1
EXHIBIT 13.1
SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
=================================================================================================================================
(In thousands, except per share information)
RESULTS OF OPERATIONS
Total contract revenues $ 390,710 $ 506,012 $ 521,271 $ 446,432 $ 418,388
Operating income/(loss) 10,725 (8,175) (1,667) 8,020 7,663
Net income/(loss) 5,376 (8,164) (2,419) 4,953 4,180
Diluted net income/(loss) per share $ 0.65 $ (1.00) $ (0.30) $ 0.60 $ 0.50
Return on average equity 11.3% (16.7)% (4.4)% 9.3% 8.5%
=================================================================================================================================
FINANCIAL CONDITION
Total assets $ 133,357 $ 149,191 $ 151,861 $ 144,425 $ 126,082
Working capital $ 29,391 $ 25,733 $ 31,855 $ 36,220 $ 27,417
Current ratio 1.37 1.31 1.36 1.41 1.36
Long-term debt $ 51 $ 14,867 $ 3,138 $ -- $ --
Shareholders' investment 50,329 44,799 52,862 55,862 50,752
Book value per outstanding share 6.09 5.48 6.47 6.79 6.19
Year-end closing share price $ 7.75 $ 6.63 $ 9.75 $ 9.75 $ 6.38
=================================================================================================================================
CASH FLOW
Cash provided by/(used in)
operating activities $ 12,425 $ 1,143 $ (1,379) $ 7,803 $ 1,167
Cash provided by/(used in)
investing activities 2,672 (10,255) (11,416) (2,533) (3,739)
Cash provided by/(used in)
financing activities (9,660) 7,783 1,935 124 (1,251)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash $ 5,437 $ (1,329) $ (10,860) $ 5,394 $ (3,823)
=================================================================================================================================
BACKLOG
Total $ 501,900 $ 657,300 $ 735,300 $ 648,700 $ 543,700
=================================================================================================================================
SHARE INFORMATION
Year-end shares outstanding 8,267 8,181 8,166 8,224 8,197
Average diluted shares outstanding
during year 8,238 8,175 8,297 8,299 8,383
=================================================================================================================================
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following tables reflect a summary of the Company's operating results for
ongoing operations and non-core businesses during the years ended December 31,
2000, 1999 and 1998 (in millions):
TOTAL CONTRACT REVENUES
CHANGE/ CHANGE/
2000 PRIOR YEAR 1999 PRIOR YEAR 1998
========================================================================================================================
ENGINEERING $228.0 13.0% $201.7 13.1% $178.4
Percentage of total revenues 58.4% 39.9% 34.2%
ENERGY 120.7 50.5% 80.2 16.9% 68.6
Percentage of total revenues 30.9% 15.8% 13.2%
NON-CORE* 41.6 (81.4)% 223.3 (18.6)% 274.2
Percentage of total revenues 10.6% 44.1% 52.6%
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE/INSURANCE 0.4 (50.0)% 0.8 700.0% 0.1
Percentage of total revenues 0.1% -- 0.2% --
- -------------------------------------------------------------------------------------------------------------------------
Total $390.7 (22.8)% $506.0 (2.9)% $521.3
=========================================================================================================================
INCOME/(LOSS) FROM OPERATIONS
CHANGE/ CHANGE/
2000 PRIOR YEAR 1999 PRIOR YEAR 1998
==========================================================================================================================
ENGINEERING $ 11.4 67.6% $ 6.8 (6.8)% $ 7.3
Percentage of Engineering revenues 5.0% 3.4% 4.1%
ENERGY 8.1 161.3% 3.1 (20.5)% 3.9
Percentage of Energy revenues 6.7% 3.9% 5.7%
NON-CORE* (7.6) 58.5% (18.3) (50.0)% (12.2)
Percentage of Non-Core revenues (18.3)% (8.2)% (4.4)%
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE/INSURANCE (1.2) (700.0)% 0.2 128.6% (0.7)
Percentage of Corp/Insurance revenues (300.0)% 25.0% (700.0)%
==========================================================================================================================
Total $ 10.7 230.5% $ (8.2) (382.4)% $ (1.7)
==========================================================================================================================
* Non-Core operations are defined as the construction operations that are
being wound down within the Buildings and Transportation units, and the
Civil-BSSI division, which was sold effective June 1, 2000.
As discussed more fully in Note 2 to the financial statements, during the first
quarter of 2000, BMSCI entered into a non-binding, court ordered mediation
process that resulted in BMSCI agreeing to pay UCDP $2.0 million to resolve the
claims between them. BMSCI remained responsible for resolution of all remaining
subcontractor and vendor claims, the most significant of which was the suit
brought by ADF International, Inc. ("ADF"). ADF filed this suit in Federal Court
during the fourth quarter of 1998 and judgements were entered in favor of ADF
during the fourth quarter of 2000 in the amount of $10.0 million. In addition to
amounts previously accrued, the Company recorded a charge of $6.8 million in the
fourth quarter of 2000 as a result. In January of 2001 after an in-depth
analysis and recommendation by appellate counsel, the Company filed an appeal to
the 11th Circuit Court of appeals.
3
During the second and third quarter of 2000, the Company received cash proceeds
of $13.5 million and $0.4 million, respectively, and recorded gains totaling
$2.0 million and $0.2 million, respectively, from the sale of Baker Support
Services, Inc. ("BSSI"), a wholly owned subsidiary of the Company.
Charges totaling $1.2 million were recorded during the second quarter of 2000
relating to lease obligations on construction equipment within the Company's
Non-Core segment. An offset of $0.2 million to this amount was recorded during
the third quarter when certain of the aforementioned construction equipment was
sold and the lease obligations were settled.
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 division 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 divisions. 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. Other 1999 charges of $3.2 million comprised
adjustments on engineering projects, the writeoff of certain intangible assets
and severance costs.
Due to the service oriented nature of the Company's line of business, the
increase in prices for oil and gas could have an impact on costs in current or
future periods to the organization as a whole. The energy segment is more
vulnerable to fluctuations in these commodities and increases could adversely
affect this segments cost of work performed on a much larger scale.
Due to certain management and internal financial reporting changes that have
taken place, the Company changed its reporting of segment information for the
year 2001. The new segments, and the related discussion of operating results in
this Management's Discussion and Analysis section, will reflect management's
changing focus toward the ongoing Engineering and Energy operations. However,
the following discussion also provides information to explain changes in total
contract revenues and income from operations for the segments reported in
Note 6.
