UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
Commission file number 1-6627
MICHAEL BAKER CORPORATION
-------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0927646
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Airside Business Park, 100 Airside Drive, Moon Township, PA 15108
----------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(412) 269-6300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of April 30, 2003:
---------------------
Common Stock 8,310,123 shares
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements which follow have been prepared
by Michael Baker Corporation ("the Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Although
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, the
Company believes that the disclosures are adequate to make the information
presented not misleading. The statements reflect all adjustments which are, in
the opinion of management, necessary for a fair presentation of the results for
the periods presented. All such adjustments are of a normal and recurring nature
unless specified otherwise. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's latest Annual Report on Form 10-K.
This Quarterly Report on Form 10-Q, and in particular the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section in Part I, contains forward-looking statements concerning future
operations and performance of the Company. Forward-looking statements are
subject to market, operating and economic risks and uncertainties that may cause
the Company's actual results in future periods to be materially different from
any future performance suggested herein. Factors that may cause such differences
include, among others: increased competition, increased costs, changes in
general market conditions, changes in industry trends, changes in the regulatory
environment, changes in anticipated levels of government spending on
infrastructure, management changes, and changes in loan relationships or sources
of financing. Such forward-looking statements are made pursuant to the Safe
Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
-1-
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three months ended
--------------------------
MARCH 31, 2003 March 31, 2002
====================================================================================================
(In thousands, except
per share amounts)
Total contract revenues $ 99,299 $ 95,922
Cost of work performed 85,853 81,141
----------------------------------------------------------------------------------------------------
Gross profit 13,446 14,781
Selling, general and administrative expenses 13,557 11,621
----------------------------------------------------------------------------------------------------
(Loss)/income from operations (111) 3,160
Other income/(expense):
Interest income 4 92
Interest expense (86) (21)
Other, net 14 (85)
----------------------------------------------------------------------------------------------------
(Loss)/income before income taxes (179) 3,146
(Benefit from)/provision for income taxes (82) 1,432
----------------------------------------------------------------------------------------------------
NET (LOSS)/ INCOME $ (97) $ 1,714
====================================================================================================
BASIC NET (LOSS)/ INCOME PER SHARE $ (0.01) $ 0.21
DILUTED NET (LOSS)/ INCOME PER SHARE $ (0.01) $ 0.20
====================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-2-
MICHAEL BAKER CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS MARCH 31, 2003 Dec. 31, 2002
===========================================================================================================
(In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 6,975 $ 9,885
Receivables, net 74,507 65,742
Cost of contracts in progress and estimated earnings, less billings 54,793 29,723
Prepaid expenses and other 5,739 6,220
-----------------------------------------------------------------------------------------------------------
Total current assets 142,014 111,570
-----------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 19,026 17,459
OTHER ASSETS
Goodwill and other intangible assets, net 9,447 9,519
Other assets 6,827 6,549
-----------------------------------------------------------------------------------------------------------
Total other assets 16,274 16,068
-----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 177,314 $ 145,097
===========================================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 23,617 $ 20,373
Accrued employee compensation 15,412 11,290
Accrued insurance 9,556 9,687
Income taxes payable 765 2,801
Other accrued expenses 23,548 22,208
Excess of billings on contracts in progress over cost and estimated
Earnings 6,579 4,191
-----------------------------------------------------------------------------------------------------------
Total current liabilities 79,477 70,550
-----------------------------------------------------------------------------------------------------------
OTHER LIABILITIES 3,147 3,128
Long-term debt 24,100 --
Commitments and contingencies -- --
-----------------------------------------------------------------------------------------------------------
Total liabilities 106,724 73,678
-----------------------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized 44,000,000 shares, issued
8,694,360 shares at 3/31/03 and 12/31/02, respectively 8,694 8,694
Additional paid-in-capital 38,146 38,146
Retained earnings 27,315 27,411
Other comprehensive loss (612) (569)
Less - 391,237 and 310,837 shares of Common Stock in treasury,
at cost, at 3/31/03 and 12/31/02, respectively (2,953) (2,263)
-----------------------------------------------------------------------------------------------------------
Total shareholders' investment 70,590 71,419
-----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 177,314 $ 145,097
===========================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months ended
--------------------------
MARCH 31, 2003 March 31, 2002
=================================================================================================
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income $ (97) $ 1,714
Adjustments to reconcile net (loss)/income to net
cash (used in)/provided by operating activities:
Depreciation and amortization 1,261 1,155
Changes in assets and liabilities:
(Increase)/decrease in receivables and contracts
in progress (31,455) 2,214
Increase/(decrease) in accounts payable and
accrued expenses 6,567 (3,691)
Decrease in other net assets 142 168
-------------------------------------------------------------------------------------------------
Total adjustments (23,485) (154)
-------------------------------------------------------------------------------------------------
Net cash(used in)/ provided by operating activities (23,582) 1,560
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (2,738) (2,818)
Investment in Energy Virtual Partners -- (1,000)
-------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,738) (3,818)
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 24,100 --
Payments to acquire treasury stock (690) --
Repayments of long-term debt -- (4)
-------------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities 23,410 (4)
-------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (2,910) (2,262)
Cash and cash equivalents, beginning of year 9,885 18,482
-------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,975 $ 16,220
=================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW DATA
Interest paid $ 82 $ 12
Income taxes paid $ 1,954 $ 797
=================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-4-
MICHAEL BAKER CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIOD ENDED MARCH 31, 2003
(UNAUDITED)
NOTE 1 - EARNINGS PER SHARE
The following table summarizes the Company's weighted average shares outstanding
for the quarters ended March 31, 2003 and 2002. The additional shares included
in diluted shares outstanding are entirely attributable to stock options.
