<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, 1997
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 27, 1998, 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, 2,629,114
shares of Common Stock and 1,224,660 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 $40,034,995 for the Common Stock and $1,024,034 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).
As of February 27, 1998, the Registrant had outstanding 7,100,413 shares of its
Common Stock and 1,332,453 shares of its Series B Common Stock.
<PAGE>
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, 1997 I, II
Proxy Statement to be distributed in connection with
the 1998 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 1997 by ENGINEERING NEWS RECORD
magazine, Baker ranked 40th among U.S. design firms, 15th among transportation
design firms, 41st among international design firms, 153rd among U.S.
construction contractors and 94th among construction management for-fee firms.
These rankings were based on 1996 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. This unit
offers a variety of services including design-build, construction management,
planning, program management, general contracting, architectural and interior
design, construction inspection, and constructability reviews. The Buildings
unit has completed a wide range of projects, such as corporate headquarters,
data centers, hospitals, correctional facilities, educational facilities,
airports and entertainment facilities.
CIVIL. The Civil unit comprises the Registrant's civil engineering and water
resources division and its military operations and 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,
a significant Baker client. Though this unit is Baker's most diverse unit, its
focus is on core competencies such as surveying, mapping, geographic
information systems ("GIS"), planning, design, construction management and
total program management. The Civil unit serves clients in the fields of
telecommunications, water resources, pipelines, resources management, water/
wastewater systems and facilities operations and maintenance.
ENERGY. The Energy unit comprises Baker/MO Services, Inc. ("Baker/MO") and
Baker/OTS, Inc. ("Baker/OTS"). This unit focuses on providing comprehensive
operations, maintenance and technical services to energy industry clients
worldwide. 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. Services provided by the Energy unit include turbine overhauls,
mechanical services including major equipment outages, operations and
maintenance, in-shop and onsite mechanical reconditioning, and training
services for energy producers.
ENVIRONMENTAL. The Environmental unit provides a combination of engineering
and consulting services in both the public and private markets. Some recent
projects include air permitting of manufacturing facilities, bioremediation of
petroleum contaminated soils, evaluation and redevelopment of brownfield sites,
performance of the U.S. Navy CLEAN program, use of GIS to track the spread of
contaminants at industrial sites, and compliance programs for oil and gas
production platforms in the Gulf of Mexico.
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. This unit has a national reputation for outstanding
planning, design, construction, program management and software development
capabilities in highways, bridges, airports, busways and other transit
facilities.
DOMESTIC AND FOREIGN OPERATIONS
-------------------------------
Approximately 90% and 88% of the Registrant's total contract revenues were
derived from work performed within the United States for the years ended
December 31, 1997 and 1996, 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.
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 $393 million at
December 31, 1997 and $333 million at December 31, 1996. Total backlog, which
incrementally includes that portion of contract value for which options are
still to be exercised (unfunded backlog), was $649 million at December 31, 1997
and $544 million at December 31, 1996.
There is not necessarily a direct 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 government contract
renewals occur.
CUSTOMERS
---------
No individual contract accounted for more than 10% of the Registrant's total
contract revenues in 1997, 1996 or 1995; however, several contracts with the
U.S. Department of Navy and the State of Illinois provided 10.9% and 10.5%,
respectively, of the Registrant's total contract revenues in 1995.
<PAGE>
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.
SEASONALITY
-----------
Based upon the Registrant's experience, total contract revenues and net income
from engineering and construction-related services tend to be lower for the
first quarter than for 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, 1997, the Registrant employed approximately 3,670 persons,
broken down by business unit as follows:
Buildings unit--250 Environmental unit--160
Civil unit--1,630 Transportation unit--780
Energy unit--820 Corporate staff--30
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 offices of the Registrant are located at the Airport Office Park,
410 & 420 Rouser Road, Coraopolis, Pennsylvania 15108, at which approximately
165,000 square feet of office space is leased for use by the Registrant's
Civil, Buildings, 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 by the Registrant's Civil unit.
The Registrant leases an aggregate of approximately 419,000 square feet of
office-related floor space, including its principal offices. The space leased
by business unit is as follows:
The Buildings unit leases approximately 44,000 square feet in:
Rocky Hill, Connecticut Coraopolis, Pennsylvania
Orlando, Florida Alexandria, Virginia
Chicago, Illinois
The Civil unit leases approximately 112,000 square feet in:
Phoenix, Arizona Dallas, Texas
Annapolis, Maryland Salt Lake City, Utah
Jackson, Mississippi Alexandria, Virginia
Elmsford, New York Virginia Beach, Virginia
Coraopolis, Pennsylvania Mexico City, Mexico
The Energy unit leases approximately 21,000 square feet in:
Lafayette, Louisiana Abu Dhabi, United Arab Emirates
Houston, Texas Middlesex, United Kingdom
The Environmental unit leases approximately 42,000 square feet in:
Merrillville, Indiana Coraopolis, Pennsylvania
Princeton, New Jersey
The Transportation unit leases approximately 163,000 square feet in:
Birmingham, Alabama Elmsford, New York
Anchorage, Alaska Coraopolis, Pennsylvania
Phoenix, Arizona Gibsonia, Pennsylvania
Fort Smith, Arkansas Harrisburg, Pennsylvania
Tampa, Florida Philadelphia, Pennsylvania
Chicago, Illinois Alexandria, Virginia
Shreveport, Louisiana Richmond, Virginia
Princeton, New Jersey Virginia Beach, Virginia
Brooklyn, New York Charleston, West Virginia
The Corporate staff utilizes approximately 37,000 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 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The following represents a listing of executive officers of the Registrant as of
December 31, 1997.
CHARLES I. HOMAN - Age 54; 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 55; 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 53; 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 48; 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 46; 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 50; 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 47; 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 54; 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.
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.
At February 27, 1998, the Registrant had 1,552 holders of its Common Stock
and 684 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, 1997, 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 3, 1998, and supplementary financial
information are set forth within Exhibit 13.1 to this Form 10-K. Such
financial statements and supplementary financial information are incorporated
herein by reference.
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 1998 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 1998 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 1998 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 1998 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.
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, 1997 and 1996
Consolidated Statement of Income for the three years
ended December 31, 1997
Consolidated Statement of Cash Flows for the three years
ended December 31, 1997
Consolidated Statement of Shareholders' Investment for the
three years ended December 31, 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2) All financial statement schedules are omitted because they are either
not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
<PAGE>
(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 1997 Incentive Compensation Plan of Michael Baker
Corporation, filed herewith.
10.2 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.
10.2(a) Supplemental Employment Agreement No. 3 dated as of June 1,
1995 and Supplemental Agreement No. 4 dated as of March 1,
1998, by and between the Registrant and Richard L. Shaw,
filed herewith.
