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, 1999
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
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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.
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The Registrant estimates that as of February 29, 2000, 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, 2,364,783
shares of Common Stock and 1,223,475 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 $27,643,362 for the Common Stock and $542,338 for the Series B Common Stock
(calculated for the Series B Common Stock on the basis of the shares of Common
Stock into which Series B Common Stock is convertible).
<PAGE>
As of February 29, 2000, the Registrant had outstanding 6,877,985 shares of its
Common Stock and 1,312,020 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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Financial Section of Annual Report to Shareholders
for the year ended December 31, 1999 I, II
Proxy Statement to be distributed in connection with
the 2000 Annual Meeting of Shareholders III
<PAGE>
NOTE WITH RESPECT TO FORWARD LOOKING STATEMENTS:
This Annual Report on Form 10-K, and in particular the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of
Exhibit 13.1 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,
changes in anticipated levels of government spending on infrastructure, and
changes in loan relationships or sources of financing. Such forward looking
statements are made pursuant to the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995.
<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, management and
operations services worldwide.
The Registrant is organized into the following five market-focused business
units: Buildings, Civil, Energy, Environmental and Transportation. Under the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," the Registrant's seven reportable segments include the Buildings,
Energy and Environmental units, plus 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 5 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 1999 by ENGINEERING NEWS RECORD
magazine, Baker ranked 42nd among U.S. design firms, 16th among water design
firms, 18th among transportation design firms, 132nd among international design
firms, 77th among global design firms, 71st among environmental firms, and 65th
among construction management-for-fee firms. Baker also ranked 191st among
government contractors according to a listing published in 1999 by GOVERNMENT
EXECUTIVE magazine. These rankings were based on 1998 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.
Effective in April 1999, following a significant 1998 loss on a construction
project in the Buildings unit, this unit was restructured such that all bidding
activity associated with its general construction operations was discontinued.
The Registrant's Buildings unit remained responsible for only one significant
general construction project at December 31, 1999. This project is expected to
be completed during the second quarter of 2000.
<PAGE>
Baker has placed increased emphasis on growing its construction
management-for-fee business, and will partner with contractors to pursue larger
design-build contracts in the buildings market. The facilities planning and
design division of the Buildings unit continues to operate as it did prior to
the restructuring.
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
Engineering division provides services which include surveying, mapping,
geographic information systems, 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 smaller 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. A risk attendant to
the international operations of this unit is further described 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.
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 1999. 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 has historically acted as a general
contractor for highways, bridges, track installation, sewer, water and other
heavy civil construction projects. The primary customers for this division have
been the same as the Engineering division, but more geographically centered in
Pennsylvania, Illinois, New York and Florida.
At the time of the previously mentioned restructuring of the Buildings unit in
April 1999, the Registrant also announced that its heavy and highway
construction business would be sold. In March 2000, certain assets of this
business, including substantially all fixed assets and the remaining contractual
<PAGE>
rights and obligations associated with eight active construction projects, were
sold to A&L, Inc. ("A&L"). As a result of the sale, the Registrant remains
responsible for only four significant heavy and highway construction projects,
all of which are scheduled for completion by the end of the third quarter of
2000. These remaining projects are being managed for the Registrant by A&L.
The Transportation-Engineering division continues to operate as it has in prior
years and expects to continue to benefit from the U.S. government's federal
transportation (TEA-21) legislation signed during 1998. This division intends to
partner with other contractors to pursue selected design-build contracts, which
are becoming a growing project delivery method within the transportation
marketplace.
DOMESTIC AND FOREIGN OPERATIONS
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For the years ended December 31, 1999, 1998 and 1997, approximately 90%, 91% and
90% of the Registrant's total contract revenues, respectively, were derived from
work performed within the United States. Further financial information regarding
the Registrant's domestic and foreign operations is contained in Notes 5 and 12
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 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 $365 million at
December 31, 1999 and $448 million at December 31, 1998. Total backlog, which
incrementally includes that portion of contract value for which options are
still to be exercised (unfunded backlog), was $657 million at December 31, 1999
and $735 million at December 31, 1998. With reference to the Registrant's 1999
restructuring, funded backlog related to the businesses that will be continued
by the Registrant was $316 million and $300 million, and total backlog was $608
million and $587 million, as of year-end 1999 and 1998, respectively.
There is not necessarily a direct correlation between the Registrant's backlog
amounts and its annual total contract revenues. Further, the Registrant's
backlog amounts do not represent a guarantee of future revenues or results of
operations. 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.
<PAGE>
SIGNIFICANT CUSTOMERS
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Contracts with various branches of the U.S. government accounted for 21%, 27%
and 24% of the Registrant's total contract revenues for the years ended December
31, 1999, 1998 and 1997, respectively. No individual contract accounted for more
than 10% of the Registrant's total contract revenues in 1999 or 1997; however,
several contracts with the Pennsylvania Department of Transportation provided
11% of the Company's total contract revenues for 1999. An individual Buildings
unit construction contract with Universal City Development Partners ("UCDP")
accounted for 12% of the Registrant's total contract revenues in 1998, which
contract was terminated resulting in litigation. A description of this
litigation is described in Item 3, and 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.
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. Most private and public-sector contracts for professional services are
awarded on a negotiated basis.
The Registrant believes that the principal competitive factors (in various
orders of importance) in the areas of services it offers are quality of service,
reputation, experience, technical proficiency and cost of service. The
Registrant believes that it is well positioned to compete effectively by
emphasizing the quality of services it offers and its widely known reputation in
providing engineering, management and operations services.
SEASONALITY
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Based upon the Registrant's experience, total contract revenues and net income
from construction-related services, and to a lesser extent its engineering
services, have historically been 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. Going forward, given
the discontinuance of all general construction operations, seasonality is
expected to have less of an impact on the Registrant's quarterly results of
operations.
<PAGE>
PERSONNEL
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At December 31, 1999, the Registrant had approximately 3,954 employees, broken
down by business unit as follows:
Buildings unit-138 Environmental unit-156
Civil unit-1,532 Transportation unit-1,079
Energy unit-1,022 Corporate staff-27
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. During 2000, two 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
167,000 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 and Buildings units. The Beaver County
building and property are currently for sale, and are not subject to any
encumbrances. Upon any such sale, the Registrant would expect to either continue
leasing this building from the new owner or relocate the affected employees.
The Registrant leases an aggregate of approximately 476,000 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 64,000 square feet in:
Alexandria, Virginia Coraopolis, Pennsylvania
Annapolis, Maryland Rocky Hill, Connecticut
Chicago, Illinois
The Civil unit leases approximately 130,000 square feet in:
Alexandria, Virginia Frederick, Maryland
Anchorage, Alaska Jackson, Mississippi
Annapolis, Maryland Mexico City, Mexico
Coraopolis, Pennsylvania Phoenix, Arizona
Dallas, Texas Rocky Hill, Connecticut
Elmsford, New York Virginia Beach, Virginia
Fairbanks, Alaska
The Energy unit leases approximately 38,000 square feet in:
Abu Dhabi, United Arab Emirates Lafayette, Louisiana
Houston, Texas Middlesex, United Kingdom
<PAGE>
The Environmental unit leases approximately 46,000 square feet in:
Annapolis, Maryland Merrillville, Indiana
Coraopolis, Pennsylvania Princeton, New Jersey
The Transportation unit leases approximately 182,000 square feet in:
Alexandria, Virginia Harrisburg, Pennsylvania
Annapolis, Maryland Horsham, Pennsylvania
Birmingham, Alabama Philadelphia, Pennsylvania
Brooklyn, New York Phoenix, Arizona
Chicago, Illinois Princeton, New Jersey
Cleveland, Ohio Richmond, Virginia
Columbus, Ohio Rocky Hill, Connecticut
Coraopolis, Pennsylvania Salt Lake City, UT
Cross Lanes, West Virginia Shreveport, Louisiana
Elmsford, New York Tampa, Florida
Gibsonia, Pennsylvania Virginia Beach, Virginia
Greensboro, North Carolina White Hall, Arkansas
The Registrant also leases approximately 16,000 square feet of space in Beaver
and Coraopolis, Pennsylvania, for use by its Corporate staff.
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,
management believes that the Registrant has recognized adequate provisions for
probable and reasonably estimable liabilities associated with these proceedings,
and that 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 is a party to two material legal proceedings. The more
significant proceeding 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 UCDP. Under the contract, BMSCI provided
project-related construction services to UCDP. During BMSCI's performance under
the contract, which began in 1997, the project suffered delays and performance
issues arose.
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 against BMSCI for breach
of contract in the Federal District Court in the Middle District of Florida
("Federal Court"). On October 26, 1999, the Court granted UCDP's Motion to add
the Company and its bonding company as additional defendants. The Company was
not a party to the contract underlying the lawsuit and contends it cannot be
held liable for any conduct of the subsidiary. BMSCI and the Company are
vigorously defending this 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. This action was voluntarily
dismissed on July 6, 1999, and BMSCI pursued its claims against UCDP by way of
counterclaims filed in UCDP's Federal Court action. The Federal Court ordered
mediation of this matter to occur.
On March 22, 2000, mediation of this matter resulted in a conditional settlement
agreement being entered into by the Registrant; BMSCI; Travelers Casualty and
<PAGE>
Surety Company of America ("Travelers"), which provided performance and payment
bonds on behalf of BMSCI; UCDP; Hellmuth, Obata & Kassabaum, Inc., which
designed the project; and the court-appointed mediator. Pursuant to the terms of
the settlement agreement, the parties resolved the claims between them, and
BMSCI agreed to pay UCDP $2.0 million. BMSCI remains responsible for resolution
of all remaining subcontractor and vendor claims, the most significant of which
is the subject of a suit brought by ADF International, Inc. ("ADF"), BMSCI's
subcontractor for structural steel and miscellaneous metals, against BMSCI and
Travelers. The conditional settlement agreement is subject to and conditioned
upon acceptance and signature by the Project Policy Insurer not later than March
31, 2000.
On November 24, 1998, ADF filed suit in Federal Court against BMSCI and
Travelers seeking damages for alleged breaches of contract relating to the
project. BMSCI and its surety answered the complaint (and amended complaint) and
BMSCI filed a counterclaim. BMSCI and its counsel believe it has valid claims
against ADF and defenses to claims by ADF. BMSCI intends to pursue and defend
these claims vigorously. BMSCI further intends to engage in negotiations to
settle all other subcontractor and vendor claims. The Registrant believes it has
made adequate provisions for all subcontractor and vendor claims, including ADF,
in its 1999 consolidated financial statements.
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 1999.
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EXECUTIVE OFFICERS OF THE REGISTRANT
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The following represents a listing of executive officers of the Registrant as of
December 31, 1999.
RICHARD L. SHAW - Age 72; Chief Executive Officer of the Registrant since
September 1999, and previously President and Chief Executive Officer from 1993
through 1994 and from 1984 through 1992; Chairman of the Board of the Registrant
since 1992 and a Director since 1966. Mr. Shaw has been with the Registrant
since 1952 serving in various capacities.
DONALD P. FUSILLI, JR. - Age 49; Executive Vice President of the Registrant
since 1991 and President of Baker/MO Services, Inc., a subsidiary of the
Registrant, since 1995. Mr. Fusilli was named President and Chief Operating
Officer of the Registrant in March 2000. 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.
J. ROBERT WHITE - Age 57; Executive Vice President, Chief Financial Officer,
Treasurer and a Director of the Registrant from 1994 until his resignation in
March 2000. Prior to joining the Registrant, Mr. White served 21 years in
various capacities with Westinghouse Electric Corp., most recently as Assistant
Director of Investor Relations from 1989 through 1994.
H. JAMES MCKNIGHT - Age 55; 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.
JOHN C. HAYWARD - Age 52; 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 49; 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 through 1996. Mr. Shucet has been employed by the Registrant in
various capacities since 1989.
EDWARD L. WILEY - Age 56; Executive Vice President of the Registrant since 1995
and Executive Vice President of Michael Baker Jr., Inc. since 1994. Mr. Wiley
previously served as Senior Vice President of Michael Baker Jr., Inc. from 1989
through 1994. He has been employed by the Registrant in various capacities since
1968.
