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FORM 10-Q
UNITED STATES
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, 2001
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 May 01, 2001:
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Common Stock 6,996,928 shares
Series B Common Stock 1,304,267 shares
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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.
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MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three months ended
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MARCH 31, 2001 March 31, 2000
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(In thousands)
Total contract revenues $92,623 $108,295
Cost of work performed 77,689 93,480
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Gross profit 14,934 14,815
Selling, general and administrative expenses 10,521 10,928
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Income from operations 4,413 3,887
Other income/(expense):
Interest income 259 19
Interest expense (174) (400)
Other, net 26 (197)
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Income before income taxes 4,524 3,309
Provision for income taxes 2,036 1,555
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NET INCOME $ 2,488 $ 1,754
=================================================================================================
BASIC AND DILUTED NET INCOME PER SHARE $ 0.30 $ 0.21
=================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 2001 Dec. 31, 2000
=====================================================================================================================
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,712 $ 9,122
Short-term investments -- 8,999
Receivables 62,636 68,042
Cost of contracts in progress and estimated earnings, less billings 21,894 16,105
Prepaid expenses and other 6,685 7,335
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Total current assets 99,927 109,603
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PROPERTY, PLANT AND EQUIPMENT, NET 10,137 10,058
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OTHER ASSETS
Goodwill and other intangible assets, net 10,542 10,846
Litigation escrow 11,329 --
Other assets 4,305 2,850
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Total other assets 26,176 13,696
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TOTAL ASSETS $ 136,240 $ 133,357
=====================================================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt $ 2,243 $ 2,244
Accounts payable 22,559 25,670
Accrued employee compensation 10,695 9,697
Accrued insurance 4,777 5,321
Accrued litigation reserve -- 11,334
Income taxes payable 5,450 4,443
Other accrued expenses 21,910 20,348
Excess of billings on contracts in progress over cost and estimated earnings 1,548 1,155
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Total current liabilities 69,182 80,212
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OTHER LIABILITIES
Long-term debt 47 51
Accrued litigation reserve 11,135 --
Other 2,785 2,765
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Total liabilities 83,149 83,028
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SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized 44,000,000 shares, issued
7,288,989 and 7,265,149 shares at 3/31/01 and 12/31/00, respectively 7,289 7,265
Series B Common Stock, par value $1, authorized 6,000,000 shares, issued
1,304,385 and 1,304,927 shares at 3/31/01 and 12/31/00, respectively 1,304 1,305
Additional paid-in-capital 37,601 37,488
Retained earnings 9,147 6,659
Other comprehensive loss (197) (335)
Less 302,989 shares of Common Stock in treasury, at cost,
at 3/31/01 and 12/31/00 (2,053) (2,053)
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Total shareholders' investment 53,091 50,329
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 136,240 $ 133,357
=====================================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements
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MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended
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MARCH 31, 2001 March 31, 2000
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,488 $ 1,754
Adjustments to reconcile net income to net
cash provided by/(used in) operating activities:
Depreciation and amortization 1,355 1,602
Changes in assets and liabilities:
(Increase)/decrease in receivables and contracts in progress (383) 7,369
Decrease in accounts payable and accrued expenses (268) (2,866)
Increase/(decrease) in advance billings 393 (5,603)
Increase in other net assets (658) (2,708)
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Total adjustments 439 (2,206)
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Net cash provided by/(used in) operating activities 2,927 (452)
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,129) (715)
Proceeds from sale of short-term investments 8,999 --
Funding of litigation escrow (11,329) --
Proceeds from sale of certain construction assets -- 748
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Net cash provided by/(used in) investing activities (3,459) 33
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt -- 309
Repayments of long-term debt (5) (5)
Proceeds from exercise of stock options 127 43
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Net cash provided by financing activities 122 347
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Net decrease in cash and cash equivalents (410) (72)
Cash and cash equivalents, beginning of year 9,122 3,685
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,712 $ 3,613
==========================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW DATA
Interest paid $ 15 $ 237
Income taxes paid $ 1,138 $ 320
==========================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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MICHAEL BAKER CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIOD ENDED MARCH 31, 2001
(UNAUDITED)
NOTE 1 - EARNINGS PER SHARE
Basic net income per share computations are based upon weighted averages of
8,277,281 and 8,188,789 shares outstanding for the three-month periods ended
March 31, 2001 and 2000, respectively. Diluted net income per share computations
are based upon weighted averages of 8,328,965 and 8,210,817 shares outstanding
for the three-month periods ended March 31, 2001 and 2000, respectively. The
additional shares included in diluted shares outstanding are entirely
attributable to stock options.
