-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BJM7vnfkIeUTttb4CmSNcBO2BvuIytEn4HTJfpceEf40DUfEN3BvKXBs6Ir0ATfe +r+ci8+NG5t67WLYx0wY8Q== 0000009263-00-000005.txt : 20000331 0000009263-00-000005.hdr.sgml : 20000331 ACCESSION NUMBER: 0000009263-00-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAKER MICHAEL CORP CENTRAL INDEX KEY: 0000009263 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 250927646 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06627 FILM NUMBER: 587369 BUSINESS ADDRESS: STREET 1: AIRPORT OFFICE PARK BLDG 3 STREET 2: 420 ROUSER RD CITY: CORAOPOLIS STATE: PA ZIP: 15108 BUSINESS PHONE: 4122696300 MAIL ADDRESS: STREET 1: P O BOX 12259 CITY: PITTSBURGH STATE: PA ZIP: 15231-0259 FORMER COMPANY: FORMER CONFORMED NAME: EUTHENICS SYSTEMS CORP DATE OF NAME CHANGE: 19750527 FORMER COMPANY: FORMER CONFORMED NAME: BAKER MICHAEL JR INC DATE OF NAME CHANGE: 19720526 10-K 1 FORM 10-K 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 ------------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0927646 - ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) AIRPORT OFFICE PARK, BUILDING 3, 420 ROUSER ROAD, CORAOPOLIS, PA 15108 - ---------------------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 269-6300 -------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED -------------- ----------------------------------------- COMMON STOCK, PAR VALUE $1 PER SHARE AMERICAN STOCK EXCHANGE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ------ The Registrant estimates that as of February 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). 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 - -------------------------------------------------------------------------------- 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 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. PART I ITEM 1. BUSINESS --------- Michael Baker Corporation ("Baker" or "the Registrant") was founded in 1940 and organized as a Pennsylvania corporation in 1946. Today, through its operating subsidiaries and joint ventures, Baker provides engineering, 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 - -------------- 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. 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 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 - ------------------------------- 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 - --------------------------- 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. SIGNIFICANT CUSTOMERS - --------------------- 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 - ---------------------- 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 - ----------- 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. PERSONNEL - --------- 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 ---------- 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 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 ----------------- 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 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 --------------------------------------------------- No matters were submitted to a vote of the Registrant's security holders during the fourth quarter of 1999. EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ 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. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS ----------------------------------------------------------------------- Information relating to the market for the Registrant's Common Stock and other matters related to the holders thereof is set forth in the "Supplemental Financial Information" section of Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference. The Registrant's present policy is to retain any earnings to fund the operations and growth of the Registrant. The Registrant has not paid any cash dividends since 1983 and has no plans to do so 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 ----------------------- 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 ----------------------------------------------------------- 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 ---------------------------------------------------------- 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. 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 ------------------------------------------- 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 ----------------------------------------------------------- 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 -------------------------------------------------------------- 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 ---------------------------------------------- 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. 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:
EXHIBIT NO. DESCRIPTION - ----------- ----------- 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. 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.
