SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002
Commission file number 33-14058
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
Michael Baker Corporation Employee Stock Ownership Plan
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
Michael Baker Corporation
Airside Business Park
100 Airside Drive
Moon Township, PA 15108
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
CONTENTS
DECEMBER 31, 2002 AND 2001
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PAGE(S)
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REPORT OF INDEPENDENT AUDITORS......................................................1
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits ....................................2
Statements of Changes in Net Assets Available for Benefits .........................3
Notes to Financial Statements.....................................................4-9
ADDITIONAL INFORMATION
Schedule I: Schedule H, Line 4(i) - Schedule of Assets (Held at End of Year)......10
Schedule II: Schedule H, Line 4(j) - Schedule of Reportable Transactions ..........11
Note: Other schedules required by Section 2520.103-10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under ERISA
have been omitted because they are not applicable.
REPORT OF INDEPENDENT AUDITORS
To the Participants and Administrator of the
Michael Baker Corporation Employee Stock Ownership Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Michael Baker Corporation Employee Stock Ownership Plan (the "Plan") at
December 31, 2002 and 2001, and the changes in net assets available for benefits
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Plan's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Assets
(Held at End of Year) and Reportable Transactions are presented for the purpose
of additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan's management. The supplemental schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
------------------------------
Pittsburgh, PA
June 20, 2003
1
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
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2002 2001
Assets
Investments, at fair value
Investments in common stock of
Michael Baker Corporation $ 32,778,220 $ 49,517,528
Investments in mutual funds 64,850,223 67,399,289
Participant loans (market value approximates cost) 388,889 388,974
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Total investments 98,017,332 117,305,791
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Total assets 98,017,332 117,305,791
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Net assets available for benefits $ 98,017,332 $117,305,791
============ ============
The accompanying notes are an integral part of these financial statements.
2
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2002 AND 2001
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2002 2001
Additions to net assets attributed to
Investment income
Interest and dividends $ 854,235 $ 1,425,653
Net (depreciation) appreciation in fair value of investments (28,108,782) 10,044,226
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Total investment (loss) income (27,254,547) 11,469,879
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Participant contributions 11,129,646 10,187,194
Employer contributions 5,392,222 4,513,439
Series B stock conversion 328,328 --
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Total contributions 16,850,196 14,700,633
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Total (loss) additions (10,404,351) 26,170,512
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DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO
Participant withdrawals 8,880,732 8,314,583
Administrative fees 3,376 3,197
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Total deductions 8,884,108 8,317,780
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Net (decrease) increase (19,288,459) 17,852,732
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NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 117,305,791 99,453,059
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End of year $ 98,017,332 $ 117,305,791
============= =============
The accompanying notes are an integral part of these financial statements.
3
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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1. DESCRIPTION OF PLAN
GENERAL
The following description of the Michael Baker Employee Stock Ownership
Plan (the "ESOP", or the "Plan") provides only general information.
Participants should refer to the Plan agreement for a more complete
description of the Plan's provisions.
The ESOP is a defined contribution plan that provides all eligible
employees of Michael Baker Corporation (the "Company") with an opportunity
to accumulate additional retirement benefits as well as invest in Company
stock. The Plan is subject to provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution
and allocations of (a) the Company's contribution and (b) Plan earnings or
losses, and charged with an allocation of certain administrative fees.
Allocations are based on participant earnings or account balances, as
defined. The benefit to which a participant is entitled is the benefit
that can be provided from the participant's vested account.
CONTRIBUTIONS
Participants contribute to the ESOP through a Section 401(k) Employee
Salary Redirection Election. During 2001, participants were able to choose
to have a percentage of their salaries (including commissions and
overtime) withheld and contributed to the ESOP up to the lower of 18
percent of the participant's salary or the annual limitation established
by the Internal Revenue Service. Effective January 1, 2002, the Plan
participants became able to choose to contribute up to the lower of 50
percent of their salaries (including commissions and overtime) or the
annual limitation established by the Internal Revenue Service. The maximum
amount of a participant's salary which may be eligible for withholding for
any Plan year could not exceed $200,000 in 2002 and $170,000 in 2001. The
ESOP also allows participants to roll over funds from a previous
employer's tax-qualified plan or tax-qualified individual retirement
account.
Effective January 1, 2002, all employees who are eligible to make deferred
contributions under this Plan and who have attained age 50 before the
close of the plan year shall be eligible to make catch-up contributions in
accordance with and subject to the limitation established by the Internal
Revenue Service.
