EXHIBIT 13.1
SELECTED
FINANCIAL DATA
(In thousands, except per share
information)
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2009
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2008
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2007
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2006
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2005
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Results of Operations
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Continuing Operations
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Revenues
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$
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445,177
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$
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455,929
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$
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401,463
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|
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$
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380,062
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|
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$
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371,102
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Operating income
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|
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30,558
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|
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33,300
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26,491
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8,146
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|
|
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17,834
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Net income
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24,572
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|
22,558
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17,330
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|
5,654
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|
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11,690
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Diluted earnings per share
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$
|
2.75
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|
|
$
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2.54
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|
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$
|
1.95
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|
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$
|
0.65
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|
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$
|
1.34
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Return on shareholders
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|
|
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investment
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|
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15.5
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%
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|
|
17.5
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%
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|
|
16.6
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%
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|
|
6.5
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%
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15.1
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%
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Total Michael Baker Corporation
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Net income
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$
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26,921
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$
|
29,154
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$
|
19,340
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|
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$
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10,332
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|
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$
|
5,051
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Diluted earnings per share
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|
$
|
3.01
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|
|
$
|
3.28
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|
|
$
|
2.18
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|
|
$
|
1.19
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|
|
$
|
0.58
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Return on shareholders
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|
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|
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investment
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|
|
17.0
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%
|
|
|
22.6
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%
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|
|
18.5
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%
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|
|
11.9
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%
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|
|
6.5
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%
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Financial Condition
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Total assets
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$
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278,844
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$
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292,062
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$
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276,350
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$
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263,916
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$
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225,461
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Working capital
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$
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154,357
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$
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114,209
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$
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84,629
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|
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$
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67,227
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|
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$
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49,264
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Current ratio
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2.59
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|
|
1.84
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|
|
1.56
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|
|
1.44
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|
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1.35
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Long-term debt
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$
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|
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$
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$
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$
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11,038
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$
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Shareholders Investment
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173,433
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142,644
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115,057
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93,621
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79,824
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Book value per outstanding share
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19.47
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16.11
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13.06
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10.76
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9.40
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Year-end closing share price
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$
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41.40
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$
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36.91
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$
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41.10
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$
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22.65
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$
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25.55
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Cash Flow
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Net cash provided by/(used in)
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operating activities
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$
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36,365
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$
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32,228
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$
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26,635
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$
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(9,343
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)
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$
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12,440
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Net cash provided by/(used in)
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investing activities
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19,398
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(5,285
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)
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(1,560
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)
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(14,933
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)
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(7,078
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)
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Net cash provided by/(used in)
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financing activities
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|
446
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|
55
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(16,205
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)
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18,417
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(1,792
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)
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Increase/(decrease) in cash and cash equivalents
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$
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56,209
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$
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26,998
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$
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8,870
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$
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(5,859
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)
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$
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3,570
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Backlog
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$
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1,425,200
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$
|
984,200
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$
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1,122,200
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$
|
1,057,100
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$
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1,109,300
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Share Information
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Year-end shares outstanding
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8,907
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|
|
|
8,855
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|
|
|
8,810
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|
|
|
8,698
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|
|
|
8,490
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Diluted weighted average shares outstanding
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|
|
8,933
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|
|
|
8,891
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|
|
|
8,874
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|
|
|
8,718
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|
|
|
8,715
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|
|
1
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
Selected Financial Data and our consolidated
financial statements and related notes. The discussion in this
section contains forward-looking statements that involve risks
and uncertainties. These forward-looking statements are based on
our current expectations about future events. These expectations
are subject to risks and uncertainties, many of which are beyond
our control. For a discussion of important risk factors that
could cause actual results to differ materially from those
described or implied by the forward-looking statements contained
herein, see the Note with Respect to Forward-Looking
Statements and Risk Factors sections included
in our Annual Report on
Form 10-K
for the year ended December 31, 2009.
Discontinued
Operations Energy
In previous filings, we presented an Engineering and an Energy
business segment; our former Energy segment provided a full
range of services for operating third-party oil and gas
production facilities worldwide. For the past several years, our
Board of Directors, in conjunction with management, had been
considering strategic alternatives related to our former Energy
business. During the third quarter of 2009, the Board of
Directors made the determination to divest this business, and to
reinvest the proceeds from the sale into our engineering
operations. The divestiture of substantially all of our former
Energy subsidiaries was completed as of September 30, 2009.
Additionally, we sold our interest in B.E.S. Energy Resources
Company, Ltd. (B.E.S.), an Energy company, on
December 18, 2009 to J.S. Technical Services Co., LTD.,
which is owned by our former minority partner in B.E.S. As such,
the Energy business has been reclassified into
discontinued operations in our accompanying
consolidated financial statements. The results for the years
ended December 31, 2009, 2008 and 2007 give effect to the
disposition of the stock owned by Michael Baker Corporation in
Baker/MO Services, Inc., Michael Baker Global, Inc., Baker
O&M International, Ltd., Baker Energy de Venezuela, C.A.,
Overseas Technical Services International, Ltd., Baker OTS
International, Inc., SD Forty Five, Ltd., OTS Finance and
Management, Ltd., and their respective subsidiaries (Baker
Energy) as well as B.E.S. The results of Baker Energy and
B.E.S. are representative of their results through their
respective sale dates, while other legacy discontinued
operations costs related to the Energy business were still being
incurred though the end of the 2009.
Business
Overview and Environment
As B.E.S., the final operating unit of our former Energy
Segment, was disposed of on December 18, 2009, we may
reconsider how we manage the business going forward. The
potential changes may include modifying financial reports, which
may, in turn, impact how our Chief Executive Officer evaluates
the business and makes decisions on allocating resources. Should
we make such changes, it may impact our historical segment
reporting in future periods.
We provide engineering expertise for public and private sector
clients worldwide. Our primary markets include Aviation,
Defense, Facilities, Geospatial Information Technology, Homeland
Security, Municipal and Civil, Pipelines and Utilities, Rail and
Transit, Transportation and Water. Among the services we provide
to our clients in these markets are program management,
design-build (for which we only provide the design portion of
services), construction management, consulting, planning,
surveying, mapping, geographic information systems,
architectural and interior design, construction inspection,
constructability reviews, site assessment and restoration,
strategic regulatory analysis and regulatory compliance. We view
our short and long-term liquidity as being dependent upon our
results of operations, changes in working capital and our
borrowing capacity. Our financial results are impacted by
appropriations of public funds for infrastructure and other
government-funded projects, capital spending levels in the
private sector, and the demand for our services in the various
engineering markets in which we compete.
We have significantly increased our revenues from
U.S. federal government contracting in the past several
years and continue to view this as a growth market. Federal
government spending by our primary clients, including that for
the Department of Defense (DoD) and the Department
of Homeland Security (DHS), continues to increase.
The Department of Homeland Securitys Federal Emergency
Management Agency (FEMA), awarded BakerAECOM, LLC
(BakerAECOM), a Delaware limited liability company
of which we are the managing member, an
Indefinite-Delivery/Indefinite-Quantity (IDIQ)
contract for Production and Technical Services for FEMAs
Risk Mapping, Analysis and Planning Program (Risk MAP
Program) on March 9, 2009. The resultant
performance-based contract has a
60-month
term with a
12-month
base period and four,
12-month
option periods with a maximum contract value of
$600 million. In February 2009, the US Congress passed the
American Recovery and Reinvestment Act of 2009
(ARRA), which contained approximately
$130 billion for highways, buildings and other public works
2
projects. We believe that we are positioned in all of our
services lines to perform work that the Federal government, as
well as state and local governments, are procuring as a result
of this legislation. Key state and local clients for us,
particularly in Transportation design and construction phase
services, received funding as a result of the infrastructure
stimulus package. The Company has benefitted from funding in
this sector and we believe we will continue to derive future
benefits. ARRA has, in some respects, become a funding bridge
since the current legislation for transportation the
Safe, Accountable, Flexible, Efficient Transportation Equity
Act A Legacy for Users (SAFETEA-LU)
expired September 30, 2009. Short term extensions of
federal transportation legislation commonly occur (multiple
extensions have already occurred for SAFETEA-LU) and cause
transportation clients to defer long term commitments for major
complex projects. So we believe ARRA has become an interim
funding mechanism. We expect this situation to continue through
2010.
Significant contracts awarded during 2009 and early 2010 include:
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BakerAECOM was awarded an IDIQ contract by FEMA for Production
and Technical Services for FEMAs Risk MAP Program which is
intended to be the successor to the Multi-Hazard Flood Map
Modernization Program (FEMA Map Mod Program). The
resultant performance-based contract has a five-year term with a
maximum contract value of up to $600 million.
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An approximately $75.0 million IDIQ contract, which is for
one year and may be extended by up to four additional years, was
awarded by the Naval Facilities Engineering Command to provide
architectural and engineering services for Multimedia
Environmental Compliance Engineering Support to the Navy and
Other Department of Defense entities.
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|
An approximately $60.0 million IDIQ contract, which is for
one year and may be extended by up to four additional years, was
awarded by the U.S. Army Corps of Engineers
(USACE) Transatlantic Programs Center
(TAC) for architecture-engineering services in its
Area of Responsibility, which includes the Middle East, the
Arabian Gulf States, Southwest Asia and Africa.
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A $15.0 million, five-year contract with the Pennsylvania
Department of Transportation, Bureau of Public Transportation,
for planning and oversight of public transportation projects
across Pennsylvania.
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A $12.0 million contract to provide design work on the
expansion of the I-15 Corridor Reconstruction project for the
Utah Department of Transportation.
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A $10.8 million agreement with Alamo Regional Mobility
Authority to provide engineering and environmental consulting
services in Bexar County, Texas.
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A $8.3 million agreement with the New Jersey Turnpike
Authority to provide design services for the widening of
multiple intersections on the Garden State Parkway.
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A $5.4 million contract to provide design services for the
new $70 million Equipment Maintenance and Operations Center
located in Rockville, Maryland for Montgomery County.
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A $5.0 million, two-year agreement to provide construction
management support and construction inspection services on 17
separate construction projects for the Pennsylvania Department
of Transportation.
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A $5.0 million engineering contract from Alaskas
Department on Natural Resources to evaluate alternatives for a
pipeline system to deliver natural gas from the North Slope of
Alaska to in-State Alaska projects; determine a valid
pre-feasibility level estimate for the cost of gas
transportation; determine a
right-of-way,
and evaluate associated construction and logistics requirements.
|
Our five-year IDIQ contract with FEMA for up to
$750 million to serve as the program manager to develop,
plan, manage, implement, and monitor, the FEMA Map Mod Program,
for flood hazard mitigation across the U.S. and its
territories was scheduled to conclude on March 10, 2009.
FEMA added a contract provision that extended the ordering
period through September 2010. As of December 31, 2009,
approximately $40 million is in our funded backlog related
to this program, including authorization to continue a portion
of previous services through September 2010. We do not
anticipate realizing most of the remaining contract balance
($183 million as of December 31, 2009); as such this
was removed from our unfunded backlog in the first quarter of
2009. We expect work and revenue related to our current
authorizations to continue through 2010.
3
Our unconsolidated subsidiarys current Iraq IDIQ contract
ended in September 2009, and it is not anticipated that further
contract funding will be added to this contract vehicle. Current
funded task order work may be extended but we anticipate that it
will be materially completed by September 2010.
Executive
Overview
Our revenues from continuing operations were $445.2 million
for the year ended December 31, 2009, a 2% decrease from
the $455.9 million reported for the same period in 2008.
The decrease in revenue in our business for 2009 was primarily
related to a decrease in work performed on our FEMA contracts of
approximately $26.3 million, offset by an increase in work
performed for our unconsolidated subsidiary operating in Iraq,
an increase in work performed on certain federal and state
projects, and increases on several existing transportation
projects.
Our earnings per diluted common share for continuing operations
were $2.75 for the year ended December 31, 2009, compared
to $2.54 per diluted common share reported for 2008. Our
earnings per diluted common share were $3.01 for the year ended
December 31, 2009, compared to $3.28 per diluted common
share reported for 2008. Income from continuing operations for
the year ended December 31, 2009 was $24.6 million,
compared to $22.6 million for 2008. These results were
primarily driven by an increase in work and profitability
improvements for our unconsolidated subsidiary in Iraq, a
reduction of approximately 4% in our 2009 effective tax rate as
compared to 2008 due to the utilization of foreign tax credits,
and profitability improvements on certain federal and state
projects. Income from discontinued operations related to our
former Energy segment, including the loss on the sale, was
$2.3 million for 2009, a decrease from $6.6 million
for 2008.
Results of
Operations
Comparisons of
the Year Ended December 31, 2009 and 2008
Revenues
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
|
Revenues by client type
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal government
|
|
$
|
217.5
|
|
|
|
49
|
%
|
|
$
|
238.8
|
|
|
|
52
|
%
|
State and local government
|
|
|
181.0
|
|
|
|
41
|
%
|
|
|
173.2
|
|
|
|
38
|
%
|
Domestic private industry
|
|
|
46.7
|
|
|
|
10
|
%
|
|
|
43.9
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
445.2
|
|
|
|
100
|
%
|
|
$
|
455.9
|
|
|
|
100
|
%
|
|
The decrease in our revenues was driven by the net decrease in
work performed on our FEMA contracts of $26.3 million and a
decrease in total project incentive awards of $1.0 million
as compared to 2008, partially offset by an increase of
$2.4 million in federal government work performed for our
unconsolidated subsidiary operating in Iraq, and increases on
several existing transportation projects.
Total revenues from FEMA were $67 million and
$93 million for 2009 and 2008, respectively. This decrease
is primarily as a result of approaching the contract close out
date for the FEMA Map Mod Program. While we would anticipate
activity to increase for the new FEMA Risk MAP Program in future
periods, this program is not expected to completely replace the
FEMA Map Mod Program revenue on a prospective basis. As a result
of achieving certain performance levels on the FEMA Map Mod
Program, we recognized revenues from project incentive awards
totaling $3.1 million and $4.1 million for 2009 and
2008, respectively.
Gross
Profit
Our gross profit totaled $88.0 million for 2009 compared to
$84.5 million for 2008, reflecting an increase of
$3.5 million or 4%. Gross profit expressed as a percentage
of revenues was 19.8% for 2009 compared to 18.5% for 2008. This
increase in gross profit and gross profit expressed as a
percentage of revenues was driven by margin improvement related
to project mix, partially offset by a reduction in project
incentive awards of $1.0 million.
Direct labor and subcontractor costs are major components in our
cost of work performed due to the project-related nature of our
service businesses. Direct labor costs expressed as a percentage
of revenues were 27.5% for 2009 compared to 25.1% for 2008,
while subcontractor costs expressed as a percentage of revenues
were 21.5% and 26.9% for 2009 and 2008, respectively. Expressed
as a percentage of revenues, direct labor increased due to work
4
performed for our unconsolidated subsidiary operating in Iraq,
while other project mix changes drove the decrease in
subcontractor costs period over period.
Selling, General and Administrative Expenses
(SG&A)
Our SG&A expenses totaled $57.4 million for 2009
compared to $51.2 million for 2008, reflecting an increase
of $6.2 million or 12%. SG&A expenses increased
year-over-year
due to an increase in corporate overhead costs and an increase
of $0.5 million for organic growth initiatives, partially
offset by favorable insurance settlements totaling approximately
$1.0 million. SG&A expenses expressed as a percentage
of revenues increased to 12.9% in 2009 compared to 11.2% for
2008. This overall increase in SG&A expenses expressed as a
percentage of revenues is primarily driven by the aforementioned
increase for organic growth initiatives and the increase in
corporate overhead costs of $3.5 million, primarily related
to incentive compensation accruals, stock-based compensation,
and retention costs.
Other Income/(Expense)
Other income/(expense) aggregated to income of
$7.4 million for 2009 compared to income of
$3.7 million for 2008. Other income/(expense)
primarily included equity income from our unconsolidated
subsidiary of $7.1 million for 2009 compared to
$3.1 million for 2008. The increase in equity income from
our unconsolidated subsidiary was primarily related to improved
margins on extensions of work orders being performed by our
unconsolidated subsidiary operating in Iraq. Also included in
Other income/(expense) is a minimal amount of
interest income, interest expense, and currency-related gains
and losses.
Income
Taxes
Our provisions for income taxes from continuing operations
resulted in effective income tax rates of approximately 35% and
39% for the year ended December 31, 2009 and 2008,
respectively.
The variance between the U.S. federal statutory rate of 35%
and our effective income tax rates for these periods is
primarily due to state income taxes and permanent items that are
not deductible for U.S. tax purposes. Additionally, in
2009, the impact of state income taxes and permanent differences
was fully offset by our ability to utilize $1.4 million of
foreign tax credits.
Income from
Discontinued Operations
As a result of the sale of our Energy business, we have
presented those results on a discontinued operations basis.
Income from discontinued operations was $2.3 million for
2009 as compared to $6.6 million in 2008, which represented
a decrease of $4.3 million. These amounts are comprised as
follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
Income from discontinued operations before income tax (benefit)/
provision and loss on sale
|
|
$
|
2,295
|
|
|
$
|
13,497
|
|
(Benefit)/provision for income taxes
|
|
|
(4,913
|
)
|
|
|
6,825
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before loss on sale
|
|
|
7,208
|
|
|
|
6,672
|
|
Loss on sale of discontinued operations before income tax benefit
|
|
|
(5,287
|
)
|
|
|
|
|
Benefit for income taxes
|
|
|
(563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of discontinued operations, net of tax
|
|
|
(4,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
2,484
|
|
|
|
6,672
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(135
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
2,349
|
|
|
$
|
6,596
|
|
|
Income from
Discontinued Operations Attributable to Michael Baker
Corporation
We recorded income from discontinued operations before income
taxes of approximately $2.3 million for 2009 as compared to
$13.5 million for 2008. This represents a decrease as
compared to the corresponding period of $11.2 million. The
results of Baker Energy and B.E.S. are representative of their
results through their respective sale dates, while other legacy
discontinued operations costs related to the Energy business
were still being incurred
5
though the end of the 2009. The primary drivers for the
year-over-year
change resulted from the write-off of a bankrupt customers
receivable balance totaling $6.0 million, accruals recorded
related to an assessment received for payroll taxes of
$1.9 million in one of our former international
subsidiaries in 2009 and increased workers compensation expense
of $1.0 million, partially offset by the favorable impact
of the reversal of a $2.5 million reserve due to the
settlement of a contract-related claim. The 2008 income amount
benefited by the recognition of a non-recurring project
incentive award of $1.1 million from a former onshore
managed services client in 2008, coupled with the favorable
impacts of tax penalty and interest reductions of
$1.6 million and $1.6 million, respectively.
