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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 SEPTEMBER 30, 2002
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.)
Airport Office Park, Building 3, 420 Rouser Road, Coraopolis, PA 15108
- ---------------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(412) 269-6300
---------------
(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of October 31, 2002:
-----------------------
Common Stock 8,385,523 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
--------------------------
SEPT. 30, 2002 Sept. 30, 2001
- ------------------------------------------------------------------------------
(In thousands, except
per share amounts)
Total contract revenues $ 102,200 $ 100,799
Cost of work performed 78,475 82,896
- ---------------------------------------------------------------------------
Gross profit 23,725 17,903
Selling, general and administrative expenses 12,882 12,247
- ---------------------------------------------------------------------------
Income from operations 10,843 5,656
Other income/(expense):
Interest income 77 143
Interest expense (21) (276)
Other, net (137) 37
- ---------------------------------------------------------------------------
Income before income taxes 10,762 5,560
Provision for income taxes 4,386 2,613
- ---------------------------------------------------------------------------
NET INCOME $ 6,376 $ 2,947
===========================================================================
BASIC NET INCOME PER SHARE $ 0.76 $ 0.35
DILUTED NET INCOME PER SHARE $ 0.75 $ 0.35
===========================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-2-
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the nine months ended
-------------------------
SEPT. 30, 2002 Sept. 30, 2001
- --------------------------------------------------------------------------------
(In thousands, except
per share amounts)
Total contract revenues $ 302,881 $ 298,401
Cost of work performed 246,059 247,588
- --------------------------------------------------------------------------------
Gross profit 56,822 50,813
Selling, general and administrative expenses 36,663 34,958
- --------------------------------------------------------------------------------
Income from operations 20,159 15,855
Other income/(expense):
Interest income 249 593
Interest expense (61) (688)
Other, net (215) 70
- --------------------------------------------------------------------------------
Income before income taxes 20,132 15,830
Provision for income taxes 8,556 7,302
- --------------------------------------------------------------------------------
NET INCOME $ 11,576 $ 8,528
================================================================================
BASIC NET INCOME PER SHARE $ 1.39 $ 1.03
DILUTED NET INCOME PER SHARE $ 1.36 $ 1.01
================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-3-
MICHAEL BAKER CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS SEPT. 30, 2002 Dec. 31, 2001
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 22,379 $ 18,482
Receivables 68,432 67,594
Cost of contracts in progress and estimated earnings, less billings 29,831 25,341
Litigation escrow - 12,710
Prepaid expenses and other 3,728 1,429
- ---------------------------------------------------------------------------------------------------------------
Total current assets 124,370 125,556
- ---------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 15,113 10,278
- ---------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill and other intangible assets, net 9,590 9,804
Other assets 4,145 2,748
- ---------------------------------------------------------------------------------------------------------------
Total other assets 13,735 12,552
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 153,218 $ 148,386
===============================================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 17,753 $ 21,885
Accrued employee compensation 11,484 15,413
Accrued insurance 6,606 5,359
Accrued litigation reserve 5,000 11,770
Income taxes payable 7,392 1,827
Other accrued expenses 25,592 22,263
Excess of billings on contracts in progress over cost and estimated
earnings 2,919 6,085
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 76,746 84,602
- ---------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES 2,808 2,291
Commitments and contingencies - -
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 79,554 86,893
- ---------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT
Common Stock, par value $1, authorized 44,000,000 shares, issued
8,696,360 and 7,315,894 shares at 9/30/02 and 12/31/01, respectively 8,696 7,316
Series B Common Stock, par value $1, authorized 6,000,000 shares,
issued 0 and 1,296,696 shares at 9/30/02 and 12/31/01, respectively - 1,297
Additional paid-in-capital 38,169 37,734
Retained earnings 29,420 17,845
Other comprehensive loss (358) (266)
Less - 310,837 and 334,289 shares of Common Stock in treasury,
at cost, at 9/30/02 and 12/31/01, respectively (2,263) (2,433)
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' investment 73,664 61,493
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 153,218 $ 148,386
===============================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-4-
MICHAEL BAKER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended
-------------------------
SEPT. 30, 2002 Sept. 30, 2001
- ---------------------------------------------------------------------------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,576 $ 8,528
Adjustments to reconcile net income to net
cash (used in)/provided by operating activities:
Depreciation and amortization 3,056 3,893
Changes in assets and liabilities:
Increase in receivables and contracts in progress (8,503) (10,023)
(Decrease)/increase in accounts payable and expenses (4,162) 4,841
(Increase)/decrease in other net assets (2,140) 2,487
- --------------------------------------------------------------------------------------------------
Total adjustments (11,749) 1,198
- --------------------------------------------------------------------------------------------------
Net cash (used in)/provided by operating activities (173) 9,726
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (7,836) (3,077)
Investment in Energy Virtual Partners (1,000) -
Receipt of litigation escrow 12,335 -
Proceeds from sale of short-term investments - 8,999
Funding of litigation escrow - (12,710)
- --------------------------------------------------------------------------------------------------
Net cash provided by/(used in) investing activities 3,499 (6,788)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (2) (2,258)
Payments to acquire treasury stock - (290)
Proceeds from exercise of stock options 573 289
- --------------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing activities 571 (2,259)
- --------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,897 679
Cash and cash equivalents, beginning of year 18,482 9,122
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,379 $ 9,801
==================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW DATA
Interest paid $ 42 $ 251
Income taxes paid $ 2,992 $ 1,820
==================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-5-
MICHAEL BAKER CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
NOTE 1 - EARNINGS PER SHARE
Basic net income per share computations are based upon weighted averages of
8,385,523 and 8,306,399 for the three-month periods, and 8,339,732 and 8,295,121
for the nine-month periods, ended September 30, 2002 and 2001, respectively.
Diluted net income per share computations are based upon weighted averages of
8,540,121 and 8,490,638 shares outstanding for the three-month periods, and
8,527,885 and 8,405,159 for the nine-month periods, ended September 30, 2002 and
2001, respectively. The additional shares included in diluted shares outstanding
are entirely attributable to stock options.
As of September 30, 2002, the Company had 201,439 stock options outstanding
which were not included in the computation of diluted shares outstanding for the
three or nine-month periods ended September 30, 2002 because the effect would
have been antidilutive. Such options could potentially dilute basic earnings per
share in future periods.
NOTE 2 - BUSINESS SEGMENT INFORMATION
The Company has the following three reportable segments:
- - 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.
- - The Energy segment provides a full range of technical 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
maintenance, and supply chain management. Many of these service offerings
are enhanced by the utilization of this segment's OPCO(SM) managed
production model as a service delivery method.
- - The Non-Core segment includes activity associated with the former buildings
and transportation construction operations that are being wound down, and
the former Baker Support Services, Inc. subsidiary, which was sold in June
2000.
-6-
The following tables reflect the required disclosures for the Company's
reportable segments (in millions):
For the three months ended For the nine months ended
-------------------------- -------------------------
SEPT. 30, 2002 Sept. 30, 2001 SEPT. 30, 2002 Sept. 30, 2001
- ------------------------------------------------------------------------------------------------------------
Total contract revenues:
Engineering $ 61.4 $ 60.6 $181.6 $178.9
Energy 40.8 40.2 121.3 119.0
Non-Core - - - 0.5
- ------------------------------------------------------------------------------------------------------------
Total $102.2 $100.8 $302.9 $298.4
============================================================================================================
For the three months ended For the nine months ended
-------------------------- -------------------------
SEPT. 30, 2002 Sept. 30, 2001 SEPT. 30, 2002 Sept. 30, 2001
- --------------------------------------------------------------------------------------------------------------------
Income/(loss) from operations
without Corporate expenses
allocated:
Engineering $ 6.6 $ 5.1 $17.0 $14.2
Energy 3.8 4.2 8.8 10.4
Non-Core 4.6 (0.1) 4.0 0.4
- --------------------------------------------------------------------------------------------------------------------
Subtotal - segments 15.0 9.2 29.8 25.0
Corporate/Insurance (4.2) (3.5) (9.6) (9.1)
====================================================================================================================
Total $10.8 $ 5.7 $20.2 $15.9
====================================================================================================================
SEPT. 30, 2002 Dec. 31, 2001
- ----------------------------------------------------------------------------------------------
Segment assets:
Engineering $ 77.0 $ 72.4
Energy 53.7 46.6
Non-Core 0.3 14.6
- ----------------------------------------------------------------------------------------------
Subtotal - segments 131.0 133.6
Corporate/Insurance 22.2 14.8
- ----------------------------------------------------------------------------------------------
Total $ 153.2 $ 148.4
==============================================================================================
NOTE 3 - 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 September 30, 2002, no borrowings
were outstanding under the Agreement; however; letters of credit totaling $7.8
million were outstanding as of this date.
