Item 1. Business -----------
Michael Baker Corporation ("Baker" or "the Registrant") was founded in 1940 and organized as a Pennsylvania corporation in 1946. Today, through its operating subsidiaries and joint ventures, Baker provides engineering, construction, and operations and technical services worldwide. Effective January 1, 1995, the Registrant reorganized into five market-focused business units (segments)--Buildings, Civil, Energy, Environmental and Transportation-- from its former three operating groups (Engineering, Construction, and Operations & Maintenance).
Information regarding the amounts of revenue, operating profit and identifiable assets attributable to the Registrant's newly restated industry segments is contained in Note 4 to the consolidated financial statements, which are included within Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference.
According to the annual listings published in 1995 by ENGINEERING NEWS RECORD magazine, Baker ranks 46th among U.S. design firms, 12th among transportation design firms, 81st among global design firms, 93rd among U.S. construction contractors, 190th among international construction contractors and 64th among U.S. construction management at-risk firms. In addition, according to an annual listing published in 1995 by GOVERNMENT EXECUTIVE magazine, Baker ranks 152nd among government contractors. The rankings were based on 1994 revenues, except for the government contractor ranking which was based on 1994 contract awards.
Business Units ----------------
BUILDINGS. The Buildings unit consolidated the former Construction Group's general construction, construction management and design-build division with the former Engineering Group's facility planning and design unit to pursue the growing design-build market. The following are the principal services provided by the Buildings unit: o Architecture o Engineering o Planning o Construction management and consulting o Design-build o General construction
CIVIL. The Civil unit combined the Registrant's civil engineering and water resources division with its military operations & maintenance service division, Baker Support Services, Inc. ("BSSI"). This unit has consolidated Baker's military infrastructure work in planning and operations & maintenance, to improve its ability to market to, and serve, the U.S. Department of Defense, a major Baker client. The following list comprises the primary services provided by the Civil unit: o Engineering, planning, design and program management o Geographic information systems o Photogrammetric mapping o Waste/wastewater systems development o Water resources management o Military facilities planning and program management o Military base operations support o Fiber-optic cable engineering o Design-build-operate
ENERGY. The Energy unit comprises Baker/MO Services, Inc. ("Baker/MO") and Baker/OTS, Inc. ("Baker/OTS"). This unit focuses on providing operations & maintenance and technical services within the domestic and international energy industry. Baker/MO provides specialized services to the oil and gas, utility, and petrochemical industries, while Baker/OTS provides operations and technical services to major international oil and gas producers. The major services provided by the Energy unit are as follows: o Facility operations and maintenance o Operations analysis o Equipment maintenance and overhaul o Training programs o Pipeline development and design o Technical consulting and personnel o Engineering and construction management o Design-build-operate oil & gas facilities
ENVIRONMENTAL. The Environmental unit continues to operate in its pre-1995 form, but became a separate business unit in 1995. The principal services provided by the Environmental unit include: o Site characterization o Remediation design and construction management o Air quality management o Process safety management o Human health/ecological risk assessment o Occupational health and safety compliance o Environmental regulation compliance, audits and permitting o Groundwater/wastewater treatment o Facility design-build-operate
TRANSPORTATION. The Transportation unit merged the engineering capabilities in highways, bridges, transit, aviation and rail, with the heavy and highway construction capabilities of the former Construction Group. This merger has enhanced the Registrant's existing capabilities to serve transportation clients, created a strong construction management team, and positioned Baker to serve the evolving design-build and privatization markets. The major services provided by the Transportation unit are the following: o Planning o Design o Construction o Construction management and inspection o Program management for surface and air transportation o Design-build-operate
Domestic and Foreign Operations -------------------------------
Approximately 95% of the Registrant's total contract revenues are derived from work performed within the United States. Of those domestic-based revenues, the majority comprises engineering and construction work performed in the Northeast region of the U.S. The Registrant's international-based revenues are derived primarily from Baker/OTS and relate to operations and technical services performed outside the U.S. Baker/OTS provides the majority of its services in the Middle East and Africa.
Funded and Unfunded Backlog ---------------------------
The Registrant's funded backlog, which comprises that portion of uncompleted work represented by signed contracts and for which the procuring agency has appropriated and allocated the funds to pay for the work, was $300 million at December 31, 1995 vs. $283 million at December 31, 1994. Total backlog, which incrementally includes that portion of contract value for which options are still to be exercised (unfunded backlog), was $508 million at December 31, 1995 vs. $468 million at December 31, 1994.
There is not necessarily a correlation between the foregoing figures and the Registrant's annual total contract revenues. In the case of multi-year contracts, total contract revenues are spread over several years and correspond to the timing of the contract rather than the Registrant's fiscal year. Many multi-year contracts, particularly with agencies of the U.S. government, provide for optional renewals on the part of the customer. The Registrant's experience has been that these optional contract renewals have generally been exercised. Funded backlog generally is highest during the last quarter of each of the Registrant's fiscal years because that corresponds to the first quarter of the U.S. government's fiscal year, which is when many such government contract renewals occur.
