SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 1-6627
MICHAEL BAKER CORPORATION
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0927646
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
AIRPORT OFFICE PARK, BUILDING 3, 420 ROUSER ROAD, CORAOPOLIS, PA 15108
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 269-6300
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK, PAR VALUE $1 PER SHARE AMERICAN STOCK EXCHANGE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The Registrant estimates that as of February 29, 2000, the aggregate market
value of shares of the Registrant's Common Stock and Series B Common Stock held
by non-affiliates (excluding for purposes of this calculation only, 2,364,783
shares of Common Stock and 1,223,475 shares of Series B Common Stock held of
record or beneficially by the executive officers and directors of the Registrant
as a group and the Registrant's Employee Stock Ownership Plan) of the Registrant
was $27,643,362 for the Common Stock and $542,338 for the Series B Common Stock
(calculated for the Series B Common Stock on the basis of the shares of Common
Stock into which Series B Common Stock is convertible).
As of February 29, 2000, the Registrant had outstanding 6,877,985 shares of its
Common Stock and 1,312,020 shares of its Series B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Form 10-K into which
Document Document is Incorporated
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Financial Section of Annual Report to Shareholders
for the year ended December 31, 1999 I, II
Proxy Statement to be distributed in connection with
the 2000 Annual Meeting of Shareholders III
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
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Michael Baker Corporation ("Baker" or "the Registrant") was founded in 1940 and
organized as a Pennsylvania corporation in 1946. Today, through its operating
subsidiaries and joint ventures, Baker provides engineering, management and
operations services worldwide.
The Registrant is organized into the following five market-focused business
units: Buildings, Civil, Energy, Environmental and Transportation. Under the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," the Registrant's seven reportable segments include the Buildings,
Energy and Environmental units, plus the Engineering and Baker Support Services,
Inc. ("BSSI") divisions of the Civil unit and the Engineering and Construction
(heavy and highway) divisions of the Transportation unit.
Information regarding the amounts of revenues, income before taxes, total
assets, capital expenditures, and depreciation and amortization expense
attributable to the Registrant's reportable segments is contained in Note 5 to
the consolidated financial statements, which are included within Exhibit 13.1 to
this Form 10-K. Such information is incorporated herein by reference.
According to the annual listings published in 1999 by ENGINEERING NEWS RECORD
magazine, Baker ranked 42nd among U.S. design firms, 16th among water design
firms, 18th among transportation design firms, 132nd among international design
firms, 77th among global design firms, 71st among environmental firms, and 65th
among construction management-for-fee firms. Baker also ranked 191st among
government contractors according to a listing published in 1999 by GOVERNMENT
EXECUTIVE magazine. These rankings were based on 1998 revenues.
BUSINESS UNITS
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BUILDINGS. Through March 1999, the Buildings unit comprised a general
construction, construction management and design-build division and a facilities
planning and design division, that together or separately pursued the
design-build market. This unit offered a variety of services including design-
build, construction management, planning, program management, general
contracting, architectural and interior design, construction inspection, and
constructability reviews. The Buildings unit has completed a wide range of
projects, such as corporate headquarters, data centers, correctional facilities,
educational facilities, airports and entertainment facilities.
Effective in April 1999, following a significant 1998 loss on a construction
project in the Buildings unit, this unit was restructured such that all bidding
activity associated with its general construction operations was discontinued.
The Registrant's Buildings unit remained responsible for only one significant
general construction project at December 31, 1999. This project is expected to
be completed during the second quarter of 2000.
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
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For the years ended December 31, 1999, 1998 and 1997, approximately 90%, 91% and
90% of the Registrant's total contract revenues, respectively, were derived from
work performed within the United States. Further financial information regarding
the Registrant's domestic and foreign operations is contained in Notes 5 and 12
to the consolidated financial statements, which are included within Exhibit 13.1
to this Form 10-K. Such information is incorporated herein by reference. Of the
Registrant's domestic revenues, the majority comprises engineering and
construction work performed in the Northeast region of the U.S. The Registrant's
international revenues are derived primarily from its Energy unit.
FUNDED AND UNFUNDED BACKLOG
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The Registrant's funded backlog, which comprises that portion of uncompleted
work represented by signed contracts and for which the procuring agency has
appropriated and allocated the funds to pay for the work, was $365 million at
December 31, 1999 and $448 million at December 31, 1998. Total backlog, which
incrementally includes that portion of contract value for which options are
still to be exercised (unfunded backlog), was $657 million at December 31, 1999
and $735 million at December 31, 1998. With reference to the Registrant's 1999
restructuring, funded backlog related to the businesses that will be continued
by the Registrant was $316 million and $300 million, and total backlog was $608
million and $587 million, as of year-end 1999 and 1998, respectively.
