--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
COMMISSION FILE NUMBER 1-6627
MICHAEL BAKER CORPORATION
(Exact name of Company as specified in its charter)
PENNSYLVANIA 25-0927646
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
AIRSIDE BUSINESS PARK, 15108
100 AIRSIDE DRIVE, (Zip Code)
MOON TOWNSHIP, PA
(Address of principal executive offices)
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(412) 269-6300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------- -----------------------------------------
COMMON STOCK, PAR VALUE $1 PER SHARE AMERICAN STOCK EXCHANGE
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the Company is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule
12b-2).
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark if the registrant is a shell company of the Act (as
defined in Rule 12b-2) of the Act). Yes [ ] No [X]
The aggregate market value of Common Stock held by non-affiliates as of June 30,
2005 (the last business day of the Company's most recently completed second
fiscal quarter) was $115.0 million. This amount is based on the closing price of
the Company's Common Stock on the American Stock Exchange for that date. Shares
of Common Stock held by executive officers and directors of the Company and by
the Company's Employee Stock Ownership Plan are not included in the computation.
As of June 30, 2006, the Company had 8,499,988 outstanding shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS OF FORM 10-K INTO WHICH
DOCUMENT DOCUMENT IS INCORPORATED
-------- -----------------------------
Financial Section of Annual Report to Shareholders for I, II
the year ended December 31, 2005
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
MICHAEL BAKER CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
TABLE CONTENTS
PAGE
----
PART I
Item 1. Business 4
Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 11
Item 2. Properties 11
Item 3. Legal ProceedingS 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 12
Item 6. Selected Consolidated Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation 13
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk 13
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 14
Item 9A. Controls and Procedures 14
Item 9B. Other Information 18
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 23
Item 13. Certain Relationships and Related Transactions 24
Item 14. Principal Accountant Fees and Services 25
PART IV
Item 15. Exhibits, Financial Statement Schedules 26
Note with respect to Forward-Looking Statements:
This Annual Report on Form 10-K, and in particular the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of
Exhibit 13.1 hereto, which is incorporated by reference into Item 7 of Part II,
contains forward-looking statements concerning our future operations and
performance. Forward-looking statements are subject to market, operating and
economic risks and uncertainties that may cause our actual results in future
periods to be materially different from any future performance suggested herein.
Factors that may cause such differences include, among others: increased
competition; increased costs; changes in general market conditions; changes in
industry trends; changes in the regulatory environment; changes in our
relationship and/or contracts with the Federal Emergency Management Agency
("FEMA"); changes in anticipated levels of government spending on
infrastructure, including the Safe, Accountable, Flexible, Efficient
Transportation Equity Act -- A Legacy for Users ("SAFETEA-LU"); changes in loan
relationships or sources of financing; changes in management; changes in
information systems; and costs to comply with the requirements of the
Sarbanes-Oxley Act of 2002. Such forward-looking statements are made pursuant to
the Safe Harbor Provisions of the Private Securities Litigation Reform Act of
1995.
2
EXPLANATORY NOTE
In this Form 10-K, the terms "we," "us," or "our" refer to Michael Baker
Corporation and its subsidiaries.
As discussed in Note 2 to the accompanying consolidated financial statements
included in Exhibit 13.1, this Annual Report on Form 10-K includes the
restatement of our consolidated financial statements for the years ended
December 31, 2004 and 2003. The impact of these errors also required the
restatement of our Selected Financial Data included in Exhibit 13.1 for the 2001
and 2002 fiscal years.
3
PART I
ITEM 1. BUSINESS
GENERAL
Michael Baker Corporation ("we," "us," or "our") was founded in 1940 and
organized as a Pennsylvania corporation in 1946. Today, through our operating
subsidiaries, we provide engineering and energy expertise for public and private
sector clients worldwide.
Information regarding the amounts of revenues, income from operations before
Corporate overhead allocations, total assets, capital expenditures, and
depreciation and amortization expense attributable to our reportable segments is
contained in Note 5 to the consolidated financial statements, which is included
within Exhibit 13.1 to this Form 10-K. Such information is incorporated herein
by reference.
According to the annual listings published in 2006 by Engineering News Record
magazine, based on total engineering revenues for 2005, we ranked 37(th) among
the top 500 U.S. design firms; 13(th) among "pure design" firms; 24(th) among
program management firms; 11(th) in water and water supply, including 21(st) in
sanitary and storm sewers; 25(th) among site assessment and compliance firms;
16(th) among transportation design firms, including 22(nd) in highways, 11(th)
in bridges and 25(th) in airports; 31(st) among construction management-for-fee
firms; 19(th) in transmission lines and aqueducts; 17(th) in pipelines
(petroleum); 10(th) in distribution and warehouses (general building); and
60(th) among environmental firms. In addition, we believe that we are one of the
largest providers of outsourced operations and maintenance services to the
energy industry in the Gulf of Mexico.
STRATEGY
Our strategy is based on four concepts: maximizing growth, optimizing
profitability, innovating and leveraging.
MAXIMIZING GROWTH -- We seek to maximize growth by securing larger and more
complex projects and program management opportunities in both the Engineering
and Energy segments in the United States and abroad. The addition of the
Multi-hazard flood mapping and modernization program ("MHFMM") with FEMA is a
prime example of our execution of this concept.
OPTIMIZING PROFITABILITY -- We seek to optimize our profitability through
long-term, performance based contracting vehicles. This strategy is evident in
our recent wins, including contracts such as the FEMA contract mentioned above
for the Engineering segment, and the onshore managed services contracts for the
Energy segment.
INNOVATING -- We strive to constantly and consistently innovate ways to deliver
services to our clients. We utilize mapping and geographic information
technology in a number of innovative ways, including the estimates to damage of
homes and other facilities in the aftermath of Hurricane Katrina.
LEVERAGING -- We strive to leverage our expertise in the Engineering and Energy
segments to enhance our competitive position with customers. This is most
evident in Sheridan, Wyoming, where we have brought both segments together to
assist our client there in the safe, efficient and compliant production of coal
bed methane gas.
BUSINESS SEGMENTS
Our business segments have been determined based on how executive management
makes resource decisions and assesses our performance. Our two reportable
segments are Engineering and Energy. Information regarding these business
segments is contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations, which is included within Exhibit 13.1 to
this Form 10-K. Such information is incorporated herein by reference.
4
The following briefly describes our business segments:
ENGINEERING -- Our Engineering segment provides a variety of design and related
consulting services, principally in the U.S. Such services include program
management, design-build, construction management, consulting, planning,
surveying, mapping, geographic information systems, architectural and interior
design, construction inspection, constructability reviews, site assessment and
restoration, strategic regulatory analysis, regulatory compliance, and advanced
management systems. The Engineering segment has designed a wide range of
projects, such as highways, bridges, airports, busways, corporate headquarters,
data centers, correctional facilities and educational facilities. This segment
also provides services in the water/wastewater, pipeline, emergency and
consequence management, resource management, and telecommunications markets.
This segment is susceptible to upward and downward fluctuations in federal and
state government spending.
Our transportation services have benefited from the U.S. government's federal
transportation infrastructure legislation (SAFETEA-LU) in recent years.
Additionally, we have benefited from increased federal government spending in
the Departments of Defense and Homeland Security, including FEMA, US-VISIT and
the Coast Guard. We partner with other contractors to pursue selected
design-build contracts, which continue to be a growing project delivery method
within the transportation and civil infrastructure markets.
ENERGY -- Our Energy segment provides a full range of services to operating
energy production facilities worldwide. This segment's comprehensive services
range from complete outsourcing solutions to specific services such as training,
personnel recruitment, pre-operations engineering, maintenance management
systems, field operations and maintenance, procurement, and supply chain
management. The Energy segment serves both major and smaller independent oil and
gas producing companies, but does not pursue exploration opportunities for our
own account or own any oil or natural gas reserves.
One delivery method employed by the segment is Managed Services, an operating
model that has broadened the Energy segment's service offerings in the offshore
Gulf of Mexico and the onshore United States. This model has the potential to
enhance our operating margins as well as our clients'. Onshore, we have taken
over full managerial and administrative responsibility for clients' producing
properties. Offshore, the segment has organized a network of marine vessels,
helicopters, shore bases, information technology, safety and compliance systems,
specialists, and a leadership team that manages the sharing of resources,
thereby resulting in improved profitability for participants. Presently, we are
working under Managed Services agreements with oil and gas producers in the Gulf
of Mexico and in the Powder River Basin in Wyoming and Montana.
The segment also operates in over a dozen foreign countries, with major projects
in Venezuela, Thailand, Trinidad, Algeria and Nigeria. The local political
environment in certain of these countries subjects our related trade
receivables, due from subsidiaries of major oil companies, to lengthy collection
delays. Based upon past experience with these clients, after giving effect to
our related allowance for doubtful accounts balance at December 31, 2005, we
believe that these receivable balances will be fully collectible. This segment
also has exposure to currency related gains and losses but a substantial amount
of our foreign transactions are settled in the same currency, thereby greatly
reducing our exposure to material currency transaction gains and losses.
