<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, 1998
COMMISSION FILE NUMBER 1-6627
MICHAEL BAKER CORPORATION
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0927646
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
AIRPORT OFFICE PARK, BUILDING 3, 420 ROUSER ROAD, CORAOPOLIS, PA 15108
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 269-6300
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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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 March 31, 1999, 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, 2,504,311
shares of Common Stock and 1,224,553 shares of Series B Common Stock held of
record or beneficially by the executive officers and directors of the Registrant
as a group and the Registrant's Employee Stock Ownership Plan) of the Registrant
was $31,550,101 for the Common Stock and $664,426 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 March 31, 1999, the Registrant had outstanding 7,159,408 shares of its
Common Stock and 1,316,198 shares of its Series B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Form 10-K into which
Document Document is Incorporated
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None
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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 hereto, 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. Factors that may cause such differences include, among others:
increased competition, increased costs, changes in general market conditions,
and changes in anticipated levels of government spending on infrastructure. Such
forward looking statements are made pursuant to the Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995.
<PAGE>
PART I
Item 1. BUSINESS
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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, heavy and highway
construction, construction management, and operations and technical services
worldwide.
The Registrant is organized into the following five market-focused business
units: Buildings, Civil, Energy, Environmental and Transportation. These
business units have coincided with the Registrant's reportable segments in
previous years; however, under the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," adopted by the Registrant in 1998,
two business units are required to be presented in greater detail. Accordingly,
the Registrant's reportable segments now include the Engineering and Baker
Support Services, Inc. ("BSSI") divisions of the Civil unit, and the Engineering
and Construction (heavy and highway) divisions of the Transportation unit.
Information regarding the amounts of revenues, income before taxes, total
assets, capital expenditures, and depreciation and amortization expense
attributable to the Registrant's reportable segments is contained in Note 4 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 1998 by Engineering News Record
magazine, Baker ranked 43rd among U.S. design firms, 18th among transportation
design firms, 102nd among environmental firms, 132nd among international design
firms and 150th among U.S. construction contractors. Baker also ranked 104th
among government contractors according to a listing published in 1998 by
Government Executive magazine. These rankings were based on 1997 revenues.
BUSINESS UNITS
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BUILDINGS. Through March 1999, the Buildings unit comprised a general
construction, construction management and design-build division and a facilities
planning and design division, that together or separately pursued the
design-build market. This unit offered 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, correctional facilities,
educational facilities, airports and entertainment facilities.
Following a significant 1998 loss on a construction project in the Buildings
unit, effective in April 1999, the Buildings unit has been restructured such
that its low-bid, high-risk, general construction activities have been
discontinued, and the Registrant will no longer propose on these types of
construction projects. Existing low-bid, high-risk construction projects will be
completed or sold. In the future, Baker will place increased emphasis on growing
its construction management-for-fee business (for which the risk to the
Registrant is lower than general construction), and will partner with
contractors to pursue larger design-build contracts in the buildings market. The
Registrant will continue the facilities planning and design division of the
Buildings unit.
CIVIL. As previously stated, the Civil unit includes two divisions, Engineering
and BSSI. This unit has combined Baker's military infrastructure work in
planning and operations and maintenance ("O&M") to improve its ability to market
to, and serve, the U.S. Department of Defense, a significant Baker client. The
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Engineering division provides services which include surveying, mapping,
geographic information systems ("GIS"), planning, design, construction
management and total program management. The BSSI division principally provides
O&M services on U.S. military bases. The Civil unit serves clients in the fields
of telecommunications, water resources, pipelines, emergency management,
resources management, water/wastewater systems and facilities O&M.
ENERGY. The Energy unit specializes in providing a full range of technical
services for operating energy production facilities. The unit's comprehensive
services consist of training, personnel recruitment, pre-operations engineering,
field operations and maintenance, mechanical equipment maintenance and logistics
management. The Energy unit serves both major and independent oil and gas
producing companies, as well as domestic regulated utilities and independent
power producers. This unit operates in over a dozen foreign countries, with
major projects in the U.S., Venezuela, Thailand and Nigeria.
ENVIRONMENTAL. The Environmental unit provides environmental, health, and safety
related engineering and consulting services in both the public and private
markets. This unit provides services which include site restoration, strategic
regulatory analysis, compliance, and advanced management systems. Clients of the
Environmental unit include commercial entities, Fortune 100 companies and the
Department of Defense, including the U.S. Army Corps of Engineers and the U.S.
Navy. Under the Navy's Comprehensive Long-term Environmental Action Navy (CLEAN)
program, this unit has been providing environmental support services throughout
the mid-Atlantic states, the Caribbean and Europe since 1991.
TRANSPORTATION. Through its two divisions, Engineering and Construction, the
Transportation unit provided planning, design, construction and operations
support services to governmental transportation agencies throughout the nation
in 1998. Within the Engineering division, Baker serves the professional services
segment of the market providing planning, design, construction management and
inspection, and management consulting services to municipal, state and federal
highway, toll road and transit agencies. This division is consistently among the
twenty largest providers of such services and enjoys a national reputation for
its work in developing highways, bridges, airports, busways and other transit
facilities. The Construction division converts design plans into steel and
concrete infrastructure as a general contractor for highways, bridges, track
installation, sewer, water and other heavy civil construction projects. The
primary customers for this division are the same as the Engineering division,
but more geographically restricted to Pennsylvania, Illinois, New York and
Florida.
In connection with the previously mentioned restructuring of the Buildings unit
in April 1999, the Registrant announced that its heavy and highway construction
business will be sold. The Registrant initiated activities related to the sale
of the heavy and highway business during the second quarter of 1999. Normal
construction bidding activity will continue during the period through the sale.
Following the sale of this business, the Transportation Engineering division
will partner with other contractors to pursue selected design-build contracts,
which are becoming a growing project delivery method within the transportation
marketplace. The Registrant will continue its transportation engineering/design
division of the Transportation unit, which is poised to benefit significantly
from the U.S. government's TEA-21 legislation signed during 1998.
DOMESTIC AND FOREIGN OPERATIONS
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Approximately 91%, 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, 1998, 1997 and 1996, respectively. Further financial information
regarding the Registrant's domestic and foreign operations is contained in Notes
4 and 10 to the consolidated financial statements, which are included within
Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by
reference. Of the Registrant's domestic revenues, the majority comprises
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engineering and construction work performed in the Northeast region of the U.S.
The Registrant's international revenues are derived primarily from its Energy
unit.
FUNDED AND UNFUNDED BACKLOG
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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 $448 million at
December 31, 1998 and $393 million at December 31, 1997. Total backlog, which
incrementally includes that portion of contract value for which options are
still to be exercised (unfunded backlog), was $735 million at December 31, 1998
and $649 million at December 31, 1997. With reference to the Registrant's
restructuring announced in April 1999, funded backlog related to the businesses
that will be continued by the Registrant was $300 million and $252 million, and
total backlog was $587 million and $508 million, as of year-end 1998 and 1997,
respectively.
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, which are included in unfunded
backlog, have generally been exercised. Funded backlog generally is highest
during the last quarter of the Registrant's fiscal year because that corresponds
to the first quarter of the U.S. government's fiscal year, which is when many
government contract renewals occur.
SIGNIFICANT CUSTOMERS
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Contracts with various branches of the U.S. government accounted for 27%, 24%
and 23% of the Registrant's total contract revenues for the years ended December
31, 1998, 1997 and 1996, respectively. In addition, an individual Buildings unit
construction contract with Universal City Development Partners accounted for
11.5% of the Registrant's total contract revenues in 1998. Further financial
information regarding this contract is contained in Note 2 to the consolidated
financial statements, which are included within Exhibit 13.1 to this Form 10-K.
Such information is incorporated herein by reference. No individual contract
accounted for more than 10% of the Registrant's total contract revenues in 1997
or 1996.
COMPETITIVE CONDITIONS
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The Registrant's business is highly competitive with respect to all principal
services it offers. Baker competes with numerous firms that 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 process,
subject to the contractors' qualifications and experience. The Baker business
units employ extensive cost estimating, scheduling and other techniques for the
preparation of these competitive bids. Private-sector contractors compete
primarily on the bases of qualifications, quality of performance and price of
services. 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
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Registrant believes that it is well positioned to compete effectively by
emphasizing its full range of professional services.
SEASONALITY
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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
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At December 31, 1998, the Registrant employed approximately 3,824 persons,
broken down by business unit as follows:
Buildings unit-287 Environmental unit-159
Civil unit-1,472 Transportation unit-1,026
Energy unit-841 Corporate staff-39
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. The majority of current construction-related collective bargaining
agreements do not expire until the year 2005. During 1999, several BSSI
collective bargaining agreements are scheduled for renegotiation, but no
significant issues are expected. Currently, the Registrant considers its
relationships with labor unions to be good.
Item 2. PROPERTIES
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The principal offices of the Registrant are located at the Airport Office Park,
410 and 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 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 Beaver building and property are
currently for sale. Upon any such sale, the Registrant would expect to either
continue leasing this building from the new owner or relocate the affected
employees to the Coraopolis area.
The Registrant leases an aggregate of approximately 466,000 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 75,000 square feet in:
Rocky Hill, Connecticut Annapolis, Maryland
Orlando, Florida Coraopolis, Pennsylvania
Chicago, Illinois Alexandria, Virginia
The Civil unit leases approximately 150,000 square feet in:
Anchorage, Alaska Elmsford, New York
Fairbanks, Alaska Coraopolis, Pennsylvania
Phoenix, Arizona Dallas, Texas
Rocky Hill, Connecticut Salt Lake City, Utah
Annapolis, Maryland Alexandria, Virginia
Bethesda, Maryland Virginia Beach, Virginia
Jackson, Mississippi Mexico City, Mexico
Billings, Montana
<PAGE>
The Energy unit leases approximately 30,000 square feet in:
Lafayette, Louisiana Abu Dhabi, United Arab Emirates
Houston, Texas Middlesex, United Kingdom
The Environmental unit leases approximately 46,000 square feet in:
Merrillville, Indiana Princeton, New Jersey
Annapolis, Maryland Coraopolis, Pennsylvania
The Transportation unit leases approximately 148,000 square feet in:
Birmingham, Alabama Cleveland, Ohio
Phoenix, Arizona Columbus, Ohio
Fort Smith, Arkansas Coraopolis, Pennsylvania
Rocky Hill, Connecticut Gibsonia, Pennsylvania
Tampa, Florida Harrisburg, Pennsylvania
Chicago, Illinois Horsham, Pennsylvania
Shreveport, Louisiana Alexandria, Virginia
Annapolis, Maryland Richmond, Virginia
Princeton, New Jersey Virginia Beach, Virginia
Brooklyn, New York Charleston, West Virginia
Elmsford, New York
The Corporate staff utilizes approximately 17,000 square feet of leased space in
Coraopolis and Beaver, Pennsylvania.
Item 3. LEGAL PROCEEDINGS
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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, except
as discussed below, 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 Registrant currently has two significant legal proceedings outstanding. The
more significant one relates to a contract for the construction of the CityWalk
project at the Universal Studios theme park in Orlando, Florida between Baker
Mellon Stuart Construction, Inc. ("BMSCI"), a wholly-owned subsidiary of the
Registrant, and Universal City Development Partners ("UCDP"). BMSCI was
providing project-related construction services to UCDP under the contract.
During BMSCI's performance under the contract, which began in 1997, the project
suffered delays due to substantial changes in the design of the project and the
related drawings.
On March 5, 1999, UCDP terminated BMSCI's right to proceed with the project work
by alleging default. UCDP has also notified BMSCI of UCDP claims for damages
resulting from the alleged default, including the cost to complete or correct
the work, additional maintenance or operation costs, and alleged lost revenues
or other damages. UCDP simultaneously filed a lawsuit for breach of contract in
the Federal District Court in the Middle District of Florida ("Federal Court").
The Registrant will answer the complaint, or file a motion to dismiss or other
responsive pleading in the action. On March 8, 1999, BMSCI filed a lawsuit
against UCDP in the Circuit Court for the Ninth Judicial Circuit in and for
Orange County, Florida ("State Court") alleging breach of contract, wrongful
termination and other counts and seeking damages, interest, court costs and
other relief, including potential counterclaims. Discovery has not begun in
either case, although the parties are cooperating in the initial exchange of
documents for the cases. No other scheduling order or other case management
documents have been filed.
<PAGE>
In addition, two of BMSCI's subcontractors have also filed suit against BMSCI in
connection with the project. On November 24, 1998, ADF International Inc.,
BMSCI's subcontractor for structural steel/miscellaneous metals, filed suit in
Federal Court against BMSCI and its surety seeking damages for breach of
contract relating to the project. BMSCI and its surety have answered the
complaint (and amended complaint) and BMSCI has filed a counterclaim. Discovery
in the matter is beginning, and no trial date has been set. On February 10,
1999, Martin K. Eby Construction Company, Inc., BMSCI's subcontractor for
foundations, also filed suit in Federal Court against BMSCI and its surety
seeking damages for breach of contract relating to the project. BMSCI and its
surety have answered the complaint. Discovery in the matter is beginning, and no
trial date has been set. BMSCI has held discussions with both ADF International
Inc. and Martin K. Eby Construction Company, Inc. with the intent of jointly
pursuing the subcontractors' claims and those of BMSCI against UCDP, which may
be ultimately responsible for the claims arising from the project.
Additional claims may be filed in connection with this matter. Baker and its
counsel believe that BMSCI has valid claims against UCDP and its subcontractors
and intends to defend these claims vigorously. However, an unfavorable
resolution of these matters could have a material adverse effect on the
Registrant's consolidated financial position, results of operations and cash
flow.
The other 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
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No matters were submitted to a vote of the Registrant's security holders during
the fourth quarter of 1998.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
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HOLDER MATTERS
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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 in the foreseeable future.
At March 31, 1999, the Registrant had 1,444 holders of its Common Stock and 659
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, 1998, 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
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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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Based on the Registrant's current and long-term debt balances totaling $4.0
million at December 31, 1998, Baker has no material exposure to interest rate
risk. Less than 1% of the Registrant's total assets and total contract revenues
as of and for the year ended December 31, 1998 were denominated in British
Pounds Sterling; accordingly, the Registrant has no material exposure to foreign
currency exchange risk. These materiality assessments are based on the
assumption that either the interest rates or the foreign currency exchange rates
could change unfavorably by 10%. Based on the nature of the Registrant's
business, it has no exposure to commodity price risk. In accordance with the
foregoing, the Registrant has no interest rate swap or exchange agreements, nor
does it have any foreign currency exchange contracts.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP, dated April 20, 1999, 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.
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
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Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Directors and Executive Officers
The following table sets forth certain information regarding the directors of
the Registrant. Each director was elected by the Registrant's shareholders at
the 1998 Annual Meeting for a one year term to expire on the date of the next
annual meeting of shareholders or until his respective successor shall have been
elected and shall have qualified. Except as otherwise indicated, each director
has held the principal occupation listed or another executive position with the
same entity for at least the past five years.
<TABLE>
<CAPTION>
Director Principal Occupation; Other
Director Since Directorships; Age
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<S> <C> <C>
Robert N. Bontempo 1997 Associate Professor of International Business
at Columbia University since July 1994;
formerly Assistant Professor of International
Business at Columbia University from July
1989 to July 1994; Fellow at the Center for
Advanced Study at Stanford University,
Summer 1992; formerly Personnel Research
Analyst at IBM Corporate Headquarters;
Age 40
William J. Copeland 1983 Retired; formerly Chairman of the Board of
the Registrant; formerly Vice Chairman of
the Board of PNC Financial Corp. and
Pittsburgh National Bank; Director or
trustee of various investment companies
affiliated with Federated Investors; Age 80
Roy V. Gavert, Jr. 1988 President and Chief Executive Officer of
Kiplivit North America, Inc. (manufacturing)
since July 1995; Managing Director of World
Class Processing, Inc.(manufacturing);
principal of the Horton Company (manufacturer
of valves for household appliances); formerly
Managing Director of Gavert Wennerholm & Co.
