<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996
Commission file number 1-6627
MICHAEL BAKER CORPORATION
-------------------------
(Exact name of registrant as specified in its charter)
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 269-6300
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of Class Name of each exchange on which registered
-------------- -----------------------------------------
COMMON STOCK, PAR VALUE
$1 PER SHARE AMERICAN STOCK EXCHANGE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ------------
The Registrant estimates that as of February 28, 1997, the aggregate market
value of shares of the Registrant's Common Stock and Series B Common Stock held
by non-affiliates (excluding for purposes of this calculation only, 2,645,520
shares of Common Stock and 1,226,767 shares of Series B Common Stock held of
record or beneficially by the executive officers and directors of the
Registrant as a group and the Registrant's Employee Stock Ownership Plan) of
the Registrant was $31,000,577 for the Common Stock and $893,120 for the Series
B Common Stock (calculated for the Series B Common Stock on the basis of the
shares of Common Stock into which Series B Common Stock is convertible).
<PAGE>
As of February 28, 1997, the Registrant had outstanding 6,848,988 shares of its
Common Stock and 1,347,868 shares of its Series B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Form 10-K into which
Document Document is incorporated
- -------------------------------------------------------------------------------
Financial Section of Annual Report to Shareholders
for the year ended December 31, 1996 I, II
Proxy Statement to be distributed in connection with
the 1997 Annual Meeting of Shareholders III
<PAGE>
NOTE WITH RESPECT TO FORWARD LOOKING STATEMENTS:
This Annual Report on Form 10-K, and in particular the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of
Exhibit 13.1 thereto, which is incorporated by reference into Item 7 of Part
II, 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>
PART I
Item 1. Business
-----------
Michael Baker Corporation ("Baker" or "the Registrant") was founded in 1940 and
organized as a Pennsylvania corporation in 1946. Today, through its operating
subsidiaries and joint ventures, Baker provides engineering, construction, and
operations and technical services worldwide. The Registrant is organized into
the following five market-focused business unit segments: Buildings, Civil,
Energy, Environmental and Transportation.
Information regarding the amounts of revenue, operating profit and identifiable
assets attributable to the Registrant's industry segments is contained in Note
3 to the consolidated financial statements, which are included within Exhibit
13.1 to this Form 10-K. Such information is incorporated herein by reference.
According to the annual listings published in 1996 by ENGINEERING NEWS RECORD
magazine, Baker ranks 45th among U.S. design firms, 12th among transportation
design firms, 76th among international design firms, 89th among environmental
firms and 165th among U.S. construction contractors. These rankings were based
on 1995 revenues.
Business Units
----------------
BUILDINGS. The Buildings unit comprises a general construction, construction
management and design-build division and a facility planning and design
division, that together pursue the growing design-build market.
The following are the principal services provided by the Buildings unit:
o Architecture
o Engineering
o Planning
o Construction management and consulting
o Design-build
o General construction
CIVIL. The Civil unit comprises the Registrant's civil engineering and
water resources division and its military operations & maintenance service
division, Baker Support Services, Inc. ("BSSI"). This unit has combined
Baker's military infrastructure work in planning and operations & maintenance,
to improve its ability to market to, and serve, the U.S. Department of Defense,
an important Baker client.
The following are the primary services provided by the Civil unit:
o Engineering, planning, design and program management
o Geographic information systems
o Photogrammetric mapping
o Waste/wastewater systems development
o Water resources management
o Military facilities planning and program management
o Military base operations support
o Fiber-optic cable engineering
o Design-build-operate
<PAGE>
ENERGY. The Energy unit comprises Baker/MO Services, Inc. ("Baker/MO") and
Baker/OTS, Inc. ("Baker/OTS"). This unit focuses on providing operations &
maintenance and technical services within the domestic and international energy
industry. Baker/MO provides specialized services to the oil and gas, utility,
and petrochemical industries, while Baker/OTS provides operations and technical
services to major international oil and gas producers, principally outside the
United States.
The major services provided by the Energy unit are as follows:
o Facility operations and maintenance
o Operations analysis
o Equipment maintenance and overhaul
o Training programs
o Pipeline development and design
o Technical consulting and personnel
o Engineering and construction management
o Design-build-operate oil & gas facilities
ENVIRONMENTAL. The Environmental unit comprises only one operating
division. The principal services provided by the Environmental unit include:
o Site characterization
o Remediation design and construction management
o Air quality management
o Process safety management
o Human health/ecological risk assessment
o Occupational health and safety compliance
o Environmental regulation compliance, audits and permitting
o Groundwater/wastewater treatment
o Facility design-build-operate
TRANSPORTATION. The Transportation unit combines engineering capabilities in
highways, bridges, transit, aviation and rail, with heavy and highway
construction capabilities in its two divisions. The services provided by this
unit have enhanced the Registrant's existing capabilities to serve
transportation clients, created a strong construction management team, and
positioned Baker to serve the evolving design-build market.
The major services provided by the Transportation unit are the following:
o Planning
o Design
o Construction
o Construction management and inspection
o Program management for surface and air transportation
o Design-build-operate
Domestic and Foreign Operations
-------------------------------
Approximately 88% and 92% of the Registrant's total contract revenues were
derived from work performed within the United States for the years ended
December 31, 1996 and 1995, respectively. Of those domestic-based revenues,
the majority comprises engineering and construction work performed in the
Northeast region of the U.S. The Registrant's international-based revenues
are derived primarily from Baker/OTS and relate to operations and technical
services performed outside the U.S. Baker/OTS provides the majority of its
services in the Middle East and Africa.
<PAGE>
Funded and Unfunded Backlog
---------------------------
The Registrant's funded backlog, which comprises that portion of uncompleted
work represented by signed contracts and for which the procuring agency has
appropriated and allocated the funds to pay for the work, was $333 million at
December 31, 1996 and $300 million at December 31, 1995. Total backlog, which
incrementally includes that portion of contract value for which options are
still to be exercised (unfunded backlog), was $544 million at December 31, 1996
and $508 million at December 31, 1995.
There is not necessarily a correlation between the foregoing figures and the
Registrant's annual total contract revenues. In the case of multi-year
contracts, total contract revenues are spread over several years and correspond
to the timing of the contract rather than the Registrant's fiscal year. Many
multi-year contracts, particularly with agencies of the U.S. government,
provide for optional renewals on the part of the customer. The Registrant's
experience has been that these optional contract renewals have generally been
exercised. Funded backlog generally is highest during the last quarter of each
of the Registrant's fiscal years because that corresponds to the first quarter
of the U.S. government's fiscal year, which is when many such government
contract renewals occur.
Customers
---------
No individual contract accounted for more than 10% of the Registrant's total
contract revenues in 1996, 1995 or 1994; however, several contracts with the
State of Illinois provided 10.5% and 13.5% of the Registrant's total contract
revenues in 1995 and 1994, respectively. Several contracts with the U.S.
Department of Navy also provided 10.9% and 12.1% of the Registrant's 1996 and
1995 total contract revenues, respectively.
Competitive Conditions
----------------------
The Registrant's business is highly competitive with respect to all principal
services it offers. Baker competes with numerous firms which provide some or
all of the services provided by the Registrant. The competitive conditions in
the Registrant's businesses relate to the nature of the contracts being
pursued. Public-sector contracts, consisting mostly of contracts with federal
and state governmental entities, are generally awarded through a competitive
bidding process, subject to the contractors' qualifications and experience.
The Baker business units employ extensive cost estimating, scheduling and
other computerized techniques for the preparation of these competitive bids.
Private-sector contractors compete on the bases of qualifications, quality of
performance, price of services and other related factors. Such private-sector
contracts are generally awarded on a negotiated basis.
The Registrant believes that the principal competitive factors (in various
orders of importance) in the areas of services it offers are quality of
service, reputation, experience, technical proficiency and cost of service.
The Registrant believes that it is well positioned to compete effectively by
emphasizing its full range of professional services.
<PAGE>
Seasonality
-----------
Based upon the Registrant's experience, total contract revenues and net income
during the first and fourth quarters from engineering and construction-related
services tend to be lower than the remaining quarters due to winter weather
conditions, particularly for projects in the Northeast and Midwest regions of
the United States.
Personnel
-----------
At December 31, 1996, the Registrant employed approximately 3,720 persons,
broken down by business unit as follows:
Buildings unit--330 Environmental unit--170
Civil unit--1,360 Transportation unit--870
Energy unit--950 Corporate staff--40
The Registrant's employees are not represented by labor unions, with the
exception of its construction personnel, which are generally covered by
collective bargaining agreements, as are certain BSSI employees in the Civil
unit. Currently, the Registrant considers its relationships with labor unions
to be good.
Item 2. Properties
----------
The principal office of the Registrant is located at the Airport Office Park,
420 Rouser Road, Coraopolis, Pennsylvania 15108, at which approximately 122,000
square feet of office space is leased for use by the Registrant's Civil,
Environmental and Transportation units and, to a much lesser extent, by its
corporate staff. The Registrant owns a 75,000 square foot office building
located in Beaver County, Pennsylvania, which is situated on a 175 acre site
and utilized as the principal office of the Registrant's Civil unit.
The Registrant leases an aggregate of approximately 404,000 square feet of
office-related floor space, including the principal office. The space leased
by business unit is as follows:
The Buildings unit leases approximately 42,000 square feet in:
Orlando, Florida Coraopolis, Pennsylvania
Chicago, Illinois Alexandria, Virginia
The Civil unit leases approximately 106,000 square feet in:
Phoenix, Arizona Dallas, Texas
Baltimore, Maryland Salt Lake City, Utah
Jackson, Mississippi Alexandria, Virginia
Elmsford, New York Virginia Beach, Virginia
Vestal, New York Mexico City, Mexico
Coraopolis, Pennsylvania
The Energy unit leases approximately 21,000 square feet in:
Lafayette, Louisiana Abu Dhabi, United Arab Emirates
Houston, Texas Middlesex, United Kingdom
<PAGE>
The Environmental Unit leases approximately 43,000 square feet:
Merrillville, Indiana Coraopolis, Pennsylvania
Princeton, New Jersey
The Transportation unit leases approximately 151,000 square feet in:
Anchorage, Alaska Coraopolis, Pennsylvania
Phoenix, Arizona Gibsonia, Pennsylvania
Fort Smith, Arkansas Harrisburg, Pennsylvania
Tampa, Florida Pittsburgh, Pennsylvania
Atlanta, Georgia Alexandria, Virginia
Chicago, Illinois Richmond, Virginia
Princeton, New Jersey Virginia Beach, Virginia
Elmsford, New York Charleston, West Virginia
The Corporate staff utilizes approximately 41,000 square feet of leased space
in Coraopolis and New Brighton, Pennsylvania.
Item 3. Legal Proceedings
-----------------
The Registrant has been named as a defendant or co-defendant in legal
proceedings wherein substantial damages are claimed. Such proceedings are not
uncommon to the Registrant's business. After consultations with counsel,
management believes that the Registrant 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 Registrant.
The only significant 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
Registrant and one of its wholly-owned subsidiaries, that asserts breach of
contract and alleges damages of $13 million. The Registrant, which was not a
party to the contract underlying the lawsuit, contends that there is no
jurisdiction with respect to the Registrant and that it cannot be held liable
for any conduct of the subsidiary. Both the Registrant and the subsidiary are
contesting liability issues and have filed cross-claims and third-party claims
against the other entities involved in the project.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of the Registrant's security holders during
the fourth quarter of 1996.
<PAGE>
Executive Officers of the Registrant
- ------------------------------------
The following represents a listing of executive officers of the Registrant as
of December 31, 1996.
CHARLES I. HOMAN - Age 53; President, Chief Executive Officer and a Director of
the Registrant since 1994. Mr. Homan previously served as Executive Vice
President of the Registrant from 1990 through 1994, and as President of Michael
Baker, Jr., Inc., a subsidiary of the Registrant, from 1983 through 1994. He
has been employed by the Registrant in various capacities since 1965. Mr.
Homan has also served as a director of Century Financial Corporation since
1994.
J. ROBERT WHITE - Age 54; Executive Vice President, Chief Financial Officer,
Treasurer and a Director of the Registrant since 1994. Prior to joining the
Registrant, Mr. White served 21 years in various capacities with Westinghouse
Electric Corp., most recently as Assistant Director of Investor Relations from
1989 through 1994.
H. JAMES MCKNIGHT - Age 52; Vice President, General Counsel and Secretary of
the Registrant since 1995. Mr. McKnight previously served as counsel to
International Technology Corporation from February 1995 through September
1995, and was a self-employed consultant from 1992 through February 1995.
Prior to being self-employed, Mr. McKnight was Vice President, General Counsel
and Secretary for Vectura Group, Inc.
GLENN S. BURNS - Age 47; Executive Vice President of the Registrant and
President of BMSCI since 1995. Mr. Burns previously served as Vice President,
General Counsel and Secretary of the Registrant from 1994 to 1995 and as
Assistant General Counsel from 1991 through 1994.
DONALD P. FUSILLI, Jr. - Age 45; Executive Vice President of the Registrant
since 1991 and President of Baker/MO Services, Inc., a subsidiary of the
Registrant, since 1995. Mr. Fusilli previously served as General Counsel and
Secretary of the Registrant from 1986 through 1994. He has been employed by
the Registrant in various capacities since 1973.
JOHN C. HAYWARD - Age 49; Executive Vice President of the Registrant since 1995
and President of Michael Baker Jr., Inc. since 1994. Mr. Hayward previously
served as Senior Vice President of Michael Baker Jr., Inc. from 1989 through
1994. He has been employed by the Registrant in various capacities since 1974.
PHILIP A. SHUCET - Age 46; Executive Vice President of the Registrant and
President of Baker Environmental, Inc., a subsidiary of the Registrant, since
October 1996. Mr. Shucet previously served as Vice President of Michael Baker
Jr., Inc. from 1995 through October 1996. Mr. Shucet has been employed by the
Registrant in various capacities since 1989.
EDWARD L. WILEY - Age 53; Executive Vice President of the Registrant since 1995
and Executive Vice President of Michael Baker Jr., Inc. since 1994. Mr. Wiley
previously served as Senior Vice President of Michael Baker Jr., Inc. from 1989
through 1994. He has been employed by the Registrant in various capacities
since 1968.