DOMESTIC AND FOREIGN OPERATIONS
For the years ended December 31, 2005, 2004 and 2003, approximately 88%, 88% and
87% of our total contract revenues, respectively, were derived from work
performed for U.S.-based clients within the United States. Further financial
information regarding our domestic and foreign operations is contained in Notes
5 and 12 to the consolidated financial statements, which are included within
Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by
reference. Of our domestic revenues, the majority comprises engineering work
performed in the Mid-Atlantic region of the U.S. and operations and maintenance
work performed by our Energy segment in Texas, Louisiana, Wyoming, Montana and
the Gulf of Mexico. Our international revenues are derived primarily from our
Energy segment.
5
BACKLOG
(IN MILLIONS) DECEMBER 31, 2005 DECEMBER 31, 2004
------------- ----------------- -----------------
Engineering $1,109.2 $1,115.2
Energy 212.6 284.3
-------- --------
Total $1,321.8 $1,399.5
======== ========
Our backlog consists of that portion of uncompleted work that is represented by
signed or executed contracts. Most of our contracts with the Federal government
and other clients may be terminated at will, or option years may not be
exercised; therefore, no assurance can be given that all backlog will be
realized. Of our total backlog at December 31, 2005, amounts totaling $183
million and $165 million are expected to be recognized as revenue within the
next year by our Engineering and Energy segments, respectively.
As of December 31, 2005 and 2004, $566 million and $678 million of our backlog,
respectively, relates to a $750 million contract in the Engineering segment to
assist FEMA in conducting a large-scale overhaul of the nations flood hazard
maps, which commenced late in the first quarter of 2004. This contract includes
data collection and analysis, map production, product delivery, and effective
program management; and seeks to produce digital flood hazard data, provide
access to flood hazard data and maps via the Internet, and implement a
nationwide state-of-the-art infrastructure that enables all-hazard mapping. Due
to the task order structure of the contract, realization of the timing and
amount of the original contract value of $750 million remains difficult to
predict. FEMA has identified specific program objectives and priorities which it
intends to accomplish under this program. As the initial task orders are
completed and progress against objectives is measured, we will become better
able to predict realization of this contract award. We may at a time in the
future reduce the backlog accordingly.
In our Energy segment, we also consider purchase orders from clients for labor
services as backlog. These purchase orders typically have a twelve-month term
and amounts recorded as revenues on a periodic basis are reduced from backlog.
Most purchase orders have cancellation clauses with thirty-day notice
provisions. Oil and gas industry merger, acquisition and divestiture programs
affecting our clients can result in increases or decreases in our Energy
segment's backlog.
There is no direct correlation between our total backlog amounts and our annual
total contract revenues. Further, our backlog amounts do not represent a
guarantee of future revenues or results of operations. In the case of multi-year
contracts, total contract revenues are spread over several years and correspond
to the timing of the contract rather than our fiscal year. Many multi-year
contracts, particularly with agencies of the U.S. government, provide for
optional renewals on the part of the customer. Our experience has been that
these optional contract renewals have generally been exercised. Engineering
backlog generally is highest during the last quarter of our fiscal year because
that corresponds to the first quarter of the U.S. government's fiscal year,
which is when many government contract renewals occur.
SIGNIFICANT CUSTOMERS
Contracts with various branches of the U.S. government accounted for 31%, 26%
and 17% of our total contract revenues for the years ended December 31, 2005,
2004 and 2003, respectively. Our contracts with FEMA accounted for approximately
20% and 15% of our revenues in 2005 and 2004, respectively. No individual
customer accounted for more than 10% of our total contract revenues in 2003.
COMPETITIVE CONDITIONS
Our business is highly competitive with respect to all principal services we
offer. Our Engineering and Energy segments compete with numerous public and
private firms that provide some or all of the services that we provide. In the
Engineering segment, our competitors range from large national and international
firms such as Parsons Brinkerhoff Inc., CH2M Hill Companies, PBS&J, Tetra Tech,
URS Corporation and CDM to a vast number of smaller, more localized firms. In
the Energy segment, we compete with units of the Wood Group and Bristow Group.
6
The competitive conditions in our businesses relate to the nature of the
contracts being pursued. Public-sector contracts, consisting mostly of contracts
with federal and state governmental entities, are generally awarded through a
competitive process, subject to the contractors' qualifications and experience.
Our business segments employ cost estimating, scheduling and other techniques
for the preparation of these competitive bids. Private-sector contractors
compete primarily on the basis of qualifications, quality of performance and
price of services. Most private and public-sector contracts for professional
services are awarded on a negotiated basis.
We believe that the principal competitive factors (in various orders of
importance) in the areas of services we offer are quality of service,
reputation, experience, technical proficiency, local geographic presence and
cost of service. We believe that we are well positioned to compete effectively
by emphasizing the quality of services we offer and our widely known reputation
in providing professional engineering services in the Engineering segment and
technical and operations and maintenance services in the Energy segment. We are
also dependent upon the availability of staff and our ability to recruit.
SEASONALITY
Based upon our experience, our Engineering segment's total contract revenues and
income from operations have historically been lower for our first fiscal quarter
than for the remaining quarters due to the effect of winter weather conditions,
particularly in the Mid-Atlantic and Midwest regions of the United States.
Typically, these seasonal weather conditions unfavorably impact our performance
of construction management services. Our Energy segment is not as directly
impacted by seasonal weather conditions.
PERSONNEL
At December 31, 2005, we had 4,817 total employees. Of this year-end 2005 total,
our Engineering segment had 2,217 employees, our Energy segment had 2,546
employees, and our Corporate staff included 54 employees. Certain employees of
our 53%-owned Nigerian subsidiary are subject to an industry-based in-country
collective bargaining agreement. The remainder of our workforce is not subject
to collective bargaining arrangements. We believe that our relations with our
employees are good.
EXECUTIVE OFFICERS
The following represents a listing of our executive officers as of December 31,
2005.
Donald P. Fusilli, Jr. -- Age 54; President and Chief Executive Officer since
April 2001. Mr. Fusilli has been employed by us in various capacities since
1973, including President and Chief Operating Officer from 2000 to 2001, and
Executive Vice President of our Energy segment from 1994 to 2000.
William P. Mooney -- Age 55; Executive Vice President and Chief Financial
Officer since June 2000. Prior to joining us, Mr. Mooney served as Executive
Vice President and Chief Financial Officer of FEI Company in Hillsboro, Oregon,
a global supplier of capital equipment to the semiconductor and data storage
industries, from 1999 to June 2000.
H. James McKnight -- Age 61; Executive Vice President, General Counsel and
Secretary since June 2000. Mr. McKnight has been employed by us since 1995,
serving as Senior Vice President, General Counsel and Secretary from 1998 to
2000 and as Vice President, General Counsel and Secretary from 1995 to 1998.
Monica L. Iurlano -- Age 48; Executive Vice President and Chief Resources
Officer since May 2002. Ms. Iurlano previously served as Vice President of Human
Resources with L.B. Foster from 1999 to May 2002. Prior to joining L.B. Foster,
Ms. Iurlano served in various management positions at Highmark Blue Cross Blue
Shield from 1995 to 1999. Ms. Iurlano was also previously employed by us from
1992 to 1995 as our Benefits Manager.
Craig O. Stuver -- Age 45; Senior Vice President, Corporate Controller,
Treasurer and Chief Accounting Officer since April 2001. Prior to joining us,
Mr. Stuver served as a vice president of finance for Marconi Communications from
September 2000 to April 2001. Mr. Stuver was also previously employed by us from
7
1992 to 2000, serving in various capacities including Senior Vice President,
Corporate Controller and Treasurer briefly in 2000 and as Vice President,
Corporate Controller and Assistant Treasurer from 1997 to 2000.
Bradley L. Mallory -- Age 53; President of our Engineering segment since October
2003. Mr. Mallory previously served as a Senior Vice President from March 2003
through September 2003. Prior to joining us, Mr. Mallory worked in various
management capacities with the Pennsylvania Department of Transportation,
including Department Secretary from 1995 to 2003.
Richard W. Giffhorn -- Age 56; President of our Energy segment since September
2002. Prior to joining our Energy segment, Mr. Giffhorn was a self-employed
consultant in 2001 and 2002, and previously served as Vice President of
Operations for Baker Hughes INTEQ in Houston, Texas, from 1993 to 2000. In June
2006, Mr. Giffhorn resigned from his executive officer position.
John D. Whiteford -- Age 46; Executive Vice President of Michael Baker Jr.,
Inc., a subsidiary, and Manager of our North Region since June 2000. Mr.
Whiteford previously served in various capacities with us since 1983, including
Vice President of our Energy segment from 1997 to 2000.
James B. Richards -- Age 59; Executive Vice President of Michael Baker Jr., Inc.
and Manager of our South Region since June 2000. Since joining us in 1996, Mr.
Richards served as Vice President of Michael Baker Jr., Inc. and Regional
Manager of our Southeast Region from 1996 to 2000.
Rex P. Doyle -- Age 47; Senior Vice President of our Energy segment since
September 2003. Mr. Doyle also served as Vice President of Sales and Marketing
for our Energy segment from September 2002 to September 2003 and held various
management positions at the Corporate level from August 2000 through August
2002. Prior to joining us in August 2000, Mr. Doyle served as Director of
Account Management for Enron from 1999 to July 2000. In April 2006, Mr. Doyle
resigned from his executive officer position.
Our executive officers serve at the discretion of the Board of Directors and are
elected by the Board or appointed annually for a term of office extending
through the election or appointment of their successors.