10.3 Credit Agreement by and among Michael Baker Corporation and
Subsidiaries and Mellon Bank, N.A. dated as of June 12, 1997,
filed as Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1997, and
incorporated herein by reference.
10.4 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.
10.5 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, 1997, including Selected Financial
Data, Management's Discussion and Analysis of Financial
Condition and Results of Operations, Consolidated Financial
Statements as of December 31, 1997 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.
</TABLE>
(b) The Registrant filed no reports on Form 8-K during the fourth
quarter of 1997.
<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 27, 1998 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 27, 1998
- -------------------
Richard L. Shaw
/s/ Charles I. Homan Director, President March 27, 1998
- -------------------- and Chief Executive
Charles I. Homan Officer
/s/ J. Robert White Director, Executive Vice March 27, 1998
- -------------------- President, Chief Financial
J. Robert White Officer and Treasurer
(Principal Financial and
Accounting Officer)
- -------------------- Director March 27, 1998
Robert N. Bontempo
<PAGE>
Signature Title Date
- --------- ------ ----
- --------------------- Director March 27, 1998
William J. Copeland
/s/ Roy V. Gavert, Jr. Director March 27, 1998
- ----------------------
Roy V. Gavert, Jr.
- ----------------------- Director March 27, 1998
Jack B. Hoey
/s/ Thomas D. Larson Director March 27, 1998
- -----------------------
Thomas D. Larson
/s/ John E. Murray, Jr. Director March 27, 1998
- ------------------------
John E. Murray, Jr.
- ------------------------ Director March 27, 1998
Konrad M. Weis
<PAGE>
<PAGE>
Exhibit 10.1
1997 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 PERFORMANCE
4.4 BUSINESS SEGMENT PERFORMANCE
4.5 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
1997 INCENTIVE COMPENSATION PLAN - ATTACHMENT 1
ELIGIBILITY
OPPORTUNITY
PERFORMANCE MEASUREMENT
POTENTIAL PAYOUT (PERCENTAGE OF ANNUAL SALARY)
FREQUENCY OF PAYOUT
</TABLE>
<PAGE>
1997 INCENTIVE COMPENSATION PLAN
MICHAEL BAKER CORPORATION
ARTICLE I
GENERAL
- -------
1.1 ESTABLISHMENT OF THE PLAN:
Michael Baker Corporation, a Pennsylvania corporation (the "Company"), hereby
adopts this Plan, which shall be known as the MICHAEL BAKER CORPORATION 1997
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, exercise of stock options, overtime
pay, special awards, hiring/retention awards, imputed income related to
company provided life insurance, reimbursement for moving expenses,
tuition reimbursement, additional compensation related to international
assignments such as expatriate differential compensation, tax
equalization, etc., or any other extraordinary income.
(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.
(j) "Business Unit" shall mean, in 1997, the operating units of: Buildings,
Civil, Energy, Environmental and Transportation, and any other Business
Unit added during the year.
(k) "Business Segment" shall mean, in 1997, Business Unit segments of:
Buildings-Design, Buildings-Construction, Civil-Engineering,
Civil-Baker Support Services, Inc., Energy-Baker/MO,
Transportation-Engineering and Transportation-Construction (Heavy &
Highway) and any other Business Segment added during the year.
(l) "Contribution to Corporate Overhead and Profit" shall mean the
following:
Business Unit Level -- Income before income taxes plus Corporate
overhead, Engineering Support overhead (related only to Engineering
segments), I/C insurance premiums (VGIC) and Internal interest expense
(VGIC).
<PAGE>
Engineering Segment Level -- Income before income taxes plus Corporate
overhead, Business unit overhead, Engineering Support Overhead, I/C
insurance premiums (VGIC) and Internal interest expense (VGIC).
Non-Engineering Segment Level -- Income before income taxes plus
Corporate overhead, Business unit overhead, I/C insurance premiums
(VGIC) and Internal interest expense (VGIC).
2.2 GENDER AND NUMBER:
Except when otherwise indicated 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
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. Participants are to be
designated as having accountability associated with Corporate, overall
Business Unit or specific Business Segment performance. Participants are to
be designated as having Tier 1 or Tier 2 accountability as defined in an
attachment to the Plan.
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.
<PAGE>
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) Business Segment performance, and (iv) individual
performance plan accomplishments.
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 1997, corporate results shall be dependent upon audited corporate earnings
per share (after all incentives have been paid).
For 1997, performance level goals for earnings per share are:
<TABLE>
<CAPTION>
Corporate
Performance Goal Setting
Level (Earnings Per Share)
------------- -------------------
<S> <C>
Level 1 On Plan $.55
Level 2 Commendable $.60
Level 3 Outstanding $.65
</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.
<PAGE>
4.3 BUSINESS UNIT PERFORMANCE:
Business Unit performance shall be reflected in the final award based upon the
Business Unit's Contribution to Corporate Overhead and Profit. The Incentive
Compensation Committee shall establish and approve Competent, Commendable and
Outstanding Contribution goals specific to each Business Unit at the beginning
of the Plan year. The Competent goal shall serve as a Threshold target which
must be met in order for Business Unit Managers and those having overall
Business Unit accountability to be eligible to receive an incentive payout
based upon their individual performance plans. In addition, the Competent
goal shall serve as a Threshold target which must be met in order for all
Business Segment participants to receive a payout based upon Business Unit
performance. For Business Segment participants, the incentive compensation
award related to Business Unit performance is based upon "step" accomplishment
of Competent, Commendable, or Outstanding goals and is not to be pro-rated.
Any Business Unit with an objective of a positive contribution performance
(net income before tax plus corporate overhead) which results in a year-end
negative contribution, may be eligible for the portion of incentive
compensation dependent on overall corporate earnings per share performance,
pending CEO approval as advised by the Incentive Compensation Committee. Any
Business Unit with an objective of a negative contribution performance (net
income before tax plus corporate overhead) which results in a year-end more
negative contribution, may be eligible for the portion of incentive
compensation dependent on overall corporate earnings per share performance,
pending CEO approval as advised by the Incentive Compensation Committee.
Factors to be taken into consideration may include the amount of deviation
from objective, impact of the contribution of the Business Unit to the
Corporation and any extraordinary issues. Any Business Unit 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 BUSINESS SEGMENT PERFORMANCE:
Business Segment performance shall be reflected in the final award based on
the Business Segment's Contribution to Corporate Overhead and Profit. The
Incentive Compensation Committee shall approve Competent, Commendable and
Outstanding Contribution goals specific to each Business Segment at the
beginning of the Plan year. The Competent goal shall serve as a Threshold
target which must be met in order for participants within the Segment to be
eligible to receive an incentive payout based upon individual performance
plans.