Executive officers of the Registrant serve at the pleasure of the Board of
Directors and are elected by the Board or appointed annually for a term of
office extending through the election or appointment of their successors.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
----------------------------------------------------
Security Holder Matters
-----------------------
Information relating to the market for the Registrant's Common Stock and other
matters related to the holders thereof is set forth in the "Supplemental
Financial Information" section of Exhibit 13.1 to this Form 10-K. Such
information is incorporated herein by reference.
The Registrant's present policy is to retain any earnings to fund the
operations and growth of the Registrant. The Registrant has not paid any cash
dividends since 1983 and has no plans to do so for the foreseeable future. The
declaration and payment of dividends is currently limited to $2 million through
May 31, 1998, by the Registrant's secured credit agreement with Mellon Bank,
N.A. This limitation is expected to be eased in connection with a formal
revision of the credit agreement that is currently pending.
At February 28, 1997, the Registrant had 1,566 beneficial holders of its
Common Stock and 706 beneficial holders of its Series B Common Stock.
Item 6. Selected Financial Data
-----------------------
A summary of selected financial data for the Registrant, including each of the
last five fiscal years for the period ended December 31, 1996, is set forth in
the "Selected Financial Data" section of Exhibit 13.1 to this Form 10-K. Such
summary is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
A discussion of the Registrant's financial condition, cash flows and results of
operations is set forth in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of Exhibit 13.1 to this
Form 10-K. Such discussion is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The consolidated financial statements, together with the report thereon of
Price Waterhouse LLP, dated February 6, 1997, are set forth within
Exhibit 13.1 to this Form 10-K. Such financial statements and supplementary
financial information are incorporated herein by reference.
<PAGE>
Item 9. Changes in and Disagreements With Accountants on
------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Information relating to the Directors of the Registrant appears beneath the
caption "Election of Directors" in the Registrant's definitive Proxy Statement
which will be distributed in connection with the 1997 Annual Meeting of
Shareholders and which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A. Information relating to compliance with
Section 16(a) of the Securities Exchange Act of 1934 appears beneath the
caption "Directors and Officers" of such Proxy Statement. Such information is
incorporated herein by reference. Information relating to the executive
officers of the Registrant is set forth in Part I of this Report under the
caption "Executive Officers of the Registrant." Such information is
incorporated herein by reference.
Item 11. Executive Compensation
----------------------
Information relating to executive compensation appears beneath the caption
"Directors and Officers" in the Registrant's definitive Proxy Statement which
will be distributed in connection with the 1997 Annual Meeting of Shareholders
and which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A. Such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Information relating to the ownership of equity securities by beneficial owners
of 5% or more of the common stock of the Registrant and by management has been
set forth under the caption "Stock Ownership of Certain Beneficial Owners and
Management" in the Registrant's definitive Proxy Statement which will be
distributed in connection with the 1997 Annual Meeting of Shareholders and
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A. Such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Information concerning certain relationships and transactions between the
Registrant and its directors and officers appears beneath the caption
"Directors and Officers" in the Registrant's definitive Proxy Statement which
will be distributed in connection with its 1997 Annual Meeting of Shareholders
and which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A. Such information is incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
------------------------------------------------------
Form 8-K
--------
(a)(1) The following financial statements are incorporated in Item 8 of
Part II of this Report by reference to the consolidated financial
statements within Exhibit 13.1 to this Form 10-K:
Consolidated Balance Sheet as of December 31, 1996 and 1995
Consolidated Statement of Income for the three years
ended December 31, 1996
Consolidated Statement of Cash Flows for the three years
ended December 31, 1996
Consolidated Statement of Shareholders' Investment for
the three years ended December 31, 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2) Financial Statement Schedule for the three years ended December 31,
1996:
Schedule II - Valuation and Qualifying Accounts
Report of Independent Accountants on Financial Statement Schedule
for the three years ended December 31, 1996
(included as Exhibit 99.2 to this Form 10-K)
All other schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements or notes thereto.
(a)(3) The following exhibits are included herewith as a part of this
Report:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Articles of Incorporation of the Registrant, as amended,
filed as Exhibit 3.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference.
3.2 By-laws of the Registrant, as amended, filed as Exhibit 3.2
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, and incorporated herein by
reference.
10.1 1996 Incentive Compensation Plan of Michael Baker
Corporation, filed herewith.
<PAGE>
10.2 Asset Purchase Agreement by and among Mellon Stuart
Company, Cameron Construction Company, Mellon Stuart
Construction, Inc. and the Registrant, filed as Exhibit 1
to the Registrant's Report on Form 8-K dated September 3,
1991, and incorporated herein by reference.
10.3 Employment Agreement dated as of April 12, 1988,
Supplemental Agreement No. 1 dated as of March 17, 1992,
and Supplemental Agreement No. 2 dated as of October 1,
1994 by and between the Registrant and Richard L. Shaw,
filed as Exhibit 10.6 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference.
10.4 Second Amended and Restated Credit Agreement by and among
Michael Baker Corporation and Subsidiaries and Mellon Bank,
N.A. dated as of April 13, 1995, filed as Exhibit 10.11
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by
reference.
10.5 First Amendment to Second Amended and Restated Credit
Agreement by and among Michael Baker Corporation and
Subsidiaries and Mellon Bank, N.A. dated as of March 22,
1996, filed as Exhibit 10.6 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995,
and incorporated herein by reference.
10.6 Michael Baker Corporation 1995 Stock Incentive Plan, filed
as Exhibit A to the Registrant's definitive Proxy Statement
with respect to its 1995 Annual Meeting of Shareholders,
and incorporated herein by reference.
10.7 Michael Baker Corporation 1996 Nonemployee Directors'
Stock Incentive Plan, filed as Exhibit A to the
Registrant's definitive Proxy Statement with respect to
its 1996 Annual Meeting of Shareholders, and incorporated
herein by reference.
13.1 Financial Section of Annual Report to Shareholders for the
year ended December 31, 1996, including Selected Financial
Data, Management's Discussion and Analysis of Financial
Condition and Results of Operations, Consolidated Financial
Statements as of December 31, 1996 and for the three years
then ended, Report of Independent Accountants, and
Supplemental Financial Information, filed herewith.
21.1 Subsidiaries of the Registrant, filed herewith.
23.1 Consent of Independent Accountants, filed herewith.
99.1 Form 11-K for the Michael Baker Corporation Employee
Stock Ownership Plan for the year ended December 31, 1996,
filed herewith.
<PAGE>
99.2 Report of Independent Accountants on financial statement
schedule for the three years ended December 31, 1996,
filed herewith.
</TABLE>
(b) The Registrant filed no reports on Form 8-K during the fourth quarter
of 1996.
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 1997 By /s/ Charles I. Homan
--------------------
Charles I. Homan, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Richard L. Shaw Chairman of the Board March 28, 1997
- -------------------
Richard L. Shaw
/s/ Charles I. Homan Director, President March 28, 1997
- --------------------- and Chief Executive
Charles I. Homan Officer
/s/ J. Robert White Director, Executive March 28, 1997
- ------------------- Vice President,
J. Robert White Chief Financial
Officer and Treasurer
(Principal Financial and
Accounting Officer)
- ------------------- Director March 28, 1997
William J. Copeland
/s/ Roy V. Gavert, Jr. Director March 28, 1997
- ----------------------
Roy V. Gavert, Jr.
/s/ Jack B. Hoey Director March 28, 1997
- --------------------
Jack B. Hoey
<PAGE>
/s/ Thomas D. Larson Director March 28, 1997
- ---------------------
Thomas D. Larson
/s/ Konrad M. Weis
- -------------------- Director March 28, 1997
Konrad M. Weis
Director March 28, 1997
- -----------------------
William A. Wulf
<PAGE>
<TABLE>
<CAPTION>
MICHAEL BAKER CORPORATION
Schedule II - Valuation and Qualifying Accounts
For the three years ended December 31, 1996
(In thousands)
- --------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
-----------------------
Charged
Balance at Charged to other Balance
at begin. to accounts- Deductions- at end
Description of year expense describe describe* of year
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1996:
Allowance for
doubtful
accounts $1,357 $ 411 $0 ($1,383) $ 385
- ------------------------------------------------------------------------
For the year ended December 31, 1995:
Allowance for
doubtful
accounts $ 667 $1,000 $0 ($ 310) $1,357
- ------------------------------------------------------------------------
For the year ended December 31, 1994:
Allowance for
doubtful
accounts $2,305 $2,076 $0 ($3,714) $ 667
- ------------------------------------------------------------------------
* For the year ended December 31, 1996, the deduction amount reflects
adjustments in the allowance account to match estimated receivable exposures
as of year end. For the years ended December 31, 1995 and 1994, the amounts
reflect accounts receivable balances written off during the year.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,480
<SECURITIES> 0
<RECEIVABLES> 69,621
<ALLOWANCES> 0
<INVENTORY> 16,276
<CURRENT-ASSETS> 102,747
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 126,082
<CURRENT-LIABILITIES> 75,330
<BONDS> 0
0
0
<COMMON> 7,145
<OTHER-SE> 36,694
<TOTAL-LIABILITY-AND-EQUITY> 126,082
<SALES> 418,388
<TOTAL-REVENUES> 418,388
<CGS> 371,766
<TOTAL-COSTS> 371,766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 8,039
<INCOME-TAX> 3,859
<INCOME-CONTINUING> 4,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,180
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<PAGE>
</TABLE>
Exhibit 10.1
1996 INCENTIVE COMPENSATION PLAN
MICHAEL BAKER CORPORATION
<PAGE>
INDEX
------
<TABLE>
<CAPTION>
ARTICLE I - GENERAL
<S> <C>
1.1 ESTABLISHMENT OF THE PLAN
1.2 PURPOSE
1.3 ADMINISTRATION
ARTICLE II - DEFINITIONS
2.1 DEFINITIONS
2.2 GENDER AND NUMBER
ARTICLE III - ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY
3.2 PARTICIPATION
3.3 PARTIAL PLAN YEAR PARTICIPATION
ARTICLE IV - AWARDS
4.1 COMPONENTS OF PARTICIPATION AWARDS
4.2 CORPORATE PERFORMANCE MEASURES AND GOALS
4.3 BUSINESS UNIT AND PROFIT CENTER PERFORMANCE
4.4 INDIVIDUAL PERFORMANCE
ARTICLE V - PAYMENT OF AWARDS
5.1 PAYMENT OF AWARDS
5.2 PLAN FUNDING
ARTICLE VI - CHANGE IN CONTROL
6.1 CHANGE IN CONTROL
6.2 DEFINITION OF CHANGE IN CONTROL
ARTICLE VII - MISCELLANEOUS PROVISIONS
7.1 NON-TRANSFERABILITY
7.2 TAX WITHHOLDING
7.3 AMENDMENTS
7.4 INDEMNIFICATION
7.5 BENEFICIARY DESIGNATION
7.6 RIGHTS OF PARTICIPANTS
7.7 GOVERNING LAW
7.8 EFFECTIVE DATE
1996 INCENTIVE COMPENSATION PLAN - ATTACHMENT 1
ELIGIBILITY
OPPORTUNITY
PERFORMANCE MEASUREMENT
POTENTIAL PAYOUT (PERCENTAGE OF ANNUAL SALARY)
FREQUENCY OF PAYOUT
</TABLE>
<PAGE>
1996 INCENTIVE COMPENSATION PLAN
MICHAEL BAKER CORPORATION
ARTICLE I
GENERAL
- -------
1.1 ESTABLISHMENT OF PLAN:
Michael Baker Corporation, a Pennsylvania corporation (the "Company"), hereby
adopts this Plan, which shall be known as the MICHAEL BAKER CORPORATION 1996
INCENTIVE COMPENSATION PLAN (the "Plan").
1.2 PURPOSE:
The purpose of the Plan is to focus attention on shareholder value, drive
performance in support of this goal and other business goals, and reward
individual performance.
1.3 ADMINISTRATION:
(a) The Plan shall be administered by the Incentive Compensation
Committee (the "Committee"), of the Company with the concurrence of the
Compensation Committee of the Board of Directors of the Company. The
members of the Committee shall be appointed by the Chief Executive
Officer (the "CEO"), and any vacancy on the Committee shall be filled by
an appointee of the CEO.
(b) Subject to the limitations of the Plan, the Committee shall, subject
to approval by the CEO and Compensation Committee of the Board of
Directors: (i) select from the regular, full-time exempt Employees of
the Company, those who shall participate in the Plan (a "Participant" or
"Participants"), (ii) make awards in such forms and amounts as the
Committee shall determine, (iii) impose such limitations, restrictions,
and conditions upon such awards as the Committee shall deem appropriate,
(iv) interpret the Plan and adopt, amend, and rescind administrative
guidelines and other rules and regulations relating to the Plan, (v)
correct any defect or omission or reconcile any inconsistency in this
Plan or in any award granted hereunder, and (vi) make all necessary
determinations and take all other actions necessary or advisable for the
implementation and administration of the Plan. The Committee's
determinations on matters within its authority shall be conclusive and
binding upon the Company and all other Persons.
ARTICLE II
DEFINITIONS
- -----------
2.1 DEFINITIONS:
Whenever used herein, the following terms shall have the meaning set forth
below, unless otherwise expressly provided.
<PAGE>
(a) "Base Salary" shall mean the regular salary actually paid during a
Plan Year to a participant while participating in the Plan. Regular
salary shall include any salary reduction contributions made to the
Company's Internal Revenue Code Section 401(k) Plan or other deferred
compensation plans, but exclusive of any awards under this Plan and of
any other bonuses, incentive pay, or special awards.
(b) "Board" shall mean the Board of Directors of Michael Baker
Corporation.
(c) "Committee" shall mean the Incentive Compensation Committee of the
Company, which shall consist of at least three employees of the Company.
(d) "Company" shall mean Michael Baker Corporation and its Subsidiaries.
(e) "Corporate" shall mean relating to Michael Baker Corporation.
(f) "Employee" shall mean a regular, full-time, exempt Employee of the
Company who is in a position meeting the defined eligibility criteria
for participation in the Plan, as stated in Section 3.1.
(g) "Participant" shall mean an Employee who is approved by the Committee
for participation in the Plan for a specified Plan Year.
(h) "Performance Management Process" shall mean the Company's three-step
performance cycle. The cycle begins with setting individual performance
goals, followed by performance coaching, and ending with formal
performance review at the end of the performance period.
(i) "Plan Year" shall mean the Company's fiscal year.
2.2 GENDER AND NUMBER:
Except when otherwise indicted by the context, words in the masculine gender,
when used in the Plan, shall include the feminine gender, the singular shall
include the plural, and the plural shall include the singular.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
- -----------------------------
3.1 ELIGIBILITY:
Eligibility for participation in the Plan shall be limited to regular,
full-time exempt Employees of the Company.