AVAILABLE INFORMATION
Our Internet website address is www.mbakercorp.com. We post our annual reports
on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form
8-K, and all amendments to those reports to our website as soon as reasonably
practicable after such reports are electronically filed with the Securities and
Exchange Commission. These reports and any amendments to them are also available
at the website of the Securities and Exchange Commission ("SEC"),
http://www.sec.gov. We also post press releases, earnings releases, the Code of
Ethics for Senior Officers and the Charters related to the Governance and
Nominating Committee, Audit Committee and Compensation Committee to our website.
Our website and the information contained on it are not incorporated by
reference into this Form 10-K.
ITEM 1A. RISK FACTORS
In addition to other information referenced in this report, we are subject to a
number of specific risks outlined below. If any of these risks or uncertainties
actually occur, our business, financial condition, results of operations and
cash flows, and the market price of our common stock could be materially
affected.
CHANGES AND FLUCTUATIONS IN THE U.S. GOVERNMENT'S SPENDING PRIORITIES COULD
MATERIALLY AFFECT OUR FUTURE REVENUE AND GROWTH PROSPECTS.
Our primary customers, which compose a substantial portion of our revenue and
backlog, include agencies of the U.S. federal government and state and local
governments and agencies that depend on funding or partial funding provided by
the U.S. federal government. Consequently, any significant changes and
fluctuations in the government's spending priorities as a result of policy
changes or economic downturns may directly affect our future revenue streams.
Additionally, reduced spending by the U.S. government may create competitive
pressure within our industry which could result in lower revenues and margins in
the future.
8
OUR ABILITY TO ATTRACT, TRAIN, AND RETAIN PROFESSIONAL PERSONNEL OF THE HIGHEST
QUALITY IS A COMPETITIVE ADVANTAGE. OUR FUTURE INABILITY TO DO SO WOULD
ADVERSELY AFFECT OUR COMPETITIVENESS.
Our contract obligations in our engineering and energy markets are performed by
our staff of well-qualified engineers, technical professionals, and management
personnel. Our future growth potential requires the effective attraction,
training, and retention of these employees. Our inability to retain these
well-qualified personnel and recruit additional well-qualified personnel would
adversely affect our business performance and limit our ability to perform new
contracts.
DUE TO THE NATURE OF THE WORK WE PERFORM TO COMPLETE ENGINEERING AND ENERGY
CONTRACTS, WE ARE SUBJECT TO POTENTIAL LIABILITY CLAIMS AND CONTRACT DISPUTES.
Our engineering and energy contracts often involve large projects where design,
construction, or systems failures could result in substantially large or
punitive damages for which we could have liability. We maintain insurance
coverage through various policies which are intended to reduce our financial
exposure to any potential liabilities or future claims.
We may also experience a delay or withholding of payment for services due to
performance disputes. If we are unable to resolve these disputes and collect
these payments, we would incur profit reductions and reduced cash flows.
WE ARE SUBJECT TO PROCUREMENT LAWS AND REGULATIONS ASSOCIATED WITH OUR
GOVERNMENT CONTRACTS. IF WE DO NOT COMPLY WITH THESE LAWS AND REGULATIONS, WE
MAY BE PROHIBITED FROM COMPLETION OF OUR EXISTING GOVERNMENT CONTRACTS OR
SUSPENDED FROM GOVERNMENT CONTRACTING AND SUBCONTRACTING FOR SOME PERIOD OF
TIME.
Our compliance with the laws and regulations relating to the formation,
administration, and performance of these contracts is dependent upon our ability
to ensure that we properly design and execute compliant procedures.
Our termination from any of our larger government contracts or suspension from
future government contracts for any reason would result in material declines in
expected revenue.
WE ARE SUBJECT TO ROUTINE U.S. GOVERNMENT AUDITS RELATED TO OUR GOVERNMENT
CONTRACTS. IF AUDIT FINDINGS ARE UNFAVORABLE, WE COULD EXPERIENCE A REDUCTION IN
OUR PROFITABILITY.
Our government contracts are subject to audit by the U.S. government. These
audits may result in the determination that certain costs claimed as
reimbursable are not allowable or have not been properly allocated to government
contracts according to federal government regulations.
We are subject to audits for several years after payment for services has been
received. Based on these audits, the U.S. government may adjust or seek
reimbursement for previously paid amounts. As a result, we could experience
negative effects to our revenue, profits, and cash flow.
WE ARE SUBJECT TO UNPREDICTABLE ECONOMIC CYCLES. A WEAKENING OF DOMESTIC AND
INTERNATIONAL ECONOMIES MAY RESULT IN A REDUCTION IN OUR REVENUES, PROFITS, AND
FINANCIAL CONDITION.
Our engineering and energy services are affected by the overall level of
economic activity within our target markets. Economic activity is subject to
volatility that is due to a variety of factors that are beyond our control.
Our private and government clients may change spending priorities due to
economic downturns. Additionally, downturns may result in delayed or failed
payments by some customers as well as delays in committing to new contracts.
9
OUR INABILITY TO CONTINUE TO WIN OR RENEW GOVERNMENT CONTRACTS COULD RESULT IN
MATERIAL REDUCTIONS IN OUR REVENUES AND PROFITS.
We have increased our contract activity with the U.S. federal government in
recent years.
If our relationship or reputation with the federal government deteriorates for
any reason and affects our ability to win new contracts or renew existing ones,
we could experience a material revenue decline.
OUR INVOLVEMENT IN PARTNERSHIPS EXPOSES US TO ADDITIONAL LEGAL AND MARKET
REPUTATION DAMAGES.
Our methods of service delivery include partnerships and other ventures. If our
partners fail to perform in a satisfactory and timely manner, we may be exposed
to claims for damages that are a result of a partner's performance. We could
also suffer contract termination and damages to our reputation as a result of a
partner's performance.
WE ARE ENGAGED IN HIGHLY COMPETITIVE MARKETS THAT POSE CHALLENGES TO CONTINUED
REVENUE GROWTH.
Our business is characterized by competition for contracts within the government
and private sectors in which service contracts are typically awarded through
competitive bidding processes. We compete with a large number of other service
providers who offer the principal services we offer. In this competitive
environment, we must provide technical proficiency, quality of service, and
experience to ensure future contract awards and revenue and profit growth.
OUR DEPENDENCE ON OTHER CONTRACTORS AND SUBCONTRACTORS INCREASES PROFIT
UNCERTAINTY FOR OUR INDIVIDUAL CONTRACTS.
Our service delivery model frequently includes subcontracts, joint ventures, and
other contractual agreements with other contractors and subcontractors when
bidding for and completing projects. If our partners are unable to provide
quality services in a timely manner, our ability to perform the contracted
services and meet expected profit levels could be compromised.
OUR INTERNATIONAL BUSINESS OPERATIONS ARE SUBJECT TO UNIQUE RISKS AND CHALLENGES
THAT CREATE INCREASED UNCERTAINTY IN THESE MARKETS.
Our international operations are subject to unique risks. These risks can
include: potentially dynamic political and economic environments; civil
disturbances, unrest, or violence; volatile labor conditions due to strikes and
general difficulties in staffing international operations with highly qualified
personnel; and logistical and communication challenges.
We also could be subject to exposure to liability due to the Foreign Corrupt
Practices Act.
OUR GOODWILL OR OTHER INTANGIBLE ASSETS COULD BECOME IMPAIRED AND RESULT IN A
MATERIAL REDUCTION IN OUR PROFITS.
We have made acquisitions which have resulted in the recording of goodwill and
intangible assets within our organization. If these assets become impaired, a
material write-off in the required amount would lead to reductions in our
profits.
WE USE "PERCENTAGE-OF-COMPLETION" ACCOUNTING METHODS FOR MANY OF OUR PROJECTS.
THIS METHOD MAY RESULT IN VOLATILITY IN STATED REVENUES AND PROFITS.
Our revenues and profits for many contracts are recognized ratably over the life
of those contracts as work is performed. This rate is based primarily on the
proportion of labor costs incurred to date to total labor costs projected to be
incurred for the entire project. The potential for material profit revisions
exists should the total labor cost to complete a project or percentage of the
project that is completed be inaccurately estimated.
10
ITEM 1B. UNRESOLVED STAFF COMMENTS
With respect to comments received from the staff of the Securities and Exchange
Commission on our periodic and current reports required under the Securities Act
of 1933, no staff comments currently remain unresolved.
ITEM 2. PROPERTIES
In January 2003, we relocated our headquarters offices to Moon Township,
Pennsylvania. This building, which we lease, has approximately 117,000 square
feet of office space and is used by our Corporate and Engineering staff. Our
Engineering and Energy segments primarily occupy leased office space in
stand-alone or multi-tenant buildings at costs based on prevailing market prices
at lease inception. In addition to our Moon Township offices, our Engineering
segment also has a major leased office in Alexandria, VA, and leases other
office space totaling approximately 473,000 square feet in the U.S. and Mexico.
Likewise, our Energy segment has its principal offices in Houston, TX, and
leases office space totaling approximately 102,000 square feet in the U.S. and
abroad. These leases expire at various dates through the year 2016.
We also own a 75,000 square foot office building located in Beaver,
Pennsylvania, which is situated on approximately 230 acres and utilized by our
Engineering segment. We believe that our current facilities will be adequate for
the operation of our business during the next year, and that suitable additional
office space is readily available to accommodate any needs that may arise.
