,101
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NET INCOME $1,369 $1,292
==============================================================================
NET INCOME PER SHARE $0.17 $0.15
==============================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
FORM 10-Q
PART I
PAGE 3
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
For the six months ended
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JUNE 30, 1997 June 30, 1996
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(In thousands, except per share amounts)
Total contract revenues $199,569 $187,015
Cost of work performed 175,779 164,395
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Gross profit 23,790 22,620
General and administrative expenses 20,883 19,627
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Income from operations 2,907 2,993
Other income/(expense):
Interest expense (34) (46)
Interest income 267 216
Other, net 603 178
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Income before income taxes 3,743 3,341
Provision for income taxes 1,797 1,537
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NET INCOME $1,946 $1,804
=============================================================================
NET INCOME PER SHARE $0.24 $0.21
=============================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
FORM 10-Q
PART I
PAGE 4
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS JUNE 30, 1997 Dec. 31, 1996
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(In thousands)
CURRENT ASSETS
Cash $9,417 $10,480
Receivables 71,432 69,621
Cost of contracts in progress and
estimated earnings, less billings 18,360 16,276
Prepaid expenses and other 5,836 6,370
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Total current assets 105,045 102,747
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PROPERTY, PLANT AND EQUIPMENT, NET 11,302 12,265
OTHER ASSETS
Goodwill and other intangible assets, net 7,017 7,242
Other assets 4,039 3,828
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Total other assets 11,056 11,070
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TOTAL ASSETS $127,403 $126,082
==============================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
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CURRENT LIABILITIES
Accounts payable $34,293 $34,960
Accrued employee compensation 7,471 6,596
Accrued insurance 5,865 5,425
Other accrued expenses 17,586 19,045
Excess of billings on contracts in progress
over cost and estimated earnings 9,459 9,304
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Total current liabilities 74,674 75,330
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SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized 44,000,000
shares, issued 7,064,179 and 7,055,784 shares at
June 30, 1997 and Dec. 31, 1996, respectively 7,064 7,056
Series B Common Stock, par value $1, authorized
6,000,000 shares,issued 1,344,737 and 1,348,632
shares at June 30, 1997 and Dec. 31, 1996, respectively 1,345 1,349
Additional paid-in capital 36,720 36,694
Retained earnings 8,859 6,913
Less 207,460 and 207,560 shares of Common Stock in treas,
at cost, at June 30, 1997 and Dec. 31, 1996, resp. (1,259) (1,260)
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Total shareholders' investment 52,729 50,752
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $127,403 $126,082
==============================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
FORM 10-Q
PART I
PAGE 5
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the six months ended
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JUNE 30, 1997 June 30, 1996
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,946 $1,804
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,147 2,392
Deferred income taxes 1,031 461
Changes in assets and liabilities:
Increase in receivables and contracts
in progress (3,739) (13,506)
(Decrease)/increase in accounts payable
and accrued expenses (812) 3,018
Increase in other net assets (840) (2,670)
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Total adjustments (2,213) (10,305)
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Net cash used in operating activities (267) (8,501)
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (796) (1,317)
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Net cash used in investing activities (796) (1,317)
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CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt 0 (12)
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Net cash used in financing activities 0 (12)
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Net decrease in cash (1,063) (9,830)
Cash at beginning of year 10,480 14,303
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CASH AT END OF PERIOD $9,417 $4,473
==============================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
Interest paid $31 $33
Income taxes paid $89 $204
==============================================================================
<FN>
The accompanying notes are an integral part of this financial statement.
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, 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 include 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 June 30, 1997, no loans were outstanding; however, letters of credit
totaling $6,254,000 were outstanding under the Agreement.
NOTE 2 - EARNINGS PER SHARE
Earnings per share computations are based upon weighted averages of 8,257,297
and 8,410,851 shares outstanding for the three-month periods, and 8,256,304
and 8,404,064 for the six-month periods, ended June 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.
FORM 10-Q
PART I
PAGE 7
MICHAEL BAKER CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIODS ENDED JUNE 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.
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 $105.5 million for the second quarter of 1997,
compared to $103.0 million for the same period in 1996. With the exception of
the Environmental unit, total contract revenues for the second quarter of 1997
increased in all business units over the second quarter of 1996. The Civil
unit had the greatest increase of $2.1 million as a result of higher 1997
revenues from new operations & maintenance ("O&M") contracts on which work
commenced during the fourth quarter of 1996 and from an increase in revenues
on an existing O&M contract.
Total contract revenues were $199.6 million for the first six months of 1997,
compared to $187.0 million for the same period in 1996. All units except
Environmental posted increases in total contract revenues for the first six
months of 1997. The Civil and Energy units had the largest increases of $7.6
million and $5.0 million, respectively. Civil's increase resulted primarily
from the previously mentioned new O&M contracts. Energy's improvement is
attributable to new O&M contracts which were added during the second and third
quarters of 1996.