Customers ---------
No individual contract accounted for more than 10% of the Registrant's total contract revenues in 1995, 1994 or 1993; however, several contracts with the State of Illinois provided 10.5% and 13.5% of the Registrant's total contract revenues in 1995 and 1994, respectively. Several contracts with the U.S. Department of Navy also provided 10.9%, 12.1% and 10.9% of the Registrant's 1995, 1994 and 1993 total contract revenues, respectively.
Competitive Conditions ----------------------
The Registrant's business is highly competitive with respect to all principal services it offers. Baker competes with numerous firms which provide some or all of the services provided by the Registrant. The competitive conditions in the Registrant's businesses relate to the nature of the contracts being pursued. Public-sector contracts, consisting mostly of contracts with federal and state governmental entities, are generally awarded through a competitive bidding process, subject to the contractors' qualifications, licensure and demonstrated abilities. The Baker business units employ extensive cost estimating, scheduling and other computerized techniques for the preparation of these competitive bids. Private-sector contractors compete on the bases of qualifications and licensure, quality of performance, price of services and other related factors. Such private-sector contracts are generally awarded on a negotiated basis.
The Registrant believes that the principal competitive factors (in various orders of importance) in the areas of services it offers are quality of service, reputation, experience, technical proficiency and cost of service. The Registrant believes that it is well positioned to compete effectively by emphasizing its full range of professional services.
Seasonality -----------
Based upon the Registrant's experience, total contract revenues and net income during the first and fourth quarters from engineering and construction-related services tend to be lower than the remaining quarters due to winter weather conditions, particularly for projects in the Northeast and Midwest regions of the United States.
Personnel -----------
At December 31, 1995, the Registrant employed approximately 3,100 persons, broken down by business unit as follows:
Buildings unit--470 Environmental unit--210 Civil unit--1,210 Transportation unit--610 Energy unit--570 Corporate staff--30
None of the Registrant's engineering employees are represented by labor unions; however, its construction personnel are generally covered by collective bargaining agreements, as are certain BSSI employees in the Civil unit. Currently, the Registrant considers its relationships with labor unions to be good.
Item 2.
Item 2. Properties ---------- The principal office of the Registrant is located at the Airport Office Park, 420 Rouser Road, Coraopolis, Pennsylvania 15108, at which approximately 122,000 square feet of office space is leased for use by the Registrant's Buildings, Environmental and Transportation units and, to a much lesser extent, by its corporate staff. The Registrant owns a 75,000 square foot office building located in Beaver County, Pennsylvania, which is situated on a 175 acre site and utilized as the principal office of the Registrant's Civil unit.
The Registrant leases an aggregate of approximately 388,000 square feet of office-related floor space, including the principal office. The space leased by business unit is as follows:
The Buildings unit leases approximately 66,000 square feet in: Orlando, Florida Coraopolis, Pennsylvania Chicago, Illinois Pittsburgh, Pennsylvania
The Civil unit leases approximately 89,000 square feet in: Baltimore, Maryland Dallas, Texas Jackson, Mississippi Alexandria, Virginia Vestal, New York Virginia Beach, Virginia
The Energy unit leases approximately 28,000 square feet in: Cypress, Texas Middlesex, United Kingdom Abu Dhabi, United Arab Emirates
Environmental Unit leases approximately 49,000 square feet in: Merrillville, Indiana Coraopolis, Pennsylvania Princeton, New Jersey
The Transportation unit leases approximately 132,000 square feet in: Anchorage, Alaska Coraopolis, Pennsylvania Phoenix, Arizona Gibsonia, Pennsylvania Fort Smith, Arkansas Harrisburg, Pennsylvania Tampa, Florida Pittsburgh, Pennsylvania Chicago, Illinois Richmond, Virginia Princeton, New Jersey Virginia Beach, Virginia Elmsford, New York Charleston, West Virginia
The Corporate staff utilizes approximately 24,000 square feet of leased space in Coraopolis and New Brighton, Pennsylvania.
Item 3.
Item 3. Legal Proceedings ----------------- The Registrant has been named as a defendant or co-defendant in legal proceedings wherein substantial damages are claimed. Such proceedings are not uncommon to the Registrant's business. After consultations with counsel, management believes that the Registrant has recognized adequate provisions for these proceedings and their ultimate resolutions will not have a material adverse effect on the consolidated financial position or annual results of operations of the Registrant. The most significant of these proceedings are discussed below.