There is not necessarily a direct correlation between the Registrant's backlog
amounts and its annual total contract revenues. Further, the Registrant's
backlog amounts do not represent a guarantee of future revenues or results of
operations. In the case of multi-year contracts, total contract revenues are
spread over several years and correspond to the timing of the contract rather
than the Registrant's fiscal year. Many multi-year contracts, particularly with
agencies of the U.S. government, provide for optional renewals on the part of
the customer. The Registrant's experience has been that these optional contract
renewals, which are included in unfunded backlog, have generally been exercised.
Funded backlog generally is highest during the last quarter of the Registrant's
fiscal year because that corresponds to the first quarter of the U.S.
government's fiscal year, which is when many government contract renewals occur.
SIGNIFICANT CUSTOMERS
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Contracts with various branches of the U.S. government accounted for 21%, 27%
and 24% of the Registrant's total contract revenues for the years ended December
31, 1999, 1998 and 1997, respectively. No individual contract accounted for more
than 10% of the Registrant's total contract revenues in 1999 or 1997; however,
several contracts with the Pennsylvania Department of Transportation provided
11% of the Company's total contract revenues for 1999. An individual Buildings
unit construction contract with Universal City Development Partners ("UCDP")
accounted for 12% of the Registrant's total contract revenues in 1998, which
contract was terminated resulting in litigation. A description of this
litigation is described in Item 3, and further financial information regarding
this contract is contained in Note 2 to the consolidated financial statements,
which are included within Exhibit 13.1 to this Form 10-K. Such information is
incorporated herein by reference.
COMPETITIVE CONDITIONS
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The Registrant's business is highly competitive with respect to all principal
services it offers. Baker competes with numerous firms that provide some or all
of the services provided by the Registrant. The competitive conditions in the
Registrant's businesses relate to the nature of the contracts being pursued.
Public-sector contracts, consisting mostly of contracts with federal and state
governmental entities, are generally awarded through a competitive process,
subject to the contractors' qualifications and experience. The Baker business
units employ extensive cost estimating, scheduling and other techniques for the
preparation of these competitive bids. Private-sector contractors compete
primarily on the bases of qualifications, quality of performance and price of
services. Most private and public-sector contracts for professional services are
awarded on a negotiated basis.
The Registrant believes that the principal competitive factors (in various
orders of importance) in the areas of services it offers are quality of service,
reputation, experience, technical proficiency and cost of service. The
Registrant believes that it is well positioned to compete effectively by
emphasizing the quality of services it offers and its widely known reputation in
providing engineering, management and operations services.
SEASONALITY
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Based upon the Registrant's experience, total contract revenues and net income
from construction-related services, and to a lesser extent its engineering
services, have historically been lower for the first quarter than for the
remaining quarters due to winter weather conditions, particularly for projects
in the Northeast and Midwest regions of the United States. Going forward, given
the discontinuance of all general construction operations, seasonality is
expected to have less of an impact on the Registrant's quarterly results of
operations.
PERSONNEL
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At December 31, 1999, the Registrant had approximately 3,954 employees, broken
down by business unit as follows:
Buildings unit-138 Environmental unit-156
Civil unit-1,532 Transportation unit-1,079
Energy unit-1,022 Corporate staff-27
The Registrant's employees are not represented by labor unions, with the
exception of its construction personnel which are generally covered by
collective bargaining agreements, as are certain BSSI employees in the Civil
unit. During 2000, two BSSI collective bargaining agreements are scheduled for
renegotiation, but no significant issues are expected. Currently, the Registrant
considers its relationships with labor unions to be good.
ITEM 2. PROPERTIES
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The principal offices of the Registrant are located at the Airport Office Park,
410 and 420 Rouser Road, Coraopolis, Pennsylvania 15108, at which approximately
167,000 square feet of office space is leased for use by the Registrant's Civil,
Buildings, Environmental and Transportation units and, to a lesser extent, by
its Corporate staff. The Registrant owns a 75,000 square foot office building
located in Beaver County, Pennsylvania, which is situated on a 175 acre site and
utilized by the Registrant's Civil and Buildings units. The Beaver County
building and property are currently for sale, and are not subject to any
encumbrances. Upon any such sale, the Registrant would expect to either continue
leasing this building from the new owner or relocate the affected employees.