ITEM 3. LEGAL PROCEEDINGS
We have been named as a defendant or co-defendant in legal proceedings wherein
substantial damages are claimed. Such proceedings are not uncommon to our
business. We believe that we have recognized adequate provisions for probable
and reasonably estimable liabilities associated with these proceedings, and that
their ultimate resolutions will not have a material impact on our consolidated
financial position or annual results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the fourth
quarter of 2005.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our Common Stock is traded on the American Stock Exchange under the ticker
symbol "BKR." The high and low closing prices of our Common Stock for each
quarter during 2005 and 2004 were as follows:
HIGH LOW
------ ------
YEAR ENDED DECEMBER 31, 2005:
First quarter $24.55 $18.00
Second quarter $22.95 $16.32
Third quarter $27.60 $18.00
Fourth quarter $27.00 $22.19
YEAR ENDED DECEMBER 31, 2004:
First quarter $12.70 $10.16
Second quarter $15.60 $11.95
Third quarter $16.60 $13.22
Fourth quarter $20.02 $15.60
HOLDERS
As of June 30, 2006, we had 1,487 holders of our Common Stock.
DIVIDENDS
Our present policy is to retain any earnings to fund our operations and growth.
We have not paid any cash dividends since 1983 and have no plans to do so in the
foreseeable future. Our loan agreement with our banks places certain limitations
on amounts of dividend payments.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2005 about equity
awards under our equity compensation plans and arrangements in the aggregate.
(a) (b) (c)
NUMBER OF SECURITIES NUMBER OF SECURITIES REMAINING
TO BE ISSUED UPON WEIGHTED-AVERAGE AVAILABLE FOR FUTURE ISSUANCE
EXERCISE OF EXERCISE PRICE OF UNDER EQUITY COMPENSATION
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
------------- -------------------- -------------------- ------------------------------
Equity compensation
plans approved by
shareholders 419,130 $11.57 964,757
Equity compensation
plans not approved by
shareholders -- -- --
------- ------ -------
Total 419,130 $11.57 964,757
======= ====== =======
12
SALES OF UNREGISTERED SECURITIES
We did not sell any unregistered securities during the year ended December 31,
2005.
PURCHASES OF EQUITY SECURITIES
Neither we nor any affiliated purchaser bought any Michael Baker Corporation
("Baker") equity securities during the fourth quarter of 2005.
ITEM 6. SELECTED FINANCIAL DATA
A summary of selected financial data for the five years ended December 31, 2005
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.
The financial data incorporated herein by reference for the years ended December
31, 2004 and 2003, and as of December 31, 2004, has been derived from our
consolidated financial statements for these periods, which have been restated
based on the matters described in Note 2 to such consolidated financial
statements, and are included in Exhibit 13.1 to this Form 10-K. The summary
financial data for the years ended December 31, 2002 and 2001, and as of
December 31, 2003, 2002 and 2001, has also been restated based on the matters
described in Note 2 to our consolidated financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A discussion and analysis of our results of operations, cash flow and financial
condition 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.
The discussion and analysis incorporated herein by reference for the years ended
December 31, 2004 and 2003, and as of December 31, 2004, has been revised for
the matters giving rise to the restatement described in Note 2 to our
consolidated financial statements, which are also included in Exhibit 13.1 to
this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2005 and 2004, our primary interest rate risk related to our
variable-rate investments (included in cash and cash equivalents), which totaled
$17.9 million as of December 31, 2005 and $13.0 million as of December 31, 2004.
Assuming a 10% decrease in interest rates on these variable-rate investments
(i.e., a decrease from the actual weighted average interest rate of 3.23% as of
December 31, 2005, to a weighted average interest rate of 2.91%), annual
interest income would have been approximately $58,000 lower in 2005 based on the
outstanding balance of variable-rate investments as of December 31, 2005.
Assuming a 10% decrease in interest rates on these variable-rate investments
(i.e., a decrease from the actual weighted average interest rate of 1.16% as of
December 31, 2004, to a weighted average interest rate of 1.05%), annual
interest income would have been approximately $15,000 lower in 2004 based on the
outstanding balance of variable-rate investments as of December 31, 2004. We had
no variable-rate debt obligations or interest rate swap or exchange agreements
as of our 2005 or 2004 year-end dates. Based on the foregoing discussion, we
have no material exposure to interest rate risk.
We have several foreign subsidiaries that transact portions of their local
activities in currencies other than the U.S. Dollar. At December 31, 2005, such
currencies included the British Pound, Mexican Peso, Nigerian Naira, Thai Baht
and Venezuelan Bolivar. These subsidiaries composed 14.2% of our consolidated
total assets at December 31, 2005, and 6.2% of our consolidated total contract
revenues for the year then ended. In assessing our exposure to foreign currency
exchange rate risk, we recognize that the majority of our foreign subsidiaries'
assets and liabilities reflect ordinary course accounts receivable and accounts
payable balances. These receivable and payable balances are substantially
settled in the same currencies as the functional currencies of the related
foreign subsidiaries, thereby not exposing us to material transaction gains and
losses. Accordingly, assuming that
13
foreign currency exchange rates could change unfavorably by 10%, we have no
material exposure to foreign currency exchange rate risk. We have no foreign
currency exchange contracts.
Based on the nature of our business, we have no direct exposure to commodity
price risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements, together with the reports thereon of our
independent registered public accounting firm (Deloitte & Touche LLP) and our
predecessor independent registered public accounting firm
(PricewaterhouseCoopers LLP), and supplementary financial information are set
forth within Exhibit 13.1 to this Form 10-K. Such financial statements, the
reports thereon, and the supplementary financial information are incorporated
herein by reference.
Deloitte & Touche LLP audited our consolidated financial statements as of and
for the year ended December 31, 2005. PricewaterhouseCoopers LLP audited our
consolidated financial statements as of December 31, 2004 and for the years
ended December 31, 2004 and 2003.
The consolidated financial statements incorporated herein by reference for the
years ended December 31, 2004 and 2003, and as of December 31, 2004, have been
restated for the matters described in Note 2 to our consolidated financial
statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
CONCLUSIONS REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with participation of
our management, including our Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of our disclosure controls and procedures, as such
term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as of December 31, 2005. This
evaluation considered our various procedures designed to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission and that such information is accumulated and communicated to
management, including our CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure. Based upon that evaluation, which included the
matters discussed below, our CEO and CFO concluded that our disclosure controls
and procedures were not effective as of December 31, 2005. Notwithstanding these
material weaknesses, our management has concluded that the financial statements
included in this Form 10-K fairly present in all material respects our financial
position, results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles in the United States
("GAAP").
1. We did not maintain effective controls, including monitoring, over the
accounting for our sales and use taxes. Specifically, we did not have a
complement of operations and accounting personnel aware of the tax ramifications
of entering a new jurisdiction which resulted in misstating accrued sales and
use taxes. Additionally, this control deficiency could result in a misstatement
in the aforementioned account that would result in a material misstatement to
the annual or interim consolidated financial statements that would not be
prevented or detected. Accordingly, we have determined that this control
deficiency constitutes a material weakness.
2. We did not maintain effective controls over the accounting for our incurred
but not reported ("IBNR") liabilities as required under GAAP. Specifically, we
did not properly account for adjustments and increased activity in evaluating
the liability. This control deficiency resulted in an adjustment to our
condensed consolidated financial statements for the second quarter of fiscal
year 2005. This control deficiency could result in a misstatement in the
aforementioned IBNR liabilities that would result in a material misstatement to
the annual or interim consolidated
14
financial statements that would not be prevented or detected. Accordingly, we
have determined that this control deficiency constitutes a material weakness.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Our internal control over financial reporting is a process designed
under the supervision of our principal executive and principal financial
officers to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of our consolidated financial statements for
external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes policies and procedures
that:
(i) Pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect transactions and dispositions of our assets;
(ii) Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made only in
accordance with authorizations of management and our directors; and
(iii) Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of company assets that could have a
material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect all misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, we conducted an
assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2005. The assessment was based on criteria established in the
framework Internal Control -- Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
As a result of the material weaknesses described above, management has concluded
that, as of December 31, 2005, our internal control over financial reporting was
not effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were changes, as discussed below, in our "internal control over financial
reporting" (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the quarter ended December 31, 2005, and that
have materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PLAN FOR REMEDIATION
We believe the steps described below, some of which we have already taken as
noted herein, together with others that are ongoing or that we plan to take,
will remediate the material weaknesses discussed above:
(1) We established a tax function with a qualified tax director
supported by internal and external resources (began in July 2005).
(2) We have supplemented our existing accounting and finance staff
with additional internal and external resources as appropriate. We will
continue to add financial personnel as necessary to provide adequate
resources with appropriate levels of experience and knowledge of GAAP
(began in July 2005).
(3) We have enhanced our review and documentation of accounting
estimates. This includes but is not limited to estimates of realizability
of tax assets, potential loss contracts and insurance reserves (commenced
in October 2005).
15
In addition, we have implemented the following procedures to improve our
internal control over financial reporting:
(1) We have emphasized certain key controls in an effort to mitigate
significant risks and strengthen our control environment. In this regard,
we have elevated within the company the awareness and communication of tax
related contingencies and financial reporting risks associated with
contract accounting and insurance reserves (began in June 2005).
(2) We have enhanced our monitoring of accounts by deploying account
reconciliation software that facilitates access and review of
reconciliations (deployment began in August 2005).
