SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): SEPTEMBER 1, 1999 ----------------- MICHAEL BAKER CORPORATION ------------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 1-6627 25-0927646 - ------------ ------ ---------- (State or other (Commission (I.R.S. Employer jurisdiction of incorporation) File Number) 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 -------------- ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. ---------------------------------- (a) The following financial statements for Steen Production Service, Inc. ("Steen") are filed herewith: AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND - -------------------------------------------------------------------------------- 1997: - ----- o Report of independent accountants o Balance sheet as of December 31, 1998 and 1997 o Statement of operations for the years ended December 31, 1998 and 1997 o Statement of changes in stockholders' equity for the years ended December 31, 1998 and 1997 o Statement of cash flows for the years ended December 31, 1998 and 1997 o Notes to financial statements UNAUDITED INTERIM FINANCIAL STATEMENTS: - --------------------------------------- o Balance sheet as of June 30, 1999 and December 31, 1998 o Statement of operations and retained earnings for the six-month periods ended June 30, 1999 and 1998 o Statement of cash flows for the six-month periods ended June 30, 1999 and 1998 o Notes to financial statements (b) The following unaudited pro forma consolidated financial information for Michael Baker Corporation ("Baker") and Steen is filed herewith: o Pro forma consolidated balance sheet as of June 30, 1999 o Notes to pro forma consolidated balance sheet o Pro forma consolidated statement of income for the year ended December 31, 1998 o Pro forma consolidated statement of income for the six-month period ended June 30, 1999 o Notes to pro forma consolidated statements of income (c) In addition to the Exhibit filed with the Form 8-K dated September 15, 1999, the following exhibit is filed herewith as part of this amendment: Exhibit 23.1 Consent of independent accountants SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MICHAEL BAKER CORPORATION Date: November 15, 1999 /s/ J. ROBERT WHITE -------------------------------------- J. Robert White Executive Vice President, Chief Financial Officer and Treasurer STEEN PRODUCTION SERVICE, INC. FINANCIAL STATEMENTS DECEMBER 31, 1998 and 1997 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Michael Baker Corporation and Steen Production Service, Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of cash flows and of changes in stockholders' equity present fairly, in all material respects, the financial position of Steen Production Service, Inc. (the Company) at December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 13 to the financial statements, the Company was purchased on September 1, 1999 by a wholly-owned subsidiary of Michael Baker Corporation. /s/ PricewaterhouseCooopers LLP - ------------------------------- PricewaterhouseCoopers LLP October 1, 1999 STEEN PRODUCTION SERVICE, INC. BALANCE SHEET DECEMBER 31, 1998 AND 1997 - -------------------------------------------------------------------------------- ASSETS 1998 1997 Current assets: Cash and cash equivalents $ 161,830 $ 89,059 Accounts receivable 2,702,285 3,335,010 Investments 219,967 207,313 Other receivables 72,199 52,463 Prepaid expenses 162,091 124,734 Prepaid taxes 114,854 -- Deferred tax asset 58,563 15,300 ------------ ------------ Total current assets 3,491,789 3,823,879 ------------ ------------ Property and equipment: Buildings and improvements 5,763 30,263 Leasehold improvements 15,378 15,378 Barges 90,000 187,436 Marine equipment 721,951 716,791 Furniture and fixtures 41,243 64,723 Equipment 69,652 94,879 Autos -- 279,629 ------------ ------------ 943,987 1,389,099 Less - Accumulated depreciation (717,417) (889,033) ------------ ------------ Net property, plant and equipment 226,570 500,066 Other assets 164,533 146,018 ------------ ------------ Total assets $ 3,882,892 $ 4,469,963 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 132,681 $ 173,383 Notes payable 605,882 119,012 Current portion of long-term debt 1,223,849 1,983,920 Payroll taxes payable 149,862 143,208 Accrued expenses 383,817 291,747 Income taxes payable 639 134,724 ------------- ------------ Total current liabilities 2,496,730 2,845,994 Long-term liabilities: Long-term debt 78,252 158,768 Deferred tax liability 29,874 9,705 ------------ ------------ Total long-term liabilities 108,126 168,473 Stockholders' equity: Common stock, no par value, 10 shares authorized, 6 shares issued and outstanding 20,312 