3.2 PARTICIPATION:
Participation in the Plan shall be determined by the executive management of
the Company. The CEO shall determine Corporate participants and the Business
Unit Heads shall determine Business Unit participants, in all cases with the
concurrence of the Michael Baker Corporation CEO and the Compensation
Committee of the Board of Directors of the Company. The number of
<PAGE>
participants in the Plan shall be influenced by the Business Unit's ability to
financially support the accrual for the projected payout opportunity. (See
Plan Funding 5.2) Participants are to include executive management,
business unit managers, and selected managers who are accountable for
significant contributions to Corporate, as determined by the CEO, and to the
Business Unit, as determined by the Business Unit head.
3.3 PARTIAL PLAN YEAR PARTICIPATION:
An Employee who becomes eligible after the beginning of a Plan Year may
participate in the Plan for that Plan Year. Such situations may include, but
are not limited to (i) new hires, (ii) when an Employee is promoted from a
position which did not meet the eligibility criteria, (iii) when an Employee
is transferred from an affiliate which does not participate in the Plan, or
(iv) when job responsibilities become consistent with other Plan participants.
The CEO retains the right to prohibit or allow participation in the initial
Plan Year of eligibility for any of the aforementioned Employees. Any so
added participant will be eligible to receive a pro-rated share based upon a
2,080 work-hour year.
Any Employee who leaves the employment of the company prior to July 1 of the
Plan Year is not eligible to receive any payout from the Plan for that year.
Subject to the conditions of the following sentence, any employee who leaves
the employment of the Company after June 30 of the Plan Year is eligible to
receive a pro-rata payout from the Plan for that year based upon the percent
of the fiscal year employed. Employees who are terminated for cause or
voluntarily resign their positions from the company at any time during the
Plan year are not eligible to receive any payout from the Plan that year.
ARTICLE IV
AWARDS
- ------
4.1 COMPONENTS OF PARTICIPANT AWARDS:
Each award may be based on (i) Corporate performance, (ii) Business Unit
performance, (iii) Profit Center performance, and (iv) individual performance.
4.2 CORPORATE PERFORMANCE MEASURES AND GOALS:
For each Plan Year, the Committee shall recommend, and the CEO shall approve,
a range of performance goals for Corporate results. Each performance range
shall include a level of performance at which awards shall be earned.
Measures of performance may include, but are not limited to, one or more
financial ratios such as earnings per share, profitability, return on equity
and return on assets. Performance measures need not be the same within the
Company.
For 1996, corporate results shall be dependent upon audited corporate earnings
per share (after all incentives have been paid).
<PAGE>
For 1996, performance level goals for earnings per share are:
<TABLE>
<CAPTION>
Corporate
Performance Goal Setting
Level (Earnings Per Share)
------ --------------------
<S> <C>
Level 1 On Plan $.45
Level 2 Commendable $.50
Level 3 Outstanding $.55
</TABLE>
New goal setting amounts for corporate profitability will be suggested to the
CEO by the Compensation Committee of the Board each year of the Plan.
4.3 BUSINESS UNIT AND PROFIT CENTER PERFORMANCE:
Business Unit and Profit Center performance shall be reflected in the final
award based on the Business Units' and/or Profit Centers' Contribution to
Corporate Overhead and Profit. Guidelines of performance goals and percentage
weights for Business Unit and Profit Center managers are specific to each
Business Unit and are included in the Attachments to the Plan. Any units or
segments with an objective of a positive contribution performance (net income
before tax plus corporate overhead) which results in a year-end negative
contribution, will not be eligible for the portion of incentive compensation
dependent on overall corporate earnings per share performance. Any units or
segments with an objective of a negative contribution which results in a year-
end more favorable performance, will be eligible for the portion of incentive
compensation dependent on overall corporate performance.
4.4 INDIVIDUAL PERFORMANCE:
Individual performance shall be reflected in the final award based on the
performance rating assigned to an Employee as part of the Performance
Management Process and is based upon a number of factors established by the
participant's manager(s) at the beginning of the Plan Year.
Guidelines of performance goals and percentage weights for Business Unit
managers are recommended to be:
<TABLE>
<CAPTION>
% of Business Unit
Performance Plans
------------------
<S> <C>
Contribution to Corporate Overhead 35%
and Profit
New Work Added To The Company 45%
TQM Goals 10%
Human Resources Development 10%
</TABLE>
<PAGE>
Guidelines of performance goals and percentage weights for Profit Center
managers are recommended to be:
<TABLE>
<CAPTION>
% of Profit Center
and Individual
Performance Plans
------------------
<S> <C>
Contribution to Corporate Overhead 35%
and Profit
New Work Added To The Company 20%
Implementation of New Growth Strategies 15%
Accounts Receivable 10%
TQM Goals 10%
Human Resources Development 10%
</TABLE>
Individual performance measures for incentive compensation participants who
are not Business Unit or Profit Center managers are to be developed jointly
with the employee's immediate supervisor, be consistent with the participant's
respective job responsibilities, and be included on the participant's
performance plan. The performance plans are to be submitted to the CEO by the
Business Unit head during February of the Plan year. For individuals who
become eligible for participation in the Plan during the course of the year, a
completed performance plan is to be submitted within four weeks of the
individual becoming eligible for participation.
Performance Plans of incentive compensation participants are to be submitted
to the CEO based upon timetables to be established in the respective Plan
Year.
At the end of the Plan Year, incentive compensation participants' managers
will determine the level of performance accomplished by the participant.
Participant performance which does not meet or exceed the Competent-On Plan
Performance-3 level will result in no incentive payout for the individual's
specific performance goals. Once performance has exceeded the Competent-On
Plan Performance-3 level, any performance beyond the 3 level will result in a
pro-rated calculation of the incremental incentive compensation earned by the
participant, until the maximum level 5 performance is achieved.
Payout for participants meeting individual performance goals will occur when
Business Unit or Profit Center (as applicable) operating profit accomplishes
threshold performance indicated in each Business Unit's or Profit Center's
Performance Plan (after all individual incentives have been paid). Individual
performance goals are developed by each participant's manager and payout is
based on the applicable Business Unit or Profit Center performance plan.
The specific accomplishments associated with these goals are to be recorded on
each participant's annual Performance Plan at the end of the Plan Year.
In addition to individual performance incentives, a discretionary pool may be
created to selectively award those individuals who have exceeded expected
performance. Guidelines for discretionary awards are indicated within each
Business Unit's and Profit Center's Incentive Compensation Plan Summary in the
attachments. Discretionary awards are to be selected by the Executive Vice
President of the Business Unit with the concurrence of the Incentive
Compensation Committee. <PAGE>
ARTICLE V
PAYMENT OF AWARDS
- -----------------
5.1 PAYMENT OF AWARDS:
At the end of each Plan Year, the CEO shall report the overall Corporate and
individual performance levels to the Compensation Committee of the Board of
Directors, who shall then approve the payment of awards.
The incentive compensation earned as a result of the Company achieving
corporate profitability goals and through the achievement of Business Unit,
Profit Center and individual goals, will be paid in cash no later than the
end of the first quarter of the year after which it was earned.
5.2 PLAN FUNDING:
Accrual for the Incentive Compensation Plan will be established annually by
the Committee, subject to the approval of the CEO. The approved accrual for
the Incentive Compensation Plan shall pre-fund the amounts available to be
earned for incentive compensation distributions. Any forfeitures associated
with the termination of those in the incentive compensation plan prior to
year-end will be allocated toward the funding of the incentive pool for the
following year. In addition, if the incentive pool is not paid out in full
because of participants' failure to achieve individual goals established
under the Performance Management Process, the unearned portion would be
allocated toward the funding of the incentive pool for the following year.
Any excess pre-funding accrual based upon corporate goals which are not met
and, therefore, not earned by Incentive Compensation Plan participants, will
be removed from expense.
ARTICLE VI
CHANGE IN CONTROL
- -----------------
6.1 CHANGE IN CONTROL:
In the event of a Change in Control of the Company, as defined below, a
Participant shall be entitled to, for the Plan Year in which the Change of
Control occurs, the award determined using:
(i) The Participant's actual Base Salary rate in effect on the date of
the Change in Control,
(ii) Actual Corporate performance results to the date of Change in
Control, and
(iii) Participant's Individual Performance results.
The Committee as constituted immediately prior to the Change in Control shall
determine how actual Corporate performance should be measured for purposes of
the award calculation in 6.1. The Committee's determination shall be
conclusive and final.
<PAGE>
Awards and any previously accrued awards shall be paid in cash to the
Participant promptly following any discontinuance of the Plan on or after a
Change of Control.
6.2 DEFINITION OF CHANGE IN CONTROL
A "Change in Control" will be deemed to have occurred on the first to occur of
the following:
(a) The Company acquires actual knowledge that any Person other than the
Company, a Subsidiary, the Company's Stock Ownership Plan and Trust or
any employee benefit plan(s) sponsored by the Company has acquired the
Beneficial Ownership, directly or indirectly, of securities of the
Company entitling such Person to 20% or more of the Voting Power of the
Company;
(b) A Tender Offer is made to acquire securities of the Company entitling the
holders thereof to 20% or more of the Voting Power of the Company; or
(c) A solicitation subject to Rule 14a-11 under the 1934 Act (or any
successor Rule) relating to the election or removal of 50% or more of the
members of any class of the Board shall be made by any person other than
the Company or less than 51% of the members of the Board shall be
Continuing Directors; or
(d) The shareholders of the Company shall approve a merger, consolidation,
share exchange, division or sale or other disposition of assets of the
Company as a result of which the shareholders of the Company immediately
prior to such transaction shall not hold, directly or indirectly,
immediately following such transaction a majority of the Voting Power of
(i) in the case of a merger or consolidation, the surviving or resulting
corporation; (ii) in the case of a share exchange, the acquiring
corporation or (iii) in the case of a division or a sale or other
disposition of assets, each surviving, resulting or acquiring corporation
which, immediately following the transaction, holds more than 10% of the
consolidated assets of the Company immediately prior to the transaction.
The term "person" shall mean and include any individual, corporation,
partnership, company, association or other "person," as such term is used in
Section 14(d) of the Exchange Act, other than the Company or any employee
benefit plans sponsored by the Company.
"Continuing Directors" shall mean a director of the Company who either (a) was
a director of the Company on the effective date of the Plan or (b) is an
individual whose election, or nomination for election, as a director of the
Company was approved by a vote of at least two-thirds of the directors then
still in office who were Continuing Directors (other than an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of the Company which
would be subject to Rule 14a-11 under the 1934 Act, or any successor Rule).
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
- ------------------------
7.1 NON-TRANSFERABILITY:
No right of interest of any Participant in this Plan shall be assignable or
transferable, or subject to any lien, directly, by operation of law or
otherwise, including execution, levy, garnishment, attachment, pledge, and
bankruptcy.
7.2 TAX WITHHOLDING:
The Company shall have the right to deduct from all payments under this Plan
any foreign, Federal, state, or local taxes required by law to be withheld
with respect to such payments.
7.3 AMENDMENTS:
The Company, in its absolute discretion, without notice, at any time and from
time to time, may modify or amend, in whole or in part, any or all other
provisions of this Plan, or suspend or terminate it entirely; provided, that
no such modification, amendment, suspension, or termination may reduce the
right of a Participant (or his beneficiary as the case may be) to a payment or
distribution in accordance with the provisions contained in this Plan or
change to the detriment of a Participant of any potential rights in that Plan
Year pursuant to Section 6.1 of this Plan.
7.4 INDEMNIFICATION:
Each person who is or shall have been a member of the Committee or the Board
or who is or shall have been an Employee of the Company shall be indemnified
and held harmless by the Company against and from any loss, cost, liability,
or expense, including, without limitation, fees and expenses of legal counsel,
that may have been imposed upon or reasonably incurred by him in connection
with or resulting from any claim, action, suit, or proceeding to which he may
be a party or in which he may be involved by reason of any action taken or
failure to act under the Plan and against and from any and all amounts paid by
him in settlement thereof, with the Company's approval, or paid by him in
satisfaction of any judgment in any such action, suit, or proceeding against
him provided he shall give the Company an opportunity, at its own expense, to
handle and defend the same before he undertakes to handle and defend it on his
own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such person may be entitled under
the Company's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
7.5 BENEFICIARY DESIGNATION:
Each Participant under the Plan may name, from time to time, beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he receives
any or all of such benefit. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Company, and will be effective only when filed by the Participant in writing
<PAGE>
with the Company during his lifetime. In the absence of any such designation,
or if the designated beneficiary is no longer living, benefits shall be paid
to the surviving member(s) of the following classes of beneficiaries, with
preference for classes in the order listed below:
(a) Participant's spouse (unless the parties were divorced or legally
separated by court decree);
(b) Participant's children (including children by adoption);or
(c) Participant's executor or administrator.
Payment of benefits shall be made exclusively to the member(s) of the first
class, in the order listed above, which has surviving member(s). If that
class have more than one member, benefit payment shall be made in equal shares
among members of that class.
7.6 RIGHTS OF PARTICIPANTS:
Nothing in this Plan shall interfere with or limit in any way the right of the
Company to terminate or change a Participant's employment at any time, nor
confer upon any Participant, any right to continue in the employment of the
Company for any period of time or to continue his present or any other rate of
compensation. No Participant in a previous Plan Year, or other Employee at
any time, shall have a right to be selected for participation in a current or
future Plan Year.
7.7 GOVERNING LAW:
The Plan shall be construed in accordance with and governed by the laws of the
State of Pennsylvania.
7.8 EFFECTIVE DATE:
The Plan shall be deemed effective as of January 1, 1996.
<PAGE>
1996 Michael Baker Corporation Incentive Compensation Plan - Summary
Attachment 1 March 20, 1996
<TABLE>
<CAPTION>
Eligibility for Incentive Compensation Plan
- --------------------------------------------------------------------------
<S> <C>
Number of Participants Tier 1: approximately 50
Tier 2: approximately 50
Tier 3: Discretionary
</TABLE>
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Participants
<S> <C>
Tier 1
Corporate Executive Management, Officers and Directors
Business Units Business Unit Head
Selected Staff who support the functions of
the entire Business Unit
(Designated by Business Unit Head)
Business Units-Engineering Profit Center Managers with greater than
and Design $ 2.5 Million net revenue responsibility
(Designated by Business Unit Head)
Business Units-Construction Profit Center Managers with greater than
and Heavy/Highway and Baker $ 60 Million gross revenue responsibility
Support Services, Inc. (Designated by Business Unit Head)
Tier 2
Corporate Selected Functional Unit Managers
Business Units Selected Staff who support the functions of
the entire Business Unit
(Designated by Business Unit Head)
Business Units-Engineering and Selected Managers, Other Profit Center
Design Managers, and selected Senior Project Managers
Business Units -Construction and (Designated by Business Unit Head)
Heavy/Highway
Baker Support Services, Inc.