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Management's assessment of our internal control over financial reporting as of
December 31, 2005 has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as follows:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Michael Baker Corporation
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Michael
Baker Corporation and subsidiaries (the "Company") did not maintain effective
internal control over financial reporting as of December 31, 2005, because of
the effect of the material weaknesses identified in management's assessment
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate
16
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A material weakness is a significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weaknesses have been identified and included
in management's assessment:
- The Company did not design and implement effective controls to provide
reasonable assurance that liabilities for sales and use taxes were
identified and recorded timely. Specifically, the Company did not have a
sufficient number of operations and accounting personnel with the
requisite expertise to monitor, identify, and account for the tax
ramifications of entering a new tax jurisdictions. As a result, material
adjustments to accrued sales and use tax liabilities were necessary in
order to present the 2005 consolidated financial statements in accordance
with generally accepted accounting principles. Due to the adjustments
identified, the potential for additional misstatements to occur, and the
lack of adequate mitigating controls, there is a more than a remote
likelihood that a material misstatement of the annual or interim
consolidated financial statements could occur that would not be prevented
or detected.
- The Company's controls over the process to estimate its liability for
certain self insured general and medical liability claims did not operate
effectively. As a result certain assumptions used to estimate the
liability for claims incurred but not reported were not appropriate which
resulted in a material adjustment that was necessary to present the
Company's 2005 annual financial statements in accordance with generally
accepted accounting principles. Due to the significance of the
misstatement that was identified, the potential for additional
misstatements to occur, and the lack of other mitigating controls, there
is more than a remote likelihood that a material misstatement of the
annual or interim consolidated financial statements could occur that
would not be prevented or detected.
These material weaknesses were considered in determining the nature,
timing, and extent of audit tests applied in our audit of the consolidated
financial statements of the Company as of and for the year ended December 31,
2005, and this report does not affect our reports on such financial statements.
In our opinion, management's assessment that the Company did not maintain
effective internal control over financial reporting as of December 31, 2005, is
fairly stated, in all material respects, based on the criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, because of the
effect of the material weaknesses described above on the achievement of the
objectives of the control criteria, the Company has not maintained effective
internal control over financial reporting as of December 31, 2005, based on the
criteria established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements as of and for the year ended December 31, 2005, of the Company and
our report dated August 15, 2006 expressed an unqualified opinion on those
financial statements.
/s/ Deloitte & Touche LLP
--------------------------------------
Pittsburgh, Pennsylvania
August 15, 2006
17
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTOR NOMINEES
The following table sets forth certain information regarding the nominees as of
June 30, 2006. All of the nominees except General (Ret.) Foglesong were elected
directors by our shareholders at the 2005 Annual Meeting. Except as otherwise
indicated, each nominee has held the principal occupation listed or another
executive position with the same entity for at least the past five years. On
April 24, 2006, the Board of Directors appointed General Foglesong to the Board.
Robert N. Bontempo Professor at Columbia University School of Business
Age 47 since July 1994. Formerly: Assistant Professor of
Director since 1997 International Business at Columbia University Graduate
School of Business from July 1989 to July 1994.
Nicholas P. Constantakis Retired. Formerly: Partner, Andersen Worldwide SC
Age 66 (independent public accountants and consultants)
Director since 1999 from June 1961 to August 1997. Holds numerous investment
company directorships in the Federated Fund Complex and
is Chairman of the Audit Committee of the Funds as of
February 2005.
William J. Copeland Retired. Formerly: Chairman of the Board of the
Age 88 Company; Vice Chairman of the Board of PNC Financial Corp.
Director since 1983 and Pittsburgh National Bank.
Donald P. Fusilli, Jr. President and Chief Executive Officer of the Company
Age 54 since April 2001. Formerly: President and Chief Operating
Director since 2001 Officer from May 2000 to 2001; President Baker Energy
until 2000; Executive Vice President -- Energy since
1994; other positions with the Company since 1973.
Director RTI International Metals, Inc.
Robert H. Foglesong President of Mississippi State University since
Age 61 February 2006. Formerly a 33-year career with the United
Director since April 2006 States Air Force, including serving as Vice Commander,
and retiring in February 2006 as a four star general and
Commander, United States Air Force Europe. Founded and
leads the Appalachian Leadership and Education
Foundation.
Roy V. Gavert, Jr. Chairman of Horton Company (manufacturer of valves for
Age 72 household appliances) since August 1989. Formerly:
Director since 1988 President and Chief Executive Officer of Kiplivit North
America, Inc. (manufacturing); Chairman of World Class
Processing, Inc. (manufacturing); retired Executive
Vice President, Westinghouse Electric Corporation.
Director Fincom, Inc.; Trustee Bucknell University.
John E. Murray, Jr. Chancellor Duquesne University since 2001; Professor of
Age 73 Law of Duquesne University since prior to 1995. Formerly:
Director since 1997 President of Duquesne University since prior to 1995
until 2001. Holds numerous investment company
directorships in the Federated Fund Complex.
18
Pamela S. Pierce Self employed (consultant). Formerly: President of
Age 51 Huber Energy until July 2004; President and Chief
Director since 2005 Executive Officer of Mirant Americas Energy Capital
and Production Company from September 2000 until
September 2002, Vice President Business
Development, Vastar Resources, Inc. from February
1996 to September 2000.
Richard L. Shaw Chairman of the Board of the Company since 1993.
Age 79 Formerly: Chief Executive Officer from September
Director since 1965 1999 to April 2001; President and Chief Executive
Officer from September 1993 through September 1994;
President and Chief Executive Officer from April
1984 to May 1992.
THE AUDIT COMMITTEE
The Audit Committee, consisting of Dr. Bontempo as Chairman, and Mr.
Constantakis and Mr. Gavert, held 24 meetings in 2005. The Board of Directors
has concluded that all Audit Committee members are independent as defined by the
American Stock Exchange listing standards. In addition, the Board has determined
that Mr. Constantakis qualifies as an "audit committee financial expert" as such
is defined by the regulations of the Securities and Exchange Commission.
EXECUTIVE OFFICERS
Information relating to our executive officers is set forth in Part I of this
Report under the caption "Executive Officers." Such information is incorporated
herein by reference.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers to file reports of beneficial ownership and changes in
beneficial ownership of Michael Baker Corporation stock.
Directors and officers must furnish us with copies of these reports. Based on
these copies and directors and executive officers' representations, we believe
all directors and executive officers complied with the requirements in 2005.
CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS
We have adopted a Code of Ethics for Senior Officers incorporating the
provisions required by the SEC for senior financial officers of the Company. A
copy of this Code of Ethics is posted on our website at www.mbakercorp.com. In
the event that we make any amendment to, or grant any waiver from a provision of
the Code of Ethics for Senior Officers that requires discussion under SEC rules,
we will disclose the amendment or waiver and the reasons for such on our
website.
The obligations of the Code of Ethics for Senior Officers supplement, but do not
replace, the Code of Business Conduct applicable to our directors, officers and
employees. A copy of the Code of Business Conduct is posted on our website.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTORS' COMPENSATION
Compensation for non-employee directors is as follows:
- Annual retainer -- $17,000;
- Attendance at each regularly scheduled or special meeting of the Board of
Directors -- $1,000 (Chairman -- $1,250);
- Attendance at a Board of Directors' committee meeting -- $750;
19
- Telephonic attendance at a Board of Directors or committee
meeting -- $100;
- Additional annual retainer for Chairman of the Board of
Directors -- $15,000; and
- Additional annual retainer for committee chairmen -- $2,500 (Audit
Committee Chairman -- $4,500).
In addition, non-employee directors participate in the 1996 Nonemployee
Directors Stock Incentive Plan, which provides long-term incentive compensation
to eligible directors. Under this plan, each member of the Board of Directors
who is not an employee is granted 1,500 restricted shares and an option to
purchase 2,000 shares of our common stock on the first business day following
the annual meeting of shareholders each year.
See also "Related Party Transactions" section below.
SUMMARY COMPENSATION TABLE
This table shows the compensation for our Chief Executive Officer and the four
remaining most highly paid executive officers in 2005.
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------- LTIP ALL OTHER TOTAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS PAYOUTS(1) COMPENSATION(2) COMPENSATION
--------------------------- ---- ------------ -------- ------------ --------------- ------------
Donald P. Fusilli 2005 $423,406 $ -- $205,005 $ 24,210 $652,621
President and Chief 2004 $410,010 $270,606 $ -- $154,005 $834,621
Executive Officer 2003 $407,278 $ -- $ -- $ 13,622 $420,900
William P. Mooney 2005 $262,090 $ -- $ 61,501 $ 8,727 $332,318
Executive Vice President
and Chief Financial 2004 $246,002 $103,321 $ -- $102,133 $451,456
Officer 2003 $244,158 $ -- $ -- $ 858 $245,016
H. James McKnight 2005 $250,518 $ -- $ 60,216 $ 22,703 $333,437
Executive Vice President, 2004 $244,019 $103,190 $ -- $ 82,871 $430,080
General Counsel and 2003 $239,059 $ -- $ -- $ 13,322 $252,381
Secretary
Richard W. Giffhorn 2005 $222,659 $ -- $ 51,251 $ 6,897 $280,808
President -- Baker
Energy(3) 2004 $212,890 $ 86,102 $ -- $ 6,034 $305,026
2003 $192,793 $ -- $ -- $ 9,688 $202,481
Bradley L. Mallory(4) 2005 $221,678 $ -- $ 51,251 $ 12,658 $285,588
President -- Baker 2004 $205,005 $ 86,102 $ -- $ 9,247 $300,354
Engineering 2003 $141,008 $ -- $ -- $ 8,215 $149,223
---------------
(1) Reflects the payment of the award for the performance period January 1, 2004
to December 31, 2004 granted in 2003.