Executive officers of the Registrant serve at the pleasure of the Board of
Directors and are elected by the Board or appointed annually for a term of
office extending through the election or appointment of their successors.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
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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 February 29, 2000, the Registrant had 1,388 holders of its Common Stock and
647 holders of its Series B Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
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A summary of selected financial data for the Registrant, including each of the
last five fiscal years for the period ended December 31, 1999, is set forth in
the "Selected Financial Data" section of Exhibit 13.1 to this Form 10-K. Such
summary is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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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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The Registrant's primary interest rate risk relates to its long-term debt
obligations. As of December 31, 1999 and 1998, the Registrant had total
long-term debt obligations, including the current portion of those obligations,
totaling $18.4 million and $4.0 million, respectively. Of these amounts, fixed
rate obligations totaled $2.7 million and $3.3 million, and variable rate
obligations totaled $15.7 million and $0.7 million, as of December 31, 1999 and
1998, respectively. The 1999 increases in these debt amounts relate to
borrowings under the Registrant's credit agreement with Mellon Bank, N.A. and
debt related to its 1999 acquisition of Steen Production Service, Inc. Assuming
a 10% increase in interest rates on the Registrant's variable rate obligations
(i.e., an increase from the actual weighted average interest rates of 8.50% and
7.75%, to weighted average interest rates of 9.35% and 8.53%, as of December 31,
1999 and 1998, respectively), annual interest expense would have been
approximately $134,000 higher in 1999 and only $6,000 higher in 1998 based on
the respective year-end outstanding balances of variable rate obligations. The
Registrant has no interest rate swap or exchange agreements.
Less than 1% of the Registrant's total assets and total contract revenues as of
and for the periods ended December 31, 1999 and 1998 were denominated in
currencies other than the U.S. Dollar; accordingly, the Registrant has no
material exposure to foreign currency exchange risk. This materiality assessment
is based on the assumption that the foreign currency exchange rates could change
unfavorably by 10%. The Registrant has no foreign currency exchange contracts.
<PAGE>
Based on the nature of the Registrant's business, it has no direct exposure to
commodity price risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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The consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP, dated March 29, 2000, and supplementary financial
information are set forth within Exhibit 13.1 to this Form 10-K. Such financial
statements and supplementary financial information are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
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Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Information relating to the Directors of the Registrant appears beneath the
caption "Election of Directors" in the Registrant's definitive Proxy Statement
which will be distributed in connection with the 2000 Annual Meeting of
Shareholders and which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A. Information relating to compliance with Section
16(a) of the Securities Exchange Act of 1934 appears beneath the caption
"Directors and Officers" of such Proxy Statement. Such information is
incorporated herein by reference. Information relating to the executive officers
of the Registrant is set forth in Part I of this Report under the caption
"Executive Officers of the Registrant." Such information is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information relating to executive compensation appears beneath the caption
"Directors and Officers" in the Registrant's definitive Proxy Statement which
will be distributed in connection with the 2000 Annual Meeting of Shareholders
and which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Information relating to the ownership of equity securities by beneficial owners
of 5% or more of the common stock of the Registrant and by management has been
set forth under the caption "Stock Ownership of Certain Beneficial Owners and
Management" in the Registrant's definitive Proxy Statement which will be
distributed in connection with the 2000 Annual Meeting of Shareholders and which
will be filed with the Securities and Exchange Commission pursuant to Regulation
14A. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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Information concerning certain relationships and transactions between the
Registrant and its directors and officers appears beneath the caption "Directors
and Officers" in the Registrant's definitive Proxy Statement which will be
distributed in connection with its 2000 Annual Meeting of Shareholders and which
will be filed with the Securities and Exchange Commission pursuant to Regulation
14A. Such information is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a)(1) The following financial statements are incorporated in Item 8 of Part II
of this Report by reference to the consolidated financial statements within
Exhibit 13.1 to this Form 10-K:
Consolidated Statements of Income for the three years ended
December 31, 1999
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the three years ended
December 31, 1999
Consolidated Statements of Shareholders' Investment for the three
years ended December 31, 1999
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.
4.1 Rights Agreement dated November 16, 1999, between the Registrant
and American Stock Transfer and Trust Company, as Rights Agent,
filed as Exhibit 4.1 to the Registrant's Current Report on Form
8-K dated November 16, 1999, and incorporated herein by
reference.
10.1 1999 Incentive Compensation Plan of Michael Baker Corporation,
filed herewith.
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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.
10.2(b) Supplemental Employment Agreement No. 5 dated as of September 7,
1999, by and between the Registrant and Richard L. Shaw, filed
herewith.
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.
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 as Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by reference.
10.5 Michael Baker Corporation 1996 Nonemployee Directors' Stock
Incentive Plan, filed as Exhibit A to the Registrant's definitive
Proxy Statement with respect to its 1996 Annual Meeting of
Shareholders, and incorporated herein by reference.
13.1 Selected Financial Data, Management's Discussion and Analysis of
Financial Condition and Results of Operations, Consolidated
Financial Statements as of December 31, 1999 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, 1999.
21.1 Subsidiaries of the Registrant, filed herewith.
23.1 Consent of Independent Accountants, filed herewith.
</TABLE>
<PAGE>
(b) On September 15, 1999, the Registrant filed a Current Report on Form 8-K, in
which it reported in Item 2 its acquisition of Steen Production Service, Inc.
("Steen"), which became effective September 1, 1999. The financial information
required by Item 7 was not included with this filing.
During the quarter ended December 31, 1999, the Registrant filed a Form 8-K/A
amendment to the above Form 8-K filing. Such Form 8-K/A contained the financial
information required by Item 7 in connection with the acquisition of Steen, as
discussed in Note 3 to the consolidated financial statements included within
Exhibit 13.1 to this Form 10-K.
In addition, on November 16, 1999, the Registrant filed a Current Report on Form
8-K, in which it reported in Item 5 its adoption of a Rights Agreement, dated as
of November 16, 1999, between the Registrant and American Stock Transfer and
Trust Company. The Rights Agreement allows for the distribution of one right for
each outstanding share of common stock, par value $1.00 per share, of the
Registrant to shareholders of record at the close of business on November 30,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MICHAEL BAKER CORPORATION
Dated: March 30, 2000 By: /s/ Richard L. Shaw
-------------------
Richard L. Shaw
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 and March 30, 2000
- ---------------------------- and Chief Executive Officer
Richard L. Shaw
/s/ Donald P. Fusilli, Jr. President and Chief Operating March 30, 2000
- ---------------------------- Officer
Donald P. Fusilli, Jr.
/s/ Craig O. Stuver Vice President and Corporate March 30, 2000
- ---------------------------- Controller (Principal Financial
Craig O. Stuver and Accounting Officer)
/s/ Robert N. Bontempo Director March 30, 2000
- ----------------------------
Robert N. Bontempo
/s/ Nicholas P. Constantakis Director March 30, 2000
- ----------------------------
Nicholas P. Constantakis
Director March 30, 2000
- ----------------------------
William J. Copeland
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Roy V. Gavert, Jr. Director March 30, 2000
- ----------------------------
Roy V. Gavert, Jr.
Director March 30, 2000
- ----------------------------
Thomas D. Larson
Director March 30, 2000
- ----------------------------
John E. Murray, Jr.
/s/ Konrad M. Weis Director March 30, 2000
- -----------------------------
Konrad M. Weis
Exhibit 10.1
1999 INCENTIVE COMPENSATION PLAN
MICHAEL BAKER CORPORATION
<PAGE>
INDEX
-----
ARTICLE I - GENERAL
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 AND TERMINATION
7.4 INDEMNIFICATION
7.5 BENEFICIARY DESIGNATION
7.6 RIGHTS OF PARTICIPANTS
7.7 GOVERNING LAW
7.8 EFFECTIVE DATE
EXECUTION PAGE
<PAGE>
INDEX
-----
1999 INCENTIVE COMPENSATION PLAN - ATTACHMENT 1
ELIGIBILITY
OPPORTUNITY
PERFORMANCE MEASUREMENT
PERFORMANCE GOALS
POTENTIAL PAYOUT (PERCENTAGE OF ANNUAL SALARY)
THRESHOLD
TYPE OF PAYOUT
FREQUENCY OF PAYOUT
FUNDING
FORFEITURES
<PAGE>
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 1999
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 salary reported during a Plan Year to a
participant while participating in the Plan. Base 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, per diem payments, 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. - "Eligibility".
(g) "Participant" shall mean an Employee who is approved by the Committee for
participation in the Plan for a specified Plan Year as defined in 3.2 -
"Participation".
(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 the operating units of: Buildings, Civil,
Energy, Environmental and Transportation, and any other Business Unit added
during the year.
(k) "Business Segment" shall mean Business Unit segments of: Buildings-Design,
Buildings- Construction, Civil-Engineering, Civil-Baker Support Services,
Inc., Energy-Baker/MO, Energy-OTS, Transportation-Engineering and
Transportation-Construction (Heavy & Highway) and any other Business
Segment added during the year.
<PAGE>
(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),
Intercompany insurance premiums/overhead (VGIC), and internal interest
expense (VGIC).
Engineering Segment Level -- Income before income taxes Corporate overhead,
Business unit overhead, Engineering Support Overhead, Intercompany
insurance premiums/overhead (VGIC), and internal interest expense (VGIC).
Non-Engineering Segment Level -- Income before income taxes plus Corporate
overhead, Business unit overhead, Intercompany insurance premiums/overhead
(VGIC) and internal interest expense (VGIC).
IN MEASURING THE RESULTS OF CONTRIBUTION TO CORPORATE OVERHEAD AND PROFIT,
"MEETS EXPECTATIONS" IS ESTABLISHED AT 90% OF OBJECTIVE, "EXCEEDS
EXPECTATIONS" IS ESTABLISHED AT 100% OF OBJECTIVE AND "FAR EXCEEDS
EXPECTATIONS" IS ESTABLISHED AT 110% OF OBJECTIVE. WHEN POSSIBLE, THE
MINIMUM SPREAD OF $250,000 WILL BE USED TO SEPARATE THE LEVELS OF
MEASUREMENT.
(m) "New work added" (NWA) shall mean and be determined in the following
manner:
FORMULA: CURRENT PLAN YEAR BACKLOG MINUS THE IMMEDIATE PREVIOUS PLAN YEAR
BACKLOG PLUS ACTUAL CURRENT PLAN YEAR REVENUES. NWA IS BASED UPON FUNDED
BACKLOG.
IN CALCULATING NWA AT THE END OF THE YEAR FOR THE ENGINEERING GROUPS, THE
GREATER OF THE "MASTER" OR "TASK" MAY BE USED TO DETERMINE PERFORMANCE
AGAINST GOAL, WHICH PROVIDES FULL PROJECT CREDIT FOR THE ENTITY WHICH OWNS
THE JOB. OTHER GROUPS THAT GAIN WORKLOAD FROM "IMPORTING" WORK FROM OTHER
DEPARTMENTS CAN ALSO USE THE GREATER OF "MASTER" OR "TASK" IF IT IS
BENEFICIAL TO THE OVERALL PERFORMANCE RESULTS.
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.
<PAGE>
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 5.2 - "Plan Funding")
Participants are to include executive management, business unit managers, and
selected managers who are accountable for significant contributions to
Corporate, as determined by the CEO, and to the Business Unit, as determined by
the Business Unit head. Participants are to be designated as having
accountability associated with Corporate, overall Business Unit or specific
Business Segment performance. Participants are to be designated as having Tier 1
or Tier 2 accountability as defined in an attachment to the Plan.
3.3 PARTIAL PLAN YEAR PARTICIPATION:
An Employee who becomes eligible after the beginning of a Plan Year may
participate in the Plan for that Plan Year. Such situations may include, but are
not limited to (i) new hires, (ii) when an Employee is promoted from a position
which did not meet the eligibility criteria, (iii) when an Employee is
transferred from an affiliate which does not participate in the Plan, or (iv)
when job responsibilities become consistent with other Plan participants.
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.
An Employee is not eligible to receive any payout from the Plan under the
following conditions:
a) Separation from employment prior to July 1 of the Plan year for any reason;
b) Termination for cause or voluntary resignation from the Company at any time
during the Plan Year;
c) TERMINATION FOR CAUSE OR VOLUNTARY RESIGNATION FROM THE COMPANY AFTER THE
PLAN YEAR BUT PRIOR TO INCENTIVE PLAN PAYMENT DISTRIBUTION (MARCH 15).
An Employee who leaves the employment of the Company after June 30 of the Plan
Year as a result of Reduction In Force, Divestiture or any other business reason
outside of the Employee's control is eligible to receive a pro-rata payout from
the Plan for that year based upon the percent of the fiscal year employed.