Tier 3 Discretionary
</TABLE>
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
Participant Recommendation Corporate participants and Business Unit
Heads (CEO)
Within Business Units (Head of Business
Unit)
- ----------------------------------------------------------------------------
Participant Approval President and Chief Executive Officer
<PAGE>
- ----------------------------------------------------------------------------
Participants Added During Year? Yes, Pro-rata
- ----------------------------------------------------------------------------
Ineligible Employees Termination for Cause/Voluntary Resignation
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Incentive Compensation Opportunity
Tier 1 Tier 2 Tier 3
<S> <C> <C> <C>
Total % of Annual Salary 0-25% 0-15% Discretionary
First Level (total maximum) 8.333% 5% (Accumulative
15 % of Total
Second Level (total maximum) 16.667% 10% Unit
Incentive
Third Level (total maximum) 25.000% 15% Payout)
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Performance Measurement
Corporate Participants, Heads of Business Units & Staff and all Environmental
Business Unit Participants
<S> <C>
Corporate Profitability Goals 50 % of Potential Award
Business Unit Performance Goals 50 % of Potential Award
(Departmental Goals for Corporate Participants)
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Unit-Segments and Profit Center Managers
<S> <C>
Corporate Profitability Goals 25 % of Potential Award
Business Unit Performance Goals 25 % of Potential Award
Profit Center/Individual Performance Goals 50 % of Potential Award
</TABLE>
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Performance Goals
Corporate Profitability Goals
- -----------------------------
Audited Corporate Earnings Per Share % of Payout Based Earnings
(After All Incentives Have Been Paid) Upon Corporate Plan Per Share
------------------- ---------
<S> <C> <C>
1st Level (On-Plan Performance) 33% $.45
2nd Level (Commendable) 33% $.50
3rd Level (Outstanding) 34% $.55
</TABLE> <PAGE>
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Performance Goals
Business Units, Segments, Profit Centers,
and Individual Performance Goals Guidelines
(Number of goals and % for each specific goal
is to be customized for each participant based
upon Operating Objective, Marketing driven % of Business Unit
orientation and level of accountability. Profit Center/Individual
% is not to be less than 10% for any goal) Performance Plans
--- ------------------------
<S> <C>
Contribution to Corporate Overhead and Profit 35%
New Work Added to the Company 20%
Strategic Initiatives 15%
Accounts Receivable 10%
TQM Goals 10%
Human Resources Development 10%
</TABLE>
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Potential Payout Corporate Business Unit
Profitability Performance
(% of Annual Salary) Goals Goals
----- -----
Tier 1 Corporate and Business Unit Heads and Staff
<S> <C> <C>
1st Level (On-Plan Performance) 4.167% 4.167%
2nd Level (Commendable) 8.334% 8.334%
3rd Level (Outstanding) 12.500% 12.500%
</TABLE>
<TABLE>
<CAPTION>
Segment,
Profit
Business Center,
Corporate Unit Individual
Profitability Performance Performance
Goals Goals Goals
------ ------ ------
Tier 1 Business Unit-Segments
<S> <C> <C> <C>
1st Level (On-Plan Performance) 2.084% 2.084% 4.167%
2nd Level (Commendable) 4.167% 4.167% 8.334%
3rd Level (Outstanding) 6.250% 6.250% 12.500%
</TABLE>
- --------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Corporate Business Unit
(% of Annual Salary) Profitability Performance
Goals Goals
------ ------
Tier 2 Corporate and Business Unit Staff
<S> <C> <C>
1st Level (On-Plan Performance) 2.50% 2.50%
2nd Level (Commendable) 5.00% 5.00%
3rd Level (Outstanding) 7.50% 7.50%
</TABLE>
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Potential Payout (continued)
Segment
Business Profit Center,
Corporate Unit Individual
Profitability Performance Performance
Goals Goals Goals
------ ------ ------
Tier 2 Business Unit-Segments
<S> <C> <C> <C>
1st Level (On-Plan Performance) 1.25% 1.25% 2.50%
2nd Level (Commendable) 2.50% 2.50% 5.00%
3rd Level (Outstanding) 3.75% 3.75% 7.50%
</TABLE>
- --------------------------------------------------------------------------
Threshold
Corporate
Minimum earnings per share for any Potential Payout $0.45
on Corporate Component (after all incentives have been paid)
Business Units, Business Unit-Segments and Profit Centers
Minimum Contribution to Overhead and Profit (After Accrual for Incentive
Compensation Payments and Internal Interest Charges)
<TABLE>
<CAPTION>
Contribution
------------
<S> <C>
Civil Business Unit $3,812,625
Civil-Engineering $5,436,079
Baker Support Services, Inc. $ (161,528)
Buildings Business Unit $2,039,454
Buildings-Design $ 924,777
Buildings-Construction $2,163,477
Transportation Business Unit $4,534,144
Transportation-Engineering $6,068,072
Transportation-Heavy/Highway $ 629,918
Environmental Business Unit $1,760,394
Energy Business Unit $2,720,261
Energy/Baker MO $1,155,213
</TABLE> <PAGE>
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
Type of Payout Cash
- ---------------------------------------------------------------------------
Frequency of Payout Annually, with payment by the end of
the following year's first quarter
- ---------------------------------------------------------------------------
Funding Pre-funding accrual in the year earned
- -----------------------------------------------------------------------------
Forfeitures Allocated toward next year's funding
</TABLE>
- ----------------------------------------------------------------------------
<PAGE>
Exhibit 13.1
<TABLE>
<CAPTION>
Selected Financial Data
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------
(In thousands, except per share information)
RESULTS OF OPERATIONS
Total contract revenues $418,388 $354,728 $437,193 $434,791 $355,820
Operating income/(loss) 7,460 5,104 (9,097) (21,805) 8,543
Net income/(loss) 4,180 2,900 (7,945) (15,128) 4,403
Net income/(loss) per
share $ 0.50 $ 0.35 $ (0.95) $ (1.82) $ 0.67
Return on average equity 8.50% 6.28% (16.31)% (25.59)% 8.67%
FINANCIAL CONDITION
Total assets $126,082 $117,376 $134,794 $145,805 $130,917
Working capital $ 27,417 $ 25,186 $ 22,391 $ 33,042 $ 42,981
Current ratio 1.36 1.36 1.26 1.39 1.75
Long-term debt $ -- $ -- $ 3,960 $ 7,670 $ 2,625
Shareholders' investment 50,752 47,631 44,731 52,676 65,536
Book value per share 6.19 5.70 5.35 6.30 8.03
Year-end closing share
price $ 6.38 $ 5.00 $ 3.75 $ 11.00 $ 14.75
CASH FLOW
Cash provided by/(used in)
operating activities $ 1,188 $ 15,539 $ 5,415 $ 4,758 $(11,324)
Cash used in investing
activities (3,739) (2,294) (5,436) (11,232) (4,876)
Cash (used in)/provided by
financing activities (1,272) (2,547) (1,477) 5,105 22,158
-----------------------------------------------------
(Decrease)/increase in cash
and cash equivalents $ (3,823) $ 10,698 $ (1,498) $(1,369) $ 5,958
BACKLOG
Funded $332,800 $299,900 $283,300 $357,600 $296,800
Total $543,700 $507,800 $468,300 $587,600 $469,600
SHARE INFORMATION
Year-end shares
outstanding 8,197 8,364 8,364 8,364 8,161
Average shares outstanding
during year 8,383 8,368 8,364 8,304 6,561
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
The year 1996 was marked by a return to revenue growth, the maintenance of
overall gross profit margins, and a sizable improvement in net income.
Although public spending on infrastructure projects remained relatively flat,
or even decreased in some areas, the Company achieved growth through entering
new markets for its engineering services, achieving additional penetration in
its energy niches, and gaining some modest increases in its commercial sector
businesses. The improved performance helped to fund increased investments in
technology development and in the opening of new offices, including one in
Mexico. This performance improvement translated to earnings of $0.50 per share
in 1996, compared to $0.35 per share in 1995.
TOTAL CONTRACT REVENUES
Total contract revenues grew to $418 million in 1996 from $355 million in
1995. While total contract revenues climbed in each of the Company's business
units for 1996, the Civil unit had the largest increase due primarily to a new
engineering project in Mexico which generated revenues of $24 million. The
Buildings and Transportation units were also significant contributors to the
overall increase with improvements of $12 million and $11 million,
respectively. Revenue growth in the construction divisions of each of these
two units caused their respective improvements.
For 1995, total contract revenues decreased from $437 million in 1994. The
most significant component, totaling $70 million, of this overall decrease
occurred in the Buildings unit primarily due to greater bidding selectivity in
its construction division, as well as from the substantial completion of Baker
Support Services' military housing renovation business during 1994. While the
Buildings unit added the same volume of new construction work in both 1995 and
1994, most of its new work added in 1995 was contracted during the second half
of the year and did not significantly enhance its 1995 revenues. Another 1995
decrease resulted in the Energy unit from Baker/MO having terminated certain
lower margin and loss contracts during the year.
<TABLE>
<CAPTION>
TOTAL CONTRACT REVENUES - 1996
<S> <C>
BUILDINGS 30%
CIVIL 26%
ENERGY 10%
ENVIRONMENTAL 7%
TRANSPORTATION 27%
</TABLE>
GROSS PROFIT
The Company's gross profit increased to $46.6 million in 1996 from $40.0
million in 1995. As a percentage of total contract revenues, gross profit
remained relatively constant at 11% in both 1996 and 1995. Lower gross profit
percentages in the Transportation and Environmental units were offset by an
improvement in the Energy unit. The percentage decline in the Transportation
unit resulted from its performance on certain construction projects, while
Environmental's decrease followed the 1996 award of a major contract, under
which the Company now works as a subcontractor instead of being the prime
contractor as was the case under the related but expired previous contract.
In the Energy unit, Baker/MO received several awards of profitable new work
in 1996 and received the first full year's benefit from having terminated
certain lower margin and loss contracts during 1995, thus contributing
to its continued profitability improvement.
The 1995 gross profit represented an increase from $32.9 million in 1994.
Gross profit expressed as a percentage of total contract revenues climbed from
8% in 1994. With the exception of the Civil unit, each of the Company's
business units reported improvements in its gross profit as a percentage of
total contract revenues for the year. Despite lower 1995 volumes in the
Buildings and Energy units, these units provided the most significant
percentage improvements. Specifically, the 1995 improvement in the Energy unit
resulted primarily from a combination of certain 1994 contract-related charges
at Baker/MO and improved 1995 margins related to the previously mentioned
terminations of several Baker/MO contracts during the year. In the Buildings
unit, the improvement was effected by the combination of a favorable 1995
contract settlement and 1994 writedowns on certain construction contracts.
The percentage decline in the Civil unit resulted primarily from 1995 charges
taken on a significant operations and maintenance contract.
<TABLE>
<CAPTION>
INCOME FROM OPERATIONS - 1996
<S> <C>
BUILDINGS 12%
CIVIL 43%
ENERGY 29%
ENVIRONMENTAL 5%
TRANSPORTATION 11%
</TABLE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses increased to $39.2 million in 1996
from $34.9 million in 1995. The 1996 increase principally reflects the general
increase in revenue volumes combined with higher marketing costs in several of
the Company's business units. Expressed as a percentage of total contract
revenues, G&A expense decreased slightly to 9.4% in 1996 from 9.8% in 1995.
G&A expenses decreased in 1995 from $42.0 million in 1994. While the 1994
amount included restructuring charges totaling $1.1 million, the remainder of
the overall decrease is attributable to the cost reduction programs at
Baker/MO and in the construction divisions of the Company's Buildings and
Transportation business units. These cost reductions were effected during 1994
and early 1995 to better align each of the divisions with its expected
revenues, and resulted in cost reductions totaling approximately $5.6 million
in 1995. Expressed as a percentage of total contract revenues, G&A expenses
for 1995 increased from 9.6% in 1994.
OTHER INCOME AND EXPENSE
Interest expense decreased to $76,000 in 1996 from $336,000 in 1995, as a
result of the Company's limited borrowings under its revolving credit
agreement during the year. Interest income increased to $402,000 in 1996 from
$221,000 in 1995, due to the Company's maintenance of its invested cash
balance throughout 1996.
Despite higher interest rates during 1995, interest expense decreased from
$732,000 in 1994 as a result of the Company's repayment of all working capital
borrowings under its revolving credit agreement in September 1995. Interest
income increased in 1995 from $80,000 in 1994, again due to the Company's
repayment of its borrowings and its subsequent investment of cash generated
from operations.
<PAGE>
INCOME TAXES
The provision for/(benefit from) income taxes resulted in an effective tax
rate of 48% in 1996, 43% in 1995, and (17%) in 1994. The difference between
these percentages and the 34% statutory U.S. federal rate is attributable
primarily to state and foreign income and withholding taxes. The 1996
provision rate was unfavorably impacted by higher foreign taxes paid. The 1995
provision rate was impacted both by the Company returning to profitability for
the year, and by the realization of a $600,000 tax benefit from a Baker
Support Services joint venture.
CONTRACT BACKLOG
- -----------------------------------------------------------------------------
The Company's funded backlog, which consists of that portion of work
represented by signed contracts and for which the procuring agency has
appropriated and allocated the funds to pay for the work, was $333 million at
December 31, 1996, an increase from $300 million at the end of 1995. The
overall 1996 increase in funded backlog is attributable to a combination of
new work added and transfers from unfunded backlog during the year.
Total backlog, which incrementally includes that portion of contract value for
which options are still to be exercised (unfunded backlog), was $544 million
at the end of 1996 versus $508 million at the end of 1995. A portion of this
increase resulted from the first-time inclusion of total backlog for the
Energy unit's Baker/OTS division in the amount of $24 million as of
December 31, 1996, without a restatement of the related year-end 1995 amount.