The income tax benefit attributable to discontinued operations
was approximately $4.9 million in 2009, as compared to a
provision for income taxes of approximately $6.8 million in
2008. Prior to the quarter ended September 30, 2009, we
were in an overall foreign loss position for U.S. Federal
income tax purposes, which precluded us from utilizing credits
for taxes paid in foreign jurisdictions. However, as a result of
generating sufficient foreign source income to offset our
overall foreign loss, we have now concluded that we can utilize
those tax credits. This resulted in the reversal of deferred tax
liabilities for a net impact of $5.9 million related to
unremitted foreign source earnings, which are taxable for
U.S. federal tax purposes, but can be offset if there are
sufficient foreign tax credits that can be utilized.
Additionally, we recorded a deferred tax asset of approximately
$2.0 million related to foreign tax credits. A valuation
allowance totaling $1.5 million was placed against those
foreign tax credits as we have concluded we will not be able to
utilize those credits in future periods based on our forecasted
foreign source income in future periods. In 2008 the provision
for income taxes includes the normal course provisions for
income taxes during the year for our former Energy operations,
including income taxes in our former international operations,
some of which are based on a deemed profits tax which are
assessed based on revenues.
Loss on Sale of
Energy
In conjunction with the sale of Baker Energy on
September 30, 2009, we recorded a loss of
$5.1 million. The loss for Baker Energy was the result of
the recognition of transaction fees of approximately
$2.2 million, the recognition of cumulative currency
translation adjustments of approximately $2.2 million, and
the deficiency between the net assets conveyed and the
consideration received of approximately $0.6 million. The
transaction fees were primarily comprised of investment banker
fees of approximately $0.6 million, legal fees of
approximately $0.3 million, and payments of approximately
$1.3 million for an Energy management retention plan with
the proceeds payable upon the sale of the business.
The loss on the sale of Baker Energy was offset by a tax benefit
of approximately $0.6 million. The majority of the loss
resulted in a capital loss carryforward of approximately
$26.1 million for tax purposes, for which a deferred tax
asset and related valuation allowance totaling $9.0 million
is recorded due to our expected inability to utilize it. Should
we be able to generate capital gains within the five-year
carryforward period, the reserved portion of that deferred tax
asset may also be utilized; however, our current projections do
not forecast sufficient capital gains necessary to utilize that
asset.
In conjunction with the sale of B.E.S on December 18, 2009,
we recorded a loss of $0.2 million. The loss for B.E.S. had
nominal fees associated with its sale.
Comparisons of
the Years Ended December 31, 2008 and 2007
Revenues
Revenues were $455.9 million for 2008 compared to
$401.5 million for 2007, reflecting an increase of
$54.4 million or 14%. The following table presents revenues
by client type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
2008
|
|
|
2007
|
|
|
Revenues by client type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal government
|
|
$
|
238.8
|
|
|
|
52
|
%
|
|
$
|
196.5
|
|
|
|
49
|
%
|
State and local government
|
|
|
173.2
|
|
|
|
38
|
%
|
|
|
160.7
|
|
|
|
40
|
%
|
Domestic private industry
|
|
|
43.9
|
|
|
|
10
|
%
|
|
|
44.3
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
455.9
|
|
|
|
100
|
%
|
|
$
|
401.5
|
|
|
|
100
|
%
|
|
The increase in revenues for 2008 was primarily related to an
increase of $17.0 million in work performed for our
unconsolidated subsidiary operating in Iraq, an increase of
$16.9 million in work performed as support for the
Department of Homeland Securitys efforts to secure
U.S. borders, increases on several existing transportation
6
projects, an increase of $1.9 million due to a favorable
non-recurring project settlement, as well as growth in most of
our practice areas. The increase in 2008 revenues was partially
offset by a decrease in total project incentive awards of
$5.4 million as compared to 2007.
Total revenues from FEMA were $93 million and
$98 million for 2008 and 2007, respectively. As a result of
achieving certain performance levels on the FEMA Map Mod
Program, we recognized revenues from project incentive awards
totaling $4.1 million and $4.7 million for 2008 and
2007, respectively. The decreased project incentive awards on
the FEMA Map Mod Program for 2008 represents a lower project
incentive award pool as compared to 2007, while we have achieved
higher performance levels on the tasks completed, which resulted
in our recognition of a higher percentage of the available
project incentive award pool for 2008.
Gross
Profit
Gross profit was $84.5 million for 2008 compared to
$79.6 million for 2007, reflecting an increase of
$4.9 million or 6%. The increase in gross profit for 2008
is primarily attributable to improved revenue volume compared to
2007, the favorable non-recurring project settlement of
$1.9 million and a reduction in costs of $1.7 million
related to our self-insured professional liability claims during
2008. Gross profit expressed as a percentage of revenues was
18.5% in 2008 compared to 19.8% in 2007. Gross profit expressed
as a percentage of revenues decreased as a result of the
decrease in project incentive awards of $5.4 million, an
increase of $5.1 million in incentive compensation expense
related to project personnel, and an increase of
$2.1 million in medical costs as compared to 2007,
partially offset by the reduction in costs related to our
self-insured professional liability claims of $1.7 million
during 2008.
Direct labor and subcontractor costs are major components in our
cost of work performed due to the project-related nature of our
service businesses. Direct labor costs expressed as a percentage
of revenues were 25.1% for 2008 compared to 24.5% for 2007,
while subcontractor costs expressed as a percentage of revenues
were 26.9% for both 2008 and 2007. Expressed as a percentage of
revenues, direct labor increased due to work performed for our
unconsolidated subsidiary operating in Iraq, while our project
mix and subcontractor costs remained consistent year over year.
Selling, General
and Administrative Expenses
SG&A expenses were $51.2 million for 2008 compared to
$53.1 million for 2007, reflecting a decrease of
$1.9 million or 4%. SG&A expenses expressed as a
percentage of revenues decreased to 11.2% for 2008 from 13.2%
for 2007. This decrease is primarily related to cost containment
measures implemented during 2008. The decrease in SG&A
expenses expressed as a percentage of revenues is driven
primarily by a combination of the 14% increase in revenues
during 2008 and the aforementioned effects of cost containment.
Other
Income/(Expense)
The Other income/(expense) aggregated to income of
$3.7 million for 2008 compared to income of
$1.9 million for 2007. Other income/(expense)
primarily included equity income from our unconsolidated
subsidiary of $3.1 million for 2008 compared to
$2.2 million for 2007. The increase in equity income from
our unconsolidated subsidiary was primarily related to new work
orders being performed by our unconsolidated subsidiary
operating in Iraq. Also included in Other
income/(expense) is a minimal amount of interest income,
interest expense, and currency-related gains and losses.
Income
Taxes
Our provisions for income taxes resulted in effective income tax
rates of 39% in both 2008 and 2007. The variance between the
U.S. federal statutory rate and our effective rate for
these periods is primarily due to state income taxes and
permanent items which are not deductible for U.S. tax
purposes.
7
Income from
Discontinued Operations
As a result of the sale of our Energy business, we have
presented those results on a discontinued operations basis.
Income from discontinued operations was $6.6 million for
2008 as compared to $2.0 million in 2007, which represented
an increase of $4.6 million. These amounts are comprised as
follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
|
Income from discontinued operations before income tax
|
|
$
|
13,497
|
|
|
$
|
5,283
|
|
Provision for income taxes
|
|
|
6,825
|
|
|
|
3,306
|
|
Less: Net (income)/loss attributable to noncontrolling interests
|
|
|
(76
|
)
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
6,596
|
|
|
$
|
2,010
|
|
|
Income from
Discontinued Operations Attributable to Michael Baker
Corporation
The Company recorded income from discontinued operations before
income taxes of approximately $13.5 million for 2008 as
compared to $5.3 million for 2007. This represents an
increase as compared to the corresponding period of
$8.2 million. The primary drivers for the
year-over-year
change resulted from a decrease of $5.4 million in
self-insured general liability costs as a result of more
favorable claims activity in 2008, the recognition of a
non-recurring project incentive award of $1.1 million from
a former onshore managed services client in 2008, coupled with
the favorable impacts of tax penalty of $1.6 million and
interest reductions of another $1.6 million. These
increases were partially offset by a reserve for a
contract-related claim of $2.5 million and a bad debt
reserve of $1.6 million related to a portion of a bankrupt
customers receivables.
In 2008 and 2007, the provision for income taxes includes the
normal course provisions for income taxes during the year for
our former Energy operations, including income taxes in our
former international operations, some of which are based on a
deemed profits tax which are assessed based on revenues.
Contract
Backlog
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
|
Funded
|
|
$
|
461.3
|
|
|
$
|
449.5
|
|
Unfunded
|
|
|
963.9
|
|
|
|
534.7
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,425.2
|
|
|
$
|
984.2
|
|
|
Of our total funded backlog as of December 31, 2009,
$293 million is expected to be recognized as revenue within
the next year. Additionally, we expect our sources of revenue
within the next year to include recognized unfunded backlog and
new work added. Due to the nature of unfunded backlog,
consisting of options that have not yet been exercised or task
orders that have not yet been approved, we are unable to
reasonably estimate what, if any, portion of our unfunded
backlog will be realized within the next year.
Funded backlog consists of that portion of uncompleted work
represented by signed contracts
and/or
approved task orders, and for which the procuring agency has
appropriated and allocated the funds to pay for the work. Total
backlog incrementally includes that portion of contract value
for which options have not yet been exercised or task orders
have not been approved. We refer to this incremental contract
value as unfunded backlog. U.S. government agencies and
many state and local governmental agencies operate under annual
fiscal appropriations and fund various contracts only on an
incremental basis. In addition, our clients may terminate
contracts at will or not exercise option years. Our ability to
realize revenues from our backlog depends on the availability of
funding for various federal, state and local government
agencies; therefore, no assurance can be given that all backlog
will be realized.
In March 2009, BakerAECOM was informed by FEMA that it had been
awarded an IDIQ contract for the Risk MAP Program, which is
intended to be the successor to the FEMA Map Mod Program. The
resultant performance-based contract has a five-year term with a
maximum contract value of up to $600 million. As of
December 31, 2009, approximately $34 million is in our
funded backlog and $555 million is in our unfunded backlog
related to this program.
As of December 31, 2009 and 2008, approximately
$40 million and $68 million of our funded backlog,
respectively, related to the $750 million FEMA Map Mod
Program contract to assist FEMA in conducting a large-scale
overhaul of
8
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. This contract
was scheduled to conclude on March 10, 2009; however, FEMA
added a contract provision that extended the ordering period
through September 2010. We do not anticipate realizing most of
the remaining contract balance ($183 million as of
December 31, 2009); as such this was removed from our
unfunded backlog in the first quarter of 2009. We expect work
and revenue related to our current authorizations to continue
through 2010.
In 2009, we were awarded a contract by the USACE TAC
for architecture-engineering services in its Area of
Responsibility, which includes the Middle East, the Arabian Gulf
States, Southwest Asia and Africa. We were one of four awardees
of the indefinite delivery contract, which is for one year and
may be extended by up to four additional years at the
governments discretion. The maximum value of the contract
for the entire five-year performance period for all awardees is
$240 million (our portion was estimated at
$60 million). Under this contract, we may be called upon to
provide a full-range of design and construction management
services. As of December 31, 2009, approximately
$3 million is in our funded backlog and $49 million is
in our unfunded backlog related to this contract.
Liquidity and
Capital Resources
We have three principal sources of liquidity to fund our
operations: our existing cash, cash equivalents, and
investments; cash generated by operations; and our available
capacity under our Unsecured Credit Agreement (Credit
Agreement), which is with a consortium of financial
institutions and provides for a commitment of $60 million
through October 1, 2011. As of December 31, 2009 and
2008, we had $105.3 million and $49.1 million of cash
and cash equivalents, respectively, and $154.4 million and
$114.2 million in working capital, respectively. As of
December 31, 2009, we had $2.5 million and
$2.2 million of short-term investments and available for
sale securities, respectively. Additionally, $10.0 million
was received in February 2010 for the Baker Energy sale under
the net asset adjustment provision of the stock purchase
agreement. The net asset adjustment is presented under the
heading Proceeds receivable Energy sale
in the Companys consolidated balance sheet as of
December 31, 2009. Our available capacity under our
$60.0 million Credit Agreement, after consideration of
outstanding letters of credit, was approximately
$50.6 million (84% availability) and $51.0 million
(85% availability) as of December 31, 2009 and 2008,
respectively. Our current ratios were 2.59 to 1 and 1.84 to 1 as
of December 31, 2009 and 2008, respectively.
Our cash flows are primarily impacted from period to period by
fluctuations in working capital. Factors such as our contract
mix, commercial terms, days sales outstanding (DSO)
and delays in the start of projects may impact our working
capital. In line with industry practice, we accumulate costs
during a given month and then bill those costs in the following
month for many of our contracts. While salary costs associated
with the contracts are paid on a bi-weekly basis, certain
subcontractor costs are generally not paid until we receive
payment from our customers. As of December 31, 2009 and
2008, $19.5 million and $17.6 million, respectively,
of our accounts payable balance comprised invoices with
pay-when-paid terms. Due to the current economic
environment, we anticipate that our customers inability to
access capital could impact project activity for 2010 and may
impact certain customers ability to compensate us for our
services.
Cash Provided by
Operating Activities
Cash provided by operating activities was $36.4 million,
$32.2 million and $26.6 million for years ended
December 31, 2009, 2008 and 2007, respectively.
Our cash provided by operating activities for 2009 resulted
primarily from net income of $27.2 million and the
dividends received from our unconsolidated subsidiary of
$7.3 million. Also favorably impacting our cash provided by
operating activities was a decrease in our prepaid balance as of
December 31, 2009.
Our total days sales outstanding in receivables and unbilled
revenues, net of billings in excess, decreased from 86 days
at year-end 2008 to 81 days as of December 31, 2009.
This decrease is driven mainly by the sale of our Energy
business, which historically had a higher days sales outstanding
than our continuing operations.
Our cash provided by operating activities for 2008 resulted
primarily from net income of $29.2 million. This increase
was partially offset by a decrease in our accounts payable as of
December 31, 2008, which was due to a decrease in activity
related to certain of our managed services contracts in our
divested Energy business. In addition, during 2008,
9
we returned a Baker Energy managed services clients cash
advances totaling $6.0 million as a result of a reduction
in related activity on that contract.
Cash Provided
by/(Used in) Investing Activities
Cash provided by investing activities was $19.4 million in
2009, while cash used in investing activities was
$5.3 million and $1.6 million for the years ended
December 31, 2008 and 2007, respectively. Cash provided by
investing activities for 2009 included approximately
$37.9 million of cash conveyed to us from the buyer upon
the sale of Baker Energy. This cash receipt was partially offset
by existing cash of approximately $7.8 million conveyed to
the buyer upon the sale of Baker Energy. This cash, which
related to our former Energy business international
operations, was reimbursed through the sale agreement net asset
adjustment; however, the proceeds of the net asset adjustment
were not received prior to the balance sheet date. Cash provided
by investing activities for 2009 also included approximately
$0.9 million of net cash conveyed to us upon the sale of
B.E.S.
Our cash used in investing activities related to investment
activities and capital expenditures. The majority of our 2009
capital additions pertain to computer software purchases, office
equipment and leasehold improvements related to office openings
or relocations, and vehicles. Additionally, during 2009, we
purchased an Optech Lynx Mobile LiDAR (Light Detection and
Ranging) system which expands our offerings of advanced
geospatial technology solutions related to surveying and mapping
services. We also acquired various assets through operating
leases, which reduced the level of capital expenditures that
would have otherwise been necessary to operate our business.
Cash used in investing activities for 2009 also included
$2.5 million and $2.2 million related to the purchase
of short-term investments and
available-for-sale
securities, respectively.
Cash Provided
by/(Used in) Financing Activities
Our financing activities primarily related to proceeds from the
exercise of stock options and payments on capital lease
operations. The cash used in financing activities for 2007 also
reflects net repayments of borrowings totaling
$11.0 million under our Credit Agreement and a decrease in
our book overdrafts.
Credit
Agreement
Our Credit Agreement is with a consortium of financial
institutions and provides for a commitment of $60.0 million
through October 1, 2011. The commitment includes the sum of
the principal amount of revolving credit loans outstanding and
the aggregate face value of outstanding standby letters of
credit (LOCs) not to exceed $20.0 million. As
of December 31, 2009 and 2008, there were no borrowings
outstanding under the Credit Agreement and the outstanding LOCs
were $9.4 million and $9.0 million, respectively.
The Credit Agreement provides for us to borrow at the
banks prime interest rate or at LIBOR plus an applicable
margin determined by our leverage ratio (based on a measure of
indebtedness to EBITDA). The Credit Agreement requires us to
meet minimum equity, leverage, interest and rent coverage, and
current ratio covenants. If any of these financial covenants or
certain other conditions of borrowing is not achieved, under
certain circumstances, after a cure period, the banks may demand
the repayment of all borrowings outstanding
and/or
require deposits to cover the outstanding letters of credit.
Although only $9.4 million of our credit capacity was
utilized under this facility as of December 31, 2009, in
future periods we may leverage our Credit Agreement to
facilitate our growth strategy, specifically utilizing our
available credit to fund strategic acquisitions. The inability
of one or more financial institutions in the consortium to meet
its commitment under our Credit Agreement could impact that
growth strategy. Currently, we believe that we will be able to
readily access our Credit Agreement as necessary. We intend to
negotiate an extension of the Credit Agreement beyond
October 1, 2011 during 2010.
Financial
Condition & Liquidity
As of December 31, 2009, we had $105.3 million of cash
and cash equivalents. In response to the turmoil in the
financial services industry, our management determined that
capital preservation is a critical factor in executing on our
short-term and long-term strategies. As such, the determination
was made to maintain the majority of our cash balances in
certificates of deposit, highly rated bonds and money market
funds that primarily hold U.S. Government-backed
obligations. As the global credit markets continue to stabilize,
our management will consider transferring these funds into other
short-term, highly liquid investments that might yield a higher
return; however, we believe that this
10
strategy to preserve our current cash position is the prudent
course of action in the current environment. We principally
maintain our cash and cash equivalents, certificates of deposit
and bonds in accounts held by major banks and financial
institutions. To date, none of these institutions in which we
hold our cash, money market funds, certificates of deposit and
bonds have gone into bankruptcy or been forced into
receivership. The majority of our funds are held in accounts in
which the amounts on deposit are not covered by or exceed
available insurance. Although there is no assurance that one or
more institutions in which we hold our cash and cash
equivalents, certificates of deposit and bonds will not fail, we
currently believe that we will be able to readily access our
funds when needed.