Any Business Segment with an objective of a positive contribution performance
(net income before tax plus corporate overhead) which results in a year-end
negative contribution, may be eligible for the portion of incentive
compensation dependent on overall corporate earnings per share performance
and/or Business Unit Contribution to Overhead and Profit, pending CEO approval
as advised by the Incentive Compensation Committee. Any Business Segment with
an objective of a negative contribution performance (net income before tax
plus corporate overhead) which results in a year-end more negative
contribution, may be eligible for the portion of incentive compensation
dependent on overall corporate earnings per share performance and/or Business
Unit Contribution to Overhead and Profit, pending CEO approval as advised by
the Incentive Compensation Committee. Any Business Segment 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 and Business Unit Contribution to
Overhead and Profit.
4.5 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>
Business Unit Contribution to 35%
Corporate Overhead and Profit
New Work Added To The Company 45%
TQM Goals 10%
Human Resources Development 10%
</TABLE>
Guidelines of performance goals and percentage weights for Business Segment
managers are recommended to be:
<TABLE>
<CAPTION>
% of Business Segment
and Individual
Performance Plans
-----------------------
<S> <C>
Business Segment Contribution to 35%
Corporate Overhead 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 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 March 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 on a specific goal will result in no incentive payout for
that specific performance goal. Once performance has exceeded the Competent-On
Plan Performance-3 level on a specific goal, any performance beyond the 3
level will result in a pro-rated weighted 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 Business Segment (as applicable) operating profit
accomplishes threshold performance indicated in each Business Unit's or
Business Segment's Performance Plan (after all individual incentives have been
paid). Individual performance goals are developed with each participant's
manager and payout is based on the applicable Business Unit or Business
Segment 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 within Corporate and within each Business Unit to selectively award
those individuals who have exceeded expected performance. Guidelines for
discretionary awards are indicated within the Corporate and within each
Business Units' Incentive Compensation Plan Summary in the attachments.
Functional Unit discretionary awards are to be selected by the CEO with the
concurrence of the Incentive Compensation Committee. Business Unit
discretionary awards are to be selected by the Executive Vice President of the
Business Unit with the concurrence of the Incentive Compensation Committee.
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,
Business Segment and individual goals, will be paid in cash no later than
March 15 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 Business Unit, Business Segment or participants' failure to achieve
goals established under the Plan or 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.
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).
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, as 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
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, 1997.
<PAGE>
1997 Michael Baker Corporation Incentive Compensation Plan - Summary
Attachment 1 February 14, 1997
- ----------------------------------------------------------------------------
<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 Heads
Selected Staff who support the
functions of the entire Business Unit
(Designated by Business Unit Head)
Business Segments- Profit Center Managers with greater
Engineering and Design than $2.5 Million net revenue
responsibility
(Designated by Business Unit Head)
Business Segments-Construction Profit Center Managers with greater
and Heavy/Highway and Baker than $60 Million gross revenue
Support Services, Inc. responsibility
(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 Segments Selected Managers, Other Profit
Center Managers, and selected Senior
Project Managers
(Designated by Business Unit Head)
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
- ----------------------------------------------------------------------------
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% 15% Payout)
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE MEASUREMENT
Corporate Participants, Heads of Business Units and Staff, Managers with
multiple Business Unit responsibility, and all Environmental Business Unit
Participants
<S> <C>
Corporate Profitability Goals 50 % of Potential Award
Individual Performance Plan Goals 50 % of Potential Award
</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
Individual Performance Plan 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% $.55
2nd Level (Commendable) 33% $.60
3rd Level (Outstanding) 34% $.65
</TABLE>
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDIVIDUAL PERFORMANCE PLAN GOALS
% of % of
(Number of goals and % for each Business Business
specific goal is to be customized Unit Segment Functional
for each participant based Participants' Participants' Unit
upon Operating Objective, Individual Individual Individual
Marketing driven orientation Performance Performance Performance
and level of accountability. % Plans Plans Plan
is not to be less than 10% for -------------- ------------ -----------
any goal)
<S> <C> <C> <C>
Business Unit or Business Segment 35% 35% *
Contribution to Corporate Overhead
and Profit
New Work Added to the Company 45% 20% *
Strategic Initiatives 15% *
Accounts Receivables 10% *
TQM Goals 10% 10% 10%
Human Resources Development 10% 10% 10%
*Functional Unit Performance Plans are to be determined by Dept. Heads and
participants with CEO approval
</TABLE>
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
POTENTIAL PAYOUT Corporate Individual
Profitability Performance
Goals Goals
(% of Annual Salary) ------------ -----------
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>
Business
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>
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Corporate Individual
(% 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) Business
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 $0.55
on Corporate Component (after all incentives have been paid)
Business Units and Business Segments
Minimum Contribution to Overhead and Profit (After Accrual for Incentive
Compensation Payments and Internal Interest Charges)
<TABLE>
<CAPTION>
Contribution
-------------
<S> <C>
Civil Business Unit $7,834,774
Civil-Engineering $9,540,871
Baker Support Services, Inc. $568,028
Buildings Business Unit $3,034,430
Buildings-Design $1,932,946
Buildings-Construction $2,086,060
Transportation Business Unit $6,985,940
Transportation-Engineering $8,321,368
Transportation-Heavy & Highway $940,552
Environmental Business Unit $2,266,517
Energy Business Unit $3,637,332
Energy/Baker MO $1,756,275
</TABLE>
- ---------------------------------------------------------------------------
<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>
<PAGE>
Exhibit 10.2 (a)
SUPPLEMENTAL AGREEMENT NO. 3
----------------------------
This Supplemental Agreement dated as of June 1, 1995, by and between
MICHAEL BAKER CORPORATION, a Pennsylvania corporation (hereinafter referred to
as the "Corporation") and RICHARD L. SHAW (hereinafter referred to as the
"Executive").
WITNESSETH:
WHEREAS, the Corporation and the Executive entered into an Employment
Agreement dated April 12, 1988 (hereinafter the "Agreement") in which the
Corporation agreed to employ and the Executive agreed to be employed as the
Corporation's President and Chief Executive Officer; and
WHEREAS, the Agreement further provided that the Corporation would retain
the Executive as a Consultant after the Executive's retirement; and
WHEREAS, the Corporation and the Executive desire to amend and supplement
the Agreement to address certain changed circumstances and conditions relative
to Executive's Leased Premises.
NOW, THEREFORE, in consideration of the premises, the parties agree as
follows:
1. Section 14. Notices shall be supplemented and amended as follows:
-------------------
"Any notice or other communications hereunder shall be in writing and
shall be mailed or delivered to the respective parties hereto at the
address set forth below:
The Corporation:
Michael Baker Corporation
Airport Office Park, Building #3
420 Rouser Road
Coraopolis, PA 15108
Attn: Charles I. Homan, President and Chief Executive Officer
The Executive:
Richard L. Shaw
255 College Avenue
Beaver, PA 15009
Either address above specified may be changed by written notice
hereunder."