Total Contract Revenues
Total contract revenues from the Company's ongoing operations increased 23.7% in
2000. The Engineering segment posted revenue growth of 13.0% during 2000, with
the largest components originating from the Transportation-Engineering and
Civil-Engineering divisions of 20.6% and 12.5%, respectively. Growth in both
Transportation and Civil engineering divisions is attributable to several new
contracts, volume increases on existing projects and the U.S. government's 1998
federal transportation (TEA-21) funding increases in its geographic markets. The
Energy segment improved its revenues by 50.5% during the year, with the
increases attributable to the Steen Production Services, Inc. ("Steen") purchase
as well as increased revenue from "OPCO", Baker Energy's Operations
Consolidation model. Revenues associated with Steen grew 90.8% from the reported
pro forma revenue in Note 3. During the first year of implementation of the OPCO
model revenues totaled 26.8% of total Energy contract revenues. The (81.4)%
revenue reduction associated with the Company's non-core operations for 2000
reflects the wind-down of the Transportation-Construction division and the
construction portion of the Buildings segment as well as sale of the BSSI unit
in May 2000.
4
For 1999, total contract revenues from the Company's ongoing operations
increased 14.1%. The Engineering segment posted revenue growth of 13.1% with the
most significant 1999 fluctuations registered in the form of increases for the
Transportation-Engineering and Environmental-Engineering divisions of 24.8% and
25.6%, respectively. The increase in the Transportation-Engineering division was
a direct result of state transportation funding increases associated with the
TEA-21 legislation while growth in the Environmental-Engineering division
resulted from an increase in contracts. The Energy division increased its
revenue by 16.9% in 1999 due to the addition of several new contracts to provide
offshore operations and maintenance ("O&M") services, as well as revenue
increases on existing contracts. The substantial decrease in the Company's
Non-Core segment of (18.6)% was directly attributable to the Company's
restructuring and its discontinuance of general construction services during
1999. While general construction services were discontinued during 1999, revenue
from the Transportation-Construction division increased by 74.1% in 1999 due to
previously executed contracts.
Gross Profit
As a percentage of total contract revenues, gross profit increased to 13.3% from
8.1% in 1999. Excluding Non-Core operations, the Company's gross profit from
ongoing operations was 16.2% of total contract revenues for 2000, versus 16.0%
of total contact revenues in 1999. The combined Engineering divisions' gross
profit margin was 14.4% for 2000, down from 14.9% in 1999. This overall
Engineering margin decrease is generally associated with new work on which the
Company has provided services and recognized costs, but for which the contract
execution is uncertain and/or the contract revenue recognition has been delayed
until the related contracts and change orders have been fully executed by the
clients. Satisfactory resolution of these contracts and change orders could
contribute to operating margins in future periods. The Energy segment posted
gross margins of 19.4% and 18.8% for 2000 and 1999, respectively. This
improvement in gross margin was the direct result of improved utilization of
direct labor related to OPCO. In the Non-Core operations, gross margins from the
former construction divisions decreased to (34.4)% for 2000 from (6.3)% in 1999,
while the BSSI division contributed 12.9% and 11.6% in 2000 and 1999,
respectively. This decrease in Non-Core gross margins directly resulted from the
unfavorable court decision in the ADF litigation reported in Note 2. Were it not
for the ADF litigation, the gross margins would have been 3.0% and (3.7)% in
2000 and 1999, respectively.
Direct labor expressed as a percentage of total contract revenues was 33%, 33%
and 28% in 2000, 1999 and 1998, respectively. This is a major component of the
Company's cost of work performed due to the nature of the service business.
Gross Profit without Charges discussed in Note 2
(in millions) 2000 1999 1998
=================================================================================================================
Total Company Gross Profit $52.1 $40.7 $47.2
Expressed as a percentage of total contract revenues 13.3% 8.0% 9.1%
Charges 6.8 22.6 13.7
Expressed as a percentage of total contract revenues 1.7% 4.5% 2.6%
- -----------------------------------------------------------------------------------------------------------------
Total Gross Profit without Charges $58.9 $63.3 $60.9
=================================================================================================================
Expressed as a percentage of total contract revenues 15.1% 12.5% 11.7%
=================================================================================================================
5
As a percentage of total contract revenues, gross profit declined to 8.1% in
1999 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 divisions in amounts of $8.8 million and $12.8
million, respectively, while the 1998 charges were entirely recorded on
construction projects in the Buildings and Transportation divisions. The gross
profit percentage increased in the Civil and Buildings divisions for 1999, with
decreases in the other divisions. The Company's 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 division'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 division's engineering segment, the
Transportation division's overall results suffered due to the aforementioned
1999 construction project charges. The Energy segment's decrease in its gross
profit percentage for 1999 was impacted by nonrecurring project-related
difficulties during the second quarter of 1999. The Environmental division's
gross profit percentage was lower for 1999 due to a change in its mix of
contracts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses expressed as a percentage of total
contract revenues increased to 10.6% for 2000, from a reported 9.7% for 1999. As
discussed in the paragraph below and in Note 2 to the consolidated financial
statements, the Company's non-recurring charges had the effect of increasing
selling, general and administrative expenses by $0.8 million and $4.4 million
for 2000 and 1999, respectively. Excluding these charges, selling, general and
administrative expenses expressed as a percentage of revenues would have been
10.4% and 8.8% of total contract revenues for the years 2000 and 1999,
respectively. Selling, general and administrative expenses from the Company's
ongoing operations decreased to 10.6% in 2000 from 12.4% in 1999. The Building,
Civil and Transportation Engineering divisions each posted decreases in selling,
general and administrative expenses expressed as a percentage of revenue due to
a slight decrease in overhead while the Environmental division posted the only
increase in 2000 due to a reduction in revenues coupled with overhead remaining
relatively flat. In the Energy segment, selling, general and administrative
expenses expressed as a percentage of revenues decreased due to several OPCO
related contracts progressing into later stages of the OPCO model which results
in an increase in revenue without a corresponding increase in overhead costs. In
the non-core operations, selling, general and administrative expenses
represented 10.5% and 6.2% of contract revenues in 2000 and 1999, respectively.
Management believes that its non-cash charges will be lower in 2001 due to
non-recurring adjustments in the amount of $1.2 million related to certain fixed
assets in the Company's Engineering segment achieving a zero book value and an
adjustment to goodwill related to the acquisition of GeoResearch within the
Civil-Engineering division. This $1.2 million charge was offset by the reduction
of a note in the amount of $0.4 million, resulting in a net charge to selling,
general and administrative expenses of $0.8 million.. Non-compete covenants
associated with the acquisition of OTS, within the Energy segment, in 1993 will
be fully amortized by the end of the first quarter of 2001 resulting in a
favorable decrease in amortization expense of $0.2 million in 2001.
The Company continues to modify its incentive compensation plans and is in the
process of developing a plan designed to increase the performance-based
compensation component of its executive and business management employees. The
impact of such a plan could increase selling, general and administrative
expenses in the future. The Company also administers various voluntary and
involuntary fringe benefits. The Company realizes that its employees are its
greatest assets and retention of highly skilled employees is beneficial and
essential to the Company's growth.
6
Expressed as a percentage of total contract revenues, selling, general and
administrative expenses increased slightly to 9.7% in 1999 from 9.4% in 1998.