We plan to utilize our cash, investments and borrowing capacity
under the Credit Agreement for, among other things, short-term
working capital needs, including the satisfaction of contractual
obligations and payment of taxes, to fund capital expenditures,
and to support strategic opportunities that management
identifies. We continue to pursue growth in our core businesses
and are specifically seeking to expand our engineering
operations through organic growth and strategic acquisitions
that align with our core competencies. We consider acquisitions,
or related investments, for the purposes of geographic expansion
and/or
improving our market share as key components of our growth
strategy and intend to use both existing cash, investments and
the Credit Agreement to fund such endeavors. We also
periodically review our business, and our service offerings
within that business, for financial performance and growth
potential. As such, we may also consider streamlining our
current organizational structure if we conclude that such
actions would further increase our operating efficiency and
strengthen our competitive position over the long term.
On September 30, 2009, the stock of Baker Energy was sold
for gross proceeds of $47.9 million, consisting of
$37.9 million received at closing and $10.0 million
received in February 2010 under the net asset adjustment
provision of the stock purchase agreement. The net asset
adjustment is presented under the heading Proceeds
receivable Energy sale in our accompanying
consolidated balance sheet as of December 31, 2009. On
December 18, 2009, the stock of B.E.S. was sold for net
proceeds of $0.9 million. We anticipate utilizing the
proceeds realized from these divestitures in our engineering
operations, principally through strategic acquisitions of firms
that would enhance our current service offerings or allow us to
expand our operations geographically, most likely domestically,
in order to continue to grow our business.
If we commit to funding future acquisitions, we may need to
restructure our Credit Agreement, add a temporary credit
facility,
and/or
pursue other financing vehicles in order to execute such
transactions. In the current credit environment, if we would
restructure our Credit Agreement or add a temporary credit
facility with our existing bank group, it is possible that
either action could unfavorably impact the pricing under our
existing Credit Agreement. In addition, if we were to pursue
other financing vehicles, it is likely that the pricing of such
a credit vehicle would be higher than that currently available
to us under the Credit Agreement. We may also explore issuing
equity to fund some portion of an acquisition. We believe that
the combination of our cash and cash equivalents, cash generated
from operations and our existing Credit Agreement will be
sufficient to meet our operating and capital expenditure
requirements for the next twelve months and beyond.
Contractual
Obligations and Off-Balance Sheet Arrangements
A summary of our contractual obligations and off-balance sheet
arrangements as of December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
Within 1
|
|
|
1-3
|
|
|
3-5
|
|
|
After 5
|
|
(in millions)
|
|
Total
|
|
|
year
|
|
|
years
|
|
|
years
|
|
|
years
|
|
|
|
Contractual obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease
obligations(1)
|
|
$
|
68.9
|
|
|
$
|
14.9
|
|
|
$
|
21.7
|
|
|
$
|
14.0
|
|
|
$
|
18.3
|
|
Purchase
obligations(2)
|
|
|
12.1
|
|
|
|
5.4
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
Other long-term
liabilities(3)
|
|
|
1.6
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
1.1
|
|
Capital lease
obligations(4)
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
83.0
|
|
|
$
|
20.5
|
|
|
$
|
29.1
|
|
|
$
|
14.0
|
|
|
$
|
19.4
|
|
|
|
|
|
(1) |
|
We utilize operating leases to
provide for use of certain assets in our daily business
activities. This balance includes office space of
$62.9 million, with the remaining balance relating to
computers, computer-related equipment, and motor vehicles. The
lease payments for use of these assets are recorded as expenses,
but do not appear as liabilities on our consolidated balance
sheets.
|
11
|
|
|
(2) |
|
Our purchase obligations relate to
legally binding agreements to purchase goods or services at
agreed prices, but do not appear as liabilities on our
consolidated balance sheets. These obligations primarily relate
to office equipment and maintenance obligations.
|
|
(3) |
|
The majority of the
$1.1 million balance for obligations after five years
represents deferred compensation for our Board of Directors
while the $0.5 million obligation within two to three years
represents our liability for stock appreciation rights.
|
|
(4) |
|
Capital leases include computers
and computer-related equipment.
|
Liabilities totaling $3.9 million as of December 31,
2009 recorded for uncertainty in income taxes are excluded from
the above table due to the inability to make a reliable estimate
of the period of any future cash settlement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of commitment expiration per period
|
|
|
|
|
|
|
Within 1
|
|
|
2-3
|
|
|
4-5
|
|
|
After 5
|
|
(in millions)
|
|
Total
|
|
|
year
|
|
|
years
|
|
|
years
|
|
|
years
|
|
|
|
Off-Balance Sheet Arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
$
|
9.4
|
|
|
$
|
9.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Performance and payment bonds
|
|
|
14.3
|
|
|
|
6.3
|
|
|
|
0.7
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
23.7
|
|
|
$
|
15.7
|
|
|
$
|
0.7
|
|
|
$
|
7.3
|
|
|
$
|
|
|
|
Our banks issue standby letters of credit on our behalf under
the aforementioned Credit Agreement. As of December 31,
2009, the majority of our outstanding LOCs were issued to
insurance companies to serve as collateral for payments the
insurers are required to make under certain of our
self-insurance programs. These LOCs may be drawn upon in the
event that we do not reimburse the insurance companies for
claims payments made on our behalf. Such LOCs renew
automatically on an annual basis unless either the LOC is
returned to the bank by the beneficiaries or our banks elect not
to renew them.
Bonds are provided on our behalf by certain insurance carriers.
The beneficiaries under these performance and payment bonds may
request payment from our insurance carriers in the event that we
do not perform under the project or if subcontractors are not
paid. We do not expect any amounts to be paid under our
outstanding bonds as of December 31, 2009. In addition, we
believe that our bonding lines will be sufficient to meet our
bid and performance bonding needs for at least the next year.
Critical
Accounting Estimates
We have identified the following critical accounting estimates
as those that are most important to the portrayal of our results
of operations and financial condition, and which require
managements most difficult, subjective or complex
judgments and estimates.
Project Cost Estimates to Complete. We
utilize the
percentage-of-completion
method of accounting for the majority of our contracts. Revenues
for the current period on these contracts are determined by
multiplying the estimated margin at completion for each contract
by the projects percentage of completion to date, adding
labor costs, subcontractor costs and other direct costs incurred
to date, and subtracting revenues recognized in prior periods.
In applying the
percentage-of-completion
method, a projects percent complete as of any balance
sheet date is computed as the ratio of labor costs incurred to
date divided by the total estimated labor costs at completion.
Estimated labor costs at completion reflect labor costs incurred
to date plus an estimate of the labor costs to complete the
project. As changes in estimates of total labor costs at
completion
and/or
estimated total losses on projects are identified, appropriate
earnings adjustments are recorded during the period that the
change or loss is identified. Due to the volume and varying
degrees of complexity of our active projects, as well as the
many factors that can affect estimated costs at completion, the
computations of these estimates require the use of complex and
subjective judgments. Accordingly, labor cost estimates to
complete require regular review and revision to ensure that
project earnings are not misstated. We have a history of making
reasonably dependable estimates of costs at completion on our
contracts that follow the
percentage-of-completion
method; however, due to uncertainties inherent in the estimation
process, it is possible that estimated project costs at
completion could vary from our estimates. As of
December 31, 2009, we do not believe that material changes
to project cost estimates at completion for any of our open
projects are reasonably likely to occur.
12
Revenue Recognition. As referenced
above, we recognize revenue under the
percentage-of-completion
method for the majority of our contracts. Under certain
circumstances, we may agree to provide new or additional
services to a client without a fully executed contract or change
order. In these instances, although the costs of providing these
services are expensed as incurred, the recognition of related
contract revenues are delayed until the contracts
and/or
change orders have been fully executed by the clients, other
suitable written project approvals are received from the
clients, or until management determines that revenue recognition
is appropriate based on the probability of client acceptance.
The probability of client acceptance is assessed based on such
factors as our historical relationship with the client, the
nature and scope of the services to be provided, and
managements ability to accurately estimate the realizable
value of the services to be provided. Under this policy, we had
not recognized potential future revenues estimated at
$3.5 million and $2.5 million as of December 31,
2009 and 2008, respectively, for which the related costs had
already been expensed as of these dates. The consistent
application of this policy may result in revenues being
recognized in a period subsequent to the period in which the
related costs were incurred and expensed. Profit incentives
and/or award
fees are recorded as revenues when the amounts are both probable
and reasonably estimable.
Income and Other Taxes. We record our
annual current tax provision based upon our book income plus or
minus any permanent and temporary differences multiplied by the
statutory rate in the appropriate jurisdictions where we
operate. In certain foreign jurisdictions where we previously
operated, income tax is based on a deemed profit methodology.
The calculation of our annual tax provision may require
interpreting tax laws and regulations and could result in the
use of judgments or estimates which could cause our recorded tax
liability to differ from the actual amount due.
We recognize current tax assets and liabilities for estimated
taxes refundable or payable on tax returns for the current year.
We also recognize deferred tax assets or liabilities for the
estimated future tax effects attributable to temporary
differences, net operating losses, undistributed foreign
earnings, and various other credits and carryforwards. Our
current and deferred tax assets and liabilities are measured
based on provisions in enacted tax laws in each jurisdiction
where we operate. We do not consider the effects of future
changes in tax laws or rates in the current period. We analyze
our deferred tax assets and place a valuation allowance on those
assets if we do not expect the realization of these assets to be
more likely than not.
Goodwill. During the second quarter of
each year and in certain other circumstances, we perform a
valuation of the goodwill associated with our business. To the
extent that the fair value of the business, including the
goodwill, is less than the recorded value, we would write down
the value of the goodwill. The valuation of the goodwill is
affected by, among other things, our business plans for the
future and estimated results of future operations. Changes in
our business plans
and/or in
future operating results may have an impact on the valuation of
the assets and therefore could result in our recording a related
impairment charge.
Contingencies. The preparation of
financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities as of the date of the financial statements, and also
affect the amounts of revenues and expenses reported for each
period. Specifically, management estimates are inherent in the
assessment of our exposure to insurance claims that fall below
policy deductibles and to litigation and other legal claims and
contingencies, as well as in determining our liabilities for
incurred but not reported insurance claims. Significant
judgments by us and reliance on third-party experts are utilized
in determining probable
and/or
reasonably estimable amounts to be recorded or disclosed in our
financial statements. The results of any changes in accounting
estimates are reflected in the financial statements of the
period in which the changes are determined. Based on the
information that is currently available, we do not believe that
material changes to these estimates are reasonably likely to
occur.
Recent Accounting
Pronouncements
In June 2009, the FASB issued authoritative guidance codifying
GAAP. The Codification did not change GAAP but reorganizes the
literature. We adopted the new Codification when referring to
GAAP on September 30, 2009. The adoption of this
authoritative guidance did not have a material impact on our
consolidated financial statements.
In June 2009, the FASB issued authoritative guidance amending
the timing and considerations of analyses performed to determine
if the Companys variable interests give it a controlling
financial interest in a variable interest entity, as well as
requires additional disclosures. We adopted the provisions of
this guidance on January 1, 2010. The adoption of this
authoritative guidance did not have a material impact on our
consolidated financial statements.
13
In May 2009, the FASB issued authoritative guidance that
incorporates guidance into accounting literature that was
previously addressed only in auditing standards and is intended
to establish general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
In February 2010, the FASB amended this guidance to remove the
requirement for Securities and Exchange Commission
(SEC) filers to disclose the date through which an
entity has evaluated subsequent events. We adopted this
authoritative guidance on June 30, 2009 and adopted the
revised provisions for our December 31, 2009 consolidated
financial statements. This guidance did not have a material
impact on our consolidated financial statements.
In December 2007, the FASB issued authoritative guidance that
establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary (minority interest) is
an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements and
separately from the parent companys equity. Among other
requirements, this statement requires consolidated net income to
be reported at amounts that include the amounts attributable to
both the parent and the noncontrolling interest. It also
requires that both amounts are disclosed on the face of the
Consolidated Statement of Income. On January 1, 2009, we
applied the provisions of this guidance to our accounting for
noncontrolling interests and our financial statement
disclosures. The disclosure provisions of the standard have been
applied to all periods presented in the accompanying
consolidated financial statements.
14
MICHAEL BAKER
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(in thousands, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Revenues
|
|
$
|
445,177
|
|
|
$
|
455,929
|
|
|
$
|
401,463
|
|
Cost of work performed
|
|
|
357,197
|
|
|
|
371,397
|
|
|
|
321,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
87,980
|
|
|
|
84,532
|
|
|
|
79,613
|
|
Selling, general and administrative expenses
|
|
|
57,422
|
|
|
|
51,232
|
|
|
|
53,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
30,558
|
|
|
|
33,300
|
|
|
|
26,491
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity income from unconsolidated subsidiary
|
|
|
7,057
|
|
|
|
3,065
|
|
|
|
2,224
|
|
Interest income
|
|
|
160
|
|
|
|
642
|
|
|
|
303
|
|
Interest expense
|
|
|
(70
|
)
|
|
|
(93
|
)
|
|
|
(554
|
)
|
Other, net
|
|
|
257
|
|
|
|
66
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before noncontrolling interests and income taxes
|
|
|
37,962
|
|
|
|
36,980
|
|
|
|
28,409
|
|
Less: Income attributable to noncontrolling interests
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
37,806
|
|
|
|
36,980
|
|
|
|
28,409
|
|
Provision for income taxes
|
|
|
13,234
|
|
|
|
14,422
|
|
|
|
11,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations attributable to Michael
Baker Corporation
|
|
|
24,572
|
|
|
|
22,558
|
|
|
|
17,330
|
|
Income from discontinued operations, net of tax
|
|
|
7,208
|
|
|
|
6,672
|
|
|
|
1,977
|
|
Loss on sale of discontinued operations, net of tax
|
|
|
(4,724
|
)
|
|
|
|
|
|
|
|
|
Less: Net (income)/loss attributable to noncontrolling interests
|
|
|
(135
|
)
|
|
|
(76
|
)
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations attributable to
Michael Baker Corporation
|
|
|
2,349
|
|
|
|
6,596
|
|
|
|
2,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Michael Baker
Corporation
|
|
|
26,921
|
|
|
|
29,154
|
|
|
|
19,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/(loss) Foreign currency
translation adjustments with reclassification adjustments
|
|
|
2,232
|
|
|
|
(2,661
|
)
|
|
|
255
|
|
Less: Foreign currency translation adjustments attributable to
noncontrolling interests with reclassification adjustments
|
|
|
(233
|
)
|
|
|
526
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Michael Baker
Corporation
|
|
$
|
28,920
|
|
|
$
|
27,019
|
|
|
$
|
19,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (E.P.S.) attributable to
Michael Baker Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic E.P.S. Continuing operations
|
|
$
|
2.77
|
|
|
$
|
2.56
|
|
|
$
|
1.98
|
|
Diluted E.P.S. Continuing operations
|
|
|
2.75
|
|
|
|
2.54
|
|
|
|
1.95
|
|
Basic E.P.S. Net income
|
|
|
3.04
|
|
|
|
3.31
|
|
|
|
2.21
|
|
Diluted E.P.S. Net income
|
|
$
|
3.01
|
|
|
$
|
3.28
|
|
|
$
|
2.18
|
|
|
The accompanying notes are an
integral part of the consolidated financial statements.
15
MICHAEL BAKER
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(in thousands, except share amounts)
|
|
2009
|
|
|
2008
|
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
105,259
|
|
|
$
|
49,050
|
|
Short term investments
|
|
|
2,500
|
|
|
|
|
|
Available for sale securities
|
|
|
2,155
|
|
|
|
|
|
Proceeds receivable Energy sale
|
|
|
9,965
|
|
|
|
|
|
Receivables, net of allowances of $723 and $2,765, respectively
|
|
|
76,455
|
|
|
|
113,676
|
|
Unbilled revenues on contracts in progress
|
|
|
49,605
|
|
|
|
70,455
|
|
Prepaid expenses and other
|
|
|
5,407
|
|
|
|
16,756
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
251,346
|
|
|
|
249,937
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, net
|
|
|
12,578
|
|
|
|
16,671
|
|
Other Long-term Assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
9,626
|
|
|
|
17,092
|
|
Other intangible assets, net
|
|
|
76
|
|
|
|
162
|
|
Deferred tax asset
|
|
|
|
|
|
|
1,209
|
|
Other long-term assets
|
|
|
5,218
|
|
|
|
6,991
|
|
|
|
|
|
|
|
|
|
|
Total other long-term assets
|
|
|
14,920
|
|
|
|
25,454
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
278,844
|
|
|
$
|
292,062
|
|
|
|
LIABILITIES AND SHAREHOLDERS INVESTMENT
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
31,948
|
|
|
$
|
42,421
|
|
Accrued employee compensation
|
|
|
23,000
|
|
|
|
35,530
|
|
Accrued insurance
|
|
|
9,576
|
|
|
|
11,632
|
|
Billings in excess of revenues on contracts in progress
|
|
|
19,102
|
|
|
|
17,449
|
|
Deferred income tax liability
|
|
|
3,958
|
|
|
|
9,923
|
|
Income taxes payable
|
|
|
1,355
|
|
|
|
4,946
|
|
Other accrued expenses
|
|
|
8,050
|
|
|
|
13,827
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
96,989
|
|
|
|
135,728
|
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
|
|
|
|
|
|
Deferred income tax liability
|
|
|
346
|
|
|
|
7,121
|
|
Other long-term liabilities
|
|
|
7,769
|
|
|
|
6,297
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
105,104
|
|
|
|
149,146
|
|
|
|
|
|
|
|
|
|
|
Shareholders Investment
|
|
|
|
|
|
|
|
|
Common Stock, par value $1, authorized 44,000,000 shares,
|
|
|
|
|
|
|
|
|
issued 9,402,835 and 9,350,835, respectively
|
|
|
9,403
|
|
|
|
9,351
|
|
Additional paid-in capital
|
|
|
49,989
|
|
|
|
48,405
|
|
Retained earnings
|
|
|
119,135
|
|
|
|
92,214
|
|
Accumulated other comprehensive loss
|
|
|
(333
|
)
|
|
|
(2,565
|
)
|
Less 495,537 shares of Common Stock in
treasury, at cost
|
|
|
(4,761
|
)
|
|
|
(4,761
|
)
|
|
|
|
|
|
|
|
|
|
Total Michael Baker Corporation shareholders
investment
|
|
|
173,433
|
|
|
|
142,644
|
|
Noncontrolling interests
|
|
|
307
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
Total shareholders investment
|
|
|
173,740
|
|
|
|
142,916
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders investment
|
|
$
|
278,844
|
|
|
$
|
292,062
|
|
|
The accompanying notes are an
integral part of the consolidated financial statements.