2. All other terms and conditions of the Agreement remain in full force
and effect and are hereby ratified by both parties as supplemented and amended
and the Agreement is incorporated herein by reference.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
ATTEST: MICHAEL BAKER CORPORATION
/s/ Janine M. Dillion BY /s/ Charles I. Homan
- --------------------- --------------------
Charles I. Homan
President and
Chief Executive Officer
WITNESS:
/s/ Kathryn J. Carrier BY /s/ Richard L. Shaw
- ---------------------- -------------------
Richard L. Shaw
Executive
<PAGE>
SUPPLEMENTAL AGREEMENT NO. 4
----------------------------
This Supplemental Agreement No. 4 dated as of March 1, 1998 is entered into by
and between MICHAEL BAKER CORPORATION, a Pennsylvania corporation (hereinafter
referred to as the "Corporation") and RICHARD L. SHAW, an individual
(hereinafter referred to as the "Executive").
WITNESSETH:
WHEREAS, the Corporation and the Executive entered into an Employment
Agreement dated April 12, 1988 and subsequently amended the Employment
Agreement by Supplemental Agreement No. 1 dated March 17, 1992, Supplemental
Agreement No. 2 dated October 1, 1994, and Supplemental Agreement No. 3 dated
June 1, 1995 (hereinafter collectively the "Agreement"); and
WHEREAS, pursuant to the Agreement, the Corporation has retained the
Executive as a consultant after the Executive's retirement; and
WHEREAS, the Corporation and the Executive now desire to further amend
and supplement the Agreement to extend the Executive's consulting term on the
terms outlined herein.
NOW THEREFORE, in consideration of the mutual premises contained herein
and other good and valuable consideration, and intending to be legally bound
hereby, THE PARTIES AGREE AS FOLLOWS:
1. The Consulting Arrangement established by Section 5 of the Agreement
shall be extended and continue until May 31, 2000 on the same terms and at the
same compensation in effect on the date of this Supplemental Agreement No. 4.
2. All other terms and conditions of the Agreement shall remain in full
force and effect and are hereby ratified by both parties, and the Agreement is
hereby incorporated by reference as if fully stated herein.
IN WITNESS WHEREOF, the parties have executed this Supplemental Agreement
No. 4 as of the day and year first above written.
MICHAEL BAKER CORPORATION
ATTEST: (The "Corporation")
/s/ H. James Mcknight By: /s/ Charles I. Homan
- --------------------- --------------------
H. James McKnight Charles I. Homan
Secretary President and Chief Executive Officer
RICHARD L. SHAW
WITNESS: (The "Executive")
/s/ Robin E. Culler /s/ Richard L. Shaw
- ------------------- -------------------
<PAGE>
<PAGE>
Exhibit 13.1
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
============================================================================
(In thousands, except per share information)
RESULTS OF OPERATIONS
Total contract revenues $446,432 $418,388 $354,728 $437,193 $434,791
Operating income/(loss) 8,020 7,663 5,180 (9,097) (21,805)
Net income/(loss) 4,953 4,180 2,900 (7,945) (15,128)
Diluted net income/(loss)
per share $ 0.60 $ 0.50 $ 0.35 $ (0.95) $ (1.82)
Return on average equity 9.3% 8.5% 6.3% (16.3)% (25.6)%
FINANCIAL CONDITION
Total assets $144,425 $126,082 $117,376 $134,794 $145,805
Working capital $ 36,220 $ 27,417 $ 25,186 $ 22,391 $ 33,042
Current ratio 1.41 1.36 1.36 1.26 1.39
Long-term debt $ -- $ -- $ -- $ 3,960 $ 7,670
Shareholders' investment 55,862 50,752 47,631 44,731 52,676
Book value per
outstanding share 6.79 6.19 5.70 5.35 6.30
Year-end closing
share price $ 9.75 $ 6.38 $ 5.00 $ 3.75 $ 11.00
CASH FLOW
Cash provided by
operating activities $ 9,231 $ 1,167 $ 15,539 $ 5,415 $ 4,758
Cash used in investing
activities (2,533) (3,739) (2,294) (5,436) (11,232)
Cash provided by/(used in)
financing activities 124 (1,251) (2,547) (1,477) 5,105
---------------------------------------------------
Increase/(decrease)
in cash $ 6,822 $ (3,823) $ 10,698 $ (1,498) $ (1,369)
BACKLOG
Funded $393,200 $332,800 $299,900 $283,300 $357,600
Total $648,700 $543,700 $507,800 $468,300 $587,600
SHARE INFORMATION
Year-end shares
outstanding 8,224 8,197 8,364 8,364 8,364
Average diluted shares
outstanding during year 8,299 8,383 8,368 8,364 8,304
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Solid progress continued in 1997 as the Company closed out its third
successful year of improved profitability. During the year, record
performances were achieved in funded and total backlog and in full-year
total contract revenues and net income, while financial position was
also further strengthened. All nine operating divisions of the Company's
five business units were profitable for the first time in 1997, thereby
contributing to an improvement in diluted earnings per share of $0.60
per share in 1997, compared with $0.50 per share in 1996.
TOTAL CONTRACT REVENUES
Total contract revenues reached a record $446 million in 1997, up from
$418 million in 1996. The Transportation, Energy and Civil units recorded
the largest increases in total contract revenues of $14 million,
$12 million, and $9 million, respectively. Revenue growth from new heavy &
highway construction work, particularly in Chicago, accounted for the
Transportation unit's improvement, while the Energy unit's offshore platform
operations in the Gulf of Mexico fueled its growth. The Civil unit's net
increase resulted from higher revenues on new operations and maintenance
("O&M") contracts, despite lower revenues in its engineering division due
to the 1997 completion of its significant project in Mexico.
For 1996, total contract revenues increased from $355 million in 1995.
The Civil unit posted the largest 1996 increase due primarily to the
aforementioned engineering project in Mexico, which was new in 1996 and
generated revenues of $24 million for that year. 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.
<TABLE>
<CAPTION>
TOTAL CONTRACT REVENUES - 1997
<S> <C>
BUILDINGS 28%
CIVIL 27%
ENERGY 12%
ENVIRONMENTAL 5%
TRANSPORTATION 28%
</TABLE>
GROSS PROFIT
Gross profit increased to $51.9 million in 1997 from $48.6 million in 1996.
As a percentage of total contract revenues, gross profit remained relatively
constant at 12% in both 1997 and 1996. The gross profit percentage increased
for all of the Company's business units except the Energy unit. The Civil
and Transportation units registered the most significant improvements in
1997. While the Civil unit raised the gross profit percentages for both its
engineering and O&M businesses, the recovery in the Transportation unit was
attributable to its unfavorable performance on certain construction projects
during 1996. The percentage decrease in the Energy unit resulted primarily
from lower margins associated with its new work added in 1997.