Weighted Average Shares Outstanding MARCH 31, 2003 MARCH 31, 2002
=================================================================================
Basic 8,345,554 8,286,107
Diluted 8,345,554 8,503,002
=================================================================================
The Company had 336,488 and 93,804 stock options outstanding which were not
included in the computation of diluted shares outstanding for the three months
ended March 31, 2003 and 2002, respectively, because the effect would have been
antidilutive. Such options could potentially dilute basic earnings per share in
future periods.
NOTE 2 - CAPITAL STOCK
During 1996, the Board of Directors authorized the repurchase of up to 500,000
shares of the Company's Common Stock in the open market. In the first quarter of
2003, the Company reactivated this share repurchase program and repurchased
80,400 treasury shares at market prices ranging from $7.90 to $8.81 per share,
for a total price of $690,000. As of March 31, 2003, treasury shares totaling
414,689 had been repurchased under this program. In February 2003, the Board of
Directors authorized the Company to repurchase up to 500,000 additional shares.
NOTE 3 - BUSINESS SEGMENT INFORMATION
The Company has the following three reportable segments:
o The Engineering segment provides a variety of design and related consulting
services. Such services include design-build, construction management,
consulting, planning, program management, surveying, mapping, geographic
information systems, architectural and interior design, construction
inspection, constructability reviews, software development, site assessment
and restoration, strategic regulatory analysis, regulatory compliance, and
advanced management systems.
o The Energy segment provides a full range of Total Asset Management services
for operating energy production facilities worldwide. These services range
from complete outsourcing solutions to specific services such as training,
personnel recruitment, pre-operations engineering, maintenance management
systems, field operations and maintenance, mechanical equipment
-5-
maintenance, procurement, and supply chain management. Many of these
service offerings are enhanced by the utilization of this segment's OPCO(R)
and managed services operating models as service delivery methods.
o The Non-Core segment includes activity associated with the former buildings
and transportation construction operations that are being wound down, and
the former BSSI subsidiary, which was sold in June 2000.
The following tables reflect the required disclosures for the Company's
reportable segments (in millions):
For the three months ended
--------------------------
MARCH 31, 2003 March 31, 2002
========================================================================================
Total contract revenues:
Engineering $ 58.7 $ 58.3
Energy 40.6 37.6
Non-Core -- --
----------------------------------------------------------------------------------------
Total $ 99.3 $ 95.9
========================================================================================
For the three months ended
--------------------------
MARCH 31, 2003 March 31, 2002
========================================================================================
Income/(loss) from operations without Corporate
expenses allocated:
Engineering $ 2.8 $ 4.2
Energy 1.3 1.7
Non-Core 0.3 --
----------------------------------------------------------------------------------------
Subtotal - segments 4.4 5.9
Corporate/Insurance (4.5) (2.7)
----------------------------------------------------------------------------------------
Total $ (0.1) $ 3.2
========================================================================================
MARCH 31, 2003 Dec. 31, 2002
========================================================================================
Segment assets:
Engineering $ 94.8 $ 76.8
Energy 70.3 52.6
Non-Core 0.8 1.0
----------------------------------------------------------------------------------------
Subtotal - segments 165.9 130.4
Corporate/Insurance 11.4 14.7
----------------------------------------------------------------------------------------
Total $ 177.3 $ 145.1
========================================================================================
-6-
NOTE 4 - LONG-TERM DEBT AND BORROWING ARRANGEMENTS
The Company has an unsecured credit agreement ("the Agreement") with a
consortium of financial institutions. The Agreement provides for a commitment of
$40 million through September 30, 2004. The commitment includes the sum of the
principal amount of revolving credit loans outstanding and the aggregate face
value of outstanding letters of credit. As of March 31, 2003, borrowings
totaling $24.1 million were outstanding under the Agreement, along with
outstanding letters of credit totaling $7.7 million.
On May 8, 2003, the Company entered into an agreement with one of its banks to
provide a Revolving Credit Note ("the Note") in the amount of $5 million through
August 6, 2003. The Note provides the Company with additional liquidity that may
be needed in conjunction with changes in its billing process and system which
have caused temporary delays in both client billings and cash collections during
the first quarter of 2003. (See additional discussion under the Liquidity and
Capital Resources section in Item 2 of this report.)