<PAGE>
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, and Individual performance plan
accomplishments.
4.2 INDIVIDUAL PERFORMANCE CRITERIA
In order for an individual to be eligible for any portion of an incentive
compensation payout, they must receive an overall "3.0" or "Meets Expectations"
on the values/work standards portion of 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. A Participant
must receive a "2.6" or greater on the performance plan in order to be eligible
for the individual segment of the payout. Participants who do not meet the "2.6"
or greater on the performance plan may still be eligible for the
corporate/business unit portions of the payout, predicated on the "3.0" overall
rating on the annual performance review form.
4.3 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 1999, 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- "Business
Segment Performance and 4.6 - "Individual Performance".
For 1999, performance level goals for earnings per share are:
<TABLE>
<CAPTION>
Corporate
Performance Goal Setting
Level (Earnings Per Share)
----- --------------------
<S> <C>
LEVEL 1 ON PLAN $ .81
LEVEL 2 COMMENDABLE $ .90
LEVEL 3 OUTSTANDING $ .99
</TABLE>
4.4 BUSINESS UNIT PERFORMANCE MEASURES:
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 "Meets Expectations",
"Exceeds Expectations", and "Far Exceeds Expectations" goals specific to each
<PAGE>
Business Unit at the beginning of the Plan year. The "Meets Expectations" 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 "Meets Expectations" 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 "Meets Expectations", "Exceeds Expectations", and "Far
Exceeds Expectations" goals and is not to be pro-rated.
Any Business Unit with an objective of a positive contribution performance (net
income before tax plus corporate overhead) which results in a year-end negative
contribution, may be eligible for the portion of incentive compensation
dependent on overall corporate earnings per share performance, pending CEO
approval as advised by the Incentive Compensation Committee. Any Business Unit
with an objective of a NEGATIVE contribution performance (net income before tax
plus corporate overhead) which results in a year-end more negative contribution,
may be eligible for the portion of incentive compensation dependent on overall
corporate earnings per share performance, pending CEO approval as advised by the
Incentive Compensation Committee. Factors to be taken into consideration may
include the amount of deviation from objective, impact of the contribution of
the Business Unit to the Corporation and any extraordinary issues. Any Business
Unit with an objective of a NEGATIVE contribution which results in a year-end
more favorable performance, will be eligible for the portion of incentive
compensation dependent on overall corporate performance.
4.5 BUSINESS SEGMENT PERFORMANCE MEASURES:
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 "Meets Expectations", "Exceeds
Expectations", and "Far Exceeds Expectations" goals specific to each Business
Segment at the beginning of the Plan year. The "Meets Expectations" 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 MEASURES AND GOALS:
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>
Individual level payouts for participants meeting individual performance goals
in the Corporate category will occur when the Earnings Per Share threshold is
achieved. Individual level payouts for participants meeting individual
performance goals in the Business Unit category will occur when Business Unit
operating profit accomplishes threshold performance. (after all individual
incentives have been paid). Individual level payouts for participants meeting
individual performance goals in the Business Segment category will occur when
Business Segment operating profit accomplishes threshold performance. (after all
individual incentives have been paid).
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 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.
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. THE DISCRETIONARY AWARD
POOL WILL EQUAL 15% OF THE ICP PAYOUT FOR THE COMPANY. 12% OF THE DISCRETIONARY
FUNDS WILL BE ALLOCATED PROPORTIONATELY TO EACH BUSINESS UNIT BASED UPON THE
UNIT'S RELATIVE CONTRIBUTION TO CORPORATE PROFITABILITY. 3% OF THE DISCRETIONARY
FUNDS WILL BE AVAILABLE FOR CORPORATE-WIDE DISTRIBUTION AND DETERMINED BY THE
CEO OF THE COMPANY.
<PAGE>
ARTICLE V
PAYMENT OF AWARDS
- -----------------
5.1 PAYMENT OF AWARDS:
At the end of each Plan Year, the CEO shall report the overall Corporate,
Business Unit, Business Segment and individual performance levels to the
Compensation Committee of the Board of Directors, who shall then approve the
payment of awards.
The incentive compensation earned as a result of the Company achieving corporate
profitability goals and through the achievement of Business Unit, Business
Segment and individual goals, will be paid in cash no later than March 15 of the
year after which it was earned.
5.2 PLAN FUNDING:
Accrual for the Incentive Compensation Plan will be established annually by the
Committee, subject to the approval of the CEO. The approved accrual for the
Incentive Compensation Plan shall pre-fund the amounts available to be earned
for incentive compensation distributions. Any forfeitures associated with the
termination of those in the incentive compensation plan prior to year-end will
be allocated toward the funding of the incentive pool for the following year. In
addition, if the incentive pool is not paid out in full because of Business
Unit, Business Segment or participants' failure to achieve goals established
under the Plan or the Performance Management Process, the unearned portion would
be allocated toward the funding of the incentive pool for the following year.
Any excess pre-funding accrual based upon corporate goals which are not met and,
therefore, not earned by Incentive Compensation Plan participants, will be
removed from expense.
<PAGE>
ARTICLE VI
CHANGE IN CONTROL
- -----------------
6.1 CHANGE IN CONTROL:
In the event of a Change in Control of the Company, as defined below, a
Participant shall be entitled to, for the Plan Year in which the Change of
Control occurs, the award determined using:
(i) The Participant's actual Base Salary rate in effect on the date of the
Change in Control,
(ii) Actual Corporate performance results to the date of Change in Control,
and
(iii) Participant's Individual Performance results.
The Committee as constituted immediately prior to the Change in Control shall
determine how actual Corporate performance should be measured for purposes of
the award calculation in 6.1. The Committee's determination shall be conclusive
and final.
Awards and any previously accrued awards shall be paid in cash to the
Participant promptly following any discontinuance of the Plan on or after a
Change of Control.
6.2 DEFINITION OF CHANGE IN CONTROL:
A "Change in Control" will be deemed to have occurred on the first to occur of
the following:
(a) The Company acquires actual knowledge that any Person other than the
Company, a Subsidiary, the Company's Stock Ownership Plan and Trust or any
employee benefit plan(s) sponsored by the Company has acquired the
Beneficial Ownership, directly or indirectly, of securities of the Company
entitling such Person to 20% or more of the Voting Power of the Company;
(b) A Tender Offer is made to acquire securities of the Company entitling the
holders thereof to 20% or more of the Voting Power of the Company; or
(c) A solicitation subject to Rule 14a-11 under the 1934 Act (or any successor
Rule) relating to the election or removal of 50% or more of the members of
any class of the Board shall be made by any person other than the Company
or less than 51% of the members of the Board shall be Continuing Directors;
or
(d) The shareholders of the Company shall approve a merger, consolidation,
share exchange, division or sale or other disposition of assets of the
Company as a result of which the shareholders of the Company immediately
prior to such transaction shall not hold, directly or indirectly,
immediately following such transaction a majority of the Voting Power of
(i) in the case of a merger or consolidation, the surviving or resulting
corporation, (ii) in the case of a share exchange, the acquiring
corporation or (iii) in the case of a division or a sale or other
disposition of assets, each surviving, resulting or acquiring corporation
which, immediately following the transaction, holds more than 10% of the
consolidated assets of the Company immediately prior to the transaction.
<PAGE>
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 AND TERMINATION:
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 AFFECT THE RIGHT OF
A PARTICIPANT (OR HIS BENEFICIARY AS THE CASE MAY BE) TO AN EARNED BUT UNPAID
DISTRIBUTION IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN THIS PLAN.
7.4 INDEMNIFICATION:
Each person who is or shall have been a member of the Committee or the Board or
who is or shall have been an Employee of the Company shall be indemnified and
held harmless by the Company against and from any loss, cost, liability, or
expense, including, without limitation, fees and expenses of legal counsel, that
may have been imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may be a party
or in which he may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of any judgment in any such action, suit, or proceeding against him provided he
shall give the Company an opportunity, as its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such person may be entitled under the Company's
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
7.5 BENEFICIARY DESIGNATION:
Each Participant under the Plan may name, from time to time, beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he receives any
or all of such benefit. Each designation will revoke all prior designations by
the same Participant, shall be in a form prescribed by the Company, and will be
effective only when filed by the Participant in writing with the Company during
<PAGE>
his lifetime. In the absence of any such designation, or if the designated
beneficiary is no longer living, benefits shall be paid to the surviving
member(s) of the following classes of beneficiaries, with preference for classes
in the order listed below:
(a) Participant's spouse (unless the parties were divorced or legally separated
by court decree);
(b) Participant's children (including children by adoption); or
(c) Participant's executor or administrator.
Payment of benefits shall be made exclusively to the member(s) of the first
class, in the order listed above, which has surviving member(s). If that class
have more than one member, benefit payment shall be made in equal shares among
members of that class.
7.6 RIGHTS OF PARTICIPANTS:
Nothing in this Plan shall interfere with or limit in any way the right of the
Company to terminate or change a Participant's employment at any time, nor
confer upon any Participant, any right to continue in the employment of the
Company for any period of time or to continue his present or any other rate of
compensation. No Participant in a previous Plan Year, or other Employee at any
time, shall have a right to be selected for participation in a current or future
Plan Year.
7.7 GOVERNING LAW:
The Plan shall be construed in accordance with and governed by the laws of the
State of Pennsylvania.
7.8 EFFECTIVE DATE:
The Plan shall be deemed effective as of January 1, 1999.
<PAGE>
EXECUTION PAGE
IN WITNESS WHEREOF, THE COMPANY HAS CAUSED THIS PLAN, EFFECTIVE AS OF THE
EFFECTIVE DATE TO BE EXECUTED BY ITS DULY AUTHORIZED OFFICER THIS 26TH DAY OF
MAY, 1999.
MICHAEL BAKER CORPORATION
APPROVED /s/ CHARLES I. HOMAN
-----------------------------------------
CHARLES I. HOMAN, CHIEF EXECUTIVE OFFICER
EFFECTIVE DATE JANUARY 1, 1999
-----------------------------------------
<PAGE>
1999 MICHAEL BAKER CORPORATION INCENTIVE COMPENSATION PLAN - SUMMARY
ATTACHMENT 1 FEBRUARY 25, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ELIGIBILITY FOR INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
<S> <C>
NUMBER OF PARTICIPANTS Tier 1: APPROXIMATELY 48
Tier 2: APPROXIMATELY 80
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 $3 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)
TIER 3 Discretionary
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
<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% $.81
2nd Level (Commendable) 33% $.90
3rd Level (Outstanding) 34% $.99
</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
Profitability Performance
(% of Annual Salary) 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 $0.81
on corporate component (after all incentives have been paid)
BUSINESS UNITS AND BUSINESS SEGMENTS
MINIMUM CONTRIBUTION TO OVERHEAD AND PROFIT THRESHOLDS (AFTER ACCRUAL FOR
INCENTIVE COMPENSATION PAYMENTS AND INTERNAL INTEREST CHARGES) WILL BE
IDENTIFIED BY CEO, CFO AND APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY FOR
1999.
<TABLE>
<CAPTION>
CONTRIBUTION
------------
<S> <C>
CIVIL BUSINESS UNIT $9,663,704
CIVIL-ENGINEERING $8,657,967
BAKER SUPPORT SERVICES, INC. $1,338,269
BUILDINGS BUSINESS UNIT $ 508,241 (REVISED 6/9/99)
BUILDINGS-DESIGN $2,578,937 (REVISED 6/9/99)
BUILDINGS-CONSTRUCTION $ 0 (REVISED 6/9/99)
TRANSPORTATION BUSINESS UNIT $9,599,484
TRANSPORTATION-ENGINEERING $8,459,309
TRANSPORTATION-HEAVY & HIGHWAY $1,444,108
ENVIRONMENTAL BUSINESS UNIT $2,515,655
ENERGY BUSINESS UNIT $5,663,434
ENERGY/BAKER MO $3,298,016
ENERGY/OTS $2,901,659
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
TYPE OF PAYOUT Cash
- --------------------------------------------------------------------------------
FREQUENCY OF PAYOUT Annually, with payment by the end of
the following year's first quarter
- --------------------------------------------------------------------------------
FUNDING Pre-funding accrual in the year earned
- --------------------------------------------------------------------------------
FORFEITURES Allocated toward next year's funding
</TABLE>
- --------------------------------------------------------------------------------
Exhibit 10.2(b)
SUPPLEMENTAL AGREEMENT NO. 5
----------------------------
This Supplemental Agreement No. 5 dated as of September 7, 1999 is entered into
by and between MICHAEL BAKER CORPORATION, a Pennsylvania corporation
(hereinafter referred to as the "Corporation") and RICHARD L. SHAW, an
individual (hereinafter referred to as the "Executive").