-7-
NOTE 4 - CONTINGENCIES
The Company's professional liability errors and omissions 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. Currently, Baker Environmental, Inc. ("BEI"), a
wholly-owned subsidiary of the Company, is subject to one substantial claim
which, if decided adversely to the Company, would be within the scope of an
insurance policy issued by Reliance. This claim reflects an action by LTV Steel
Company ("LTV") against BEI, which is pending in the U.S. District Court for the
Western District of Pennsylvania, and resulted from the failure of a landfill
for which BEI provided services. Although LTV claims damages of $10-11 million,
the litigation is in progress and, at this time, it is uncertain whether BEI
will have any liability with respect to this claim and, if so, whether any such
liability will be funded by Reliance. Based on the uncertainty associated with
BEI's liability for this claim, and with Reliance's ability to fund such
liability, if any, the Company has not accrued any amounts for this matter in
its consolidated financial statements as of September 30, 2002.
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 London-based Overseas Technical Services, Inc. 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 is conducting an internal investigation of these issues. The Company has
been cooperating fully with the government's inquiry. At this time, the Company
is uncertain but does not expect the costs of its investigation, its cooperation
in the government's inquiry or the outcome thereof, to have a material adverse
financial impact on its future financial results. However, the Company's
internal investigation and the government's inquiry are ongoing and the
Company's assessment of the outcome may vary as the investigation and inquiry
proceed.
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 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. Provisions for losses
expected 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. Changes in the
estimates of aggregate liability for related claims resulted in unfavorable
adjustments to the Company's insurance expense during the three and nine-month
periods ended September 30, 2002, and in a favorable adjustment for the
nine-month period ended September 30, 2001.
-8-
The Company has reviewed the status of other contingencies outstanding at
September 30, 2002. Management believes that there have been no significant
changes to the information disclosed in its Annual Report on Form 10-K for the
year ended December 31, 2001.
NOTE 5 - NON-CORE OPERATIONS
As further discussed in Note 4 to the Company's consolidated financial
statements for the year ended December 31, 2001, in separate rulings during
February 2002, the U.S. Court of Appeals for the 11th Circuit reversed both of
the U.S. District Court's prior judgments for liability and attorneys' fees and
costs on behalf of Baker Mellon Stuart Construction, Inc. ("BMSCI"), a
wholly-owned subsidiary of the Company, and remanded the ADF matters back to the
District Court for further proceedings.
Based on the decisions of the Court of Appeals, on August 2, 2002, the Company
received approximately $12.3 million of the $12.7 million previously being held
in escrow as a result of this litigation. The amount received was reclassified
from the "litigation escrow" balance to "cash and cash equivalents" in the
Company's balance sheet at June 30, 2002. The remaining escrow amount of
approximately $0.4 million, relating to an aspect of the litigation that was not
contested by BMSCI, was also disbursed by the escrow agent in August 2002 to
ADF.
Court-mandated mediation of the ADF litigation was conducted in Orlando, Florida
on October 23-25, 2002. As a result of the mediation, the Company reached a
settlement with ADF providing for the payment of $5.0 million by the Company to
ADF. Also resulting from the mediation, the Company agreed to release its
existing claim against Hellmuth, Obata & Kassabaum, Inc. ("HOK") arising out of
the same project, in exchange for an additional payment of $2.75 million by HOK
to ADF. Legal releases are currently being exchanged among the parties to
finalize the settlement. As a result of the settlement, the Company became
obligated to pay contingent legal fees estimated at approximately $1.2 million
related to its claim against HOK. Accordingly, the Company reduced its "accrued
litigation reserve" balance to the $5.0 million amount and accrued the
contingent legal fees, thereby resulting in a net favorable impact of $5.1
million on the Non-Core segment's operating income for the quarter ended
September 30, 2002. The $5.0 million settlement was subsequently paid by the
Company into an escrow account in November 2002, and will be released to ADF
upon the execution of legal releases by all parties involved in the matter.