Selling, general and administrative expenses in the Engineering segment
decreased to 11.5% of contract revenues in 1999 from 12.4% in 1998. This
decrease resulted from lower corporate and business unit overhead allocations.
The Energy segment's selling, general and administrative expenses decreased to
14.9% of contract revenues in 1999 from 16.9% in 1998 due to a decrease in
incentive compensation expense. Non-Core selling, general and administrative
expenses increased to 6.2% from 5.2% of total contract revenues in 1999 and
1998, respectively. The main driver of this increase was the previously
mentioned non-recurring charges.
Other Income and Expense
Interest income increased to $413,000 in 2000 from $155,000 in 1999, due to the
Company's investment of excess cash from the sale of BSSI and paying off its
revolving credit debt due to its bank in early June. Interest expense decreased
to $866,000 in 2000 from $948,000 in 1999. The slight decrease in interest
expense was attributable to the Company's payoff of the aforementioned revolving
credit line which was partially offset by the full year effect of interest on
seller financed notes related to the purchase of Steen during the third quarter
of 1999. Other income was $700,000 in 2000, compared to other expenses of
$273,000 for 1999. The primary composition of the 2000 amount includes a $2.2
million gain on the sale of BSSI, as offset by the charges totaling $1.2 million
related to leased construction equipment and a $0.2 million gain associated with
the sale of certain leased construction equipment to A&L.
Interest income decreased 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 its bank, some of
which borrowings were used for the purchase of Steen during the third quarter of
1999. Additional 1999 interest expense also resulted from seller financed notes
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 segment joint venture.
Income Taxes
The Company's 2000 provision for income taxes resulted in an effective tax rate
of 51% in 2000, compared to a benefit from income taxes that resulted in an
effective tax benefit rate of 12% in 1999 and a provision for income taxes that
resulted in an effective tax rate of (82)% in 1998. 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 income tax
provision for 2000 and minimal income tax benefit for 1999 result from the
effects of certain foreign and state taxes that cannot be offset against tax
benefits derived from other jurisdictions during the current reporting periods.
The change in the effective tax rate in 2000 also resulted from the Company's
current inabilities to realize a tax benefit from foreign tax credits that
resulted from cash repatriation from offshore earnings and the impact of lower
domestic earnings that resulted from the court decision in the ADF litigation.
CONTRACT BACKLOG
Backlog consisted of that portion of uncompleted work that is represented by
signed or executed contracts. Certain of the Company's contracts with the
Federal Government and other clients may be terminated at will, therefore no
assurance can be given that all backlog will be realized. The Company's backlog
at December 31, 2000 and 1999 was $502 million and $657 million, respectively.
The overall 2000 decrease is directly attributable to the previously discussed
wind-down of the Company's two construction divisions and sale of the BSSI
division. Backlog attributable
7
to the Company's ongoing operations was $502 million and $417 million, as of the
year-ended 2000 and 1999, respectively. The most significant 2000 increases in
backlog were registered in the Company's Transportation-Engineering division and
the Energy segment of 27% and 79%, respectively. These increases were the direct
result of the aforementioned increase in TEA-21 funding in the
Transportation-Engineering division and an increase in the number of contracts
in the Energy segment related to the Company's OPCO model.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased to $12.4 million in 2000,
compared to net cash provided by operating activities of $1.1 million in 1999
and net cash used in operating activities of $1.4 million in 1998. The 2000 cash
improvement resulted from higher net income from continuing operations while 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.
Net cash provided by investing activities increased to $2.7 million in 2000,
compared to net cash used in investing activities of $10.3 million in 1999 and
$11.4 million in 1998. The 2000 cash improvement resulted primarily from the
proceeds received from the sale of BSSI of $13.9 million partially offset by the
purchase of short-term investments of $9.0 million. The 1999 and 1998 amounts
include $4.9 million and $0.8 million, respectively, that was paid relative to
the acquisition of new subsidiaries (as discussed in Note 3 to the consolidated
financial statements). The Company's capital expenditures included computer
equipment and software purchases totaling $1.8 million in 2000, compared with
$2.8 million in 1999 and $3.9 million 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 used in financing activities was $9.7 million in 2000, compared to net
cash provided by financing activities of $7.8 million in 1999 and $1.9 million
in 1998. The 2000 cash decrease was the result of the Company paying off its
revolving credit debt due to its bank. Of the Company's 1999 proceeds from
long-term debt, $10.1 million represents borrowings against its credit agreement
with its bank, 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 increased to $29.4 million at December 31, 2000 from $25.7
million at December 31, 1999. The Company's current ratio was 1.37:1 and 1.31:1
at the end of 2000 and 1999, respectively. Both the working capital and current
ratio at year-end 2000 and 1999 were primarily impacted by the effects of the
construction-related charges discussed in Note 2 to the consolidated financial
statements. During the first quarter of 2001, the Company appealed the ADF
judgement resulting in a reclassification of $13.1 million of cash and other
accrued expenses to long-term assets and liabilities.
In 2000, the Company amended and restated its secured credit agreement with its
bank, which expires on May 31, 2001. The amended agreement reduces the committed
facility from $25 million to $20 million. For the period June 1 thru December
31, 2000 no borrowings were outstanding. Letters of credit totaling $2.6 million
had been issued under the Agreement. Borrowings under the agreement are
currently secured by the receivables of the Company and most of its
subsidiaries. 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.
The Company expects to expand its existing credit facility to support any
strategic opportunities that management identifies. The Company's strategy is to
better position itself for growth in the areas of Engineering and Energy
8
through acquisitions that complement the Company's experience and skill. The
Company views acquisitions as an important component of its growth strategy and
intends to use both cash and the credit facility to fund such acquisitions.
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 2001 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.
As a result of its 1999 restructuring, the Company will become increasingly less
reliant on its bonding line during 2001. Management believes that its bonding
line will be sufficient to meet its bid and performance needs 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 discussed more fully in Note 2 to the consolidated financial statements, on
December 28, 2000, judgements were entered in favor of ADF International, Inc.
against BMSCI and Travelers Casualty and Surety Company of America, jointly and
severally , in the amount of $10.0 million. On February 1, 2001, the Company
placed $11.3 million in escrow at First Union Bank in Charlotte, N.C. pending
the appeal. The amount placed in escrow included $1.3 million that was reserved
for legal fees that the Company estimates as probable.
During 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 and 1996
the Company repurchased 96,000 and 207,000 shares, respectively. The Company did
not repurchase shares under this authorization during the years 2000 and 1999.
As of December 31, 2000, 197,000 shares remain available for repurchase.
During 2000, the Company renewed its lease on a major facility and expects in
2001 to enter into another lease of a 7 to 10 year duration. The Company's lease
of office space located in Coraopolis, Pennsylvania terminates on June 30, 2002.