GROSS PROFIT
The Company's gross profit of $12.9 million for the second quarter of 1997
represents a 6% improvement over the gross profit of $12.2 million from its
1996 second quarter. As a percentage of total contract revenues, gross profit
increased to 12.2% in the second quarter of 1997 from 11.9% in the second
quarter of 1996. The most significant component of these overall improvements
resulted from the Transportation unit, wherein a construction project
completed in the second quarter of 1997 realized higher than expected
profitability, and in 1996 a significant construction project reported certain
revenues equal to costs, thereby resulting in minimal profit being recognized.
Gross profit for the first six months of 1997 increased by 5% to $23.8 million
from $22.6 million in the first six months of 1996. As a percentage of total
contract revenues, gross profit decreased slightly to 11.9% for the first half
of 1997 from 12.1% for the comparable 1996 period. The Transportation unit's
percentage increase for the first six months of 1997 is attributable to the
situations described in the preceding paragraph. Despite higher 1997 revenues
on its engineering project in Mexico and on its O&M contracts, the Civil
unit's profit percentage decreased due to lower margins realized on its
remaining mix of engineering work. The Energy unit's profit percentage
decreased due to slightly lower profitability associated with its new O&M
contracts added in 1996.
FORM 10-Q
PART I
PAGE 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses increased to $10.5 million for the
second quarter of 1997 from $10.0 million in the second quarter of 1996.
Expressed as a percentage of total contract revenues, G&A expenses remained
relatively constant at just under 10% for the second quarter of both years.
G&A expenses increased to $20.9 million for the first six months of 1997 from
$19.6 million for the same period in 1996. G&A expenses were 10.5% of total
contract revenues in both years' six-month periods.
OTHER INCOME
Other income for the first six 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 six months of
1997 and 46% for the comparable period in 1996. The higher 1997 provision
rate reflects increases in foreign income and withholding taxes.
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 second quarter or
six months of 1997 and all of 1996.
CONTRACT BACKLOG
The funded backlog of work to be performed was $317 million as of June 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 $604 million
for the Company as of June 30, 1997, as compared to $544 million as of
FORM 10-Q
PART I
PAGE 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTRACT BACKLOG (Cont.)
December 31, 1996. During the second quarter 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 used in operating activities was $0.3 million for the first six
months of 1997, compared to $8.5 million for the same period in 1996. The
1997 decrease in cash used resulted from the collection of retention amounts
totaling $2.3 million on a significant construction project during the first
six months of 1997 and from slower collections in the first six months of 1996
related to the Civil unit's significant engineering project in Mexico.
Net cash used in investing activities approximated $0.8 million for the first
six months of 1997 compared to $1.3 million for the first six months of 1996.
These amounts solely comprise purchases of property, plant and equipment for
both periods.
Working capital increased during the first six months of 1997 to $30.4 million
at June 30, 1997, from $27.4 million at December 31, 1996. The current ratio
was 1.41:1 at the end of the first six 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
June 30, 1997, no loans were outstanding; however, letters of credit totaling
$6.3 million were outstanding under the agreement.
The Company is required to provide bid and performance bonding on certain
construction contracts, and has a $350 million bonding line available through
Aetna Casualty and Surety Company of America. Management believes that its
bonding line will be sufficient to meet its bid and performance needs for 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.
FORM 10-Q
PART II
PAGE 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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(a) The Company's annual meeting of shareholders was held on May 14,
1997.
(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 only 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:
Name of Director Votes for Votes withheld
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Robert N. Bontempo 18,946,280 341,479
Charles I. Homan 19,222,502 65,257
Thomas D. Larson 19,171,854 115,905
John E. Murray 19,074,520 213,239
Richard L. Shaw 19,089,419 198,340
Konrad M. Weis 19,156,844 130,915
J. Robert White 18,996,735 291,024
William A. Wulf 19,143,795 143,964
The votes cast by holders of the Company's Common Stock in
approving the following directors were:
Name of Director Votes for Votes withheld
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William J. Copeland 6,604,756 70,333
Roy V. Gavert, Jr. 6,625,428 49,661
Jack B. Hoey 6,625,508 49,581
FORM 10-Q
PART II
PAGE 12
Item 6. Exhibits and Reports on Form 8-K
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(a) The following exhibits are included herewith as a part of this
Report:
10.1 Credit Agreement by and among Michael Baker Corporation
and Subsidiaries and Mellon Bank, N.A. dated as of
June 12, 1997, filed herewith.
(b) Reports on Form 8-K
During the quarter ended June 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.
MICHAEL BAKER CORPORATION
Dated: August 13, 1997 By: /s/ J. Robert White
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J. Robert White
Executive Vice President,
Chief Financial Officer
and Treasurer