NOTE 2 - BUSINESS SEGMENT INFORMATION
The Company changed its reportable business segments effective January 1, 2001.
The three new reportable business segments are as follows:
o The Engineering segment provides a variety of services including
design-build, construction management, consulting, planning, program
management, surveying, mapping, geographic information systems,
architectural and interior design, construction inspection,
constructability reviews and software development capabilities.
o The Energy segment offers services that include training services for
energy producers, operations and maintenance, turbine overhauls, mechanical
services including major equipment outages, and in-shop and onsite
mechanical reconditioning.
o The Non-Core segment consists of the former Buildings and Transportation
construction divisions, which are currently in the process of being wound
down, and the former Baker Support Services, Inc. division, which was sold
effective June 1, 2000. All remaining construction activity within this
segment is expected to cease during 2001.
The following tables reflect the required disclosures for the Company's segments
(in millions):
For the three months ended
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MARCH 31, 2001 March 31, 2000
=================================================================
Total contract revenues:
Engineering $ 57.0 $ 57.6
Energy 35.1 25.6
Non-Core 0.5 25.0
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Subtotal - segments 92.6 108.2
Corporate -- 0.1
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Total $ 92.6 $ 108.3
=================================================================
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For the three months ended
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MARCH 31, 2001 March 31, 2000
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Income/(loss) from operations without
Corporate overhead allocated:
Engineering $ 3.6 $ 3.7
Energy 2.7 1.5
Non-Core 0.4 0.5
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Subtotal - segments 6.7 5.7
Corporate/Insurance (2.3) (1.8)
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Total $ 4.4 $ 3.9
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MARCH 31, 2001 Dec. 31, 2000
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Segment assets:
Engineering $ 67.7 $ 62.4
Energy 42.9 43.2
Non-Core 12.8 2.8
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Subtotal - segments 123.4 108.4
Corporate/Insurance 12.8 25.0
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Total $ 136.2 $133.4
=========================================================================
A reclassification was made to the segment asset balances as of December 31,
2000 in order to conform to the current year presentation.
NOTE 3 - LONG-TERM DEBT AND BORROWING ARRANGEMENTS
The Company has a secured credit agreement (the "Agreement") with its bank which
provides for a commitment of $20 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. For the period
June 1, 2000 through March 31, 2001, no borrowings were outstanding under the
Agreement; however; letters of credit totaling $2.6 million were outstanding as
of March 31, 2001.
The Agreement includes a provision that related borrowings shall be limited to
80% of eligible receivables, as therein defined. The Agreement also provides for
the Company to borrow at the bank's prime interest rate or LIBOR plus 2.25%, and
requires the Company to meet certain cash flow, leverage, interest coverage and
tangible net worth requirements. Under the Agreement, the Company pays the bank
commitment fees of 3/8% per year based on the unused portion of the commitment.
Other amounts totaling $2.3 million at March 31, 2001, and included in current
portion of long-term debt and long-term debt in the accompanying Consolidated
Balance Sheet, represent $2.2 million associated with the Steen acquisition, in
addition to amounts due for certain equipment financed.
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NOTE 4 - CONTINGENCIES
The Company has reviewed the status of contingencies outstanding at March 31,
2001. 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, 2000.
NOTE 5 - NON-CORE OPERATIONS
On January 10, 2001, the Company filed an appeal of the ADF judgment against its
subsidiary, Baker Mellon Stuart Construction, Inc. ("BMSCI"), and its surety,
Travelers Casualty and Surety Company of America. As a result of this appeal,
the Company was required by the appellate court to place $11.3 million into an
escrow account (see Note 2 of the Company's consolidated financial statements
for the year ended December 31, 2000). This escrow amount reflects the $10.0
million preliminary judgment against BMSCI and post-judgment interest expense
(based on an estimated 24-month appeal period) of $1.3 million. The Company will
record both interest income (at a fluctuating market investment rate) and
interest expense (at a rate of 6.052%, as stipulated by the appellate court) on
the escrow amount until settlement.