COMPANY MATCHING CONTRIBUTIONS
Under the provisions of the Plan, the Company will make a matching
contribution to the participants' accounts in an amount of 100 percent of
the first 5 percent and 50 percent of the next 1 percent of eligible
salary (including commissions but excluding overtime) contributed by each
participant. Contribution amounts over the 6 percent limit are not
required to be matched by the Company. The Company's matching
contributions were invested in not less than 25 percent of Michael Baker
Corporation common stock in 2002, and not less than 25 percent of Michael
Baker Corporation Common Stock or Series B Common Stock in 2001, with the
remaining 75 percent invested in accordance with the participants'
investment elections for participant contributions.
Company matching contributions will not be made with respect to catch-up
contributions.
4
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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The Board of Directors of the Company is authorized to make additional
discretionary contributions to the ESOP from time to time. However, no
discretionary contributions were made in 2002 or 2001.
VESTING
Participants are vested immediately in their contributions plus actual
earnings thereon. All amounts in the participants' ESOP accounts that are
attributable to the transfer of funds from a previously terminated
retirement plan, the rollover from a previous employer's tax-qualified
plan, and participant contributions are 100 percent vested and
nonforfeitable at all times.
All Company matching contributions will become 100 percent vested upon
attainment of three years of service with the Company or earlier, upon
attainment of normal retirement date, disability or death. If a
participant leaves employment with the Company before attaining a vested
interest in his or her Company contribution, the contributions are
forfeited and will reduce future Company matching contributions.
DISTRIBUTIONS
The Plan provides for distribution of benefits upon retirement, total and
permanent disability, death, or termination of employment for any other
reason. The amount of distribution the participant or his or her
beneficiary is entitled to is based on the vesting requirements discussed
above. All distributions will be made in the form of a single, lump-sum
distribution or in substantially equal annual installments over a period
not exceeding five years. For participant accounts invested in the
Company's common stock, distributions may be made in cash and/or shares of
common stock, at the discretion of the participant.
Effective January 1, 2003, participants may also make written application
to the administrator for withdrawal of up to 50 percent of their vested
account balance for certain limited situations qualifying as financial
hardships under Internal Revenue Service ("IRS") guidelines in effect at
the time of the withdrawal.
PARTICIPANT LOANS
A participant may borrow money from the portion of his or her account
attributable to his or her own 401(k) plan contributions. Participant
loans may be obtained in the sole event of immediate and heavy financial
need, where the participant lacks other available resources. Effective
January 1, 2003, participant loans may be obtained without the occurrence
of an event of immediate and heavy financial need. Loan amounts shall not
exceed the lesser of: (a) 50 percent of the participant's vested account
balance, including rollovers, (b) $50,000 adjusted for pre-existing loans,
or (c) such amount as may be determined by the plan administrator. All
loans will be drawn against the participant's account among the respective
investment options as directed, and are secured by the assets within the
participant's accounts. Interest rates on outstanding notes receivable
ranged from 5.25 percent to 10.5 percent at December 31, 2002 and 6
percent to 10.5 percent at December 31, 2001.
FORFEITED ACCOUNTS
At December 31, 2002 and 2001, forfeited nonvested accounts totaled $0 and
$68,168, respectively. These amounts will be used to reduce future
employer contributions. Also, in 2002 and 2001, employer contributions
were reduced by $613,733 and $829,880, respectively, from forfeited
nonvested accounts.
5
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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COMMON STOCK
The ESOP enables participating employees to acquire an equity interest in
Michael Baker Corporation (the "Company"); as such, contributions to the
ESOP can be invested in the Company's common stock (common stock and
Series B common stock).
The ESOP's investment in the Company's common stock comprises 3,012,270
shares (cost of $21,864,313) and 2,038,031 shares (cost of $14,232,668) at
December 31, 2002 and 2001, respectively.
During the fourth quarter of 2001, the Company announced that all of its
Series B common stock would be exchanged into common stock. Under this
program, each Series B share held by the ESOP was exchanged for
approximately 1.018 shares of common stock during the first quarter of
2002. Immediately following that exchange, the remaining Series B shares
were automatically converted into common equivalents in accordance with
provisions of the Company's Articles of Incorporation. As a result of the
conversion, the Plan obtained an additional 23,452 shares of common stock
at a price of $14 per share.
The ESOP's investment in the Company's Series B common stock comprised
1,217,221 shares (cost of $7,401,968) at December 31, 2001.