(venture capital); formerly Managing Director
of Eagle Capital, Inc. (investment bank and
venture capital); formerly Executive Vice
President, Westinghouse Electric Corporation;
Age 65
Charles I. Homan 1994 President and Chief Executive Officer since
October 1994; formerly Executive Vice
President from January 1990 to September
1994; formerly Senior Vice President from
April 1988 to December 1989; formerly
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President of Michael Baker, Jr., Inc. (a
subsidiary) from May 1983 to September 1994;
Director of Citizens Banking Company; Age 55
Thomas D. Larson 1993 Self employed (consultant); formerly
Administrator, United States Federal Highway
Administration until January 1992; formerly
Secretary of the Pennsylvania Department of
Transportation; formerly Professor of
Engineering, The Pennsylvania State
University; Age 70
John E. Murray, Jr. 1997 President and Professor of Duquesne
University since July 1988; formerly
University Distinguished Service Professor at
University of Pittsburgh; formerly Dean of
Villanova University School of Law; formerly
Acting Dean and Professor at Duquesne
University School of Law; Director of
Federated Investors; Age 66
Richard L. Shaw 1966 Chairman of the Board; formerly Chairman of
the Board, President and Chief Executive
Officer of the Registrant from September 1993
through September 1994; formerly President
and Chief Executive Officer of the Registrant
from April 1984 to May 1992; Director of L.B.
Foster Company (manufacturing); Age 71
Konrad M. Weis 1991 Retired; formerly President and Chief
Executive Officer of Bayer USA Inc.
(chemicals, health care and imaging
technologies); Director of PNC Equity
Management Corporation, Titan
Pharmaceuticals, Inc. and Dravo Corporation;
Age 70
J. Robert White 1994 Executive Vice President, Chief Financial
Officer and Treasurer since July 1994;
formerly Assistant Director of Investor
Relations for Westinghouse Electric
Corporation from prior to 1990 through June
1994; formerly Adjunct Professor of
Accounting and Finance at the University of
Pittsburgh and Carnegie Mellon University;
Age 56
</TABLE>
<PAGE>
Charles I. Homan and J. Robert White are both directors and executive officers
of the Registrant. With the exception of Messrs. Homan and White, who are listed
above, the following represents a listing of executive officers of the
Registrant as of December 31, 1998:
H. James McKnight - Age 54; Senior 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.
Glenn S. Burns - Age 49; Executive Vice President of the Registrant and
President of Baker Mellon Stuart Construction, Inc., a subsidiary of the
Registrant, from 1995 until his resignation in February 1999. Mr. Burns
previously served as Vice President, General Counsel and Secretary of the
Registrant from 1994 through 1995 and as Assistant General Counsel from 1991
through 1994.
Donald P. Fusilli, Jr. - Age 47; 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 51; 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 48; Executive Vice President of the Registrant and
President of Baker Environmental, Inc., a subsidiary of the Registrant, since
1996. Mr. Shucet previously served as Vice President of Michael Baker Jr., Inc.
from 1995 to 1996. Mr. Shucet has been employed by the Registrant in various
capacities since 1989.
Edward L. Wiley - Age 55; 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act") requires
the Registrant's directors and executive officers, and persons who own more than
ten percent of a registered class of the Registrant's equity securities, to file
with the Securities and Exchange Commission (the "Commission") initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Registrant. Such persons are required by Commission
regulations to furnish the Registrant with copies of all Section 16(a) forms
which they file. The Registrant believes that all such filing requirements
applicable to its executive officers and directors were complied with in 1998
except that a Form 5 filed by Philip A. Shucet, an officer of the Registrant,
was deemed to be late because it inadvertently omitted certain information.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The following table sets forth certain information regarding compensation
received by the Chief Executive Officer and the four remaining most highly
compensated executive officers of the Registrant for the last three completed
fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
------------
Shares of
Annual Compensation Common Stock
Name and Principal ------------------- Underlying All Other
Position Year Salary Bonus Options(2) Compensation(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles I. Homan 1998 $385,300 $ -- 58,362 $12,592
President and Chief 1997 $341,600 $62,757 23,529 $12,092
Executive Officer 1996 $319,400 $54,412 12,571 $11,455
Donald P. Fusilli, Jr. 1998 $201,200 $23,022 27,480 $10,000
Executive Vice 1997 $188,200 $25,642 9,122 $ 8,700
President-Energy 1996 $180,000 $24,750 5,236 $ 8,658
John C. Hayward 1998 $195,700 $22,569 26,738 $12,592
Executive Vice 1997 $188,200 $15,643 9,122 $10,578
President- 1996 $180,000 $15,000 5,236 $ 9,267
Transportation
Edward L. Wiley 1998 $206,200 $11,068 28,161 $11,400
Executive Vice 1997 $192,300 $36,314 9,122 $10,075
President-Civil 1996 $180,000 $35,776 5,236 $ 9,351
J. Robert White 1998 $209,100 $ -- 28,664 $10,827
Executive Vice 1997 $192,300 $31,923 9,122 $ 8,030
President, Chief 1996 $180,000 $30,001 5,236 $ 9,479
Financial Officer
and Treasurer
<FN>
(1) Includes matching contributions made by the Registrant under its 401(k)
plan paid on behalf of the following individuals in 1998, 1997 and 1996,
respectively: Mr. Homan, $10,000, $9,500 and $9,151; Mr. Fusilli, $10,000,
$7,254 and $7,873; Mr. Hayward, $10,000, $9,012 and $ 7,962; Mr. Wiley,
$10,000, $8,802 and $8,211; and Mr. White, $6,777, $5,438 and $7,860. Also
includes group life insurance premiums paid by the Registrant on behalf of
the following individuals in 1998, 1997 and 1996, respectively: Mr. Homan,
$2,592, $2,592 and $2,304; Mr. Fusilli, $0, $1,446 and $785; Mr. Hayward
$2,592, $1,566, and $1,305; Mr. Wiley, $1,400, $1,273 and $1,140; and Mr.
White, $4,050, $2,592 and $1,619.
(2) Stock options were granted February 27, 1996, February 27, 1997 and
February 27, 1998, under the Registrant's 1995 Stock Incentive Plan. In
addition the Registrant also granted certain performance based stock
options to the executive officers on April 23, 1998, which will vest in the
first quarter of 2001 if the Registrant achieves certain performance goals
in the year 2000.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Options Granted in 1998
Potential
Realizable Value
No. of % of Total at Assumed Annual
Shares Options Rates of Stock
Subject Granted to Price Appreciation
to Employees For Option Term
Options in Exercise Expiration ------------------
Name Granted 1998 Price/Share Date 5% 10%
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles I. Homan 18,361(1) 4.6% $ 9.5313 27-Feb-08 $110,059 $278,912
40,001(2) 10.1% $10.1250 23-Apr-08 $254,709 $645,482
Donald P. Fusilli, 6,977(1) 1.8% $ 9.5313 27-Feb-08 $ 41,821 $105,984
Jr. 20,503(2) 5.2% $10.1250 23-Apr-08 $130,554 $330,850
John C. Hayward 6,977(1) 1.8% $ 9.5313 27-Feb-08 $ 41,821 $105,984
19,761(2) 5.0% $10.1250 23-Apr-08 $125,829 $318,876
Edward L. Wiley 7,161(1) 1.8% $ 9.5313 27-Feb-08 $ 42,924 $108,779
21,000(2) 5.3% $10.1250 23-Apr-08 $133,719 $338,869
J. Robert White 7,163(1) 1.8% $ 9.5313 27-Feb-08 $ 42,936 $108,809
21,501(2) 5.4% $10.1250 23-Apr-08 $136,909 $346,954
<FN>
(1) All options were granted pursuant to the 1995 Stock Incentive Plan and
vest in four equal annual installments beginning on the date of grant. The
dollar amounts under the potential realizable value columns are the result
of calculations at assumed annually compounded rates of stock price
appreciation over the ten-year life of the options in accordance with the
proxy regulations of the Securities and Exchange Commission, and are not
intended to forecast actual future appreciation, if any, of the
Registrant's Common Stock. The actual value, if any, an executive may
realize will depend on the excess of the market price of the shares over
the exercise price on the date the option is exercised.
(2) These options were granted April 23, 1998, pursuant to the 1995 Stock
Incentive Plan. The options become fully exercisable on April 23, 2006,
but will vest in the first quarter of 2001 if certain performance goals
are satisfied for the year 2000.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1998
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired December 31, 1998 December 31, 1998
On Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles I. Homan -- -- 53,282/68,680 $211,633/$51,986
Donald P. Fusilli, Jr. -- -- 22,832/31,606 $ 92,591/$20,578
John C. Hayward -- -- 22,132/30,864 $ 89,266/$20,578
Edward L. Wiley -- -- 21,828/32,241 $ 87,614/$20,608
J. Robert White 15,477 $67,525 6,351/32,742 $ 13,362/$20,608
<FN>
(1) Based on the exercise price and fair market value of the Common Stock as
of December 31, 1998.
</FN>
</TABLE>
Compensation of Directors
Compensation for non-employee directors is as follows: Annual retainer--$15,000;
Attendance at each regularly scheduled or special meeting of the Board of
Directors--$1,000; Attendance at a Board of Directors committee meeting--$500;
Telephonic attendance at a Board of Directors or committee meeting--$100;
Additional annual retainer for chairman of the Board of Directors--$5,000; and
Additional annual retainer for committee chairmen--$2,500.
Notwithstanding anything to the contrary set forth in any of the Registrant's
previous filings under the Securities Act of 1933, as amended, or the Securities
and Exchange Act of 1934, as amended, that might incorporate future filings,
including this Form 10-K in whole or in part, the following report and the Stock
Performance Graphs shall not be incorporated by reference into any such filings.
Report of the Compensation Committee
Introduction
Decisions regarding compensation of the Registrant's executives generally are
made by a three-member Compensation Committee of the Board.
All decisions of the Compensation Committee relating to compensation of the
Registrant's executive officers are reviewed and approved by the full Board. Set
forth below is a report submitted by Messrs. Larson, Murray and Weis in their
capacity as the Board's Compensation Committee addressing the Registrant's
compensation policies for 1998 as they affected executive officers of the
Registrant, including Mr. Homan, the President and Chief Executive Officer, and
Messrs. Fusilli, Hayward, Wiley and White, the four executive officers other
than Mr. Homan who were, for 1998, the Registrant's most highly paid executive
officers.
Compensation Philosophy
The Registrant applies a consistent philosophy toward compensation based upon
the following objectives: (i) to attract and retain executive officers and other
key employees of outstanding ability, and to motivate all employees to perform
to the full extent of their abilities; (ii) to ensure that pay is competitive
<PAGE>
with other leading companies in the Registrant's industry; (iii) to reward
executive officers for corporate, group and individual performance; and (iv) to
ensure that total compensation to the executive officers as a group is not
disproportionate when compared to the Registrant's total employee population.
Compensation
The Compensation Committee retains the services of Hewitt Associates, a
compensation consulting firm, to assist the Committee in connection with
performance of its duties. Hewitt Associates provides ongoing advice to the
Committee with respect to the reasonableness of compensation paid to executive
officers of the Registrant.
The Registrant applies a compensation program consisting of base salary and
annual incentive compensation. In determining Mr. Homan's salary as President
and Chief Executive Officer and the remaining executive officers' base salaries
for 1998, the Compensation Committee reviewed the relationship of his
compensation to that of other executive officers of the Registrant and, the
Registrant's current and projected growth and profitability performance.
Incentive compensation for Mr. Homan and the other executive officers is
determined based on the achievement of such predetermined corporate performance
goals as profitability and earnings per share. Each such officer's annual
performance is measured by reviewing contribution to overhead and profit, new
work added, cash flow return on investment, human resources development and
continuous improvement management goals.
The Chief Executive Officer recommends to the Compensation Committee salary
adjustments for executive officers. The committee reviews these recommendations
in light of the above factors and with reference to the Hewitt Report and the
executive salary studies described above. A final comparison is made to verify
that the total percentage increase in compensation paid to the executive
officers as a group is not disproportionate to the percentage increase
applicable to other Registrant employee groups.
All executive employees participate in an annual incentive program. The
components of the plan are based upon corporate and individual performance.
Measures of corporate performance may include, but are not limited to, one or
more financial measures such as earnings per share and profitability. Individual
performance is based on the performance rating received as part of the annual
Performance Management Process. The Performance Management Process is a program
which emphasizes performance planning (management/employee goal setting),
progress reviews and management feedback to employees. Primary objectives of the
program are to enhance the professional development of the individual employee
and to align individual performance goals with those of the Registrant. The
rating is based upon factors agreed to by the Chief Executive Officer and the
individual executive employees.
1995 Stock Incentive Plan
On December 15, 1994, the Board of Directors approved the 1995 Stock Incentive
Plan (the "Option Plan"), which was approved by the shareholders at the 1995
Annual Meeting and provides long-term incentive compensation to eligible
employees. The Compensation Committee retains the services of Buck Consultants
to assist the Committee in evaluating the Option Plan relative to practices of
other publicly-traded companies engaging in one or more lines of business
comparable to those of the Registrant.
Stock options are awarded based on the Compensation Committee's judgment
concerning the position and responsibilities of the employee being considered,
the nature and value of his or her services, his or her current contribution to
the success of the Registrant, and any other factors which the Compensation
Committee may deem relevant. Stock option awards tie the interests of employees
to the long-term performance of the Registrant, and provide an effective
<PAGE>
incentive for employees to create shareholder value over the long term since the
full benefit of the compensation package cannot be realized unless an
appreciation in the Registrant's stock price occurs over a number of years.
In 1998, the Compensation Committee reviewed the Option Plan and, based on its
review, recommended to the Board of Directors that the Option Plan be amended to
increase by 1,000,000 the number of shares available for grants thereunder and
to increase the maximum number of shares as to which options may be granted to
any one employee during any calendar year from 30,000 to 100,000 shares. The
Board of Directors approved the amendment on February 27, 1998, and the
Shareholders adopted the amendment on April 22, 1998 at the 1998 Annual Meeting
of Shareholders. The Compensation Committee believes these changes were
desirable in order to ensure that there are sufficient options available under
the Option Plan to continue to motivate and reward employees and to ensure that
the grants are significant enough to provide meaningful inducement and reward to
key employees.
In addition, on April 23, 1998, the Compensation Committee adopted a proposal to
award a one-time grant of stock options to certain employees, the vesting of
which will be based upon the Registrant achieving earnings for the year ended
December 31, 2000 (the "Fiscal Year 2000") equal to or in excess of $1.25 per
share of Common Stock (the "Vision 2000 Options"). The Vision 2000 Options will
vest and may be exercisable immediately upon the determination of the Board of
Directors, based on the audited financial results of the Registrant for the
Fiscal Year 2000, that the Registrant has achieved earnings of at least $1.25
per share for the Fiscal Year 2000. In the event that the Registrant does not
achieve such earnings, the Vision 2000 Options will become exercisable eight
years from the date of the grant. The exercise price of the Vision 2000 Options
will be the fair market value of the Common Stock on the date of the grant. The
Vision 2000 Options were granted on April 23, 1998, and have an exercise price
equal to $10.125.
1996 Nonemployee Directors' Stock Incentive Plan
On February 27, 1996, the Board of Directors approved the 1996 Nonemployee
Directors' Stock Incentive Plan, which was approved by the shareholders at the
1996 Annual Meeting. This plan provides long-term incentive compensation to
eligible directors. Under this plan, each member of the Board of Directors who
is not an employee of the Registrant or any of its subsidiaries is granted 500
restricted shares and an option to purchase 1,000 shares of Common Stock on the
first business day following each Annual Meeting of Shareholders.