NOTE 5 - CONTINGENCIES
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
deductibles or self-insured retentions. As a result of adverse market conditions
in the insurance industry, several of these deductibles were either required to
be increased by the Company because expiring coverages were no longer available,
or were voluntarily increased to avoid additional premium cost increases, in
connection with the Company's most recent insurance coverage renewals effective
July 1, 2002. Loss provisions for these exposures are recorded based upon the
Company's estimates of the aggregate 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's 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. On May 29, 2001, the Pennsylvania Insurance
Commissioner placed Reliance into rehabilitation; and on October 3, 2001,
Reliance was placed into liquidation. The Company is uncertain at this time what
effect these actions will have on any claim the Company or its subsidiaries may
have for insurance coverage under policies issued by Reliance with respect to
past years. Baker Environmental, Inc. ("BEI"), a wholly-owned subsidiary of the
Company, was subject to one substantial claim which fell within the Reliance
coverage period. This claim reflected an action by LTV Steel Company ("LTV")
against BEI, resulting from the failure of a landfill for which BEI provided
services. In December
-7-
2002, after a hearing in the U.S. District Court for the Western District of
Pennsylvania, out-of-court settlement discussions between LTV and BEI commenced.
In February 2003, LTV and BEI reached an out-of-court settlement to provide a
payment to LTV in the amount of $2.5 million, the effect of which was recorded
during the fourth quarter of 2002. This settlement was approved by the
bankruptcy court and payment was made in April 2003. Due to the liquidation of
Reliance, the Company is currently uncertain what amounts paid to LTV will be
recoverable under the insurance policy with Reliance. Accordingly, the Company
has recorded no receivable from Reliance.
On July 24, 2001, the Company announced that it had become aware that certain
activities related to the operations of a 53% owned Nigerian subsidiary engaged
in energy-related operations are the subject of an inquiry by the U.S.
Department of Justice. The Company acquired the Nigerian subsidiary as part of
its acquisition of the Overseas Technical Services companies in 1993. The
inquiry appears to be focused upon payments made to certain individuals in
connection with the subsidiary's operations in Nigeria as they relate to
potential violations of the Foreign Corrupt Practices Act and other relevant
statutes. The Company has retained legal counsel to represent it in this matter
and has initiated an internal investigation of these issues. The Company has
been cooperating fully with the government's inquiry; however, there has been no
recent activity in this matter. At this time, the Company is uncertain but does
not expect the costs of its investigation, its cooperation with the government's
inquiry or the outcome thereof, to have a material adverse financial impact on
its future financial results. However, the government's inquiry has not been
concluded and the Company's assessment of the outcome may vary as the matter
proceeds.
The Company has been named as a defendant or co-defendant in other legal
proceedings wherein substantial damages are claimed. Such proceedings are not
uncommon to the Company's business. After consultations with counsel, management
believes that the Company has recognized adequate provisions for probable and
reasonably estimable liabilities associated with these proceedings, and that
their ultimate resolutions will not have a material adverse effect on the
consolidated financial position or annual results of operations of the Company.
At March 31, 2003, 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 Company's business in the
normal course. The Company's outstanding guarantees were as follows at March 31,
2003:
-8-
Maximum Related liability
undiscounted balance recorded
(Dollars in millions) future payments at 3/31/03
================================================================================
Standby letters of credit:
Insurance related $ 7.6 $ 7.6
Other 0.1 --
Performance and payment bonds 25.9 --
Sale of certain construction assets Unlimited --
Sale of BSSI 2.0 --
================================================================================
The Company's banks issue standby letters of credit ("LOCs") on behalf of the
Company under the Agreement discussed above. As of March 31, 2003, most of these
LOCs had been issued to insurance companies to serve as collateral for payments
the insurers are required to make under the Company's 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 behalf of the Company. Such
LOCs renew automatically on an annual basis unless either the LOCs are returned
to the bank by the beneficiary or the Company's banks elect not to renew them.
Bonds are provided on behalf of the Company by Travelers Casualty and Surety
Company of America ("Travelers"). The beneficiaries under these performance and
payment bonds may request payment from Travelers in the event that the Company
does not perform under the project or if subcontractors are not paid. The
performance and payment bonds outstanding at March 31, 2003 included one bond
totaling $24.4 million related to the Company's former construction operations.
This bond will be terminated by Travelers when the related project is completed
and all appropriate releases are received from the client. The project related
to the remaining construction bond is substantially completed; accordingly, this
bond is currently expected to be terminated during the second or third quarter
of 2003. The Company does not currently expect any amounts to be paid by
Travelers under its bonds outstanding at March 31, 2003.
During 2000, the Company sold certain assets associated with its former heavy &
highway construction business to A&L, Inc., and all of the outstanding stock of
its former BSSI subsidiary to SKE International LLC. These sale agreements
provided indemnifications to the buyers for breaches of certain obligations by
the Company. For the sale of heavy & highway assets, there was no dollar limit
on the indemnifications, and the terms vary but will ultimately be governed by
the statutes of limitations. Maximum payments for indemnifications under the
BSSI sale were limited to $2.0 million, and the terms are based on the varying
statutes of limitations plus 90 days. The Company does not currently expect to
make any future payments under these indemnifications.