INVESTMENT OPTIONS
Each participant may direct Putnam Investments, Inc. ("Putnam") to invest
certain portions of his or her account in investment funds. Investment
funds available to participants are the Michael Baker Common Stock Fund
(invests in common stock of the Company), the Putnam New Opportunities
Fund (invests in long-term growth stocks within emerging industries), the
Putnam International Growth Fund (invests in diversified corporate stocks
outside of North America), the Putnam Voyager Fund (invests in diversified
corporate stocks), the Putnam Money Market Fund (invests in short-term
money market securities), the Putnam S&P 500 Index Fund (invests with the
objective of achieving a return that approximates the return of the S&P
500 Composite Stock Price Index), the AIM Balance Fund (invests in equity
and fixed-income securities), the MFS Massachusetts Investors Trust
(invests primarily in common stock, seeking current income and long-term
growth of capital and income), the PIMCO Total Return Fund (invests in
debt securities, seeking a total return consistent with the preservation
of capital), the Franklin Small Cap Growth Fund (invests in equity
securities of small companies, seeking long-term capital growth), the
Loomis Sayles Small Cap Value Fund (invests in common stocks or other
equity securities with the objective of long-term capital growth), the New
Perspective Fund (invests primarily in common stocks, seeking long-term
growth of capital and future income), the Alliance Capital Growth and
Income Fund (invests primarily in dividend-paying common stocks with the
objective of appreciation), and the Putnam Asset Allocation Funds
(includes the Growth Portfolio, which invests with the goal of seeking
maximum growth of an investment over time, the Balanced Portfolio, which
invests with the goal of seeking a total return for investors in their
peak accumulation years and the Conservative Portfolio, which invests
primarily in domestic fixed-income securities).
PLAN ADMINISTRATION AND FEES
The Company provides certain administrative and accounting services to the
ESOP at no cost. In addition, the Company pays the cost of services
provided to the ESOP by Putnam, legal counsel and independent accountants.
Certain reasonable distribution and loan processing fees charged by Putnam
are deducted from the respective participant account balances.
6
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
Putnam Investments, Inc. ("Putnam) performs the recordkeeping function for
the ESOP and the records are maintained on a cash basis. The financial
statements included herein include all adjustments to reflect the
financial statements on the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America.
INVESTMENTS
Investments are stated at fair value based upon quoted market values.
Purchases and sales of securities are recorded on a trade-date basis. The
investment in common stock of the Company is stated at publicly-traded
closing market values as of December 31, 2002 and 2001. As of December 31,
2002 and 2001, the ESOP owned approximately 36 percent and 39 percent,
respectively, of the outstanding shares of the Company's common stock;
therefore, such valuation might be subject to significant fluctuation in
the event of a substantial liquidation of such holdings by the ESOP.
The difference between the cost and current market value of investments
purchased since the beginning of the period and the increase or decrease
in such stated market value of investments held at the beginning of the
period is included in the net appreciation (depreciation) in fair market
value of investments in the statements of changes in net assets available
for benefits.
CONTRIBUTIONS
Employee and employer contributions are recorded in the period during
which the Company makes payroll deductions from Plan participants'
earnings.
DISTRIBUTIONS
Distributions to participants are recorded when paid.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that may affect the reported amounts of assets,
liabilities and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
CONCENTRATION OF RISK
Investments are exposed to various risks, such as interest rate, market
and credit. Due to the level of risk associated with these investments and
the level of uncertainty related to changes in the value of these
investments, it is at least reasonably possible that changes in the near
term could materially affect participants' account balances and the
amounts reported in the statement of net assets available for benefits and
the statements of changes in net assets available for benefits.