(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. 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 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 EX-10.1 2 1999 INCENTIVE COMPENSATION PLAN Exhibit 10.1 1999 INCENTIVE COMPENSATION PLAN MICHAEL BAKER CORPORATION 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 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 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. 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. (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. 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. 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:
Corporate Performance Goal Setting Level (Earnings Per Share) ----- -------------------- LEVEL 1 ON PLAN $ .81 LEVEL 2 COMMENDABLE $ .90 LEVEL 3 OUTSTANDING $ .99
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 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. 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:
% of Business Unit Performance Plans ----------------- 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%
Guidelines of performance goals and percentage weights for Business Segment participants are recommended to be:
% of Business Segment and Individual Performance Plans ----------------- 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%
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. 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. 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. ARTICLE VI CHANGE IN CONTROL - ----------------- 6.1 CHANGE IN CONTROL: In the event of a Change in Control of the Company, as defined below, a Participant shall be entitled to, for the Plan Year in which the Change of Control occurs, the award determined using: (i) The Participant's actual Base Salary rate in effect on the date of the Change in Control, (ii) Actual Corporate performance results to the date of Change in Control, and (iii) Participant's Individual Performance results. The Committee as constituted immediately prior to the Change in Control shall determine how actual Corporate performance should be measured for purposes of the award calculation in 6.1. The Committee's determination shall be conclusive and final. Awards and any previously accrued awards shall be paid in cash to the Participant promptly following any discontinuance of the Plan on or after a Change of Control. 6.2 DEFINITION OF CHANGE IN CONTROL: A "Change in Control" will be deemed to have occurred on the first to occur of the following: (a) The Company acquires actual knowledge that any Person other than the Company, a Subsidiary, the Company's Stock Ownership Plan and Trust or any employee benefit plan(s) sponsored by the Company has acquired the Beneficial Ownership, directly or indirectly, of securities of the Company entitling such Person to 20% or more of the Voting Power of the Company; (b) A Tender Offer is made to acquire securities of the Company entitling the holders thereof to 20% or more of the Voting Power of the Company; or (c) A solicitation subject to Rule 14a-11 under the 1934 Act (or any successor Rule) relating to the election or removal of 50% or more of the members of any class of the Board shall be made by any person other than the Company or less than 51% of the members of the Board shall be Continuing Directors; or (d) The shareholders of the Company shall approve a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company as a result of which the shareholders of the Company immediately prior to such transaction shall not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power of (i) in the case of a merger or consolidation, the surviving or resulting corporation, (ii) in the case of a share exchange, the acquiring corporation or (iii) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the transaction, holds more than 10% of the consolidated assets of the Company immediately prior to the transaction. The term "person" shall mean and include any individual, corporation, partnership, company, association or other "person," as such term is used in Section 14(d) of the Exchange Act, other than the Company or any employee benefit plans sponsored by the Company. "Continuing Directors" shall mean a director of the Company who either (a) was a director of the Company on the effective date of the Plan or (b) is an individual whose election, or nomination for election, as a director of the Company was approved by a vote of at least two-thirds of the directors then still in office who were Continuing Directors (other than an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company which would be subject to Rule 14a-11 under the 1934 Act, or any successor Rule). ARTICLE VII MISCELLANEOUS PROVISIONS - ------------------------ 7.1 NON-TRANSFERABILITY: No right of interest of any Participant in this Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law or otherwise, including execution, levy, garnishment, attachment, pledge, and bankruptcy. 7.2 TAX WITHHOLDING: The Company shall have the right to deduct from all payments under this Plan any foreign, Federal, state, or local taxes required by law to be withheld with respect to such payments. 7.3 AMENDMENTS 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 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. 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 ----------------------------------------- 1999 MICHAEL BAKER CORPORATION INCENTIVE COMPENSATION PLAN - SUMMARY ATTACHMENT 1 FEBRUARY 25, 1999 - --------------------------------------------------------------------------------
ELIGIBILITY FOR INCENTIVE COMPENSATION PLAN - -------------------------------------------------------------------------------- NUMBER OF PARTICIPANTS Tier 1: APPROXIMATELY 48 Tier 2: APPROXIMATELY 80 Tier 3: Discretionary
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Participants 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
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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
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INCENTIVE COMPENSATION OPPORTUNITY - -------------------------------------------------------------------------------- Tier 1 Tier 2 Tier 3 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%
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PERFORMANCE MEASUREMENT - -------------------------------------------------------------------------------- Corporate Participants, Heads of Business Units and Staff, Managers with multiple Business Unit responsibility, and all Environmental Business Unit Participants Corporate Profitability Goals 50% of Potential Award Individual Performance Plan Goals 50% of Potential Award
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Business Unit-Segments and Profit Center Managers Corporate Profitability Goals 25% of Potential Award Business Unit Performance Goals 25% of Potential Award Individual Performance Plan Goals 50% of Potential Award
- -------------------------------------------------------------------------------- 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 ------------------- --------- 1st Level (On-Plan Performance) 33% $.81 2nd Level (Commendable) 33% $.90 3rd Level (Outstanding) 34% $.99
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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) 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
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POTENTIAL PAYOUT - -------------------------------------------------------------------------------- Corporate Individual Profitability Performance Goals Goals (% of Annual Salary) ------------- ----------- Tier 1 Corporate and Business Unit Heads and Staff 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% - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 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.