-9-
NOTE 6 - COMPREHENSIVE INCOME
A reconciliation of the Company's net income and comprehensive income is as
follows:
For the three months ended For the nine months ended
-------------------------- -------------------------
SEPT. 30, 2002 Sept. 30, 2001 SEPT. 30, 2002 Sept. 30, 2001
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 6,376 $ 2,947 $ 11,576 $ 8,528
Other comprehensive income/
(loss), net of tax - Foreign
currency translation adjustment (71) (73) (92) 140
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 6,305 $ 2,874 $ 11,484 $ 8,668
============================================================================================================================
NOTE 7 - GOODWILL
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). Under SFAS 142, the Company's goodwill balance will no
longer be amortized, and goodwill impairment tests are required at least
annually. The Company adopted this standard effective January 1, 2002, and
completed its initial impairment test during the second quarter of 2002. No
impairment charge was recorded as a result of this initial impairment test.
The Company's net income and earnings per share results related to the adoption
of SFAS 142 are as follows (in thousands, except per share information):
For the three months ended For the nine months ended
-------------------------- -------------------------
SEPT. 30, 2002 Sept. 30, 2001 SEPT. 30, 2002 Sept. 30, 2001
- ---------------------------------------------------------------------------------------------------------------------------
Reported net income $ 6,376 $ 2,947 $ 11,576 $ 8,528
Add back: Goodwill
amortization, net of tax - 92 - 280
- ---------------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 6,376 $ 3,039 $ 11,576 $ 8,808
============================================================================================================================
For the three months ended For the nine months ended
-------------------------- -------------------------
SEPT. 30, 2002 Sept. 30, 2001 SEPT. 30, 2002 Sept. 30, 2001
- -----------------------------------------------------------------------------------------------------------------------------
Reported earnings per share:
Basic $ 0.76 $ 0.35 $ 1.39 $ 1.03
Diluted $ 0.75 $ 0.35 $ 1.36 $ 1.01
Adjusted earnings per share:
Basic $ 0.76 $ 0.37 $ 1.39 $ 1.06
Diluted $ 0.75 $ 0.36 $ 1.36 $ 1.05
==============================================================================================================================
-10-
NOTE 8 - OTHER RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001 and October 2001, the FASB issued Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement Obligations"
("SFAS 143") and No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"), respectively. SFAS 143 requires that
obligations associated with retirements of tangible long-lived assets be
recorded as liabilities when those obligations are incurred. The Company will be
required to adopt this standard effective January 1, 2003, and does not believe
that adoption of this statement will have a material impact on its financial
statements. SFAS 144 requires that long-lived assets that are to be disposed of
by sale must be measured at the lower of book value or fair value, less cost to
sell. This standard was adopted effective January 1, 2002. Such adoption did not
have a material effect on the Company's financial position as of September 30,
2002 or its results of operations for the three or nine-month periods then
ended.
In April 2002 and July 2002, the FASB issued Statements of Financial Accounting
Standard No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections" ("SFAS 145"), and No. 146,
"Accounting for Exit or Disposal Activities" ("SFAS 146"). SFAS 145 prescribes
amendments to existing pronouncements on accounting for early retirements of
debt and modifications of capital leases. The provisions of this statement are
effective for financial statements issued on or after May 15, 2002. SFAS 146
addresses issues associated with exit or disposal activities initiated after
December 31, 2002. The Company does not believe that the adoption of these
statements will have a material impact on its financial statements.
NOTE 9 - CONSOLIDATION OF FOREIGN OPERATIONS
The differences between the amounts reported in the accompanying Condensed
Consolidated Statements of Income for the three and nine-month periods ended
September 30, 2001 and those reported in the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001 are entirely attributable to the
consolidation of local currency activities for two less-than-wholly-owned
subsidiaries in Nigeria and Thailand. These subsidiaries' local currency results
of operations were consolidated for the first time in the fourth quarter of
2001, and retroactively adjusted in the Company's results of operations for the
first three quarters of 2001. These adjustments had no impact on net income for
the first three quarters of 2001.
NOTE 10 - RECLASSIFICATIONS
Certain reclassifications have been made to prior year balance sheet amounts in
order to conform to the current year presentation.