As the Company entered 1997, its Civil, Transportation and Energy units showed
improvements in funded backlog relative to the prior year. While the
Environmental unit replaced its 1996 revenues with new funded work during the
year, the Buildings unit's construction division did not, thereby resulting in
a 1996 decrease in this unit's funded backlog amount.
<TABLE>
<CAPTION>
FUNDED BACKLOG - YEAR END 1996
<S> <C>
BUILDINGS 38%
CIVIL 19%
ENERGY 5%
ENVIRONMENTAL 7%
TRANSPORTATION 31%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
- -----------------------------------------------------------------------------
Net cash provided by operating activities declined to $1.2 million in 1996,
compared to $15.5 million in 1995 and $5.4 million in 1994. The 1996 decrease
is mainly attributed to increases in accounts receivable associated with the
1996 increase in revenue volumes. The 1995 cash flow improvement resulted
primarily from the Company achieving net income totaling $2.9 million for 1995
versus 1994's net loss of $7.9 million.
Net cash used in investing activities was $3.7 million in 1996, compared to
$2.3 million in 1995 and $5.4 million in 1994. These amounts solely comprise
purchases of property, plant and equipment for all years. The 1996 increase in
capital purchases resulted in large part from equipment purchases required
under certain new contracts that were awarded during the year. During 1994,
non-recurring capital expenditures totaling $1.0 million, related to the
completion of renovations to the Company's office building in Beaver,
Pennsylvania, were incurred. The remainder of the 1995 reduction reflected
management's concerted effort to more closely monitor capital expenditures and
the effect of the Company having entered into a leasing arrangement for the
majority of computer equipment during 1995. This leasing arrangement was also
utilized for the majority of computer equipment acquired in 1996.
Net cash used in financing activities was $1.3 million in 1996, compared to
$2.5 million in 1995 and $1.5 million in 1994. In late 1996, pursuant to an
announced stock repurchase program, the Company paid $1.3 million to acquire
approximately 208,000 treasury shares. In 1995, the Company totally repaid
its borrowings under its revolving credit facility. All 1994 and 1995 cash
uses resulted from repayments of long-term debt and borrowings on the revolving
credit facility.
Working capital increased to $27.4 million at December 31, 1996 from $25.2
million at December 31, 1995. This slight increase is again attributable to
the Company's 1996 revenue volume improvement, which caused expected increases
in the related receivable and payable balances. The Company's current ratios
were 1.36:1 at the end of both 1996 and 1995.
In March 1997, the Company agreed with Mellon Bank, N.A. to revised and
improved terms under its credit agreement. Under the revised terms, the
commitment of $25 million, which covers loans and letters of credit, will be
extended through May 31, 2000, and the bank will release all security in
Company assets previously held. As of December 31, 1996, no loans were
outstanding; however, letters of credit totaling $3.8 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 $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.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
- ----------------------------------------------------------------------------
As of December 31,
------------------
ASSETS 1996 1995
- ----------------------------------------------------------------------------
(In thousands)
CURRENT ASSETS
<S> <C> <C>
Cash $ 10,480 $ 14,303
Receivables 69,621 53,708
Cost of contracts in progress and
estimated earnings, less billings 16,276 19,104
Prepaid expenses and other 6,370 7,816
- ----------------------------------------------------------------------------
Total current assets 102,747 94,931
- ----------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 12,265 12,558
- ----------------------------------------------------------------------------
OTHER ASSETS
Goodwill, net of accumulated amortization
of $2,005,000 and $1,649,000 in 1996 and
1995, respectively 5,297 4,667
Other intangible assets, net of accumulated
amortization of $2,157,000 and $1,625,000
in 1996 and 1995, respectively 1,945 2,467
Other assets 3,828 2,753
- ----------------------------------------------------------------------------
Total other assets 11,070 9,887
- ----------------------------------------------------------------------------
TOTAL ASSETS $126,082 $117,376
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
- ----------------------------------------------------------------------------
As of December 31,
------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1996 1995
- ----------------------------------------------------------------------------
(In thousands)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 34,960 $ 30,879
Accrued employee compensation 6,596 5,703
Accrued insurance 5,425 6,204
Other accrued expenses 19,045 16,465
Excess of billings on contracts
in progress over cost and
estimated earnings 9,304 10,494
- ----------------------------------------------------------------------------
Total current liabilities 75,330 69,745
- ----------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized
44,000,000 shares, issued 7,055,784
and 7,011,302 shares, in 1996 and
1995, respectively 7,056 7,012
Series B Common Stock, par value $1,
authorized 6,000,000 shares, issued
1,348,632 and 1,352,250 shares, in
1996 and 1995, respectively 1,349 1,352
Additional paid-in capital 36,694 36,534
Retained earnings 6,913 2,733
Less 207,560 shares of Common Stock
in treasury, at cost (1,260) --
- ----------------------------------------------------------------------------
Total shareholders' investment 50,752 47,631
- ----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT $126,082 $117,376
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
- ----------------------------------------------------------------------------
For the years ended December 31,
---------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Total contract revenues $418,388 $354,728 $437,193
Cost of work performed 371,766 314,774 404,262
- ----------------------------------------------------------------------------
Gross profit 46,622 39,954 32,931
General and administrative expenses 39,162 34,850 42,028
- ----------------------------------------------------------------------------
Income/(loss) from operations 7,460 5,104 (9,097)
Other income/(expense):
Interest expense (76) (336) (732)
Interest income 402 221 80
Other, net 253 91 204
- ----------------------------------------------------------------------------
Income/(loss) before inc taxes 8,039 5,080 (9,545)
Prov for/(benefit from) inc taxes 3,859 2,180 (1,600)
- ----------------------------------------------------------------------------
NET INCOME/(LOSS) $ 4,180 $ 2,900 $ (7,945)
- ----------------------------------------------------------------------------
NET INCOME/(LOSS) PER SHARE $ 0.50 $ 0.35 $ (0.95)
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------
For the years ended December 31,
--------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $ 4,180 $ 2,900 $(7,945)
Adjustments to reconcile net income/(loss) to net
cash provided by operating activities:
Depreciation and amortization 4,851 5,049 5,279
Deferred income taxes 1,523 460 (1,765)
Changes in assets and liabilities:
(Increase)/decrease in receivables and
contracts in progress (14,275) 22,909 8,406
(Increase)/decrease in other net
assets (1,878) 3,847 (1,007)
Increase/(decrease) in accounts payable
and accrued expenses 6,787 (19,626) 2,447
- -----------------------------------------------------------------------------
Total adjustments (2,992) 12,639 13,360
- -----------------------------------------------------------------------------
Net cash prov by operating activities 1,188 15,539 5,415
- -----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and
equipment (3,739) (2,294) (5,436)
- -----------------------------------------------------------------------------
Net cash used in investing activities (3,739) (2,294) (5,436)
- -----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of revolving credit loans -- (2,035) (965)
Repayments of other long-term debt (12) (512) (512)
Payments to acquire treasury stock (1,260) -- --
- -----------------------------------------------------------------------------
Net cash used in financing activities (1,272) (2,547) (1,477)
- -----------------------------------------------------------------------------
Net (decrease)/increase in cash (3,823) 10,698 (1,498)
- -----------------------------------------------------------------------------
Cash at beginning of year 14,303 3,605 5,103
- -----------------------------------------------------------------------------
CASH AT END OF YEAR $ 10,480 $ 14,303 $ 3,605
- -----------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
Interest paid $ 73 $ 537 $ 690
Income taxes paid $ 950 $ 1,671 $ 3,184
</TABLE>
The accompanying notes are an integral part of this statement.<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
- -----------------------------------------------------------------------------
Series B
Common Common
Stock Stock
Par Par
Value $1 Value $1 Treasury Additional
(In thousands) (1 vote/ (10 votes/ --------- Paid-in Retained
share) share) Shrs Amt Capital Earnings
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, Dec 31, 1993 $6,993 $1,371 -- $ -- $36,534 $ 7,778
Net loss -- -- -- -- -- (7,945)
Series B Common Stock
conversions to regular
Common Stock 9 (9) -- -- -- --
- -----------------------------------------------------------------------------
Balance, Dec 31, 1994 7,002 1,362 -- -- 36,534 (167)
Net income -- -- -- -- -- 2,900
Series B Common Stock
conversions to regular
Common Stock 10 (10) -- -- -- --
- -----------------------------------------------------------------------------
Balance, Dec 31, 1995 7,012 1,352 -- -- 36,534 2,733
Net income -- -- -- -- -- 4,180
Series B Common Stock
conversions to regular
Common Stock 3 (3) -- -- -- --
Stock issued for Maguire
acquisition 33 -- -- -- 129 --
Restricted stock issued 4 -- -- -- 14 --
Treasury stock purchases -- -- 208 1,260 -- --
Stock options exercised 4 -- -- -- 17 --
- -----------------------------------------------------------------------------
Balance, Dec 31, 1996 $7,056 $1,349 208 $1,260 $36,694 $ 6,913
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany accounts and transactions have
been eliminated in consolidation.
ACCOUNTING FOR CONTRACTS
Total contract revenues have been recorded on the percentage-of-completion
method of accounting for the engineering and construction contracts in the
Buildings, Civil, Environmental and Transportation Units. Contract revenues
attributable to claims are recognized when realization is probable and the
amounts can be reliably estimated. Earnings on fixed-price contracts are
determined by multiplying the total estimated gross profit for the contracts
by the percentage of physical completion to date (which approximates costs
incurred to date in relation to total estimated costs), less earnings
recognized in prior periods. Earnings under cost reimbursement contracts are
recorded as costs are incurred and include estimated fees in the proportion
that costs incurred to date compare to total estimated costs. As work is
performed under long-term contracts, estimates of the costs are reviewed and,
when necessary, revised on a current basis. Contract costs include costs of
subcontracts, direct labor, supplies and overhead. Estimated losses on
contracts in progress, if significant, are recorded as they are identified.
Total contract revenues for the operations and maintenance contracts within
the Civil and Energy Units are primarily recognized as costs are incurred and
related services are provided. The Civil Unit's government contracts are
typically binding on the Company for a multi-year period and are renewable at
the option of the respective government agency. Modifications to contract
terms that result in retroactive adjustments to contract revenues are
recognized when realization is probable.
ACCOUNTING FOR JOINT VENTURES
The Company records its interest in all majority-owned joint ventures based on
the equity method of accounting for investments, in the accompanying
Consolidated Balance Sheet. The Company's proportionate share of majority-
owned joint venture revenue and cost of contracts is included in the
accompanying Consolidated Statement of Income. The Company's investment in
joint ventures for which the related projects are expected to be completed
within one year is shown as other current assets in the accompanying
Consolidated Balance Sheet.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses for the reporting period.
Actual results could differ from those which result from using the estimates.
The use of estimates is an integral part of applying percentage-of-completion
accounting for contracts.
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation on property, plant and equipment is recorded using straight-line
and accelerated methods over the estimated useful lives of the assets which
range from three to 31 years. Amortization of intangible assets is provided
primarily on a straight-line basis over the estimated useful lives of the
assets, which range from five to 10 years. Upon disposal of property items,
the asset and related accumulated depreciation accounts are relieved of the
amounts recorded therein for such items and any resulting gain or loss is
reflected in income.
GOODWILL
Goodwill, which represents the excess of cost over net assets of acquired
companies, is being amortized on a straight-line basis over periods ranging
from 15 to 40 years.
EARNINGS PER COMMON SHARE
Per share computations are based upon weighted averages of 8,382,592,
8,368,206, and 8,363,552 shares outstanding for the years 1996, 1995, and
1994, respectively. Stock options are included as share equivalents in the
computation of weighted average shares outstanding using the treasury stock
method.
RECLASSIFICATIONS
Certain 1995 and 1994 financial statement amounts have been reclassified to
conform with 1996 classifications.
2 CONTRACTS
- -----------------------------------------------------------------------------
The total cost of contracts in progress (used to determine cost of work
performed) plus accumulated gross profit recorded was $761,153,000 and
$624,971,000 at December 31, 1996 and 1995, respectively. Billings to date on
contracts in progress at December 31, 1996 and 1995 were $754,181,000 and
$616,361,000, respectively.
Trade accounts receivable totaling $11,855,000 and $7,384,000 at December 31,
1996 and 1995, respectively, relate to retainage provisions under long-term
contracts which will be due upon completion of the contracts. Based on
management's estimates, substantially all of the retention balance at
December 31, 1996 is expected to be collected in 1997.
As of December 31, 1996 and 1995, the Company had an allowance for doubtful
accounts of $385,000 and $1,357,000, respectively.
As of December 31, 1996 and 1995, accounts payable included amounts due to
subcontractors of $8,051,000 and $4,553,000, respectively, which have been
retained under contractual terms pending the completion and acceptance of the
work performed by the subcontractors.
Certain subsidiaries of the Company participate in joint ventures that are
typically formed to accomplish a specific project and then dissolved upon
completion of the project. The number of joint ventures in which the Company
participates and the size, scope and duration of the projects vary between
periods. The Company's equity investment in these joint ventures was
$1,612,000 and $1,891,000 at December 31, 1996 and 1995, respectively.
<PAGE>
Consistent with industry practice, within each of the Company's operating
units, credit is granted to customers for the payment of services rendered.
Although the Company has a diversified client base, a substantial portion of
its receivables and net underbillings reflected in the accompanying
Consolidated Balance Sheet is dependent upon federal and state government
appropriations.
3 BUSINESS SEGMENT INFORMATION
- -----------------------------------------------------------------------------
The Company is organized into the following five market-focused business unit
segments: Buildings, Civil, Energy, Environmental and Transportation. The
following tables reflect the revenues and income from operations for the five
business units (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Total contract revenues from:
Buildings Unit $127.4 $116.3 $186.2
Civil Unit 109.4 73.9 78.2
Energy Unit 43.2 37.0 45.5
Environmental Unit 27.3 27.7 30.2
Transportation Unit 111.1 99.8 97.1
- -----------------------------------------------------------------------------
Total $418.4 $354.7 $437.2
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income/(loss) from operations from:
Buildings Unit $0.9 $ 1.8 $(5.4)
Civil Unit 3.2 (0.6) 4.8
Energy Unit 2.2 0.8 (7.7)
Environmental Unit 0.4 1.9 1.0
Transportation Unit 0.8 1.2 (1.8)
- -----------------------------------------------------------------------------
Total $7.5 $ 5.1 $(9.1)
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
The following represents identifiable assets (both tangible and intangible)
that are associated with the operations of each business unit (in millions):
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Identifiable assets from:
Buildings Unit $ 29.9 $ 33.1
Civil Unit 30.7 22.5
Energy Unit 17.5 14.2
Environmental Unit 5.8 6.1
Transportation Unit 29.4 27.1
Corporate 12.8 14.4
- -----------------------------------------------------------------------------
Total $126.1 $117.4
- -----------------------------------------------------------------------------
</TABLE>
Based on total contract revenues, the principal markets for the Company's
services are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
United States government 22.5% 24.1% 24.7%
Various state governmental
and quasi-governmental agencies 46.6% 44.4% 35.6%
Commercial, industrial and
private clients 30.9% 31.5% 39.7%
- -----------------------------------------------------------------------------
</TABLE>
The Company's business is substantially conducted in the domestic marketplace.