CONTRIBUTION ------------ 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
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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
- -------------------------------------------------------------------------------- EX-10.2(B) 3 SUPPLEMENTAL AGREEMENT NO. 5 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 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 - ----------------------------- ----------------------------------- EX-13.1 4 Exhibit 13.1 SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995 ================================================================================ (In thousands, except per share information) 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 ================================================================================
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 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 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 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 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.
MICHAEL BAKER CORPORATION CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 ================================================================================ (In thousands, except per share amounts) - -------------------------------------------------------------------------------- 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 ================================================================================ The accompanying notes are an integral part of the consolidated financial statements.
MICHAEL BAKER CORPORATION CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, ------------------ 1999 1998 ================================================================================ (In thousands) 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 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 ================================================================================ The accompanying notes are an integral part of the consolidated financial statements.
MICHAEL BAKER CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 ================================================================================ (In thousands) 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 ================================================================================ The accompanying notes are an integral part of the consolidated financial statements.
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) 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 ================================================================================ The accompanying notes are an integral part of the consolidated financial statements.
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. 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. 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 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. 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 - -------------------------------------------------------------------------------- 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: 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. The following tables reflect the required disclosures for the Company's seven segments (in millions):
1999 1998 1997 ================================================================================ TOTAL CONTRACT REVENUES: 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 ================================================================================ 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 ================================================================================
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):
1999 1998 1997 ================================================================================ 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% ================================================================================
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. 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following (in thousands):
1999 1998 ================================================================================ 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 ================================================================================
7. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets consist of the following (in thousands):
1999 1998 ================================================================================ 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 ================================================================================
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. 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. 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. 12. INCOME TAXES The provision for income taxes consisted of the following (in thousands):
1999 1998 1997 ================================================================================ 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 ================================================================================
The following is a reconciliation of income taxes at the federal statutory rate to income taxes recorded by the Company (in thousands):
1999 1998 1997 ================================================================================ 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 ================================================================================
The domestic and foreign components of the Company's income/(loss) before income taxes are as follows (in thousands):
1999 1998 1997 ================================================================================ Domestic $(12,355) $(4,203) $ 7,148 Foreign 3,114 2,872 2,196 - -------------------------------------------------------------------------------- TOTAL $ (9,241) $(1,331) $ 9,344 ================================================================================
The components of the Company's deferred income tax assets and liabilities at December 31, 1999 and 1998 are as follows (in thousands):
1999 1998 ================================================================================ 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 ================================================================================
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 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 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. The following table summarizes all stock option activity for both plans in 1999, 1998 and 1997:
AVERAGE SHARES EXERCISE SUBJECT PRICE TO OPTION PER SHARE - -------------------------------------------------------------------------------- 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 ================================================================================
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:
OPTIONS EXERCISE OUTSTANDING AVERAGE EXERCISABLE GRANTED IN PRICE OPTIONS LIFE* OPTIONS - -------------------------------------------------------------------------------- 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 ================================================================================ *Average life remaining in years
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):
1999 - THREE MONTHS ENDED - -------------------------------------------------------------------------------- March 31* June 30 Sept. 30* Dec. 31* - -------------------------------------------------------------------------------- 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) ================================================================================
1998 - THREE MONTHS ENDED - -------------------------------------------------------------------------------- March 31 June 30 Sept. 30 Dec. 31* - -------------------------------------------------------------------------------- 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) ================================================================================ *Includes Buildings and Transportation unit project charges and Buildings unit restructuring charges (see Note 2).
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:
1999 1998 - -------------------------------------------------------------------------------- First Second Third Fourth First Second Third Fourth - -------------------------------------------------------------------------------- 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 ================================================================================
EX-21.1 5 SUBSIDIARIES OF THE REGISTRANT 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:
State or Country Name of Organization ---- ---------------- 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
EX-23.1 6 CONSENT OF INDEPENDENT ACCOUNTANTS 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 EX-27 7 FDS
5 1000 Year DEC-31-1999 JAN-01-1999 DEC-31-1999 3,685 0 77,964 0 20,803 109,815 49,962 (32,842) 149,191 83,742 14,867 0 0 6,432 37,084 149,191 506,012 506,012 465,273 465,273 0 0 948 (9,241) (1,077) (8,164) 0 0 0 (8,164) (1.00) (1.00)
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