UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) JANUARY 26, 2006
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MICHAEL BAKER CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
PENNSYLVANIA
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(State or Other Jurisdiction of Incorporation)
1-6627 25-0927646
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(Commission File Number) (IRS Employer Identification No.)
100 AIRSIDE DRIVE
MOON TOWNSHIP, PENNSYLVANIA 15108
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(Address of Principal Executive Offices) (Zip Code)
(412) 269-6300
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
SECTION 2 - FINANCIAL INFORMATION
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On January 31, 2006, Michael Baker Corporation (the "Company") issued a press
release announcing that its previously issued consolidated financial statements
for fiscal years 2000, 2001, 2002, 2003 and 2004, and its related interim
consolidated financial statements for each of the quarters of 2003 and 2004 and
the first quarter of 2005, should not be relied upon because of errors in those
financial statements and that such financial statements should be restated to
make the necessary accounting adjustments. For further information, please see
Item 4.02(a) below and the text of the press release, which is attached as
Exhibit 99.1 to this Current Report on Form 8-K.
SECTION 4 - MATTERS RELATED TO ACCOUNTANTS AND FINANCIAL STATEMENTS
ITEM 4.02(A). NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR
A RELATED AUDIT REPORT OR COMPLETED INTERIM REVIEW.
On January 31, 2006, the Company issued a press release announcing that it has
concluded that its previously issued consolidated financial statements for
fiscal years 2000, 2001, 2002, 2003 and 2004, and its related interim
consolidated financial statements for each of the quarters of 2003 and 2004 and
the first quarter of 2005, should not be relied upon because of errors in those
financial statements and that such financial statements should be restated. The
Company reached this conclusion on January 26, 2006, based upon the
recommendation of management and the concurrence of the Audit Committee of the
Company's Board of Directors. The press release is attached as Exhibit 99.1 to
this Current Report on Form 8-K.
The Company's management and Audit Committee have discussed the matters
disclosed in this Current Report on Form 8-K with PricewaterhouseCoopers LLP,
the Company's former independent registered public accounting firm, and Deloitte
& Touche LLP, the Company's current independent registered public accounting
firm.
The corrections to be made to the Company's consolidated financial statements
are required primarily due to the following Nigerian tax matters:
1) The underaccrual and underpayment of non-resident Nigerian income taxes
by one of the Company's wholly-owned Energy segment subsidiaries, plus
estimated penalties and interest associated with the underpayments
(affects all financial statements from fiscal 2000 through the first
quarter of 2005).
2) The underaccrual and underpayment of Nigerian payroll taxes related to
the same Energy subsidiary's employees working on projects in Nigeria,
plus estimated penalties and interest associated with the underpayments
(affects all financial statements from fiscal 2001 through the first
quarter of 2005).
3) Overstated prepaid tax asset balances recorded by the Company's
majority-owned Nigerian subsidiary, as adjusted by applicable minority
interest effects (affects all financial statements from fiscal 2001
through the first quarter of 2005).
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Certain other immaterial corrections will also be made to the Company's
consolidated financial statements. The first of these corrections relates to the
Company's need to record an "incurred but not reported" liability for
self-insured professional liability insurance losses, which affects all
financial statements from fiscal 2000 through the first quarter of 2005. Several
other such corrections relate to non-routine project accounting and other
transactions that result in income statement adjustments during the restatement
period, but which net to an immaterial effect on retained earnings as of March
31, 2005. These corrections affect all financial statements from fiscal 2000
through the first quarter of 2005.
Based on current information, the aggregate effect of all corrections, including
the related tax effects, is currently expected to result in net income
reductions in the range of $0.5 million to $1.5 million in each of the 2000,
2001, 2002, 2003 and 2004 fiscal years, and a total net income reduction in the
range of $5.8 million to $6.2 million for this five-year period; a net income
reduction in the range of $0.6 million to $0.8 million for the first quarter of
2005; and a cumulative reduction in the range of $7.4 million to $7.8 million in
the Company's retained earnings as of March 31, 2005.
The Company intends to file an amended Annual Report on Form 10-K for the year
ended December 31, 2004 and an amended Quarterly Report on Form 10-Q for the
first quarter of 2005. These documents will be filed with the Securities and
Exchange Commission (the "SEC") as soon as practicable. The Company's historical
consolidated financial statements for the five years ended December 31, 2004,
and the quarter ended March 31, 2005, should not be relied upon until these
restated consolidated financial statements are filed with the SEC and the
restatement information disclosed therein is fully considered.
After the previously mentioned amended Form 10-K and Form 10-Q documents are
filed, the Company intends to file as soon as practicable thereafter its
Quarterly Reports on Form 10-Q for the second and third quarters of 2005, which
have been delayed by the restatement. In addition, the Company's Annual Report
on Form 10-K for the year ended December 31, 2005 is required to be filed with
the SEC by March 16, 2006. This filing is also likely to be delayed by the
restatement.
Management is currently working with its outside service providers in Nigeria to
finalize its Nigerian income and payroll tax filings, make the necessary tax
payments, and terminate its exposure to additional penalty and interest charges
as soon as possible. Until such filings are completed and the necessary tax
payments are made, the Company will continue to experience higher expense levels
associated with related penalties and interest and professional fee expenses.