16
MICHAEL BAKER
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,212
|
|
|
$
|
29,230
|
|
|
$
|
19,307
|
|
Adjustments to reconcile net income to net cash provided
by/(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations
|
|
|
(2,484
|
)
|
|
|
(6,672
|
)
|
|
|
(1,977
|
)
|
Depreciation and amortization
|
|
|
5,592
|
|
|
|
4,952
|
|
|
|
5,039
|
|
Stock-based compensation expense
|
|
|
1,063
|
|
|
|
772
|
|
|
|
436
|
|
Tax benefit of stock compensation
|
|
|
232
|
|
|
|
117
|
|
|
|
975
|
|
Excess tax benefits from stock-based compensation
|
|
|
(5
|
)
|
|
|
(17
|
)
|
|
|
(26
|
)
|
Deferred income tax (benefit)/expense
|
|
|
(5,152
|
)
|
|
|
(2,794
|
)
|
|
|
1,751
|
|
Equity affiliates earnings
|
|
|
(7,057
|
)
|
|
|
(3,065
|
)
|
|
|
(2,224
|
)
|
Equity affiliates dividends received
|
|
|
7,300
|
|
|
|
2,700
|
|
|
|
1,528
|
|
Loss on disposal of fixed assets
|
|
|
154
|
|
|
|
94
|
|
|
|
229
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in receivables
|
|
|
(2,234
|
)
|
|
|
(7,311
|
)
|
|
|
(4,233
|
)
|
Decrease/(increase) in unbilled revenues and billings in excess,
net
|
|
|
4,103
|
|
|
|
5,480
|
|
|
|
(2,895
|
)
|
Decrease/(increase) in other net assets
|
|
|
7,764
|
|
|
|
1,114
|
|
|
|
(134
|
)
|
(Decrease)/increase in accounts payable
|
|
|
(4,652
|
)
|
|
|
439
|
|
|
|
3,236
|
|
(Decrease)/increase in accrued expenses
|
|
|
(7,779
|
)
|
|
|
9,584
|
|
|
|
(1,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
|
|
24,057
|
|
|
|
34,623
|
|
|
|
19,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) discontinued operations
|
|
|
12,308
|
|
|
|
(2,395
|
)
|
|
|
6,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
36,365
|
|
|
|
32,228
|
|
|
|
26,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(5,421
|
)
|
|
|
(3,472
|
)
|
|
|
(1,206
|
)
|
Purchase of short-term investments
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
Purchase of
available-for-sale
securities
|
|
|
(2,155
|
)
|
|
|
|
|
|
|
|
|
Investment in equity affiliates
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing operations
|
|
|
(10,476
|
)
|
|
|
(3,472
|
)
|
|
|
(1,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) discontinued operations
|
|
|
29,874
|
|
|
|
(1,813
|
)
|
|
|
(354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities
|
|
|
19,398
|
|
|
|
(5,285
|
)
|
|
|
(1,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt, net
|
|
|
|
|
|
|
|
|
|
|
(11,038
|
)
|
Decrease in book overdrafts
|
|
|
|
|
|
|
|
|
|
|
(4,164
|
)
|
Capital contribution from noncontrolling interest
|
|
|
152
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
632
|
|
|
|
366
|
|
|
|
1,381
|
|
Payments on capital lease obligations
|
|
|
(333
|
)
|
|
|
(285
|
)
|
|
|
(383
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
5
|
|
|
|
17
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) continuing operations
|
|
|
456
|
|
|
|
98
|
|
|
|
(14,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operations
|
|
|
(10
|
)
|
|
|
(43
|
)
|
|
|
(2,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) financing activities
|
|
|
446
|
|
|
|
55
|
|
|
|
(16,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
56,209
|
|
|
|
26,998
|
|
|
|
8,870
|
|
Cash and cash equivalents, beginning of year
|
|
|
49,050
|
|
|
|
22,052
|
|
|
|
13,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
105,259
|
|
|
$
|
49,050
|
|
|
$
|
22,052
|
|
|
The accompanying notes are an
integral part of the consolidated financial statements.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common stock,
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Non-
|
|
|
other
|
|
|
Total
|
|
|
|
par value $1
|
|
|
Treasury
|
|
|
paid-in
|
|
|
Retained
|
|
|
controlling
|
|
|
comprehensive
|
|
|
shareholders
|
|
(in thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
earnings
|
|
|
interest
|
|
|
(loss)/income
|
|
|
investment
|
|
|
Balance, January 1, 2007
|
|
|
9,194
|
|
|
$
|
9,194
|
|
|
|
(496
|
)
|
|
$
|
(4,761
|
)
|
|
$
|
44,676
|
|
|
$
|
44,671
|
|
|
$
|
398
|
|
|
$
|
(159
|
)
|
|
$
|
94,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Michael Baker Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,340
|
|
|
|
|
|
|
|
|
|
|
|
19,340
|
|
Impact of adopting FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(951
|
)
|
|
|
|
|
|
|
|
|
|
|
(951
|
)
|
Stock options exercised
|
|
|
101
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
1,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,381
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184
|
|
Tax benefit of stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
975
|
|
Restricted stock issued
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252
|
|
Noncontrolling interest net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(309
|
)
|
|
|
|
|
|
|
(309
|
)
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
255
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
9,306
|
|
|
$
|
9,306
|
|
|
|
(496
|
)
|
|
$
|
(4,761
|
)
|
|
$
|
47,356
|
|
|
$
|
63,060
|
|
|
$
|
196
|
|
|
$
|
96
|
|
|
$
|
115,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Michael Baker Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,154
|
|
|
|
|
|
|
|
|
|
|
|
29,154
|
|
Stock options exercised
|
|
|
33
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
366
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
287
|
|
Tax benefit of stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
Restricted stock issued
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324
|
|
Noncontrolling interest net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
602
|
|
|
|
|
|
|
|
602
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(526
|
)
|
|
|
(2,661
|
)
|
|
|
(3,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
9,351
|
|
|
$
|
9,351
|
|
|
|
(496
|
)
|
|
$
|
(4,761
|
)
|
|
$
|
48,405
|
|
|
$
|
92,214
|
|
|
$
|
272
|
|
|
$
|
(2,565
|
)
|
|
$
|
142,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Michael
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baker Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,921
|
|
|
|
|
|
|
|
|
|
|
|
26,921
|
|
Stock options exercised
|
|
|
40
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
359
|
|
Tax benefit of stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232
|
|
Restricted stock issued
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
413
|
|
Noncontrolling interest net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
|
|
152
|
|
Divestiture of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
(176
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291
|
|
|
|
|
|
|
|
291
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for foreign currency translation
included in the current period loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(232
|
)
|
|
|
2,069
|
|
|
|
1,837
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
9,403
|
|
|
$
|
9,403
|
|
|
|
(496
|
)
|
|
$
|
(4,761
|
)
|
|
$
|
49,989
|
|
|
$
|
119,135
|
|
|
$
|
307
|
|
|
$
|
(333
|
)
|
|
$
|
173,740
|
|
|
The accompanying notes are an
integral part of the consolidated financial statements.
18
MICHAEL BAKER
CORPORATION
Michael Baker Corporation (the Company) was founded
in 1940 and organized as a Pennsylvania corporation in 1946.
Currently, through its operating subsidiaries, the Company
provides engineering expertise for public and private sector
clients worldwide. The Companys primary markets include
Aviation, Defense, Facilities, Homeland Security, Municipal and
Civil, Pipelines and Utilities, Rail and Transit, Transportation
and Water. Among the services the Company provides to clients in
these markets are program management, design-build (for which
the Company provides only the design portion of services),
construction management, consulting, planning, surveying,
mapping, geographic information systems, architectural and
interior design, construction inspection, constructability
reviews, site assessment and restoration, strategic regulatory
analysis and regulatory compliance.
Geographic and
market information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Revenues by geographic origin:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
401.0
|
|
|
$
|
417.2
|
|
|
$
|
383.2
|
|
Foreign(1)
|
|
|
44.2
|
|
|
|
38.7
|
|
|
|
18.3
|
|
|
|
Total
|
|
$
|
445.2
|
|
|
$
|
455.9
|
|
|
$
|
401.5
|
|
|
|
|
(1) |
|
The Company defines foreign
contract revenue as work performed outside the U.S. irrespective
of the clients U.S. or
non-U.S.
ownership.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by principal markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government
|
|
|
49
|
%
|
|
|
52
|
%
|
|
|
49
|
%
|
Various state governmental and quasi-government
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
|
41
|
%
|
|
|
38
|
%
|
|
|
40
|
%
|
Commercial, industrial and private clients
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
11
|
%
|
One of the Companys clients, the Federal Emergency
Management Agency (FEMA), accounted for
approximately 15%, 20% and 24% of the Companys revenues in
2009, 2008 and 2007, respectively.
On September 30, 2009, the Company divested substantially
all of its subsidiaries that pertained to its former Energy
segment (the Energy sale). Additionally, the Company
sold its interest in B.E.S. Energy Resources Company, Ltd.
(B.E.S.), an Energy company, on December 18,
2009 to J.S. Technical Services Co., LTD., which is owned by the
Companys former minority partner in B.E.S. As a result of
the dispositions, the results of the Companys former
Energy segment have been reclassified as discontinued operations
for all periods presented in the consolidated financial
statements. See further discussion in the Discontinued
Operations note.
The Consolidated Balance Sheet of the Company as of
December 31, 2009 and the Consolidated Statements of Income
and Consolidated Statements of Cash Flows for the years ended
December 31, 2009, 2008 and 2007 give effect to the
disposition of the stock owned by Michael Baker Corporation in
Baker/MO Services, Inc., Michael Baker Global, Inc., Baker
O&M International, Ltd., Baker Energy de Venezuela, C.A.,
Overseas Technical Services International, Ltd., Baker OTS
International, Inc., SD Forty Five, Ltd., OTS Finance and
Management, Ltd., and their respective subsidiaries (Baker
Energy) as well as B.E.S.
|
|
3.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
Principles of
Consolidation
The consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries, jointly-owned
subsidiaries over which it exercises control and entities for
which it has been determined to be the primary beneficiary.
Noncontrolling interest amounts relating to the Companys
less-than-wholly-owned
consolidated subsidiaries are included within the Net
(income)/loss attributable to noncontrolling interests
captions in its
19
Consolidated Statements of Income and within the
Noncontrolling interests caption in its Consolidated
Balance Sheets. Investments in non-consolidated affiliates,
including joint ventures, over which the Company exercises
significant influence, are accounted for under the equity
method. The Company may render services to certain of its joint
ventures. The Company records revenue in the period in which
such services are provided. Investments in non-consolidated
affiliates in which the Company owns less than 20% are accounted
for under the cost method. All intercompany balances and
transactions have been eliminated in consolidation.
Revenue
Recognition and Accounting for Contracts
The Company earns revenue by providing services, typically
through Cost-Plus, Fixed-Price, and
Time-and-Materials
contracts. In providing these services, the Company typically
incurs direct labor costs, subcontractor costs, and certain
other direct costs (ODCs) which include
out-of-pocket
expenses.
Revenue is recognized under the
percentage-of-completion
method of accounting. Revenues for the current period are
determined by multiplying the estimated margin at completion for
each contract by the projects percentage of completion to
date, adding labor costs, subcontractor costs and ODCs incurred
to date, and subtracting revenues recognized in prior periods.
In applying the
percentage-of-completion
method to these contracts, the Company measures the extent of
progress toward completion as the ratio of labor costs incurred
to date over total estimated labor costs at completion. As work
is performed under contracts, estimates of the costs to complete
are regularly reviewed and updated. As changes in estimates of
total costs at completion on projects are identified,
appropriate earnings adjustments are recorded using the
cumulative
catch-up
method. Provisions for estimated losses on uncompleted contracts
are recorded during the period in which such losses become
evident. Profit incentives
and/or award
fees are recorded as revenues when the amounts are both probable
and reasonably estimable.
Change orders are modifications of an original contract that
effectively change the provisions of the contract without adding
new provisions. Either the Company or its customer may initiate
change orders, which may include changes in specifications or
design, manner of performance, facilities, equipment, materials,
sites and the period of completion of the work.
In certain circumstances, the Company may agree to provide new
or additional services to a client without a fully executed
contract or change order. In these instances, although the costs
of providing these services are expensed as incurred, the
recognition of related contract revenues is delayed until the
contracts
and/or
change orders have been fully executed by the clients, other
suitable written project approvals are received from the
clients, or until management determines that revenue recognition
is appropriate based on the probability of client acceptance.
The probability of client acceptance is assessed based on such
factors as the Companys historical relationship with the
client, the nature and scope of the services to be provided, and
managements ability to accurately estimate the realizable
value of the services to be provided.
Claims are amounts in excess of agreed contract price that the
Company seeks to collect from its clients or others for
customer-caused delays, errors in specifications and designs,
contract terminations, change orders that are either in dispute
or are unapproved as to both scope and price, or other causes of
unanticipated additional contract costs. Revenues related to
claims, which arise from customer-caused delays or change orders
unapproved as to both scope and price, are recorded only when
the amounts have been agreed with the client.
The majority of the Companys contracts fall under the
following types:
|
|
|
Cost-Plus. Tasks under these contracts can
have various cost-plus features. Under cost-plus fixed fee
contracts, clients are billed for the Companys costs,
including both direct and indirect costs, plus a fixed
negotiated fee. Under cost-plus fixed rate contracts, clients
are billed for the Companys costs plus negotiated fees or
rates based on its indirect costs. Some cost-plus contracts
provide for award fees or penalties based on performance
criteria in lieu of a fixed fee or fixed rate. Contracts may
also include performance-based award fees or incentive fees.
|
|
|
Fixed-Price. Under fixed-price contracts, the
Companys clients are billed at defined milestones for an
agreed amount negotiated in advance for a specified scope of
work.
|
|
|
Time-and-Materials. Under
the Companys
time-and-materials
contracts, the Company negotiates hourly billing rates and
charges based on the actual time that it expended, in addition
to other direct costs incurred in connection with the contract.
Time-and-materials
contracts typically have a stated contract value.
|
20
Under certain cost-type contracts with governmental agencies,
the Company is not contractually permitted to earn a margin on
subcontractor costs and ODCs. The majority of all other
contracts are also structured such that margin is earned on
direct labor costs, and not on subcontractor costs and ODCs.
The Company assesses the terms of its contracts and determines
whether it will report its revenues and related costs on a gross
or net basis.
The Companys policy for the income statement presentation
of any tax assessed by a governmental authority that is directly
imposed on a revenue-producing transaction between the Company
and one of its customers is to present such taxes on a net basis
in its consolidated financial statements.
Unbilled Revenues
on Contracts in Progress and Billings in Excess of Revenues on
Contracts in Progress
Unbilled revenues on contracts in progress in the accompanying
Consolidated Balance Sheets represent unbilled amounts earned
and reimbursable under contracts in progress. These amounts
become billable according to the contract terms, which consider
the passage of time, achievement of certain milestones or
completion of the project. The majority of contracts contain
provisions that permit these unbilled amounts to be invoiced in
the month after the related costs are incurred. Generally,
unbilled amounts will be billed and collected within one year.
Billings in excess of revenues on contracts in progress in the
accompanying Consolidated Balance Sheets represent accumulated
billings to clients in excess of the related revenue recognized
to date. The Company anticipates that the majority of such
amounts will be earned as revenue within one year.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (U.S.) requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities as of the date of the consolidated financial
statements, and also affect the amounts of revenues and expenses
reported for each period. Actual results could differ from those
which result from using such estimates. The use of estimates is
an integral part of determining cost estimates to complete under
the
percentage-of-completion
method of accounting for contracts. Management also utilizes
various other estimates, including but not limited to recording
profit incentives
and/or award
fee revenues under its contracts, assessment of its exposure to
insurance claims that fall below policy deductibles,
determination of its liabilities for incurred-but-not-reported
insurance claims, incentive compensation and income tax expense,
and to assess its litigation, other legal claims and
contingencies. The results of any changes in accounting
estimates are reflected in the consolidated financial statements
of the period in which the changes become evident.
The Company self-insures certain risks, including certain
employee health benefits, professional liability and automobile
liability. The accrual for self-insured liabilities includes
estimates of the costs of reported and unreported claims and is
based on estimates of loss using assumptions made by management,
including the consideration of actuarial projections. These
estimates of loss are derived from computations which combine
loss history and actuarial methods in the determination of the
liability. Actual losses may vary from the amounts estimated via
actuarial or managements projections. Any increases or
decreases in loss amounts estimated are recognized in the period
in which the actual loss is determined.
Income
Taxes
The Company records its annual current tax provision based upon
its book income, plus or minus any permanent and temporary
differences, multiplied by the statutory rate in the majority of
the jurisdictions where it operates. In certain foreign
jurisdictions where it operated, income tax is based on a deemed
profit methodology. The calculation of the Companys annual
tax provision may require interpreting tax laws and regulations
and from time to time results in the use of judgments or
estimates which could cause its recorded tax liability to differ
from the actual amount due.
The Company recognizes current tax assets and liabilities for
estimated taxes refundable or payable on tax returns for the
current year. It also recognizes deferred tax assets or
liabilities for the estimated future tax effects attributable to
temporary differences, net operating losses, undistributed
foreign earnings, and various credits and carryforwards. The
Companys current and deferred tax assets and liabilities
are measured based on provisions in enacted tax laws in each
jurisdiction where it operates. The Company does not consider
the effects of future changes in tax laws or rates in the
current period. The Company analyzes its deferred tax assets and
places valuation allowances on those assets if it does not
expect the realization of these assets to be more likely than
not.
21
Penalties estimated for underpaid income taxes are included in
selling, general and administrative expenses in the
Companys Consolidated Statements of Income. Interest
associated with underpaid income taxes and related adjustments
are included in the Interest expense caption in the
Companys Consolidated Statements of Income.
Foreign Currency
Translation
With the sale of Baker Energy and B.E.S., substantially all of
the Companys foreign subsidiaries were divested by
December 31, 2009. Most of those foreign subsidiaries
utilized the local currencies as the functional currency.