The Registrant leases an aggregate of approximately 476,000 square feet of
office-related floor space, including its principal offices. The space leased by
business unit is as follows:
The Buildings unit leases approximately 64,000 square feet in:
Alexandria, Virginia Coraopolis, Pennsylvania
Annapolis, Maryland Rocky Hill, Connecticut
Chicago, Illinois
The Civil unit leases approximately 130,000 square feet in:
Alexandria, Virginia Frederick, Maryland
Anchorage, Alaska Jackson, Mississippi
Annapolis, Maryland Mexico City, Mexico
Coraopolis, Pennsylvania Phoenix, Arizona
Dallas, Texas Rocky Hill, Connecticut
Elmsford, New York Virginia Beach, Virginia
Fairbanks, Alaska
The Energy unit leases approximately 38,000 square feet in:
Abu Dhabi, United Arab Emirates Lafayette, Louisiana
Houston, Texas Middlesex, United Kingdom
The Environmental unit leases approximately 46,000 square feet in:
Annapolis, Maryland Merrillville, Indiana
Coraopolis, Pennsylvania Princeton, New Jersey
The Transportation unit leases approximately 182,000 square feet in:
Alexandria, Virginia Harrisburg, Pennsylvania
Annapolis, Maryland Horsham, Pennsylvania
Birmingham, Alabama Philadelphia, Pennsylvania
Brooklyn, New York Phoenix, Arizona
Chicago, Illinois Princeton, New Jersey
Cleveland, Ohio Richmond, Virginia
Columbus, Ohio Rocky Hill, Connecticut
Coraopolis, Pennsylvania Salt Lake City, UT
Cross Lanes, West Virginia Shreveport, Louisiana
Elmsford, New York Tampa, Florida
Gibsonia, Pennsylvania Virginia Beach, Virginia
Greensboro, North Carolina White Hall, Arkansas
The Registrant also leases approximately 16,000 square feet of space in Beaver
and Coraopolis, Pennsylvania, for use by its Corporate staff.
ITEM 3. LEGAL PROCEEDINGS
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The Registrant has been named as a defendant or co-defendant in legal
proceedings wherein substantial damages are claimed. Such proceedings are not
uncommon to the Registrant's business. After consultations with counsel,
management believes that the Registrant has recognized adequate provisions for
probable and reasonably estimable liabilities associated with these proceedings,
and that their ultimate resolutions will not have a material adverse effect on
the consolidated financial position or annual results of operations of the
Registrant.
The Registrant currently is a party to two material legal proceedings. The more
significant proceeding relates to a contract for the construction of the
CityWalk project at the Universal Studios theme park in Orlando, Florida,
between Baker Mellon Stuart Construction, Inc. ("BMSCI"), a wholly-owned
subsidiary of the Registrant, and UCDP. Under the contract, BMSCI provided
project-related construction services to UCDP. During BMSCI's performance under
the contract, which began in 1997, the project suffered delays and performance
issues arose.
On March 5, 1999, UCDP terminated BMSCI's right to proceed with the project work
by alleging default. UCDP has also notified BMSCI of UCDP claims for damages
resulting from the alleged default, including the cost to complete or correct
the work, additional maintenance or operation costs, and alleged lost revenues
or other damages. UCDP simultaneously filed a lawsuit against BMSCI for breach
of contract in the Federal District Court in the Middle District of Florida
("Federal Court"). On October 26, 1999, the Court granted UCDP's Motion to add
the Company and its bonding company as additional defendants. The Company was
not a party to the contract underlying the lawsuit and contends it cannot be
held liable for any conduct of the subsidiary. BMSCI and the Company are
vigorously defending this action. On March 8, 1999, BMSCI filed a lawsuit
against UCDP in the Circuit Court for the Ninth Judicial Circuit in and for
Orange County, Florida ("State Court") alleging breach of contract, wrongful
termination and other counts and seeking damages, interest, court costs and
other relief, including potential counterclaims. This action was voluntarily
dismissed on July 6, 1999, and BMSCI pursued its claims against UCDP by way of
counterclaims filed in UCDP's Federal Court action. The Federal Court ordered
mediation of this matter to occur.