WITNESSETH:
WHEREAS, the Corporation and the Executive entered into an Employment
Agreement dated April 12, 1988 and subsequently amended the Employment Agreement
by Supplemental Agreement No. 1 dated March 17, 1992, Supplemental Agreement No.
2 dated October 1, 1994, and Supplemental Agreement No. 3 dated June 1, 1995,
and Supplemental Agreement No. 4 dated March 1, 1998 (hereinafter collectively
the "Agreement"); and
WHEREAS, pursuant to the Agreement, the Corporation has retained the
Executive as a consultant after the Executive's retirement; and
WHEREAS, upon resignation of the Corporation's Chief Executive Officer and
at the request of the Corporation's Board of Directors, the Executive has
re-assumed the full-time position as Chief Executive Officer of the Corporation
effective September 7, 1999 and has agreed to serve in such capacity until a
successor is appointed; and
WHEREAS, the Corporation and the Executive now desire to further amend and
supplement the Agreement in recognition of these recent changes in the
Executive's status;
NOW THEREFORE, in consideration of the mutual premises contained herein and
other good and valuable consideration, and intending to be legally bound hereby,
THE PARTIES AGREE AS FOLLOWS:
1. Effective September 7, 1999, Executive shall re-assume the full-time
position as Chief Executive Officer of the Corporation with such
duties and responsibilities as described in Section 2 of the
Agreement, and shall be compensated for his services at an annual rate
of $400,000 or such higher rate as the Board of Directors of the
Corporation may from time to time determine, payable in approximately
equal bi-weekly installments.
2. During his service as Chief Executive Officer of the Corporation,
Executive shall be entitled to participate in all plans, programs and
receive all benefits which the Corporation may have in effect for its
executive employees.
3. Commencing November 1, 1999 and during the period the Executive serves
as Chief Executive Officer of the Corporation, payments and benefits
otherwise available to Executive during the Consulting Term under
Section 5 of the Agreement shall be suspended, provided that the
Corporation shall continue to cover the cost of the "65 Special"
health insurance and coverage for the Executive and his spouse without
interruption. The Consulting Term shall continue to run during this
period, and upon conclusion of Executive's service as Chief Executive
<PAGE>
Officer prior to expiration of the Consulting Term, Executive shall
revert to consultant status and the payments and benefits available
under Section 5 shall recommence for the balance of the Consulting
Term.
4. The Consulting Arrangement established by Section 5 of the Agreement
shall continue until May 31, 2000 or be extended as necessary to
continue in force for at least three (3) months after Executive's
successor as Chief Executive Officer assumes such position, whichever
is later. In addition, Executive agrees that unless consented to by
the Corporation, he will not resign from his position as Chairman of
the Board of Directors until the later of May 31, 2000 or three (3)
months after Executive's successor as Chief Executive Officer assumes
such position. Section 7(d) of the Agreement is hereby modified to the
extent necessary to effectuate the provisions set forth in this
Section 4.
5. Section 6, Supplemental Retirement Benefit, of the Agreement is hereby
amended to increase the monthly benefit payable pursuant to such
Section from $2,500 to $5,000.
6. In recognition of Executive's agreement to re-assume duties as the
Chief Executive Officer of the Corporation while a successor is
identified, the Corporation shall as of the effective date of this
Supplemental Agreement No. 5, award Executive fifty thousand (50,000)
Incentive Stock Options pursuant to the Corporation's 1995 Incentive
Stock Plan, which Options shall be fully vested on the date of award.
7. All other terms and conditions of the Agreement shall remain in full
force and effect and are hereby ratified by both parties, and the
Agreement is hereby incorporated by reference as if fully stated
herein.
IN WITNESS WHEREOF, the parties have executed this Supplemental Agreement
No. 5 as of the day and year first above written.
MICHAEL BAKER CORPORATION
ATTEST: (The "Corporation")
/s/ Marcia S. Wolk By: /s/ H. James McKnight
- ----------------------------- -----------------------------------
Marcia S. Wolk H. James McKnight
Assistant Secretary Sr. Vice President, General Counsel
& Secretary
RICHARD L. SHAW
WITNESS: (The "Executive")
/s/ Kathryn J. Carrier /s/ Richard L. Shaw
- ----------------------------- -----------------------------------
Exhibit 13.1
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
================================================================================
(In thousands, except per share information)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Total contract revenues $506,012 $521,271 $446,432 $418,388 $354,728
Operating income/(loss) (8,175) (1,667) 8,020 7,663 5,180
Net income/(loss) (8,164) (2,419) 4,953 4,180 2,900
Diluted net income/(loss)
per share $ (1.00) $ (0.30) $ 0.60 $ 0.50 $ 0.35
Return on average equity (16.7)% (4.4)% 9.3% 8.5% 6.3%
================================================================================
FINANCIAL CONDITION
Total assets $149,191 $151,861 $144,425 $126,082 $117,376
Working capital $ 26,073 $ 31,855 $ 36,220 $ 27,417 $ 25,186
Current ratio 1.31 1.36 1.41 1.36 1.36
Long-term debt $ 14,867 $ 3,138 $ -- $ -- $ --
Shareholders' investment 44,799 52,862 55,862 50,752 47,631
Book value per
outstanding share 5.48 6.47 6.79 6.19 5.70
Year-end closing
share price $ 6.63 $ 9.75 $ 9.75 $ 6.38 $ 5.00
================================================================================
CASH FLOW
Cash provided by/(used
in) operating activities $ 1,143 $ (1,379) $ 7,803 $ 1,167 $ 15,539
Cash used in investing
activities (10,255) (11,416) (2,533) (3,739) (2,294)
Cash provided by/(used in)
financing activities 7,783 1,935 124 (1,251) (2,547)
- --------------------------------------------------------------------------------
Increase/(decrease)
in cash $ (1,329) $(10,860) $ 5,394 $ (3,823) $ 10,698
================================================================================
BACKLOG
Funded $365,300 $447,600 $393,200 $332,800 $299,900
Total $657,300 $735,300 $648,700 $543,700 $507,800
================================================================================
SHARE INFORMATION
Year-end shares
outstanding 8,181 8,166 8,224 8,197 8,364
Average diluted shares
outstanding during year 8,175 8,178 8,299 8,383 8,368
================================================================================
</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 first quarter of 1999, the Company determined that it would no longer
participate in general construction projects for buildings or transportation
infrastructure. Accordingly, the Company's Buildings unit was restructured, and
the Company recorded related charges in the amount of $0.8 million during the
first quarter of 1999. During the third and fourth quarters of 1999, the Company
recorded additional charges totaling $21.1 million associated with construction
projects in its Buildings and Transportation units. Of this amount,
approximately $5.9 million relates to obligations determined during the third
quarter of 1999 to certain subcontractors and vendors associated with a
construction project for Universal City Development Partners ("UCDP") at the
Universal Studios theme park in Orlando, FL; another $2.4 million relates to the
March 2000 conditional settlement of litigation related to the UCDP project, the
effects of which were recorded during the fourth quarter of 1999; and the
remaining $12.8 million resulted from changes in cost estimates on several
Transportation-Construction (heavy and highway) projects during the year. In
connection with the Company's sale of certain assets held by its heavy and
highway division, additional charges totaling $1.9 million were recorded during
the fourth quarter of 1999. As a result of this sale, the Company remains
responsible for only five significant general construction projects, all of
which are scheduled to be completed by the end of the third quarter of 2000.
Other 1999 charges of $3.2 million comprised adjustments on engineering
projects, the writeoff of certain intangible assets and severance costs.
TOTAL CONTRACT REVENUES Total contract revenues decreased to $506 million in
1999 from $521 million in 1998. The most significant 1999 fluctuations were
registered in the form of increases for the Transportation and Energy units of
$74 million and $13 million, respectively, and a decrease of $98 million in the
Buildings unit. The Transportation unit posted significant revenue improvements
in both its engineering and construction divisions as a direct result of state
transportation funding increases associated with the U.S. government's 1998
federal transportation (TEA-21) legislation. Several new contracts to provide
offshore operations and maintenance ("O&M") services, as well as revenue
increases on existing contracts, accounted for the increase in the Energy unit.
The substantial decrease in the Buildings unit's revenues is directly
attributable to the unit's restructuring and its discontinuance of general
construction services during 1999.
For 1998, total contract revenues increased 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 revenue
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 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 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.
GROSS PROFIT
Gross profit decreased to $40.7 million in 1999 from $47.2 million in 1998. As a
percentage of total contract revenues, gross profit declined to 8.1% from 9.1%
in 1998. During 1999 and 1998, project charges totaling $22.6 million and $13.7
million, respectively, reduced the Company's gross profit. The 1999 project
charges primarily affected the Buildings and Transportation-Construction
segments in amounts of $8.8 million and $12.8 million, respectively, while the
<PAGE>
1998 charges were entirely recorded on construction projects in the Buildings
unit. The gross profit percentage increased in the Civil and Buildings units for
1999, with decreases in the other units. In the Company's Civil unit, the BSSI
division posted both dollar and percentage improvements in gross profit due to
an overall change in its mix of projects following the completion of its then
most significant contract in 1998. Excluding the previously mentioned 1999 and
1998 project charges, the Buildings unit's profit percentage still would have
improved for 1999 due to closer management of its construction projects as they
were being completed during 1999. Despite significant revenue growth which
improved the gross profit in dollars for the Transportation unit's engineering
division, the unit's overall results suffered due to the aforementioned 1999
construction project charges. The Energy unit's decrease in its gross profit
percentage for 1999 was impacted by nonrecurring project-related difficulties
during the second quarter of 1999. The Environmental unit's gross profit
percentage was lower for 1999 due to a change in its mix of contracts.
For 1998, gross profit decreased from $51.9 million in 1997. As a percentage of
total contract revenues, gross profit declined in 1998 from 11.6% in 1997. Both
overall decreases are directly attributable to the aforementioned 1998
construction project charges. The gross profit percentage increased in 1998 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses remained constant at $48.9
million in 1999 and 1998. Expressed as a percentage of total contract revenues,
SG&A expenses increased slightly to 9.7% in 1999 from 9.4% in 1998. The
Company's 1999 charges discussed in Note 2 to the consolidated financial
statements had the effect of increasing SG&A expenses by $4.4 million for 1999.
Excluding these charges, the 1999 SG&A percentage would have been 8.8% due to
lower employee and office lease costs following the Company's first quarter 1999
restructuring and certain officer and employee terminations which occurred
during the year.
SG&A expenses increased in 1998 from $43.9 million in 1997. The 1998 increase
principally reflected an investment in technological support costs, costs of
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 in 1998 from 9.8% in 1997.
OTHER INCOME AND EXPENSE
Interest income decreased to $155,000 in 1999 from $439,000 in 1998, due to a
combination of the Company being in a net borrowed position throughout the
majority of 1999 and slightly lower interest rates in 1999. Despite the lower
interest rates in 1999, interest expense increased to $948,000 in 1999 from
$145,000 in 1998 due to higher borrowings under the Company's credit agreement
with Mellon Bank N.A. ("Mellon"), some of which borrowings were used for the
purchase of Steen Production Service, Inc. ("Steen") during the third quarter of
1999. Additional 1999 interest expense also resulted from notes payable due to
the former shareholders of Steen and higher 1999 interest expense associated
with certain heavy and highway construction equipment that was financed during
the second half of 1998. Other expense was $273,000 in 1999 versus other income
of $42,000 in 1998, primarily due to lower 1999 profitability associated with
unconsolidated joint ventures and higher 1999 expense associated with a minority
<PAGE>
interest in the income of a consolidated Energy unit joint venture.
Interest income decreased 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 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 in 1998 from $39,000 in 1997 as the
result of the aforementioned 1998 financing of certain heavy and highway
construction equipment.