No individual contract accounted for more than 10% of the Company's total
contract revenues in 1996, 1995, or 1994; however, several contracts with the
State of Illinois provided 10.5% and 13.5% of the Company's total contract
revenues in 1995 and 1994, respectively. Several contracts with the U.S.
Department of Navy provided 10.9% and 12.1% of the Company's 1995 and 1994
total contract revenues, respectively.
4 PROPERTY, PLANT AND EQUIPMENT
- -----------------------------------------------------------------------------
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Land $ 693 $ 693
Buildings and improvements 6,345 5,952
Equipment and vehicles 30,873 28,202
- -----------------------------------------------------------------------------
Total, at cost 37,911 34,847
Less - Accumulated depreciation 25,646 22,289
- -----------------------------------------------------------------------------
Net property, plant
and equipment $12,265 $12,558
- -----------------------------------------------------------------------------
/TABLE
<PAGE>
5 LONG-TERM DEBT AND BORROWING ARRANGEMENTS
- -----------------------------------------------------------------------------
In March 1996, the Company entered into an amended secured credit agreement
(the "Agreement") with Mellon Bank, N.A. (the "Bank"). Under its terms, the
Agreement provides for a commitment of $25 million through May 31, 1998. Under
the Agreement, 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 December 31, 1996, no loans were outstanding; however, letters of credit
totaling $3,829,000 were outstanding under the Agreement.
The Agreement provides for the Company to borrow at 1/4% over the Bank's prime
interest rate or at other indexed rates that may be lower, and for the Company
to meet certain cash flow, leverage, interest coverage and tangible net worth
requirements. The Agreement also limits the Company's capital expenditures and
the declaration or payment of dividends to the Company's shareholders, and is
secured by substantially all of the Company's assets, excluding the accounts
receivable for certain bonded construction projects.
Under the Agreement, the Company also pays the Bank commitment fees of 1/2%
per year based on the unused portion of the commitment. The maximum amount of
borrowings outstanding under the Agreement during 1996 was $695,000. For 1996,
the average daily balance outstanding when the Company was in a net borrowing
position was $324,000 at a weighted average rate of 8.5%. For the period
during 1995 in which the Company was in a net borrowing position, the average
daily balance outstanding was $4,249,000 at a weighted average rate of 9.1%.
The proceeds of any loans under the Agreement have been used to meet various
working capital requirements.
In March 1997, the Company agreed with the Bank to revised and improved terms
of its Agreement, under which the $25 million commitment will be
extended through May 31, 2000. Other significant terms that have already been
agreed between the parties include the release of all security in Company
assets held under the Agreement, a reduction in the borrowing rate to the
Bank's prime interest 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.
6 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 1996, the
Company repurchased 207,560 treasury shares of common stock at market prices
ranging from $5.63 to $6.25 per share, for a total price paid of $1,260,000.
Under the 1996 Nonemployee Directors' Stock Incentive Plan, each nonemployee
director was issued 500 restricted shares of common stock for a total of 3,500
restricted shares issued. Restrictions on the 3,500 shares expire two years
after the issue date.
The Company's Articles of Incorporation authorize the issuance of 300,000
shares of Cumulative Preferred Stock, par value $1 per share. At December 31,
1996, there were no shares of such Preferred Stock outstanding.
<PAGE>
7 LEASE COMMITMENTS
- -----------------------------------------------------------------------------
Rent expense under noncancelable leases was $9,972,000 in 1996, $8,388,000 in
1995, and $8,111,000 in 1994.
Minimum annual rentals payable under noncancelable leases in each of the five
years after December 31, 1996 are $10,011,000, $8,111,000, $5,738,000,
$5,104,000, and $3,697,000, respectively. These noncancelable leases relate to
office space, computer equipment, office equipment, and vehicles with lease
terms ranging from one to 10 years.
8 INCOME TAXES
- -----------------------------------------------------------------------------
The provision for/(benefit from) income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes:
Federal $ (176) $ -- $ (808)
State -- 837 80
Foreign 1,406 883 893
- -----------------------------------------------------------------------------
Total current
income taxes 1,230 1,720 165
- -----------------------------------------------------------------------------
Deferred income taxes:
Federal 2,538 994 (2,190)
State 91 (534) 425
- -----------------------------------------------------------------------------
Total deferred
income taxes 2,629 460 (1,765)
- -----------------------------------------------------------------------------
Total provision for/(benefit
from) income taxes $3,859 $2,180 $(1,600)
- -----------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of income taxes at the federal statutory
rate to income taxes recorded by the Company (in thousands):
<TABLE>
<CAPTION>
<PAGE>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Computed income taxes at
U.S. federal statutory rate $2,733 $1,727 $(3,245)
Loss of foreign tax credits -- -- 629
Foreign taxes, net of federal
income tax benefit 928 583 377
State income taxes, net of
federal income tax benefit 61 153 333
Nondeductible charges 249 246 179
Realization of tax benefit -- (600) --
Other, net (112) 71 127
- -----------------------------------------------------------------------------
Total provision for/(benefit
from) income taxes $3,859 $2,180 $(1,600)
- -----------------------------------------------------------------------------
</TABLE>
The domestic and foreign components of income/(loss) before income taxes are
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $3,530 $2,816 $(12,120)
Foreign 4,509 2,264 2,575
- -----------------------------------------------------------------------------
Total $8,039 $5,080 $ (9,545)
- -----------------------------------------------------------------------------
</TABLE>
The components of the Company's deferred income tax assets and liabilities at
December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Deductible temporary differences:
Provision for expenses and losses $ 3,098 $ 4,540
Contract overbillings 633 1,326
Federal tax operating
loss carryforward 808 1,476
Accrued vacation pay 1,255 1,134
Fixed and intangible assets 724 517
Other 570 1,721
- -----------------------------------------------------------------------------
Total deferred income tax assets 7,088 10,714
- -----------------------------------------------------------------------------
Deferred income tax liabilities:
Contract underbillings (5,692) (6,689)
- -----------------------------------------------------------------------------
Total deferred income
tax liabilities (5,692) (6,689)
- -----------------------------------------------------------------------------
Net deferred tax asset $ 1,396 $ 4,025
- -----------------------------------------------------------------------------
/TABLE
<PAGE>
The Company believes that it will have sufficient future taxable income to
make it more likely than not that the net deferred tax asset at December 31,
1996 will be realized.
As of December 31, 1996, the Company had a U.S. net operating loss
carryforward of $2,377,000. This carryforward expires in the year 2010.
The Company's U.S. income tax returns are currently being examined by the
Internal Revenue Service for the years 1990 through 1994. Management believes
that adequate provisions have been made for income taxes at December 31, 1996.
9 CONTINGENCIES
- -----------------------------------------------------------------------------
The Company is self-insured for its primary layer of professional liability
insurance through a wholly-owned captive insurance subsidiary. The secondary
layer of the professional liability insurance continues to be provided,
consistent with industry practice, under a "claims-made" insurance policy
placed with an independent insurance company. (Under claims-made policies,
coverage must be in effect when a claim is made.) This insurance is subject to
standard exclusions.
The Company is self-insured up to certain limits with respect to its workers'
compensation and general liability exposures. Provisions for losses expected
for these exposures are recorded based upon the Company's estimates of the
aggregate liability for claims incurred. Such estimates utilize certain
actuarial assumptions followed in the insurance industry. Insurance coverage
is obtained for catastrophic exposures as well as those risks required to be
insured by law or contract.
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.
The only significant 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.
At December 31, 1996, certain subcontractors performing work on uncompleted
Company and joint venture construction contracts and certain contractors on
construction management projects had not been required to furnish performance
bonds. In the opinion of management, provision has been made for all costs
that will be incurred as a result of such contractors not performing in
accordance with their agreements.
<PAGE>
10 EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
- -----------------------------------------------------------------------------
The Company maintains a defined contribution retirement program through an
Employee Stock Ownership Plan ("ESOP"), in which substantially all employees
are eligible to participate. In addition to providing a vehicle for investment
in Company stock, the ESOP offers participants several other investment
options. Contributions to the ESOP are derived from a 401(k) Salary
Redirection Program with a Company matching contribution, and a discretionary
contribution as determined by the Company's Board of Directors. Under the
401(k) Salary Redirection Program, the Company matches 100% of the first 5% of
salary contributed by an employee. The Company's matching contributions are
invested in Michael Baker Corporation Common Stock. Such contributions under
this program amounted to $3,306,000, $2,912,000, and $2,925,000 in 1996, 1995,
and 1994, respectively.
As of December 31, 1996, the market value of all ESOP investments was
approximately $55,439,000, of which 44% represented the market value of the
ESOP's investment in Michael Baker Corporation Common Stock. The Company's
ESOP held 46% of the shares and 72% of the voting power for the outstanding
Common Stock and Series B Common Stock of the Company at the end of 1996.
11 STOCK OPTION PLANS
- -----------------------------------------------------------------------------
As of December 31, 1996, the Company had two fixed stock option plans. Under
the 1995 Stock Incentive Plan (the "Plan"), the Company may grant options for
an aggregate of 500,000 shares of Common Stock to key employees. Under the 1996
Nonemployee Directors' Stock Incentive Plan (the "Directors' Plan"), the
Company may grant options for an aggregate of 150,000 shares of Common Stock
to nonemployee board members. Under both plans, the exercise price of each
option equals the market price of the Company's stock on the date of grant.
One-fourth of the options granted become immediately vested, and the
remaining three-fourths vest in annual one-fourth increments under the Plan,
while the options under the Directors' Plan are fully vested at date of grant.
Vested options remain exercisable for a period of ten years from the grant
date under both plans.
The following table summarizes all stock option activity for both plans in
1995 and 1996:
<TABLE>
<CAPTION>
Shares Average
subject exercise price
to option per share
- -----------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, 1995 -- --
Options granted 176,894 $5.00
Options exercised -- --
Options forfeited (25,106) $5.00
- -----------------------------------------------------------------------------
Balance at December 31, 1995 151,788 $5.00
Options granted 67,947 $4.83
Options exercised (4,125) $5.00
Options forfeited (20,918) $4.97
- -----------------------------------------------------------------------------
Balance at December 31, 1996 194,692 $4.94
- -----------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding
under both plans as of December 31, 1996:
<TABLE>
<CAPTION>
Options Exercise Outstanding Average Exercisable
granted in price options life* options
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jan. 1995 $5.00 130,094 8.0 120,180
Feb. 1996 $4.81 57,598 9.2 15,236
May 1996 $5.03 7,000 9.6 7,000
- -----------------------------------------------------------------------------
Total 194,692 8.4 142,416
- -----------------------------------------------------------------------------
</TABLE>
*Average life remaining in years
During 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," for
disclosure purposes only. As allowed under SFAS 123, the Company continues to
apply APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations in its accounting for stock-based compensation plans.
Accordingly, no compensation cost was recognized in 1996. Had compensation
cost for the Company's stock incentive plans been determined based on the fair
value at the grant dates for awards under those plans, consistent with the
method prescribed by SFAS 123, the Company's net income and earnings per share
would have been reduced by immaterial amounts.
12 EMPLOYEE BENEFITS
- -----------------------------------------------------------------------------
The Company contributes to multiemployer, union-administered, construction-
related pension funds based on rates per hour worked by member employees.
Related contribution costs included in the cost of work performed were
approximately $1,161,000, $863,000, and $1,060,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
13 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- -----------------------------------------------------------------------------
The following is a summary of the unaudited quarterly results of operations
for the two years ended December 31, 1996. The results for the fourth quarter
of 1995 were adversely affected by provisions for certain litigation, contract
claims and rework, and by charges taken on a significant base operating
support services contract. These provisions were offset by favorable
adjustments for medical and casualty insurance costs and a reduction in the
Company's tax provision rate. The insurance adjustments, which totaled
approximately $3.9 million, were based on changes in estimates of the Company's
insurance exposures relative to its reserves and also reflected more favorable
levels of insurance experience over the preceding several years. The tax
provision adjustment resulted from the realization of a tax benefit from a
Baker Support Services joint venture, which reduced the Company's tax
provision by $600,000 during the fourth quarter. Each of these fourth quarter
adjustments either arose from decisions reached during the fourth quarter of
1995, or from changes in accounting estimates based on information which
became available during that period.