Proposals of several office space leases are currently being evaluated which
would increase the amount of future annual minimum lease payments.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by Statements 137 and 138 in
June 1999 and June 2000, respectively. These statements, which were required to
be adopted for fiscal years beginning after June 15, 2000, require the Company
to recognize all derivatives on the balance sheet at fair value. The statements
also establish new accounting rules for hedging instruments which, depending on
the nature of the hedge, require that changes in the fair value of derivatives
either be offset against the change in fair value of assets, liabilities or firm
commitments through earnings, or be recognized in other comprehensive income
until the hedged item is recognized in earnings. Any ineffective portion of a
derivative's change in fair value must be immediately recognized in earnings.
The Company is not involved in any derivative or hedging activities and
currently has no plans to enter into any of these types of transactions. The
Company will apply the Statement's accounting and disclosure requirements when
and if it decides to enter into these types of transactions (see Note 4).
9
MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
2000 1999 1998
===============================================================================================================================
(In thousands, except per share amounts)
Total contract revenues $390,710 $506,012 $521,271
Cost of work performed 338,629 465,273 474,027
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 52,081 40,739 47,244
Selling, general and administrative expenses 41,356 48,914 48,911
- -------------------------------------------------------------------------------------------------------------------------------
Income/(loss) from operations 10,725 (8,175) (1,667)
Other income/(expense):
Interest income 413 155 439
Interest expense (866) (948) (145)
Other, net 700 (273) 42
- -------------------------------------------------------------------------------------------------------------------------------
Income/(loss) before income taxes 10,972 (9,241) (1,331)
Provision for/(benefit from) income taxes 5,596 (1,077) 1,088
- -------------------------------------------------------------------------------------------------------------------------------
Net income/(loss) $ 5,376 $ (8,164) $ (2,419)
===============================================================================================================================
Basic and diluted net income/(loss) per share $ 0.65 $ (1.00) $ (0.30)
===============================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
10
MICHAEL BAKER CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
ASSETS 2000 1999
===============================================================================================================================
CURRENT ASSETS (In thousands)
Cash and cash equivalents $ 9,122 $ 3,685
Short-term investments 8,999 --
Receivables 68,042 77,374
Cost of contracts in progress and estimated earnings, less billings 16,105 20,803
Prepaid expenses and other 7,335 7,363
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 109,603 109,225
- -------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 10,058 17,120
- -------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill and other intangible assets, net 10,846 14,563
Other assets 2,850 8,283
- -------------------------------------------------------------------------------------------------------------------------------
Total other assets 13,696 22,846
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $133,357 $149,191
===============================================================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt $ 2,244 $ 3,526
Accounts payable 25,670 28,862
Accrued employee compensation 9,697 10,462
Accrued insurance 5,321 7,884
Accrued litigation reserve 11,334 4,500
Income taxes payable 4,443 1,269
Other accrued expenses 20,348 19,422
Excess of billings on contracts in progress over cost and estimated earnings 1,155 7,567
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 80,212 83,492
- -------------------------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES
Long-term debt 51 14,867
Other 2,765 6,033
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 83,028 104,392
- -------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized 44,000,000 shares, issued
7,265,149 and 7,170,663 shares, in 2000 and 1999, respectively 7,265 7,171
Series B Common Stock, par value $1, authorized 6,000,000 shares, issued
1,304,927 and 1,313,816 shares, in 2000 and 1999, respectively 1,305 1,314
Additional paid-in-capital 37,488 37,084
Retained earnings 6,659 1,283
Other comprehensive loss (335) --
Less 302,989 shares of Common Stock in treasury, at cost,
in 2000 and 1999, respectively (2,053) (2,053)
Total shareholders' investment 50,329 44,799
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $133,357 $149,191
===============================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
11
MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
===============================================================================================================================
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $ 5,376 $ (8,164) $ (2,419)
Adjustments to reconcile net income/(loss) to net
cash provided by/(used in) operating activities:
Depreciation and amortization 7,068 7,408 5,049
Deferred income taxes (3,207) (3,117) (695)
Gain on sale of BSSI (2,157) -- --
Changes in assets and liabilities, net of acquisitions:
(Increase)/decrease in receivables and contracts in progress 5,357 12,306 (4,841)
Increase/(decrease) in accounts payable and accrued expenses 3,263 (19,035) 9,590
(Decrease)/increase in advance billings (5,237) 5,233 (3,809)
Decrease/(increase) in other net assets 1,962 6,512 (4,254)
- -------------------------------------------------------------------------------------------------------------------------------
Total adjustments 7,049 9,307 1,040
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) operating activities 12,425 1,143 (1,379)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (2,944) (5,337) (10,573)
Purchase of short-term investments (8,999)
Acquisition of Steen Production Services, Inc. -- (4,918) --
Acquisition of GeoResearch, Inc. -- -- (843)
Proceeds from the sale of certain construction assets 748 -- --
Proceeds from the sale of BSSI 13,867 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by/(used in) investing activities 2,672 (10,255) (11,416)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt -- 10,167 3,516
Repayments of long-term debt (10,127) (2,454) (964)
Proceeds from exercise of stock options 467 70 183
Payments to acquire treasury stock -- -- (800)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash (used in)/provided by financing activities (9,660) 7,783 1,935
- -------------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 5,437 (1,329) (10,860)
Cash and cash equivalents, beginning of year 3,685 5,014 15,874
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 9,122 $ 3,685 $ 5,014
===============================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW DATA
Interest paid $ 985 $ 669 $ 165
Income taxes paid $ 2,127 $ 387 $ 2,588
===============================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
12
MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
SERIES B
COMMON COMMON OTHER TREASURY ADDITIONAL
STOCK STOCK COMPREHENSIVE -------------------- PAID-IN RETAINED
PAR VALUE $1 PAR VALUE $1 LOSS SHARES AMOUNT CAPITAL EARNINGS
==============================================================================================================================
(In thousands)
BALANCE, DECEMBER 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, DECEMBER 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, DECEMBER 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, DECEMBER 31, 1999 7,171 1,314 -- 303 2,053 37,084 1,283
Net income -- -- -- -- -- -- 5,376
Series B Common Stock
conversions to Common Stock 9 (9) -- -- -- -- --
Restricted stock issued 4 -- -- -- -- 18 --
Other Comprehensive Loss:
Currency translation adj -- -- (335) -- -- -- --
Stock options exercised 81 -- -- -- -- 386 --
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 $7,265 $1,305 $(335) 303 $2,053 $37,488 $ 6,659
==============================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
13
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 exercises 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 Engineering segment. Contract revenues attributable to claims are
recognized when signed and approved by the customer. Contract revenues relating
to change orders are recognized when realization is probable and the amounts are
estimable. 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 division and Energy segment are primarily recognized as related services
are provided. The Civil division'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 businesses accounted for on a
proportionate share basis in the income statement were part of BSSI, which was
sold in 2000. 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
14
estimates. The use of estimates is an integral part of applying the
percentage-of-completion method of accounting for contracts.