The 1996 gross profit represented an increase from $40.0 million in 1995. As
a percentage of total contract revenues, gross profit increased slightly in
1996 from 11% in 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 1996
performance on certain construction projects, while Environmental's decrease
followed the 1996 award of a major contract, under which the Company began
working as a subcontractor instead of as the prime contractor. 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.
<TABLE>
<CAPTION>
INCOME FROM OPERATIONS - 1997
<S> <C>
BUILDINGS 5%
CIVIL 45%
CORPORATE/INSURANCE 2%
ENERGY 21%
ENVIRONMENTAL 4%
TRANSPORTATION 23%
</TABLE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses increased to $43.9 million in
1997 from $40.9 million in 1996. The 1997 increase principally reflected
international marketing costs and the Energy unit's investment in the
Venezuela market. Expressed as a percentage of total contract revenues, G&A
expenses remained constant at 9.8% in both 1997 and 1996.
G&A expenses increased in 1996 from $34.9 million in 1995. This increase
related to the general increase in revenue volumes, combined with higher
marketing costs in several of the Company's business units. G&A expenses
also represented 9.8% of total contract revenues in 1995.
OTHER INCOME AND EXPENSE
Interest income increased to $552,000 in 1997 from $402,000 in 1996, due to
the combination of a higher daily average investment amount and slightly
higher interest rates in 1997. Other income increased to $811,000 in 1997
from $50,000 in 1996, primarily due to gains realized on the sales of
certain investments and income from a new joint venture related to work in
the Gulf of Mexico.
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 1996. Interest income increased in 1996 from $221,000 in
1995, due to the Company's maintenance of an invested cash balance throughout
most of 1996. In 1995, the Company was in a borrowing position under its
revolving credit agreement for the majority of the year.
INCOME TAXES
The provision for income taxes resulted in an effective tax rate of 47% in
1997, 48% in 1996, and 43% in 1995. The difference between these percentages
and the 34% statutory U.S. federal rate is attributable primarily to state
and foreign income taxes and foreign withholding taxes. The 1996 provision
rate was unfavorably impacted by higher foreign income taxes paid in that
year. The 1995 provision rate was favorably impacted by the realization of a
$600,000 tax benefit from a 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 $393 million
at December 31, 1997, an increase from $333 million at the end of 1996. The
overall increase in funded backlog is attributable to new work added and
transfers from unfunded backlog during the year. With the exception of the
Environmental unit, each of the Company's business units entered 1998 with
higher funded backlog than at the end of 1996.
Total backlog, which incrementally includes that portion of contract value
for which options are still to be exercised (unfunded backlog), was $649
million at the end of 1997 versus $544 million at the end of 1996. All units
showed higher total backlog at year-end 1997 than at year-end 1996.
<TABLE>
<CAPTION>
FUNDED BACKLOG - YEAR END 1997
<S> <C>
BUILDINGS 33%
CIVIL 21%
ENERGY 6%
ENVIRONMENTAL 5%
TRANSPORTATION 35%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased significantly in 1997 to
$9.2 million, compared to $1.2 million in 1996 and $15.5 million in 1995. The
1997 improvement is mainly attributed to a combination of the Company's
higher net income and the collection of retention amounts totaling $3.0
million on a significant construction project. The favorable 1995 cash flow
from operations was largely related to the 19% reduction in total contract
revenues for that year.
Net cash used in investing activities was $2.5 million in 1997, compared to
$3.7 million in 1996 and $2.3 million in 1995. These amounts solely comprise
capital expenditures for all years. The 1997 decrease is attributable to
higher 1996 expenditures for building improvements and office equipment
related to the Buildings unit's 1996 relocation from Pittsburgh to
Coraopolis, PA, and higher vehicle and equipment purchases during 1996 to
meet the requirements of new O&M projects in the Civil unit.
The Company did not use any cash in financing activities in 1997, compared
to usage of $1.3 million in 1996 and $2.5 million in 1995. 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.
Working capital increased to $36.2 million at December 31, 1997 from $27.4
million at December 31, 1996. This year-end improvement is attributable to
the Company's overall 1997 business growth. The Company's current ratios were
1.41:1 and 1.36:1 at the end of 1997 and 1996, respectively.
In June 1997, the Company converted its credit agreement with Mellon
Bank, N.A. from secured to unsecured. The agreement continued to provide
for a commitment of $25 million, which covers borrowings and letters of
credit, through May 31, 2000. As of December 31, 1997, no borrowings were
outstanding; however, letters of credit totaling $3.5 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. In October 1997, the Company's available bonding
line was increased from $350 million to $500 million by Travelers
Casualty & Surety Company of America (formerly 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.
The Company has completed a preliminary assessment of its exposures
relative to the upcoming change to the 21st century. While the Company
continues to modify its own noncompliant systems and equipment that are
integral to its business, it is also monitoring the compliance of third
parties with which it interacts. Based on information currently
available, management does not believe that the incremental costs
associated with Year 2000 compliance will be material to the Company's
consolidated results of operations or financial position.