20,312 Accumulated other comprehensive loss (2,263) (877) Retained earnings 1,259,987 1,436,061 ------------ ------------ Total stockholders' equity 1,278,036 1,455,496 ------------ ------------ Total liabilities and stockholders' equity $ 3,882,892 $ 4,469,963 ============ ============ <FN> The accompanying notes are an integral part of these financial statements. </FN> STEEN PRODUCTION SERVICE, INC. STATEMENT OF OPERATIONS YEARS ENDED DECEMBER 31, 1998 AND 1997 - -------------------------------------------------------------------------------- 1998 1997 Revenues $ 16,975,691 $ 17,342,411 Operating costs and expenses: Operating 861,550 998,823 Personnel 13,042,571 12,641,236 Depreciation 104,823 161,787 General and administrative 2,249,771 2,200,495 ------------- ------------- Total operating cost and expenses 16,258,715 16,002,341 Operating income 716,976 1,340,070 Other income (expense): Interest expense (96,086) (134,094) Interest income 17,748 27,614 Other (54,626) 73,403 ------------- ------------- Other income (expense) (132,964) (33,077) Income before taxes 584,012 1,306,993 Income taxes 7,801 200,833 ------------- ------------- Net income $ 576,211 $ 1,106,160 ============= ============= <FN> The accompanying notes are an integral part of these financial statements. </FN> STEEN PRODUCTION SERVICE, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997 - -------------------------------------------------------------------------------- ACCUMULATED OTHER COMMON COMPREHENSIVE COMPREHENSIVE RETAINED STOCK GAIN (LOSS) LOSS EARNINGS Balance, January 1, 1997 $ 20,312 $ 60 $ -- $ 1,219,901 Net income -- -- 1,106,160 1,106,160 Other comprehensive loss -- (937) (937) -- ----------- Comprehensive income -- -- $1,105,223 -- =========== Distributions -- -- (890,000) -------- -------- ----------- Balance, December 31, 1997 20,312 (877) 1,436,061 Net income -- -- $ 576,211 576,211 Other comprehensive loss -- (1,386) (1,386) -- ----------- Comprehensive income -- -- $ 574,825 -- =========== Distributions -- -- (752,285) -------- -------- ----------- Balance, December 31, 1998 $ 20,312 $(2,263) $1,259,987 ======== ======== =========== <FN> The accompanying notes are an integral part of these financial statements. </FN> STEEN PRODUCTION SERVICE, INC. STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998 AND 1997 - -------------------------------------------------------------------------------- 1998 1997 CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income (loss) $ 576,211 $ 1,106,160 Adjustments to reconcile net income to cash provided (used) by operating activities: Depreciation and amortization 104,823 161,787 (Gain) loss on sale of assets 52,839 (33,657) Deferred income taxes (23,094) (2,373) Changes in assets and liabilities: Receivables 632,725 (1,282,304) Prepaid income taxes (114,854) 24,804 Accounts payable (40,702) (85,246) Income taxes payable (134,085) 62,855 Life insurance cash surrender value (38,121) (38,844) Other net assets 59,851 106,981 ------------ ------------ Net cash provided by operating activities 1,075,593 20,163 ------------ ------------ CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: Purchases of investments (12,654) -- Proceeds from sale of investments -- 236,769 Proceeds from sale of assets 166,300 106,595 Capital expenditures (50,466) (207,374) ------------ ----------- Net cash provided by investing activities 103,180 135,990 ------------ ------------ CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES: Net proceeds from (payments on) revolving line of credit (564,943) 825,141 Proceeds from issuance of notes payable 910,770 458,828 Principal payments on notes payable (423,900) (468,423) Principal payments on long-term debt (275,644) (222,168) Proceeds from issuance of long-term debt -- 139,425 Distributions (752,285) (890,000) ------------ ------------ Net cash (used in) financing activities (1,106,002) (157,197) ------------ ------------ Net increase (decrease) in cash 72,771 (1,044) Cash at beginning of year 89,059 90,103 ------------ ------------ Cash at end of year $ 161,830 $ 89,059 ============ ============ Cash paid during the period for: Interest $ 112,434 $ 138,870 ============ ============ Income taxes $ 279,834 $ 40,977 ============ ============ <FN> The accompanying notes are an integral part of these financial statements. </FN> STEEN PRODUCTION SERVICE, INC. DECEMBER 31, 1998 AND 1997 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION Steen Production Service, Inc. (Steen or the Company) was incorporated in the state of Louisiana on September 1, 1960. The Company provides supervised labor to companies engaged in inland and offshore oil and drilling activities. 