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents include cash on hand or deposit. The company's
short-term investments are comprised of money market mutual funds with remaining
maturities of less than 90 days at the time of purchase. Any outstanding checks
which create book overdrafts within banking institutions are reclassified as
accounts payable; such amounts totaled $1,106,000 and $3,920,000 at December 31,
2000 and 1999, 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 10 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 1 to 19 years. Upon disposal of property,
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
5 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
The following table summarizes basic and diluted shares outstanding at December
31, 2000, 1999 and 1998. The additional shares included in diluted shares
outstanding are entirely attributable to stock options.
Outstanding Shares 2000 1999 1998
============================================================================
Basic 8,209,395 8,175,090 8,178,067
Diluted 8,237,791 8,175,090 8,178,067
============================================================================
Reclassifications
Certain reclassifications have been made to prior years balances in order to
conform to the current year presentation.
2. CONSTRUCTION, RESTRUCTURING AND OTHER CHARGES
During 1998, 1999 and 2000 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.
15
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. 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.
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.("HOK"); 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. On May 1, 2000, the Company and UCDP settled their claims. This final
settlement preserves the Company's rights against HOK, the project policy
insurer; and HOK's other insurers. The Company also remains responsible for all
subcontractor and vendor claims arising from the project. The most material of
claims involved a suit brought by ADF International, Inc. ("ADF"), BMSCI's
subcontractor for structural steel and miscellaneous metals, against BMSCI and
Travelers.
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.
In connection with the conditional settlement agreement, and the estimated
amounts that were required to be settled with subcontractors and vendors, the
Company recorded additional charges totaling $2.4 million during the fourth
quarter of 1999.
On December 28, 2000, judgements were entered in favor of ADF International Inc.
against BMSCI and Travelers, jointly and severally, in the amount of $10.0
million. It was also further ordered and adjudged that BMSCI shall take nothing
by its counterclaim or Third Party Claims. BMSCI recorded charges during the
fourth quarter of $5.5 million related to the Judgements and $1.3 million in
attorney's fees which are yet to be determined by the court. The Company
believes that it has made an adequate provision for the attorney's fees. In
January 2001, after an in-depth analysis and recommendation by appellate
counsel, the Company filed an appeal to the 11th Circuit Court of appeals. The
Company had previously recorded charges of $4.5 million during the fourth
quarter of 1999.
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) division, 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 contemplation of this sale, charges totaling $1.9
16
million were recorded during the fourth quarter of 1999. Such charges primarily
reflect write-downs related to fixed asset impairments, equipment lease
termination costs, and lease costs for certain office space permanently idled by
the restructuring. In 2000, the Company recorded the effects of settling lease
obligations associated with certain heavy & highway construction equipment that
was no longer being fully utilized. The Company recorded a charge totaling $1.2
million to the "other, net" caption in the accompanying Condensed Consolidated
Statements of Income and other income of $0.2 million from the sale of the
equipment and settlement of the outstanding lease obligations. All heavy &
highway construction projects were substantially completed at December 31, 2000.
The components of this 1999 restructuring charge by segment were as follows:
Buildings - 1999 2000
Construction: DEC. 31 ------------------------ DEC. 31 ------------------------ DEC. 31
1998 CHARGED SETTLED 1999 CHARGED SETTLED 2000
=================================================================================================================================
Severance Costs $ - $ 126,000 $ (126,000) $ -- $ -- $ -- $ --
Write-down of fixed - 253,000 (231,000) 22,000 -- (22,000) --
assets
Lease termination - 360,000 (210,000) 150,000 -- (150,000) --
costs
- ---------------------------------------------------------------------------------------------------------------------------------
Total - $ 739,000 $ (567,000) $172,000 $ -- $(172,000) --
=================================================================================================================================
Transportation - 1999 2000
Construction: DEC. 31 ------------------------ DEC. 31 ------------------------ DEC. 31
1998 CHARGED SETTLED 1999 CHARGED SETTLED 2000
=================================================================================================================================
Write-down of fixed $-- $1,086,000 $(1,086,000) $ -- $ -- $ -- $ --
assets
Lease termination -- 571,000 -- 571,000 -- (389,000) 182,000
costs
Other -- 235,000 -- 235,000 -- (160,000) 75,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total $-- $1,892,000 $(1,086,000) $806,000 $ -- $(549,000) $257,000
=================================================================================================================================
Effective June 1, 2000 the Company completed the sale of its wholly-owned
subsidiary, Baker Support Services, Inc. (BSSI"), to SKE International LLC
("SKE"). BSSI primarily provided operations and maintenance services on U.S.
military bases worldwide, and represented a separate segment of the Company's
Civil business unit.
In exchange for 100% of the common stock of BSSI, the Company received cash
proceeds of $13.5 million, an another $0.5 million was placed in escrow by SKE
pending resolution of a post-closing purchase price adjustment. Management's
discussions with SKE during the third quarter of 2000 resulted in an additional
payment approximately $0.4 million of the $0.5 million escrowed by SKE.
In connection with this sale, BSSI's results of operations for the five months
ended May 31, 2000 were included in the accompanying Condensed Consolidated
Statements of Income for the year. In addition, the Company recorded
17
a gain totaling $2.2 million associated with this sale. This gain was included
within the "Other, net" caption in the aforementioned Statements of Income.
During 1999, additional charges totaling $12.8 million were recorded in the
Company's Transportation-Construction division 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.,
severance costs related to the departure of certain former officers and
employees, and adjustments on Engineering projects in the Buildings, Civil and
Transportation divisions.
3. ACQUISITION
On September 1, 1999, the Energy segment purchased all of the outstanding shares
of capital stock of Steen Production Service, Inc. ("Steen"). The purchase price
for the shares of Steen was $10.8 million, including interest bearing promissory
notes totaling $4.4 million; and certain non-competition covenants valued at
$2.0 million. The first of two payments on the interest bearing promissory notes
was made in September 2000 in the amount of $3.0 million which included interest
of $0.8 million. The last principal payment of $2.2 million will be paid in
September 2001 and will accrue interest at the prime rate as announced by the
Company's bank.
This acquisition has been accounted for by the purchase method of accounting and
the excess of the fair value of the net assets acquired over the purchase price
in the amount of $7.2 million has been allocated to goodwill and is being
amortized over 20 years. The operating results of Steen are included in the
Company's results of operations from the date of purchase.
Assuming that Steen had been acquired on January 1, 1999 and 1998, the unaudited
pro forma operating results of the Company for the year ended December 31, 1999
and 1998 would have approximated the following (in millions):
1999 1998
========================================================================
Total Contract Revenues $ 517 $ 538
Net loss $ (8.9) $ (3.3)
Basic and diluted net loss per share $(1.09) $(0.41)
========================================================================
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 $1.9 million 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 $825,000. The Company during the
first quarter of 2000 wrote off an additional $375,000 of the unamortized
balance due to the impairment of goodwill.