In 1987, a lawsuit was brought in the Supreme Court of the State of New York, Bronx County, by the Dormitory Authority of the State of New York against a number of parties, including the Registrant and one of its wholly-owned subsidiaries, that asserts breach of contract and alleges damages of $13 million. The Registrant, which was not a party to the contract underlying the lawsuit, contends that there is no jurisdiction with respect to the Registrant and that it cannot be held liable for any conduct of the subsidiary. Both the Registrant and the subsidiary are contesting liability issues and have filed cross-claims and third-party claims against the other entities involved in the project.
In September 1991, the Registrant, through a newly formed subsidiary, Baker Mellon Stuart Construction, Inc. ("BMSCI", formerly Mellon Stuart Construction, Inc.), acquired certain assets and contracts from Federal Street Construction Co., Inc. ("FSC"), which thereafter continued to perform services under various contracts that were not acquired by BMSCI. On May 11, 1992, a public body that had contracted with FSC in 1989 to construct a $38 million project filed a lawsuit in state court in Illinois (County of Cook v. Mellon Stuart Company, et al., Circuit Court, Illinois) against FSC and its surety alleging various claims in connection with the contract. This contract was not acquired by BMSCI, but the plaintiff also named the Registrant, BMSCI and another subsidiary as defendants based upon a legal theory of successor liability by virtue of the sale of certain assets and contracts to BMSCI by FSC. On November 15, 1995, a motion was granted ordering that the settlement agreement between FSC and the public body was entered into in good faith, and the case against the Registrant and its subsidiaries was dismissed without prejudice.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders ---------------------------------------------------
No matters were submitted to a vote of the Registrant's security holders during the fourth quarter of 1995.
Executive Officers of the Registrant - ------------------------------------
The following represents a listing of executive officers of the Registrant as of December 31, 1995.
CHARLES I. HOMAN - Age 52; President, Chief Executive Officer and a Director of the Registrant since October 1994. Mr. Homan previously served as Executive Vice President of the Registrant from 1990 through September 1994, and as President of Michael Baker, Jr., Inc., a subsidiary of the Registrant, from 1983 through September 1994. He has been employed by the Registrant in various capacities since 1965. Mr. Homan has also served as a director of Century Financial Corporation since 1994.
J. ROBERT WHITE - Age 53; Executive Vice President, Chief Financial Officer and Treasurer of the Registrant since July 1994, and a Director since August 1994. Prior to joining the Registrant, Mr. White served 21 years in various capacities with Westinghouse Electric Corp., most recently as Assistant Director of Investor Relations from 1989 through June 1994.
DONALD J. NELSON - Age 51; Executive Vice President of the Registrant from 1991 until his resignation in January 1996. Mr. Nelson previously served as a Director from 1984 through April 1994, and as Chief Financial Officer of the Registrant from 1987 through April 1994. He had been employed by the Registrant in various capacities since 1965.
DONALD P. FUSILLI, Jr. - Age 44; Executive Vice President of the Registrant since 1991 and President of Baker/MO Services, Inc., a subsidiary of the Registrant, since May 1995. Mr. Fusilli previously served as General Counsel and Secretary of the Registrant from 1986 through August 1994. He has been employed by the Registrant in various capacities since 1973.
JOHN C. HAYWARD - Age 48; Executive Vice President of the Registrant since January 1995 and President of Michael Baker Jr., Inc. since October 1994. Mr. Hayward previously served as Senior Vice President of Michael Baker Jr., Inc. from 1989 through September 1994. He has been employed by the Registrant in various capacities since 1974.
ANDREW P. PAJAK - Age 46; Executive Vice President of the Registrant since January 1995 and President of Baker Environmental, Inc., a subsidiary of the Registrant, since 1990. Mr. Pajak previously served as Senior Vice President of Baker Environmental, Inc. from 1988 through 1990. He has been employed by the Registrant in various capacities since 1981.
EDWARD L. WILEY - Age 52; Executive Vice President of the Registrant since January 1995 and Executive Vice President of Michael Baker Jr., Inc. since October 1994. Mr. Wiley previously served as Senior Vice President of Michael Baker Jr., Inc. from 1989 through September 1994. He has been employed by the Registrant in various capacities since 1968.
GLENN S. BURNS - Age 46; Executive Vice President of the Registrant and President of BMSCI since May 1995. Mr. Burns previously served as Vice President, General Counsel and Secretary of the Registrant from August 1994 to October 1995 and as Assistant General Counsel from 1991 through August 1994. Prior to 1991 and at the time of the acquisition of certain assets and contracts of FSC by BMSCI, Mr. Burns served as General Counsel for FSC.
H. JAMES MCKNIGHT - Age 51; Vice President, General Counsel and Secretary of the Registrant since September 1995. Mr. McKnight previously served as counsel to International Technology Corporation from February 1995 through September 1995, and was a self-employed consultant from November 1992 through February 1995. Prior to being self-employed, Mr. McKnight was Vice President, General Counsel and Secretary for Vectura Group, Inc.