The Company currently expects to complete its past due income and payroll tax
filings in Nigeria by the end of March 2006.
Management currently believes that all issues which will require restatement of
the Company's consolidated financial statements for each of the five years in
the period ended December 31, 2004, and the first quarter of 2005, have been
identified. The estimated restatement amounts disclosed above remain
preliminary, unaudited, and subject to adjustment, possibly by amounts that
could be material individually or in the aggregate. In addition, it is possible
that the Company may identify new issues which could also impact its previously
issued consolidated
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financial statements and the scope of the restatement described in this Current
Report on Form 8-K. In the event that new issues requiring restatement arise, it
is possible that such additional adjustments could be material individually or
in the aggregate.
Internal Control Over Financial Reporting
Management of the Company will restate its report on internal control over
financial reporting as of December 31, 2004, originally included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2004. In that report, management concluded that the Company's internal control
over financial reporting was effective as of that date. A material weakness is a
control deficiency, or a combination of control deficiencies, that results in
more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. Management has
now concluded that the Company's internal control over financial reporting as of
December 31, 2004 was ineffective as a result of the following material
weaknesses:
1) The Company did not maintain effective controls over its accounting for
income and other taxes, including prepaid taxes, income and other taxes
payable, deferred income tax assets and liabilities and the related
expense accounts, particularly the provision for income taxes.
Specifically, the Company did not maintain effective controls over the
preparation, filing and related financial accounting for its Nigerian
income and payroll taxes. Additionally, there was a lack of oversight
and review over prepaid taxes, income and other taxes payable, deferred
income tax assets and liabilities and the related expense accounts,
including the provision for income taxes, by personnel with appropriate
expertise related to income and other taxes. This control deficiency
resulted in the restatement of the Company's consolidated financial
statements for fiscal years 2000, 2001, 2002, 2003 and 2004, and its
related interim consolidated financial statements for each of the
quarters of 2003 and 2004 and the first quarter of fiscal year 2005.
Additionally, this control deficiency could result in a misstatement in
the aforementioned accounts that would result in a material
misstatement to the annual or interim consolidated financial statements
that would not be prevented or detected. Accordingly, management has
determined that this control deficiency constitutes a material
weakness.
2) The Company did not maintain effective controls over its accounting for
unbilled revenue, other accrued expenses, and the related revenue and
cost of work performed accounts. Specifically, the Company lacked
effective controls to ensure that non-routine project accounting
transactions were identified, analyzed and accounted for in accordance
with generally accepted accounting principles. This control deficiency
resulted in misstatements to the unbilled revenue, other accrued
expenses, and the related revenue and cost of work performed accounts
in the Company's consolidated financial statements for the fourth
quarter and full year of 2004, and the first quarter of fiscal year
2005. Additionally, this control deficiency could result in a material
misstatement to the annual or interim consolidated financial statements
that would not be prevented or detected. Accordingly, management has
determined that this control deficiency also constitutes a material
weakness.
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The Company continues to evaluate the impact of the matters described above on
its internal control over financial reporting and its disclosure controls and
procedures. At this time, management has determined that, as of December 31,
2004 and March 31, 2005, these two material weaknesses in its internal control
over financial reporting existed.
As a result, management's report on internal control over financial reporting,
as originally filed in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2004, should no longer be relied upon and will be
restated when the Company files its amended Form 10-K for the fiscal year ended
December 31, 2004. The Company expects that such restated management report on
internal control over financial reporting will conclude that the Company did not
maintain effective control over financial reporting as of December 31, 2004. In
the amended 2004 Form 10-K, the Company also expects that PricewaterhouseCoopers
LLP, the Company's former independent registered public accounting firm, will
issue an opinion stating that the Company did not maintain effective control
over financial reporting as of December 31, 2004.
In response to these two material weaknesses, the Company's management has
implemented certain additional controls that will be further described in its
amended Annual Report on Form 10-K for the year ended December 31, 2004 and its
amended Form 10-Q for the quarter ended March 31, 2005. It is possible that the
Company may identify additional material weaknesses in its internal control over
financial reporting as of December 31, 2004, which would also then need to be
reported in the Company's amended filing for this period.
Statements contained in this Form 8-K that disclose the Company's or
management's intentions, expectations or predictions of the future, including
expected restatement adjustments to previously issued consolidated financial
statements, material weaknesses in internal control over financial reporting as
of December 31, 2004, and the expected filing dates for its Nigerian tax
returns, are forward-looking statements. The actual amounts and effects of the
Company's restatement adjustments, the number of material weaknesses in internal
control over financial reporting, and the actual filing dates for its amended
SEC filings could differ materially from those projected in such forward-looking
statements.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
The following exhibit is filed with this report:
Exhibit No. Description
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99.1 Press release dated January 31, 2006, filed pursuant to
Item 4.02(a).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MICHAEL BAKER CORPORATION
By: /s/ William P. Mooney
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Executive Vice President and Chief
Financial Officer
Date: January 31, 2006
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EXHIBIT INDEX
Number Description Method of Filing
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99.1 Press release dated January 31, 2006, filed Filed herewith.
pursuant to Item 4.02(a).
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