Short- and long-term liquidity is dependent upon appropriations of public
funds for infrastructure and other government-funded projects, capital
spending levels in the private sector, and the demand for the Company's
services in the oil and gas markets. Additional external factors such as
price fluctuations in the energy industry and the effects of interest rates
on private construction projects could affect the Company. At this time,
management believes that its funds generated from operations and its
existing credit facility will be sufficient to meet its operating and
capital expenditure requirements for at least the next year.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
For the years ended December 31,
--------------------------------
1997 1996 1995
------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Total contract revenues $446,432 $418,388 $354,728
Cost of work performed 394,527 369,826 314,698
------------------------------------------------------------------
Gross profit 51,905 48,562 40,030
General and admin. expenses 43,885 40,899 34,850
------------------------------------------------------------------
Income from operations 8,020 7,663 5,180
Other income/(expense):
Interest expense (39) (76) (336)
Interest income 552 402 221
Other, net 811 50 15
------------------------------------------------------------------
Income before income taxes 9,344 8,039 5,080
Provision for income taxes 4,391 3,859 2,180
------------------------------------------------------------------
Net income $ 4,953 $ 4,180 $ 2,900
==================================================================
Basic and diluted net
income per share $ 0.60 $ 0.50 $ 0.35
==================================================================
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
As of December 31,
------------------
1997 1996
======================================================================
(In thousands)
Assets
----------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 17,302 $ 10,480
Receivables 80,204 69,621
Cost of contracts in progress and
estimated earnings, less billings 21,478 16,276
Prepaid expenses and other 5,799 6,370
----------------------------------------------------------------------
Total current assets 124,783 102,747
----------------------------------------------------------------------
Property, Plant and Equipment, net 10,985 12,265
----------------------------------------------------------------------
Other Assets
Goodwill and other intangible assets, net 6,521 7,242
Other assets 2,136 3,828
----------------------------------------------------------------------
Total other assets 8,657 11,070
----------------------------------------------------------------------
TOTAL ASSETS $144,425 $126,082
======================================================================
Liabilities and Shareholders' Investment
----------------------------------------------------------------------
Current Liabilities
Accounts payable $ 45,868 $ 34,960
Accrued employee compensation 7,908 6,596
Accrued insurance 4,905 5,425
Other accrued expenses 16,879 19,045
Excess of billings on contracts in
progress over cost and estimated earnings 13,003 9,304
----------------------------------------------------------------------
Total current liabilities 88,563 75,330
----------------------------------------------------------------------
Shareholders' Investment
Common Stock, par value $1, authorized
44,000,000 shares, issued 7,086,623 and
7,055,784 shares, in 1997 and 1996,
respectively 7,087 7,056
Series B Common Stock, par value $1,
authorized 6,000,000 shares, issued
1,343,983 and 1,348,632 shares, in 1997
and 1996, respectively 1,343 1,349
Additional paid-in capital 36,822 36,694
Retained earnings 11,866 6,913
Less 206,980 and 207,560 shares of
Common Stock in treasury, at cost, in
1997 and 1996, respectively (1,256) (1,260)
----------------------------------------------------------------------
Total shareholders' investment 55,862 50,752
----------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT $144,425 $126,082
======================================================================
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended December 31,
--------------------------------
1997 1996 1995
==========================================================================
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 4,953 $ 4,180 $ 2,900
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,483 4,851 5,049
Deferred income taxes 1,827 2,629 460
Changes in assets and liabilities:
(Increase)/decrease in receivables
and contracts in progress (12,086) (14,275) 22,909
Decrease/(increase) in other
net assets 520 (3,005) 3,847
Increase/(decrease) in accounts
payable and accrued expenses 9,534 6,787 (19,626)
--------------------------------------------------------------------------
Total adjustments 4,278 (3,013) 12,639
--------------------------------------------------------------------------
Net cash provided by operating
activities 9,231 1,167 15,539
--------------------------------------------------------------------------
Cash Flows from Investing Activities
Additions to property, plant and
equipment (2,533) (3,739) (2,294)
--------------------------------------------------------------------------
Net cash used in investing
activities (2,533) (3,739) (2,294)
--------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from exercise of stock
options 124 21 --
Repayments of revolving credit loans -- -- (2,035)
Repayments of other long-term debt -- (12) (512)
Payments to acquire treasury stock -- (1,260) --
--------------------------------------------------------------------------
Net cash provided by/(used in)
financing activities 124 (1,251) (2,547)
--------------------------------------------------------------------------
Net increase/(decrease) in cash 6,822 (3,823) 10,698
--------------------------------------------------------------------------
Cash at beginning of year 10,480 14,303 3,605
--------------------------------------------------------------------------
Cash at end of year $ 17,302 $ 10,480 $ 14,303
=====================================================-====================
Supplemental Disclosure of Cash Flow Data
Interest paid $ 50 $ 73 $ 537
Income taxes paid $ 2,039 $ 950 $ 1,671
==========================================================================
<FN>
The accompanying notes are an integral part of this statement.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
----------------------------------------------------------------------------
Series B
Common Common
Stock, Stock,
Par Par
Value $1 Value $1 Treasury Additional
(One vote (Ten votes -------------- Paid-in Retained
per share) per share) Shares Amount Capital Earnings
============================================================================
<S> <C> <C> <C> <C> <C> <C>
Bal, 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) -- -- -- --
----------------------------------------------------------------------------
Bal, 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 --
----------------------------------------------------------------------------
Bal, Dec. 31, 1996 7,056 1,349 208 1,260 36,694 6,913
Net income -- -- -- -- -- 4,953
Series B Common
Stock conversions
to regular
Common Stock 6 (6) -- -- -- --
Restricted stock
issued 3 -- -- -- 21 --
Issuance of
treasury stock -- -- (1) (4) 2 --
Stock options
exercised 22 -- -- -- 102 --
Other -- -- -- -- 3 --
----------------------------------------------------------------------------
Bal, Dec. 31, 1997 $7,087 $1,343 207 $1,256 $36,822 $11,866
============================================================================
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
<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 and unapproved change orders 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
In the accompanying Consolidated Balance Sheet, the Company records its
interest in all majority-owned construction joint ventures based on the
equity method of accounting for investments. The Company's proportionate
share of majority-owned construction joint venture revenue and cost of
contracts is included in the accompanying Consolidated Statement of
Income. The Company's investment in these joint ventures, for which the
related projects are expected to be completed within one year, is included
within 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 as of 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.
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
During 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings Per Share," which changes the
computation and presentation of earnings per share ("EPS"). The adoption of
SFAS 128 requires the presentation of both basic and diluted EPS. Basic EPS
are computed using the weighted average of actual shares outstanding. Diluted
EPS are computed using the sum of basic weighted average shares outstanding
and the dilutive share equivalents under the Company's stock option plans.
Such dilutive share equivalents are computed using the treasury stock method.
In accordance with SFAS 128, previously reported EPS amounts and the weighted
average shares were required to be restated; however, the adoption of this
standard had no effect on the previously reported EPS amounts for 1996 and
1995.
Basic net income per share computations are based upon weighted averages of
8,207,786, 8,372,034 and 8,363,552 shares outstanding for the years 1997,
1996 and 1995, respectively. Diluted net income per share computations are
based upon weighted averages of 8,299,083, 8,382,592 and 8,368,206 shares
outstanding for the years 1997, 1996 and 1995, respectively.
RECLASSIFICATIONS
Certain 1996 and 1995 financial statement amounts have been reclassified
to conform with 1997 classifications.
2. CONTRACTS
The total cost of contracts in progress (used to determine cost of work
performed) plus accumulated gross profit recorded was $858,705,000 and
$761,153,000 at December 31, 1997 and 1996, respectively. Billings to date
on contracts in progress at December 31, 1997 and 1996 were $850,231,000 and
$754,181,000, respectively.
Trade accounts receivable totaling $12,088,000 and $11,855,000 at
December 31, 1997 and 1996, 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, 1997 is expected to be collected in 1998.
As of December 31, 1997 and 1996, accounts payable included amounts due to
subcontractors of $8,888,000 and $8,051,000, 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
$1,737,000 and $1,612,000 at December 31, 1997 and 1996, respectively.
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 U.S. federal and state
government appropriations.
Internationally, the Company conducts business in certain countries where
unstable governments subject the Company's related trade receivables, due
from subsidiaries of major oil companies, to unique collection delays. Based
upon past experience with these clients, management believes that these
receivables will be fully collectible.