4. RECENT PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101") which summarizes the SEC's interpretation of revenue recognition. The
Company expects SAB 101 will not have any impact because it currently records
revenue in accordance with Statement of Accounting Position 81-1, "Accounting
for Performance of Construction-Type and Certain Production -Type Contracts,"
which is exempt from SAB 101 interpretations.
18
In June 1998 and June 2000, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," and
SFAS No. 138, "Accounting for Certain Derivative Instruments...an Amendment of
FAS 133," respectively, which establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires the Company to
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. It further provides criteria for
derivative instruments to be designated as fair value, cash flow, or foreign
currency hedges, and establishes accounting standards for reporting changes in
the fair value of the derivative instruments. Upon adoption, the Company will be
required to adjust hedging instruments to fair value in the balance sheet and
recognize the offsetting gains or losses as adjustments to be reported in net
income or other comprehensive income, as appropriate. The Company will adopt
SFAS No. 133 and 138 in fiscal 2001. The adoption of SFAS No. 133 and 138 will
not have a material effect on the Company's results of operations or financial
position.
5. CONTRACTS
The total cost of contracts in progress (used to determine cost of work
performed) plus accumulated gross profit recorded was $804,328,000 and
$910,838,000 at December 31, 2000 and 1999, respectively. Billings to date on
contracts in progress at December 31, 2000 and 1999 were $789,378,000 and
$903,590,000, respectively.
Trade accounts receivable totaling $7,009,000 and $10,012,000 at December 31,
2000 and 1999, 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, 2000 is expected to be collected in 2001.
As of December 31, 2000 and 1999, accounts payable included amounts due to
subcontractors of $287,000 and $2,087,000, 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 specific projects and then dissolved upon
completion of the projects. The number of joint ventures in which the Company
participates and the size, scope and duration of the projects varies between
periods. As a result of the Company exiting the construction businesses and BSSI
the amount of joint venture activity has diminished and is immaterial to the
financial statements during the year ended December 31, 2000. Summarized
financial information for the joint ventures in the years 1999 and 1998 were as
follows (in millions):
50% OR LESS EQUITY INVESTEES GREATER THAN 50% EQUITY INVESTEES
FOR THE YEARS ENDED DECEMBER 31, FOR THE YEARS ENDED DECEMBER 31,
------------------------------------ ---------------------------------
1999 1998 1999 1998
==================================================================================================================
Total contract revenues $13.4 $8.2 $16.0 $12.2
Gross profit 0.8 1.4 2.4 0.7
Income from operations - 0.7 2.3 0.7
Net (loss)/income $(0.1) $0.5 $ 2.4 $ 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):
19
GREATER THAN 50% EQUITY INVESTEES
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998
=========================================================================
Total contract revenues $9.1 $6.8
Gross profit 1.4 0.3
Income from operations 1.3 0.3
Net income $1.4 $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 the
local political environment subjects 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.
6. BUSINESS SEGMENT INFORMATION
The Company changed the way it reports its business segment information for the
year 2001. The company previously had five operating business units. The
Buildings, Energy and Environmental divisions each represented separate
reportable segments, while the Transportation and Civil divisions each comprised
two reportable segments. Accordingly, the Company will have the following three
reportable segments:
o The Engineering segment has historically provided a variety of services
including design-build, construction management, consulting, planning,
program management, surveying, mapping, geographic information systems,
architectural and interior design, construction inspection,
constructability reviews and software development capabilities within the
Civil, Transportation, Building and Environmental services.
o The Energy segment 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 Non-Core segment consists of the Building and Transportation
construction units that are currently in the process of being wound down
(see Note 2). All activity within this segment is expected to cease in
2001.
20
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
reportable segments under future segment reporting and prior segment reporting
for 2000 (in millions):
2000 FUTURE SEGMENT REPORTING
REPORTING ENGINEERING ENERGY CORPORATE NON-CORE
======================================================================================================
Total contract revenues:
Buildings $ 22.5 $ 20.9 -- -- $ 1.6
Civil:
Engineering 76.6 76.6 -- -- -
BSSI 23.4 -- -- -- 23.4
Energy 120.7 -- 120.7 -- -
Environmental 21.7 21.7 -- -- -
Transportation:
Engineering 108.8 108.8 -- -- -
Construction 16.6 -- -- -- 16.6
- ------------------------------------------------------------------------------------------------------
Subtotal - segments 390.3 228.0 120.7 -- 41.6
Corporate 0.4 -- -- 0.4 -
- ------------------------------------------------------------------------------------------------------
Total $390.7 $228.0 120.7 0.4 $41.6
======================================================================================================
OPERATING INCOME/(LOSS) FROM OPERATIONS WITHOUT CORPORATE OVERHEAD ALLOCATED:
2000 FUTURE SEGMENT REPORTING
REPORTING ENGINEERING ENERGY CORPORATE NON-CORE
=======================================================================================================
Operating income/(loss):
Buildings $ (3.2) $ 4.4 $ -- $ -- $ (7.6)
Civil:
Engineering 3.4 3.4 -- -- --
BSSI 1.4 -- -- -- 1.4
Energy 9.7 -- 9.7 -- --
Environmental 0.4 0.4 -- -- --
Transportation:
Engineering 7.7 7.7 -- -- --
Construction (0.7) -- -- -- (0.7)
- -------------------------------------------------------------------------------------------------------
Subtotal - segments 18.7 15.9 9.7 -- (6.9)
Corporate/Insurance (8.0) -- -- (8.0) --
- -------------------------------------------------------------------------------------------------------
Total $ 10.7 $15.9 $9.7 $(8.0) $ (6.9)
=======================================================================================================
21
2000 1999 1998
==============================================================================
Total Contract Revenues:
Buildings $ 22.5 $ 53.8 $151.5
Civil:
Engineering 76.6 68.1 69.1
BSSI 23.4 53.5 61.8
Energy 120.7 80.2 68.6
Environmental 21.7 28.5 22.7
Transportation:
Engineering 108.8 90.2 72.3
Construction 16.6 130.9 75.2
- ------------------------------------------------------------------------------
Subtotal - segments 390.3 505.2 521.2
Corporate/Insurance 0.4 0.8 0.1
- ------------------------------------------------------------------------------
Total $390.7 $506.0 $521.3
==============================================================================
2000 1999 1998
==============================================================================
Operating income/(loss):
Buildings $ (3.7) $ (7.2) $(14.2)
Civil:
Engineering 1.8 1.2 3.4
BSSI 1.2 2.1 0.5
Energy 8.1 3.1 3.9
Environmental 0.0 1.0 0.9
Transportation:
Engineering 5.6 4.6 3.3
Construction (1.1) (13.2) 1.2
- ------------------------------------------------------------------------------
Subtotal - segments 11.9 (8.4) (1.0)
Corporate/Insurance (1.2) 0.2 (0.7)
- ------------------------------------------------------------------------------
Total $ 10.7 $ (8.2) $ (1.7)
==============================================================================
2000 1999
===============================================================