Accordingly, assets and liabilities of these subsidiaries were
translated to U.S. Dollars at exchange rates in effect at
the balance sheet date, whereas income and expense accounts are
translated at average exchange rates during the year. The
resulting translation adjustments were recorded as a separate
component of shareholders investment. In addition to
certain Baker Energy foreign subsidiaries that were divested by
December 31, 2009, the Company also has an Engineering
foreign subsidiary for which the functional currency is the
U.S. Dollar. The resulting translation gains or losses for
this subsidiary is included in the Companys Consolidated
Statements of Income.
Other
Comprehensive Income/(Loss)
The only component of the Companys accumulated other
comprehensive income/(loss) balance related to foreign currency
translation adjustments for 2009, 2008 and 2007.
Fair Value of
Financial Instruments
The fair value of financial instruments classified as cash and
cash equivalents, short-term investments,
available-for-sale
securities, receivables, unbilled revenues, accounts payable,
capital lease obligations and other liabilities approximates
carrying value due to the short-term nature or the relative
liquidity of the instruments. The fair value of a financial
instrument is the amount that would be received to sell an asset
or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (the exit
price).
Cash and Cash
Equivalents
Cash and cash equivalents include cash on hand or deposit or
other similar highly liquid investments with remaining
maturities of less than 90 days at the time of purchase.
The majority of the Companys funds were held in money
market funds comprised of U.S. Government-backed
obligations as of December 31, 2009.
Short-term
Investments
Short-term investments are comprised of certificates of deposit
with remaining maturities of greater than 90 days but less
than one year at the time of purchase and are recorded at fair
value. Interest related to the certificates of deposit is
included in Interest income in the Companys
Consolidated Statements of Income.
Available-for-Sale
Securities
Available-for-sale
securities are comprised of highly rated municipal bonds and are
recorded at fair value. Interest related to the
available-for-sale
securities is included in Interest income in the
Companys Consolidated Statements of Income.
Concentrations of
Credit Risk and Allowance for Doubtful Accounts
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents, short-term investments,
available-for-sale
securities, trade receivables, and related unbilled revenues.
The Companys cash and cash equivalents are deposited in
various high-credit-quality financial institutions. The majority
of such deposits are not covered by or are in excess of the
Federal Deposit Insurance Corporation limits.
The Company reduces accounts receivable by estimating an
allowance for amounts that are expected to become uncollectible
in the future. Management determines the estimated allowance for
doubtful accounts based on its evaluation of collection efforts,
the financial condition of the Companys clients, which may
be dependent on the type of client and current economic
conditions to which the client may be subject, and other
considerations. Although the Company has a diversified client
base, a substantial portion of the Companys receivables
and net unbilled revenues on contracts in progress reflected in
its Consolidated Balance Sheets are due from U.S. federal
and state governments. Contracts and subcontracts with the
U.S. federal and state governments usually contain standard
provisions for permitting the government to modify, curtail or
terminate the contract for convenience of the government
22
if program requirements or budgetary constraints change. Upon
such a termination, the Company is generally entitled to recover
costs incurred, settlement expenses and profit on work completed
prior to termination, which significantly reduces the
Companys credit risk with these types of clients.
Goodwill and
Intangible Assets
The Company may record goodwill and other intangible assets in
connection with business combinations. Goodwill, which
represents the excess of acquisition cost over the fair value of
the net tangible and intangible assets of acquired companies, is
not amortized. The Companys goodwill balance is evaluated
for potential impairment during the second quarter of each year
and in certain other circumstances. The evaluation of impairment
involves comparing the current fair value of the business to the
recorded value, including goodwill. To determine the fair value
of the business, the Company utilizes both the Income
Approach, which is based on estimates of future net cash
flows and the Market Approach, which observes
transactional evidence involving similar businesses. Intangible
assets are stated at the fair value as of the date acquired in a
business combination. Amortization of finite-lived intangible
assets is provided on a straight-line basis over the estimated
useful lives of the assets.
Property, Plant
and Equipment
All additions, including improvements to existing facilities,
are recorded at cost. Maintenance and repairs are charged to
expense as incurred. Depreciation on property, plant and
equipment is principally recorded using the straight-line method
over the estimated useful lives of the assets. The estimated
useful lives typically are 40 years on buildings, 3 to
10 years on furniture, fixtures and office equipment,
3 years on field equipment and vehicles, and 3 to
7 years on computer hardware and software. Assets held
under capital leases and leasehold improvements are amortized on
a straight-line basis over the shorter of the lease term or the
estimated useful life of the asset. Upon the disposal of
property, the asset and related accumulated depreciation
accounts are relieved of the amounts recorded therein for such
items, and any resulting gain or loss is reflected in income in
the year of disposition.
The Company capitalizes certain costs incurred in connection
with developing or obtaining internal use software. During the
software application development stage, capitalized costs
include the cost of the software, external consulting costs and
internal payroll costs for employees who are directly associated
with a software project. Similar costs related to software
upgrades and enhancements are capitalized if they result in
added functionality which enables the software to perform tasks
it was previously incapable of performing. These capitalized
software costs are included in Property, Plant and
Equipment, net in the Companys Consolidated Balance
Sheets. Software maintenance, data conversion and training costs
are expensed in the period in which they are incurred.
Leases
The Company leases office space with lease terms ranging from 1
to 10 years. These lease agreements typically contain
tenant improvement allowances and rent holidays. In instances
where one or more of these items are included in a lease
agreement, the Company records allowances as a deferred rent
liability in its Consolidated Balance Sheets. These amounts are
amortized on a straight-line basis over the term of the lease as
a reduction to rent expense. Lease agreements sometimes contain
rent escalation clauses, which are recognized on a straight-line
basis over the life of the lease. For leases with renewal
options, the Company records rent expense and amortizes the
leasehold improvements on a straight-line basis over the shorter
of the useful life or original lease term, exclusive of the
renewal period. When a renewal occurs, the Company records rent
expense over the new term. The Company expenses any rent costs
incurred during the period of time it performs construction
activities on newly leased property.
The Company leases computer hardware and software, office
equipment and vehicles with lease terms ranging from 1 to
7 years. Before entering into a lease, an analysis is
performed to determine whether a lease should be classified as a
capital or an operating lease.
Impairment of
Long-lived Assets
The Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Assets which
are held and used in operations are considered impaired if the
carrying value of the asset exceeds the undiscounted future cash
flows from the asset. If impaired, an appropriate charge is
recorded to adjust the carrying value of the long-lived asset to
its estimated fair value. The Company generally measures fair
value by considering sale prices for similar assets or by
discounting estimated future cash flows from the asset using an
appropriate discount rate.
23
Accounting for
Stock-Based Compensation
Stock options and restricted stock are granted to non-employee
directors of the Company at the fair market value of the
Companys stock on the date of the grant. Proceeds from the
exercise of common stock options are credited to
shareholders investment at the date the options are
exercised.
All stock-based compensation is measured at the grant-date fair
value of the award and is recognized as an expense in the
Companys results of operations. These expenses are
recognized as a component of the Companys selling, general
and administrative costs, as these costs relate to stock-based
compensation issued to non-employee directors and the Chief
Executive Officer of the Company. The excess tax benefits
related to stock-based compensation is reflected as financing
cash inflows instead of operating cash inflows.
|
|
4.
|
RECENT ACCOUNTING
PRONOUNCEMENTS
|
In June 2009, the Financial Accounting Standards Board
(FASB) issued authoritative guidance codifying
Generally Accepted Accounting Principles in the United States
(GAAP). The Codification did not change GAAP but
reorganizes the literature. The Company adopted the new
Codification when referring to GAAP on September 30, 2009.
The adoption of this authoritative guidance did not have a
material impact on the Companys consolidated financial
statements.
In June 2009, the FASB issued authoritative guidance amending
the timing and considerations of analyses performed to determine
if the Companys variable interests give it a controlling
financial interest in a variable interest entity, as well as
requires additional disclosures. The Company adopted the
provisions of this guidance on January 1, 2010. The
adoption of this authoritative guidance did not have a material
impact on the consolidated financial statements.
In May 2009, the FASB issued authoritative guidance that
incorporates guidance into accounting literature that was
previously addressed only in auditing standards and is intended
to establish general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.
In February 2010, the FASB amended this guidance to remove the
requirement for Securities and Exchange Commission
(SEC) filers to disclose the date through which an
entity has evaluated subsequent events. The Company adopted this
authoritative guidance on June 30, 2009 and adopted the
revised provisions for its December 31, 2009 consolidated
financial statements. This guidance did not have a material
impact on the Companys consolidated financial statements.
In December 2007, the FASB issued authoritative guidance that
establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary (minority interest) is
an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements and
separately from the parent companys equity. Among other
requirements, this statement requires consolidated net income to
be reported at amounts that include the amounts attributable to
both the parent and the noncontrolling interest. It also
requires that both amounts are disclosed on the face of the
Consolidated Statement of Income. On January 1, 2009, the
Company applied the provisions of this guidance to its
accounting for noncontrolling interests and its financial
statement disclosures. The disclosure provisions of the standard
have been applied to all periods presented in the accompanying
consolidated financial statements.
|
|
5.
|
DISCONTINUED
OPERATIONS
|
On September 30, 2009, the Company entered into a
definitive agreement with Wood Group E.&P.F. Holdings,
Inc., Wood Group Holdings (International) Limited and Wood Group
Engineering and Operations Support Limited, subsidiaries of
international energy services company John Wood Group PLC (each
a Buyer and, collectively, the Buyers)
to sell Baker Energy. Baker Energy provided a full range of
services for operating third-party oil and gas production
facilities worldwide. Additionally, the Company sold its
interest in B.E.S. on December 18, 2009 to J.S. Technical
Services Co., LTD., which is owned by the Companys former
minority partner in B.E.S.
The results of operations of the Companys Energy business
have been classified as discontinued operations in the
accompanying consolidated financial statements for all periods
presented. The results of Baker Energy and B.E.S. are
representative of their results through their respective sale
dates. Corporate overhead costs were not allocated to the
24
Energy business for the discontinued operations presentation.
The operating results of the Energy business for the years ended
December 31, 2009, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
160,418
|
|
|
$
|
243,466
|
|
|
$
|
325,502
|
|
Cost of work performed
|
|
|
144,734
|
|
|
|
214,341
|
|
|
|
304,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
15,684
|
|
|
|
29,125
|
|
|
|
20,883
|
|
Selling, general and administrative expenses
|
|
|
13,204
|
|
|
|
18,984
|
|
|
|
15,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
2,480
|
|
|
|
10,141
|
|
|
|
4,884
|
|
Other (expense)/income
|
|
|
(185
|
)
|
|
|
3,356
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before income taxes and
loss on sale
|
|
|
2,295
|
|
|
|
13,497
|
|
|
|
5,283
|
|
(Benefit)/provision for income taxes
|
|
|
(4,913
|
)
|
|
|
6,825
|
|
|
|
3,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before loss on sale
|
|
|
7,208
|
|
|
|
6,672
|
|
|
|
1,977
|
|
Loss on sale of discontinued operations, net of tax
|
|
|
(4,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
2,484
|
|
|
|
6,672
|
|
|
|
1,977
|
|
Less: Net (income)/loss attributable to noncontrolling interests
|
|
|
(135
|
)
|
|
|
(76
|
)
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations attributable to
Michael Baker Corporation
|
|
$
|
2,349
|
|
|
$
|
6,596
|
|
|
$
|
2,010
|
|
|
On September 30, 2009, the stock of Baker Energy was sold
for gross proceeds of $47.9 million, consisting of
$37.9 million received at closing and $10.0 million
received in February 2010 under the net asset adjustment
provision of the stock purchase agreement. Included in the net
assets conveyed to the buyer was approximately $7.8 million
in cash utilized by Baker Energys international operations
for working capital needs. This cash was reimbursed to the
Company through the net asset adjustment. The net asset
adjustment is presented under the heading Proceeds
receivable Energy sale in the Companys
consolidated balance sheet as of December 31, 2009. Net
proceeds are based on the cash received at closing, the
receivable derived from the net asset adjustment, net of the
Companys costs associated with the transaction.
Transaction costs consist of investment banker fees related to
the marketing and sale of Baker Energy, legal fees and
management retention payments due to certain employees of Baker
Energy that were contingent upon the sale of Baker Energy.
On December 18, 2009, the stock of B.E.S. was sold for
gross proceeds of $1.1 million. Net proceeds are based on
the cash received at closing, net of the Companys costs
associated with the transaction. Transaction costs consist of
investment banker fees related to the marketing and sale of
B.E.S., legal fees and Thailand tax withholdings and fees.
The Company incurred a loss of $4.5 million on the Baker
Energy sale and $0.2 million on the B.E.S. sale, which is
presented as a loss on sale of discontinued operations in the
Companys consolidated statement of income. The Baker
Energy and B.E.S. sale net proceeds and the loss on sale were as
follows:
Baker Energy Sale
Proceeds
|
|
|
|
|
(in thousands)
|
|
|
|
|
Gross sale proceeds received at closing
|
|
$
|
37,944
|
|
Net asset adjustment receivable
|
|
|
9,965
|
|
|
|
|
|
|
Gross proceeds
|
|
|
47,909
|
|
Less:
|
|
|
|
|
Investment banker and legal fees
|
|
|
(907
|
)
|
Management retention payments
|
|
|
(1,304
|
)
|
|
|
|
|
|
Net proceeds from sale of Baker Energy
|
|
$
|
45,698
|
|
|
25
Baker Energy Loss
on Sale
|
|
|
|
|
(in thousands)
|
|
|
|
|
Net proceeds from sale
|
|
$
|
45,698
|
|
Net assets of Baker Energy as of September 30, 2009
|
|
|
(48,469
|
)
|
Realization of cumulative translation adjustments
|
|
|
(2,174
|
)
|
Non-controlling interest in Baker Energy
|
|
|
(127
|
)
|
Tax benefit related to transaction costs
|
|
|
563
|
|
|
|
|
|
|
Loss on sale of Baker Energy, net of tax benefit
|
|
$
|
(4,509
|
)
|
|
B.E.S. Sale
Proceeds
|
|
|
|
|
(in thousands)
|
|
|
|
|
Gross sale proceeds
|
|
$
|
1,056
|
|
Less:
|
|
|
|
|
Investment banker and legal fees
|
|
|
(16
|
)
|
Thailand withholdings and fees
|
|
|
(149
|
)
|
|
|
|
|
|
Net proceeds from sale of B.E.S.
|
|
$
|
891
|
|
|
B.E.S. Loss on
Sale
|
|
|
|
|
(in thousands)
|
|
|
|
|
Net proceeds from B.E.S. sale
|
|
$
|
891
|
|
Net assets of B.E.S. as of December 18, 2009
|
|
|
(1,514
|
)
|
Realization of cumulative translation adjustments
|
|
|
105
|
|
Non-controlling interest in B.E.S.
|
|
|
303
|
|
|
|
|
|
|
Loss on sale of B.E.S., net of tax
|
|
$
|
(215
|
)
|
|
Reflected in the December 31, 2009 consolidated balance
sheet are both liabilities and assets related to Baker
Energys workers compensation, automobile and health
insurances through September 30, 2009. As part of the sale
of Baker Energy, the buyer agreed to assume the liabilities
associated with those insurances, subject to certain
indemnifications, as of September 30, 2009. However,
corresponding liabilities representing the reserves associated
with these insurances, including reserves for incurred but not
reported (IBNR) claims, are included in the
Companys consolidated balance sheet as those insurances
are written to the Company, rather than to a Baker Energy
entity. As such, the Company is required to maintain its
reserves for these insurances in its consolidated balance sheet.
As the buyer assumed the liabilities associated with these
insurances, the Company has also recorded a corresponding
receivable from the buyer. As of December 31, 2009, there
were approximately $6.4 million of Baker Energy insurance
liabilities related to Baker Energys workers
compensation, automobile and health insurances recorded on the
Companys Consolidated Balance Sheet, with a corresponding
receivable of approximately $6.4 million also recorded.
|
|
6.
|
EQUITY INCOME
FROM UNCONSOLIDATED SUBSIDIARY
|
The Companys unconsolidated joint ventures provide
engineering, program management, and construction management
services. Joint ventures, the combination of two or more
partners, are generally formed for a specific project.
Management of the joint venture is typically controlled by a
joint venture executive committee, typically comprising a
representative from each joint venture partner with equal voting
rights. The executive committee provides management oversight
and assigns work efforts to the joint venture partners.
The majority of the Companys unconsolidated joint ventures
have no employees and minimal operating expenses. For these
joint ventures, the Companys own employees render services
that are billed to the joint venture, which are then billed to a
third-party customer by the joint venture. These joint ventures
function as pass-through entities to bill the third-party
customer. The Company includes revenues related to the services
performed for these joint ventures and the costs associated with
these services in its results of operations. The Company also
has unconsolidated joint ventures that have their own employees
and operating expenses and to which the Company generally makes
a capital
26
contribution. The Company accounts for its investments in
unconsolidated joint ventures using the equity method. The
Company includes equity income from unconsolidated joint
ventures as a component of non-operating income in its
Consolidated Statements of Income as this equity income is
derived from entities taxed as partnerships.
Equity income from unconsolidated subsidiary reflects the
Companys ownership of 33.33% of the members equity
of Stanley Baker Hill, LLC (SBH). SBH is a joint
venture formed in February 2004 between Stanley Consultants,
Inc., Hill International, Inc., and Michael Baker, Jr.
Inc., a subsidiary of the Company. Equity income from SBH for
the years ended December 31, 2009, 2008 and 2007 was
$7.1 million, $3.1 million and $2.2 million,
respectively. SBH has a contract for an Indefinite Delivery and
Indefinite Quantity (IDIQ) for construction
management and general architect-engineer services for
facilities in Iraq with the U.S. Army Corps of Engineers.
The Companys unconsolidated joint ventures current
Iraq IDIQ contract ended in September 2009, and it is not
anticipated that further contract funding will be added to this
contract vehicle. Current funded task order work may be extended
but the Company anticipates that it will be materially completed
by September 2010.