2. BUSINESS COMBINATIONS On December 31, 1998, Production Barges, Inc. (a Subchapter S Corporation under common control with Steen) (Barges) was merged into Steen. The merger was accounted for similar to the pooling-of-interests method and all financial data for the necessary periods have been restated to include the results of Barges. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of 3 months or less. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years. Expenditures for maintenance and repairs are expensed as incurred; expenditures for renewals and improvements are generally capitalized. Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized. REVENUE RECOGNITION Revenue is recorded when earned which is based on the work performed. INCOME TAXES The Company accounts for certain income and expense items differently for financial reporting and income tax purposes. In accordance with SFAS No. 109, "Accounting for Income Taxes," deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. STEEN PRODUCTION SERVICE, INC. DECEMBER 31, 1998 AND 1997 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Income for the years ended December 31, 1998 and 1997 includes earnings from a "C" Corporation (Steen) as well as an "S" Corporation (Barges). Income tax is provided for only the earnings of the "C" Corporation. The earnings of the "S" Corporation are taxed to the individual shareholders. CONCENTRATION OF CREDIT RISK The Company's customer base includes companies engaged in both inland and offshore producing/drilling activities. Although the Company is directly affected by the oil industry, management does not believe significant credit risk exists at December 31, 1998. Three customers represent approximately 37.7 percent, 12.1 percent and 9.9 percent of revenues for the year ended December 31, 1998. For the year ended December 31, 1997, one customer represented approximately 22.5 percent of revenues. Additionally, these customers represented 41.1 percent and 18.5 percent of receivables at December 31, 1998 and 1997, respectively. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of cash, investments, receivables, payables and short-term borrowings approximate carrying amounts due to the short maturities of these instruments. 4. INVESTMENTS The following securities have been classified as available for sale. The carrying amount of securities available for sale and their estimated fair value at December 31, 1998 and 1997, were as follows: HISTORICAL UNREALIZED FAIR COST LOSS VALUE 1998 ---------------------------------------- Van Kampen Mutual Funds $222,230 $ 2,263 $219,967 -------- -------- -------- 1997 ----------------------------------------- Van Kampen Mutual Funds $208,190 $ 877 $207,313 --------- -------- -------- STEEN PRODUCTION SERVICE, INC. DECEMBER 31, 1998 AND 1997 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 5. INCOME TAXES As noted in Note 3 to the financial statements, the Company's income tax provision is calculated only on the pretax income of Steen. The remaining income is attributable to Barges, a subchapter "S" Corporation. 1998 1997 Current tax provision: Federal $ 30,256 $193,481 State 639 9,725 --------- --------- Total current tax provision 30,895 203,206 -------- --------- Deferred tax benefit (23,094) (2,373) -------- --------- Provision for income taxes $ 7,801 $200,833 ========= ========= Deferred tax assets (liabilities) consisted at December 31: 1998 1997 LIABILITIES Depreciation $(29,874) $ (9,705) --------- --------- ASSETS Accruals and allowances 58,563 15,300 --------- --------- Net deferred tax asset $ 28,689 $ 5,595 ========= ========= STEEN PRODUCTION SERVICE, INC. DECEMBER 31, 1998 AND 1997 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company's effective tax for financial statement purposes: 1998 1997 Statutory tax rate 34.0 % 34.0 % Rate adjustment due to reduced level of taxable loss (9.0) -- Nondeductible items 14.3 8.5 State taxes 1.8 (1.1) S Corporation earnings (39.8) (26.0) ------- ------- Effective tax rate 1.3 % 15.4 % ======= ======= 6. Notes Payable The following notes payable were outstanding at December 31: 1998 1997 Notes payable to James Orville Steen (shareholder); due on demand or, if no demand, on December 31, 1999 including interest at 8.5% $485,000 $ -- Notes payable to The Insurance House, Inc.; maturing March 10, 1999 payable in equal monthly installments of $40,294; including interest at 7.46% 120,882 -- Notes payable to The Insurance House, Inc.; maturing March 10, 1998, payable in equal monthly installments of $40,165; including interest at 7.46% -- 119,012 -------- -------- Total notes payable $605,882 $119,012 ======== ======== STEEN PRODUCTION SERVICE, INC. DECEMBER 31, 1998 AND 1997 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 7. LONG-TERM DEBT The following long-term debt is outstanding at December 31: 1998 1997 Notes payable to Doyle Landry; maturing February 15 2001; payable in equal monthly installments of $3,913; including interest at 10%; secured by a boat. $ 91,135 $ 127,007 Revolving line of credit in the amount of $2,000,000; due June 30, 1999; interest payable at Chase Manhattan Prime plus .5%; collateralized primarily by accounts receivable and the guarantee of the shareholders. 