On March 22, 2000, mediation of this matter resulted in a conditional settlement
agreement being entered into by the Registrant; BMSCI; Travelers Casualty and
Surety Company of America ("Travelers"), which provided performance and payment
bonds on behalf of BMSCI; UCDP; Hellmuth, Obata & Kassabaum, Inc., which
designed the project; and the court-appointed mediator. Pursuant to the terms of
the settlement agreement, the parties resolved the claims between them, and
BMSCI agreed to pay UCDP $2.0 million. BMSCI remains responsible for resolution
of all remaining subcontractor and vendor claims, the most significant of which
is the subject of a suit brought by ADF International, Inc. ("ADF"), BMSCI's
subcontractor for structural steel and miscellaneous metals, against BMSCI and
Travelers. The conditional settlement agreement is subject to and conditioned
upon acceptance and signature by the Project Policy Insurer not later than March
31, 2000.
On November 24, 1998, ADF filed suit in Federal Court against BMSCI and
Travelers seeking damages for alleged breaches of contract relating to the
project. BMSCI and its surety answered the complaint (and amended complaint) and
BMSCI filed a counterclaim. BMSCI and its counsel believe it has valid claims
against ADF and defenses to claims by ADF. BMSCI intends to pursue and defend
these claims vigorously. BMSCI further intends to engage in negotiations to
settle all other subcontractor and vendor claims. The Registrant believes it has
made adequate provisions for all subcontractor and vendor claims, including ADF,
in its 1999 consolidated financial statements.
The other proceeding relates to a lawsuit brought in 1987 in the Supreme Court
of the State of New York, Bronx County, by the Dormitory Authority of the State
of New York against a number of parties, including the Registrant and one of its
wholly-owned subsidiaries, that asserts breach of contract and alleges damages
of $13 million. The Registrant, which was not a party to the contract underlying
the lawsuit, contends that there is no jurisdiction with respect to the
Registrant and that it cannot be held liable for any conduct of the subsidiary.
Both the Registrant and the subsidiary are contesting liability issues and have
filed cross-claims and third-party claims against the other entities involved in
the project.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the Registrant's security holders during
the fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
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The following represents a listing of executive officers of the Registrant as of
December 31, 1999.
RICHARD L. SHAW - Age 72; Chief Executive Officer of the Registrant since
September 1999, and previously President and Chief Executive Officer from 1993
through 1994 and from 1984 through 1992; Chairman of the Board of the Registrant
since 1992 and a Director since 1966. Mr. Shaw has been with the Registrant
since 1952 serving in various capacities.
DONALD P. FUSILLI, JR. - Age 49; Executive Vice President of the Registrant
since 1991 and President of Baker/MO Services, Inc., a subsidiary of the
Registrant, since 1995. Mr. Fusilli was named President and Chief Operating
Officer of the Registrant in March 2000. Mr. Fusilli previously served as
General Counsel and Secretary of the Registrant from 1986 through 1994. He has
been employed by the Registrant in various capacities since 1973.
J. ROBERT WHITE - Age 57; Executive Vice President, Chief Financial Officer,
Treasurer and a Director of the Registrant from 1994 until his resignation in
March 2000. Prior to joining the Registrant, Mr. White served 21 years in
various capacities with Westinghouse Electric Corp., most recently as Assistant
Director of Investor Relations from 1989 through 1994.
H. JAMES MCKNIGHT - Age 55; Senior Vice President, General Counsel and Secretary
of the Registrant since 1995. Mr. McKnight previously served as counsel to
International Technology Corporation from February 1995 through September 1995,
and was a self-employed consultant from 1992 through February 1995.
JOHN C. HAYWARD - Age 52; Executive Vice President of the Registrant since 1995
and President of Michael Baker Jr., Inc. since 1994. Mr. Hayward previously
served as Senior Vice President of Michael Baker Jr., Inc. from 1989 through
1994. He has been employed by the Registrant in various capacities since 1974.
PHILIP A. SHUCET - Age 49; Executive Vice President of the Registrant and
President of Baker Environmental, Inc., a subsidiary of the Registrant, since
1996. Mr. Shucet previously served as Vice President of Michael Baker Jr., Inc.
from 1995 through 1996. Mr. Shucet has been employed by the Registrant in
various capacities since 1989.
EDWARD L. WILEY - Age 56; Executive Vice President of the Registrant since 1995
and Executive Vice President of Michael Baker Jr., Inc. since 1994. Mr. Wiley
previously served as Senior Vice President of Michael Baker Jr., Inc. from 1989
through 1994. He has been employed by the Registrant in various capacities since
1968.