INCOME TAXES
The Company's 1999 benefit from income taxes resulted in an effective tax
benefit rate of 12% in 1999, compared to provisions for income taxes that
resulted in effective tax rates of (82)% in 1998 and 47% in 1997. The difference
between these percentages and the 34% statutory U.S. federal rate is
attributable primarily to state and foreign income taxes and foreign withholding
taxes. The minimal income tax benefit for 1999 and the income tax expense for
1998 result from the effects of certain foreign and state taxes that cannot be
offset against tax benefits derived from other jurisdictions.
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 $365 million at
December 31, 1999, a decrease from $448 million at the end of 1998. Total
backlog, which incrementally includes that portion of contract value for which
options are still to be exercised (unfunded backlog), was $657 million at the
end of 1999 versus $735 million at the end of 1998. The overall 1999 decreases
in funded and total backlog are principally attributable to the previously
discussed wind-down of the Company's two construction divisions, which thereby
caused funded and total backlog reductions in the Buildings and Transportation
units for 1999. The most significant 1999 increases in funded and total backlog
were registered in the Company's Civil-BSSI and Transportation-Engineering
segments.
With reference to the Company's 1999 restructuring, funded backlog related to
the business that will be continued by the Company was $316 million and $300
million, and total backlog was $608 million and $587 million, as of year-end
1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1.1 million in 1999, compared to
net cash used in operating activities of $1.4 million in 1998 and net cash
provided by operating activities of $7.8 million in 1997. The 1999 cash
improvement resulted primarily from net reductions in receivables and other
contract-related assets associated with the wind-down of the Company's
construction operations. The decrease for 1998 was primarily related to the
Company's 1998 net loss, while 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.
Net cash used in investing activities was $10.3 million in 1999, $11.4 million
in 1998 and $2.5 million in 1997. Although the 1997 amount solely comprises
capital expenditures, the 1999 and 1998 amounts also include $4.9 million and
$0.8 million, respectively, that was paid relative to the acquisition of new
subsidiaries (as discussed in Notes 3 and 13 to the consolidated financial
statements). The Company's capital expenditures included computer equipment and
software purchases totaling $2.8 million in 1999, compared with $3.9 million in
1998 and $1.4 million in 1997. During 1997, 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
<PAGE>
the overall 1999 decrease and the 1998 increase is attributable to the purchase
of heavy and highway construction equipment needed for new projects added during
1998.
Net cash provided by financing activities was $7.8 million in 1999, compared to
$1.9 million in 1998 and $0.1 million in 1997. Of the Company's 1999 proceeds
from long-term debt, $10.1 million represents borrowings against its credit
agreement with Mellon, while the 1998 proceeds related entirely to the
aforementioned purchase of heavy and highway construction equipment. The 1999
and 1998 repayments of long-term debt correlate to both the financed
construction equipment and the acquisitions of new subsidiaries. In 1998, the
Company also paid $0.8 million to acquire 96,379 treasury shares under a stock
repurchase program.
Working capital decreased to $26.1 million at December 31, 1999 from $31.9
million at December 31, 1998. The Company's current ratios were 1.31:1 and
1.36:1 at the end of 1999 and 1998, respectively. Both the working capital and
current ratio at year-end 1999 were primarily impacted by the effects of the
construction-related charges discussed in Note 2 to the consolidated financial
statements.
In 1998, the Company extended the term of its credit agreement with Mellon
through May 31, 2001. This agreement provides for a commitment of $25 million,
which covers borrowings and letters of credit. As of December 31, 1999,
borrowings totaling $10.1 million were outstanding under the agreement, along
with outstanding letters of credit totaling $2.3 million. As disclosed in Note 8
to the consolidated financial statements, the agreement was unsecured through
December 1999, at which time Mellon acted to secure the agreement as a result of
the Company's third quarter 1999 charges and its related financial covenant
violations. Accordingly, borrowings under the agreement are currently secured by
the receivables and stock of the Company and most of its subsidiaries. These
financial covenants were again not achieved for the fourth quarter of 1999.
Mellon has waived through the end of the first quarter of 2000, its rights
related to certain fourth quarter 1999 loan covenant violations. The Company and
Mellon have agreed on certain amendments to the related loan covenants, such
that the Company believes it will be able to achieve the amended covenants
during 2000. These amendments also included a provision that borrowings under
the agreement shall be limited to 80% of eligible receivables, as determined by
Mellon. Management believes that the credit agreement will be adequate to meet
its borrowing and letter of credit requirements for at least the next year.
Short- and long-term liquidity is further dependent upon appropriations of
public funds for infrastructure and other government-funded projects, capital
spending levels in the private sector, and the demand for the Company's services
in the oil and gas markets. Additional external factors such as price
fluctuations in the energy industry could affect the Company. The current TEA-21
legislation will provide significant increases in funding for transportation
infrastructure projects in 2000 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.
The Company has historically been required to provide bid and performance
bonding on certain construction contracts, and has a $500 million bonding line
available through Travelers Casualty & Surety Company of America. As a result of
its 1999 restructuring, the Company will become increasingly less reliant on its
bonding line during 2000. Accordingly, management believes that its bonding line
will be sufficient to meet its bid and performance needs for at least the next
year.
YEAR 2000 COMPLIANCE
In early January 2000, the Company successfully completed its assessment process
relative to the arrival of the 21st century. As a result of management's effort
<PAGE>
to identify and resolve in advance any potential issues that could have been
expected to arise coincident with the changeover to the year 2000, the Company
has experienced no significant Year 2000 problems with its information
technology systems since December 31, 1999. Year 2000 compliance was primarily
achieved through the normal and recurring process of system upgrades, the
software costs of which were covered under related maintenance agreements.
Accordingly, the incremental costs associated with Year 2000 compliance were not
material to the Company's consolidated results of operations or its financial
position.
Management previously believed that its "most reasonably likely worst case Year
2000 scenario" posed the potential for payment delays from some customers,
including agencies of the U.S. federal government, due to their possible lack of
readiness for the new century. No such payment delays have significantly
impacted the Company's cash flow since December 31, 1999.
The Company considers its own Year 2000 compliance process completed; however,
the impact of Year 2000 issues on the Company will continue to depend on how
related issues have been addressed by third parties that provide services to the
Company. To date, the Company has not been adversely impacted to any significant
extent by the failure of third parties to address Year 2000 issues. The Company
has developed contingency plans to address risks associated with Year 2000
issues that may arise. There can be no assurance that these plans will fully
mitigate any problems that may arise in the future.
The foregoing Year 2000 discussions constitute a Year 2000 Readiness Disclosure
within the meaning of the Year 2000 Readiness and Disclosure Act of 1998.
<PAGE>
<TABLE>
<CAPTION>
MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
================================================================================
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total contract revenues $506,012 $521,271 $446,432
Cost of work performed 465,273 474,027 394,527
- --------------------------------------------------------------------------------
GROSS PROFIT 40,739 47,244 51,905
Selling, general and administrative expenses 48,914 48,911 43,885
- --------------------------------------------------------------------------------
INCOME/(LOSS) FROM OPERATIONS (8,175) (1,667) 8,020
Other income/(expense):
Interest income 155 439 552
Interest expense (948) (145) (39)
Other, net (273) 42 811
- --------------------------------------------------------------------------------
INCOME/(LOSS) BEFORE INCOME TAXES (9,241) (1,331) 9,344
Provision for/(benefit from) income taxes (1,077) 1,088 4,391
- --------------------------------------------------------------------------------
NET INCOME/(LOSS) $ (8,164) $ (2,419) $ 4,953
================================================================================
BASIC AND DILUTED NET INCOME/
(LOSS) PER SHARE $ (1.00) $ (0.30) $ 0.60
================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MICHAEL BAKER CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
------------------
1999 1998
================================================================================
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,685 $ 5,014
Receivables 77,964 82,672
Cost of contracts in progress and
estimated earnings, less billings 20,803 22,407
Prepaid expenses and other 7,363 10,192
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 109,815 120,285
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 17,120 17,458
- --------------------------------------------------------------------------------
OTHER ASSETS
Goodwill and other intangible assets, net 14,563 7,507
Other assets 7,693 6,611
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS 22,256 14,118
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 149,191 $ 151,861
================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 3,526 $ 823
Accounts payable 28,862 43,356
Accrued employee compensation 10,462 9,141
Accrued insurance 7,884 6,155
Other accrued expenses 19,453 19,387
Excess of billings on contracts in
progress over cost and estimated earnings 13,555 9,568
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 83,742 88,430
- --------------------------------------------------------------------------------
OTHER LIABILITIES
Long-term debt 14,867 3,138
Other 5,783 7,431
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 104,392 98,999
================================================================================
SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized
44,000,000 shares, issued 7,170,663 and
7,150,179 shares, in 1999 and 1998,
respectively 7,171 7,150
Series B Common Stock, par value $1,
authorized 6,000,000 shares, issued
1,313,816 and 1,319,114 shares, in 1999
and 1998, respectively 1,314 1,319
Additional paid-in capital 37,084 37,002
Retained earnings 1,283 9,447
<PAGE>
Less 302,989 and 303,359 shares of
Common Stock in treasury, at cost, in
1999 and 1998, respectively (2,053) (2,056)
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' INVESTMENT 44,799 52,862
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT $ 149,191 $ 151,861
================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
================================================================================
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $ (8,164) $ (2,419) $ 4,953
Adjustments to reconcile net income/(loss)
to net cash provided by/(used in)
operating activities:
Depreciation and amortization 7,408 5,049 4,483
Deferred income taxes (3,117) (695) 1,827
Changes in assets and liabilities,
net of acquisitions:
(Increase)/decrease in receivables
and contracts in progress 16,293 (8,276) (13,514)
Increase/(decrease) in accounts payable
and accrued expenses (17,789) 9,216 9,534
(Increase)/decrease in other net assets 6,512 (4,254) 520
- --------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 9,307 1,040 2,850
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY/(USED
IN) OPERATING ACTIVITIES 1,143 (1,379) 7,803
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and
equipment (5,337) (10,573) (2,533)
Acquisition of Steen Production Service, Inc.(4,918) -- --
Acquisition of GeoResearch, Inc. -- (843) --
- --------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (10,255) (11,416) (2,533)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 10,167 3,516 --
Repayments of long-term debt (2,454) (964) --
Proceeds from exercise of stock options 70 183 124
Payments to acquire treasury stock -- (800) --
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 7,783 1,935 124
- --------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS (1,329) (10,860) 5,394
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 5,014 15,874 10,480
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 3,685 $ 5,014 $ 15,874
================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
Interest paid $ 669 $ 165 $ 50
Income taxes paid $ 387 $ 2,588 $ 2,039
================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------
SERIES B
COMMON COMMON
STOCK STOCK TREASURY ADDITIONAL
PAR PAR ---------------- PAID-IN RETAINED
VALUE $1 VALUE $1 SHARES AMOUNT CAPITAL EARNINGS
================================================================================
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
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 loss -- -- -- -- -- (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
Net loss -- -- -- -- -- (8,164)
Series B Common
Stock conversions
to Common Stock 5 (5) -- -- -- --
Restricted stock
issued 4 -- -- -- 24 --
Issuance of
Treasury stock -- -- -- (3) -- --
Stock options
exercised 12 -- -- -- 58 --
- --------------------------------------------------------------------------------
Balance, Dec. 31, 1999 $7,171 $1,314 303 $2,053 $37,084 $ 1,283
================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</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 Michael Baker
Corporation and its subsidiaries (the "Company"), 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 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
The Company's proportionate share of majority-owned, project-specific joint
venture revenue and cost of contracts is included in the accompanying
Consolidated Statements of Income. In the accompanying Consolidated Balance
Sheets, the Company records its interest in all majority-owned, project-specific
joint ventures based on the equity method of accounting for investments.
Depending on whether the related projects are expected to be completed within
one year, the Company's investment in these joint ventures is included within
either prepaid expenses and other current assets or other non-current assets in
the accompanying Consolidated Balance Sheets. All 50% or less interests in
ventures are recorded on the equity method in the accompanying Balance Sheets
and Consolidated Statements of Income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments classified as current assets and
liabilities approximates carrying value due to the short-term nature of the
instruments. Substantially all long-term debt is based on rates that float with
the current prime rate; accordingly, the carrying value of these obligations
approximates their fair value.
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.
<PAGE>
Actual results could differ from those which result from using the estimates.
The use of estimates is an integral part of applying the percentage-
of-completion method of 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
outstanding checks which create book overdrafts within banking institutions are
reclassified as accounts payable; such amounts totaled $3,920,000 and $9,141,000
at December 31, 1999 and 1998, respectively.