The following table presents summarized financial information
for the Companys unconsolidated subsidiary, SBH:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
(in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Contract revenue earned
|
|
$
|
154,140
|
|
|
$
|
130,408
|
|
|
$
|
77,226
|
|
Gross profit
|
|
|
21,763
|
|
|
|
9,693
|
|
|
|
6,993
|
|
Net Income
|
|
$
|
21,161
|
|
|
$
|
9,195
|
|
|
$
|
6,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
December 31,
|
|
December 31,
|
(in thousands)
|
|
2009
|
|
2008
|
|
Current assets
|
|
$
|
17,377
|
|
|
$
|
27,970
|
|
Noncurrent assets
|
|
|
20
|
|
|
|
7
|
|
Current liabilities
|
|
$
|
12,594
|
|
|
$
|
22,436
|
|
|
As of December 31, 2009 and 2008, the Company reported
receivables and unbilled revenues on contracts in progress
totaling $3.8 million and $6.9 million, respectively,
from SBH for work performed by the Company as a subcontractor to
SBH. Such amounts were payable in accordance with the
subcontract agreement between the Company and SBH. Revenue from
SBH pursuant to such subcontract agreement for the years ended
December 31, 2009, 2008 and 2007 was $34.5 million,
$32.1 million and $15.1 million, respectively.
Revenues and billings to date on contracts in progress were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
Revenues
|
|
$
|
1,702
|
|
|
$
|
2,915
|
|
Billings
|
|
|
(1,671
|
)
|
|
|
(2,862
|
)
|
|
|
|
|
|
|
|
|
|
Net unbilled revenue
|
|
$
|
31
|
|
|
$
|
53
|
|
|
A portion of the trade receivable balances totaling $5,890,000
and $5,712,000 as of December 31, 2009 and 2008,
respectively, relates to retainage provisions under long-term
contracts which will be due upon completion of the contracts.
Based on managements estimates, $4,634,000 and $4,715,000
of these retention balances as of December 31, 2009 and
2008, respectively, were expected to be collected within one
year of the balance sheet dates, and were therefore included in
the Receivables, net balances. The remaining
retention balances are reflected as Other long-term
assets in the Companys Consolidated Balance Sheets.
Under certain circumstances, the Company may agree to provide
new or additional services to a client without a fully executed
contract or change order. In these instances, although the costs
of providing these services are expensed as incurred, the
recognition of related contract revenues are delayed until the
contracts
and/or
change orders have been fully executed by the clients, other
suitable written project approvals are received from the
clients, or until management determines that revenue recognition
is appropriate based on the probability of client acceptance.
Under this policy, the
27
Company had not recognized potential future revenues estimated
at $3.5 million and $2.5 million as of
December 31, 2009 and 2008, respectively, for which the
related costs had already been expensed as of these dates.
Federal government contracts are subject to the
U.S. Federal Acquisition Regulations (FAR).
These contracts and certain contracts with state and local
agencies are subject to periodic routine audits, which generally
are performed by the Defense Contract Audit Agency
(DCAA) or applicable state agencies. These
agencies audits typically apply to the Companys
overhead rates, cost proposals, incurred government contract
costs and internal control systems. During the course of its
audits, the auditors may question incurred costs if it believes
the Company has accounted for such costs in a manner
inconsistent with the requirements of the FAR or the
U.S. Cost Accounting Standards, and may recommend that
certain costs be disallowed. Historically, the Company has not
experienced significant disallowed costs as a result of these
audits; however, management cannot provide assurance that future
audits will not result in material disallowances of incurred
costs.
The following table presents the components of the
Companys provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision/(benefit) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
13,234
|
|
|
$
|
14,422
|
|
|
$
|
11,079
|
|
Discontinued operations
|
|
|
(4,913
|
)
|
|
|
6,825
|
|
|
|
3,306
|
|
Loss on sale of discontinued operations
|
|
|
(563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
7,758
|
|
|
$
|
21,247
|
|
|
$
|
14,385
|
|
|
Continuing
Operations
The components of income before income taxes for continuing
operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Domestic
|
|
$
|
37,559
|
|
|
$
|
37,337
|
|
|
$
|
28,033
|
|
Foreign
|
|
|
247
|
|
|
|
(357
|
)
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,806
|
|
|
$
|
36,980
|
|
|
$
|
28,409
|
|
|
The income tax provision for continuing operations consists of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current income tax provision/(benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal*
|
|
$
|
15,807
|
|
|
$
|
14,404
|
|
|
$
|
8,533
|
|
Foreign
|
|
|
164
|
|
|
|
305
|
|
|
|
126
|
|
State
|
|
|
2,415
|
|
|
|
2,507
|
|
|
|
669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
18,386
|
|
|
|
17,216
|
|
|
|
9,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Deferred income tax (benefit)/provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal*
|
|
|
(4,473
|
)
|
|
|
(2,044
|
)
|
|
|
1,259
|
|
Foreign
|
|
|
|
|
|
|
90
|
|
|
|
(134
|
)
|
State
|
|
|
(679
|
)
|
|
|
(840
|
)
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax (benefit)/provision
|
|
|
(5,152
|
)
|
|
|
(2,794
|
)
|
|
|
1,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
13,234
|
|
|
$
|
14,422
|
|
|
$
|
11,079
|
|
|
|
|
|
*
|
|
Includes U.S. taxes related to
foreign income.
|
28
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the year
|
|
$
|
1,873
|
|
|
$
|
1,909
|
|
|
$
|
1,656
|
|
Additions based on tax positions related to the current year
|
|
|
1,230
|
|
|
|
224
|
|
|
|
197
|
|
Additions for tax positions of prior years
|
|
|
|
|
|
|
352
|
|
|
|
511
|
|
Reductions for tax positions of prior years
|
|
|
|
|
|
|
(6
|
)
|
|
|
(455
|
)
|
Settlements with taxing authorities
|
|
|
|
|
|
|
(333
|
)
|
|
|
|
|
Lapses of statutes of limitations
|
|
|
(69
|
)
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the year
|
|
$
|
3,034
|
|
|
$
|
1,873
|
|
|
$
|
1,909
|
|
|
As of December 31, 2009, the Companys reserve for
uncertain tax positions totaled approximately $3.0 million,
of which the amount of unrecognized tax benefits that, if
recognized, would affect the effective income tax rate totaled
$2.5 million. The Company recognizes interest and penalties
related to uncertain income tax positions in interest expense
and selling, general, and administrative expenses, respectively,
in its consolidated statements of income. During 2009 and 2008,
the Company recognized immaterial amounts of interest and
penalty adjustments relating to uncertain tax positions. As a
comparison, during 2007, the Company recognized interest and
penalty expense totaling $0.8 million. The Company also had
approximately $1.3 million accrued for potential payment of
interest and penalties as of December 31, 2009, 2008 and
2007. The Company expects the reserve for unrecognized tax
benefits to decrease by approximately $0.5 million to
$1.0 million within the next twelve months as a result of
statute expirations. The Company recorded a reserve for
uncertain tax positions totaling approximately $1.7 million
and reduced its opening retained earnings balance by
$1.0 million as of January 1, 2007.
As a result of additional tax deductions related to vested
restricted stock awards and stock option exercises, tax benefits
have been recognized as contributed capital for the years ended
December 31, 2009, 2008 and 2007 in the amounts of
$0.2 million, $0.1 million and $1.0 million,
respectively.
The following is a reconciliation of income taxes computed at
the federal statutory rate to income tax expense recorded for
continuing operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Computed income taxes at U.S. federal statutory rate
|
|
$
|
13,234
|
|
|
$
|
12,943
|
|
|
$
|
9,943
|
|
Foreign tax credits
|
|
|
(1,421
|
)
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax benefit
|
|
|
856
|
|
|
|
958
|
|
|
|
767
|
|
Tax expense/(benefit) on foreign income and losses
|
|
|
78
|
|
|
|
520
|
|
|
|
(140
|
)
|
Permanent differences
|
|
|
704
|
|
|
|
78
|
|
|
|
116
|
|
Change in reserves
|
|
|
143
|
|
|
|
(55
|
)
|
|
|
228
|
|
Deferred tax on foreign earnings not indefinitely reinvested
|
|
|
(253
|
)
|
|
|
163
|
|
|
|
|
|
Other
|
|
|
(107
|
)
|
|
|
(185
|
)
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
13,234
|
|
|
$
|
14,422
|
|
|
$
|
11,079
|
|
|
29
The components of the Companys deferred income tax assets
and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Accruals not currently deductible for tax purposes
|
|
$
|
8,221
|
|
|
$
|
8,578
|
|
Billings in excess of revenues
|
|
|
7,325
|
|
|
|
6,624
|
|
Tax loss carryforwards
|
|
|
11,048
|
|
|
|
6,495
|
|
Foreign tax credits
|
|
|
1,961
|
|
|
|
|
|
Fixed and intangible assets
|
|
|
62
|
|
|
|
91
|
|
All other items
|
|
|
605
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
29,222
|
|
|
|
22,245
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
|
(11,458
|
)
|
|
|
(5,085
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
17,764
|
|
|
|
17,160
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Unbilled revenues
|
|
|
(18,366
|
)
|
|
|
(23,877
|
)
|
Undistributed foreign earnings
|
|
|
|
|
|
|
(6,163
|
)
|
Fixed and intangible assets
|
|
|
(2,841
|
)
|
|
|
(2,766
|
)
|
All other items
|
|
|
(861
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(22,068
|
)
|
|
|
(32,820
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(4,304
|
)
|
|
$
|
(15,660
|
)
|
|
In assessing the realizability of deferred tax assets, the
Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible. The
Company considers the scheduled reversal of deferred tax
liabilities and projected future taxable income in making this
assessment. Based upon the level of historical taxable income
and projections for future taxable income over the periods in
which the deferred tax assets are deductible, the Company
believes it is more likely than not that the Company will
realize the benefits of these deductible differences as of
December 31, 2009. The Company has provided valuation
allowances against gross deferred tax assets related primarily
to capital loss carryforwards, and foreign tax credits related
to the sale of its energy business , as discussed within the
following caption Discontinued Operations, and state
net operating losses as it has concluded that it is not more
likely than not that this benefit will be realized. The amount
of the deferred tax asset considered realizable could be reduced
in the future if estimates of future taxable income during the
carryforward period are reduced. Net deferred tax assets
totaling $1.4 million are included within the
Companys Consolidated Balance Sheet as of
December 31, 2008. Of these net deferred tax assets,
included within the caption Prepaid expenses and
other within the Companys Consolidated Balance Sheet
are $0.2 million of net current deferred tax assets as of
December 31, 2008. There were no net current or net
long-term deferred tax assets as of December 31, 2009.
The Company has gross state net operating loss (NOL)
carryforwards totaling $37.3 million resulting in net state
tax effected NOLs of $3.1 million, which expire from
2010 to 2028. A net state valuation allowance of
$1.4 million has been established for these deferred tax
assets.
The IRS completed its examinations of the Companys 2004
and 2005 U.S. income tax returns in 2007, which resulted in
a reduction to the Companys net operating loss
carry-forward of $0.5 million. The Company is subject to
audit for the 2006, 2007, 2008 and 2009 tax years in the
majority of the states in which the Company operates. The
Company is also subject to audits in various foreign
jurisdictions for tax years ranging from 1997 to the present.
Management believes that adequate provisions have been made for
income taxes as of December 31, 2009.
Discontinued
Operations
In certain foreign jurisdictions, the Companys
subsidiaries were subject to a deemed profits tax that was
assessed based on revenue. In other foreign jurisdictions or
situations, the Companys subsidiaries were subject to
income taxes based on taxable income. In certain of these
situations, the Companys estimated income tax payments
during the year (which are withheld from client invoices at
statutory rates) exceeded the tax due per the income tax returns
when filed; however, no practical method of refund could be
affected. As a result, related income tax assets were routinely
assessed for realizability, and valuation allowances against
these tax assets were recorded when it was more likely than not
that such tax assets would not be realized.
30
Prior to this year, the Company was in an overall foreign loss
position for U.S. Federal income tax purposes, which
precluded the Company from utilizing credits for taxes paid in
foreign jurisdictions. However, as a result of generating
sufficient foreign source income to offset the Companys
overall foreign loss, the Company has now concluded that it can
utilize those tax credits, resulting in the reversal of deferred
tax liabilities for a net impact of $5.9 million, related
to unremitted foreign source earnings which are taxable for
U.S. federal tax purposes, but can be offset if there are
sufficient foreign tax credits that can be utilized.
As a result of the sale of Energy, the company realized certain
tax gains and losses. The sale of certain US and foreign
subsidiaries resulted in approximately $26.1 million of
capital losses for which a deferred tax asset and related
valuation allowance totaling $9.0 million is recorded as it is
not more likely than not that such capital losses can be
utilized within the five-year carryforward period. The sale of
certain foreign entities resulted in U.S. taxable gains for
which foreign tax credits became available. The Company recorded
a deferred tax asset of $2.0 million related to these
credits along with a $1.5 million valuation allowance. Also
included in discontinued operations is foreign tax expense of
approximately $2.0 million related to operations of Energy
business through December 31, 2009.
|
|
9.
|
SHORT-TERM
INVESTMENTS
|
The Companys short-term investments are comprised of
certificates of deposit with remaining maturities of greater
than 90 days but less than one year at the time of purchase
and are recorded at fair value. As of December 31, 2009 the
Company held short-term investments of $2,500,000 and there were
no holdings as of December 31, 2008. Interest income from
the short-term investments was nominal for 2009.
|
|
10.
|
AVAILABLE-FOR-SALE
SECURITIES
|
The Companys
available-for-sale
securities are comprised of highly rated municipal bonds and are
recorded at fair value. As of December 31, 2009 the Company
held
available-for-sale
securities of $2,155,000 and there were no holdings as of
December 31, 2008. Interest income from the
available-for-sale
securities was nominal for 2009 since the Company purchased
these securities late in December 2009.
|
|
11.
|
FAIR VALUE
MEASUREMENTS
|
The FASBs guidance defines fair value as the exit price
associated with the sale of an asset or transfer of a liability
in an orderly transaction between market participants at the
measurement date. Under this guidance, valuation techniques used
to measure fair value must maximize the use of observable inputs
and minimize the use of unobservable inputs. In addition, this
guidance establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers
include:
|
|
|
Level 1 Quoted prices in active markets for
identical assets or liabilities.
|
|
|
Level 2 Inputs other than Level 1 that are
observable, either directly or indirectly, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the
full term of the assets or liabilities.
|
|
|
Level 3 Unobservable inputs (i.e. projections,
estimates, interpretations, etc.) that are supported by little
or no market activity and that are significant to the fair value
of the assets or liabilities.
|
The following table represents the Companys fair value
hierarchy for its financial assets measured at fair value on a
recurring basis as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at December 31, 2009
|
|
|
|
|
|
|
Quoted market
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
prices in active
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
markets for
|
|
|
observable
|
|
|
unobservabe
|
|
|
|
|
|
|
identical assets
|
|
|
inputs
|
|
|
inputs
|
|
(in thousands)
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Short-term investments
|
|
$
|
2,500
|
|
|
$
|
2,500
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale
securities
|
|
|
2,155
|
|
|
|
|
|
|
|
2,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
4,655
|
|
|
$
|
2,500
|
|
|
$
|
2,155
|
|
|
$
|
|
|
Percent to total
|
|
|
100
|
%
|
|
|
54
|
%
|
|
|
46
|
%
|
|
|
|
|
|
31
|
|
12.
|
GOODWILL AND
OTHER INTANGIBLE ASSETS
|
Goodwill and other intangible assets consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
intangible
|
|
|
|
Goodwill
|
|
|
assets, net
|
|
|
Balance, January 1, 2008
|
|
$
|
17,092
|
|
|
$
|
275
|
|
Less:
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
17,092
|
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
(86
|
)
|
Sale of Baker Energy
|
|
|
(7,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
9,626
|
|
|
$
|
76
|
|
|
The reduction in goodwill related to the sale of our Energy
business represents the carrying value of the legacy goodwill
amounts attributable to Baker Energy. The Companys
goodwill balance is not being amortized and goodwill impairment
tests are being performed at least annually. Annually, the
Company evaluates the carrying value of its goodwill during the
second quarter. No goodwill impairment charges were required in
connection with these evaluations for 2009, 2008 and 2007.
As of December 31, 2009, the Companys other
intangible assets balance represented the value of the contract
backlog at the time of the Companys 2006 acquisition of
Buck Engineering, P.C. (Buck) (totaling
$849,000 with accumulated amortization of $773,000 as of
December 31, 2009). These identifiable intangible assets
with finite lives are being amortized over their estimated
useful lives. Substantially all of these intangible assets will
be fully amortized over the next three years. Amortization
expense recorded on the other intangible assets balance was
$86,000, $113,000 and $208,000 for 2009, 2008 and 2007,
respectively. The non-compete agreement (totaling
$2.0 million, which was fully amortized as of the sale
date) from the Companys 1998 purchase of Steen Production
Services, Inc., was written off as part of the sale of Baker
Energy.
Estimated future amortization expense for other intangible
assets as of December 31, 2009 is as follows (in thousands):
|
|
|
|
|
For the year ending December 31,
|
|
|
|
|
2010
|
|
$
|
40
|
|
2011
|
|
|
34
|
|
2012
|
|
|
2
|
|
|
|
|
|
|
Total
|
|
$
|
76
|
|
|
32
|
|
13.
|
PROPERTY, PLANT
AND EQUIPMENT
|
Property, plant and equipment consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
486
|
|
|
$
|
486
|
|
Buildings and improvements
|
|
|
4,992
|
|
|
|
5,892
|
|
Furniture, fixtures, and office equipment
|
|
|
12,738
|
|
|
|
12,146
|
|
Equipment and vehicles
|
|
|
221
|
|
|
|
2,818
|
|
Computer hardware
|
|
|
1,271
|
|
|
|
3,754
|
|
Computer software
|
|
|
19,015
|
|
|
|
19,265
|
|
Leasehold improvements
|
|
|
4,923
|
|
|
|
5,766
|
|
Equipment and vehicles under capital lease
|
|
|
1,283
|
|
|
|
1,460
|
|
|
|
|
|
|
|
|
|
|
Total, at cost
|
|
|
44,929
|
|
|
|
51,587
|
|
Less Accumulated depreciation and amortization
|
|
|
(32,351
|
)
|
|
|
(34,916
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
12,578
|
|
|
$
|
16,671
|
|
|
Depreciation expense for continuing operations was $5,179,000,
$4,609,000 and $4,501,000 for the years ended December 31,
2009, 2008 and 2007, respectively. Depreciation expense for
discontinued operations was $660,000, $656,000 and $503,000 for
the years ended December 31, 2009, 2008 and 2007,
respectively. The majority of the Companys vehicles are
leased and are accounted for as operating leases; however,
certain of these vehicle leases are accounted for as capital
leases. Assets under capital lease in the above table primarily
represent vehicles and computer equipment leased by the Company.