<PAGE>
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------
1996 - Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total contract revenues $84,019 $102,996 $114,710 $116,663
Gross profit 10,406 12,214 12,370 11,632
Income before income taxes 948 2,393 2,333 2,365
Net income 512 1,292 1,260 1,116
Net income
per common share $ 0.06 $ 0.15 $ 0.15 $ 0.13
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------
1995 - Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total contract revenues $86,543 $88,946 $90,620 $88,619
Gross profit 9,890 11,411 10,405 8,248
Income before income taxes 829 1,852 2,049 350
Net income 431 915 1,029 525
Net income
per common share $ 0.05 $ 0.11 $ 0.12 $ 0.07
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
of Michael Baker Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' investment and of cash
flows present fairly, in all material respects, the financial position of
Michael Baker Corporation and its subsidiaries at December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Pittsburgh, Pennsylvania
February 6, 1997
<PAGE>
Supplemental Financial Information
- -----------------------------------------------------------------------------
Market Information -- Common Shares
The principal market on which the Michael Baker Corporation Common Stock is
traded is the American Stock Exchange. High and low closing prices of the
Common Stock for each quarter during 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 5 3/8 5 3/4 5 5/16 6 7/16 4 3/8 5 5/8 6 1/4 6 1/4
Low 4 5/16 4 3/4 4 9/16 4 3/4 3 3/4 3 15/16 4 3/4 4 1/4
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
The following entities, unless otherwise indicated, are wholly-owned direct or
indirect subsidiaries of the Registrant as of December 31, 1996:
<TABLE>
<CAPTION>
State or Country
Name of Organization
----- -----------------
<S> <C> <C>
1. Baker Environmental, Inc. Pennsylvania
2. Baker Heavy & Highway, Inc. Pennsylvania
3. Baker Mellon Stuart Construction, Inc. Pennsylvania
4. Mellon Stuart Building Services, Inc. Pennsylvania
5. Mellon Stuart Construction International, Inc. Pennsylvania
6. Michael Baker Development Corporation Pennsylvania
7. Michael Baker Global, Inc. Pennsylvania
8. Michael Baker Jr., Inc. Pennsylvania
9. Michael Baker Alaska, Inc. Alaska
10. Baker Construction, Inc. Delaware
11. Baker Holding Corporation Delaware
12. Baker/OTS, Inc. Delaware
13. Michael Baker International, Inc. Delaware
14. Baker Engineering, Inc. Illinois
15. Michael Baker Jr. Company Nevada
16. Michael Baker Architects/Engineers, P.C. New Jersey
17. Baker Engineering NY, Inc. New York
18. Baker/MO Services, Inc. Texas
19. Baker Support Services, Inc. Texas
20. Vermont General Insurance Company Vermont
21. Michael Baker Barbados Ltd. Barbados
22. Baker O&M International, Ltd. Cayman Islands
23. Baker/OTS International, Inc. Cayman Islands
24. Overseas Technical Services (Middle East) Ltd. Cayman Islands
25. Michael Baker de Mexico, S.A. de C.V. Mexico
26. OTS International Training Services Ltd. United Kingdom
27. Overseas Technical Services (Harrow) Ltd. United Kingdom
28. Baker/OTS Ltd. United Kingdom
29. SD Forty Five Ltd. United Kingdom
30. Hanseatic Oilfield Services Ltd. Vanuatu
31. Oilfield Personnel Recruitment and
Management Ltd. Vanuatu
32. OTS Finance and Management Ltd. Vanuatu
33. OTS International Training Services Ltd. Vanuatu
34. Overseas Technical Services International Ltd. Vanuatu
</TABLE>
1
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-14058) our report dated February 6, 1997,
appearing within Exhibit 13.1 which has been incorporated by reference into
various items of Michael Baker Corporation's Annual Report on Form 10-K for
the year ended December 31, 1996. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule, which appears as
Exhibit 99.2 of this Form 10-K.
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
Pittsburgh, Pennsylvania
March 28, 1997
<PAGE>
Exhibit 99.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
Annual Report Pursuant to Section 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission file number 33-14058
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
Michael Baker Corporation Employee Stock Ownership Plan
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
Michael Baker Corporation
Airport Office Park, Building 3
420 Rouser Road
Coraopolis, PA 15108
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Financial Statements and Additional Information
December 31, 1996 and 1995
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Financial Statements
December 31, 1996 and 1995
Index
- --------------------------------------------------------
Report of Independent Accountants
Financial Statements:
Statements of Financial Condition -
December 31, 1996 and 1995
Statements of Income and Changes in Participants'
Equity With Fund Information - For the Periods
Ended December 31, 1996 and 1995
Notes to Financial Statements
Additional Information:*
Schedule of Assets Held for Investment Purposes -
December 31, 1996
* Other schedules required by Section 2520.103-10 of the Department of Labor
Rules and Regulations for Reporting and Disclosure under ERISA have been
omitted because they are not applicable.
<PAGE>
Report of Independent Accountants
March 15, 1997
To the Participants and Administrator
of the Michael Baker Employee Stock
Ownership Plan
In our opinion, the accompanying statements of financial condition and the
related statements of income and changes in participants' equity present
fairly, in all material respects, the financial position of the Michael Baker
Employee Stock Ownership Plan (the ESOP) at December 31, 1996 and 1995, and
the results of operations and the changes in participants' equity for the
years then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the ESOP's Administrator;
our responsibility is to express an opinion on these statements based on our
audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets
held for investment purposes is presented for the purposes of additional
analysis and is not a required part of the basic financial statements but is
additional information required by the Employee Retirement Income Security Act
of 1974 (ERISA). The fund information in the statement of income and changes
in participants' equity is presented for purposes of additional analysis
rather than to present the changes in participants' equity of each fund. The
supplemental schedule and the fund information have been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
The plan has not presented the schedule of reportable transactions
(transactions in excess of 5 percent of the current value of plan assets at
the beginning of the year). Disclosure of this information is required by the
Department of Labor Rules and Regulations for Reporting and Disclosure under
ERISA.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Financial Condition
December 31, 1996 and 1995
<TABLE>
<CAPTION>
December 31,
1996 1995
Assets
<S> <C> <C>
Investments, at quoted market value:
Investments in common stock of
Michael Baker Corporation:
Common Stock $16,661,483 $11,055,430
Series B Common Stock 7,813,775 6,129,240
Temporary investments 121,082 276,391
Investments in trust funds managed by
Putnam Investments, Inc.:
Putnam Growth and Income Fund 11,791,338 --
George Putnam Fund of Boston 8,974,703 --
Putnam New Opportunities Fund 3,338,982 --
Putnam Money Market Fund 3,284,128 --
Putnam Voyager Fund 2,069,616 --
Putnam Income Fund 746,635 --
Putnam International Growth Fund 614,208 --
Investments in trust funds managed by
Mellon Bank N.A.:
Dreyfus/Laurel Prime Money Market Fund -- 3,477,286
Premier Balanced Fund -- 8,770,757
Dreyfus Disciplined Stock Fund -- 10,778,934
Dreyfus Bond Market Index Fund -- 454,565
Participants' loan fund (market value
approximates costs) 44,782 48,440
----------- -----------
Total investments 55,460,732 40,991,043
Receivables:
Contributions receivable from Michael Baker
Corporation 300,099 233,654
Accrued interest and securities sold 274 --
----------- ----------
Total Receivables 300,373 233,654
Cash and cash equivalents 2,046 --
----------- ----------
Total Plan assets 55,763,151 41,224,697
=========== ==========
Liabilities
Accrued liabilities 119,947 --
----------- ----------
Total Plan liabilities 119,947 --
----------- ----------
Participants' equity $55,643,204 $41,224,697
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Income and Changes in Participants' Equity With Fund Information
Period Ended December 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Changes in Participants' Equity
Period Ended December 31, 1996
-------------------------------
Michael Dreyfus/
Baker Laurel Prime
Common Stock Money Market
Fund Fund
<S> <C> <C>
Contributions:
Participants' $ 629,166 $ 119,472
Employer's 3,392,910 --
Dividends/interest income 276 41,979
Net appreciation in market
value of investments 4,610,960 --
Interfund transfers - net (537,070) 102,309
----------- ------------
Total additions 8,096,242 263,760
Distributions to participants 1,011,910 213,895
Fees 235 --
----------- ------------
Total deductions 1,012,145 213,895
----------- ------------
Net increase (decrease) in participants'
equity during the period 7,084,097 49,865
Transfer from Mellon to Putnam (Note 1) -- (3,527,151)
Participants' equity at beginning
of period 17,694,715 3,477,286
------------ ------------
Participants' equity at end of period $24,778,812 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Income and Changes in Participants' Equity With Fund Information
Period Ended December 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Changes in Participants' Equity
Period Ended December 31, 1996
-------------------------------
Dreyfus
Premier Disciplined
Balanced Stock
Fund Fund
<S> <C> <C>
Contributions:
Participants' $ 335,999 $ 486,900
Employer's -- --
Dividends/interest income 434,097 443,089
Net appreciation in market
value of investments -- --
Interfund transfers - net (239,141) 180,106
------------ --------------
Total additions 530,955 1,110,095
Distributions to participants 290,512 322,437
Fees -- --
------------ --------------
Total deductions 290,512 322,437
------------ --------------
Net increase (decrease) in participants'
equity during the period 240,443 787,658
Transfer from Mellon to Putnam (Note 1) (9,011,200) (11,566,592)
Participants' equity at beginning
of period 8,770,757 10,778,934
------------ -------------
Participants' equity at end of period $ -- $ --
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Income and Changes in Participants' Equity With Fund Information
Period Ended December 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Changes in Participants' Equity
Period Ended December 31, 1996
-------------------------------
Dreyfus Putnam
Bond Growth &
Market Index Income
Fund Fund
<S> <C> <C>
Contributions:
Participants' $ 58,271 $ 827,363
Employer's -- --
Dividends/interest income (12,582) 945,122
Net appreciation in market
value of investments -- 499,701
Interfund transfers - net 70,050 (1,595,842)
------------- -------------
Total additions 115,739 676,344
Distributions to participants 12,848 451,512
Fees -- 86
------------- -------------
Total deductions 12,848 451,598
------------- -------------
Net increase (decrease) in participants'
equity during the period 102,891 224,746
Transfer from Mellon to Putnam (Note 1) (557,456) 11,566,592
Participants' equity at beginning
of period 454,565 --
------------- ------------
Participants' equity at end of period $ -- $11,791,338
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Income and Changes in Participants' Equity With Fund Information
Period Ended December 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Changes in Participants' Equity
Period Ended December 31, 1996
-------------------------------
George Putnam
Putnam New
Fund of Opportunities
Boston Fund
<S> <C> <C>
Contributions:
Participants' $ 416,460 $ 1,386,648
Employer's -- --
Dividends/interest income 744,618 25,595
Net appreciation in market
value of investments 242,783 (103,031)
Interfund transfers - net (1,037,678) 2,125,032
------------- -------------
Total additions 366,183 3,434,244
Distributions to participants 402,629 95,196
Fees 51 66
------------- -------------
Total deductions 402,680 95,262
------------- -------------
Net increase (decrease) in participants'
equity during the period (36,497) 3,338,982
Transfer from Mellon to Putnam (Note 1) 9,011,200 --
Participants' equity at beginning
of period -- --
------------- -------------
Participants' equity at end of period $ 8,974,703 $ 3,338,982
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Income and Changes in Participants' Equity With Fund Information
Period Ended December 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Changes in Participants' Equity
Period Ended December 31, 1996
-------------------------------
Putnam
Money Putnam
Market Voyager
Fund Fund
<S> <C> <C>
Contributions:
Participants' $ 333,200 $ 965,526
Employer's -- --
Dividends/interest income 133,673 128,401
Net appreciation in market
value of investments -- (99,125)
Interfund transfers - net (448,463) 1,085,514
----------- ------------
Total additions 18,410 2,080,316
Distributions to participants 261,298 10,677
Fees 135 23
----------- ------------
Total deductions 261,433 10,700
----------- ------------
Net increase (decrease) in participants'
equity during the period (243,023) 2,069,616
Transfer from Mellon to Putnam (Note 1) 3,527,151 --
Participants' equity at beginning
of period -- --
----------- ------------
Participants' equity at end of period $3,284,128 $2,069,616
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Income and Changes in Participants' Equity With Fund Information
Period Ended December 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Changes in Participants' Equity
Period Ended December 31, 1996
-------------------------------
Putnam
Putnam International
Income Growth
Fund Fund
<S> <C> <C>
Contributions:
Participants' $ 169,146 $ 260,009
Employer's -- --
Dividends/interest income 33,956 8,064
Net appreciation in market
value of investments 10,783 32,430
Interfund transfers - net (14,086) 316,803
------------ -------------
Total additions 199,799 617,306
Distributions to participants 10,618 3,091
Fees 2 7
------------ -------------
Total deductions 10,620 3,098
------------ -------------
Net increase (decrease) in participants'
equity during the period 189,179 614,208
Transfer from Mellon to Putnam (Note 1) 557,456 --
Participants' equity at beginning
of period -- --
------------ ------------
Participants' equity at end of period $ 746,635 $ 614,208
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Income and Changes in Participants' Equity With Fund Information
Period Ended December 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Changes in Participants' Equity
Period Ended December 31, 1996
-------------------------------
Participant
Notes
Receivable Combined
<S> <C> <C>
Contributions:
Participants' $ -- $ 5,988,160
Employer's -- 3,392,910
Dividends/interest income 3,876 2,930,164
Net appreciation in market
value of investments -- 5,194,501
Interfund transfers - net (7,534) --
------------ ------------
Total additions (3,658) 17,505,735
Distributions to participants -- 3,086,623
Fees -- 605
------------ ------------
Total deductions -- 3,087,228
------------ ------------
Net increase (decrease) in participants'
equity during the period (3,658) 14,418,507
Transfer from Mellon to Putnam (Note 1) -- --
Participants' equity at beginning
of period 48,440 41,224,697
------------ ------------
Participants' equity at end of period $ 44,782 $55,643,204
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Income and Changes in Participants' Equity With Fund Information
Period Ended December 31, 1995
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Changes in Participants' Equity
Period Ended December 31, 1995
-------------------------------
Dreyfus/
Laurel Prime Premier
Money Market Balanced
Fund Fund
<S> <C> <C>
Contributions:
Participants' $ 546,251 $1,167,216
Employer's -- --
Investment income 199,749 342,998
Net appreciation in market
value of investments -- 1,649,624
Interfund transfers - net (27,937) (131,436)
----------- ------------
Total additions 718,063 3,028,402
Distributions to participants (499,835) (705,672)
----------- -----------
Total deductions (499,835) (705,672)
----------- -----------
Net increase in participants'
equity during the period 218,228 2,322,730
Participants' equity at beginning
of period 3,259,058 6,448,027
----------- -----------
Participants' equity at end of period $3,477,286 $8,770,757
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Income and Changes in Participants' Equity With Fund Information
Period Ended December 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Changes in Participants' Equity
Period Ended December 31, 1995
-------------------------------
Dreyfus Dreyfus
Disciplined Bond Market
Stock Index
Fund Fund
<S> <C> <C>
Contributions:
Participants' $ 1,598,206 $ 181,499
Employer's - -
Investment income 353,018 18,956
Net appreciation in market
value of investments 2,589,252 30,232
Interfund transfers - net 123,123 50,592
------------ -----------
Total additions 4,663,599 281,279
Distributions to participants (769,598) (33,694)
------------ -----------
Total deductions (769,598) (33,694)
------------ -----------
Net increase in participants'
equity during the period 3,894,001 247,585
Participants' equity at beginning
of period 6,884,933 206,980
------------ -----------
Participants' equity at end of period $10,778,934 $ 454,565
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Statement of Income and Changes in Participants' Equity With Fund Information
Period Ended December 31, 1995
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Changes in Participants' Equity
Period Ended December 31, 1995
-------------------------------
Michael
Baker Participant
Common Stock Loan
Fund Fund Total
<S> <C> <C> <C>
Contributions:
Participants' $1,088,589 $ - $4,581,761
Employer's 2,918,272 - 2,918,272
Investment income 23,442 - 938,163
Unrealized appreciation in market
value of investments 3,244,162 - 7,513,270
Interfund transfers - net (40,177) 25,835 -
------------ --------- ------------
Total additions 7,234,288 25,835 15,951,466
Distributions to participants (856,568) - (2,865,367)
------------ --------- -----------
Total deductions (856,568) - (2,865,367)
------------ --------- -----------
Net increase in participants'
equity during the period 6,377,720 25,835 13,086,099
Participants' equity at beginning
of period 11,316,995 22,605 28,138,598
------------ -------- -----------
Participants' equity at end of period $17,694,715 $ 48,440 $41,224,697
============ ======== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Periods Ended December 31, 1996 and 1995
Notes to Financial Statements
- -----------------------------------------------------------------------------
1. DESCRIPTION OF THE PLAN
GENERAL
The following description of the Michael Baker Employee Stock Ownership Plan
(the ESOP, or the Plan) provides only general information. Participants
should refer to the Plan agreement for a more complete description of the
Plan's provisions.