This report is submitted by the Compensation Committee of the Registrant's Board
of Directors.
Thomas D. Larson John E. Murray, Jr. Konrad M. Weis
Compensation Committee Interlocks and Insider Participants
The members of the Compensation Committee in 1998, Thomas D. Larson, John E.
Murray, Jr. and Konrad M. Weis, are nonemployee directors. During 1998, no
executive officer of the Registrant served on a compensation committee (or other
board committee performing equivalent functions) or on the board of directors of
any entity (other than the Registrant's Board of Directors) related to any
member of the Registrant's Board of Directors.
<PAGE>
Stock Performance Graph
The graph below compares for the five-year period commencing December 31, 1993,
the yearly percentage change in the cumulative total shareholder return on the
Registrant's Common Stock with the cumulative total return of the S&P 500 Stock
Index, the Russell 2000 Stock Index and with a peer group identified by the
Registrant to best approximate the Registrant's diverse business groups.
The peer group was selected to include publicly-traded companies engaging in one
or more of the Registrant's lines of business: engineering, construction and
operations and maintenance.
The peer group consists of the following companies: Aqua Alliance, Inc. (f/k/a
Air and Water Technologies Corp.), Dames & Moore Group, Granite Construction,
Inc., Harding Lawson Associates Group, Inc., ICF Kaiser International, Inc.,
Jacobs Engineering Group, Inc., Morrison Knudsen Corp., Perini Corp., Stone &
Webster, Inc., STV Group, Inc., Tetra Tech, Inc., Turner Corp., URS Corp., Roy
F. Weston, Inc. [Note: Guy F. Atkinson Registrant of California, a member of the
peer group in previous years, ceased operations during 1998.]
The following five year total shareholder return chart compares the Registrant's
total shareholder return on the Registrant's Common Stock with that of the peer
group used for the year ended December 31, 1998.
<TABLE>
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
Among Michael Baker Corporation, S&P 500 Index,
Russell 2000 Index and The Peer Group*
Cumulative Total Return
- --------------------------------------------------------------------------------
12/93 12/94 12/95 12/96 12/97 12/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael Baker Corporation 100 34 45 58 89 89
Peer Group 100 80 97 96 111 152
S&P 500 100 101 139 171 229 294
Russell 2000 100 98 126 147 180 179
<FN>
* Assumes $100 invested at the close of trading on December 31, 1993 in the
Registrant's Common Stock, the S&P 500 Index, the Russell 2000 Index, and
the peer group and assumes the reinvestment of dividends.
</FN>
</TABLE>
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information as to the beneficial
ownership of the Registrant's Common Stock and Series B Common Stock held by
each person known by the Board of Directors of the Registrant to own
beneficially more than 5% of the outstanding shares of Common Stock or Series B
Common Stock of the Registrant, by each director, by each of the executive
officers named in the Summary Compensation Table (the "Summary Compensation
Table"), and by all directors and executive officers as a group. The Michael
Baker Corporation Employee Stock Ownership Plan and Trust (the "ESOP") holds
72.4% of the voting power of the Registrant's outstanding Common Capital Stock.
Information contained in this Item 12 is as of the most recent practicable date,
which is December 31, 1998, for beneficial owners of more than 5%, March 31,
1999 as to shares held by the ESOP, and as to the directors and executive
officers. The information in the table concerning beneficial ownership is based
upon information furnished to the Registrant by or on behalf of the persons
named in the table.
<TABLE>
<CAPTION>
Common Stock Series B Common Stock
------------------------- ----------------------
Number of Number of
Shares and Shares and
Nature of Nature of
Beneficial Beneficial
Name Ownership(1) Percent Ownership(1) Percent
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Baker Corporation 2,475,158 34.6 1,223,475 93.0
Employee Stock Ownership
Plan and Trust(1)
Michael Baker
Corporation
P.O. Box 12259
Pittsburgh, PA 15231-0259
Goldman Sachs(2) 882,800 12.4 None --
85 Broad Street
New York, New York 10004
Lord Abbett & Co. 787,690 11.0 None --
767 Fifth Avenue
New York, New York 10153
Dimensional Fund Advisors 456,114 6.4 None --
Inc.(3)
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Robert N. Bontempo 3,000(7) * None --
William J. Copeland 5,500(7) * None --
Donald P. Fusilli, Jr. 40,581(5)(7) * 8,169(6) *
Roy V. Gavert, Jr. 4,500(7) * None --
John C. Hayward 39,907(5)(7) * 9,934(6) *
Charles I. Homan 95,460(4)(5)(7) 1.3 21,234(4)(6) 1.6
Thomas D. Larson 6,425(4)(7) * None --
John E. Murray, Jr. 3,000(7) * None --
Richard L. Shaw 12,705(7) * None --
Konrad M. Weis 12,000(4)(7) * None --
J. Robert White 17,985(5)(7) * 1,532(6) --
Edward L. Wiley 48,654(4)(5)(7) * 15,349(6) 1.2
All Directors and 352,639(4)(5)(7) 4.9 62,978(6) 4.8
Executive Officers as a group
(17) persons
<PAGE>
<FN>
* Less than 1%.
</FN>
<FN>
(1) Under regulations of the Securities and Exchange Commission, a person who
has or shares voting or investment power with respect to a security is
considered a beneficial owner of the security. Voting power is the power to
vote or direct the voting of shares, and investment power is the power to
dispose of or direct the disposition of shares. Unless otherwise indicated
in the other footnotes below, each person has sole voting power and sole
investment power as to all shares listed opposite his name. The ESOP
requires the trustee to vote the shares held by the trust in accordance
with the instructions from the ESOP participants for all shares allocated
to such participants' accounts. Allocated shares for which no such
instructions are given and shares not allocated to the account of any
employee are voted by the trustee in the same proportion as the votes for
which participant instructions are given. In the case of a tender offer,
allocated shares for which no instructions are given are not voted or
tendered, and shares not allocated to the account of any employee are voted
by the trustee in the same proportion as the votes for which participant
instructions are given.
(2) Shares held as a group by Goldman Sachs & Co. and the Goldman Sachs Group,
L.P., each of which disclaim beneficial ownership of all such shares. This
information has been taken from Schedule 13G dated as of December 31, 1998.
(3) Dimensional Fund Advisors Inc., ("Dimensional") an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Registrant Act of 1940, and serves as investment manager to
certain other investment vehicles, including commingled group trusts.
(These investment companies and investment vehicles are the "Portfolios").
In its role as investment advisor and investment manager, Dimensional
possesses both voting and investment power over the securities of the
Issuer described in this schedule that are owned by the Portfolios. All
securities reported in this schedule are owned by the Portfolios, and
Dimensional disclaims beneficial ownership of such securities.
(4) Some or all of such shares are jointly owned by such person and his spouse.
Voting and investment power as to such shares is shared by the nominee and
his spouse.
(5) Includes the number of shares of Common Stock indicated for each of the
following persons or group which are allocated to their respective accounts
as participants in the ESOP and as to which they are entitled to give
binding voting instructions to the trustee of the ESOP: Mr. Fusilli (12,416
shares); Mr. Hayward (12,442 shares); Mr. Homan (23,485 shares); Mr. White
(6,255 shares); Mr. Wiley (18,447 shares); and directors and executive
officers as a group (87,996 shares). ESOP holdings have been rounded to the
nearest full share.
(6) Includes the number of shares of Series B Common Stock indicated for each
of the following persons or group which are allocated to their respective
accounts as participants in the ESOP and as to which they are entitled to
give binding voting instructions to the trustee of the ESOP: Mr. Fusilli
(8,169 shares); Mr. Hayward (9,934 shares) Mr. Homan (20,156 shares); Mr.
White (1,532 shares); Mr. Wiley (15,349 shares); and directors and
executive officers as a group (61,900 shares). ESOP holdings have been
rounded to the nearest full share.
<PAGE>
(7) Includes indicated number of shares of Common Stock issuable pursuant to
stock options which may be exercised within 60 days of the date of this
Form 10-K.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Registrant entered into an employment agreement with Richard L. Shaw
(formerly President and Chief Executive Officer of the Registrant) in April
1988, which agreement was supplemented in March 1992, October 1994 and February
1998. At the time of his retirement as of the end of September 1994, Mr. Shaw
was being compensated at an annual salary of approximately $400,000. The
agreement provides for Mr. Shaw's performance of consulting services to the
Registrant until May 31, 2000, with annual compensation equal to 20% of his
salary prior to retirement. In addition, during this period, the Registrant will
cover costs of health insurance, reimburse actual out-of-pocket expenses and
maintain a life insurance policy for Mr. Shaw. This agreement also provides for
a supplemental retirement benefit of $2,500 per month commencing after the
expiration of such period.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a)(1) The following financial statements are incorporated in Item 8 of Part II
of this Report by reference to the consolidated financial statements within
Exhibit 13.1 to this Form 10-K:
Consolidated Balance Sheet as of December 31, 1998 and 1997
Consolidated Statement of Income for the three years ended
December 31, 1998
Consolidated Statement of Cash Flows for the three years ended
December 31, 1998
Consolidated Statement of Shareholders' Investment for the three years
ended December 31, 1998
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.
(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 1998 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
as Exhibit 10.2(a) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997, and incorporated
herein by reference.
10.3 Loan 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.
<PAGE>
10.3(a) First Amendment to Loan Agreement by and among Michael Baker
Corporation and Subsidiaries and Mellon Bank, N.A. dated as of
July 24, 1998, filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the period ended September
30, 1998, and incorporated herein by reference.
10.4 Michael Baker Corporation 1995 Stock Incentive Plan amended
effective April 23, 1998, filed herewith.
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 Selected Financial Data, Management's Discussion and
Analysis of Financial Condition and Results of
Operations, Consolidated Financial Statements as of
December 31, 1998 and for the three years then ended, Report
of Independent Accountants, and Supplemental Financial
Information, filed herewith and to be included as the
Financial Section of the Annual Report to Shareholders for the
year ended December 31, 1998.
21.1 Subsidiaries of the Registrant, filed herewith.
23.1 Consent of Independent Accountants, filed herewith.
(b) The Registrant filed no reports on Form 8-K during the fourth
quarter of 1998.
</TABLE>
<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: April 29, 1999 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 April 29, 1999
- ------------------------------
Richard L. Shaw
/s/ Charles I. Homan Director, President April 29, 1999
- ------------------------------ and Chief Executive
Charles I. Homan Officer
/s/ J. Robert White Director, Executive Vice April 29, 1999
- ------------------------------ President, Chief Financial
J. Robert White Officer and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Robert N. Bontempo Director April 29, 1999
- ------------------------------
Robert N. Bontempo
Director April 29, 1999
- ------------------------------
William J. Copeland
/s/ Roy V. Gavert, Jr. Director April 29, 1999
- ------------------------------
Roy V. Gavert, Jr.
/s/ Thomas D. Larson Director April 29, 1999
- ------------------------------
Thomas D. Larson
/s/ John E. Murray, Jr. Director April 29, 1999
- ------------------------------
John E. Murray, Jr.
/s/ Konrad M. Weis Director April 29, 1999
- ------------------------------
Konrad M. Weis
<PAGE>
Exhibit 10.1
1998 INCENTIVE COMPENSATION PLAN
MICHAEL BAKER CORPORATION
<PAGE>
<TABLE>
<CAPTION>
INDEX
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 INDIVIDUAL PERFORMANCE REVIEW CRITERIA
4.4 BUSINESS UNIT PERFORMANCE
4.5 BUSINESS SEGMENT PERFORMANCE
4.6 INDIVIDUAL PERFORMANCE
4.7 DISCRETIONARY AWARDS
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
1998 INCENTIVE COMPENSATION PLAN - ATTACHMENT 1
ELIGIBILITY
OPPORTUNITY
PERFORMANCE MEASUREMENT
POTENTIAL PAYOUT (PERCENTAGE OF ANNUAL SALARY)
FREQUENCY OF PAYOUT
</TABLE>
<PAGE>
1998 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 1998
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.
<PAGE>
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS:
Whenever used herein, the following terms shall have the meaning set forth
below, unless otherwise expressly provided.
(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, car allowances, 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 1998, the operating units of: Buildings,
Civil, Energy, Environmental and Transportation, and any other Business
Unit added during the year.
<PAGE>
(k) "Business Segment" shall mean, in 1998, 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).
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 on page 11)
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.
<PAGE>
3.3 PARTIAL PLAN YEAR PARTICIPATION:
An Employee who becomes eligible after the beginning of a Plan Year may
participate in the Plan for that Plan Year. Such situations may include, but are
not limited to (i) new hires, (ii) when an Employee is promoted from a position
which did not meet the eligibility criteria, (iii) when an Employee is
transferred from an affiliate which does not participate in the Plan, or (iv)
when job responsibilities become consistent with other Plan participants.
The CEO retains the right to prohibit or allow participation in the initial Plan
Year of eligibility for any of the aforementioned Employees. Any so added
participant will be eligible to receive a pro-rated share based upon a 2,080
work-hour year.
Any Employee who leaves the employment of the company prior to July 1 of the
Plan Year is not eligible to receive any payout from the Plan for that year.
Subject to the conditions of the following sentence, any employee who leaves the
employment of the Company after June 30 of the Plan Year is eligible to receive
a pro-rata payout from the Plan for that year based upon the percent of the
fiscal year employed. Employees who are terminated for cause or voluntarily
resign their positions from the company at any time during the Plan year are not
eligible to receive any payout from the Plan that year.
ARTICLE IV
AWARDS
4.1 COMPONENTS OF PARTICIPANT AWARDS:
Each award may be based on (i) Corporate performance, (ii) Business Unit
performance, (iii) Business Segment/individual performance plan accomplishments.
4.2 CORPORATE PERFORMANCE MEASURES AND GOALS:
For each Plan Year, the Compensation Committee of the Board of Directors and the
CEO shall agree on 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 1998, corporate results shall be dependent upon audited corporate earnings
per share (after all incentives have been paid). Payouts related to this part of
the plan will be based upon step accomplishments and should not be pro-rated.
For treatment of corporate payouts, please refer to sections 4.5 and 4.6.
<PAGE>
For 1998, performance level goals for earnings per share are:
<TABLE>
<CAPTION>
Corporate
Performance Goal Setting
Level (Earnings Per Share)
----- --------------------
<S> <C>
Level 1 On Plan $.66
Level 2 Commendable $.72
Level 3 Outstanding $.78
</TABLE>
4.3 INDIVIDUAL PERFORMANCE REVIEW CRITERIA
In order for an individual to be eligible for any portion of an incentive
compensation payout, they must receive at least a "3.0" or "Meets Expectations"
on the performance review form. This change is made to further reinforce Baker's
cultural strategy which embraces the importance of goal attainment and how those
goals are attained. As in last year's plan, an individual must receive a "2.6"
or greater on the performance plan in order to be eligible for the payout
related to individual performance goals.
4.4 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.
<PAGE>
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.
4.5 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.
4.6 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.
<PAGE>
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 20%
Corporate Overhead and Profit
New Work Added To The Company 45%
Cash Flow Return on Investment (CFROI) 15%
Critical Success Factors (Continuous Improvement) 10%
Human Resources Development 10%
</TABLE>
Guidelines of performance goals and percentage weights for Business Segment
participants are recommended to be:
<TABLE>
<CAPTION>
% of Business Segment
and Individual
Performance Plans
-----------------
<S> <C>
Business Segment Contribution to 20%
Corporate Overhead and Profit
New Work Added To The Company 45%
Accounts Receivables 15%
Critical Success Factors (Continuous Improvement) 10%
Human Resources Development 10%
</TABLE>
The above guidelines are recommended but are not prescriptive, particularly for
functional positions (e.g.: finance, marketing, human resources). 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. Participants may have plans that relate to
corporate, unit or segment. The performance plans are to be submitted to the CEO
by the Business Unit head or Functional Unit head by the designated time in 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.