These assets are being amortized over the shorter of the lease
term or the estimated useful life of the assets. Amortization
expense for continuing operations related to capital leases was
$327,000, $230,000 and $330,000 for the years 2009, 2008 and
2007, respectively. Amortization expense for discontinued
operations related to capital leases was $10,000, $42,000 and
$197,000 for the years 2009, 2008 and 2007, respectively. As of
December 31, 2009 and 2008, the Company had recorded
$933,000 and $739,000, respectively, in accumulated amortization
for assets under capital lease.
|
|
14.
|
COMMITMENTS &
CONTINGENCIES
|
Commitments
The Company had certain guarantees and indemnifications
outstanding which could result in future payments to third
parties. These guarantees generally result from the conduct of
the Companys business in the normal course. The
Companys outstanding guarantees as of December 31,
2009 were as follows:
|
|
|
|
|
|
|
Maximum undiscounted
|
|
|
future payments
|
|
Standby letters of credit*:
|
|
|
|
|
Insurance related
|
|
$
|
8.9
|
|
Other
|
|
|
0.5
|
|
Performance and payment bonds*
|
|
$
|
14.3
|
|
|
|
|
|
* |
|
These instruments require no
associated liability on the Companys Consolidated Balance
Sheet. |
The Companys banks issue standby letters of credit
(LOCs) on the Companys behalf under the
Unsecured Credit Agreement (the Credit Agreement) as
discussed more fully in the Long-term Debt and Borrowing
Agreements note. As of December 31, 2009, the
majority of the balance of the Companys outstanding LOCs
was issued to insurance companies to serve as collateral for
payments the insurers are required to make under certain of the
Companys self-insurance programs. These LOCs may be drawn
upon in the event that the Company does not reimburse the
insurance companies for claims payments made on its behalf.
These LOCs renew automatically on an annual basis unless either
the LOCs are returned to the bank by the beneficiaries or the
banks elect not to renew them.
Bonds are provided on the Companys behalf by certain
insurance carriers. The beneficiaries under these performance
and payment bonds may request payment from the Companys
insurance carriers in the event that
33
the Company does not perform under the project or if
subcontractors are not paid. The Company does not expect any
amounts to be paid under its outstanding bonds as of
December 31, 2009. In addition, the Company believes that
its bonding lines will be sufficient to meet its bid and
performance bonding needs for at least the next year.
Contingencies
Camp Bonneville Project. In 2006, Michael
Baker Jr., Inc. (MB Jr.), a subsidiary of the
Company, entered into a contract whereby it agreed to perform
certain services (the Services) in connection with a
military base realignment and closure (BRAC)
conservation conveyance of the Camp Bonneville property (the
Property) located in Clark County, Washington. The
Property was formerly owned by the United States Army (the
Army). MB Jrs. contract for the performance of
the Services is with the Bonneville Conservation Restoration and
Renewal Team (BCRRT), a
not-for-profit
corporation which holds title to the Property. BCRRT, in turn,
has a contract with Clark County, Washington (the
County) to perform services in connection with the
Property and is signatory to a prospective purchaser consent
decree (PPCD) with the Washington Department of
Ecology (WDOE) regarding cleanup on the Property.
The County is funding the services via an Environmental
Cooperative Services Agreement (ESCA) grant from the
Army and ultimately intends to use the Property as a park when
cleanup is complete. As part of the Services, MB Jr., through a
subcontractor, MKM Engineers (MKM), is performing
remediation of hazardous waste and military munitions including
Munitions and Explosives of Concern (MEC) on the
Property.
Based upon the discovery of additional MEC to be remediated at
the site, the WDOE has significantly increased the cleanup
required to achieve site closure. WDOE put a Cleanup Action Plan
(CAP) containing these increased requirements out
for public comment on June 8, 2009 at which point BCRRT,
with the assistance of MB Jr. and MKM, entered into dispute
resolution with WDOE regarding the CAP. Dispute resolution
continues, with one significant area of disagreement remaining.
That area involves the cleanup requirements in the western
slopes of the Property.
MB Jrs. contract with BCRRT is fixed price, as is MB
Jrs. contract with MKM. These contracts provide for two
avenues of financial relief from the fixed price. First, the
Army has agreed to provide Army Contingent Funding
(ACF) to cover cost overruns associated with
military munitions remediation. ACF is available once the County
and its contractors have expended 120% of the $10.7 million
originally estimated for military munitions remediation costs.
Once this threshold has been reached, the ACF would cover ninety
percent (90%) of actual costs up to a total of $7.7 million.
On June 1, 2009, at the urging of BCRRT, MB Jr. and MKM
(hereinafter the BCRRT Team), the County sent a
letter to the Army requesting that it begin the process of
releasing ACF to cover additional costs of munitions response,
and on June 26, 2009 the Army responded by requesting
documentation of the costs incurred to date. On
September 1, 2009, the BCRRT Team submitted this additional
documentation to the County, and the County promptly sent this
information to the Army. On October 20, 2009 the Army
responded to the Countys request for ACF denying payment.
The BCRRT Team strenuously disagrees with the Armys
reasons for doing so. In December of 2009, the BCRRT Team met
with the Army and the Army requested that the BCRRT Team provide
more information regarding cost documentation already submitted
and additional cost documentation in order to update the ACF
claim through December of 2009. This information and cost
documentation was provided in January of 2010.
On September 4, 2009, MKM suspended munitions response work
on the site due to lack of funding. MB Jr. has been in
discussions with MKM since the suspension but has not been
successful in reaching an agreement with MKM regarding its
resumption of work. On September 11, 2009 the County
notified BCRRT, MB Jr. and MKM that the County believed BCRRT,
MB Jr. and MKM were in breach of their obligations under their
agreements, based on MKMs anticipated failure to complete
work in the central impact target area (CITA)
portion of the Property by October 1, 2009 in accordance
with an interim schedule set by WDOE. BCRRT requested and
received an extension of the completion date for the CITA work
to November 4, 2009, but the CITA work was not completed by
that date. MB Jrs. current position is that the CITA work
completion date set by WDOE is not required by its contract. In
late November of 2009, the BCRRT Team suspended work on the
Bonneville site due to onset of winter weather. The work remains
suspended. The BCRRT Team is in talks with the County and WDOE
regarding the resumption of work.
In addition to the availability of ACF as a possible avenue of
financial relief, the Army has retained responsibility for
certain conditions (hereinafter Army Retained
Conditions or ARC) which are unknown and not
reasonably expected based on the information the Army provided
to the County and its contractors during the negotiation of the
ESCA. The BCRRT Team has finalized and submitted a claim to the
Army based upon ARCs in January of 2010.
MB Jr. has engaged outside counsel to assist in this matter. At
this time, it is too early to determine the matters
outcome, although to date all parties appear focused on
resolving the aforementioned issues.
34
Legal Proceedings. The Company has been named
as a defendant or co-defendant in certain other legal
proceedings wherein damages are claimed. Such proceedings are
not uncommon to the Companys business. After consultations
with counsel, management believes that it has 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 its
consolidated financial statements.
Credit Risk. On November 10, 2008, Storm
Cat Energy (Storm Cat), a client of Baker Energy,
filed for Chapter 11 bankruptcy protection. Shortly before
the bankruptcy filing, on October 29, 2008, in an effort to
protect the Companys interests, the Company amended its
ongoing contract with Storm Cat to provide for (i) the
payment to the Company of $1.3 million of outstanding Storm
Cat receivables and prepayment for future services under the
contract, (ii) the conversion of remaining receivables
(plus additional charges that may accrue) equal to
$7.6 million as of November 10, 2008 into an unsecured
promissory note at 6% interest to mature on April 30, 2009,
and (iii) the subordination of the Companys liens to
those of the principal lenders provided that the monthly
payments under the contract remain current. As a result of the
bankruptcy, the promissory note was never executed, although the
Company received the $1.3 million payment and received
prepayments for the work it performed through September 30,
2009.
At the time of the bankruptcy, Storm Cat had $65 million in
prepetition secured bank debt outstanding. Following the
bankruptcy, approximately $14 million in debtor in
possession (DIP) financing was established to
continue Storm Cat operations and pursue a liquidity event,
including the potential sale of Storm Cat properties. The terms
of the DIP financing provide that it shall have priority over
the prepetition debt and share pro-rata with valid
mechanics lien holders. The Company has perfected its
valid mechanics liens totaling approximately
$7.3 million, while the remaining $0.3 million of its
outstanding receivables do not qualify for liens. Under
applicable law and absent any subordination, valid
mechanics liens may have priority over prepetition debt.
Storm Cat marketed their properties and bids were received in
February 2009. Although different bids were received for
different properties or groups of properties, none of the bids
received were deemed acceptable by the prepetition lenders, and
all the bids were rejected. Alternatives were considered, and in
August 2009 a term sheet for the reorganization of Stormcat was
circulated and was being considered by the parties.
Under this proposal, Baker Energy would receive Series C
Preferred Units in the reorganized Storm Cat. The units would be
junior in liquidation to Series A and Series B
Preferred Units. In addition, the proposal requires that various
non-Baker Energy claims must be repaid in full prior to any
payment with regard to any of the Preferred Units. Assuming
those payments are made, the payments must be made with respect
to the Series A and Series B Units and to an employee
profit sharing pool before Baker Energy could realize any
proceeds. In total, there are about $75 million of
distributions to be made before any payments would be made to
Baker Energy. Distributions would have to exceed
$135 million before Baker Energys claim would be paid
in full. The Company had advised Storm Cat that it would not
object to this proposed plan, provided that the Storm Cat
bankruptcy estate would not seek to recover approximately
$1.3 million in potential preference claims from Baker
Energy.
The reorganization scenario appeared to be the most likely
outcome for Storm Cat. Attempts to sell the company or liquidate
its assets did not yield bids that were high enough to be
acceptable to creditors. Market prices for natural gas had not
recovered to a level that would lead to higher asset values,
thereby also reducing the value of Baker Energys lien
position. As a result, during the quarter ended
September 30, 2009, the Company had determined that
recovery of its remaining unreserved receivable of
$6.0 million was no longer probable. As such, the Company
wrote off an additional $6.0 million in the third quarter
of 2009 in recognition that due to changed circumstances, the
collection of its $7.6 million receivable was unlikely.
($1.6 million was previously reserved in the fourth quarter
of 2008.) The additional write down of $6.0 million is
reflected in the Companys Income from discontinued
operations, net of tax, for 2009. Since under the
reorganization proposal the Company required that the Storm Cat
bankruptcy estate would not seek to recover the potential
preference payment, the Company did not established a reserve
for that amount.
Effective September 30, 2009, the Company sold the stock of
various companies comprising its Energy business. As part of the
stock sale, the Storm Cat contract and rights to collect the
Storm Cat receivable were transferred to the buyers. No value
was assigned to the receivable. However, the buyers have agreed
that in the event that they recover any value for the
receivable, 50 percent of that value will be transferred to
the Company.
Services Agreement. Effective
September 30, 2009, as part of the sale to the buyers of
Baker Energy, the Company sold the stock of Baker/MO Services,
Inc. (Baker/MO) which was party to a Restated and
Amended Operations, Maintenance and Services Agreement dated
effective January 1, 2005 (the Services
Agreement). Baker/MO was party to the Services Agreement
with J.M. Huber Corporation (Huber) pursuant to
which Baker/MO agreed to provide
35
certain operation, maintenance, exploration, development,
production and administrative services with respect to certain
oil and gas properties owned by Huber in the State of Wyoming.
In October 2006, the Wyoming Department of Audit initiated a
sales and use tax audit against Huber for the time period 2003
through 2005. In February 2008, the Department of Audit issued
revised preliminary audit findings against Huber in the amount
of $4.3 million in tax, interest and penalties in relation
to services provided under the Service Agreement. In November
2008, following a meeting between Huber, the Company and Wyoming
tax officials, the Department of Audit reduced the assessment to
$3.1 million. Huber notified the Company of a claim for
indemnification under the Services Agreement, and the Company
and Huber entered into an agreement regarding their respective
responsibilities for the assessment. Another meeting with the
Wyoming tax officials was held on May 1, 2009, during which
the Company and Wyoming tax officials agreed to a settlement
which reduced the total assessment to $0.2 million. Huber
agreed to bear responsibility for that reduced assessment amount
during the second quarter. Based on this settlement and
Hubers agreement to bear responsibility for that revised
assessment, the Company was able to reduce its reserves for this
matter by $2.1 million in the first quarter of 2009 and by
an additional $0.4 million in the second quarter of 2009.
These reductions are included in the Companys Income
from discontinued operations, net of tax, for 2009.
Self-Insurance. Insurance coverage is obtained
for catastrophic exposures, as well as those risks required to
be insured by law or contract. The Company requires its insurers
to meet certain minimum financial ratings at the time the
coverages are placed; however, insurance recoveries remain
subject to the risk that the insurer will be financially able to
pay the claims as they arise. The Company is insured with
respect to its workers compensation and general liability
exposures subject to certain deductibles or self-insured
retentions. Loss provisions for these exposures are recorded
based upon the Companys estimates of the total liability
for claims incurred. Such estimates utilize certain actuarial
assumptions followed in the insurance industry.
The Company is self-insured for its primary layer of
professional liability insurance through a wholly-owned captive
insurance subsidiary. The secondary layer of the professional
liability insurance continues to be provided, consistent with
industry practice, under a claims-made insurance
policy placed with an independent insurance company. Under
claims-made policies, coverage must be in effect when a claim is
made. This insurance is subject to standard exclusions.
The Company establishes reserves for both insurance-related
claims that are known and have been asserted against the
Company, as well as for insurance-related claims that are
believed to have been incurred but have not yet been reported to
the Companys claims administrators as of the respective
balance sheet dates. The Company includes any adjustments to
such insurance reserves in its consolidated results of
operations.
The Company is self-insured with respect to its primary medical
benefits program subject to individual retention limits. As part
of the medical benefits program, the Company contracts with
national service providers to provide benefits to its employees
for medical and prescription drug services. The Company
reimburses these service providers as claims related to the
Companys employees are paid by the service providers.
Reliance Liquidation. The Companys
professional liability insurance coverage had been placed on a
claims-made basis with Reliance Insurance Group
(Reliance) for the period July 1, 1994 through
June 30, 1999. In 2001, the Pennsylvania Insurance
Commissioner placed Reliance into liquidation. Due to the
subsequent liquidation of Reliance, the Company is currently
uncertain what amounts paid by the Company to settle certain
claims totaling in excess of $2.5 million will be
recoverable under the insurance policy with Reliance. The
Company is pursuing a claim in the Reliance liquidation and
believes that some recovery will result from the liquidation,
but the amount of such recovery cannot currently be estimated.
The Company was notified in December 2009 that it would be
receiving a $140,000 distribution from Reliance, which was
subsequently received in January 2010. This amount was
recognized in 2009 and was recorded as a receivable as of
December 31, 2009. This distribution was not the final
settlement and the Company may recover additional amounts in
future periods. The Company had no other related receivables
recorded from Reliance as of December 31, 2009 and
December 31, 2008.
The Companys non-cancelable leases relate to office space,
computer hardware and software, office equipment and vehicles
with lease terms ranging from 1 to 10 years. Rent expense
under non-cancelable operating leases for continuing operations
was $15,701,000, $15,815,000 and $17,319,000 for the years ended
December 31, 2009, 2008 and 2007, respectively. Rent
expense under non-cancelable operating leases for discontinued
operations was $1,716,000, $2,660,000 and $2,486,000 for the
years ended December 31, 2009, 2008 and 2007, respectively.
36
Future annual minimum lease payments under non-cancelable
capital and operating leases as of December 31, 2009 were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
|
|
|
Operating lease
|
|
|
|
|
For the year ending December 31,
|
|
obligations
|
|
|
obligations
|
|
|
Total
|
|
|
2010
|
|
$
|
188
|
|
|
$
|
14,903
|
|
|
$
|
15,091
|
|
2011
|
|
|
161
|
|
|
|
11,569
|
|
|
|
11,730
|
|
2012
|
|
|
|
|
|
|
10,081
|
|
|
|
10,081
|
|
2013
|
|
|
|
|
|
|
7,375
|
|
|
|
7,375
|
|
2014
|
|
|
|
|
|
|
6,659
|
|
|
|
6,659
|
|
Thereafter
|
|
|
|
|
|
|
18,336
|
|
|
|
18,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
349
|
|
|
$
|
68,923
|
|
|
$
|
69,272
|
|
|
|
|
16.
|
LONG-TERM DEBT
AND BORROWING AGREEMENTS
|
The Companys Credit Agreement is with a consortium of
financial institutions and provides for a commitment of
$60 million through October 1, 2011. The commitment
includes the sum of the principal amount of revolving credit
loans outstanding (for which there is no
sub-limit)
and the aggregate face value of outstanding LOCs (which have a
sub-limit of
$20.0 million). As of December 31, 2009 and 2008,
there were no borrowings outstanding under the Credit Agreement
and outstanding LOCs were $9.4 million and
$9.0 million, respectively.
Under the Credit Agreement, the Company pays bank commitment
fees on the unused portion of the commitment, ranging from 0.2%
to 0.375% per year based on the Companys leverage ratio.
There were no borrowings during 2009 and nominal borrowings
during 2008.
The Credit Agreement provides pricing options for the Company to
borrow at the banks prime interest rate or at LIBOR plus
an applicable margin determined by the Companys leverage
ratio (based on a measure of indebtedness to earnings before
interest, taxes, depreciation, and amortization
(EBITDA)). The Credit Agreement also requires the
Company to meet minimum equity, leverage, interest and rent
coverage, and current ratio covenants. In addition, the
Companys Credit Agreement with its banks places certain
limitations on dividend payments. If any of these financial
covenants or certain other conditions of borrowing are not
achieved, under certain circumstances, after a cure period, the
banks may demand the repayment of all borrowings outstanding
and/or
require deposits to cover the outstanding letters of credit.