1,197,872 -- Revolving line-of-credit in the amount of $2,000,000; due June 30, 1998; interest payable at Chase Manhattan Prime plus 1.25%; collateralized primarily by accounts receivable and the guarantee of the stockholders. -- 1,762,815 Vehicle line-of-credit in the amount of $130,000; due June 30, 1998; interest payable at 8.25%; collateralized primarily by vehicles, accounts receivable, and the guarantee of stockholders. -- 29,191 Note payable to Hibernia National Bank; maturing November 10, 1998; payable in equal monthly installments of $863; including interest at 8.99%; collateralized primarily by a vehicle. -- 9,081 Note payable to Ford Motor Credit; maturing May 13, 2000; payable in equal monthly installments of $1,104; including interest at 8.75%; collateralized by a vehicle. -- 28,755 Note payable First National Bank; maturing October 8, 1999; payable in 38 equal monthly installments of $1,744 and one installment of $909, including interest at Chase Manhattan Prime plus 1.5%; collateralized primarily by equipment and boats. -- 34,359 Note payable to First National Bank; maturing February 10, 1999; payable in equal monthly installments of $4,742; including interest at 8.48%; collateralized primarily by vehicles, accounts receivable and the guarantee of the stockholders. -- 78,019 Note payable to First National Bank; maturing February 10, 1999; payable in equal monthly installments of $4,433; including interest at Chase Manhattan Prime plus 1%; collateralized primarily by accounts receivable and the guarantee of the stockholders. 13,094 58,490 Note payable by CDG Boat Rentals; payable in seven monthly installments of $4,000; including interest at 9.5%; collateralized by a boat. -- 14,971 ---------- ---------- Total 1,302,101 2,142,688 Less - current portion 1,223,849 1,983,920 ---- ---------- ---------- Long-term debt $ 78,252 $ 158,768 ========== ========== STEEN PRODUCTION SERVICE, INC. DECEMBER 31, 1998 AND 1997 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Long-term debt matures as follows: 1999 $1,223,849 2000 55,443 2001 22,809 ---------- Total $1,302,101 ========== Underthe terms of a loan agreement with a bank, the Company is required to maintain specified current ratios and debt to worth ratios. The Company was not in compliance at December 31, 1998 with certain covenants contained in the agreement; however, the Company obtained a waiver from the bank on the 1998 covenant violations. 8. RELATED PARTY TRANSACTIONS Included in notes payable at December 31, 1998 is a $485,000 note to a shareholder/officer of the Company. The note is due on demand, or December 31, 1999 if no demand is presented. The Company pays interest of 8.5 percent on the note. Also, included in other receivables at December 31, 1997 is a $15,000 receivable from a shareholder/officer of the Company. The note is due on demand and bears interest of 6.25 percent. At December 31, 1997, the accrued interest on the receivable was $707. 9. OPERATING LEASES The Company has leased its office space under a noncancelable operating lease that expires in May 2003 and requires monthly payments ranging from $4,837 to $6,078. In December 1998, the Company entered into a sale-leaseback transaction with a third-party for its automobiles. As a result of this transaction, the Company recognized a loss of approximately $29,000, which has been included in other income in the accompanying financial statements Beginning in December 1998, the Company leases various automobiles under various noncancelable operating leases that expire between March 1999 and December 2001. The following is a schedule of minimum lease payments required under noncancelable operating leases as of December 31, 1998: 1999 $ 149,498 2000 124,974 2001 92,043 2002 76,545 2003 42,548 ---------- $ 485,608 ========== STEEN PRODUCTION SERVICE, INC. DECEMBER 31, 1998 AND 1997 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 10. PROFIT SHARING PLAN The Company has a profit sharing 401(k) plan which is available to all employees over the age of 21 who have completed one year of service with the Company. Company matching contributions to the plan in 1998 and 1997 were approximately $39,000 and $47,000, respectively. 