<PAGE>
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 Meets Expectations-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 Meets
Expectations-On Plan Performance-3 level on a specific financial 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. Once performance has exceeded the Meets
Expectations-On Plan Performance-3 level for major performance areas for
functional unit employees, any performance beyond the 3 level will result in a
pro-rated calculation, in increments of .5 (e.g.: 3.5, 4.0, 4.5 etc.), 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).
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 as part
of the overall performance evaluation.
4.7 DISCRETIONARY AWARDS:
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 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.
<PAGE>
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.
<PAGE>
6.2 DEFINITION OF CHANGE IN CONTROL:
A "Change in Control" will be deemed to have occurred on the first to occur of
the following:
(a) The Company acquires actual knowledge that any Person other than the
Company, a Subsidiary, the Company's Stock Ownership Plan and Trust or any
employee benefit plan(s) sponsored by the Company has acquired the
Beneficial Ownership, directly or indirectly, of securities of the Company
entitling such Person to 20% or more of the Voting Power of the Company;
(b) A Tender Offer is made to acquire securities of the Company entitling the
holders thereof to 20% or more of the Voting Power of the Company; or
(c) A solicitation subject to Rule 14a-11 under the 1934 Act (or any successor
Rule) relating to the election or removal of 50% or more of the members of
any class of the Board shall be made by any person other than the Company
or less than 51% of the members of the Board shall be Continuing Directors;
or
(d) The shareholders of the Company shall approve a merger, consolidation,
share exchange, division or sale or other disposition of assets of the
Company as a result of which the shareholders of the Company immediately
prior to such transaction shall not hold, directly or indirectly,
immediately following such transaction a majority of the Voting Power of
(i) in the case of a merger or consolidation, the surviving or resulting
corporation, (ii) in the case of a share exchange, the acquiring
corporation or (iii) in the case of a division or a sale or other
disposition of assets, each surviving, resulting or acquiring corporation
which, immediately following the transaction, holds more than 10% of the
consolidated assets of the Company immediately prior to the transaction.
The term "person" shall mean and include any individual, corporation,
partnership, company, association or other "person," as such term is used in
Section 14(d) of the Exchange Act, other than the Company or any employee
benefit plans sponsored by the Company.
"Continuing Directors" shall mean a director of the Company who either (a) was a
director of the Company on the effective date of the Plan or (b) is an
individual whose election, or nomination for election, as a director of the
Company was approved by a vote of at least two-thirds of the directors then
still in office who were Continuing Directors (other than an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of the Company which
would be subject to Rule 14a-11 under the 1934 Act, or any successor Rule).
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 NON-TRANSFERABILITY:
No right of interest of any Participant in this Plan shall be assignable or
transferable, or subject to any lien, directly, by operation of law or
otherwise, including execution, levy, garnishment, attachment, pledge, and
bankruptcy.
7.2 TAX WITHHOLDING:
The Company shall have the right to deduct from all payments under this Plan any
foreign, Federal, state, or local taxes required by law to be withheld with
respect to such payments.
7.3 AMENDMENTS:
The Company, in its absolute discretion, without notice, at any time and from
time to time, may modify or amend, in whole or in part, any or all other
provisions of this Plan, or suspend or terminate it entirely; provided, that no
such modification, amendment, suspension, or termination may reduce the right of
a Participant (or his beneficiary as the case may be) to a payment or
distribution in accordance with the provisions contained in this Plan or change
to the detriment of a Participant of any potential rights in that Plan Year
pursuant to Section 6.1 of this Plan.
7.4 INDEMNIFICATION:
Each person who is or shall have been a member of the Committee or the Board or
who is or shall have been an Employee of the Company shall be indemnified and
held harmless by the Company against and from any loss, cost, liability, or
expense, including, without limitation, fees and expenses of legal counsel, that
may have been imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may be a party
or in which he may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of any judgment in any such action, suit, or proceeding against him provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such person may be entitled under the Company's
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
7.5 BENEFICIARY DESIGNATION:
Each Participant under the Plan may name, from time to time, beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he receives any
<PAGE>
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
has 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, 1998.
<PAGE>
1998 Michael Baker Corporation Incentive Compensation Plan - Summary
Attachment 1 February 19, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ELIGIBILITY FOR INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
<S> <C>
Number of Participants Tier 1: approximately 60
Tier 2: approximately 60
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 and Profit Center Managers with greater
Heavy/Highway and Baker Support than $60 Million gross revenue
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)
<PAGE>
TIER 3 Discretionary
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<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%
To Be
Determined
Second Level (total maximum) 16.667% 10%
Third Level (total maximum) 25% 15%
</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>
- --------------------------------------------------------------------------------
<PAGE>
<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% $.66
2nd Level (Commendable) 33% $.72
3rd Level (Outstanding) 34% $.78
</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 20% 20% *
Contribution to Corporate Overhead
and Profit
New Work Added to the Company 45% 45% *
Cash Flow Return on Investment (CFROI) 15% * *
Accounts Receivables * 15% *
Critical Success Factors 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>
<PAGE>
- --------------------------------------------------------------------------------
<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%
Business
Corporate Unit Individual
Profitability Performance Performance
Goals Goals Goals
------------- ---------- ------------
Tier 1 Business Unit-Segments
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%
- --------------------------------------------------------------------------------
Corporate Individual
(% of Annual Salary) Profitability Performance
Goals Goals
--------------- ------------
Tier 2 Corporate and Business
Unit Staff
1st Level (On-Plan Performance) 2.50% 2.50%
2nd Level (Commendable) 5.00% 5.00%
3rd Level (Outstanding) 7.50% 7.50%
- --------------------------------------------------------------------------------
Business
Corporate Unit Individual
Profitability Performance Performance
Goals Goals Goals
------------- ----------- ------------
Tier 2 Business Unit-Segments
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>
<PAGE>
THRESHOLD
Corporate
Minimum earnings per share for any Potential Payout $0.66
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 $ 7,663,356
Civil-Engineering $ 7,137,564
Baker Support Services, Inc. $ 901,046
Buildings Business Unit $ 3,484,475
Buildings-Design $ 2,013,734
Buildings-Construction $ 2,440,691
Transportation Business Unit $ 8,190,461
Transportation-Engineering $ 7,259,758
Transportation-Heavy & Highway $ 1,251,332
Environmental Business Unit $ 1,989,210
Energy Business Unit $ 4,463,648
Energy/Baker MO $ 2,464,938
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
TYPE OF PAYOUT Cash
- --------------------------------------------------------------------------------
FREQUENCY OF PAYOUT Annually, with payment by the following
year's first quarter
- --------------------------------------------------------------------------------
FUNDING Pre-funding accrual in the year earned
- --------------------------------------------------------------------------------
FORFEITURES Allocated toward next year's funding
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 10.4
MICHAEL BAKER CORPORATION
1995 STOCK INCENTIVE PLAN,
AS AMENDED EFFECTIVE APRIL 23, 1998
The purposes of the 1995 Stock Incentive Plan (the "Plan") are to encourage
eligible employees of Michael Baker Corporation (the "Corporation") and its
subsidiaries to increase their efforts to make the Corporation and each
Subsidiary more successful, to provide an additional inducement for such
employees to remain with the Corporation or a Subsidiary, to reward such
employees by providing an opportunity to acquire shares of the Common Stock, par
value $1.00 per share, of the Corporation (the "Common Stock") on favorable
terms and to provide a means through which the Corporation may attract able
persons to enter the employ of the Corporation or one of its Subsidiaries. For
the purposes of the Plan, the term "Subsidiary" means any Corporation in an
unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing at least fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.
SECTION 1
ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") to be
appointed from time to time by the Corporation's Board of Directors (the
"Board") which hereafter shall consist of not less than two members of the
Board, each of whom shall on January 1, 1995, or at the time of appointment to
the Committee subsequent thereto and at all times during service as a member of
the Committee be (i) a "disinterested person" as that term is then defined under
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "1934
Act") or any successor rule and (ii) an "outside director" under Section
162(m)(4)(c) of the Internal Revenue Code of 1986 (the "Code"), or any successor
provision.
The Committee shall interpret the Plan and prescribe such rules, regulations
and procedures in connection with the operation of the Plan as it shall deem to
be necessary and advisable for the administration of the Plan consistent with
the purposes of the Plan. All questions of interpretation and application of the
Plan, or as to grants under the Plan, shall be subject to the determination of
the Committee, which shall be final and binding.
The Committee shall keep records of action taken at its meetings. A majority
of the Committee shall constitute a quorum at any meeting, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by all the members of the Committees, shall be the acts
of the Committee.
SECTION 2
ELIGIBILITY
Those key employees of the Corporation or any Subsidiary (including, but not
limited to, covered employees as defined in Section 162(m)(3) of the Code, or
any successor provision) who share responsibility for the management, growth or
protection of the business of the Corporation or any Subsidiary shall be
eligible to be granted stock options as described herein.
Subject to the provisions of the Plan, the Committee shall have full and
final authority, in its discretion, to grant stock options as described herein
and to determine the employees to whom any such grant shall be made and the
<PAGE>
number of shares to be covered thereby. In determining the eligibility of any
employee, as well as in determining the number of shares covered by each grant
of a stock option, the Committee shall consider the position and the
responsibilities of the employee being considered, the nature and value to the
Corporation or a Subsidiary of his or her services, his or her present and/or
potential contribution to the success of the Corporation or a Subsidiary and
such other factors as the Committee may deem relevant.
SECTION 3
SHARES AVAILABLE UNDER THE PLAN
The aggregate number of shares of the Common Stock which may be issued and
as to which grants of stock options may be made under the Plan is 1,500,000
shares, subject to adjustment and substitution as set forth in Section 6. If any
stock option granted under the Plan is canceled by mutual consent or terminates
or expires for any reason without having been exercised in full, the number of
shares subject thereto shall again be available for purposes of the Plan. If
shares of Common Stock are forfeited to the Corporation pursuant to the
restrictions applicable, the shares so forfeited shall not again be available
for purposes of the Plan unless during the period such shares were outstanding,
the grantee received no dividends or other "benefits of ownership" from such
shares. The shares which may be issued under the Plan may be either authorized
but unissued shares or treasury shares or partly each, as shall be determined
from time to time by the Board.
SECTION 4
GRANT OF STOCK OPTIONS
The Committee shall have authority, in its discretion, to grant "incentive
stock options" pursuant to Section 422 of the Code, to grant "nonstatutory stock
options" (i.e., stock options which do not qualify under Sections 422 or 423 of
the Code) or to grant both types of stock options (but not in tandem).
During the duration of the Plan, the maximum number of shares as to which
stock options may be granted and as to which shares may be awarded under the
Plan to any one employee during any calendar year is 100,000 shares, subject to
adjustment and substitution as set forth in Section 6. For the purposes of this
limitation, any adjustment or substitution made pursuant to Section 6 with
respect to the maximum number of shares set forth in the preceding sentence
shall also be made with respect to any shares subject to stock options
previously granted under the plan to such employee during the same calendar
year.
Notwithstanding any other provision contained in the Plan or in any stock
option agreement referred to in Section 5(F) but subject to the possible
exercise of the Committee's discretion contemplated in the last sentence of this
Section 4, the aggregate fair market value, determined as provided in Section
5(G) on the date of grant, of the shares with respect to which incentive stock
options are exercisable for the first time by an employee during any calendar
year under all plans of the corporation employing such employee, any parent or
subsidiary corporation of such corporation and any predecessor corporation of
any such corporation shall not exceed $100,000. If the date on which one or more
of such incentive stock options could first be exercised would be accelerated
pursuant to any provision of the Plan or any stock option agreement, and the
acceleration of such exercise date would result in a violation of the limitation
set forth in the proceeding sentence, then, notwithstanding any such provision,
but subject to the provisions of the next succeeding sentence, the exercise
dates of such incentive stock options shall be accelerated only to the date or
dates, if any, that do not result in a violation of such limitation and, in
<PAGE>
such event, the exercise dates of the incentive stock options with the lowest
option prices shall be accelerated to the earliest such dates. The Committee
may, in its discretion, authorize the acceleration of the exercise date of one
or more incentive stock options even if such acceleration would violate the
$100,000 limitation set forth in the first sentence of this paragraph and even
if such incentive stock options are thereby converted in whole or in part to
nonstatutory stock options.
The Committee may accept the cancellation of outstanding stock options in
return for the grant of new stock options for the same or a different number of
shares and at the same or a different option price.
SECTION 5
TERMS AND CONDITIONS OF STOCK OPTIONS
Stock options granted under the Plan shall be subject to the following terms
and conditions:
(A) The purchase price at which each stock option may be exercised (the
"option price") shall be such price as the Committee, in its
discretion, shall determine but shall not be less than one hundred
percent (100%) of the fair market value per share of the Common Stock
covered by the stock option on the date of grant, except that in the
case of an incentive stock option granted to an employee who,
immediately prior to such grant, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Corporation or any Subsidiary (a "Ten Percent Employee"),
the option price shall not be less than one hundred ten percent (110%)
of such fair market value on the date of grant. For purposes of this
Section 5(A), the fair market value of the Common Stock shall be
determined as provided in Section 5(G). For purposes of this Section
5(A), an individual (i) shall be considered as owning not only shares
of stock owned individually but also all shares of stock that are at
the time owned, directly or indirectly, by or for the spouse,
ancestors, lineal descendants, and brothers and sisters (whether by
the whole or half blood) of such individual and (ii) shall be
considered as owning proportionately any shares owned, directly or
indirectly, by or for any corporation, partnership, estate or trust in
which such individual is a shareholder, partner or beneficiary.
(B) The option price for each stock option shall be paid in full upon
exercise and shall be payable in cash in United States dollars
(including check, bank draft or money order), which may include cash
forwarded through a broker or other agent-sponsored exercise or
financing program; provided, however, that in lieu of such cash the
person exercising the stock option may (if authorized by the Committee
at the time of grant in the case of an incentive stock option, or at
any time in the case of a nonstatutory stock option) pay the option
price in whole or in part by delivering to the Corporation shares of
the Common Stock having fair market value on the date of exercise of
the stock option, determined as provided in Section 5(G), equal to the
option price for the shares being purchased; except that (i) any
portion of the option price representing a fraction of a share shall
in any event be paid in cash and (ii) no shares of the Common Stock
which have been held for less than six months may be delivered in
<PAGE>
payment of the option price of a stock option. If the person
exercising a stock option participates in a broker or other
agent-sponsored exercise or financing program, the Corporation will
cooperate with all reasonable procedures of the broker or other agent
to permit participation by the person exercising the stock option in
the exercise or financing program. Notwithstanding any procedure of
the broker or other agent-sponsored program, if the option price is
paid in cash, the exercise of the stock option shall not be deemed to
occur and no shares of the Common Stock will be issued until the
Corporation has received full payment in cash (including check, bank
draft or money order) for the option price from the broker or other
agent. The date of exercise of a stock option shall be determined
under procedures established by the Committee, and as of the date of
exercise the person exercising the stock option shall be considered
for all purposes to be the owner of the shares with respect to which
the stock option has been exercised. Payment of the option price with
shares shall not increase the number of shares of the Common Stock
which may be issued under the Plan as provided in Section 3.
(C) No stock option shall be exercisable by a grantee during the first six
months of its term, except that this limitation on exercise shall not
apply if Section 7(B) becomes applicable. No stock option shall be
exercisable after the expiration of ten years (five years in the case
of incentive stock option granted to a Ten Percent Employee) from the
date of grant. A stock option to the extent exercisable at any time
may be exercised in whole or in part.
(D) No stock option shall be transferable by the grantee otherwise than by
will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of
death. All stock options shall be exercisable during the lifetime of
the grantee only by the grantee.