7
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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3. INVESTMENTS
The following presents the fair value of investments that represent 5
percent or more of the Plan's net assets at the end of either December 31,
2002 or 2001:
DECEMBER 31,
2002 2001
Michael Baker Common Stock* $32,778,220 $31,015,773
Michael Baker Series B Common Stock* - 18,501,755
Putnam New Opportunities Fund 11,211,671 14,883,585
Putnam Voyager Fund 10,198,297 11,543,018
Putnam International Growth Fund 6,212,299 5,825,878
AIM Balanced Fund 6,369,034 7,313,918
MFS Massachusetts Investors Trust 9,680,960 12,786,204
PIMCO Total Return Fund 6,970,804 3,702,743
Putnam Money Market Fund 6,491,310 5,559,759
*Includes nonparticipant-directed investments
The Plan's investments (including gains and losses on investments bought
and sold, as well as held during the year) depreciated in value by
$28,108,782 and appreciated in value by $10,044,226 for the respective
years ended December 31, as follows:
2002 2001
Mutual funds $ (15,157,063) $ (14,912,442)
Common stock (12,951,719) 24,956,668
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$ (28,108,782) $ 10,044,226
============= =============
4. NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of the
changes in net assets relating to investments having
nonparticipant-directed components is as follows:
2002 2001
Net assets
Common stock $32,778,220 $49,517,528
----------- -----------
$32,778,220 $49,517,528
=========== ===========
8
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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NET ASSETS AVAILABLE FOR BENEFITS AS OF DECEMBER 31, 2001 $49,517,528
Changes in net assets
Contributions 2,773,680
Interest and dividends 2,791
Net depreciation in fair value of investment (12,951,719)
Benefits paid to participants (3,157,741)
Transfers to participant-directed investments (3,406,220)
Fees (99)
-----------
NET ASSETS AVAILABLE FOR BENEFITS AS OF DECEMBER 31, 2002 $32,778,220
===========
5. TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter dated June 21, 2000, that the Plan and related trust are designed
in accordance with the applicable sections of the Internal Revenue Code
("IRC"). The Plan has been amended since receiving the determination
letter. However, the plan administrator and the Plan's counsel believe
that the Plan is designed and is currently being operated in compliance
with applicable requirements of the IRC. In 2003, the Company filed for a
new determination letter for the Plan.
6. PLAN TERMINATION
Although it has not expressed an intention to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of
Plan termination, participants will become 100 percent vested in their
accounts.
7. RELATED PARTY TRANSACTIONS
Certain investments of the Plan are mutual funds managed by Putnam. These
transactions qualify as party-in-interest transactions.
One of the investment fund options available to employees contains stock
of Michael Baker Corporation, the plan sponsor. As a result, transactions
related to this investment fund qualify as party-in-interest transactions
(Note 1).
9
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
SCHEDULE H, LINE 4(I) - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
EIN #25-0927646
DECEMBER 31, 2002 SCHEDULE I
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COST OF CURRENT
IDENTITY OF ISSUER DESCRIPTION OF INVESTMENT ASSET VALUE
Michael Baker Corporation* Michael Baker Corporation
Common Stock** $21,864,313 $32,778,220
AIM Management Group Inc. AIM Balanced Fund 6,369,034
MFS Investment Management Inc. MFS Massachusetts Investors Trust 9,680,960
PIMCO Funds Distributors LLC PIMCO Total Return Fund 6,970,804
Putnam Investments* Putnam Voyager Fund 10,198,297
Putnam Investments* Putnam New Opportunities Fund 11,211,671
Putnam Investments* Putnam International Growth Fund 6,212,299
Putnam Investments* Putnam Money Market Fund 6,491,310
Putnam Investments* Putnam Asset Allocation -
Growth Portfolio 934,988
Putnam Investments* Putnam Asset Allocation -
Balanced Portfolio 951,823
Putnam Investments* Putnam Asset Allocation -
Conservative Portfolio 450,396
Franklin Templeton Investments Franklin Small Cap Growth Fund 2,142,816
Putnam Investments* Putnam S&P 500 Index Fund 2,095,062
American Funds New Perspective Fund 118,387
Loomis Sayles Funds Loomis Sayles Small Cap Value Fund 139,787
Alliance Capital Management Alliance Capital Growth and
Income Fund 882,589
Participant Loans* 5.25% to 10.5%, due January 17, 2003
to August 14, 2017 388,889
-----------
$98,017,332
===========
* Party-in-interest.
** Includes nonparticipant-directed investments.
10
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
SCHEDULE H, LINE 4(J) - SCHEDULE OF REPORTABLE TRANSACTIONS
EIN #25-0927646
YEAR ENDED DECEMBER 31, 2002 SCHEDULE II
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NUMBER NET
PARTY DESCRIPTION OF PURCHASE SELLING GAIN
INVOLVED OF ASSET TRANSACTIONS PRICE PRICE (LOSS)
Putnam Michael Baker 249 $ 4,311,520 $ - $ -
Investments, Inc.* Corporation Common Stock** 527 $ - $7,357,092 $ 3,123,576
* Party-in-interest.
** Includes nonparticipant-directed investments.
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Senior
Vice President, Corporate Controller and Treasurer of Michael Baker Corporation,
the plan sponsor, has duly caused this annual report to be signed by the
undersigned thereunto duly authorized.
MICHAEL BAKER CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
Date: June 27, 2002 By: /s/ Craig O. Stuver
-----------------------------------
Craig O. Stuver
Senior Vice President, Corporate
Controller and Treasurer of
Michael Baker Corporation,
the Plan Sponsor