The ESOP is an individual account stock bonus plan under which a participant's
distributions are based on the amount contributed to that participant's
account, including any transferred amounts from the prior retirement plan and
any gains or losses and income and expense that may be allocated to the
participant's account. The Plan is subject to provisions of the Employee
Retirement Income Security Act of 1974, as amended (ERISA).
COMMON STOCK
The primary purpose of the ESOP is to enable participating employees to
acquire an equity interest in Michael Baker Corporation (the Company).
Consistent with this purpose, contributions to the ESOP can be invested in the
Company's common stock (Common Stock and Series B Common Stock). At times,
however, common stock may not be available at a price acceptable to the ESOP
Committee (see Note 3), or it may be appropriate to retain some of the ESOP's
funds in a more liquid form so that the funds may be available for the payment
of benefits. In such cases, a portion of the ESOP's assets may be invested in
short-term investment funds, such as short-term corporate obligations or
short-term obligations of the U.S. government.
The ESOP's investment in the Company's common stock comprises 2,613,566(cost
of $14,016,656) and 2,211,086 (cost of $11,966,196) shares of Common Stock and
1,225,689(cost of $7,448,445) and 1,225,848 (cost of $7,440,333) shares of
Series B Common Stock at December 31, 1996 and 1995, respectively.
CONTRIBUTIONS
Participants contribute to the ESOP through a Section 401(k) Employee Salary
Redirection Election, whereby the participants may choose to have a percentage
of their salaries (including commissions, effective July 1, 1993) withheld and
contributed to the ESOP. The maximum amount of a participant's salary which
may be eligible for withholding for any Plan year can not exceed $150,000.
Additionally, the percentage may not exceed 15 percent of the participant's
salary. The ESOP also allows participants to roll over funds from a previous
employer's tax-qualified plan.
INVESTMENT OPTIONS
Each participant may direct Putnam Investments, Inc. (the Trustee) to invest
certain portions of his or her account in investment funds managed by the
Trustee.
Effective April 1, 1996, the Plan agreement was amended as a result of a
change in trustees from Mellon Bank N.A. (Mellon) to Putnam. Approximately
$44,420,000 in Plan assets (including the Michael Baker Common Stock Fund) was
transferred from Mellon to Putnam, which replaced Mellon as investment
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Periods Ended December 31, 1996 and 1995
Notes to Financial Statements
- -----------------------------------------------------------------------------
manager. As a result of this change, investment funds available to
participants are the Michael Baker Common Stock Fund (invested exclusively in
common stock of the Company), the Putnam New Opportunities Fund (invested in
long-term growth stocks within emerging industries), Putnam International
Growth Fund (invested in diversified corporate stocks outside of North
America), Putnam Voyager Fund (invested in diversified corporate stocks),
Putnam Fund for Growth and Income (invested in long-term growth stocks),
George Putnam Fund of Boston (invested in diversified capital growth and
current income stocks and bonds), Putnam Income Fund (invested in corporate
bonds) and the Putnam Money Market Fund (invested in short-term money market
securities).
Prior to April 1, 1996, the investment fund options available to employees
included the Michael Baker Common Stock Fund (invested exclusively in common
stock of the Company), managed by Mellon; the Dreyfus/Laurel Prime Money
Market Fund (invested in short-term, income producing securities); the Premier
Balanced Fund (invested in common stocks and bonds in proportions consistent
with their expected returns and risks as determined by the portfolio's
adviser); the Dreyfus Disciplined Stock Fund (invested in diversified
corporate stocks); and the Dreyfus Bond Market Index Fund (investing in U.S.
government and Securities and Exchange Commission (SEC)-registered obligations
of domestic corporations, foreign governments and supranational
organizations). During this time, Mellon served as the Adviser, Custodian,
Fund Accountant and Transfer Agent for the aforementioned investment funds.
Contributions by participants cannot be further directed within The Michael
Baker Common Stock Fund.
COMPANY MATCHING CONTRIBUTIONS AND VESTING OF BENEFITS
Under the provisions of the Plan, the Company will make a matching
contribution to the participants' accounts in an amount not less than 50
percent of the first 5 percent of the salary contributed by each participant.
Salary amounts over the 5 percent limit will not be matched by the Company.
All matching contributions can be invested only in the Company's Common Stock
or Series B Common Stock. During 1996 and 1995, the Company matched
participants' contributions on a dollar-for-dollar basis for the first 5
percent of participants' salaries contributed to the Plan.
The Board of Directors of the Company is authorized to make additional
discretionary contributions to the ESOP from time to time. However, no
discretionary contributions were made in 1996 or 1995.
All amounts in the participants' ESOP accounts that are attributable to the
transfer of funds from a terminated prior retirement plan, the rollover from a
previous employer's tax-qualified plan, participant contributions under Salary
Redirection Election and PAYSOP contributions are 100 percent vested and
nonforfeitable at all times.
All Company matching contributions to the participants' Salary Redirection
Election and discretionary contributions on behalf of the participants will
become 100 percent vested upon attainment of 3 years of service with the
Company or, if earlier, upon attainment of normal retirement date, disability
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Periods Ended December 31, 1996 and 1995
Notes to Financial Statements
- -----------------------------------------------------------------------------
or death. If a participant leaves employment with the Company before
attaining a vested interest in his or her Company matching contribution, the
contributions are forfeited and reduce future Company matching contributions.
DISTRIBUTIONS
The Plan provides for distribution of benefits upon retirement, total and
permanent disability, death, or termination of employment for any other
reason. The amount of distribution the participant or his or her beneficiary
is entitled to, based on the vesting requirements, is discussed above. A
participant may retire at age 65, or at age 55 if he or she has completed at
least 3 years of service. All distributions will be made in the form of a
single lump-sum distribution or in substantially equal installments over a
period not exceeding the life expectancy of the participant, or the joint life
expectancy of the participant and beneficiary, as the participant or his or
her beneficiary may elect. Distributions may be made in cash or shares of
common stock, at the discretion of the ESOP Committee.
PARTICIPANT LOANS
A participant may borrow money from the portion of his or her account
attributable to his or her own 401(k) plan contributions. Participant loans
may be obtained in the sole event of immediate and heavy financial need, where
the participant lacks other available resources. Loan amounts are limited to
the lower of $50,000 or 50 percent of the employee's deferred amount. All
loans will be drawn against the participant's account among the respective
investment options as directed, and are secured by the assets within the
participant's accounts. Interest rates on outstanding notes receivable range
from 9.75 percent to 12.85 percent.
PLAN TERMINATION
Although it has not expressed an intention to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions set forth in the Employee Retirement Income
Security Act of 1974 (ERISA).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Trustee performs the recordkeeping function for the ESOP and the records
are maintained on a cash basis. The financial statements included herein
include all material adjustments to place the financial statements on the
accrual basis of accounting in accordance with generally accepted accounting
principles.
The investment in common stock of the Company is stated at publicly-traded
closing market values as of December 31, 1996 and 1995. As of December 31,
1996 and 1995, the ESOP owns approximately 46 percent and 41 percent,
respectively, of the outstanding shares of the Company's common stock;
therefore, such valuation might be subject to significant fluctuation in the
event of a substantial liquidation of such holdings by the ESOP.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Periods Ended December 31, 1996 and 1995
Notes to Financial Statements
- -----------------------------------------------------------------------------
INVESTMENTS
The difference between the cost and current market value of investment
purchases since the beginning of the period and the increase or decrease in
such stated market value of investments held at the beginning of the period
reported is included in the increase (decrease) in net appreciation
(depreciation) in market value of investments in the statements of changes in
Plan equity. A significant portion of the investments of the ESOP is
publicly-traded shares of the Company's Common Stock or are readily
convertible shares of Series B Common Stock and, therefore, have a published
market price. The accompanying financial statements should be read in
conjunction with the consolidated financial statements appearing within
Exhibit 13.1, which has been incorporated by reference into various items of
Michael Baker Corporation's Annual Report on Form 10-K.
DISTRIBUTIONS
Distributions to participants are recorded when paid.
3. PLAN ADMINISTRATOR AND TRUSTEE
The ESOP is administered by a committee consisting of nine employees who are
ESOP participants and the Chief Executive Officer and the Chief Financial
Officer of the Company, who serve as nonvoting members. The Committee is
responsible for the general day-to-day administration of the ESOP, such as
determining eligibility, participant allocation procedures and distribution of
benefits.
Under the trust agreement, the Trustee will invest the contributions to the
ESOP and make distributions of ESOP assets as directed by the ESOP Committee.
The Company provides certain administrative and accounting services to the
ESOP at no cost. In addition, the Company pays the cost of services provided
to the ESOP by the ESOP's Trustee, legal counsel and independent accountants.
4. QUALIFICATION OF THE PLAN
By a determination letter from the IRS dated December 30, 1994, the Company
was notified that the Plan and related trust are designed in accordance with
applicable sections of the Internal Revenue Code. Therefore, no provision for
income taxes has been included in the Plan's financial statements. This
determination letter is applicable for amendments adopted through October 27,
1993. The Plan has been amended since receiving the determination letter;
however, the Plan Administrator and the Plan's counsel believe that the Plan
is currently designed and being operated in compliance with applicable
requirements of the Code. Therefore, they believe the Plan was qualified and
the related trust was tax-exempt as of the financial statement date.
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Periods Ended December 31, 1995 and 1994
Notes to Financial Statements
- -----------------------------------------------------------------------------
5. DISTRIBUTIONS TO PARTICIPANTS
At December 31, 1996 and 1995, the Plan had distributions to employees that
had been authorized but not paid of $103,234 and $314,453, respectively. The
following table is a reconciliation of participants' equity at December 31,
1996 and 1995 per the financial statements to the Plan's Form 5500,
respectively:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Participants' equity per the
financial statements $55,643,205 $41,224,697
------------ ------------
Amounts allocated to withdrawing
participants:
Michael Baker Common Stock Fund (94,277) (110,060)
Putnam Money Market Fund (8,063) --
Putnam New Opportunities Fund (894) --
Dreyfus/Laurel Prime Money Market Fund -- (115,740)
Dreyfus Premier Balanced Fund -- (52,745)
Dreyfus Disciplined Stock Fund -- (31,039)
Dreyfus Bond Market Index Fund -- (4,869)
----------- ------------
(103,234) (314,453)
----------- ------------
Participants' equity per Form 5500 $55,539,971 $40,910,244
============ ============
</TABLE>
The following is a reconciliation of distributions to employees per the
financial statements to the Plan's Form 5500 for the period ended December 31,
1996:
<TABLE>
<CAPTION>
December 31,
1996
<S> <C>
Distributions to employees per the
financial statements $3,086,623
Add: Distributions to employees
authorized but not paid as of
December 31, 1996 103,234
Less: Distributions to employees
authorized but not paid as of
December 31, 1995 (314,453)
-----------
Distributions to employees per
Form 5500 $2,875,404
===========
</TABLE>
<PAGE>
Michael Baker Corporation
Employee Stock Ownership Plan
Schedule of Assets Held for Investment Purposes - Form 5500, Item 27a
December 31, 1996
Additional Information - Schedule I
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
Cost of Current
Shares Description asset value
<S> <C> <C> <C>
*Michael Baker Corporation
2,613,566 Common Stock $14,016,656 $16,661,483
*Michael Baker Corporation
1,225,689 Common Stock - Series B 7,448,445 7,813,775
121,082 *Putnam Temporary Investments 121,082 121,082
547,238 *George Putnam Fund of Boston 8,764,343 8,974,703
654,347 *Putnam Growth & Income Fund 11,345,809 11,791,338
106,510 *Putnam Income Fund 735,342 746,635
128,388 *Putnam Voyager Fund 2,170,262 2,069,616
82,180 *Putnam New Opportunities Fund 3,438,892 3,338,982
40,865 *Putnam International Growth Fund 581,895 614,208
3,284,128 *Putnam Money Market Fund 3,284,128 3,284,128
N/A *Participant notes receivable:
9.75% to 12.85%, due April 18,
1998 to August 28, 2000 44,782 44,782
---------- -----------
$51,951,636 $55,460,732
=========== ===========
*Party-in-interest
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Chairman of the Plan Administrative Committee appointed by the Board of
Directors of Michael Baker Corporation has duly caused this annual report to
be signed by the undersigned thereunto duly authorized.
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
Date: March 28, 1997 By:/s/ Michael J. Hegarty
--------------------------
Michael J. Hegarty
Chairman of the Plan
Administrative Committee
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Form 11-K of our report dated
March 15, 1997, appearing on page 1 of the Annual Report of the Michael Baker
Corporation Employee Stock Ownership Plan as an exhibit to the registrant's
Form 10-K for the year ended December 31, 1996. We also consent to the
incorporation by reference of our report in this Form 11-K into the
registrant's Registration Statement on Form S-8 (no. 33-14058).
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Pittsburgh, Pennsylvania
March 28, 1997
<PAGE>
Exhibit 99.2
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Michael Baker Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 6, 1997, appearing within Exhibit 13.1 which has been
incorporated by reference into various items of Michael Baker Corporation's
Annual Report on Form 10-K, also included an audit of the Financial Statement
Schedule listed in Item 14(a) of the Form 10-K. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
Pittsburgh, Pennsylvania
February 6, 1997