Executive officers of the Registrant serve at the pleasure of the Board of Directors and are elected by the Board annually for a term of office extending through the election and qualification of their successors.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Security ------------------------------------------------------------ Holder Matters ---------------
Information relating to the market for the Registrant's Common Stock and other matters related to the holders thereof is set forth in the "Supplemental Financial Information" section of Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference.
The Registrant's present policy is to retain any earnings to fund the operations and growth of the Registrant. The Registrant has not paid any cash dividends since 1983 and has no plans to do so for the foreseeable future. The declaration and payment of dividends is currently limited to $2 million through May 31, 1998, by the Registrant's secured credit agreement with Mellon Bank, N.A.
At March 15, 1996, the Registrant had 1,595 Common Stock holders and 730 Series B Common Stock holders.
Item 6.
Item 6. Selected Financial Data -----------------------
A summary of selected financial data for the Registrant, including each of the last five fiscal years in the period ended December 31, 1995, is set forth in the "Selected Financial Data" section of Exhibit 13.1 to this Form 10-K. Such summary is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition ----------------------------------------------------------- and Results of Operations -------------------------
A discussion of the Registrant's financial condition, cash flows and results of operations is set forth in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of Exhibit 13.1 to this Form 10-K. Such discussion is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data -------------------------------------------
The consolidated financial statements, together with the report thereon of Price Waterhouse LLP, dated February 16, 1996, except as to Notes 6 and 12, which are as of March 22, 1996, are set forth within Exhibit 13.1 to this Form 10-K. Such financial statements and the "Supplemental Financial Information" section, which follows within the same exhibit, are incorporated herein by reference. The report of Arthur Andersen LLP on the consolidated financial statements for the year ended December 31, 1993, is dated February 14, 1994, and attached hereto as Exhibit 99.3.
Item 9.
Item 9. Changes in and Disagreements With Accountants on ------------------------------------------------ Accounting and Financial Disclosure ----------------------------------- Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant --------------------------------------------------
Information relating to the Directors of the Registrant appears beneath the caption "Election of Directors" in the Registrant's definitive Proxy Statement which will be distributed in connection with the 1996 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. Information relating to compliance with Section 16(a) of the Securities Exchange Act of 1934 appears beneath the caption "Directors and Officers" of such Proxy Statement. Such information is incorporated herein by reference. Information relating to the executive officers of the Registrant is set forth in Part I of this Report under the caption "Executive Officers of the Registrant." Such information is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation ----------------------
Information relating to executive compensation appears beneath the caption "Directors and Officers" in the Registrant's definitive Proxy Statement which will be distributed in connection with the 1996 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. Such information is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management --------------------------------------------------------------
Information relating to the ownership of equity securities by beneficial owners of 5% or more of the common stock of the Registrant and by management has been set forth under the caption "Stock Ownership of Certain Beneficial Owners and Management" in the Registrant's definitive Proxy Statement which will be distributed in connection with the 1996 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. Such information is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions ----------------------------------------------
Information concerning certain relationships and transactions between the Registrant and its directors and officers appears beneath the caption "Directors and Officers" in the Registrant's definitive Proxy Statement which will be distributed in connection with its 1996 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. Such information is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ---------------------------------------------------------------
(a)(1) The following financial statements are incorporated in Item 8 of Part II of this Report by reference to the consolidated financial statements within Exhibit 13.1 to this Form 10-K:
Consolidated Balance Sheet as of December 31, 1995 and 1994
Consolidated Statement of Income for the three years ended December 31, 1995
Consolidated Statement of Cash Flows for the three years ended December 31, 1995
Consolidated Statement of Shareholders' Investment for the three years ended December 31, 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants (Price Waterhouse LLP)
The report of Arthur Andersen LLP on the consolidated financial statements for the year ended December 31, 1993, is attached hereto as Exhibit 99.3.
(a)(2) Financial Statement Schedule for the three years ended December 31, 1995:
Schedule II - Valuation and Qualifying Accounts
Report of Independent Accountants on Financial Statement Schedule for the two years ended December 31, 1995 (included as Exhibit 99.2 to this Form 10-K)
Report of Independent Public Accountants on Financial Statement Schedule for the year ended December 31, 1993 (included within Exhibit 99.3 to this Form 10-K)
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
(a)(3) The following exhibits are included herewith as a part of this Report:
(b) The Registrant filed no reports on Form 8-K during the fourth quarter of 1995.
SIGNATURES ------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
MICHAEL BAKER CORPORATION
Dated: March 28, 1996 By /s/ Charles I. Homan -------------------- Charles I. Homan, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 EXHIBITS