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. The
estimated useful lives range from 5 to 40 years on buildings and improvements
and from 3 to 20 years on equipment and vehicles. Amortization of intangible
assets is provided primarily on a straight-line basis over the estimated useful
lives of the assets, which range from 7 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 20 years. The Company evaluates at each balance sheet date whether events
and circumstances have occurred that indicate possible impairment, and uses
estimates of future undiscounted net cash flows over the remaining lives in
measuring whether goodwill is recoverable.
EARNINGS PER COMMON SHARE
Basic and diluted net income per share computations are based upon 8,175,090 and
8,178,067 weighted average shares outstanding for 1999 and 1998, respectively.
For 1997, basic and diluted net income per share computations are based upon
weighted averages shares outstanding of 8,207,786 and 8,299,083, respectively.
RECLASSIFICATIONS
Certain 1998 balance sheet amounts have been reclassified to conform with 1999
classifications.
2. CONSTRUCTION, RESTRUCTURING AND OTHER CHARGES
During 1998 and 1999, 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 and performance
issues arose. On March 5, 1999, BMSCI was terminated by UCDP from this project,
which was over 90% complete. UCDP alleged contract breaches related to the
quality of work, contract administration and delays in project completion, and
sought damages, including consequential damages related to project delays. Both
parties filed lawsuits in this matter during the first quarter of 1999. BMSCI
alleged unfair and deceptive trade practices, breach of implied warranty of
plans and specifications, breach of contract, wrongful termination, tortuous
interference with business relationships, and breach of implied contract of good
faith and fair dealing, and sought damages, interest, court costs and further
relief. Certain subcontractors also sued BMSCI and its surety, seeking
reimbursement for costs incurred and related damages.
<PAGE>
The UCDP project losses recorded by the Company in the fourth quarter of 1998
totaled $10.9 million, and reflected 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. During the third quarter of 1999, management and its counsel
determined that the Company was obligated to pay amounts totaling $5.9 million
to certain subcontractors and vendors for work performed or services provided on
this project and for which they had not previously been paid, and additional
losses in this amount were recorded.
A non-binding, court-ordered mediation process before a mediator mutually agreed
by both parties commenced in January 2000. On March 22, 2000, mediation of this
matter resulted in a conditional settlement agreement being entered into by the
Company; BMSCI; Travelers Casualty and Surety Company of America ("Travelers"),
which provided performance and payment bonds on behalf of BMSCI; UCDP; Hellmuth,
Obata & Kassabaum, Inc., which designed the project; and the court-appointed
mediator. Pursuant to the terms of the settlement agreement, the parties
resolved the claims between them, and BMSCI agreed to pay UCDP $2.0 million.
BMSCI remains responsible for resolution of all remaining subcontractor and
vendor claims, the most significant of which is the subject of a suit brought by
ADF International, Inc. ("ADF"), BMSCI's subcontractor for structural steel and
miscellaneous metals, against BMSCI and Travelers. The conditional settlement
agreement is subject to and conditioned upon acceptance and signature by the
Project Policy Insurer not later than March 31, 2000.
On November 24, 1998, ADF filed suit in Federal Court against BMSCI and
Travelers seeking damages for alleged breaches of contract relating to the
project. BMSCI and its surety answered the complaint (and amended complaint) and
BMSCI filed a counterclaim. BMSCI and its counsel believe it has valid claims
against ADF and defenses to claims by ADF. BMSCI intends to pursue and defend
these claims vigorously. BMSCI further intends to engage in negotiations to
settle all other subcontractor and vendor claims. The Company believes it has
made adequate provisions for all subcontractor and vendor claims, including ADF,
in the accompanying consolidated financial statements.
In connection with the conditional settlement agreement, and the estimated
amounts that will be required to settle with subcontractors and vendors, the
Company recorded additional charges totaling $2.4 million during the fourth
quarter of 1999. Other Buildings unit charges totaling $2.8 million were also
recorded during 1998 related to the settlement of construction-related
litigation and charges on other completed construction projects.
In connection with the UCDP litigation, the Company determined during the first
quarter of 1999 that it would no longer participate in general construction
projects for buildings or transportation infrastructure. Accordingly, the
Company's Buildings unit was restructured, and the Company recorded related
charges totaling $0.8 million during the first quarter of 1999. Such charges
reflected severance costs associated with employee terminations, writedowns
related to fixed asset impairments, and lease costs for certain office space
permanently idled by the restructuring.
Certain assets held by the Company's Transportation-Construction (heavy and
highway) segment, including substantially all fixed assets and the remaining
contractual rights and obligations associated with eight active construction
projects, were sold to A&L, Inc. ("A&L") in March 2000 in exchange for cash
proceeds of $0.7 million and A&L's assumption of certain debt and lease
obligations. In connection with this sale, charges totaling $1.9 million were
recorded during the fourth quarter of 1999. Such charges primarily reflect
writedowns related to fixed asset impairments, equipment lease termination
costs, and lease costs for certain office space permanently idled by the
restructuring. As a result of the sale, the Company remains responsible for only
four significant heavy and highway construction projects, all of which are
<PAGE>
scheduled for completion by the end of the third quarter of 2000. These
remaining projects are being managed for the Company by A&L.
During 1999, additional charges totaling $12.8 million ($8.1 million in the
fourth quarter) were recorded in the Company's Transportation-Construction
segment due to changes in estimates on several heavy and highway construction
projects.
Other 1999 charges totaling $3.2 million comprised the writeoff of certain
goodwill and other intangible assets associated with the Company's 1998
acquisition of GeoResearch, Inc. ("GeoResearch"), severance costs related to the
departure of certain former officers and employees, and adjustments on
Engineering projects in the Buildings, Civil and Transportation units.
The foregoing 1999 and 1998 charges increased cost of work performed by $22.6
million and selling, general and administrative expenses by $4.4 million in
1999, and increased cost of work performed by $13.7 million for 1998.
3. ACQUISITION
On September 1, 1999, Baker/MO Services, Inc. ("Baker/MO"), a wholly-owned
subsidiary of the Company, purchased all of the outstanding shares of capital
stock of Steen Production Service, Inc. ("Steen"), a Louisiana corporation, from
its shareholders (the "Sellers"). Steen is an operations and maintenance company
which provides pumping and gauging services to oil and gas facilities in the
Gulf of Mexico.
The purchase price for the shares of Steen was $10,826,000, including promissory
notes totaling $4,380,000, which will be paid to the Sellers in two equal annual
installments, and including certain non-competition covenants valued at
$2,000,000. Interest on the promissory notes will accrue from September 1, 1999
at the prime rate as announced by Mellon Bank, N.A. ("Mellon"), and also will be
paid in two annual installments. The Company has guaranteed Baker/MO's
obligation to pay all principal and interest under the promissory notes. In
addition, the Company, through its Baker/MO subsidiary, entered into five-year
employment agreements with each of the two Sellers.
This acquisition has been accounted for as a purchase. Accordingly, the
operating results of Steen have been included in the accompanying Consolidated
Statement of Income since September 1, 1999. As required under the purchase
method of accounting, the acquisition costs have been allocated to the net
assets acquired based upon the fair market value to the Company as of the
acquisition date. The excess of acquisition costs over the fair market value of
the acquired assets and liabilities is being amortized on a straight-line basis
over 20 years.
The Company's operating results for the years ended December 31, 1999 and 1998
are required to be presented on a pro forma basis assuming that the acquisition
of Steen had been effective at the beginning of each respective period. The pro
forma information which follows is not necessarily indicative of the results of
operations as they may be in the future or as they might have been in the
periods indicated, if the acquisition had been consummated at the beginning of
each respective period. The pro forma information gives effect to, among other
things, depreciation and amortization expense on revalued assets acquired;
incremental employee benefit costs; additional interest expense that would have
been incurred in borrowing the initial amounts paid for the acquisition (and
corresponding adjustments of interest income earned); additional interest
expense associated with the notes payable to the Sellers; and the income tax
benefit associated with the foregoing pro forma adjustments.
<PAGE>
Assuming that Steen had been acquired on January 1, 1999, the unaudited pro
forma operating results of the Company for the year ended December 31, 1999
would have approximated the following: Total contract revenues of $517,007,000;
Net loss of $(8,880,000); and Basic and diluted net loss per share of $(1.09).
Assuming that Steen had been acquired on January 1, 1998, the unaudited pro
forma operating results of the Company for the year ended December 31, 1998
would have approximated the following: Total contract revenues of $538,247,000;
Net loss of $(3,349,000); and Basic and diluted net loss per share of $(0.41).
4. CONTRACTS
The total cost of contracts in progress (used to determine cost of work
performed) plus accumulated gross profit recorded was $910,838,000 and
$1,007,668,000 at December 31, 1999 and 1998, respectively. Billings to date on
contracts in progress at December 31, 1999 and 1998 were $903,590,000 and
$994,829,000, respectively.
Trade accounts receivable totaling $5,857,000 and $9,097,000 at December 31,
1999 and 1998, 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, 1999 is expected to be collected in 2000.
As of December 31, 1999 and 1998, accounts payable included amounts due to
subcontractors of $2,087,000 and $4,623,000, respectively, which have been
retained under contractual terms pending the completion and acceptance of the
work performed by the subcontractors.
Certain subsidiaries of the Company participate in joint ventures that are
typically formed to accomplish a specific project and then dissolved upon
completion of the project. The number of joint ventures in which the Company
participates and the size, scope and duration of the projects vary between
periods. Summarized financial information for these joint ventures is as follows
(in millions):
50% OR LESS EQUITY INVESTEES
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Total contract revenues $13.4 $ 8.2 $ 6.0
Gross profit 0.8 1.4 1.2
Income from operations -- 0.7 1.2
Net income/(loss) $(0.1) $ 0.5 $ 0.4
- --------------------------------------------------------------------------------
GREATER THAN 50% EQUITY INVESTEES
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Total contract revenues $16.0 $12.2 $10.7
Gross profit 2.4 0.7 0.7
Income from operations 2.3 0.7 0.7
Net income $ 2.4 $ 0.7 $ 0.7
- --------------------------------------------------------------------------------
<PAGE>
As described in Note 1, the results of the operations for project-specific joint
ventures in which the Company owns greater than a 50% interest are included in
the Company's results of operations on a proportionate share basis. The portion
of investee results of operations shown above and included in the Company's
consolidated results of operations are as follows (in millions):
GREATER THAN 50% EQUITY INVESTEES
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Total contract revenues $ 9.1 $ 6.8 $ 9.1
Gross profit 1.4 0.3 0.4
Income from operations 1.3 0.3 0.4
Net income $ 1.4 $ 0.4 $ 0.4
- --------------------------------------------------------------------------------
The Company's equity investment in these joint ventures was $4,699,000 and
$2,028,000 at December 31, 1999 and 1998, respectively.
Summarized balance sheet information for the Company's joint ventures is as
follows (in millions):
50% OR LESS GREATER THAN 50%
EQUITY INVESTEES EQUITY INVESTEES
AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------ ------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Current assets $ 7.3 $ 3.1 $ 7.3 $ 4.6
Noncurrent assets 4.7 0.1 0.8 --
Current liabilities 5.1 2.1 2.0 2.9
Noncurrent liabilities $ 2.0 $ -- $ 1.1 $ --
- --------------------------------------------------------------------------------
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 Sheets 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.
5. BUSINESS SEGMENT INFORMATION
The Company has five operating business units. The Buildings, Energy and
Environmental units each represent separate reportable segments, while the
Transportation and Civil units each comprise two reportable segments.
Accordingly, the Company has the following seven reportable segments:
<PAGE>
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; however, the unit's
offering of general contracting services was discontinued during 1999 (see
Note 2).
o The Civil unit includes two reportable segments. The Civil-Engineering
segment provides surveying, mapping, geographic information systems,
planning, design and construction management. The Civil-Baker Support
Services Inc. ("BSSI") segment principally provides operations and
maintenance services on U.S. military bases.
o The Energy unit offers services that include turbine overhauls, mechanical
services including major equipment outages, operations and maintenance,
in-shop and onsite mechanical reconditioning and training services for
energy producers.
o The Environmental unit provides a combination of 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, program
management and software development capabilities. The Transportation-
Construction segment historically provided general construction services
related to highways, bridges, airports, busways and other transportation
facilities; however, all bidding activity ceased during 1999 and this
segment's operations are currently in the process of being wound down (see
Note 2).