-9-
NOTE 6 - STOCK OPTIONS
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. ("SFAS") 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure." SFAS 148 amends SFAS 123
to provide alternative methods of transition for companies that voluntarily
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The Company subsequently
adopted the prospective method of applying SFAS 148. Under the prospective
method, the Company began expensing the fair value of all stock options granted,
modified or settled effective January 1, 2003. Since no stock options were
granted, modified or settled by the Company during the first quarter of 2003, no
compensation expense was recognized for the period.
Prior to January 1, 2003, the Company utilized the intrinsic value method of
accounting for stock-based compensation, as originally promulgated by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
as permitted under SFAS 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost was recognized for stock options granted prior
to January 1, 2003. If compensation costs for the Company's stock incentive
plans had been determined based on the fair value at the grant dates for awards
under those plans, consistent with the method prescribed by SFAS 123, the
Company's net income and diluted net income per share amounts would have been
reduced in the first quarters of 2003 and 2002. If SFAS 123 had been used, the
Company's pro forma net income and net income per share amounts would have been
as follows:
FOR THE THREE MONTHS ENDED
MARCH 31,
=========================
(In thousands) 2003 2002
================================================================================
Net (loss)/income, as reported $ (97) $ 1,714
Deduct: Total stock-based employee
compensation expense determined under
fair value method for all awards, net of
related tax effects (88) (267)
--------------------------------------------------------------------------------
Pro forma net income $ (185) $ 1,447
================================================================================
2003 2002
================================================================================
Reported (loss)/earnings per share:
Basic $ (0.01) $ 0.21
Diluted (0.01) 0.20
Pro forma (loss)/earnings per share:
Basic (0.02) 0.17
Diluted $ (0.02) $ 0.17
================================================================================
-10-
NOTE 7 - COMPREHENSIVE INCOME
A reconciliation of the Company's net income and comprehensive income is as
follows:
For the three months ended
--------------------------
MAR. 31, 2003 Mar. 31, 2002
===========================================================================
Net (loss)/income $ (97) $ 1,714
Other comprehensive (loss)/income:
Foreign currency translation adjustment (43) 13
------------------------------------------------------------ --------------
Comprehensive (loss)/ income $ (140) $ 1,727
===========================================================================
NOTE 8 - GOODWILL
Goodwill and other intangible assets consist of the following (in thousands):
MAR. 31, 2003 Dec. 31, 2002
================================================================================
Goodwill:
Engineering $ 1,006 $ 1,006
Energy 7,465 7,465
--------------------------------------------------------------------------------
Total goodwill 8,471 8,471
--------------------------------------------------------------------------------
Other intangible assets, net of accumulated
amortization of $1,024 and $952, respectively 976 1,048
--------------------------------------------------------------------------------
Goodwill and other intangible assets, net $ 9,447 $ 9,519
================================================================================
Under SFAS 142, the Company's goodwill balance is no longer being amortized and
goodwill impairment tests are being performed at least annually. The Company
completed its initial impairment test during the second quarter of 2002, and no
impairment charge was required. The Company expects to complete another
impairment test during the second quarter of 2003 and does not expect a charge
to result from the testing.
The Company's other intangible assets balance solely comprises a non-compete
agreement from the Company's 1998 purchase of Steen Production Services, Inc.
Future amortization expense on the other intangible assets balance is currently
estimated to be $286,000 for the years ending December 31, 2003 through 2005,
with the remaining balance of $190,000 being amortized in 2006.
NOTE 9 - OTHER RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations," which requires that obligations associated with retirements of
tangible long-lived assets be recorded as liabilities when those obligations are
incurred. The Company adopted this standard as of January 1, 2003, and as a
result, has had no effect on its financial statements.
-11-
In July 2002, the FASB issued SFAS 146, "Accounting for Exit or Disposal
Activities," which addresses issues associated with exit or disposal activities
initiated after December 31, 2002. The Company adopted this statement as of
January 1, 2003, and as a result, has had no effect on its financial
statements.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement clarifies and
amends financial accounting and reporting requirements originally established in
SFAS 133. SFAS 149 provides greater clarification by requiring contracts with
comparable characteristics to be accounted for similarly. This statement is
effective for contracts entered into or modified after June 30, 2003 as well as
for hedging relationships designated after June 30, 2003. The Company does not
believe that adoption of this statement will have a material impact on its
financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 clarifies the requirements of SFAS 5,
"Accounting for Contingencies," relating to the guarantor's accounting for and
disclosures of certain guarantees issued. The disclosure requirements of this
interpretation were effective for financial statements of interim or annual
periods ending after December 15, 2002. The Company adopted such disclosure
requirements in connection with the issuance of its 2002 financial statements.
The initial recognition and measurement provisions of this interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company adopted the recognition and measurement
provisions of FIN 45 effective January 1, 2003. Such adoption has not had any
effect on its financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 clarifies Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," and requires that
unconsolidated variable interest entities be consolidated by their primary
beneficiaries if the entities do not effectively disperse risks among parties
involved. The primary beneficiary is the party that absorbs a majority of the
entity's expected losses or returns as a result of holding the variable
interest. This interpretation applies to variable interest entities in which an
enterprise obtains an interest, or which an enterprise creates, after January
31, 2003. For variable interest entities created before February 1, 2003, the
interpretation shall be applied for the first interim or annual reporting period
beginning after June 15, 2003. The Company plans to adopt this interpretation
effective July 1, 2003. Since it currently has no variable interest entities,
the Company does not believe that such adoption will have a material impact on
its financial statements.