(E) Subject to the provisions of Section 4 in the case of incentive stock
options, unless the Committee, in its discretion, shall otherwise
determine:
(i) If the employment of a grantee who is not disabled within the
meaning of Section 422(c)(6) of the Code (a "Disabled Grantee")
is voluntarily or involuntarily terminated with the consent of
the Corporation or Subsidiary or a grantee retires under any
retirement plan of the Corporation or a Subsidiary, any then
outstanding incentive stock option held by such grantee shall be
exercisable by the grantee (but only to the extent exercisable by
the grantee immediately prior to the termination of employment)
at any time prior to the expiration date of such incentive stock
option or within three months after the date of termination of
employment, whichever is the shorter period;
(ii) If the employment of a grantee who is not a Disabled Grantee
<PAGE>
is voluntarily or involuntarily terminated with consent of the
Corporation or a Subsidiary, any then outstanding nonstatutory
stock option held by such grantee shall be exercisable by the
grantee (but only to the extent exercisable by the grantee
immediately prior to the termination of employment) at any time
prior to the expiration date of such nonstatutory stock option or
within one year after the date of termination of employment,
whichever is the shorter period;
(iii) If the employment of a grantee who is a Disabled Grantee is
voluntarily or involuntarily terminated with the consent of the
Corporation or a Subsidiary, any then outstanding stock option
held by such grantee shall be exercisable by the grantee in full
(whether or not so exercisable by the grantee immediately prior
to the termination of employment) by the grantee at any time
prior to the expiration date of such stock option or within one
year after the date of termination of employment, whichever is
the shorter period;
(iv) If a grantee retires under any retirement plan of the Corporation
or a Subsidiary, any then outstanding nonstatutory stock option
held by such grantee shall be exercisable by the grantee (but
only to the extent exercisable by the grantee immediately prior
to such retirement) at any time prior to the expiration date of
such nonstatutory stock option or within three years after the
date of retirement, whichever is the shorter period;
(v) Following the death of a grantee during employment, any
outstanding stock option held by the grantee at the time of death
shall be exercisable in full (whether or not so exercisable by
the grantee immediately prior to the death of the grantee) by the
person entitled to do so under the will of the grantee, or, if
the grantee shall fail to make testamentary disposition of the
stock option or shall die intestate, by the legal representative
of the grantee at any time prior to the expiration date of such
stock option or within one year after the date of death,
whichever is the shorter period;
(vi) Following the death of a grantee after termination of employment
during a period when a stock option is exercisable, any
outstanding stock option held by the grantee at the time of death
shall be exercisable by such person entitled to do so under the
will of the grantee by such legal representative (but only to the
extent the stock option was exercisable by the grantee
immediately prior to the death of the grantee) at any time prior
to the expiration date of such stock option or within one year
after the date of death, whichever is the shorter period; and
(vii) If a grantee of a stock option (a) engages in the operation or
<PAGE>
management of a business (whether as owner, partner, officer,
director, employee or otherwise and whether during or after
termination of employment) which is in competition with the
Corporation or any of its Subsidiaries, (provided, however, that
this clause shall not apply if Section 7(C) applies following
termination of employment), (b) induces or attempts to induce any
customer, supplier, licensee or other individual, corporation or
other business organization having a business relationship with
the Corporation or any of its Subsidiaries to cease doing
business with the Corporation or any of its Subsidiaries or in
any way interferes with the relationship between any such
customer, supplier, licensee or other person and the Corporation
or any of its Subsidiaries or (c) solicits any employee of the
Corporation or any of its Subsidiaries to leave the employment
thereof or in any way interferes with the relationship of such
employee with the Corporation or any of its Subsidiaries, the
Committee, in its discretion, may immediately terminate all
outstanding stock options held by the grantee. Whether a grantee
has engaged in any of the activities referred to in the preceding
sentence which would cause the outstanding stock options to be
terminated shall be determined, in its discretion, by the
Committee, and any such determination by the Committee shall be
final and binding.
(F) All stock options shall be confirmed by an agreement, or an amendment
thereto, which shall be executed on behalf of the Corporation by the
President and Chief Executive Officer, the Chief Financial Officer or
any Vice President and by the grantee. The agreement confirming a
stock option shall specify whether the stock option is an incentive
stock option or a nonstatutory stock option. The provisions of such
agreements need not be identical.
(G) Fair market value of the Common Stock shall be the mean between the
following prices, as applicable, for the date as of which fair market
value is to be determined as quoted in The Wall Street Journal (or in
such other reliable publication as the Committee, in its discretion,
may determine to rely upon): (i) if the Common Stock is listed on the
American or the New York Stock Exchange, the highest and lowest sales
prices per share of the Common Stock as quoted in the Composite
Transactions listing for such exchange on such date, (ii) if the
Common Stock is not listed on either such exchange, the highest and
lowest sales prices per share of the Common Stock for such date on (or
on any composite index including) the principal United States
securities exchange registered under the 1934 Act on which the Common
Stock is listed, or (iii) if the Common Stock is not listed on any
such exchange, the highest and lowest sales prices per share of the
Common Stock for such date on the National Association of Securities
Dealers Automated Quotation System or any successor system then in use
("NASDAQ"). If there are no such sale price quotations for the date as
of which fair market value is to be determined but there are such sale
price quotations within a reasonable period both before and after such
<PAGE>
date, then fair market value shall be determined by taking a weighted
average of the means between the highest and lowest sales prices per
share of the Common Stock as so quoted on the nearest date before and
the nearest date after the date as of which fair market value is to be
determined. The average should be weighted inversely by the respective
numbers of trading days between the selling dates and the date as of
which fair market value is to be determined. If there are no such sale
price quotations on or within a reasonable period both before and
after the date as of which fair market value is to be determined, then
fair market value of the Common Stock shall be the mean between the
bona fide bid and asked prices per share of Common Stock as so quoted
for such date on NASDAQ, or if none, the weighted average of the means
between such bona fide bid and asked prices on the nearest trading
date before and the nearest trading date after the date as of which
fair market value is to be determined, if both such dates are within a
reasonable period. The average is to be determined in the manner
described above in this Section 5(G). If the fair market value of the
Common Stock cannot be determined on the basis previously set forth in
this Section 5(G) for the date as of which fair market value is to be
determined, the Committee shall in good faith determine the fair
market value of the Common Stock on such date. Fair market value shall
be determined without regard to any restriction other than a
restriction which, by its terms, will never lapse.
(H) The obligation of the Corporation to issue shares of the Common Stock
under the Plan shall be subject to (i) the effectiveness of a
registration statement under the Securities Act of 1933, as amended,
with respect to such shares, if deemed necessary or appropriate by
counsel for the Corporation, (ii) the condition that the shares shall
have been listed (or authorized for listing upon official notice of
issuance) upon the American Stock Exchange or each such other stock
exchange, if any, on which the Common Stock shares may then be listed
and (iii) all other applicable laws, regulations, rules and orders
which may then be in effect.
Subject to the foregoing provisions of this Section 5 and the other
provisions of the Plan, any stock option granted under the Plan may be exercised
at such times and in such amounts and be subject to such restrictions and other
terms and conditions, if any, as shall be determined, in its discretion, by the
Committee and set forth in the agreement referred to in Section 5(F), or an
amendment thereto.
<PAGE>
SECTION 6
ADJUSTMENT AND SUBSTITUTION OF SHARES
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
subject to any outstanding stock options and the number of shares of the Common
Stock which may be issued under the Plan but are not subject to outstanding
stock options and the maximum number of shares as to which stock options may be
granted and as to which shares may be awarded under the Plan to any employee
during any calendar year under Section 4 on the date fixed for determining the
shareholders entitled to receive such stock dividend or distribution shall be
adjusted by adding thereto the number of shares of the Common Stock which would
have been distributable thereon if such shares had been outstanding on such
date.
If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock subject to any then outstanding stock option and for
each share of the Common Stock which may be issued under the Plan but which is
not then subject to any outstanding stock option, the number and kind of shares
of stock or other securities into which each outstanding share of the Common
Stock shall be so changed or for which each such share shall be exchangeable.
In case of any adjustment or substitution as provided for in the first two
paragraphs of this Section 6, the aggregate option price for all shares subject
to each then outstanding stock option prior to such adjustment or substitution
shall be the aggregate option price for all shares of stock or other securities
(including any fraction) to which such shares shall have been adjusted or which
shall have been substituted for such shares. Any new option price per share
shall be carried to at least three decimal places with the last decimal place
rounded upwards to the nearest whole number.
If the outstanding shares of the Common Stock shall be changed in value by
reason of any spin-off, split-off or split-up, or dividend in partial
liquidation, dividend in property other than cash, or extraordinary distribution
to shareholders of the Common Stock, the Committee shall make any adjustments to
any then outstanding stock option which it determines are equitably required to
prevent dilution or enlargement of the rights of optionees which would otherwise
result from any such transaction.
No adjustment or substitution provided for in this Section 6 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.
If any such adjustment or substitution provided for in this Section 6
requires the approval of shareholders in order to enable the Corporation to
<PAGE>
grant incentive stock options, then no such adjustment or substitution shall be
made without the required shareholder approval. Notwithstanding the foregoing,
in the case of incentive stock options, if the effect of any such adjustment or
substitution would be to cause the stock option to fail to continue to qualify
as an incentive stock option or to cause a modification, extension or renewal of
such stock option within the meaning of Section 424 of the Code, the Committee
may elect that such adjustment or substitution not be made but rather shall use
reasonable efforts to effect such other adjustment of each then outstanding
stock option as the Committee, in its discretion, shall deem equitable and which
will not result in any disqualification, modification, extension or renewal
(within the meaning of Section 424 of the Code) of such incentive stock option.
Except as provided in this Section 6, a grantee shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
SECTION 7
ADDITIONAL RIGHTS IN CERTAIN EVENTS
(A) Definitions
For purposes of this Section 7, the following terms shall have the
following meanings:
(1) The term "Person" shall be used as that term is used in Section 13(d)
and 14(d) of the 1934 Act as in effect on the effective date of the
Plan.
(2) "Beneficial Ownership" shall be determined as provided in Rule 13d-3
under the 1934 Act as in effect on the effective date of the Plan.
(3) "Voting Shares" shall mean all securities of a company entitling the
holders thereof to vote in an annual election of directors (without
consideration of the rights of any class of stock other than the
Common Stock to elect directors by a separate class vote); and a
specified percentage of "Voting Power" of a company shall mean such
number of the Voting Shares as shall enable the holders thereof to
cast such percentage of all the votes which could be cast in an annual
election of directors (without consideration of the rights of any
class of stock other than Common Stock to elect directors by a
separate class vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to acquire
securities of the Corporation (other than such offer made by the
Corporation or any Subsidiary), whether or not such offer is approved
or opposed by the Board.
(5) "Continuing Directors" shall mean a director of the Corporation who
<PAGE>
either (a) was a director of the Corporation on the effective date of
the Plan or (b) is an individual whose election, or nomination for
election, as a director of the Corporation 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
Corporation which would be subject to Rule 14a-11 under the 1934 Act,
or any successor Rule).
(6) "Section 7 Event" shall mean the date upon which any of the following
events occur:
(a) The Corporation acquires actual knowledge that any Person other
than the Corporation, a Subsidiary, the Corporation's Stock
Ownership Plan and Trust or any employee benefit plan(s)
sponsored by the Corporation has acquired the Beneficial
Ownership, directly or indirectly, of securities of the
Corporation entitling such Person to 20% or more of the Voting
Power of the Corporation;
(b) A Tender Offer is made to acquire securities of the Corporation
entitling the holders thereof to 20% or more of the Voting Power
of the Corporation; 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 Corporation or less than 51% of the
members of the Board shall be Continuing Directors; or
(d) The shareholders of the Corporation shall approve a merger,
consolidation, share exchange, division or sale or other
disposition of assets of the Corporation as a result of which the
shareholders of the Corporation 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 Corporation immediately prior to the transaction;
provided, however, that (i) if securities beneficially owned by a grantee are
included in determining the Beneficial Ownership of a Person referred to in
paragraph 6(a), (ii) a grantee is required to be named pursuant to Item 2 of the
Schedule 14D-I (or any similar successor filing requirement) required to be
filed by the bidder making a Tender Offer referred to in paragraph 6(b) or (iii)
if a grantee is a "participant" as defined in Rule 14a-11 under the 1934
<PAGE>
Act (or any successor rule) in a solicitation (other than a solicitation by the
Corporation) referred to in paragraph 6(c), then no Section 7 Event with respect
to such grantee shall be deemed to have occurred by reason of such event.
(B) Acceleration of the Exercise Date of Stock Options.
Subject to the provisions of Section 4 in the case of incentive stock
options, unless the agreement referred to in Section 5(F), or an amendment
thereto, shall otherwise provide, notwithstanding any other provision contained
in the Plan, in case any "Section 7 Event" occurs all outstanding stock options
(other than those held by a person referred to in the proviso to Section
7(A)(6)) shall become immediately and fully exercisable whether or not otherwise
exercisable by their terms.
(C) Extension of the Expiration Date of Stock Options.
Subject to the provisions of Section 4 in the case of incentive stock
options, unless the agreement referred to in Section 5(F), or an amendment
thereto, shall otherwise provide, notwithstanding any other provision contained
in the Plan, all stock options held by a grantee (other than a grantee referred
to in the proviso to Section 7(A)(6)) whose employment with the Corporation or a
Subsidiary terminates within one year of any Section 7 Event for any reason
other than voluntary termination with the consent of the Corporation or a
Subsidiary, retirement under any retirement plan of the Corporation or a
Subsidiary or death, which are exercisable shall continue to be exercisable for
a period of one year from the date of such termination of employment, but in no
event after the expiration date of the stock option.
SECTION 8
EFFECT OF THE PLAN ON THE RIGHTS OF EMPLOYEES AND EMPLOYER
Neither the adoption of the Plan nor any action of the Board or the
Committee pursuant to the Plan shall be deemed to give any employee any right to
be granted a stock option under the Plan. Nothing in the Plan, in any stock
option, or in any agreement providing for a stock option shall confer any right
on any employee to continue in the employ of the Corporation or any Subsidiary
or interfere in any way with the rights of the Corporation or any Subsidiary to
terminate the employment of any employee at any time.
SECTION 9
WITHHOLDING
To the extent required by applicable Federal, state, local or foreign law,
the person exercising the stock option shall make arrangements satisfactory to
the Corporation, in its discretion, for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Corporation shall not be
required to issue any Common Stock under the Plan until such obligations are
satisfied.
<PAGE>
SECTION 10
AMENDMENT
The right to alter and amend the Plan at any time and from time to time and
the right to revoke or terminate the Plan are hereby specifically reserved to
the Board; provided that no such alteration or amendment of the Plan shall,
without shareholder approval (i) increase the number of shares which may be
issued under the Plan as set forth in Section 3, (ii) increase the maximum
number of shares as to which stock options may be granted and as to which shares
may be awarded under the Plan to any one employee during any one calendar year
as set forth in Section 4, (iii) materially increase the benefits accruing under
the Plan to persons subject to the provisions of Section 16(b) of the 1934 Act,
(iv) materially modify the requirements as to eligibility for participation in
the Plan by persons subject to the provisions of Section 16(b) of the 1934 Act,
(v) make any changes in the class of employees eligible to receive incentive
stock options under the Plan or (vi) extend the duration of the Plan. No
alteration, amendment, revocations or termination of the Plan shall, without the
written consent of the holder of stock options under the Plan, adversely affect
the rights of such holder with respect thereto.
SECTION 11
EFFECTIVE DATE AND DURATION OF PLAN
The effective date of the Plan shall be January 1, 1995, and the date of
adoption of the Plan by the Board shall be December 15, 1994, provided that such
adoption of the Plan by the Board is approved by a majority of the votes cast at
a duly held meeting of shareholders held on or prior to December 1, 1995, at
which a quorum representing a majority of the outstanding voting stock of the
Corporation is, either in person or by proxy, present and voting. No stock
option granted under the Plan may be exercised until after such approval. No
stock option may be granted under the Plan subsequent to December 14, 2004.