Segment assets:
Buildings $ 3.6 $ 7.4
Civil:
Engineering 20.2 23.3
BSSI -- 15.8
Energy 43.2 40.3
Environmental 4.1 4.8
Transportation:
Engineering 34.6 28.9
Construction 13.7 17.4
- ---------------------------------------------------------------
Subtotal - segments 119.4 137.9
Corporate/Insurance 14.0 11.3
- ---------------------------------------------------------------
Total $133.4 $149.2
===============================================================
22
2000 1999 1998
===========================================================================
Capital expenditures:
Buildings $0.1 $0.2 $ 0.3
Civil:
Engineering 0.6 1.0 1.4
BSSI 0.2 0.4 0.8
Energy 0.7 0.6 1.2
Environmental 0.1 0.1 0.2
Transportation:
Engineering 0.6 1.2 1.3
Construction - 0.7 4.2
- ---------------------------------------------------------------------------
Subtotal - segments 2.3 4.2 9.4
Corporate 0.6 1.1 1.2
- ---------------------------------------------------------------------------
Total $2.9 $5.3 $10.6
===========================================================================
2000 1999 1998
===========================================================================
Depreciation and amortization:
Buildings $0.1 $0.2 $0.2
Civil:
Engineering 1.8 1.9 0.7
BSSI 0.3 0.8 0.6
Energy 1.9 1.5 1.1
Environmental 0.1 0.1 0.1
Transportation:
Engineering 1.5 0.9 0.6
Construction 0.1 0.9 0.7
- ---------------------------------------------------------------------------
Subtotal - segments 5.8 6.3 4.0
Corporate 1.3 1.1 1.0
- ---------------------------------------------------------------------------
Total $7.1 $7.4 $5.0
===========================================================================
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):
2000 1999 1998
===========================================================================
Total contract revenues by type
of service:
Engineering $228.0 $201.7 $178.4
Construction 18.2 169.8 212.4
Operations & Maintenance 144.1 133.7 130.4
Corporate/Insurance 0.4 0.8 0.1
- ---------------------------------------------------------------------------
Total $390.7 $506.0 $521.3
===========================================================================
23
2000 1999 1998
=======================================================================================================
Total contract revenues by geographic origin:
Domestic $354.2 $455.2 $475.2
Foreign 36.5 50.8 46.1
- -------------------------------------------------------------------------------------------------------
Total $390.7 $506.0 $521.3
=======================================================================================================
2000 1999 1998
=======================================================================================================
Total contract revenues by principal markets:
United States government 17.4% 21.4% 27.1%
Various state governmental and quasi-governmental agencies 34.5% 46.9% 34.4%
Commercial, industrial and private clients 48.1% 31.7% 38.5%
=======================================================================================================
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
2000 and 1999; 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. Long-lived assets are principally held in the U.S.,
all amounts in other locations are immaterial.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
2000 1999
============================================================================
Land $ 486 $ 552
Buildings and improvements 5,963 7,091
Equipment and vehicles 32,587 42,319
- ----------------------------------------------------------------------------
Total, at cost 39,036 49,962
Less - Accumulated depreciation (28,978) (32,842)
- ----------------------------------------------------------------------------
Net property, plant and equipment $ 10,058 $ 17,120
============================================================================
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following (in thousands):
2000 1999
==========================================================================================
Goodwill, net of accumulated amortization
of $3,040 and $3,927, respectively $ 9,164 $12,219
Other intangible assets, net of accumulated amortization
of $3,578 and $2,916, respectively 1,682 2,344
- ------------------------------------------------------------------------------------------
Net intangible assets $10,846 $14,563
==========================================================================================
9. LONG-TERM DEBT AND BORROWING AGREEMENTS
The Company has a secured credit agreement (the "Agreement") with its bank. The
Agreement was amended and restated on September 27, 2000 following waiver of
financial covenant violations during the third and fourth quarter of 1999. These
amendments change the committed facility from $25 million to $20 million through
May 31, 2001 and include a provision that borrowings under the Agreement shall
be limited to 80% of eligible receivables, as defined in the agreement. The
commitment change is expected to better approximate the Company's need in the
near term and includes the sum of the principal amount of revolving credit loans
outstanding and the aggregate face value
24
of outstanding letters of credit. For the period June 1 thru December 31, 2000,
no borrowings were outstanding. During the year, however; letters of credit
totaling $2.6 million had been issued under the agreement.
The Agreement provides for the Company to borrow at the Bank's prime interest
rate or LIBOR plus 2.25%, 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.
Due to the judgement rendered in the ADF litigation at December 28, 2000, the
Company violated certain financial statement and other covenants. These fourth
quarter 2000 violations were waived by its bank as of the date of the judgement.
The maximum amount of borrowings outstanding under the Agreement during 2000 was
$17,044,000. For 2000, the average daily balance outstanding when the Company
was in a net borrowing position was $10,288,000 at a weighted average interest
rate of 8.8%. The Company was in a net borrowed position from January 1 to May
31, 2000.
Other amounts totaling $2,295,000 at December 31, 2000, and included in current
portion of long-term debt and long-term debt in the accompanying Consolidated
Balance Sheet, represent $2,190,000 associated with the Steen acquisitions, in
addition to amounts due for certain equipment financed. These notes and
obligations mature as follows: $2,244,000 in 2001 and $51,000 in 2002. The
interest rates with respect to these notes ranged from 6.00% to 9.50% as of
December 31, 2000.
10. 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 2000 or 1999.
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. Each share
of Series B Common Stock may be converted to one share of Common Stock at one
time or at various times at the holder's discretion.
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, 2000 and
1999, there were no shares of such Preferred Stock outstanding.
11. RIGHTS AGREEMENT
Effective November 11, 1999, the Company's Board of Directors adopted a Rights
Agreement (the "Rights Agreement"). 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. The Rights will expire on November 16, 2009, unless
they are earlier exchanged or redeemed.
25
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 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.
12. LEASE COMMITMENTS
The Company's noncancellable leases relate to office space, computer equipment,
office equipment and vehicles, with lease terms ranging from one to 10 years.
Future annual minimum lease payments under noncancellable operating leases as of
December 31, 2000 are as follows:
FISCAL YEAR
=========================================
2001 $10,107,000
2002 $ 7,393,000
2003 $ 4,776,000
2004 $ 4,120,000
2005 $ 3,535,000
Thereafter $10,514,000
=========================================
Total $40,445,000
=========================================
Rent expense under noncancellable operating leases was $10,870,000 in 2000,
$11,521,000 in 1999 and $11,687,000 in 1998.
13. INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
2000 1999 1998
====================================================================================================
Current income taxes:
Federal $ 219 $ (70) $ 18
State 721 295 246
Foreign 1,449 1,815 1,519
- ----------------------------------------------------------------------------------------------------
Total current income taxes 2,389 2,040 1,783
Deferred income taxes:
Federal 3,547 (3,345) (799)
State (340) 228 104
- ----------------------------------------------------------------------------------------------------
Total deferred income taxes 3,207 (3,117) (695)
- ----------------------------------------------------------------------------------------------------
Total provision for/(benefit from) income taxes $5,596 $ (1,077) $1,088
====================================================================================================
26
The following is a reconciliation of income taxes at the federal statutory rate
to income taxes recorded by the Company (in thousands):
2000 1999 1998
================================================================================================
Computed income taxes at
U.S. federal statutory rate $3,743 $(3,142) $ (453)
Foreign taxes, net of federal
income tax benefits 964 1,180 1,003
State income taxes, net of
federal income tax benefit 248 340 225
Nondeductible charges 384 542 313
Other, net 257 3 --
- ------------------------------------------------------------------------------------------------
Total provision for/(benefit from) income taxes $5,596 $(1,077) $ 1,088
================================================================================================
The domestic and foreign components of the Company's income/(loss) before income
taxes are as follows (in thousands):
2000 1999 1998
==============================================================================
Domestic $ 8,766 $(12,355) $(4,203)
Foreign 2,206 3,114 2,872
- ------------------------------------------------------------------------------
Total $10,972 $ (9,241) $(1,331)
==============================================================================
The components of the Company's deferred income tax assets and liabilities at
December 31, 2000 and 1999 are as follows (in thousands):
2000 1999
==============================================================================
Deferred income tax assets:
Deductible temporary differences:
Provision for expenses and losses $ 8,369 $ 7,123
Contract overbillings 321 980
Federal tax operating loss carryforward -- 1,650
Accrued vacation pay 1,197 1,169
Fixed and intangible assets 732 728
Minimum tax credits -- 379
Charitable contribution carryforward 99 277
Other 4 90
- ------------------------------------------------------------------------------
Total deferred income tax assets 10,722 12,396
- ------------------------------------------------------------------------------
Deferred income tax liabilities:
Contract underbillings (7,207) (7,232)
Undistributed foreign earnings (2,916) (1,359)
- ------------------------------------------------------------------------------
Total deferred income tax liabilities (10,123) (8,591)
- ------------------------------------------------------------------------------
Net deferred tax asset $ 599 $ 3,805
==============================================================================
The Company has contribution carryforwards totaling $291,000 at December 31,
2000 that expire in 2004. During 2000, the Company used its 1999 U.S. net
operating loss carryforward of $4,854,000. The Company's U.S. income tax returns
for the years 1997 through 1999 remain subject to audit. Management believes
that adequate provisions have been made for income taxes at December 31, 2000.
27
14. 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 insured with respect to its workers' compensation and general
liability exposures subject to deductibles or self-insured retentions.
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 one material legal proceeding. The
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
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.
15. 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% being available to invest in Baker Common Stock or mutual funds,
as directed by the participants. Company contributions under this program
amounted to $4,965,000, and $4,565,000 in 2000 and 1999, respectively.
As of December 31, 2000, the market value of all ESOP investments was
$99,453,000, of which 27% represented the market value of the ESOP's investment
in Michael Baker Corporation Common Stock. The Company's ESOP held 40.0% of the
shares and 71% of the voting power for the outstanding Common Stock and Series B
Common Stock of the Company at the end of 2000.
28
16. 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 3,000 shares of restricted stock issued
in 2000 and 3,500 shares of restricted stock issued in 1999 and 1998. The
Company recognized compensation expense totaling $21,000, $27,000 and $35,000
related to the issuance of these restricted shares in 2000, 1999 and 1998,
respectively. Restrictions on the shares expire two years after the issue date.
The following table summarizes all stock option activity for both plans in 2000,
1999 and 1998:
AVERAGE
SHARES EXERCISE
SUBJECT PRICE
TO OPTION PER SHARE
==================================================================
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
Options granted 6,000 $6.25
Options exercised (82,097) $5.72
Options forfeited (144,060) $9.24
- ------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 395,659 $7.78
==================================================================
The weighted average fair value of options granted during 2000, 1999, and 1998
was $3.37, $3.87 and $5.37, respectively.
The following table summarizes information about stock options outstanding under
both plans as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED WEIGHTED
AS OF AVERAGE AS OF AVERAGE
RANGE OF EXERCISE PRICES 12/31/00 LIFE* EXERCISE PRICE 12/31/00 EXERCISE PRICE
===========================================================================================================
$4.8125 - $ 5.0313 82,699 3.2 $4.95 82,699 $4.95
$6.2500 - $ 7.8125 141,633 6.4 6.85 126,750 6.87
$9.0000 - $10.125 171,327 6.9 9.92 44,429 9.58
- -----------------------------------------------------------------------------------------------------------
Total 395,659 5.9 $7.78 253,878 $6.72
===========================================================================================================
*Average life remaining in years
29
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
2000, 1999 or 1998. 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 $5,259,000, $(8,524,000) and
$(2,669,000) for the years ended December 31, 2000, 1999 and 1998, respectively.
Similarly, the Company's pro forma diluted net income/(loss) per share would
have been $0.63, $(1.04) and $(0.33) for the years ended December 31, 2000,
1999, and 1998, 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 49.1%, an expected option life of 6 years, and a
0% expected dividend yield.
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the two years ended December 31, 2000 (in thousands, except per share
information):
2000 - THREE MONTHS ENDED
===============================================================================================================================
March 31 June 30 Sept. 30 Dec. 31#
Total contract revenues $108,295 $97,762 $92,351 $92,302
Gross profit 14,815 14,271 13,521 9,474
Income/(loss) before income taxes 3,309 4,726 4,193 (1,256)
Net income/(loss) 1,754 2,505 2,344 (1,227)
Diluted net income/(loss) per common share $ 0.21 $ 0.31 $ 0.28 $ (0.15)
===============================================================================================================================
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 taxes 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)
===============================================================================================================================
*Includes Buildings and Transportation unit project charges and Buildings unit
restructuring charges (see Note 2).
# Includes ADF Settlement (see Note 2).
30
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, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. 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 of America, 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 our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Pittsburgh, PA
March 16, 2001
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 2000 and 1999 were as follows:
2000 1999
==================================================================================================
First Second Third Fourth First Second Third Fourth
==================================================================================================
High 6 7/8 7 3/16 7 15/16 8 1/8 9 5/8 8 7 7/8 6 5/8
Low 5 4 3/4 6 3/16 7 9/16 6 5/8 6 1/2 5 5/8 5
==================================================================================================