NOTE 10 - RECLASSIFICATIONS
Certain reclassifications have been made to prior year income statement and
balance sheet amounts in order to conform to the current year presentation.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following tables reflect a summary of the Company's operating results
(excluding intercompany transactions) for ongoing operations and non-core
businesses for the quarters ended March 31, 2003 and 2002 (in millions):
For the three months ended
--------------------------
MARCH 31, 2003 March 31, 2002
================================================================================
Total contract revenues:
Engineering $ 58.7 $ 58.3
Energy 40.6 37.6
Non-Core* -- --
--------------------------------------------------------------------------------
Total $ 99.3 $ 95.9
================================================================================
For the three months ended
--------------------------
MARCH 31, 2003 March 31, 2002
================================================================================
Income/(loss) from operations with
Corporate expenses allocated:
Engineering $ (0.2) $ 2.8
Energy 0.2 0.9
Non-Core* 0.3 (0.3)
--------------------------------------------------------------------------------
Subtotal - segments 0.3 3.4
Corporate/Insurance (0.4) (0.2)
--------------------------------------------------------------------------------
Total $ (0.1) $ 3.2
================================================================================
* The Non-Core segment includes activity associated with the former buildings
and transportation construction operations that are being wound down, and the
former BSSI subsidiary, which was sold in June 2000.
TOTAL CONTRACT REVENUES
Total contract revenues increased 4% in the first quarter of 2003 relative to
the first quarter of 2002. In the Energy segment, revenues for the first quarter
of 2003 increased 8% over the first quarter of 2002. This increase resulted from
a 39% increase in international revenues for the first quarter of 2003 due to
the commencement of two new international contracts during the second half of
2002. OPCO(R) revenues composed 2% and 30% of Baker Energy's total contract
revenues for the first quarters of 2003 and 2002, respectively. This OPCO
decrease as a percentage of Energy revenues was the result of asset turnover and
an unexpected delay in additional OPCO sales in the Gulf of Mexico. Most of
these former OPCO properties are still being serviced by Baker Energy, but are
being serviced as labor and logistics work outside the OPCO model. Engineering
revenues for the first quarter of 2003 were essentially unchanged from the first
quarter of 2002. Engineering's revenues were adversely impacted in the first
quarter of 2003 by continuing slowness in its private sector contract activity,
and lower labor utilization associated with delays in the commencement of
certain public sector projects due to state budget constraints and the January
-13-
relocation of the Company's largest Engineering office to Moon Township, PA. As
expected, the Company's Non-Core segment posted no revenues for the first
quarters of 2003 or 2002.
GROSS PROFIT
Gross profit expressed as a percentage of revenues decreased to 13.5% for the
first quarter of 2003 from 15.4% in the first quarter of 2002. The Energy
segment's gross profit percentage decreased to 9.4% in the first quarter of 2003
from 12.8% in the first quarter of 2002. This decrease is primarily attributable
to an overall change in the mix of project work. Specifically, Energy's
higher-margin OPCO operations posted a gross profit margin percentage of 23% in
the first quarter of 2003 as compared to 25% in the comparable period of 2002;
however, the related OPCO revenues were lower by 94%. Also contributing to
Energy's gross margin percentage decrease was an international contract for the
implementation of a computerized maintenance management system, which posted a
negative margin for the first quarter of 2003. The Engineering segment's gross
profit percentage was 16.7% for the first quarter of 2003 compared to 17.6% in
the comparable period of 2002. The lower than expected revenue volume discussed
above was the most significant cause for the first quarter 2003 reduction in
Engineering's gross margin percentage. To a lesser extent, final legal costs
associated with the settlement of the LTV matter (discussed in Note 5 to the
accompanying financial statements) resulted in first quarter 2003 costs. In the
Non-Core segment, the positive gross profit resulted from favorable developments
in certain casualty insurance claims related to the Company's former
construction operations, as slightly offset by a charge associated with a
construction-related claim.
Engineering's labor utilization rates have increased during the second quarter
of 2003 and are expected to show continued improvement for the remainder of the
year. With respect to the future of the Energy segment's OPCO business, the
Company is continuing to pursue OPCO contracts in the offshore Gulf of Mexico,
and recently announced a significant onshore OPCO-style agreement with a major
Energy customer. The Company is optimistic that other similar onshore agreements
will be concluded during the second half of 2003.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses expressed as a percentage
of total contract revenues increased to 13.7% in the first quarter of 2003 from
12.1% in the first quarter of 2002. This overall increase in SG&A expenses
expressed as a percentage of total contract revenues results principally from
costs associated with the Company's new information systems, which were
implemented effective January 1, 2003. In the Energy segment, SG&A expenses
expressed as a percentage of total revenues decreased to 8.9% in the first
quarter of 2003 from 10.3% in 2002. This percentage decrease for 2003 resulted
from a combination of higher executive management costs in the first quarter of
2002 and the higher revenues for the first quarter of 2003. In the Engineering
segment, SG&A expenses increased to 16.9% as a percentage of revenues for the
first quarter of 2003 from 12.8% in 2002. This percentage increase is
attributable to the relatively unchanged Engineering revenues coupled with costs
associated with the aforementioned information systems implementation and the
Engineering office relocation. Moving costs totaling $0.4 million associated
with the office relocation will not recur in future periods.