11. INVESTMENTS IN LIFE INSURANCE The Company has entered into various equity split dollar life insurance agreements whereby the Company has agreed to pay the premiums on life insurance policies covering the lives of the shareholders/officers of the Company. In addition, the Company owns key man insurance on the two officers. The Company's investment on the policies was $133,788 and $95,667 at December 31, 1998 and 1997, respectively. 12. COMMITMENTS AND CONTINGENCIES SELF-INSURED HEALTH INSURANCE PROGRAM The Company has a self-insured health insurance program. Under the program the Company is liable for the first $40,000 of claims per participant with an annual aggregate stop-loss provision of approximately $520,000. 13. SUBSEQUENT EVENT On September 1, 1999, 100% of the common stock of Steen was purchased by a wholly-owned subsidiary of Michael Baker Corporation. The accompanying financial statements do not reflect any adjustments related to this transaction. STEEN PRODUCTION SERVICE, INC. BALANCE SHEET (UNAUDITED) JUNE 30, 1999 AND DECEMBER 31, 1998 - -------------------------------------------------------------------------------- 1999 1998 ASSETS Current assets: Cash and cash equivalents $ 100,382 $ 161,830 Accounts receivable 2,430,648 2,702,285 Investments 283,117 219,967 Other receivables 1,624 72,199 Prepaid expenses 307,826 162,091 Prepaid taxes -- 114,854 Deferred tax asset -- 58,563 ------------ ------------ Total current assets 3,123,597 3,491,789 Property and equipment: Buildings and improvements 5,763 5,763 Leasehold improvements 8,713 15,378 Boats and barges 90,000 90,000 Marine equipment 721,951 721,951 Furniture and fixtures 63,293 41,243 Equipment 69,652 69,652 ------------ ------------ 959,372 943,987 Less - Accumulated depreciation (735,408) (717,417) ---- ------------ ------------ Net property, plant and equipment 223,964 226,570 Other assets 166,691 164,533 ------------ ------------ Total assets $ 3,514,252 $ 3,882,892 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 216,903 $ 132,681 Notes payable 758,749 605,882 Current portion of long-term debt 39,301 1,223,849 Payroll taxes payable 152,931 149,862 Accrued expenses 580,108 383,817 Income taxes payable 720 639 ------------ ------------ Total current liabilities 1,748,712 2,496,730 Long-term liabilities: Long-term debt 334,534 78,252 Deferred tax liability -- 29,874 ------------ ------------ Total long-term liabilities 334,534 108,126 Stockholders' equity: Common stock, no par value, 10 shares authorized 6 shares issued and outstanding 20,312 20,312 Accumulated other comprehensive loss (1,915) (2,263) Retained earnings 1,412,609 1,259,987 ------------ ------------ Total stockholders' equity 1,431,006 1,278,036 ------------ ------------ Total liabilities and stockholders' equity $ 3,514,252 $ 3,882,892 ============ ============ <FN> The accompanying notes are an integral part of these financial statements. </FN> STEEN PRODUCTION SERVICE, INC. STATEMENT OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1999 AND 1998 - -------------------------------------------------------------------------------- 1999 1998 Revenues $ 7,961,337 $ 8,660,621 Operating costs and expenses: Operating 715,188 539,925 Personnel 5,772,175 6,096,085 Depreciation 19,020 53,202 General and administrative 1,221,652 1,270,058 ------------ ------------ Total operating cost and expenses 7,728,035 7,959,270 Operating income 233,302 701,351 Other income (expense): Interest expense (52,910) (52,367) Interest income 9,033 9,387 Miscellaneous income (expense) (2,478) 547 Gain (loss) on sale of assets (5,636) (3,556) ------------ ------------ Total other income (51,991) (45,989) Income before taxes 181,311 655,362 Income taxes 28,689 (3,410) ------------ ------------ Net income $ 152,622 $ 658,772 ============ ============ Retained earnings balance, January 1 $ 1,259,987 $ 1,436,061 Net income 152,622 658,772 Distributions ("S" dividends) -- (401,345) ------------ ------------ Retained earnings balance, end of period $ 1,412,609 $ 1,693,488 ============ ============ <FN> The accompanying notes are an integral part of these financial statements. </FN> STEEN PRODUCTION SERVICE, INC. STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1999 AND 1998 - -------------------------------------------------------------------------------- 1999 1998 CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Net income $ 152,622 $ 658,772 Adjustments to reconcile net income to cash provided (used) by operating activities: Depreciation and amortization 19,020 53,202 Gain (loss) on sale of assets 