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>
1997 1996 1995
=============================================================
Total contract revenues
from:
<S> <C> <C> <C>
Buildings Unit $126.4 $127.4 $116.3
Civil Unit 118.2 109.4 73.9
Energy Unit 54.8 43.2 37.0
Environmental Unit 21.5 27.3 27.7
Transportation Unit 125.5 111.1 99.8
-------------------------------------------------------------
Total $446.4 $418.4 $354.7
=============================================================
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
=============================================================
Income from
operations from:
<S> <C> <C> <C>
Buildings Unit $0.4 $0.9 $ 1.8
Civil Unit 3.6 3.2 (0.6)
Energy Unit 1.7 2.3 0.8
Environmental Unit 0.3 0.4 1.9
Transportation Unit 1.8 0.9 1.3
Corporate/Insurance 0.2 -- --
-------------------------------------------------------------
Total $8.0 $7.7 $ 5.2
=============================================================
</TABLE>
The following represents identifiable assets (both tangible and
intangible) that are associated with the operations of each business
unit (in millions):
<TABLE>
<CAPTION>
<PAGE>
1997 1996
============================================================
Identifiable assets from:
<S> <C> <C>
Buildings Unit $ 22.1 $ 29.9
Civil Unit 31.7 30.7
Energy Unit 22.2 17.5
Environmental Unit 3.7 5.8
Transportation Unit 37.9 29.4
Corporate/Insurance* 26.8 12.8
------------------------------------------------------------
Total $144.4 $126.1
============================================================
<FN>
*Includes primarily cash and fixed assets.
</TABLE>
Based on total contract revenues, the principal markets for the
Company's services are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
============================================================
<S> <C> <C> <C>
United States government 23.8% 22.5% 24.1%
Various state governmental
and quasi-governmental
agencies 40.9% 46.6% 44.4%
Commercial, industrial
and private clients 35.3% 30.9% 31.5%
============================================================
</TABLE>
The Company's business is substantially conducted in the U.S. No
individual contract accounted for more than 10% of the Company's total
contract revenues in 1997, 1996, or 1995; however, several contracts
with the U.S. Department of Navy and the State of Illinois provided 10.9%
and 10.5%, respectively, of the Company's total contract revenues in 1995.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
============================================================
<S> <C> <C>
Land $ 552 $ 693
Buildings and improvements 6,388 6,345
Equipment and vehicles 32,319 30,873
------------------------------------------------------------
Total, at cost 39,259 37,911
------------------------------------------------------------
Less - Accumulated depreciation 28,274 25,646
------------------------------------------------------------
Net property, plant
and equipment $10,985 $12,265
============================================================
</TABLE>
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
=================================================================
<S> <C> <C>
Goodwill, net of accumulated
amortization of $2,437,000 and
$2,005,000, respectively $5,078 $5,297
Other intangible assets, net of
accumulated amortization of
$1,817,000 and $2,157,000,
respectively 1,443 1,945
------------------------------------------------------------------
Net intangible assets $6,521 $7,242
==================================================================
</TABLE>
6. LONG-TERM DEBT AND BORROWING AGREEMENTS
In June 1997, the Company entered into an unsecured credit agreement (the
"Agreement") with Mellon Bank, N.A. (the "Bank"). The Agreement provides for
a commitment of $25 million through May 31, 2000. The commitment includes
the sum of the principal amount of revolving credit loans outstanding and
the aggregate face value of outstanding letters of credit.
As of December 31, 1997, no borrowings were outstanding; however, letters of
credit totaling $3,517,000 were outstanding under the Agreement.
The Agreement provides for the Company to borrow at 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. Under the Agreement, the Company pays the Bank commitment fees
of 3/8% per year based on the unused portion of the commitment.
The Company did not borrow under the Agreement during 1997. For the period
during 1996 in which the Company was in a net borrowing position, the average
daily balance outstanding was $324,000 at a weighted average rate of 8.5%.
The proceeds of the 1996 loans under the Agreement were used for various
working capital requirements.
7. 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
of $1,260,000.
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,
1997, there were no shares of such Preferred Stock outstanding.
8. LEASE COMMITMENTS
Rent expense under noncancelable leases was $10,364,000 in 1997, $9,972,000
in 1996 and $8,388,000 in 1995.
Minimum annual rentals payable under noncancelable leases in each of the
five years after December 31, 1997 are $10,436,000, $8,203,000, $6,550,000,
$4,467,000 and $1,726,000, respectively. These noncancelable leases relate
to office space, computer equipment, office equipment and vehicles, with
lease terms ranging from one to 10 years.
9. INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
================================================================
<S> <C> <C> <C>
Current income taxes:
Federal $1,401 $ (176) $ --
State 139 -- 837
Foreign 1,024 1,406 883
----------------------------------------------------------------
Total current
income taxes 2,564 1,230 1,720
----------------------------------------------------------------
Deferred income taxes:
Federal 1,705 2,538 994
State 122 91 (534)
----------------------------------------------------------------
Total deferred
income taxes 1,827 2,629 460
----------------------------------------------------------------
Total provision for
income taxes $4,391 $3,859 $2,180
================================================================
</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>
1997 1996 1995
================================================================
<S> <C> <C> <C>
Computed income
taxes at U.S. federal
statutory rate $3,177 $2,733 $1,727
Foreign taxes, net of
federal income tax
benefit 676 928 583
State income taxes,
net of federal income
tax benefit 172 61 153
Nondeductible charges 300 249 246
Realization of
tax benefit -- -- (600)
Other, net 66 (112) 71
----------------------------------------------------------------
Total provision for
income taxes $4,391 $3,859 $2,180
================================================================
</TABLE>
The domestic and foreign components of income before income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
============================================
<S> <C> <C> <C>
Domestic $7,148 $3,530 $2,816
Foreign 2,196 4,509 2,264
--------------------------------------------
Total $9,344 $ 8,039 $5,080
============================================
</TABLE>
The components of the Company's deferred income tax assets and
liabilities at December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
===============================================================
<S> <C> <C>
Deferred income tax assets:
Deductible temporary differences:
Provision for expenses and losses $ 2,227 $3,098
Contract overbillings 705 633
Federal tax operating loss
carryforward 98 808
Accrued vacation pay 1,404 1,255
Fixed and intangible assets 795 724
Other 516 570
---------------------------------------------------------------
Total deferred income tax assets 5,745 7,088
---------------------------------------------------------------
Deferred income tax liabilities:
Contract underbillings (6,159) (5,692)
---------------------------------------------------------------
Total deferred income liabilities (6,159) (5,692)
Net deferred tax
(liability)/asset $ (414) $1,396
===============================================================
</TABLE>
As of December 31, 1997, the Company had a U.S. net operating loss
carryforward of $288,000. This carryforward expires in the year 2010.
The Company's U.S. income tax returns have been examined and accepted 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, 1997.
10. 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.