Executive officers of the Registrant serve at the pleasure of the Board of
Directors and are elected by the Board or appointed annually for a term of
office extending through the election or appointment of their successors.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
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Information relating to the market for the Registrant's Common Stock and other
matters related to the holders thereof is set forth in the "Supplemental
Financial Information" section of Exhibit 13.1 to this Form 10-K. Such
information is incorporated herein by reference.
The Registrant's present policy is to retain any earnings to fund the operations
and growth of the Registrant. The Registrant has not paid any cash dividends
since 1983 and has no plans to do so in the foreseeable future.
At February 29, 2000, the Registrant had 1,388 holders of its Common Stock and
647 holders of its Series B Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
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A summary of selected financial data for the Registrant, including each of the
last five fiscal years for the period ended December 31, 1999, is set forth in
the "Selected Financial Data" section of Exhibit 13.1 to this Form 10-K. Such
summary is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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A discussion of the Registrant's financial condition, cash flows and results of
operations is set forth in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of Exhibit 13.1 to this
Form 10-K. Such discussion is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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The Registrant's primary interest rate risk relates to its long-term debt
obligations. As of December 31, 1999 and 1998, the Registrant had total
long-term debt obligations, including the current portion of those obligations,
totaling $18.4 million and $4.0 million, respectively. Of these amounts, fixed
rate obligations totaled $2.7 million and $3.3 million, and variable rate
obligations totaled $15.7 million and $0.7 million, as of December 31, 1999 and
1998, respectively. The 1999 increases in these debt amounts relate to
borrowings under the Registrant's credit agreement with Mellon Bank, N.A. and
debt related to its 1999 acquisition of Steen Production Service, Inc. Assuming
a 10% increase in interest rates on the Registrant's variable rate obligations
(i.e., an increase from the actual weighted average interest rates of 8.50% and
7.75%, to weighted average interest rates of 9.35% and 8.53%, as of December 31,
1999 and 1998, respectively), annual interest expense would have been
approximately $134,000 higher in 1999 and only $6,000 higher in 1998 based on
the respective year-end outstanding balances of variable rate obligations. The
Registrant has no interest rate swap or exchange agreements.
Less than 1% of the Registrant's total assets and total contract revenues as of
and for the periods ended December 31, 1999 and 1998 were denominated in
currencies other than the U.S. Dollar; accordingly, the Registrant has no
material exposure to foreign currency exchange risk. This materiality assessment
is based on the assumption that the foreign currency exchange rates could change
unfavorably by 10%. The Registrant has no foreign currency exchange contracts.
Based on the nature of the Registrant's business, it has no direct exposure to
commodity price risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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The consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP, dated March 29, 2000, and supplementary financial
information are set forth within Exhibit 13.1 to this Form 10-K. Such financial
statements and supplementary financial information are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
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Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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Information relating to the Directors of the Registrant appears beneath the
caption "Election of Directors" in the Registrant's definitive Proxy Statement
which will be distributed in connection with the 2000 Annual Meeting of
Shareholders and which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A. Information relating to compliance with Section
16(a) of the Securities Exchange Act of 1934 appears beneath the caption
"Directors and Officers" of such Proxy Statement. Such information is
incorporated herein by reference. Information relating to the executive officers
of the Registrant is set forth in Part I of this Report under the caption
"Executive Officers of the Registrant." Such information is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information relating to executive compensation appears beneath the caption
"Directors and Officers" in the Registrant's definitive Proxy Statement which
will be distributed in connection with the 2000 Annual Meeting of Shareholders
and which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Information relating to the ownership of equity securities by beneficial owners
of 5% or more of the common stock of the Registrant and by management has been
set forth under the caption "Stock Ownership of Certain Beneficial Owners and
Management" in the Registrant's definitive Proxy Statement which will be
distributed in connection with the 2000 Annual Meeting of Shareholders and which
will be filed with the Securities and Exchange Commission pursuant to Regulation
14A. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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Information concerning certain relationships and transactions between the
Registrant and its directors and officers appears beneath the caption "Directors
and Officers" in the Registrant's definitive Proxy Statement which will be
distributed in connection with its 2000 Annual Meeting of Shareholders and which
will be filed with the Securities and Exchange Commission pursuant to Regulation
14A. Such information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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(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