-14-
Likewise, approximately $0.6 million of the information systems costs incurred
during the first quarter of 2003 are not expected to recur. The Company's
Non-Core operations incurred no SG&A expenses in either first quarter period.
OTHER INCOME
Interest income was lower and interest expense was higher for the first quarter
of 2003 as a result of the Company being in a net borrowed position with its
banks during the majority of the first quarter of 2003. The Company was in an
invested position with its bank during the first quarter of 2002. This change
resulted from changes in the Company's billing process and system, which have
caused temporary delays in both client billings and cash collections during the
first quarter of 2003. (See additional discussion under the Liquidity and
Capital Resources section below.) Other income for the first quarter of 2003
primarily related to currency-related gains, as compared to other expenses
during the first quarter of 2002 that resulted almost entirely from minority
interest related to the income of two consolidated subsidiaries in the Energy
segment.
INCOME TAXES
The Company had a benefit from income taxes of 46.0% for the first quarter of
2003, versus a provision for income taxes of 45.5% for the first quarter of
2002. The slightly higher rate for 2003 is consistent with the Company's full
year rate for 2002 and reflects the Company's best current estimate of domestic
and foreign taxable income for the year ending December 31, 2003.
CONTRACT BACKLOG
(In millions) MARCH 31, 2003 Dec. 31, 2002
=====================================================================
Engineering $ 459.7 $ 448.8
Energy 103.8 96.4
---------------------------------------------------------------------
Total $ 563.5 $ 545.2
=====================================================================
Backlog consists of that portion of uncompleted work that is represented by
signed or executed contracts. Certain of the Company's contracts with the
Federal government and other clients may be terminated at will, or option years
may not be exercised; therefore, no assurance can be given that all backlog will
be realized.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $23.6 million for the first quarter of
2003 as compared to net cash provided by operating activities of $1.6 million
for the same period in 2002. This increase in cash used was the direct result of
increases in receivables and unbilled revenues associated with changes in the
Company's billing process and system, which have caused temporary delays in both
client billings and cash collections during the first quarter of 2003.
Effective January 1, 2003, the Company implemented a new billing system and made
certain related changes to its billing process. As a result of these billing
system and process changes, the Company experienced certain data conversion
problems and training issues, which caused delays in producing client invoices
during the first quarter of 2003. Since the new system was first used to invoice
clients in February 2003, the Company has undertaken various corrective
improvement measures, and has invoiced in excess of $100 million through its new
software. The second order effect of the billing delays has been a lower rate of
cash collections, which created a first quarter 2003 cash requirement that was
funded by utilization of the Company's credit facility. As of March 31, 2003,
the Company had related borrowings of $24.1 million. In May 2003, the Company
added back-up liquidity through one of its banks in the form of a 90-day credit
line totaling $5 million.
At this time, client billings remain approximately two to three weeks in
arrears, and management attention continues to be focused on further
improvements to this critical process. As the rate of client invoicing continues
to improve, management currently expects that its client billings will be caught
up by the end of the third quarter, and that the Company's unbilled revenues
balance (shown in the balance sheet as cost of contracts in progress and
estimated earnings, less billings) will decrease to a more normal level.
Accordingly, while management currently expects that its receivables balance
will increase further during the second quarter, the receivables balance is
expected to decrease during the third quarter of 2003. As the receivables
balance decreases, the related cash collected will be used to reduce the bank
borrowings. Management currently expects that the bank borrowings related to the
billing and collection delays will be substantially, if not entirely, repaid by
the end of the third quarter of 2003. Until then, the Company expects that these
delays will continue to adversely impact its working capital, and that
borrowings under its credit facility will reflect this impact.
-15-
Net cash used in investing activities was $2.7 million for the first quarter of
2003, compared to $3.8 million for the first quarter of 2002. The net cash used
in investing activities for the first quarter of 2003 is entirely related to
capital expenditures while the net cash used in investing activities for the
first quarter of 2002 reflected capital expenditures of $2.8 million and a $1.0
million investment in Energy Virtual Partners, a management service business
that offers a high-value alternative to selling mature, under-resourced oil and
gas properties. The capital expenditures for the first quarter of 2003 are
attributable to leasehold improvements totaling $1.9 million for the Company's
largest Engineering office and $0.8 million relating to the new information
systems.
Net cash provided by financing activities was $23.4 million for the first
quarter of 2003 versus a negligible amount used for the first quarter of 2002.