During the first quarter of 2001, as a result of making the escrow payment, the
Company recorded a long-term asset in the amount of this payment, and has also
reclassified its estimated liability for the ADF judgment from other accrued
expenses to long-term liabilities as of March 31, 2001. The Company currently
expects its appeal of the ADF judgment to take in excess of 12 months.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
As stated in Note 2 to the accompanying financial statements, the Company
changed its reportable business segments effective January 1, 2001. The
following tables reflect a summary of the Company's operating results for
ongoing operations and non-core businesses for the quarters ended March 31, 2001
and 2000 (in millions):
For the Three Months Ended
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MARCH 31, 2001 March 31, 2000
=============================================================
Total Contract Revenues:
Engineering $ 57.0 $ 57.6
Energy 35.1 25.6
Non-Core* 0.5 25.0
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Subtotal - segments 92.6 108.2
Corporate -- 0.1
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Total $ 92.6 $ 108.3
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For the Three Months Ended
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MARCH 31, 2001 March 31, 2000
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Income/(Loss) from Operations:
Engineering $ 2.3 $ 2.8
Energy 2.2 1.2
Non-Core* 0.1 -
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Subtotal - segments 4.6 4.0
Corporate/Insurance (0.2) (0.1)
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Total $ 4.4 $ 3.9
======================================================================
* The Non-Core segment consists of the former Buildings and Transportation
construction divisions, which are currently in the process of being wound down,
and the former Baker Support Services, Inc. division, which was sold effective
June 1, 2000.
TOTAL CONTRACT REVENUES
Total contract revenues from the Company's ongoing operations (consolidated
revenues less non-core) increased 11% in the first quarter of 2001 over the
first quarter of 2000. Engineering revenues decreased slightly in the first
quarter of 2001 as a result of weather-related delays in the initiation of
certain projects. In the Energy segment, revenues increased 37% in the first
quarter of 2001 as compared to the first quarter of 2000. This increase was
driven by OPCO(SM), Baker Energy's Operations Consolidation Model, which
contributed 34% and 18% of Baker Energy's total contract revenues for the first
quarter of 2001 and 2000, respectively. The 98% reduction in total contract
revenues for the Company's non-core operations reflects the wind-down of the
former Buildings and Transportation construction divisions as well as the sale
of Baker Support Services, Inc. ("BSSI") effective June 1, 2000.
GROSS PROFIT
Gross profit expressed as a percentage of revenues for the Company's ongoing
operations increased to 15.8% in the first quarter of 2001 from 15.1% in the
first quarter of 2000. Both the Engineering and Energy segments posted gross
profit percentage improvements, with the Engineering segment's gross profit
percentage increasing slightly to 14.6% in the first quarter of 2001 from 14.4%
in the comparable period of 2000. The Energy segment's gross profit percentage
increased to 18.3% in the first quarter of 2001 from 17.1% in the first quarter
of 2000, primarily due to the aforementioned growth in Energy's OPCO revenues.
OPCO posted a gross profit margin percentage of 21% in the first quarter of 2001
as compared to 19% in the comparable period of 2000. For the first quarter of
2000, the Company's non-core operations posted gross profit of $2.3 million (or
9.0% of the segment's total revenues) versus $0.4 million (or 86.8% of total
revenues) for the comparable period of 2001. The 2000 results for non-core
operations included the two former construction divisions and BSSI, while the
related 2001 results reflected only the substantially completed operations of a
few projects still being wound down by the two construction divisions.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses expressed as a percentage of total
contract revenues for the Company's ongoing operations increased to 11.2% in the
first quarter of 2001 from 10.4% in the first quarter of 2000. In the
Engineering segment, selling, general and administrative expenses expressed as a
percentage of total revenues increased to 10.6% in the first quarter of 2001
from 9.5% in 2000. This percentage increase is attributable to the relatively
flat Engineering revenues and the combination of higher compensation-related
expenses, and higher corporate overhead allocations to the Engineering (and
Energy) segments due to the wind-down of the construction divisions. In the
Energy segment, selling, general and administrative expenses expressed as a
percentage of total revenues decreased to 12.1% in the first quarter of 2001
from 12.4% in 2000. This decrease resulted from several OPCO related contracts
progressing into later stages of the OPCO model which results in an increase in
revenue without a corresponding increase in overhead costs. For the non-core
operations, selling, general and administrative expenses decreased significantly
from $2.3 million in the first quarter of 2000 to $0.2 million in the first
quarter of 2001, due to the sale of BSSI and wind-down of the two former
construction divisions.
OTHER INCOME
Interest income was higher and interest expense was lower for the first quarter
of 2001 as compared to the first quarter of 2000 due primarily to the Company's
investment of excess cash with its bank in 2001. In addition, during the first
quarter of 2000, the Company was in a net borrowed position which resulted in
higher interest expense during that period. Other income was negligible for the
first quarter of 2001, compared to other expense of $0.2 million for the first
quarter of 2000. 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 45% and 47% for the first
quarters of 2001 and 2000, respectively. The lower rate for 2001 reflects the
Company's expectation of higher income before taxes for 2001, with most of the
domestic growth coming from lower tax rate jurisdictions in the United States.