5,636 3,556 Unrealized loss on investments 348 591 Changes in assets and liabilities: Receivables 271,637 727,330 Prepaid expenses (145,735) (249,178) Prepaid income taxes 114,854 (96,740) Accounts payable 84,222 47,513 Accrued liabilities 199,360 228,211 Income taxes payable 81 9,865 Other receivables and payables 97,106 (19,599) ---------- ----------- Net cash provided by operating activities 799,151 1,363,523 ---------- ----------- CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES: Purchases of investments (63,150) (33,450) Proceeds from sale of assets -- 11,800 Capital expenditures (22,050) (50,148) ---------- ---------- Net cash (used in) investing activities (85,200) (71,798) ---------- ---------- CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: Net proceeds from (payments on) revolving line of credit (895,852) (1,431,889) Proceeds from issuance of notes payable 365,131 925,770 Principal payments on notes payable (212,264) (193,701) Principal payments on long-term debt (32,414) (102,840) Distributions -- (401,345) ---------- ----------- Net cash (used in) financing activities (775,399) (1,204,005) ---------- ----------- Net increase (decrease) in cash (61,448) 87,720 Cash at beginning of year 161,830 89,059 ---------- ----------- Cash at June 30 $ 100,382 $ 176,779 ========== =========== Cash paid (refunded) during the period for: Interest $ 46,127 $ 68,404 ========== =========== Income taxes $(114,854) $ 231,464 ========== =========== <FN> The accompanying notes are an integral part of these financial statements. </FN> STEEN PRODUCTION SERVICE, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1999 - -------------------------------------------------------------------------------- 1. GENERAL The balance sheet as of June 30, 1999, the statement of operations for the six-month periods ended June 30, 1999 and 1998, and the consolidated statement of cash flows for the six-month periods ended June 30, 1999 and 1998, have been prepared by the Company without audit. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial position at June 30, 1999 and the results of operations and changes in cash flows for the periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. This information should be read in conjunction with the Company's audited financial statements for the year ended December 31, 1998. The results of operations for the periods ended June 30, 1999 and 1998 are not necessarily indicative of the operating results for the full year. 2. ORGANIZATION Steen Production Service, Inc. (Steen or the Company) was incorporated in the state of Louisiana on September 1, 1960. The Company provides supervised labor to companies engaged in inland and offshore oil and drilling activities. 3. SUBSEQUENT EVENT On September 1, 1999, Steen was purchased by a wholly-owned subsidiary of Michael Baker Corporation. These financial statements do not reflect any adjustments related to this acquisition. 4. LONG-TERM DEBT During June 1999, the Company's revolving line-of-credit due June 30, 1999 was renewed with substantially the same terms and is now due June 30, 2000. 5. INCOME TAXES Prior to 1999, the Company accounted for certain income and expense items differently for financial reporting and income tax purposes. In accordance with SFAS No. 109, "Accounting for Income Taxes," deferred tax assets and liabilities were determined based on the difference between the financial statement and tax bases of assets and liabilities applying enacted statutory tax rates in effect for the year in which the differences were expected to reverse. Effective January 1, 1999, the Company elected Subchapter S status under the Internal Revenue Code. As such, the Company will not be subject to federal and most state income taxes, and the effects of the Company's transactions will accrue directly to the Company's shareholders. In connection with the Subchapter S election, the tax provision at June 30, 1999 represents a reversal of all the deferred tax assets and liabilities existing as of January 1, 1999. MICHAEL BAKER CORPORATION AND STEEN PRODUCTION SERVICE, INC. PRO FORMA CONSOLIDATED FINANCIAL INFORMATION - -------------------------------------------------------------------------------- The following pro forma consolidated financial information is based on the historical financial statements of Michael Baker Corporation (the "Company") and Steen Production Service, Inc. ("Steen"), and reflects the pro forma effects of the acquisition of Steen. Relevant information regarding the acquisition, which became effective on September 1, 1999, was provided in the Company's Form 8-K dated September 15, 1999, of which this financial information constitutes