<PAGE>
Exhibit 13.1
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
================================================================================
(In thousands, except per share information)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Total contract revenues $521,271 $446,432 $418,388 $354,728 $437,193
Operating income/(loss) (1,667) 8,020 7,663 5,180 (9,097)
Net income/(loss) (2,419) 4,953 4,180 2,900 (7,945)
Diluted net income/(loss)
per share $ (0.30) $ 0.60 $ 0.50 $ 0.35 $ (0.95)
Return on average equity (4.4)% 9.3% 8.5% 6.3% (16.3)%
FINANCIAL CONDITION
Total assets $151,861 $144,425 $126,082 $117,376 $134,794
Working capital $ 31,855 $ 36,220 $ 27,417 $ 25,186 $ 22,391
Current ratio 1.36 1.41 1.36 1.36 1.26
Long-term debt $ 3,138 $ -- $ -- $ -- $ 3,960
Shareholders' investment 52,862 55,862 50,752 47,631 44,731
Book value per
outstanding share 6.47 6.79 6.19 5.70 5.35
Year-end closing
share price $ 9.75 $ 9.75 $ 6.38 $ 5.00 $ 3.75
CASH FLOW
Cash provided by/(used
in) operating activities $ (1,379) $ 7,803 $ 1,167 $ 15,539 $ 5,415
Cash used in investing
activities (11,416) (2,533) (3,739) (2,294) (5,436)
Cash provided by/(used in)
financing activities 1,935 124 (1,251) (2,547) (1,477)
- --------------------------------------------------------------------------------
Increase/(decrease)
in cash $(10,860) $ 5,394 $ (3,823) $ 10,698 $ (1,498)
BACKLOG
Funded $447,600 $393,200 $332,800 $299,900 $283,300
Total $735,300 $648,700 $543,700 $507,800 $468,300
SHARE INFORMATION
Year-end shares
outstanding 8,166 8,224 8,197 8,364 8,364
Average diluted shares
outstanding during year 8,178 8,299 8,383 8,368 8,364
================================================================================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
As discussed more fully in Note 2 to the consolidated financial statements,
during the fourth quarter of 1998, the Company recorded losses totaling $10.9
million related to a construction project being performed by Baker Mellon Stuart
Construction, Inc. ("BMSCI") for Universal City Development Partners ("UCDP") at
the Universal Studios theme park in Orlando, Florida. Other BMSCI-related
charges totaling $2.8 million were also recorded during the fourth quarter of
1998. Following these charges, the Company determined during the first quarter
of 1999 that it will no longer participate in low-bid, high-risk construction
projects for buildings or transportation infrastructure. Accordingly, the
general construction activities of the Company's Buildings unit have been
restructured, and its Transportation Construction (heavy and highway) business
will be sold. In connection with this restructuring, the Company recorded a
charge of $0.8 million during the first quarter of 1999.
Total Contract Revenues
Total contract revenues reached a record $521 million in 1998, up from $446
million in 1997. All of the Company's business units posted revenue improvements
for 1998. The Buildings, Transportation, Energy and Civil units recorded the
largest increases of $25 million, $22 million, $14 million and $13 million,
respectively. In the Buildings unit, the UCDP project accounted for $60 million
of revenues (or 11.5% of revenues for the Company) in 1998 versus only $17
million in 1997. Nearly equal revenue growth in each of the engineering and
construction divisions contributed to the Transportation unit's improvement.
International growth, including that from a new consolidated joint venture which
provides operations and maintenance ("O&M") services to BP Amoco in Venezuela,
caused the increase in the Energy unit. The Civil unit's improvement principally
resulted from higher revenues on new O&M contracts in its Baker Support
Services, Inc. ("BSSI") division.
For 1997, total contract revenues increased from $418 million in 1996. The
Transportation, Energy and Civil units recorded the largest revenue increases of
$14 million, $12 million and $9 million, respectively. Revenue growth from new
heavy and 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 again resulted from higher revenues on new O&M contracts in its BSSI
division, despite lower revenues in its engineering division due to the 1997
completion of its significant project in Mexico.
<TABLE>
<CAPTION>
TOTAL CONTRACT REVENUES - 1998
<S> <C> <C>
A. Buildings 29%
B. Civil 25%
C. Energy 13%
D. Environmental 5%
E. Transportation 28%
</TABLE>
Gross Profit
Gross profit decreased to $47.2 million in 1998 from $51.9 million
in 1997. As a percentage of total contract revenues, gross profit declined to 9%
in 1998 compared to 12% in 1997. Both overall decreases are directly
attributable to the construction project charges totaling $13.7 million recorded
in the Buildings unit during the fourth quarter of 1998. The gross profit
<PAGE>
percentage increased for all of the Company's business units except for the
Civil unit, which remained relatively flat, and the Buildings unit. The Energy
and Transportation units registered the most significant overall improvements in
1998. The Energy unit's international growth, particularly in Venezuela, raised
its gross profit percentage. Both the engineering and construction operations in
the Transportation unit contributed to its improvement, with the engineering
side providing the greater increase due to higher profitability from several new
projects on which work commenced during 1998. After excluding the aforementioned
1998 construction losses, the Buildings unit's gross profit percentage still
would have been lower for 1998 as the result of its completion of certain more
profitable construction projects in late 1997 and early 1998.
For 1997, gross profit increased from $48.6 million in 1996. As a percentage of
total contact revenues, gross profit remained relatively constant at 12% in both
1997 and 1996. The gross profit percentage increased in 1997 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.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased to $48.9 million
in 1998 from $43.9 million in 1997. The 1998 increase principally reflected an
investment in technological support costs, entry into new transportation
markets, additional support costs related to the Energy unit's consolidated
joint venture in Venezuela, and higher international marketing costs. Expressed
as a percentage of total contract revenues, SG&A expenses decreased slightly to
9.4% in 1998 from 9.8% in 1997.
SG&A expenses increased 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, SG&A expenses remained constant at 9.8% in both 1997 and 1996.
Other Income and Expense
Interest income decreased to $439,000 in 1998 from $552,000 in 1997, due to the
combination of a lower daily average investment amount and slightly lower
interest rates in 1998. Other income decreased to $42,000 in 1998 from $811,000
in 1997, primarily due to 1998 expense related to the minority interest in the
income of a consolidated Energy unit joint venture and 1997 gains realized on
the sales of certain investments. Interest expense increased to $145,000 in 1998
from $39,000 in 1997 as the result of financing the purchase of certain heavy
and highway construction equipment during the second half of 1998.
Interest income increased 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 in 1997 from $50,000 in 1996, primarily due to
gains realized on the sales of certain investments and equity income from a
another Energy unit joint venture related to work in the Gulf of Mexico.
Income Taxes
The provision for income taxes resulted in an effective tax rate of (82)% in
1998, 47% in 1997, and 48% in 1996. The difference between these percentages and
the 34% statutory U.S. federal rate is attributable primarily to state and
<PAGE>
foreign income taxes and foreign withholding taxes. The income tax expense for
1998 results from certain foreign and state taxes that cannot be offset against
tax benefits derived from other jurisdictions, despite the Company's
consolidated pre-tax loss. The 1996 provision rate was unfavorably impacted by
higher foreign income taxes paid in that year.
CONTRACT BACKLOG
The Company's funded backlog, which consists of 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 $448 million at
December 31, 1998, an increase from $393 million at the end of 1997. The overall
increase in funded backlog is attributable to new work added and transfers from
unfunded backlog during the year.
Total backlog, which incrementally includes that portion of contract value for
which options are still to be exercised (unfunded backlog), was $735 million at
the end of 1998 versus $649 million at the end of 1997. With the exception of
the Civil and Buildings units, each of the Company's business units entered 1999
with higher funded and total backlog than at the end of 1997.
With reference to the Company's restructuring announced in April 1999, funded
backlog related to the businesses that will be continued by the Company was $300
million and $252 million, and total backlog was $587 million and $508 million,
as of year-end 1998 and 1997, respectively.
<TABLE>
<CAPTION>
FUNDED BACKLOG - YEAR END 1998
<S> <C> <C>
A. Buildings 8%
B. Civil 15%
C. Energy 17%
D. Environmental 5%
E. Transportation 55%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1.4 million in 1998, compared to cash
provided by operating activities of $7.8 million in 1997 and $1.2 million in
1996. The decrease for 1998 was primarily related to the Company's 1998 net
loss. The 1997 improvement was 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 in the Buildings unit.
Net cash used in investing activities was $11.4 million in 1998, compared to
$2.5 million in 1997 and $3.7 million in 1996. These amounts solely comprise
capital expenditures in 1996 and 1997, but the 1998 amount also includes $0.8
million paid during the fourth quarter of 1998 relative to the acquisition of
GeoResearch, Inc. The 1998 capital expenditures totaling $10.6 million include
computer equipment and software purchases totaling $3.9 million as compared with
$1.4 million in 1997. During 1997 and 1996, the Company acquired most of its
computer equipment under operating leases, but converted to the purchase of
computer equipment for economic reasons in 1998. An additional $3.5 million of
the 1998 expenditures is attributable to the purchase of heavy and highway
construction equipment needed for new projects added during 1998. These factors
account for the majority of the 1998 increase in capital expenditures. The 1997
decrease is attributable to higher 1996 expenditures for building improvements
and office equipment related to the Buildings unit's 1996 relocation from
<PAGE>
Pittsburgh to Coraopolis, PA, and higher vehicle and equipment purchases during
1996 to meet the requirements of new BSSI O&M projects in the Civil unit.
Net cash provided by financing activities was $1.9 million in 1998 and $0.1
million in 1997, compared to cash used in financing activities of $1.3 million
in 1996. The 1998 proceeds from long-term debt related entirely to the
aforementioned purchase of heavy and highway construction equipment, while the
repayments of long-term debt correlate to both the financed construction
equipment and the 1998 subsidiary acquisition. In late 1996, pursuant to an
announced stock repurchase program, the Company paid $1.3 million to acquire
207,560 treasury shares. In 1998, the Company paid $0.8 million for an
additional 96,379 treasury shares under this program.
Working capital decreased to $31.9 million at December 31, 1998 from $36.2
million at December 31, 1997. The Company's current ratios were 1.36:1 and
1.41:1 at the end of 1998 and 1997, respectively. Both the working capital and
current ratio at year-end 1998 were negatively impacted by the Buildings unit's
construction-related charges recorded during the fourth quarter of 1998.
In July 1998, the Company extended the term of its unsecured credit agreement
with Mellon Bank, N.A. through May 31, 2001. This agreement provides for a
commitment of $25 million, which covers borrowings and letters of credit. As of
December 31, 1998, no borrowings were outstanding; however, letters of credit
totaling $1.8 million were outstanding under the agreement. Management believes
that the credit agreement will be adequate to meet its borrowing and letter of
credit requirements for at least the next year.
The Company is required to provide bid and performance bonding on certain
construction contracts, and has a $500 million bonding line available through
Travelers Casualty & Surety Company of America. Based on the Company's plan of
restructuring announced in April 1999, management believes that its bonding line
will be sufficient to meet its bid and performance needs for at least the next
year.
Short- and long-term liquidity is dependent upon appropriations of public funds
for infrastructure and other government-funded projects, capital spending levels
in the private sector, and the demand for the Company's services in the oil and
gas markets. Additional external factors such as price fluctuations in the
energy industry could affect the Company. The new federal transportation
legislation (TEA-21) will provide a significant increase in funding for
transportation infrastructure projects in 1999 and beyond. At this time,
management believes that its funds generated from operations and its existing
credit facility will be sufficient to meet its operating and capital expenditure
requirements for at least the next year.
YEAR 2000 COMPLIANCE
The Company has completed an assessment of its information systems relative to
the arrival of the 21st century. For internal systems, the Company generally
utilizes modern technologies supplied and supported by leading hardware and
software providers suited to Baker's areas of business. Year 2000 compliance is
primarily being achieved through the normal and recurring process of system
upgrades, the software costs of which are covered under related maintenance
agreements.
<PAGE>
Vendors have asserted that the financial and project management systems for the
Company's engineering and construction businesses, its BSSI subsidiary, and one
of two such systems in the Energy unit are Year 2000 compliant. The other Energy
unit system is currently being assessed and scheduled to be compliant by the end
of the third quarter of 1999. Over 90% of the Company is served by a human
resources system which the vendor has stated to be Year 2000 compliant.
Validation testing of the Company's financial, project management and human
resources systems is expected to be completed during the second and third
quarters of 1999.
The Company's interrelated systems (e.g., e-mail, file sharing) are linked by a
network of servers. Upgrades to compliant versions are already in place for
approximately 95% of the network. The remaining servers are scheduled to be
upgraded to compliant versions or merged with existing compliant servers during
the second quarter of 1999. The Company is in the process of evaluating other
less critical operational support systems being used in all business units
(e.g., mapping, CADD, cost estimating, databases, spreadsheets, and specialized
and customized software) to identify any remaining issues for resolution. Any
related issues are scheduled for resolution during the second and third quarters
of 1999. Normal end-user computing needs were addressed with BIOS testing of all
personal computers and a review of the operating systems and software packages.
Patches and upgrade needs have been identified and are being applied with a
scheduled completion date during the third quarter of 1999.
The Company is a service-based organization and, as such, has little reliance on
embedded technology (e.g., microcontrollers) for its key business processes. The
relevance of embedded technology is limited to such items as elevators, HVAC,
security, etc., which are components of the Company's leased facilities.
Embedded technology is also integral to some client facilities which the Company
operates and maintains under customer contracts. Responsibility for the Year
2000 compliance of such facilities rests with the customers.
To assess the Year 2000 compliance of significant third parties, the Company has
initiated a survey process to gather and evaluate information from significant
business customers, vendors and subcontractors. Mailing of the survey was
completed during the first quarter of 1999. The majority of responses are
expected to be received by the end of the second quarter of 1999. The Company
will continue to evaluate the readiness of its key suppliers and customers with
follow-up requests to non-respondents and respondents that are not yet
compliant; such requests will continue through the end of 1999.
Management currently believes that its "most reasonably likely worst case Year
2000 scenario" poses the potential for payment delays from some customers,
including agencies of the U.S. federal government, due to their lack of
readiness for the new century. A formal assessment of the potential impact of
this scenario has not yet been evaluated and is dependent upon the completion of
the aforementioned customer survey process.
Based on the customer survey results, the Company will also enhance its existing
disaster recovery plans to include assessments of potential Year 2000 impacts.
These contingency plans will address both internal factors related to staff,
computer systems and facilities, as well as external factors related to
suppliers, customers and service providers. The Company expects to have all
necessary contingency plans in place by the end of 1999.