-11-
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 periods ended September 30, 2002 and 2001 (in millions):
For the three months ended For the nine months ended
-------------------------- -------------------------
SEPT. 30, 2002 Sept. 30, 2001 SEPT. 30, 2002 Sept. 30, 2001
- ------------------------------------------------------------------------------------------------------------------------
Total contract revenues:
Engineering $ 61.4 $ 60.6 $ 181.6 $ 178.9
Energy 40.8 40.2 121.3 119.0
Non-Core* - - - 0.5
- ------------------------------------------------------------------------------------------------------------------------
Total $ 102.2 $ 100.8 $ 302.9 $ 298.4
========================================================================================================================
For the three months ended For the nine months ended
-------------------------- -------------------------
SEPT. 30, 2002 Sept. 30, 2001 SEPT. 30, 2002 Sept. 30, 2001
- ------------------------------------------------------------------------------------------------------------------
Income/(loss) from operations
with Corporate expenses
allocated:
Engineering $ 5.1 $ 3.6 $12.5 $ 9.9
Energy 3.0 3.4 6.5 8.6
Non-Core* 2.5 (1.0) 1.6 (1.8)
- ------------------------------------------------------------------------------------------------------------------
Subtotal - segments 10.6 6.0 20.6 16.7
Corporate/Insurance 0.2 (0.3) (0.4) (0.8)
==================================================================================================================
Total $10.8 $ 5.7 $20.2 $15.9
==================================================================================================================
* The Non-Core segment includes activity associated with the former buildings
and transportation construction operations that are being wound down, and
the former Baker Support Services, Inc. subsidiary, which was sold in June
2000.
TOTAL CONTRACT REVENUES
Total contract revenues from the Company's ongoing operations (defined as
consolidated revenues less Non-Core revenues) increased slightly in the third
quarter of 2002 relative to the third quarter of 2001. In the Energy segment,
revenues for the third quarter of 2002 increased 2% from the third quarter of
2001. This lower growth was the direct result of the expiration of several older
international contracts that were not renewed in late 2001 and early 2002, and
weaker sales in both the domestic and international markets. OPCO(SM) revenues
composed 22% and 31% of Energy's total contract revenues for the third quarters
of 2002 and 2001, respectively. This decrease in OPCO revenues as a percentage
of Energy revenues resulted from the conversion of a significant OPCO account to
non-OPCO status during the third quarter of 2002. Engineering revenues increased
only
-12-
slightly for the third quarter of 2002 as compared to the third quarter of 2001.
This minor increase is mostly attributable to a slowdown in pipeline and
telecommunications projects in the Western U.S., which offset a 14% overall
revenue gain in the transportation-related sector. The Engineering segment's
third quarter 2002 results also benefited from the impact of several contracts
and supplements being fully executed by its clients, thereby allowing
recognition of related revenues (for which the costs had been expensed in prior
periods) under the Company's revenue recognition policy. As expected, the
Company's Non-Core segment posted no revenues for the third quarters of either
2002 or 2001. This absence of activity reflects the continuing wind-down of the
Company's former construction operations.
For the first nine months of 2002, total contract revenues from the Company's
ongoing operations increased 2% over the corresponding period in 2001. In the
Energy segment, revenues increased 2% for the first nine months of 2002 as
compared to the first nine months of 2001. This lower growth is again
attributable to the expiration of several older international contracts that
were not renewed and weaker sales in both the domestic and international
markets. OPCO contracts composed 27% and 30% of Baker Energy's total contract
revenues for the first nine months of 2002 and 2001, respectively. The decrease
in OPCO revenues as a percentage of Energy revenues is again attributable to the
conversion of a significant OPCO account to non-OPCO status during the third
quarter of 2002, and the attrition of several OPCO properties due to client
sales of operating facilities since the third quarter of 2001. Engineering
revenues also increased 2% in the first nine months of 2002 as compared to the
first nine months of 2001 due to a 12% revenue gain in the
transportation-related sector, which was partially offset by lower revenues in
the Western U.S. The absence of revenues for the Company's Non-Core operations
during the first nine months of 2002 again reflects the continuing wind-down of
the Company's construction operations.