CONTRACT BACKLOG
Backlog consists of that portion of uncompleted work that is represented by
signed or executed contracts. Certain of the Company's contracts with the
Federal Government and other clients may be terminated at will, therefore no
assurance can be given that all backlog will be realized. The Company's backlog
was $507 million and $502 million at March 31, 2001 and December 31, 2000,
respectively. In the Engineering segment backlog increased to $338 million from
$319 million at March 31, 2001 and December 31, 2000, respectively. This
Engineering increase is primarily attributable to three new
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transportation contracts awarded during the first quarter of 2001 and totaling
nearly $16 million. In the Energy segment, backlog decreased to $169 million at
March 31, 2001 from $183 million at December 31, 2000. The decrease in the
Energy segment's backlog results from the loss of a lower margin operations and
maintenance contract, changes in the scope of two other contracts and a client's
sale of certain properties. With the addition of two new contracts already
awarded during the second quarter, the Energy segment's backlog is currently
expected to increase during the second quarter of 2001.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities improved to $2.9 million for the first
quarter of 2001 from cash used in operating activities of $0.5 million for the
same period in 2000. Operating cash flow for the first quarter of 2000 was
abnormally and unfavorably impacted by the wind-down of the former construction
divisions and the sale of certain heavy and highway construction assets and
contracts.
Net cash used in investing activities was $3.5 million for the first quarter of
2001, compared to essentially a break-even for the first quarter of 2000. The
net cash used in investing activities for the first quarter of 2001 reflects the
funding of $11.3 million into an escrow account stipulated in connection with
the Company's appeal of the ADF judgment (see Note 5 to the accompanying
financial statements) and capital expenditures of $1.1 million, as partially
offset by proceeds from the sale of short-term investments totaling $9.0
million. The minor amount of net cash provided by investing activities for the
first quarter of 2000 included proceeds from the sale of certain heavy and
highway construction assets totaling $0.7 million, as offset by capital
expenditures of $0.7 million. The increase in capital expenditures resulted from
the Company's purchase of computer equipment in the first quarter of 2001; such
equipment was acquired under operating leases during the first quarter of 2000.
Net cash provided by financing activities totaled $0.1 million for the first
quarter of 2001, compared to $0.3 million for the same period in 2000. The net
cash provided by financing activities for the first quarter of 2001 resulted
from the proceeds of stock option exercises, while the first quarter 2000 amount
was the result of borrowings under the Company's credit agreement.
Working capital increased to $30.7 million at March 31, 2001 from $29.4 million
at December 31, 2000. The current ratio was 1.44:1 at the end of the first
quarter of 2001, compared to 1.37:1 at year-end 2000. The Company's current
ratio improvement was primarily the result of the escrow payment and
reclassification referred to in Note 5 of the accompanying financial statements.
The Company currently has a secured credit agreement with its bank, which
provides for a commitment of $20 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. No borrowings
have been outstanding since June 1, 2000; however, letters of credit totaling
$2.6 million were outstanding under the agreement as of March 31, 2001.
The Company is currently in negotiations with a syndicate of banks to finalize a
new credit agreement that is expected to provide up to $40 million of working
capital loans. The increased facility is expected
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to better position the Company for growth within its stated core businesses.
While the Company currently expects to have its new credit agreement in place
during the second quarter of 2001, management has also requested its current
bank to extend the term of the existing credit agreement until June 30, 2001.
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 and AIR-21) will provide significant increases in funding
for transportation infrastructure projects during the remainder of 2001 and
beyond. At this time, management believes that its funds generated from
operations and its pending new credit facility will be sufficient to meet its
operating and capital expenditure requirements for at least the next year.
As a result of its 1999 restructuring, the Company will become increasingly less
reliant on its bonding line during 2001. Management believes that its bonding
line will be sufficient to meet its bid and performance needs for at least the
next year. The Company has historically been 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary interest rate risk relates to its variable rate debt
obligations, which totaled $2.2 million as of March 31, 2001. If interest rates
were to change unfavorably by 10%, the Company would have no material exposure
to interest rate risk. 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 period ended March 31, 2001 were denominated in currencies other than
the U.S. Dollar. If foreign currency exchange rates were to change unfavorably
by 10%, the Company would have no material exposure to foreign currency exchange
risk. 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
During the quarter ended March 31, 2001, the Company filed no reports on
Form 8-K.
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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/ William P. Mooney Dated: May 11, 2001
--------------------------------
William P. Mooney
Executive Vice President and
Chief Financial Officer
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