(2) Includes matching contributions made under its 401(k) plan paid on behalf of
the following individuals in 2005, 2004 and 2003 respectively: Mr. Fusilli,
$9,225, $9,225, and $11,000; Mr. McKnight $9,225, $8,479, and $11,000; Mr.
Giffhorn, $5,556, $5,322 and $9,058; Mr. Mallory, $9,225, $8,535 and $7,755.
Also includes group life insurance premiums paid on behalf of the following
individuals as employees in 2005, 2004 and 2003 respectively: Mr. Fusilli
$2,622, $2,622, and $2,622; Mr. Mooney $883, $883, and $858; Mr. McKnight
$5,449, $2,322 and $2,322; Mr. Giffhorn $1,331, $712, and $636; Mr. Mallory
$712, $712 and $460. Includes $142,158 for Mr. Fusilli, $101,250 for Mr.
Mooney and $72,070 for Mr. McKnight with respect to stock option exercises
in 2004. Includes tax gross-up payments and country club dues for the
following individuals in 2005: Mr. Fusilli, $12,363; Mr. Mooney $7,844; Mr.
McKnight $8,029; and Mr. Mallory, $2,721.
(3) Mr. Giffhorn resigned from the Company in June 2006.
(4) Mr. Mallory joined the Company in March 2003.
20
2005 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
This table shows the number and value of stock options exercised and unexercised
for the named executive officers.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 2005 DECEMBER 31, 2005
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ----------- -------- ------------------------- ----------------------------
Donald P. Fusilli, Jr 0 $0 132,919/20,503 $2,131,132/$316,259
William P. Mooney 0 $0 19,708/0 $195,602/$0
H. James McKnight 0 $0 4,824/17,010 $47,878/$262,379
Richard W. Giffhorn 0 $0 0/0 0/0
Bradley L. Mallory 0 $0 0/0 0/0
---------------
(1) The value of unexercised options is based on the differences between the
exercise prices of the various option grants and the closing price of our
common stock on the American Stock Exchange on December 31, 2005 of $25.55.
2006 LONG-TERM INCENTIVE PLAN AWARDS
The following table provides information regarding the potential payouts under
the 2003 Long-Term Incentive Compensation Plan for the targets established
during 2005 for the January 1, 2005 through December 31, 2007 performance
period.
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES, OTHER PERIOD NON-STOCK PRICE BASED PLANS
UNITS OR UNTIL MATURATION -------------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ----------------- ------------------ --------- -------- --------
Donald P. Fusilli, Jr (1) 1/05 - 12/07 -- $430,498 $645,747
William P. Mooney (1) 1/05 - 12/07 -- $135,304 $202,956
H. James McKnight (1) 1/05 - 12/07 -- $126,537 $189,805
Richard W. Giffhorn (1) 1/05 - 12/07 -- $115,253 $172,879
Bradley L. Mallory (1) 1/05 - 12/07 -- $115,253 $172,879
---------------
(1) Value of award is denominated in dollars. Payout will consist of 50% cash
and 50% common stock of the Company, one half of which is restricted for one
year.
2003 Long-Term Incentive Compensation Plan. In February 2003, the Board adopted
the 2003 Long-Term Incentive Compensation Plan, subject to shareholder approval.
The shareholders approved this Plan at the annual meeting on April 24, 2003. The
new long-term incentive compensation plan is designed to award employees for
specific performance factors, which are defined in the Plan, over a three (3)
year time period. During the first three year time period, the awards are paid
annually based on performance factors for a single year. The Compensation
Committee and the Board believe that this plan design provides a commitment to
long-term performance. The Plan provides for the payment of performance-based
incentive awards to employees and includes provisions that protect our ability
to take a tax deduction for such awards. Payment of incentive awards will be, in
part, in the form of restricted stock, which will assist in aligning the
interests of employees and shareholders.
EMPLOYMENT CONTINUATION AGREEMENTS
We entered into Employment Continuation Agreements in October 2000 with Messrs.
Fusilli, Mooney and McKnight; in September 2002 with Mr. Giffhorn; and in
February 2004 with Mr. Mallory. Under the Agreements with Messrs. Fusilli,
Mooney and McKnight, the executives agree to remain in our employment for
thirty-six months following the date of a change of control (as defined in the
Agreements), and we agree to provide salary and benefits at levels commensurate
with those prior to the change of control for that period. The Agreements
21
further provide that if the executive's employment is terminated by reasons
other than death, disability, voluntary termination (except a voluntary
termination for good reason as defined in the Agreements), or is terminated by
us other than for cause (as defined in the Agreements), during that period, we
will pay the executives their (i) earned salary, (ii) a severance amount equal
to three times the sum of the executives' annual base salary and the executive's
average bonus for the five fiscal years preceding the change of control, and
(iii) obligations accrued under applicable benefit plans and programs, and
continue their benefits for three years. The payments under the Agreements may
be subject to reduction to the extent that they are considered excess parachute
payments under the Internal Revenue Code. Furthermore, the executives will under
certain circumstances receive similar benefits if their employment is terminated
in contemplation of a change of control and a change of control occurs within
one year following such termination.
The Agreements with Mr. Giffhorn and Mr. Mallory are the same except that the
executive agrees to remain in our employment for twenty-four months following a
change of control and the severance amount is an amount equal to two times the
sum of the executive's annual base salary and the executive's average bonus for
the five fiscal years preceding the change of control with continued benefits
for two years. Mr. Giffhorn resigned from the Company on June 29, 2006.
RELATED PARTY TRANSACTIONS
We entered into an Employment Agreement with Richard L. Shaw in April 1988,
which was supplemented in March 1992, October 1994, June 1995, March 1998 and
September 1999. During 2001, Mr. Shaw, as our Chief Executive Officer until
April 25, 2001, was compensated under the terms of his Employment Agreement at
an annual salary of $425,006. In addition, we covered the costs of health
insurance and maintained a life insurance policy for Mr. Shaw as provided for in
the Agreement. This Agreement also provided for a supplemental retirement
benefit of $5,000 per month commencing on expiration of the Agreement. Effective
April 25, 2001, Mr. Shaw retired from the position of Chief Executive Officer,
and we and Mr. Shaw entered into a Consulting Agreement for Mr. Shaw's
consulting services for the period April 26, 2001 through April 26, 2003. The
Consulting Agreement provides an annual compensation equal to 25% of Mr. Shaw's
previous salary of $425,006. In addition, under the Consulting Agreement, we
cover the costs of health insurance and maintain a life insurance policy for Mr.
Shaw. The Consulting Agreement also provides for a supplemental retirement
benefit of $5,000 per month commencing at the expiration of the consulting term.
During 2003, we agreed to extend the term of this Agreement for two years until
April 26, 2005. During 2005, we extended the term of this Agreement for an
additional year. During 2006, we agreed to extend the term of this agreement for
an additional year through April 26, 2007. During 2005, we compensated Mr. Shaw
at the rate of $35,000 per month in lieu of the monthly compensation under his
consulting agreement for the three-month period commencing on January 24, 2005
and ending on April 21, 2005 in return for his increased services provided
during Mr. Fusilli's previously announced medical leave. This adjusted
arrangement covered the period until Mr. Fusilli's full-time return in April.
22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK OWNERSHIP
DIRECTOR AND EXECUTIVE OFFICER STOCK OWNERSHIP
Under the proxy rules of the Securities and Exchange Commission, a person
beneficially owns Michael Baker Corporation common stock if the person has the
power to vote or dispose of the shares, or if such power may be acquired, by
exercising options or otherwise, within 60 days. The table below shows how much
Michael Baker Corporation common stock is beneficially owned as of June 30,
2006, by directors, nominees for director, the chief executive officer, the four
other highest paid executive officers in 2005 and all directors and executive
officers as a group. Each person has sole voting power and sole dispositive
power unless indicated otherwise.
SHARES PERCENT
EXECUTIVE OFFICER OWNED(1)(2)(3) OF CLASS
----------------- -------------- --------
Donald P. Fusilli, Jr. 187,807 2.2%
William P. Mooney 21,262 *
H. James McKnight 23,519 *
Richard W. Giffhorn 4,166 *
Bradley L. Mallory 1,814 *
SHARES PERCENT
NON-EMPLOYEE DIRECTOR/NOMINEE OWNED(2)(3) OF CLASS
----------------------------- ----------- --------
Robert N. Bontempo 21,500 *
Nicholas P. Constantakis 27,000 *
William J. Copeland 23,000 *
Roy V. Gavert, Jr. 19,000 *
John E. Murray, Jr. 21,500 *
Pamela S. Pierce 3,500 *
Richard L. Shaw 31,205(4) *
Directors and Executive Officers as a Group (18 persons) 448,612(1) 5.3%
---------------
* Less than 1%
(1) Includes the number of shares of common stock indicated for each of the
following persons or group which are allocated to their respective accounts
as participants in the ESOP and as to which they are entitled to give
binding voting instructions to the trustee of the ESOP: Mr. Fusilli 29,201
shares, Mr. McKnight 163 shares, Mr. Giffhorn 2,870 shares, Mr. Mallory 518
shares and directors and officers as a group 61,625 shares. ESOP holdings
have been rounded to the nearest full share.