Based upon information currently available, management does not believe that the
estimated incremental costs associated with Year 2000 compliance will be
material to the Company's consolidated results of operations or financial
position.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
For the years ended December 31,
1998 1997 1996
================================================================================
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total contract revenues $521,271 $446,432 $418,388
Cost of work performed 474,027 394,527 369,826
- --------------------------------------------------------------------------------
Gross profit 47,244 51,905 48,562
Selling, general and administrative expenses 48,911 43,885 40,899
- --------------------------------------------------------------------------------
Income/(loss) from operation (1,667) 8,020 7,663
Other income/(expense):
Interest income 439 552 402
Interest expense (145) (39) (76)
Other, net 42 811 50
- --------------------------------------------------------------------------------
Income/(loss) before income (1,331) 9,344 8,039
Provision for income taxes 1,088 4,391 3,859
- --------------------------------------------------------------------------------
Net income/(loss) $ (2,419) $ 4,953 $ 4,180
================================================================================
Basic and diluted net
income/(loss) per share $ (0.30) $ 0.60 $ 0.50
================================================================================
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
As of December 31,
1998 1997
================================================================================
(In thousands)
Assets
- --------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 5,014 $ 15,874
Receivables 82,672 81,632
Cost of contracts in progress and
estimated earnings, less billings 22,407 21,478
Prepaid expenses and other 10,192 5,799
- --------------------------------------------------------------------------------
Total current assets 120,285 124,783
- --------------------------------------------------------------------------------
Property, plant and equipment, net 17,458 10,985
- --------------------------------------------------------------------------------
Other Assets
Goodwill and other intangible assets, net 7,507 6,521
Other assets 6,611 2,136
- --------------------------------------------------------------------------------
Total other assets 14,118 8,657
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 151,861 $ 144,425
================================================================================
Liabilities and Shareholders' Investment
- --------------------------------------------------------------------------------
Current Liabilities
Accounts payable $ 43,356 $ 45,868
Accrued employee compensation 9,141 9,987
Accrued insurance 6,155 4,905
Other accrued expenses 20,210 14,800
Excess of billings on contracts in
progress over cost and estimated earnings 9,568 13,003
- --------------------------------------------------------------------------------
Total current liabilities 88,430 88,563
- --------------------------------------------------------------------------------
Other Liabilities
Notes payable 3,138 --
Other 7,431 --
- --------------------------------------------------------------------------------
Total liabilities 98,999 88,563
================================================================================
Shareholders' Investment
Common Stock, par value $1, authorized
44,000,000 shares, issued 7,150,179 and
7,086,623 shares, in 1998 and 1997,
respectively 7,150 7,087
Series B Common Stock, par value $1,
authorized 6,000,000 shares, issued
1,319,114 and 1,343,983 shares, in 1998
and 1997, respectively 1,319 1,343
Additional paid-in capital 37,002 36,822
Retained earnings 9,447 11,866
Less 303,359 and 206,980 shares of
Common Stock in treasury, at cost, in
1998 and 1997, respectively (2,056) (1,256)
- --------------------------------------------------------------------------------
Total shareholders' investment 52,862 55,862
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT $ 151,861 $ 144,425
================================================================================
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended December 31,
1998 1997 1996
================================================================================
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income/(loss) $ (2,419) $ 4,953 $ 4,180
Adjustments to reconcile net income/(loss)
to net cash provided by/(used in)
operating activities:
Depreciation and amortization 5,049 4,483 4,851
Deferred income taxes (695) 1,827 2,629
Changes in assets and liabilities,
net of acquisition:
Increase in receivables
and contracts in progress (8,276) (13,514) (14,275)
Increase in accounts payable
and accrued expenses 9,216 9,534 6,787
(Increase)/decrease in other
net assets (4,254) 520 (3,005)
- --------------------------------------------------------------------------------
Total adjustments 1,040 2,850 (3,013)
- --------------------------------------------------------------------------------
Net cash provided by/(used
in) operating activities (1,379) 7,803 1,167
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities
Additions to property, plant and
equipment (10,573) (2,533) (3,739)
Investment in GeoResearch, Inc. (843) -- --
- --------------------------------------------------------------------------------
Net cash used in investing
activities (11,416) (2,533) (3,739)
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from long-term debt 3,516 -- --
Repayments of long-term debt (964) -- (12)
Proceeds from exercise of stock
options 183 124 21
Payments to acquire treasury stock (800) -- (1,260)
- --------------------------------------------------------------------------------
Net cash provided by/(used in)
financing activities 1,935 124 (1,251)
- --------------------------------------------------------------------------------
Net increase/(decrease) in cash (10,860) 5,394 (3,823)
Cash at beginning of year 15,874 10,480 14,303
- --------------------------------------------------------------------------------
Cash at end of year $ 5,014 $ 15,874 $ 10,480
================================================================================
Supplemental Disclosure of Cash Flow Data
Interest paid $ 165 $ 50 $ 73
Income taxes paid $ 2,588 $ 2,039 $ 950
================================================================================
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------
Series B
Common Common
Stock Stock Treasury Additional
Par Par -------------- Paid-in Retained
(In Thousands) Value $1 Value $1 Shares Amount Capital Earnings
================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1995 $7,012 $1,352 -- $ -- $36,534 $ 2,733
Net income -- -- -- -- -- 4,180
Series B Common
Stock conversions
to Common Stock 3 (3) -- -- -- --
Stock issued for
Maguire acquisition 33 -- -- -- 129 --
Restricted stock
issued 4 -- -- -- 14 --
Treasury stock
purchases -- -- 208 1,260 -- --
Stock options
exercised 4 -- -- -- 17 --
- --------------------------------------------------------------------------------
Balance, Dec. 31, 1996 7,056 1,349 208 1,260 36,694 6,913
Net income -- -- -- -- -- 4,953
Series B Common
Stock conversions
to Common Stock 6 (6) -- -- -- --
Restricted stock
issued 3 -- -- -- 21 --
Issuance of
Treasury stock -- -- (1) (4) 2 --
Stock options
exercised 22 -- -- -- 102 --
Other -- -- -- -- 3 --
- --------------------------------------------------------------------------------
Balance, Dec. 31, 1997 7,087 1,343 207 1,256 36,822 11,866
Net income -- -- -- -- -- (2,419)
Series B Common
Stock conversions
to Common Stock 24 (24) -- -- -- --
Restricted stock
issued 4 -- -- -- 32 --
Treasury stock
purchases -- -- 96 800 -- --
Stock options
exercised 35 -- -- -- 148 --
- --------------------------------------------------------------------------------
Balance, Dec. 31, 1998 $7,150 $1,319 303 $2,056 $37,002 $ 9,447
================================================================================
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</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, and joint ventures over which it maintains control. All
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 majority of 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 principally recorded as costs are incurred. In the event that
legal costs are expected to be incurred in connection with defending the
Company's position related to claims or litigation on projects, such costs are
accrued at the time they are probable of being incurred and reasonably
estimable. 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 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, project-specific joint ventures based on the equity
method of accounting for investments. The Company's proportionate share of
majority-owned, project-specific 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.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand or deposit and other highly
liquid instruments with original maturities of three months or less. Any net
outstanding checks within banking institutions are reclassified as accounts
payable; such amount totaled $9,141,000 at December 31, 1998.
<PAGE>
Depreciation and Amortization
Depreciation on property, plant and equipment is recorded using straight-line
and accelerated methods over the estimated useful lives of the assets, which
range from 3 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 5 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
10 to 30 years.
Earnings Per Common Share
Basic and diluted net income per share computations are based upon 8,178,067
weighted average shares outstanding for 1998. Basic net income per share
computations are based upon weighted averages of 8,207,786 and 8,372,034 shares
outstanding for the years 1997 and 1996, respectively. Diluted net income per
share computations are based upon weighted averages of 8,299,083 and 8,382,592
shares outstanding for the years 1997 and 1996, respectively.
Reclassifications
Certain 1997 and 1996 financial statement amounts have been reclassified to
conform with 1998 classifications.
2. CONSTRUCTION CHARGES AND RESTRUCTURING
During the fourth quarter of 1998, the Company recorded losses related to the
CityWalk construction project being performed by Baker Mellon Stuart
Construction, Inc. ("BMSCI"), a wholly-owned subsidiary of the Company, for
Universal City Development Partners ("UCDP") at the Universal Studios theme park
in Orlando, Florida. This project involved the construction of a new entrance to
the park, which comprises a shopping area, restaurants and a large cineplex, and
represented BMSCI's largest active construction contract during 1998. Under this
contract, BMSCI acted as the construction manager and self-performed a portion
of the work.
Following its inception in May 1997, the project suffered delays because its
design and related drawings were changed substantially during the course of
construction. On March 5, 1999, BMSCI was terminated by UCDP from this project,
which was over 90% completed. UCDP alleges contract breaches related to the
quality of work, contract administration and delays in project completion and
seeks damages, including consequential damages related to project delays. Both
parties filed lawsuits in this matter during the first quarter of 1999. BMSCI
alleges unfair and deceptive trade practices, breach of implied warranty of
plans and specifications, breach of contract, wrongful termination, tortious
interference with business relationships, and breach of implied contract of good
faith and fair dealing, and seeks damages, interest, court costs, and further
relief. Certain subcontractors have also sued BMSCI and its surety, seeking
reimbursement for costs incurred and related damages. Additional claims and
litigation may be filed in connection with this matter.
The losses recorded by the Company related to this project in the fourth quarter
of 1998 totaled $10.9 million, and reflect costs incurred in excess of amounts
provided for in the contract, estimated legal costs to defend the Company's
position, the reversal of the cumulative gross profit totaling $1.1 million
recorded through the third quarter of 1998, and certain other costs related to
the termination. Through December 31, 1998, the Company has recorded adjusted
revenues totaling $76.9 million ($60.2 million during 1998), and had been paid
$67.0 million, in connection with this contract.
<PAGE>
As of March 5, 1999, the Company is aware of subcontractors' allegations, for
amounts in excess of $12 million, representing work performed for which they
have not been paid. Management and its counsel believe that under the provisions
of BMSCI's agreements with it subcontractors, it is not probable that BMSCI will
be required to make payments for such work to the subcontractors unless and
until BMSCI is paid by UCDP. The Company is also aware of material asserted and
unasserted claims by the subcontractors. In addition to the defenses described
below, the Company's experience indicates that subcontractor claims of these
types are often proven to be significantly in excess of amounts ultimately
recoverable.
BMSCI and its counsel believe it has valid claims against UCDP and defenses
against claims by both UCDP and the subcontractors, and BMSCI intends to defend
its position vigorously. No amounts have been accrued at December 31, 1998,
associated with the ultimate resolution of this matter in excess of the items
discussed above, since management and its counsel believe any such additional
costs are neither probable of payment nor reasonably estimable at this time.
The Company expects this matter to be resolved through a trial over a number of
years. It is reasonably possible that BMSCI may recover all or a portion of the
amounts expensed to date on this project. However, it is also reasonably
possible that there may be an unfavorable resolution with respect to the UCDP
litigation or the subcontractor allegations and claims; an unfavorable
resolution with respect to either matter, or both, could have a material adverse
effect on the Company's consolidated financial position, results of operations
and cash flows in a future period.
Other charges totaling $2.8 million were also recorded during the fourth quarter
of 1998 related to the settlement of construction-related litigation and charges
on other completed construction projects.
In connection with the foregoing, the Company has determined that it will no
longer participate in low-bid, high-risk construction projects for buildings or
transportation infrastructure. Accordingly, the general construction activities
of the Company's Buildings unit have been restructured, and the Company's
Transportation Construction (heavy and highway) business will be sold. Existing
low-bid, high-risk construction projects in the Buildings unit will be completed
or sold. Management initiated activities related to the sale of the heavy and
highway business during the second quarter of 1999. In connection with this
restructuring, the Company recorded a charge of $0.8 million during the first
quarter of 1999.
3. CONTRACTS
The total cost of contracts in progress (used to determine cost of work
performed) plus accumulated gross profit recorded was $1,007,668,000 and
$858,705,000 at December 31, 1998 and 1997, respectively. Billings to date on
contracts in progress at December 31, 1998 and 1997 were $994,829,000 and
$850,231,000, respectively.
Trade accounts receivable totaling $9,097,000 and $12,088,000 at December 31,
1998 and 1997, 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, 1998 is expected to be collected in 1999.
As of December 31, 1998 and 1997, accounts payable included amounts due to
subcontractors of $4,623,000 and $8,888,000, 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
<PAGE>
participates and the size, scope and duration of the projects vary between
periods. The Company's equity investment in these joint ventures was $2,028,000
and $1,737,000 at December 31, 1998 and 1997, 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.
4. BUSINESS SEGMENT INFORMATION
In 1998, the Company adopted Statement of Financial Accounting Standards No.
("SFAS") 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of
a Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
131 also requires disclosures about products and services, geographic areas, and
major customers. The adoption of SFAS 131 did not affect results of operations
or financial position but did affect the disclosure of the segment information
which follows.
The Company has five operating business units. The Buildings, Energy and
Environmental units each represent reportable segments under SFAS 131. The
Transportation and Civil units each comprise two reportable segments.
Accordingly, the Company has the following seven reportable segments:
o The Buildings unit has historically provided a variety of services
including design-build, construction management, planning, program
management, general contracting, architectural and interior design,
construction inspection and constructability reviews.
o The Civil unit includes two reportable segments. The Civil-Engineering
segment provides surveying, mapping, geographic information systems,
planning, design, construction management and total program management. The
Civil-Baker Support Services, Inc. ("BSSI") segment principally provides
operations and maintenance services on U.S. military bases.
o The Energy unit provides training, personnel recruitment, pre-operations
engineering, field operations and maintenance, mechanical equipment
maintenance and logistics management services for operating energy
production facilities.
o The Environmental unit provides environmental, health and safety related
engineering and consulting services in both the public and private markets.
o The Transportation unit includes two reportable segments. The
Transportation-Engineering segment provides planning, design, construction
management and inspection and management consulting services to highway,
toll road and transit agencies. The Transportation-Construction segment
acts as a general contractor for highways, bridges, track installation,
sewer, water and other civil construction projects.
<PAGE>
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates the
performance of its segments based on income before income taxes.
The following tables reflect disclosures required by SFAS 131 for the Company's
seven segments (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
================================================================================
Total contract revenues:
<S> <C> <C> <C>
Buildings unit $151.6 $126.4 $127.4
Civil unit:
Engineering 69.1 67.7 75.1
BSSI 61.8 50.5 34.3
Energy unit 68.6 54.8 43.2
Environmental unit 22.7 21.5 27.3
Transportation unit:
Engineering 72.3 62.0 50.8
Construction 75.2 63.5 60.3
- --------------------------------------------------------------------------------
Total $521.3 $446.4 $418.4
================================================================================
1998 1997 1996
================================================================================
Income/(loss) before taxes:
Buildings unit $(13.9) $ 0.9 $ 0.9
Civil unit:
Engineering 3.5 3.7 4.2
BSSI 0.1 -- (0.8)
Energy unit 4.0 2.3 2.3
Environmental unit 1.0 0.4 0.5
Transportation unit:
Engineering 2.9 1.0 2.3
Construction 0.7 0.6 (1.4)
- --------------------------------------------------------------------------------
Subtotal - segments (1.7) 8.9 8.0
Corporate/Insurance 0.4 0.4 --
- --------------------------------------------------------------------------------
Total $ (1.3) $ 9.3 $ 8.0
================================================================================
<PAGE>
1998 1997
================================================================================
Segment assets:
Buildings unit $ 30.5 $ 27.1
Civil unit:
Engineering 18.7 16.2
BSSI 15.6 15.5
Energy unit 27.9 23.5
Environmental unit 5.1 3.7
Transportation unit:
Engineering 21.7 17.7
Construction 20.6 20.2
- --------------------------------------------------------------------------------
Subtotal - segments 140.1 123.9
Corporate/Insurance 11.8 20.5
- --------------------------------------------------------------------------------
Total $151.9 $144.4
================================================================================
1998 1997 1996
================================================================================
Capital expenditures:
Buildings unit $ 0.3 $ 0.1 $ 0.5
Civil unit:
Engineering 1.4 0.6 0.5
BSSI 0.8 0.3 1.0
Energy unit 1.2 0.4 0.5
Environmental nit 0.2 -- --
Transportation unit:
Engineering 1.3 0.3 0.2
Construction 4.2 0.3 0.1
- --------------------------------------------------------------------------------
Subtotal - segments 9.4 2.0 2.8
Corporate 1.2 0.5 0.9
- --------------------------------------------------------------------------------
Total $ 10.6 $ 2.5 $ 3.7
================================================================================
1998 1997 1996
================================================================================
Depreciation and amortization:
Buildings unit $ 0.2 $ 0.2 $ 0.1
Civil unit:
Engineering 0.7 0.4 0.5
BSSI 0.6 0.5 0.4
Energy unit 1.1 1.2 1.1
Environmental unit 0.1 0.1 0.2
Transportation unit:
Engineering 0.6 0.5 0.5
Construction 0.7 0.5 1.0
- --------------------------------------------------------------------------------
Subtotal - segments 4.0 3.4 3.8
Corporate 1.0 1.1 1.1
- --------------------------------------------------------------------------------
Total $ 5.0 $ 4.5 $ 4.9
================================================================================
</TABLE>
<PAGE>
The Company has determined that the intersegment revenues, interest income and
expense, equity in the net income of investees accounted for by the equity
method and the amount of investment in equity method investees, by segment, are
immaterial for further disclosure in these financial statements.