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 1). The Company evaluates
the performance of its segments primarily based on income before income taxes.
<PAGE>
The following tables reflect the required disclosures for the Company's seven
segments (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
================================================================================
TOTAL CONTRACT REVENUES:
<S> <C> <C> <C>
Buildings unit $ 53.8 $151.6 $126.4
Civil unit:
Engineering 68.1 69.1 67.7
BSSI 53.5 61.8 50.5
Energy unit 80.2 68.6 54.8
Environmental unit 28.5 22.7 21.5
Transportation unit:
Engineering 90.2 72.3 62.0
Construction 130.9 75.2 63.5
- --------------------------------------------------------------------------------
SUBTOTAL - SEGMENTS $505.2 $521.3 $446.4
Corporate 0.8 0.0 0.0
- --------------------------------------------------------------------------------
TOTAL $506.0 $521.3 $446.4
================================================================================
1999 1998 1997
================================================================================
INCOME/(LOSS) BEFORE TAXES:
Buildings unit $ (7.8) $(13.9) $ 0.9
Civil unit:
Engineering 1.8 3.5 3.7
BSSI 1.5 0.1 --
Energy unit 2.9 4.0 2.3
Environmental unit 1.6 1.0 0.4
Transportation unit:
Engineering 4.1 2.9 1.0
Construction (14.0) 0.7 0.6
- --------------------------------------------------------------------------------
SUBTOTAL - SEGMENTS (9.9) (1.7) 8.9
Corporate/Insurance 0.7 0.4 0.4
- --------------------------------------------------------------------------------
TOTAL $ (9.2) $ (1.3) $ 9.3
================================================================================
<PAGE>
1999 1998
================================================================================
SEGMENT ASSETS:
Buildings unit $ 7.4 $ 30.5
Civil unit:
Engineering 23.3 18.7
BSSI 15.8 15.6
Energy unit 40.3 27.9
Environmental unit 4.8 5.1
Transportation unit:
Engineering 28.9 21.7
Construction 17.4 20.6
- --------------------------------------------------------------------------------
SUBTOTAL - SEGMENTS 137.9 140.1
Corporate/Insurance 11.3 11.8
- --------------------------------------------------------------------------------
TOTAL $149.2 $151.9
================================================================================
1999 1998 1997
================================================================================
CAPITAL EXPENDITURES:
Buildings unit $ 0.2 $ 0.3 $ 0.1
Civil unit:
Engineering 1.0 1.4 0.6
BSSI 0.4 0.8 0.3
Energy unit 0.6 1.2 0.4
Environmental unit 0.1 0.2 --
Transportation unit:
Engineering 1.2 1.3 0.3
Construction 0.7 4.2 0.3
- --------------------------------------------------------------------------------
SUBTOTAL - SEGMENTS 4.2 9.4 2.0
Corporate 1.1 1.2 0.5
- --------------------------------------------------------------------------------
TOTAL $ 5.3 $ 10.6 $ 2.5
================================================================================
1999 1998 1997
================================================================================
DEPRECIATION AND AMORTIZATION:
Buildings unit $ 0.2 $ 0.2 $ 0.2
Civil unit:
Engineering 1.9 0.7 0.4
BSSI 0.8 0.6 0.5
Energy unit 1.5 1.1 1.2
Environmental unit 0.1 0.1 0.1
Transportation unit:
Engineering 0.9 0.6 0.5
Construction 0.9 0.7 0.5
- --------------------------------------------------------------------------------
SUBTOTAL - SEGMENTS 6.3 4.0 3.4
Corporate 1.1 1.0 1.1
- --------------------------------------------------------------------------------
TOTAL $ 7.4 $ 5.0 $ 4.5
================================================================================
</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 required enterprise-wide disclosures are as follows (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
================================================================================
<S> <C> <C> <C>
TOTAL CONTRACT REVENUES BY TYPE OF SERVICE:
Engineering $202.5 $178.4 $164.2
Construction 169.9 212.4 176.9
Operations & Maintenance 133.6 130.5 105.3
- --------------------------------------------------------------------------------
TOTAL $506.0 $521.3 $446.4
================================================================================
1999 1998 1997
================================================================================
TOTAL CONTRACT REVENUES BY GEOGRAPHIC ORIGIN:
Domestic $455.2 $475.2 $403.6
Foreign 50.8 46.1 42.8
- --------------------------------------------------------------------------------
TOTAL $506.0 $521.3 $446.4
================================================================================
1999 1998 1997
================================================================================
TOTAL CONTRACT REVENUES BY PRINCIPAL MARKETS:
United States government 21.4% 27.1% 23.8%
Various state governmental
and quasi-governmental agencies 46.9% 34.4% 40.9%
Commercial, industrial and private clients 31.7% 38.5% 35.3%
================================================================================
</TABLE>
The Company's business is substantially conducted in the U.S. No individual
contract accounted for more than 10% of the Company's total contract revenues in
1999 or 1997; however, several contracts with the Pennsylvania Department of
Transportation provided 11% of the Company's total contract revenues in 1999.
The aforementioned contract with UCDP accounted for 12% of the Company's total
contract revenues in 1998.
<PAGE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
================================================================================
<S> <C> <C>
Land $ 552 $ 552
Buildings and improvements 7,091 6,832
Equipment and vehicles 42,319 41,137
- --------------------------------------------------------------------------------
TOTAL, AT COST 49,962 48,521
Less - Accumulated depreciation (32,842) (31,063)
- --------------------------------------------------------------------------------
NET PROPERTY, PLANT
AND EQUIPMENT $17,120 $17,458
================================================================================
</TABLE>
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
================================================================================
<S> <C> <C>
Goodwill, net of accumulated
amortization of $3,927 and
$2,867 respectively $ 12,219 $ 6,091
Other intangible assets, net of
accumulated amortization of
$2,916 and $2,344 respectively 2,344 1,416
- --------------------------------------------------------------------------------
NET INTANGIBLE ASSETS $ 14,563 $ 7,507
================================================================================
</TABLE>
Effective September 1, 1999, the Company acquired all of the outstanding shares
of capital stock of Steen from its shareholders in a transaction accounted for
as a purchase. The Company recorded goodwill and other intangible assets
totaling $9,164,000 during the third quarter of 1999.
Effective October 1, 1998, the Company acquired all of the outstanding shares of
capital stock of GeoResearch 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 goodwill and other intangible assets
totaling $1,943,000 during the fourth quarter of 1998. During the third quarter
of 1999, the Company determined that the value of the goodwill and other
intangible assets were impaired and wrote off the unamortized balance of these
intangible assets totaling $825,000.
8. LONG-TERM DEBT AND BORROWING AGREEMENTS
The Company has a credit agreement (the "Agreement") with Mellon, which 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, 1999,
borrowings of $10,088,000 were outstanding under the Agreement, along with
outstanding letters of credit totaling $2,262,000.
<PAGE>
The Agreement provides for the Company to borrow at the Bank's prime interest
rate, 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 Agreement was unsecured through December 1999, at which time Mellon acted to
secure the Agreement as a result of the Company's third quarter 1999 charges
(see Note 2) and its related financial covenant violations. Accordingly,
borrowings under the Agreement are currently secured by the receivables and
stock of the Company and most of its subsidiaries. These financial covenants
were again not achieved for the fourth quarter of 1999. Mellon has waived
through the end of the first quarter of 2000, its rights related to the fourth
quarter 1999 loan covenant violations. The Company and Mellon have agreed on
amendments to the related loan covenants, such that the Company believes it will
be able to achieve the amended covenants during 2000. These amendments also
included a provision that borrowings under the Agreement shall be limited to 80%
of eligible receivables, as determined by Mellon.
The maximum amount of borrowings outstanding under the Agreement during 1999 was
$20,641,000. For 1999, the average daily balance outstanding when the Company
was in a net borrowing position was $6,711,000 at a weighted average interest
rate of 7.4%. 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 from 1999 borrowings under the Agreement were used to
for the purchase of Steen and to meet various working capital requirements.
Other amounts totaling $8,305,000 at December 31, 1999, and included in current
portion of long-term debt and long-term debt in the accompanying Consolidated
Balance Sheet, represent amounts associated with the Steen and GeoResearch
acquisitions, in addition to amounts due for construction equipment financed in
1998. These notes and obligations mature as follows: $3,526,000 in 2000,
$3,190,000 in 2001, $938,000 in 2002, $379,000 in 2003, $162,000 in 2004, and
$110,000 thereafter. The interest rates with respect to these notes ranged from
4.44% to 8.50% as of December 31, 1999.
9. 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. The
Company made no treasury share repurchases during 1999 or 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, 1999 and
1998, there were no shares of such Preferred Stock outstanding.
10. RIGHTS AGREEMENT
Effective November 11, 1999, the Company's Board of Directors adopted a Rights
Agreement (the "Rights Agreement") that is intended to provide that shareholders
receive fair treatment in the event of any proposed takeover of the Company. The
existence of the Rights Agreement should encourage potential acquirers to
negotiate with the Company's Board of Directors prior to any hostile takeover
attempt and should give the Board of Directors increased leverage in such
negotiations. The Rights Agreement was not adopted in response to any specific
offer or hostile takeover threat.
<PAGE>
In connection with the Rights Agreement, the Company declared a distribution of
one Right (a "Right") for each outstanding share of Common Stock to shareholders
of record at the close of business on November 30, 1999. The Rights will become
exercisable after a person or group has acquired twenty-five percent or more of
the Company's outstanding Common Stock or has announced a tender offer that
would result in the acquisition of twenty-five percent or more of the Company's
outstanding Common Stock. The Board of Directors has the option to redeem the
Rights for $0.001 per Right prior to their becoming exercisable.
Assuming the Rights have not been redeemed, after a person or group has acquired
twenty-five percent or more of the Company's outstanding Common Stock, each
Right (other than those owned by a holder of twenty-five percent or more of the
Common Stock) will entitle its holder to purchase, at the Right's then current
exercise price, a number of shares of the Common Stock of the acquiring party
having a value equal to two times the exercise price of the Rights. In addition,
at any time after the Rights become exercisable and prior to the acquisition by
the acquiring party of fifty percent or more of the outstanding Common Stock,
the Company's Board of Directors may exchange the Rights (other than those owned
by the acquiring person or its affiliates) for Common Stock of the Company at an
exchange ratio of one share of Common Stock per Right.
Initially, the Rights will not be exercisable and certificates will not be
issued. The Rights will be evidenced by and trade with the Company's Common
Stock until they become exercisable and are separated from the Common Stock upon
the occurrence of certain future events. Until that time, one Right will also be
issued with respect to each new share of Common Stock that shall become
outstanding. The Rights will expire on November 16, 2009, unless they are
earlier exchanged or redeemed.
11. LEASE COMMITMENTS
Rent expense under noncancellable operating leases was $11,521,000 in 1999,
$11,687,000 in 1998 and $10,364,000 in 1997.
Minimum annual rentals payable under noncancellable operating leases in each of
the five years after December 31, 1999 are $10,556,000, $7,927,000, $4,815,000,
$1,939,000 and $1,046,000, respectively. These noncancellable leases relate to
office space, computer equipment, office equipment and vehicles, with lease
terms ranging from one to 10 years.