a part. The pro forma consolidated balance sheet as of June 30, 1999 was prepared as if the acquisition of Steen had occurred on that date. The pro forma consolidated statements of income for the year ended December 31, 1998 and the six-month period ended June 30, 1999 were prepared as if the acquisition had occurred on January 1, 1998. In the opinion of management, the pro forma financial information presented is not necessarily indicative of the periods presented or the future operations of Steen. The pro forma financial information should be read in conjunction with the historical financial statements of the Company for the year ended December 31, 1998. MICHAEL BAKER CORPORATION AND STEEN PRODUCTION SERVICE, INC. PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 (UNAUDITED--AMOUNTS IN THOUSANDS) - -------------------------------------------------------------------------------- PRO FORMA PRO FORMA BAKER STEEN (1) ADJUSTMENTS CONSOLIDATED - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 1,165 $ 100 $ 1,265 Receivables 75,802 2,433 78,235 Cost of contracts in progress and estimated earnings, less billings 23,833 -- 23,833 Prepaid expenses and other 5,958 591 257 (2) 6,806 - -------------------------------------------------------------------------------- Total current assets 106,758 3,124 257 110,139 Property, plant and equipment, net 17,462 224 1,253 (3) 18,939 Goodwill and other intangible assets, net 6,965 -- 8,602 (4) 15,567 Other assets 6,695 166 6,861 - -------------------------------------------------------------------------------- Total assets $137,880 $3,514 $10,112 $151,506 ================================================================================ LIABILITIES CURRENT LIABILITIES Accounts payable $ 28,015 $ 217 $ 28,232 Current portion of long-term debt -- 798 1,909 (5) 2,707 Accrued employee compensation 10,380 -- 10,380 Accrued insurance 8,476 -- 8,476 Other accrued expenses 17,868 734 18,602 Excess of billings on contracts in progress over cost and estimated earnings 6,388 -- 6,388 - -------------------------------------------------------------------------------- Total current liabilities 71,127 1,749 1,909 74,785 Long-term debt 3,478 335 9,186 (6) 12,999 Other liabilities 8,068 -- 447 (2) 8,515 - -------------------------------------------------------------------------------- Total liabilities 82,673 2,084 11,542 96,299 SHAREHOLDERS' INVESTMENT Common Stock 7,162 20 (20)(7) 7,162 Series B Common Stock 1,316 -- 1,316 Additional paid-in capital 37,048 -- 37,048 Retained earnings 11,735 1,410 (1,410)(7) 11,735 Less - Treasury shares, at cost (2,054) -- (2,054) - -------------------------------------------------------------------------------- Total shareholders' investment 55,207 1,430 (1,430) 55,207 - -------------------------------------------------------------------------------- Total liabilities and shareholders'investment $137,880 $3,514 $10,112 $151,506 ================================================================================ <FN> The accompanying notes are an integral part of this financial statement </FN> MICHAEL BAKER CORPORATION AND STEEN PRODUCTION SERVICE, INC. NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- 1. Certain Steen line items have been reclassified to conform with Baker's historical balance sheet presentation. 2. These adjustments account for the recording of deferred tax assets and liabilities based on Steen's temporary differences between book and tax asset and liability balances. 3. This adjustment results from the net book value of certain Steen marine equipment being lower than the fair market value of such equipment as of the acquisition date. 4. This adjustment represents goodwill and the non-competition covenant resulting from the preliminary allocation of the purchase price. 5. This adjustment represents the repayment of certain Steen debt outstanding as of the balance sheet date, and the addition of notes payable within one year of the acquisition date to the former shareholders of Steen. 6. This adjustment represents the addition of acquisition-related long-term notes payable to the former shareholders of Steen, as well as the incremental bank borrowings resulting from (a) cash payments to the former shareholders of Steen, (b) cash payments related to the repayment of certain Steen debt outstanding as of the balance sheet date, and (c) cash payments for legal and accounting services associated with the acquisition. 