The net cash provided by financing activities for the first quarter of 2003
reflects proceeds from long-term debt to fund the aforementioned working capital
needs in conjunction with changes in the Company's billing process and system
and the resultant billing and collection delays. As of May 29, 2003, the
Company's borrowings were $25.8 million. In addition, pursuant to the Company's
stock repurchase program, the Company paid $0.7 million to acquire 80,400
additional treasury shares during the first quarter of 2003.
Working capital increased to $62.5 million at March 31, 2003 from $41.0 million
at December 31, 2002. The Company's current ratio was 1.8:1 at the end of the
first quarter of 2003, compared to 1.6:1 at year-end 2002. These variances are
also directly related to the changes in the Company's billing process and
system.
The Company has an unsecured credit agreement ("the Agreement") with a
consortium of financial institutions. The Agreement provides for a commitment of
$40 million through September 30, 2004. The commitment includes the sum of the
principal amount of revolving credit loans outstanding and the aggregate face
value of outstanding letters of credit. As of March 31, 2003, borrowings
totaling $24.1 million were outstanding under the Agreement, along with
outstanding letters of credit totaling $7.7 million.
Effective May 8, 2003, the Company also secured additional short-term borrowing
capacity in the form of a Revolving Credit Note ("the Note") totaling $5 million
through one of its banks. Although the Company has not utilized this new
credit facility, the Note will provide the Company with additional liquidity, if
needed, through August 6, 2003.
The Company currently has a bonding line available through Travelers Casualty
and Surety Company of America ("Travelers"). At March 31, 2003, performance and
payment bonds totaling $25.9 million were outstanding under this line. Of this
outstanding amount, $24.4 million related to the Company's former construction
operations. This bond will be terminated by Travelers when the related project
is completed and all appropriate releases are received from the client. The
project related to the remaining construction bond is substantially completed;
accordingly, this bond is currently expected to be terminated during the second
or third quarter of 2003. Management believes that this bonding line will be
sufficient to meet its bid and performance bonding needs for at least the next
year.
-16-
The Company utilizes operating leases to acquire assets used in its daily
business activities. These assets include office space, computer and related
equipment, and motor vehicles. The lease payments for use of these assets are
recorded as expenses, but do not appear as liabilities on the Company's
consolidated balance sheets.
The Company's 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. On May 29, 2001, the Pennsylvania Insurance
Commissioner placed Reliance into rehabilitation; and on October 3, 2001,
Reliance was placed into liquidation. The Company is uncertain at this time what
effect these actions will have on any claim the Company or its subsidiaries may
have for insurance coverage under policies issued by Reliance with respect to
past years. Baker Environmental, Inc. ("BEI"), a wholly-owned subsidiary of the
Company, was subject to one substantial claim which fell within the Reliance
coverage period. This claim reflected an action by LTV against BEI, resulting
from the failure of a landfill for which BEI provided services. In December
2002, after a hearing in the U.S. District Court for the Western District of
Pennsylvania, out-of-court settlement discussions between LTV and BEI commenced.
In February 2003, LTV and BEI reached an out-of-court settlement that will
provide a payment to LTV in the amount of $2.5 million. This settlement was
approved by the bankruptcy court and payment was made in April 2003. Due to the
liquidation of Reliance, the Company is currently uncertain what amounts paid to
LTV will be recoverable under the insurance policy with Reliance. Accordingly,
the Company recorded no receivable from Reliance.
The Company views its short and long-term liquidity as being dependent upon its
results of operations, changes in working capital and its borrowing capacity.
These factors are further dependent upon appropriations of public funds for
infrastructure and other government-funded projects, capital spending levels in
the private sector, and the demand for the Company's services in the engineering
and energy markets. Additional external factors such as price fluctuations in
the energy industry could affect the Company. The Federal government's TEA-21
legislation has made significant transportation funding available to the various
state agencies since its approval in 1998. The Federal budget approved for the
U.S. government's 2002-2003 fiscal year included transportation funding equal to
that approved for its 2001-2002 fiscal year; however, certain state agencies may
not apply for Federal transportation funding during 2003 as they may be unable
to commit the required matching funds due to budget constraints. Transportation
funding is expected to receive significant attention during the Federal budget
approval process for its 2003-2004 fiscal year, as TEA-21 is up for
reauthorization. During 2002, the Company observed increased Federal spending
activity on Department of Defense and Homeland Security activities, including
FEMA. Additional government spending in these areas, or on transportation
infrastructure, could result in profitability and liquidity improvements for the
Company. Significant contractions in any of these areas could unfavorably impact
the Company's profitability and liquidity.
-17-
After giving effect to the foregoing, including the aforementioned billing and
collection delays, management still believes that the combination of cash
generated from operations and its existing credit facility will be sufficient to
meet its operating and capital expenditure requirements for at least the next
year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currently, the Company's primary interest rate risk relates to its variable rate
debt obligations, which totaled $24.1 million as of March 31, 2003. Assuming a
10% increase in interest rates on the Company's variable rate obligations (i.e.,
an increase from the actual weighted average interest rate of 3.54% as of March
31, 2003, to a weighted average interest rate of 3.90%), annual interest expense
would be approximately $85,000 higher based on the outstanding balance of
variable rate obligations as of March 31, 2003. In addition, the Company has no
interest rate swap or exchange agreements.