(2) Includes options that are exercisable on or within 60 days of June 30, 2006
as follows: Dr. Bontempo 14,000 shares, Mr. Constantakis 11,000 shares, Mr.
Copeland 14,000 shares, Mr. Fusilli 148,186 shares, Mr. Gavert 9,000 shares,
Mr. McKnight 21,834 shares, Mr. Mooney 19,708 shares, Dr. Murray 14,000
shares, Ms. Pierce 2,000 shares, Mr. Shaw 13,000 shares, and all directors
and officers as a group 297,330 shares.
(3) Includes restricted stock in which the Directors do not have dispositive
power until restrictions lift as follows: Dr. Bontempo 1,500 shares, Mr.
Constantakis 1,500 shares, Mr. Copeland 1,500 shares, Mr. Gavert 1,500
shares, Dr. Murray 1,500 shares, Mr. Shaw 1,500 shares.
(4) Includes 5,500 shares gifted to Mr. Shaw's spouse for which Mr. Shaw
disclaims beneficial ownership.
23
OWNERS OF MORE THAN 5%
The following table shows shareholders who are known to the Company to be a
beneficial owner of more than 5% of Michael Baker Corporation's common stock as
of December 31, 2005.
SHARES OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK(1) OF CLASS
------------------------------------ --------------- --------
Michael Baker Corporation 1,701,050(2) 20.04%
Employee Stock Ownership Plan
Michael Baker Corporation
Airside Business Park,
100 Airside Drive
Moon Township, PA 12108
Jeffrey Gendell 847,300(3) 9.90%
55 Railroad Avenue, 3rd Floor
Greenwich, Connecticut 06830
Wellington Management Company, LLP 536,300(4) 6.27%
75 State Street
Boston, MA 02109
Dalton, Greiner, Hartman, Maher & Co. 425,900(5) 5.06%
565 Fifth Avenue, Suite 2101
New York, NY 10017
---------------
(1) Under regulations of the Securities and Exchange Commission, a person who
has or shares voting or investment power with respect to a security is
considered a beneficial owner of the security. Voting power is the power to
vote or direct the voting of shares, and investment power is the power to
dispose of or direct the disposition of shares. Unless otherwise indicated
in the other footnotes below, each person has sole voting power and sole
investment power as to all shares listed opposite such person's name.
(2) The ESOP requires the trustee to vote the shares held by the trust in
accordance with the instructions from the ESOP participants for all shares
allocated to such participants' accounts. Allocated shares for which no such
instructions are given and shares not allocated to the account of any
employee are voted by the trustee in the same proportion as the votes for
which participant instructions are given. In the case of a tender offer,
allocated shares for which no instructions are given are not voted or
tendered, and shares not allocated to the account of any employee are voted
by the trustee in the same proportion as the votes for which participant
instructions are given.
(3) According to the Schedule 13G filed February 14, 2006, Mr. Gendell is a
managing member of Tontine Management, L.L.C., which beneficially owns, as
general partner of Tontine Partners, L.P., 360,845 shares, Tontine Capital
Management, L.L.C., which beneficially owns, as general partner of Tontine
Capital Partners, L.P., 85,300 shares, and Tontine Overseas Associates,
L.L.C., which beneficially owns 401,155 shares, and in that capacity directs
their operations. Accordingly, he shares both dispositive and voting power
with respect to the 847,300 shares.
(4) According to the Schedule 13G filed February 14, 2006, Wellington Management
Company shares voting power with respect to 382,200 shares and dispositive
power with respect to 536,300 shares in its capacity as an investment
advisor.
(5) According to the Schedule 13G filed February 14, 2006 Dalton, Greiner,
Hartman, Maher & Co. has sole voting power with respect to 414,665 shares
and sole dispositive power with respect to 425,900 shares.
See Item 5 for Equity Compensation Plan Information.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We entered into an Employment Agreement with Richard L. Shaw in April 1988,
which was supplemented in March 1992, October 1994, June 1995, March 1998 and
September 1999. During 2001, Mr. Shaw, as our Chief Executive Officer until
April 25, 2001, was compensated under the terms of his Employment Agreement at
24
an annual salary of $425,006. In addition, we covered the costs of health
insurance and maintained a life insurance policy for Mr. Shaw as provided for in
the Agreement. This Agreement also provided for a supplemental retirement
benefit of $5,000 per month commencing on expiration of the Agreement. Effective
April 25, 2001, Mr. Shaw retired from the position of Chief Executive Officer,
and we and Mr. Shaw entered into a Consulting Agreement for Mr. Shaw's
consulting services for the period April 26, 2001 through April 26, 2003. The
Consulting Agreement provides an annual compensation equal to 25% of Mr. Shaw's
previous salary of $425,006. In addition, under the Consulting Agreement, we
cover the costs of health insurance and maintain a life insurance policy for Mr.
Shaw. The Consulting Agreement also provides for a supplemental retirement
benefit of $5,000 per month commencing at the expiration of the consulting term.
During 2003, we agreed to extend the term of this Agreement for two years until
April 26, 2005. During 2005, we extended the term of this Agreement for an
additional year. During 2006, we agreed to extend the term of this agreement for
an additional year through April 26, 2007. During 2005, we compensated Mr. Shaw
at the rate of $35,000 per month in lieu of the monthly compensation under his
consulting agreement for the three-month period commencing on January 24, 2005
and ending on April 21, 2005 in return for his increased services provided
during Mr. Fusilli's previously announced medical leave. This adjusted
arrangement covered the period until Mr. Fusilli's full-time return in April.
Mr. Fusilli is a registered professional engineer. In order to facilitate the
Company's compliance with certain state regulatory requirements, Mr. Fusilli
holds a 50% ownership interest in a Pennsylvania partnership, Baker and
Associates, which was established for the purpose of practicing professional
engineering in those states. Mr. Fusilli receives no gain or profit from the
partnership or the contracts into which it enters. All profits from such
contracts are assigned by the partnership to Michael Baker Corporation or a
subsidiary.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The following table sets forth the aggregate fees for services provided by
Deloitte & Touche LLP and PricewaterhouseCoopers LLP ("PwC") for the fiscal
years ended December 31, 2005 and 2004:
DELOITTE & TOUCHE LLP
2005 PWC 2004
------------------------ ----------
Audit Fees $1,285,353(1) $1,375,279(4)
Audit Related Fees $ 14,000(2) $ 3,253(5)
Tax Fees $ 19,700(3) $ 100,785(6)
All Other Fees -- --
---------- ----------
Total Fees $1,319,053 $1,479,317
========== ==========
---------------
(1) Deloitte & Touche LLP's audit fees represent the aggregate fees billed for
fiscal year 2005 for professional services rendered by Deloitte & Touche LLP
for the audit of the Company's annual financial statement and review of
financial statements included in the Company's Quarterly Reports on Form
10-Q. Included in the audit fees for fiscal year 2005 are $609,853 of
additional fees related to the restatement of our financial statements for
fiscal years 2004, 2003, 2002 and 2001.
(2) Services related to ESOP audit fees.
(3) Services related to revenue certification, Nigerian corporate taxes and
Nigerian VAT taxes. In addition to the fees listed for services related to
fiscal year 2005, Deloitte & Touche LLP's fees for the same type of services
related to prior fiscal years performed and billed in 2006 were $91,000.
(4) PwC's audit fees represent the aggregate fees billed for fiscal year 2004
for professional services rendered by PwC for the audit of the Company's
annual financial statement, the review of financial statements included in
the Company's Quarterly Reports on Form 10-Q, and for Sarbanes Oxley testing
for the U.S. Included in the audit fees for fiscal year 2004 are $386,892 of
additional fees related to the restatement of our financial statements for
fiscal years 2004, 2003, 2002 and 2001.
25
(5) Services related to ESOP audit assistance.
(6) United Kingdom tax services and Nigerian payroll tax services.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee is responsible for the appointment, compensation and
oversight of the work of the independent auditor. As part of this
responsibility, the Audit Committee is required to pre-approve the audit and
non-audit services performed by the independent auditor in order to assure that
the provision of such services does not impair the auditor's independence.
The annual audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. With respect to other permitted services,
the Committee pre-approves certain services and categories of services on a
fiscal year basis subject to thresholds. All other permitted services must be
pre-approved by the Audit Committee.
The Chief Financial Officer determines whether services to be provided require
pre-approval or are included within the list of pre-approved services.
All services provided by Deloitte & Touche LLP and PwC in fiscal year 2005 were
pre-approved by the Audit Committee.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) The following financial statements are incorporated in Item 8 of Part II
of this Report by reference to the consolidated financial statements
within Exhibit 13.1 to this Form 10-K:
Consolidated Statements of Income for each of the three years in the period
ended December 31, 2005
Consolidated Balance Sheets as of December 31, 2005 and 2004
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 2005
Consolidated Statements of Shareholders' Investment for each of the three
years in the period ended December 31, 2005
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (Deloitte & Touche
LLP)
Report of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP)
(a)(2) Financial statement schedule for the year ended December 31, 2005:
Schedule II -- Valuation and Qualifying Accounts
Report of Independent Registered Public Accounting Firm (Deloitte & Touche
LLP) on Financial Statement Schedule for the year ended December 31, 2005
(included as Exhibit 99.1 to this Form 10-K)
Report of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) on Financial Statement Schedule for the years
ended December 31, 2004 and 2003 (included as Exhibit 99.2 to this Form
10-K)
All other schedules are omitted because they are either not applicable or
the required information is shown in the consolidated financial statements
or notes thereto.