The enterprise-wide disclosures required by SFAS 131 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
================================================================================
<S> <C> <C> <C>
Total contract revenues by type of service:
Engineering $178.4 $164.2 $175.1
Construction 212.4 176.9 165.9
Operations & Maintenance 130.5 105.3 77.4
- --------------------------------------------------------------------------------
Total $521.3 $446.4 $418.4
================================================================================
1998 1997 1996
================================================================================
Total contract revenues by geographic origin:
Domestic $475.2 $403.6 $367.2
Foreign 46.1 42.8 51.2
- --------------------------------------------------------------------------------
Total $521.3 $446.4 $418.4
================================================================================
1998 1997 1996
================================================================================
Total contract revenues by principal markets:
United States government 27.1% 23.8% 22.5%
Various state governmental
and quasi-governmental
agencies 34.4% 40.9% 46.6%
Commercial, industrial
and private clients 38.5% 35.3% 30.9%
================================================================================
</TABLE>
The Company's business is substantially conducted in the U.S. The aforementioned
contract with UCDP accounted for 11.5% of the Company's total contract revenues
in 1998. No individual contract accounted for more than 10% of the Company's
total contract revenues in 1997 or 1996.
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
================================================================================
<S> <C> <C>
Land $ 552 $ 552
Buildings and improvements 6,832 6,388
Equipment and vehicles 41,137 32,319
- --------------------------------------------------------------------------------
Total, at cost 48,521 39,259
Less - Accumulated depreciation 31,063 28,274
- --------------------------------------------------------------------------------
Net property, plant
and equipment $17,458 $10,985
================================================================================
</TABLE>
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
================================================================================
<S> <C> <C>
Goodwill, net of accumulated
amortization of $2,867,000 and
$2,437,000, respectively $ 6,091 $ 5,078
Other intangible assets, net of
accumulated amortization of
$2,344,000 and $1,817,000,
respectively 1,416 1,443
- --------------------------------------------------------------------------------
Net intangible assets $ 7,507 $ 6,521
================================================================================
</TABLE>
Effective October 1, 1998, the Company acquired all of the outstanding shares of
capital stock of GeoResearch, Inc. from its shareholder in a transaction
accounted for as a purchase. While this transaction is not considered material
for purposes of detailed disclosure, the Company recorded related intangible
assets totaling $1,943,000 during the fourth quarter of 1998.
7. LONG-TERM DEBT AND BORROWING AGREEMENTS
The Company has 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, 2001. The commitment includes the sum of the principal amount of
revolving credit loans outstanding and the aggregate face value of outstanding
letters of credit. As of December 31, 1998, no borrowings were outstanding;
however, letters of credit totaling $1,792,000 were outstanding under the
Agreement.
<PAGE>
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 maximum amount of borrowings outstanding under the Agreement during 1998 was
$6,974,000. For 1998, the average daily balance outstanding when the Company was
in a net borrowing position was $2,584,000 at a weighted average interest rate
of 8.0%. The proceeds of all loans under the Agreement were used to meet various
working capital requirements. The Company did not borrow under the Agreement
during 1997.
Other amounts totaling $3,961,000 included in other accrued expenses and
long-term debt in the accompanying Consolidated Balance Sheet represent amounts
due for construction equipment financed in 1998 as well as amounts due to the
former owner of GeoResearch, Inc. These notes and obligations mature as follows:
$823,000 in 1999, $627,000 in 2000, $954,000 in 2001, $915,000 in 2002, $370,000
in 2003, and $272,000 thereafter. The interest rates with respect to these notes
ranged from 4.44% to 7.75% as of December 31, 1998.
8. CAPITAL STOCK
In 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 1998, the
Company repurchased 96,379 treasury shares of Common Stock at market prices
ranging from $7.53 to $8.87 per share, for a total price of $800,000. 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 made no treasury share repurchases during 1997.
The Company's Common Stock is divided into two series, Common Stock and Series B
Common Stock. Each share of Common Stock entitles the holder thereof to one vote
on all matters submitted to the shareholders, and each share of Series B Common
Stock entitles the holder thereof to ten votes on all such matters.
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, 1998 and
1997, there were no shares of such Preferred Stock outstanding.
9. LEASE COMMITMENTS
Rent expense under noncancellable operating leases was $11,687,000 in 1998,
$10,364,000 in 1997 and $9,972,000 in 1996.
Minimum annual rentals payable under noncancellable operating leases in each of
the five years after December 31, 1998 are $11,220,000, $9,250,000, $6,529,000,
$3,241,000 and $894,000, respectively. These noncancellable leases relate to
office space, computer equipment, office equipment, construction equipment, and
vehicles, with lease terms ranging from one to 10 years.
<PAGE>
10. INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
================================================================================
<S> <C> <C> <C>
Current income taxes:
Federal $ 18 $ 1,401 $ (176)
State 246 139 --
Foreign 1,519 1,024 1,406
- --------------------------------------------------------------------------------
Total current
income taxes 1,783 2,564 1,230
- --------------------------------------------------------------------------------
Deferred income taxes:
Federal (799) 1,705 2,538
State 104 122 91
- --------------------------------------------------------------------------------
Total deferred
income taxes (695) 1,827 2,629
- --------------------------------------------------------------------------------
Total provision for
income taxes $ 1,088 $ 4,391 $ 3,859
================================================================================
</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>
1998 1997 1996
================================================================================
<S> <C> <C> <C>
Computed income
taxes at U.S. federal
statutory rate $ (453) $ 3,177 $ 2,733
Foreign taxes, net of
federal income tax
benefit 1,003 676 928
State income taxes,
net of federal income
tax benefit 225 172 61
Nondeductible charges 313 300 249
Other, net -- 66 (112)
- --------------------------------------------------------------------------------
Total provision for
income taxes $ 1,088 $ 4,391 $ 3,859
================================================================================
</TABLE>
The domestic and foreign components of income before income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
================================================================================
<S> <C> <C> <C>
Domestic $(4,203) $ 7,148 $ 3,530
Foreign 2,872 2,196 4,509
- --------------------------------------------------------------------------------
Total $(1,331) $ 9,344 $ 8,039
================================================================================
</TABLE>
<PAGE>
The components of the Company's deferred income tax assets and liabilities at
December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
================================================================================
<S> <C> <C>
Deferred income tax assets:
Deductible temporary differences:
Provision for expenses and losses $ 6,341 $ 2,763
Contract overbillings 666 705
Federal tax operating loss
carryforward -- 98
Accrued vacation pay 1,301 1,404
Fixed and intangible assets 852 795
Minimum tax credits 379 570
Charitable contribution carryforward 307 230
Other 135 197
- --------------------------------------------------------------------------------
Total deferred income tax assets 9,981 6,762
- --------------------------------------------------------------------------------
Deferred income tax liabilities:
Contract underbillings (7,507) (6,159)
Undistributed foreign earnings (1,494) (1,017)
- --------------------------------------------------------------------------------
Total deferred income liabilities (9,001) (7,176)
- --------------------------------------------------------------------------------
Net deferred tax asset/(liability) $ 980 $ (414)
================================================================================
</TABLE>
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, 1998.
11. 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 a certain deductible limit 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 by 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, except as discussed in
Note 2, 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.
<PAGE>
The Company currently has two significant legal proceedings outstanding. The
more significant of the two relates to BMSCI's construction contract with UCDP
(see related discussion in Note 2).
The other 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 accordance with the purchase agreement related to its 1998 acquisition of
GeoResearch, Inc., the Company agreed to pay the former owner, who has continued
as an employee of the Company, contingent consideration based on a formula tied
to the operating profit of the combined geospatial businesses, in excess of a
specified threshold, for the year ending December 31, 2001. The threshold
contemplates substantial growth in the combined businesses over the years 1999
through 2001. This contingent consideration payment cannot exceed $5.3 million.
Any such payment would serve to increase the goodwill associated with this
acquisition. It is currently uncertain whether any contingent consideration
payment will be required under the purchase agreement with GeoResearch, Inc.
At December 31, 1998, 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.
12. 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 effective January 1, 1999, the Company began matching 100%
of the first 5-1/2% of eligible salary contributed by participants. The
Company's matching contributions are invested not less than 25% in Michael Baker
Corporation Common Stock, with the remaining 75% being available to invest in
Baker Common Stock or mutual funds, as directed by the participants. From July
1, 1997 through December 31, 1998, the Company's matching contributions were not
permitted to be less than 50% invested in Baker 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 $4,312,000, $3,321,000 and $3,306,000 in 1998,
1997 and 1996, respectively.
<PAGE>
As of December 31, 1998, the market value of all ESOP investments was
$91,037,000, of which 40% represented the market value of the ESOP's investment
in Michael Baker Corporation Common Stock. The Company's ESOP held 44% of the
shares and 73% of the voting power for the outstanding Common Stock and Series B
Common Stock of the Company at the end of 1998.
13. STOCK OPTION PLANS
As of December 31, 1998, the Company has two fixed stock option plans. Under the
amended 1995 Stock Incentive Plan (the "Plan"), the Company may grant options
for an aggregate of 1,500,000 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. Options are
typically granted pursuant to an agreement with the employee, under which
one-fourth of the options granted become immediately vested, and the remaining
three-fourths vest in annual one-fourth increments under the Plan. The options
under the Directors' Plan are fully vested at the date of grant. Vested options
remain exercisable for a period of ten years from the grant date under both
plans. Under the Plan, the Company granted special options during 1998, which
vest in the year 2006, but whose vesting may be accelerated to the first quarter
of the year 2001 if the Company meets its pre-established earnings per share
goal for the year 2000.
Under the Directors Plan, each nonemployee director was issued 500 restricted
shares of Common Stock for a total of 3,500 and 4,500 shares of restricted stock
issued in 1998 and 1997, respectively. Restrictions on the shares expire two
years after the issue date.
The following table summarizes all stock option activity for both plans in 1998,
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
Options granted 402,397 $ 9.96
Options exercised (35,191) $ 5.20
Options forfeited (2,639) $ 6.46
- --------------------------------------------------------------------------------
Balance at December 31, 1998 705,581 $ 8.25
================================================================================
</TABLE>
The weighted average fair value of options granted during 1998, 1997 and 1996
was $5.37, $3.94 and $2.72, respectively.
<PAGE>
The following table summarizes information about stock options outstanding under
both plans as of December 31, 1998:
<TABLE>
<CAPTION>
Options Exercise Outstanding Average Exercisable
granted in price options life* options
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jan. 1995 $ 5.00 91,994 6.0 91,994
Feb. 1996 $ 4.81 43,518 7.2 31,227
May 1996 $ 5.03 5,000 7.4 5,000
Feb. 1997 $ 6.91 154,672 8.2 73,810
May 1997 $ 6.84 8,000 8.4 8,000
Feb. 1998 $ 9.53 113,366 9.2 28,336
Apr. 1998 $ 10.13 289,031 9.4 7,000
- --------------------------------------------------------------------------------
Total 705,581 8.2 245,367
================================================================================
<FN>
*Average life remaining in years
</FN>
</TABLE>
During 1996, the Company adopted 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 1998,
1997 or 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/(loss) amounts would have been $(2,669,000),
$4,725,000 and $4,077,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. The Company's pro forma diluted net income/(loss) per share would
have been $(0.33), $0.57 and $0.49 for the years ended December 31, 1998, 1997,
and 1996, 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 5.9%, weighted
average expected volatility of 49.4%, an expected option life of 6 years, and a
0% expected dividend yield.
<PAGE>
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the two years ended December 31, 1998:
<TABLE>
<CAPTION>
1998 - Three Months Ended
(In thousands) March 31 June 30 Sept. 30 Dec. 31*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total contract revenues $111,097 $127,118 $135,803 $147,253
Gross profit 12,244 15,742 15,764 3,494
Income before income tax 1,378 3,123 3,947 (9,779)
Net income/(loss) 730 1,655 2,093 (6,897)
Diluted net income/(loss)
per common share $ 0.09 $ 0.20 $ 0.25 $ (0.84)
================================================================================
<FN>
*Includes Buildings unit operating charges totaling $13.7 million (see Note 2).
</FN>
</TABLE>
<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 tax 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>
<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 (the Company) at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, 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.
As discussed in Note 2 and Note 11 to the consolidated financial statements, the
Company is involved in certain contingencies, the outcome of which cannot
presently be determined. Accordingly, no provision for any liability that may
result from these contingencies has been made in the accompanying consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
April 20, 1999
SUPPLEMENTAL FINANCIAL INFORMATION
Market Information - Common Shares
The principal market on which the Michael Baker Corporation Common Stock is
traded is the American Stock Exchange. High and low closing prices of the Common
Stock for each quarter during 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 10 1/2 10 1/2 9 1/2 10 3/8 7 11/16 7 3/8 10 5/8 11 5/8
Low 8 1/2 9 1/16 6 11/16 7 1/4 6 3/8 6 1/2 6 3/4 9
================================================================================
</TABLE>
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, 1998:
<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. International Pipeline Services, Inc. Delaware
15. Michael Baker International, Inc. Delaware
16. Baker GeoResearch, Inc. District of Columbia
17. Baker Engineering, Inc. Illinois
18. Michael Baker Jr. Company Nevada
19. Michael Baker Architects/Engineers, P.C. New Jersey
20. Baker Engineering NY, Inc. New York
21. Baker/MO Services, Inc. Texas
22. Baker Support Services, Inc. Texas
23. Vermont General Insurance Company Vermont
24. Michael Baker Barbados Ltd. Barbados
25. Baker O&M International, Ltd. Cayman Islands
26. Baker/OTS International, Inc. Cayman Islands
27. Overseas Technical Services (Middle East) Ltd. Cayman Islands
28. Michael Baker de Mexico, S.A. de C.V. Mexico
29. OTS International Training Services Ltd. United Kingdom
30. Overseas Technical Services (Harrow) Ltd. United Kingdom
31. Baker/OTS Ltd. United Kingdom
32. SD Forty Five Ltd. United Kingdom
33. Hanseatic Oilfield Services Ltd. Vanuatu
34. OTS Finance and Management Ltd. Vanuatu
35. Overseas Technical Services International Ltd. Vanuatu
</TABLE>
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; No. 333-05987; and No.
333-59941) of Michael Baker Corporation of our report dated April 20, 1999,
which appears within Exhibit 13.1 to Michael Baker Corporation's Annual Report
on Form 10-K for the year ended December 31, 1998.
/s/ PricewaterhouseCoopers, LLP
- -------------------------------
PricewaterhouseCoopers, LLP
Pittsburgh, Pennsylvania
April 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,014
<SECURITIES> 0
<RECEIVABLES> 82,672
<ALLOWANCES> 0
<INVENTORY> 22,407
<CURRENT-ASSETS> 120,285
<PP&E> 48,521
<DEPRECIATION> (31,063)
<TOTAL-ASSETS> 151,861
<CURRENT-LIABILITIES> 88,430
<BONDS> 3,138
0
0
<COMMON> 8,166
<OTHER-SE> 37,002
<TOTAL-LIABILITY-AND-EQUITY> 151,861
<SALES> 521,271
<TOTAL-REVENUES> 521,271
<CGS> 474,027
<TOTAL-COSTS> 474,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145
<INCOME-PRETAX> (1,331)
<INCOME-TAX> 1,088
<INCOME-CONTINUING> (2,419)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,419)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