The Company has several foreign subsidiaries that transact portions of their
local activities in currencies other than the U.S. Dollar. In assessing its
exposure to foreign currency exchange rate risk, the Company recognizes that the
majority of its foreign subsidiaries' assets and liabilities reflect ordinary
accounts receivable and payable balances. These receivable and payable balances
are substantially settled in the same currencies as the functional currencies of
the related foreign subsidiaries, thereby not exposing the Company to material
transaction gains and losses. Assuming that foreign currency exchange rates
could change unfavorably by 10%, the Company would have no material exposure to
foreign currency exchange rate risk. The Company has no foreign currency
exchange contracts.
Based on the nature of the Company's business, it has no direct exposure to
commodity price risk.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer of the Company (its
principal executive officer and principal financial officer, respectively) have
concluded, based on their evaluation as of a date within 90 days prior to the
date of the filing of this report, that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports filed or submitted by it under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
include controls and procedures designed to ensure that information required to
be disclosed by the Company in such reports is accumulated and communicated to
the Company's management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
The Company was unable to timely file this Form 10-Q for the quarter ended March
31, 2003 due to unexpected data conversion problems and training issues
associated with the implementation of new information systems effective January
1, 2003. Management has focused attention on these problems and issues during
the first and second quarters of 2003, and fully expects to file its quarterly
and other periodic reports on a timely basis in future periods.
-18-
(b) Changes in Internal Controls
There were no significant changes in the Company's internal controls or in other
factors that would significantly impact the effectiveness of these controls
subsequent to the date of such evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed more fully in Item 3 of the Company's Form 10-K for the year ended
December 31, 2002, Baker Environmental, Inc. ("BEI"), a wholly-owned subsidiary
of the Company, had been subject to a claim by LTV Steel Company ("LTV"),
resulting from the failure of a landfill for which BEI provided services. In
February 2003, LTV and BEI reached an out-of-court settlement under which LTV
was to be paid $2.5 million. At that time of the Company's 2002 Form 10-K
filing, such settlement was still pending approval by the Bankruptcy Court
overseeing the LTV bankruptcy proceeding. In late March 2003, the Bankruptcy
Court approved the settlement and payment was made by BEI to LTV during April
2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herewith as a part of this Report:
Exhibit No. Description
----------- -----------
10.3(d) Employment Continuation Agreement dated April 1, 2003 by and
between the Company and Monica L. Iurlano.
10.4(e) Revolving Credit Note dated May 8, 2003 by and between the
Company and Citizens Bank of Pennsylvania.
99.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
-------------------
On May 14, 2003, the Company filed a report on Form 8-K reporting that the
Company would release its first quarter 2003 financial results on May 27,
2003, as presented in a press release on May 13, 2003.
On May 28, 2003, the Company filed a report on Form 8-K reporting the
Company's financial results for the quarter ended March 31, 2003, as
presented in a press release on May 28, 2003.
-19-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICHAEL BAKER CORPORATION
/s/ William P. Mooney Dated: May 30, 2003
-------------------------------------------
William P. Mooney
Executive Vice President and
Chief Financial Officer
/s/ Craig O. Stuver Dated: May 30, 2003
-------------------------------------------
Craig O. Stuver
Senior Vice President, Corporate Controller
and Treasurer (Chief Accounting Officer)
-20-
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Donald P. Fusilli, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Michael Baker
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Michael Baker Corporation as of, and for, the periods presented in this
quarterly report;
4. Michael Baker Corporation's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for Michael Baker Corporation and we
have:
a) designed such disclosure controls and procedures to ensure that material
information relating to Michael Baker Corporation, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of Michael Baker Corporation's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. Michael Baker Corporation's other certifying officer and I have disclosed,
based on our most recent evaluation, to Michael Baker Corporation's auditors and
the audit committee of Michael Baker Corporation's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect Michael Baker Corporation's ability to
record, process, summarize and report financial data and have identified for
Michael Baker Corporation's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Michael Baker Corporation's internal
controls; and
6. Michael Baker Corporation's other certifying officer and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Donald P. Fusilli, Jr. Dated: May 30, 2003
---------------------------------------
Donald P. Fusilli, Jr.
President and Chief Executive Officer
-21-
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, William P. Mooney, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Michael Baker
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Michael Baker Corporation as of, and for, the periods presented in this
quarterly report;
4. Michael Baker Corporation's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Michael Baker Corporation and
we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to Michael Baker Corporation, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of Michael Baker Corporation's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. Michael Baker Corporation's other certifying officer and I have disclosed,
based on our most recent evaluation, to Michael Baker Corporation's auditors and
the audit committee of Michael Baker Corporation's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect Michael Baker Corporation's ability to
record, process, summarize and report financial data and have identified for
Michael Baker Corporation's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Michael Baker Corporation's internal
controls; and
6. Michael Baker Corporation's other certifying officer and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ William P. Mooney Dated: May 30, 2003
---------------------------------
William P. Mooney
Executive Vice President and
Chief Financial Officer
-22-