26
(a)(3) The following exhibits are included herewith as a part of this Report:
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Articles of Incorporation, as amended, filed as Exhibit 3.1
to our Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, and incorporated herein by reference.
3.2 By-laws, as amended, filed as Exhibit 3.2 to our Annual
Report on Form 10-K for the fiscal year ended December 31,
1994, and incorporated herein by reference.
4.1 Rights Agreement dated November 16, 1999, between us and
American Stock Transfer and Trust Company, as Rights Agent,
filed as Exhibit 4.1 to our Report on Form 8-K dated
November 16, 1999, and incorporated herein by reference.
10.1 2005 Incentive Compensation Plan (Attachments excluded),
filed herewith.
10.2 Consulting Agreement dated April 25, 2001, by and between us
and Richard L. Shaw, filed as Exhibit 10.2(c) to our
Quarterly Report on Form 10-Q for the period ended June 30,
2001, and incorporated herein by reference.
10.2(a) First Amendment to Consulting Agreement dated April 26,
2003, by and between us and Richard L. Shaw, filed as
Exhibit 10.2(a) to our Annual Report on Form 10-K for the
year ended December 31, 2003, and incorporated herein by
reference.
10.2(b) Second Amendment to Consulting Agreement dated April 26,
2005, by and between us and Richard L. Shaw, filed as
Exhibit 10.2(a) to our Quarterly Report on Form 10-Q for the
period ended June 30, 2005, and incorporated herein by
reference.
10.3 Employment Continuation Agreement dated as of October 27,
2000, by and between us and Donald P. Fusilli, Jr., William
P. Mooney and H. James McKnight, filed as Exhibit 10.2(c) to
our Annual Report on Form 10-K for the year ended December
31, 2000, and incorporated herein by reference.
10.3(a) Employment Continuation Agreement dated as of October 27,
2000, by and between us and James B. Richards and John D.
Whiteford, filed as Exhibit 10.2(d) to our Annual Report on
Form 10-K for the year ended December 31, 2000, and
incorporated herein by reference.
10.3(b) Employment Continuation Agreement dated April 16, 2001, by
and between us and Craig O. Stuver, filed as Exhibit 10.6 to
our Quarterly Report on Form 10-Q for the period ended June
30, 2001, and incorporated herein by reference.
10.3(c) Employment Continuation Agreement dated September 23, 2002,
by and between us and Richard W. Giffhorn, filed as Exhibit
10.3(c) to our Annual Report on Form 10-K for the year ended
December 31, 2002, and incorporated herein by reference.
10.3(d) Employment Continuation Agreement dated April 1, 2003, by
and between us and Monica L. Iurlano, filed as Exhibit
10.3(d) to our Quarterly Report on Form 10-Q for the period
ended March 31, 2003, and incorporated herein by reference.
10.3(e) Employment Continuation Agreement dated February 23, 2004,
by and between us and Bradley L. Mallory, filed as Exhibit
10.3(e) to our Annual Report on Form 10-K for the year ended
December 31, 2003, and incorporated herein by reference.
10.4 First Amended and Restated Loan Agreement dated September
17, 2004, by and between us and Citizens Bank of
Pennsylvania, PNC Bank, National Association and Fifth Third
Bank, filed as Exhibit 10.4(a) to our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004, and
incorporated herein by reference.
10.5 1995 Stock Incentive Plan amended effective April 23, 1998,
filed as Exhibit 10.4 to our Annual Report on Form 10-K for
the year ended December 31, 1998, and incorporated herein by
reference.
10.6 1996 Nonemployee Directors' Stock Incentive Plan, filed as
Exhibit A to our definitive Proxy Statement with respect to
our 1996 Annual Meeting of Shareholders, and incorporated
herein by reference.
10.7 Office Sublease Agreement dated August 6, 2001, by and
between us and Airside Business Park, L.P. (exhibits
omitted), and incorporated herein by reference.
10.7(a) Third Amendment to Office Sublease Agreement dated February
19, 2003, by and between us and Airside Business Park, L.P.,
filed as Exhibit 10.7(a) to our Annual Report on Form 10-K
for the year ended December 31, 2002, and incorporated
herein by reference.
27
EXHIBIT
NO. DESCRIPTION
------- -----------
10.8 2003 Long-Term Incentive Compensation Plan, filed as Exhibit
A to our April 24, 2003 Notice of Annual Meeting and Proxy
Statement, and incorporated herein by reference.
13.1 Selected Financial Data, Management's Discussion and
Analysis of Financial Condition and Results of Operations,
Consolidated Financial Statements as of December 31, 2005
and 2004 and for each of the three years in the period ended
December 31, 2005, Reports of Independent Registered Public
Accounting Firms, and Supplemental Financial Information,
filed herewith and to be included as the Financial Section
of the Annual Report to Shareholders for the year ended
December 31, 2005.
21.1 Subsidiaries, filed herewith.
23.1 Consent of Independent Registered Public Accounting Firm
(Deloitte & Touche LLP), filed herewith.
31.1 Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a), filed herewith.
31.2 Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a), filed herewith.
32.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
99.1 Report of Independent Registered Public Accounting Firm
(Deloitte & Touche LLP) on financial statement schedule for
the year ended December 31, 2005, filed herewith.
99.2 Report of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) on financial statement schedule
for the years ended December 31, 2004 and 2003, filed
herewith.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, we have duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MICHAEL BAKER CORPORATION
Dated: August 15, 2006 By: /s/ Donald P. Fusilli, Jr.
------------------------------------
Donald P. Fusilli, Jr.
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 our behalf and in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Donald P. Fusilli, Jr. Director, President and August 15, 2006
------------------------------------------ Chief Executive Officer
Donald P. Fusilli, Jr.
/s/ William P. Mooney Executive Vice President and August 15, 2006
------------------------------------------ Chief Financial Officer
William P. Mooney
/s/ H. James McKnight Executive Vice President, General August 15, 2006
------------------------------------------ Counsel and Secretary
H. James McKnight
/s/ Craig O. Stuver Senior Vice President, Corporate August 15, 2006
------------------------------------------ Controller and Treasurer
Craig O. Stuver (Chief Accounting Officer)
/s/ Richard L. Shaw Chairman of the Board August 15, 2006
------------------------------------------
Richard L. Shaw
/s/ Robert N. Bontempo Director August 15, 2006
------------------------------------------
Robert N. Bontempo
/s/ Nicholas P. Constantakis Director August 15, 2006
------------------------------------------
Nicholas P. Constantakis
/s/ William J. Copeland Director August 15, 2006
------------------------------------------
William J. Copeland
/s/ Robert H. Foglesong Director August 15, 2006
------------------------------------------
Robert H. Foglesong
/s/ Roy V. Gavert, Jr. Director August 15, 2006
------------------------------------------
Roy V. Gavert, Jr.
29
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John E. Murray, Jr. Director August 15, 2006
------------------------------------------
John E. Murray, Jr.
/s/ Pamela S. Pierce Director August 15, 2006
------------------------------------------
Pamela S. Pierce
30
MICHAEL BAKER CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
COLUMN B COLUMN C COLUMN D COLUMN E
COLUMN A ------------ --------------------------- ------------- -----------
-------- ADDITIONS
--------------------------- BALANCE AT
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS -- END OF
DESCRIPTION BEG. OF YEAR EXPENSE OTHER ACCOUNTS DESCRIBE YEAR
----------- ------------ ---------- -------------- ------------- -----------
(IN THOUSANDS)
For the year ended December 31,
2005:
Income tax valuation allowance $6,227 $ (77)(a) $0 $ 0 $6,150
Nigerian prepaid taxes $1,198 $ 362(b) $0 $ 0 $1,560
Allowance for doubtful accounts $ 683 $ 572 $0 $ (509)(c) $ 746
------ ------- -- ---------- ------
For the year ended December 31,
2004:
Income tax valuation allowance
(restated) $4,053 $ 2,174(a) $0 $ 0 $6,227
Nigerian prepaid taxes (restated) $ 970 $ 228(b) $0 $ 0 $1,198
Allowance for doubtful accounts $2,392 $ 587 $0 $ (2,296)(c) $ 683
------ ------- -- ---------- ------
For the year ended December 31,
2003:
Income tax valuation allowance
(restated) $2,497 $ 1,556(a) $0 $ 0 $4,053
Nigerian prepaid taxes (restated) $ 847 $ 123(b) $0 $ 0 $ 970
Allowance for doubtful accounts $2,425 $ 312 $0 $ (345)(c) $2,392
------ ------- -- ---------- ------
---------------
(a) Relates to valuation of federal, state, and foreign net operating losses.
(b) Relates to the inability to realize Nigerian prepaid income tax assets.
(c) For the years ended December 31, 2005, 2004 and 2003, the deduction amount
primarily reflects accounts receivable balances written off during the year
as well as recoveries of allowances previously expensed.