The following is a reconciliation of the numerators and
denominators of the basic and diluted earnings per share
computations (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income from continuing operations attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Baker Corporation
|
|
$
|
24,572
|
|
|
$
|
22,558
|
|
|
$
|
17,330
|
|
Net income from discontinued operations attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Baker Corporation
|
|
|
2,349
|
|
|
|
6,596
|
|
|
|
2,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Michael Baker Corporation
|
|
$
|
26,921
|
|
|
$
|
29,154
|
|
|
$
|
19,340
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(in thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
8,855
|
|
|
|
8,811
|
|
|
|
8,742
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.77
|
|
|
$
|
2.56
|
|
|
$
|
1.98
|
|
Discontinued operations
|
|
|
0.27
|
|
|
|
0.75
|
|
|
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3.04
|
|
|
$
|
3.31
|
|
|
$
|
2.21
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities -
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted shares
|
|
|
78
|
|
|
|
80
|
|
|
|
132
|
|
Weighted average shares outstanding
|
|
|
8,933
|
|
|
|
8,891
|
|
|
|
8,874
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.75
|
|
|
$
|
2.54
|
|
|
$
|
1.95
|
|
Discontinued operations
|
|
|
0.26
|
|
|
|
0.74
|
|
|
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3.01
|
|
|
$
|
3.28
|
|
|
$
|
2.18
|
|
|
As of December 31, 2009 and 2008, there were 32,000 and
16,000, respectively, of the Companys stock options that
were excluded from the computations of diluted shares
outstanding because the option exercise prices were more than
the average market price of the Companys common shares. As
of December 31, 2007, all of the Companys stock
options were included in the computations of diluted shares
outstanding because the option exercise prices were less than
the average market price of the Companys common shares.
In 1996, the Board of Directors authorized the repurchase of up
to 500,000 shares of the Companys Common Stock in the
open market. In 2003, the Board of Directors authorized an
additional repurchase of up to 500,000 shares for a total
authorization of 1,000,000 shares. As of December 31,
2009, 520,319 treasury shares had been repurchased under the
Boards authorizations. The Company made no treasury share
repurchases during 2009 or 2008.
As of December 31, 2009 and 2008, the difference between
the number of treasury shares repurchased under these
authorizations and the number of treasury shares listed on the
consolidated balance sheets relates to an exchange of
Series B Common Stock for 23,452 Common shares which
occurred in 2002. The remaining difference relates to
1,330 shares issued to employees as bonus share awards in
the late 1990s.
Under the Credit Agreement, the Companys treasury share
repurchases cannot exceed $5.0 million during the term of
the Credit Agreement.
The Articles of Incorporation authorize the issuance of
6,000,000 shares of Series B Common Stock, par value
$1 per share, which would entitle the holders thereof to ten
votes per share on all matters submitted for shareholder votes.
As of December 31, 2009 and 2008, there were no shares of
such Series B Stock outstanding. The Company has no plans
of issuing any Series B Common Stock in the near future.
The Articles of Incorporation also authorize the issuance of
300,000 shares of Cumulative Preferred Stock, par value $1
per share. As of December 31, 2009 and 2008, there were no
shares of such Preferred Stock outstanding.
In 1999, the Board of Directors adopted a Rights Agreement (the
Rights Agreement). In connection with the Rights
Agreement, the Company declared a distribution of one Right (a
Right) for each outstanding share of Common Stock to
shareholders of record at the close of business on
November 30, 1999. The Rights will become exercisable after
a person or group, excluding the Companys Baker 401(k)
Plan, (401(k) Plan) has acquired 25% or more of the
Companys outstanding Common Stock or has announced a
tender offer that would result in the acquisition of 25% or more
of the Companys outstanding Common Stock. The Board of
Directors has the option to redeem the Rights for $0.001 per
Right prior to their becoming exercisable. On November 5,
2009, the Company extended the term of the Rights Agreement by
three years. The Rights will now expire on November 16,
2012, unless they are earlier exchanged or redeemed.
Assuming the Rights have not been redeemed, after a person or
group has acquired 25% or more of the Companys outstanding
Common Stock, each Right (other than those owned by a holder of
25% or more of the Common Stock)
38
will entitle its holder to purchase, at the Rights then
current exercise price, a number of shares of the Companys
Common Stock having a value equal to two times the exercise
price of the Rights. In addition, at any time after the Rights
become exercisable and prior to the acquisition by the acquiring
party of 50% or more of the outstanding Common Stock, the Board
of Directors may exchange the Rights (other than those owned by
the acquiring person or its affiliates) for the Companys
Common Stock at an exchange ratio of one share of Common Stock
per Right.
The Company maintains a defined contribution retirement program
through its 401(k) Plan, in which substantially all employees
are eligible to participate. The 401(k) Plan offers participants
several investment options, including a variety of mutual funds
and Company stock. Contributions to the 401(k) Plan are derived
from a 401(k) Salary Redirection Program with a Company matching
contribution, and a discretionary contribution as determined by
the Board of Directors. Under the 401(k) Salary Redirection
Program, the Company matches up to 100% of the first 3% and 50%
of the next 3% of eligible salary contributed, thereby providing
the opportunity for a Company match of as much as 4.5% of
eligible salary contributed. The Companys matching
contributions are invested not less than 25% in its Common Stock
(purchased through open market transactions), with the remaining
75% being available to invest in mutual funds or its Common
Stock, as directed by the participants. The Companys
required cash contributions under this program amounted to
$6,065,000, $5,424,000 and $4,781,000 in 2009, 2008 and 2007,
respectively, for continuing operations. The Companys
required cash contributions under this program amounted to
$1,010,000, $1,283,000 and $896,000 in 2009, 2008 and 2007,
respectively, for discontinued operations. In 2007, an
additional discretionary employer contribution of $352,000 for
continuing operations and $198,000 for discontinued operations
was approved by the Board of Directors and accrued as of
December 31, 2007. No discretionary employer contributions
were approved by the Board of Directors in either 2009 or 2008.
As of December 31, 2009, the market value of all 401(k)
Plan investments was $254.1 million, of which 16%
represented the market value of the 401(k) Plans
investment in the Companys Common Stock. The
Companys 401(k) Plan held 11% of both the shares and
voting power of its outstanding Common Stock as of
December 31, 2009. Each participant who has shares of
Common Stock allocated to their account will have the authority
to direct the Trustee with respect to the vote and all
non-directed shares will be voted in the same proportion as the
directed shares.
|
|
21.
|
DEFERRED
COMPENSATION PLAN
|
The Company has a nonqualified deferred compensation plan that
provides benefits payable to non-employee directors at specified
future dates, upon retirement, or death. Under the plan,
participants may elect to defer their compensation received for
their services as directors. This deferred compensation plan is
unfunded; therefore, benefits are paid from the general assets
of the Company. Participant cash deferrals earn a return based
on the Companys long-term borrowing rate as of the
beginning of the plan year. The total of participant deferrals,
which is primarily reflected as Other long-term
liabilities in the Companys consolidated balance
sheets, was approximately $960,000 and $924,000 as of
December 31, 2009 and 2008, respectively.
|
|
22.
|
STOCK BASED
COMPENSATION
|
As of December 31, 2009, the Company had two fixed stock
option plans under which stock options can be exercised. Under
the 1995 Stock Incentive Plan (the Plan), the
Company was authorized to grant options for an aggregate of
1,500,000 shares of Common Stock to key employees through
its expiration on December 14, 2004. Under the amended 1996
Non-employee Directors Stock Incentive Plan (the
Directors Plan), the Company is authorized to
grant options and restricted shares for an aggregate of
400,000 shares of Common Stock to non-employee board
members through February 18, 2014. Under both plans, the
exercise price of each option equals the average market price of
the Companys stock on the date of grant. Unless otherwise
established, one-fourth of the options granted to key employees
became immediately vested and the remaining three-fourths vested
in equal annual increments over three years under the now
expired Plan, while the options under the Directors Plan
become fully vested on the date of grant and become exercisable
six months after the date of grant. Vested options remain
exercisable for a period of ten years from the grant date under
both plans.
During the second quarter of 2009, the Company issued 12,000
restricted shares and granted 16,000 options to the non-employee
directors. As of December 31, 2008, all outstanding options
were fully vested under both plans. There were 104,463, 112,463
and 145,520 exercisable options under both plans as of
December 31, 2009, 2008 and 2007, respectively.
39
The following table summarizes all stock option activity for
both plans in 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
average
|
|
|
|
Shares
|
|
|
average
|
|
|
Aggregate
|
|
|
contractual life
|
|
|
|
subject
|
|
|
exercise price
|
|
|
intrinsic
|
|
|
remaining
|
|
|
|
to option
|
|
|
per share
|
|
|
value
|
|
|
in years
|
|
|
Balance at January 1, 2007
|
|
|
235,093
|
|
|
$
|
13.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
14,000
|
|
|
|
26.86
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(101,573
|
)
|
|
|
13.60
|
|
|
|
|
|
|
|
|
|
Options forfeited or expired
|
|
|
(2,000
|
)
|
|
|
6.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
145,520
|
|
|
$
|
14.70
|
|
|
$
|
3,841,521
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
16,000
|
|
|
|
37.53
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(33,057
|
)
|
|
|
11.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
128,463
|
|
|
$
|
18.48
|
|
|
$
|
2,377,316
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
16,000
|
|
|
|
40.46
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(40,000
|
)
|
|
|
15.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
104,463
|
|
|
$
|
22.87
|
|
|
$
|
1,935,885
|
|
|
|
5.3
|
|
|
The weighted average fair value of options granted during 2009,
2008 and 2007 was $22.46, $17.91 and $13.13, respectively. The
total intrinsic value of stock options exercised during the
years ended December 31, 2009, 2008 and 2007 was $880,000,
$460,000 and $2,153,000, respectively. As of December 31,
2009, no shares of the Companys Common Stock remained
available for future grant under the expired Plan, while
131,000 shares were available for future grant under the
Directors Plan.
The following table summarizes information about stock options
outstanding under both plans as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
|
|
|
|
|
|
|
|
Weightd
|
|
|
|
|
|
Weightd
|
|
|
|
Number
|
|
|
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
of
|
|
|
Average
|
|
|
exercise
|
|
|
of
|
|
|
exercise
|
|
Range of exercise prices
|
|
options
|
|
|
life(1)
|
|
|
price
|
|
|
options
|
|
|
price
|
|
|
$6.25 $8.55
|
|
|
15,429
|
|
|
|
1.9
|
|
|
$
|
8.39
|
|
|
|
15,429
|
|
|
$
|
8.39
|
|
$10.025 $15.625
|
|
|
33,034
|
|
|
|
2.5
|
|
|
|
14.33
|
|
|
|
33,034
|
|
|
|
14.33
|
|
$20.16 $26.86
|
|
|
24,000
|
|
|
|
6.5
|
|
|
|
22.43
|
|
|
|
24,000
|
|
|
|
22.43
|
|
$37.525 $40.455
|
|
|
32,000
|
|
|
|
9.1
|
|
|
|
38.99
|
|
|
|
32,000
|
|
|
|
38.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
104,463
|
|
|
|
5.3
|
|
|
$
|
22.87
|
|
|
|
104,463
|
|
|
$
|
22.87
|
|
|
|
|
|
(1) |
|
Average life remaining in years.
|
The fair value of options on the respective grant dates was
estimated using a Black-Scholes option pricing model, based on
the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average risk-free interest rate
|
|
|
3.4
|
%
|
|
|
1.9
|
%
|
|
|
3.7
|
%
|
Weighted average expected volatility
|
|
|
48.7
|
%
|
|
|
43.4
|
%
|
|
|
34.1
|
%
|
Expected option life
|
|
|
7.4 years
|
|
|
|
7.9 years
|
|
|
|
8.0 years
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
The average risk-free interest rate is based on the
U.S. Treasury yield with a term to maturity that
approximates the options expected life as of the grant
date. Expected volatility is determined using historical
volatilities of the underlying market value of the
Companys stock obtained from public data sources. The
expected life of the stock options is determined using
historical data adjusted for the estimated exercise dates of the
unexercised options.
During the second quarter of 2008, the Company issued 40,000
Stock Appreciation Rights (SARs), which vest at
varying intervals over a three-year period, in connection with
the Companys Chief Executive Officers employment
agreement. Future payments for the SARs will be made in cash,
subject to the Companys discretion to make such payments
in shares of the Companys common stock under the terms of
a shareholder-approved employee equity
40
incentive plan. The Company did not have an active
shareholder-approved employee equity plan as of
December 31, 2009. The Company has recorded a liability for
these SARs of $454,000 and $162,000 as of December 31, 2009
and 2008, respectively, within the Other long-term
liabilities caption in its Consolidated Balance Sheet. The
fair value of the SARs was estimated using a Black-Scholes
option pricing model and will require revaluation on a quarterly
basis. Based on the fair value of these SARs as of
December 31, 2009, the Company anticipates recording
additional expense ratably through the second quarter of 2011 of
approximately $406,000.
The Company recognized total stock based compensation expense
related to its restricted stock, options and SARs of $1,063,000,
$772,000 and $436,000 for the years ended December 31,
2009, 2008 and 2007, respectively.
|
|
23.
|
RELATED PARTY
TRANSACTIONS
|
Effective April 25, 2001, the Company entered into a
consulting agreement with Richard L. Shaw when he retired from
his position as Chief Executive Officer. Through subsequent
amendments, this agreement has been extended through
April 26, 2011. The consulting agreement provides an annual
compensation amount for consulting services in addition to the
Company covering the costs of health insurance and maintaining
life insurance for the executive. The consulting agreement also
provides for a supplemental retirement benefit of $5,000 per
month as well as the continuation of the life and health
insurance benefits commencing at the expiration of the
consulting term.
Effective September 14, 2006, Mr. Shaws
compensation for the consulting services under the agreement was
temporarily suspended due to his re-employment by the Company as
its Chief Executive Officer. Effective March 1, 2008,
compensation under the consulting agreement resumed upon
Mr. Shaws retirement from the Company.
Mr. Shaws total consulting fees were $106,000 and
$89,000 for the years ended December 31, 2009 and 2008,
respectively.
|
|
24.
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW DATA
|
The following table is provided as a supplement to the
Companys indirect-method statement of cash flows and
reflects cash paid for interest and income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest paid
|
|
$
|
14
|
|
|
$
|
199
|
|
|
$
|
349
|
|
Income taxes paid
|
|
$
|
18,925
|
|
|
$
|
21,098
|
|
|
$
|
14,490
|
|
|
Assets acquired on credit or through capital lease obligations
were nominal for the years ended December 31, 2009, 2008
and 2007.
|
|
25.
|
QUARTERLY RESULTS
OF OPERATIONS (UNAUDITED)
|
The following is a summary of the unaudited quarterly results of
operations for the two years ended December 31, 2009 and
gives effect to the disposition of our Energy business, which is
presented as discontinued operations (in thousands, except per
share information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Three months ended
|
|
|
|
Mar. 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
|
Revenues
|
|
$
|
115,084
|
|
|
$
|
113,323
|
|
|
$
|
110,153
|
|
|
$
|
106,617
|
|
Gross profit
|
|
|
22,683
|
|
|
|
22,683
|
|
|
|
22,239
|
|
|
|
20,375
|
|
Income before noncontrolling interest and income taxes
|
|
|
10,289
|
|
|
|
8,921
|
|
|
|
10,919
|
|
|
|
7,833
|
|
Net income/(loss) attributable to Michael Baker Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
6,276
|
|
|
|
5,481
|
|
|
|
6,956
|
|
|
|
5,859
|
|
Discontinued operations
|
|
|
1,563
|
|
|
|
1,569
|
|
|
|
322
|
|
|
|
(1,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,839
|
|
|
|
7,050
|
|
|
|
7,278
|
|
|
|
4,754
|
|
Diluted earnings/(loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
0.70
|
|
|
|
0.62
|
|
|
|
0.78
|
|
|
|
0.65
|
|
Discontinued operations
|
|
|
0.18
|
|
|
|
0.17
|
|
|
|
0.03
|
|
|
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.88
|
|
|
$
|
0.79
|
|
|
$
|
0.81
|
|
|
$
|
0.53
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Three months ended
|
|
|
|
Mar. 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec.
31(1)
|
|
|
Revenues
|
|
$
|
108,644
|
|
|
$
|
113,519
|
|
|
$
|
119,155
|
|
|
$
|
114,611
|
|
Gross profit
|
|
|
20,843
|
|
|
|
23,827
|
|
|
|
23,788
|
|
|
|
16,074
|
|
Income before noncontrolling interest and income taxes
|
|
|
9,260
|
|
|
|
13,222
|
|
|
|
11,317
|
|
|
|
3,181
|
|
Net income attributable to Michael Baker Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
5,649
|
|
|
|
8,157
|
|
|
|
6,811
|
|
|
|
1,941
|
|
Discontinued operations
|
|
|
466
|
|
|
|
101
|
|
|
|
4,982
|
|
|
|
1,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,115
|
|
|
|
8,258
|
|
|
|
11,793
|
|
|
|
2,988
|
|
Diluted earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
0.64
|
|
|
|
0.91
|
|
|
|
0.78
|
|
|
|
0.21
|
|
Discontinued operations
|
|
|
0.05
|
|
|
|
0.01
|
|
|
|
0.55
|
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.69
|
|
|
$
|
0.92
|
|
|
$
|
1.33
|
|
|
$
|
0.34
|
|
|
|
|
|
(1) |
|
During the fourth quarter, the
Companys Board of Directors approved a discretionary
increase in incentive compensation related to the Companys
2008 operating performance, which resulted in the recognition of
$4.0 million of additional incentive compensation expense.
The Companys discontinued operations were unfavorably
impacted in the fourth quarter of 2008 by a $1.6 million
bad debt reserve related to a portion of a bankrupt
clients receivables and a $2.5 million reserve for a
contract-related claim.
|
42
To the Board of
Directors and Shareholders of
Michael Baker Corporation:
We have audited the accompanying consolidated balance sheets of
Michael Baker Corporation and subsidiaries (the
Company) as of December 31, 2009 and 2008, and
the related consolidated statements of income,
shareholders investment, and cash flows for each of the
three years in the period ended December 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Michael Baker Corporation and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America.
As discussed in Note 4 to the consolidated financial
statements, the Company changed its method of accounting for
noncontrolling interests in 2007 and 2008.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 15, 2010 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 15, 2010
44
SUPPLEMENTAL
FINANCIAL INFORMATION
Market
Information Common Shares
The principal market on which the Companys Common Stock is
traded is the NYSE Amex under the ticker symbol BKR.
High and low closing prices of the Companys Common Stock
for each quarter for the years ended December 31, 2009 and
2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
High
|
|
$
|
41.40
|
|
|
$
|
42.96
|
|
|
$
|
43.69
|
|
|
$
|
42.60
|
|
|
$
|
37.90
|
|
|
$
|
38.34
|
|
|
$
|
22.79
|
|
|
$
|
41.00
|
|
Low
|
|
|
34.95
|
|
|
|
33.48
|
|
|
|
25.44
|
|
|
|
24.70
|
|
|
|
18.29
|
|
|
|
22.95
|
|
|
|
19.61
|
|
|
|
22.05
|
|
|
45