In the Company's ordinary course of business, many of its public contracts
are subject to recurring audits by the Defense Contract Audit Agency ("DCAA")
and other governmental entities. During 1997, DCAA commenced an audit of
certain contracts for the years 1992 through 1995. DCAA has not yet issued
its preliminary audit report and, at this time, management is unable to
determine the significance, if any, of this matter.
At December 31, 1997, 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.
11. 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 eligible salary contributed by participants. Beginning in
February 1998, the Company will match 100% of the first 5-1/2% of eligible
salary contributed by participants. Effective in July 1997, participants were
enabled to direct not less than 50% of the Company's matching contributions
to be invested in Michael Baker Corporation Common Stock, with the remaining
50% being available to invest in Baker Common Stock or mutual funds, as
directed by the participants. Prior to July 1997, the Company's matching
contributions were required to be invested 100% in Baker Common Stock.
Company contributions under this program amounted to $3,321,000, $3,306,000
and $2,912,000 in 1997, 1996 and 1995, respectively.
As of December 31, 1997, the market value of all ESOP investments was
$79,248,000, of which 47% represented the market value of the ESOP's
investment in Michael Baker Corporation Common Stock. The Company's ESOP
held 45% 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 1997.
12. STOCK OPTION PLANS
As of December 31, 1997, the Company has 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.
Under the Directors Plan, each nonemployee director was issued 500
restricted shares of common stock for a total of 4,500 and 3,500 shares of
restricted stock issued in 1997 and 1996, respectively. Restrictions on the
shares expire two years after the issue date.
The following table summarizes all stock option activity for both plans
in 1997 and 1996:
<TABLE>
<CAPTION>
Average
Shares exercise
subject price
to option per share
-------------------------------------------------------
<S> <C> <C>
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
Options granted 179,593 $ 6.90
Options exercised (22,690) $ 5.48
Options forfeited (10,581) $ 5.76
-------------------------------------------------------
Balance at December 31, 1997 341,014 $ 5.92
=======================================================
</TABLE>
<PAGE>
The following table summarizes information about stock options
outstanding under both plans as of December 31, 1997:
<TABLE>
<CAPTION>
Options Exercise Outstanding Average Exercisable
granted in price options life* options
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jan. 1995 $5.00 114,319 7.0 85,962
Feb. 1996 $4.81 51,596 8.2 25,902
May 1996 $5.03 6,000 8.4 6,000
Feb. 1997 $6.91 161,099 9.2 36,678
May 1997 $6.84 8,000 9.4 8,000
-------------------------------------------------------------------
Total 341,014 8.3 162,542
===================================================================
<FN>
*Average life remaining in years
</TABLE>
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 1997
and 1996. If compensation costs for the Company's stock incentive plans had
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 diluted net income per share amounts would have been reduced.
The Company's pro forma net income amounts would have been $4,725,000,
$4,077,000 and $2,763,000 for the years ended December 31, 1997, 1996 and
1995, respectively. The Company's pro forma diluted net income per share
would have been $0.57, $0.49 and $0.33 for the years ended December 31, 1997,
1996 and 1995, respectively.
The fair value of options on the respective grant dates was estimated using
a Black-Scholes option pricing model with certain assumptions. The key
assumptions used include a weighted average risk-free interest rate of 7.0%,
weighted average expected volatility of 51.8%, an expected option life of 6
years, and a 0% expected dividend yield.
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, 1997:
<TABLE>
<CAPTION>
1997 - Three Months Ended
(In thousands) March 31 June 30 Sept. 30 Dec.31
======================================================================
<S> <C> <C> <C> <C>
Total contract revenues $94,092 $105,477 $116,627 $130,236
Gross profit 10,876 12,914 13,413 14,702
Income before income taxes 1,109 2,634 2,942 2,659
Net income 577 1,369 1,530 1,477
Diluted net income
per common share $ 0.07 $ 0.17 $ 0.18 $ 0.18
======================================================================
</TABLE>
<TABLE>
<CAPTION>
1996 - Three Months Ended
(In thousands) 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 13,572
Income before income taxes 948 2,393 2,333 2,365
Net income 512 1,292 1,260 1,116
Diluted net income
per common share $ 0.06 $ 0.15 $ 0.15 $ 0.13
======================================================================
</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, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997,
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 3, 1998
SUPPLEMENTAL FINANCIAL INFORMATION
Market Information - Common Shares
The principal 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 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
============================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 7 11/16 7 3/8 10 5/8 11 5/8 5 3/8 5 3/4 5 5/16 6 7/16
Low 6 3/8 6 1/2 6 3/4 9 4 5/16 4 3/4 4 9/16 4 3/4
============================================================================
</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, 1997:
<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 Global Project Services, Inc. Delaware
12. Baker Holding Corporation Delaware
13. Baker/OTS, Inc. Delaware
14. Michael Baker International, Inc. Delaware
15. Baker Engineering, Inc. Illinois
16. Michael Baker Jr. Company Nevada
17. Michael Baker Architects/Engineers, P.C. New Jersey
18. Baker Engineering NY, Inc. New York
19. Baker/MO Services, Inc. Texas
20. Baker Support Services, Inc. Texas
21. Vermont General Insurance Company Vermont
22. Michael Baker Barbados Ltd. Barbados
23. Baker O&M International, Ltd. Cayman Islands
24. Baker/OTS International, Inc. Cayman Islands
25. Overseas Technical Services (Middle East) Ltd. Cayman Islands
26. Michael Baker de Mexico, S.A. de C.V. Mexico
27. OTS International Training Services Ltd. United Kingdom
28. Overseas Technical Services (Harrow) Ltd. United Kingdom
29. Baker/OTS Ltd. United Kingdom
30. SD Forty Five Ltd. United Kingdom
31. Hanseatic Oilfield Services Ltd. Vanuatu
Management Ltd. Vanuatu
32. OTS Finance and Management Ltd. Vanuatu
33. Overseas Technical Service International Ltd. Vanuatu
</TABLE>
1
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-69306; No. 33-62887; and No. 33-05987) of
Michael Baker Corporation of our report dated February 3, 1998, appearing on
page 51 of the Annual Report to Shareholders, which is incorporated as
Exhibit 13.1 to this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
Pittsburgh, Pennsylvania
March 27, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,302
<SECURITIES> 0
<RECEIVABLES> 80,204
<ALLOWANCES> 0
<INVENTORY> 21,478
<CURRENT-ASSETS> 124,783
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 144,425
<CURRENT-LIABILITIES> 88,563
<BONDS> 0
0
0
<COMMON> 8,430
<OTHER-SE> 36,822
<TOTAL-LIABILITY-AND-EQUITY> 144,425
<SALES> 446,432
<TOTAL-REVENUES> 446,432
<CGS> 394,527
<TOTAL-COSTS> 394,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> 9,344
<INCOME-TAX> 4,391
<INCOME-CONTINUING> 4,953
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,953
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