<PAGE>
12. INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
================================================================================
<S> <C> <C> <C>
CURRENT INCOME TAXES:
Federal $ (70) $ 18 $ 1,401
State 295 246 139
Foreign 1,815 1,519 1,024
- --------------------------------------------------------------------------------
TOTAL CURRENT INCOME TAXES 2,040 1,783 2,564
- --------------------------------------------------------------------------------
DEFERRED INCOME TAXES:
Federal (3,345) (799) 1,705
State 228 104 122
- --------------------------------------------------------------------------------
TOTAL DEFERRED INCOME TAXES (3,117) (695) 1,827
- --------------------------------------------------------------------------------
TOTAL PROVISION FOR/(BENEFIT
FROM) INCOME TAXES $(1,077) $ 1,088 $ 4,391
================================================================================
</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>
1999 1998 1997
================================================================================
<S> <C> <C> <C>
Computed income
taxes at U.S. federal
statutory rate $(3,142) $ (453) $ 3,177
Foreign taxes, net of
federal income tax
benefits 1,180 1,003 676
State income taxes,
net of federal income
tax benefit 340 225 172
Nondeductible charges 542 313 300
Other, net 3 -- 66
- --------------------------------------------------------------------------------
TOTAL PROVISION FOR/(BENEFIT
FROM) INCOME TAXES $(1,077) $ 1,088 $ 4,391
================================================================================
</TABLE>
The domestic and foreign components of the Company's income/(loss) before income
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
================================================================================
<S> <C> <C> <C>
Domestic $(12,355) $(4,203) $ 7,148
Foreign 3,114 2,872 2,196
- --------------------------------------------------------------------------------
TOTAL $ (9,241) $(1,331) $ 9,344
================================================================================
</TABLE>
<PAGE>
The components of the Company's deferred income tax assets and liabilities at
December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
================================================================================
<S> <C> <C>
DEFERRED INCOME TAX ASSETS:
Deductible temporary differences:
Provision for expenses and losses $ 7,123 $ 6,341
Contract overbillings 980 666
Federal tax operating loss
carryforward 1,650 --
Accrued vacation pay 1,169 1,301
Fixed and intangible assets 728 852
Minimum tax credits 379 379
Charitable contribution carryforward 277 307
Other 90 135
- --------------------------------------------------------------------------------
TOTAL DEFERRED INCOME TAX ASSETS 12,396 9,981
- --------------------------------------------------------------------------------
DEFERRED INCOME TAX LIABILITIES:
Contract underbillings (7,232) (7,507)
Undistributed foreign earnings (1,359) (1,494)
- --------------------------------------------------------------------------------
TOTAL DEFERRED INCOME TAX LIABILITIES (8,591) (9,001)
- --------------------------------------------------------------------------------
NET DEFERRED TAX ASSET $ 3,805 $ 980
================================================================================
</TABLE>
As of December 31, 1999, the Company had a U.S. net operating loss carryforward
of $4,854,000 that expires in the year 2019. The Company also has contribution
carryforwards totaling $814,000 at December 31, 1999 that expire in 2000 through
2003 and minimum tax credit carryforwards totaling $379,000 at December 31, 1999
that do not expire.
The Company's U.S. income tax returns for the years 1996 through 1998 remain
subject to audit. Management believes that adequate provisions have been made
for income taxes at December 31, 1999.
13. CONTINGENCIES
The Company is self-insured for its primary layer of professional liability
insurance through a wholly-owned captive insurance subsidiary. The secondary
layer of the professional liability insurance continues to be provided,
consistent with industry practice, under a "claims-made" insurance policy placed
with an independent insurance company. Under claims-made policies, coverage must
be in effect when a claim is made. This insurance is subject to standard
exclusions.
The Company is self-insured up to certain limits with respect to its workers'
compensation and general liability exposures. Provisions for losses expected for
these exposures are recorded based upon the Company's estimates of the aggregate
liability for claims incurred. Such estimates utilize certain actuarial
assumptions followed in the insurance industry. Insurance coverage is obtained
for catastrophic exposures as well as those risks required to be insured by law
or contract.
The Company has been named as a defendant or co-defendant in legal proceedings
wherein substantial damages are claimed. Such proceedings are not uncommon to
the Company's business. After consultations with counsel, management believes
that the Company has recognized adequate provisions for probable and reasonably
<PAGE>
estimable liabilities associated with these proceedings, and that their ultimate
resolutions will not have a material adverse effect on the consolidated
financial position or annual results of operations of the Company.
The Company currently is a party to two material legal proceedings. The more
significant proceeding relates to BMSCI's construction contract with UCDP (see
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 another matter, on September 30, 1998, the Company purchased all the issued
and outstanding shares of GeoResearch, a District of Columbia corporation, from
its former owner. In connection with this transaction, the Company agreed to pay
the former owner certain cash consideration in installments, repay certain
indebtedness of GeoResearch, and pay as contingent consideration an earnout
amount (if any) based upon a formula tied to the operating profit of the
Company's and GeoResearch's combined geotechnical businesses, in excess of a
specified threshold, for the year ending December 31, 2001. The threshold
contemplated substantial growth in the combined businesses over the years 1999
through 2001. In addition, GeoResearch entered into an Employment Agreement with
the former owner commencing October 1, 1998 and continuing until December 31,
2001, unless sooner terminated as provided therein. GeoResearch terminated the
former owner's Employment Agreement in 1999 and the Company ceased further
payments under the Stock Purchase Agreement alleging material breaches of both
Agreements by the former owner. In addition, GeoResearch and the Company
initiated arbitration as provided for by the agreements, seeking reimbursement
of amounts paid to the former owner as part of the transaction. The former owner
disputes the claims by the Company and GeoResearch and the termination and has
counterclaimed against the Company and GeoResearch seeking to recover remaining
amounts under the Employment Agreement, the remaining installments under the
Stock Purchase Agreement ($875,000), and to establish entitlement to the earnout
which by its terms cannot exceed $5.3 million. At December 31, 1999, the Company
still had the remaining installments under the Stock Purchase Agreement of
$875,000 recorded as a liability in its accompanying Consolidated Balance Sheet.
GeoResearch and the Company are aggressively pursuing their claims against the
former owner of GeoResearch and contesting any liability; however, the outcome
of this matter cannot presently be determined.
At December 31, 1999, 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.
14. 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
<PAGE>
Redirection Program, the Company matches 100% of the first 5% and 50% of the
next 1% 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 $4,565,000, $4,312,000 and $3,321,000 in 1999, 1998 and
1997, respectively.
As of December 31, 1999, the market value of all ESOP investments was
$101,647,000, of which 23% represented the market value of the ESOP's investment
in Michael Baker Corporation Common Stock. The Company's ESOP held 42% of the
shares and 72% of the voting power for the outstanding Common Stock and Series B
Common Stock of the Company at the end of 1999.
15. STOCK OPTION PLANS
As of December 31, 1999, 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 and restricted shares 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. Unless otherwise established, one-fourth of the options
granted to key employees become immediately vested, and the remaining
three-fourths vest in annual one-fourth increments under the Plan, while the
options under the Directors' Plan are fully vested at date of grant. Vested
options remain exercisable for a period of ten years from the grant date under
both plans.
Under the Directors Plan, each nonemployee director was issued 500 restricted
shares of Common Stock, for a total of 3,500 shares of restricted stock issued
in 1999 and 1998. The Company recognized compensation expense totaling $27,000,
$35,000 and $31,000 related to the issuance of these restricted shares in 1999,
1998 and 1997, respectively. Restrictions on the shares expire two years after
the issue date.
<PAGE>
The following table summarizes all stock option activity for both plans in 1999,
1998 and 1997:
<TABLE>
<CAPTION>
AVERAGE
SHARES EXERCISE
SUBJECT PRICE
TO OPTION PER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C>
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
Options granted 67,289 $ 7.18
Options exercised (11,686) $ 6.02
Options forfeited (145,368) $ 9.60
- --------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 615,816 $ 7.86
================================================================================
</TABLE>
The weighted average fair value of options granted during 1999, 1998, and 1997
was $3.87, $5.37 and $3.94, respectively.
The following table summarizes information about stock options outstanding under
both plans as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS EXERCISE OUTSTANDING AVERAGE EXERCISABLE
GRANTED IN PRICE OPTIONS LIFE* OPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jan. 1995 $ 5.00 90,884 5.0 90,884
Feb. 1996 $ 4.81 38,282 6.2 38,282
May 1996 $ 5.03 4,000 6.4 4,000
Feb. 1997 $ 6.91 133,555 7.2 105,623
May 1997 $ 6.84 7,000 7.4 7,000
Feb. 1998 $ 9.53 87,949 8.2 51,773
Apr. 1998 $ 10.13 186,857 8.4 7,000
Feb. 1999 $ 9.00 10,289 9.2 2,571
July 1999 $ 7.81 7,000 9.6 7,000
Sept. 1999 $ 6.72 50,000 9.8 35,117
- --------------------------------------------------------------------------------
Total 615,816 7.6 349,250
================================================================================
<FN>
*Average life remaining in years
</FN>
</TABLE>
<PAGE>
As permitted under Statement of Financial Accounting Standards No. ("SFAS") 123,
"Accounting for Stock-Based Compensation," the Company continues to apply
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in its accounting for stock-based
compensation plans, and adopted SFAS 123 for disclosure purposes only.
Accordingly, no compensation cost was recognized for stock options granted in
1999, 1998 or 1997. 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.
If SFAS 123 had been used to account for both stock option plans, the Company's
pro forma net income/(loss) amounts would have been $(8,524,000), $(2,669,000)
and $4,725,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Similarly, the Company's pro forma diluted net income/(loss) per
share would have been $(1.04), $(0.33) and $0.57 for the years ended December
31, 1999, 1998, and 1997, 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 49.2%, an expected option life of 6 years, and a
0% expected dividend yield.
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the two years ended December 31, 1999 (in thousands, except per share
information):
<TABLE>
<CAPTION>
1999 - THREE MONTHS ENDED
- --------------------------------------------------------------------------------
March 31* June 30 Sept. 30* Dec. 31*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total contract revenues $115,118 $134,066 $129,790 $127,038
Gross profit 13,459 15,885 6,158 5,237
Income/(loss) before
income tax 780 3,537 (5,438) (8,120)
Net income/(loss) 413 1,875 (4,017) (6,435)
Diluted net income/(loss)
per common share $ 0.05 $ 0.23 $ (0.49) $ (0.79)
================================================================================
</TABLE>
<TABLE>
<CAPTION>
1998 - THREE MONTHS ENDED
- --------------------------------------------------------------------------------
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/(loss) 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 and Transportation unit project charges and Buildings unit
restructuring charges (see Note 2).
</FN>
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Michael Baker Corporation
In our opinion, the accompanying consolidated balance sheets 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, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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.
PricewaterhouseCoopers LLP
Pittsburgh, PA
March 29, 2000
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 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 9 5/8 8 7 7/8 6 5/8 10 1/2 10 1/2 9 1/2 10 3/8
Low 6 5/8 6 1/2 5 5/8 5 8 1/2 9 1/16 6 11/16 7 1/4
================================================================================
</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, 1999:
<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. Steen Production Service, Inc. Louisiana
19. Michael Baker Jr. Company Nevada
20. Michael Baker Architects/Engineers, P.C. New Jersey
21. Baker Engineering NY, Inc. New York
22. Baker/MO Services, Inc. Texas
23. Baker Support Services, Inc. Texas
24. Vermont General Insurance Company Vermont
25. Michael Baker Barbados Ltd. Barbados
26. Baker O&M International, Ltd. Cayman Islands
27. Baker/OTS International, Inc. Cayman Islands
28. Overseas Technical Services (Middle East) Ltd. Cayman Islands
29. Michael Baker de Mexico S.A. de C.V. Mexico
30. OTS International Training Services Ltd. United Kingdom
31. Overseas Technical Services (Harrow) Ltd. United Kingdom
32. Baker/OTS Ltd. United Kingdom
33. SD Forty-Five Ltd. United Kingdom
34. Hanseatic Oilfield Services Ltd. Vanuatu
35. OTS Finance and Management Ltd. Vanuatu
36. Overseas Technical Service 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 our report dated March 29, 2000 relating to the financial
statements which appears in the 1999 Annual Report to Shareholders of Michael
Baker Corporation, which is incorporated by reference in Michael Baker
Corporation's Annual Report on Form 10-K for the year ended December 31, 1999.
/s/ PricewaterhouseCoopers, LLP
- -------------------------------
PricewaterhouseCoopers, LLP
Pittsburgh, Pennsylvania
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,685
<SECURITIES> 0
<RECEIVABLES> 77,964
<ALLOWANCES> 0
<INVENTORY> 20,803
<CURRENT-ASSETS> 109,815
<PP&E> 49,962
<DEPRECIATION> (32,842)
<TOTAL-ASSETS> 149,191
<CURRENT-LIABILITIES> 83,742
<BONDS> 14,867
0
0
<COMMON> 6,432
<OTHER-SE> 37,084
<TOTAL-LIABILITY-AND-EQUITY> 149,191
<SALES> 506,012
<TOTAL-REVENUES> 506,012
<CGS> 465,273
<TOTAL-COSTS> 465,273
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 948
<INCOME-PRETAX> (9,241)
<INCOME-TAX> (1,077)
<INCOME-CONTINUING> (8,164)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,164)
<EPS-BASIC> (1.00)
<EPS-DILUTED> (1.00)
</TABLE>