7. This adjustment represents the elimination of the common stock and retained earnings balances existing on the books of Steen as of the acquisition date. MICHAEL BAKER CORPORATION AND STEEN PRODUCTION SERVICE, INC. PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 (UNAUDITED--AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - -------------------------------------------------------------------------------- PRO FORMA PRO FORMA BAKER STEEN (1) ADJUSTMENTS CONSOLIDATED - -------------------------------------------------------------------------------- Total contract revenues $521,271 $16,976 $538,247 Cost of work performed 474,027 14,009 488,036 - -------------------------------------------------------------------------------- GROSS PROFIT 47,244 2,967 50,211 Selling, general and administrative expenses 48,911 2,250 900 (2) 52,061 - -------------------------------------------------------------------------------- INCOME/(LOSS) FROM OPERATIONS (1,667) 717 (900) (1,850) Other income/(expense): Interest income 439 18 (269)(3) 188 Interest expense (145) (96) (641)(4) (882) Other, net 42 (55) (13) - -------------------------------------------------------------------------------- INCOME/(LOSS) BEFORE INCOME TAXES (1,331) 584 (1,810) (2,557) Provision for income taxes 1,088 8 (304)(5) 792 - -------------------------------------------------------------------------------- NET INCOME/(LOSS) $ (2,419) $ 576 $(1,506) $ (3,349) ================================================================================ Basic and diluted net income/ (loss) per share $ (0.30) $ (0.41) ================================================================================ <FN> The accompanying notes are an integral part of this financial statement. </FN> MICHAEL BAKER CORPORATION AND STEEN PRODUCTION SERVICE, INC. PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999 (UNAUDITED--AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - -------------------------------------------------------------------------------- PRO FORMA PRO FORMA BAKER STEEN (1) ADJUSTMENTS CONSOLIDATED - -------------------------------------------------------------------------------- Total contract revenues $249,185 $ 7,961 $257,146 Cost of work performed 219,840 6,506 226,346 - -------------------------------------------------------------------------------- GROSS PROFIT 29,345 1,455 30,800 Selling, general and administrative expenses 24,690 1,222 450 (2) 26,362 - -------------------------------------------------------------------------------- INCOME/(LOSS) FROM OPERATIONS 4,655 233 (450) 4,438 Other income/(expense): Interest income 85 9 (11)(3) 83 Interest expense (334) (53) (456)(4) (843) Other, net (89) (8) (97) - -------------------------------------------------------------------------------- INCOME/(LOSS) BEFORE INCOME TAXES 4,317 181 (917) 3,581 Provision for income taxes 2,029 28 (293)(5) 1,764 - -------------------------------------------------------------------------------- NET INCOME $ 2,288 $ 153 $(624) $ 1,817 ================================================================================ Basic and diluted net income per share $ 0.28 $ 0.22 ================================================================================ <FN> The accompanying notes are an integral part of this financial statement. </FN> MICHAEL BAKER CORPORATION AND STEEN PRODUCTION SERVICE, INC. NOTES TO THE PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998, AND THE SIX-MONTH PERIOD ENDED JUNE 30, 1999 (UNAUDITED) - -------------------------------------------------------------------------------- 1. Certain Steen line items have been reclassified to conform with Baker's historical income statement presentation. 2. This adjustment represents (a) the amortization of the goodwill and the non-competition covenant resulting from the preliminary allocation of the purchase price, (b) additional depreciation expense on assets written up to fair market value as a result of the acquisition and (c) incremental benefit costs resulting from the acquisition. 3. This adjustment represents interest income that would not have been earned by the Company due to reduced cash investments. 4. This adjustment represents additional interest expense that would have been incurred by the Company on the notes payable to the former shareholders of Steen and in borrowing the initial cash payments related to the acquisition. 5. This adjustment represents the income tax benefit associated with the adjustments included in notes 2 through 4 above. 6. Basic and diluted net income per share computations for the year ended December 31, 1998 are based upon 8,178,067 weighted average shares outstanding. For the six-month period ended June 30, 1999, basic and diluted net income per share computations are based upon weighted averages of 8,170,826 and 8,242,804 shares, respectively. No additional Baker stock was issued as a result of the Steen acquisition.