GROSS PROFIT
For the Company's ongoing operations (excluding Non-Core operations), gross
profit expressed as a percentage of revenues increased to 18.8% for the third
quarter of 2002 from 17.9% in the third quarter of 2001. Certain third quarter
2002 adjustments for self-insured medical and casualty insurance costs adversely
impacted the third quarter 2002 gross profit from ongoing operations. The Energy
segment's gross profit percentage was 16.5% for the third quarter of 2002, down
from 20.2% for the third quarter of 2001. This decrease was the result of the
expiration of several higher margin international contracts that were either not
renewed or renewed at lower margins in late 2001 and early 2002. Also affecting
gross profit were several new lower margin domestic contracts that commenced
during the first quarter of 2002. Energy's OPCO operations posted a gross profit
margin percentage of 31% in both the third quarters of 2002 and 2001; however,
the 2002 percentage includes the effect of revenue associated with the
aforementioned conversion of an OPCO account to non-OPCO status. The Engineering
segment's gross profit percentage was 20.0% for the third quarter of 2002
compared to 16.8% in the comparable period of 2001. Contributing to this
increase were an overall more favorable mix of higher margin engineering
contracts (complimented by more self-performed work and less usage of
subcontractors) that continued into the third quarter of 2002, as well as the
previously mentioned Engineering revenue recognized as a result of contracts and
supplements executed during the third quarter of 2002. These improvements were
partially offset by
-13-
the impact of an unfavorable project claim settlement during the third quarter
of 2002. The Company's Non-Core segment posted gross profit of $4.6 million for
the third quarter of 2002 versus a loss of $0.1 million in the prior year
period. The third quarter 2002 profit resulted from the favorable settlement of
the ADF litigation (discussed in Note 5 to the accompanying financial
statements), as partially offset by adverse developments in casualty insurance
claims related to the Company's former construction and Baker Support Services,
Inc. operations and by the unfavorable impact of an offer to settle project
claims related to the sale of a business.
Gross profit expressed as a percentage of revenues for the Company's ongoing
operations increased to 17.4% in the first nine months of 2002 from 16.9% in the
first nine months of 2001. The Energy segment's gross profit percentage
decreased to 15.2% in the first nine months of 2002 from 18.4% in the first nine
months of 2001. In addition to a write down on a significant international
project that was terminated during the second quarter of 2002, the reasons for
this percentage decrease are consistent with those discussed in the preceding
paragraph. OPCO operations posted gross profit margin percentages of 29% and 23%
for the first nine months of 2002 and 2001, respectively. The below average
year-to-date gross profit margin for 2001 related to fluctuations in certain
costs incurred in connection with the transition of several OPCO contracts to
Phase II of the OPCO model. During Phase I of a typical OPCO contract, only
labor and logistics services are provided by the Energy segment; Phase II
incrementally includes the provision of turnkey operations and maintenance
services. The Engineering segment posted a gross profit percentage increase to
19.1% in the first nine months of 2002 from 16.4% in the comparable period of
2001. Contributing to this increase was the previously mentioned more favorable
overall mix of higher margin self-performed engineering work and favorable
adjustments on several projects that were completed during the first nine months
of 2002, as partially offset by the unfavorable third quarter 2002 project claim
settlement. For the first nine months of 2002 and 2001, the Company's Non-Core
operations posted gross profit of $4.0 million and $0.4 million, respectively.
The 2002 profit is attributable to the same items discussed in the preceding
paragraph. Adverse casualty insurance adjustments were recorded by the Non-Core
segment during both the second and third quarters of 2002.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses expressed as a percentage
of total contract revenues for the Company's ongoing operations decreased to
10.7% in the third quarter of 2002 from 11.2% in the third quarter of 2001. This
overall decrease in SG&A expenses as a percentage of total contract revenues
primarily resulted from a significant reduction in incentive compensation
expense (which resulted in income for the quarter), as partially offset by
higher professional fees and increased Engineering personnel-related costs
during the third quarter of 2002. The Energy segment's SG&A expenses expressed
as a percentage of total revenues decreased to 9.1% in the third quarter of 2002
from 11.7% in the same period of 2001. In addition to the incentive compensation
expense reduction, the Energy segment's percentage decrease was also
supplemented by the absence of goodwill amortization expense during the third
quarter of 2002. In the Engineering segment, SG&A expenses expressed as a
percentage of total revenues increased to 11.7% in the third quarter of 2002
from 10.9% in 2001. This percentage increase is attributable to the relatively
unchanged Engineering revenues coupled with higher personnel-related costs, as
partially offset by the decrease
-14-
in incentive compensation expense. For the Company's Non-Core operations, SG&A
expenses were $2.0 million and $0.9 million for the third quarters of 2002 and
2001, respectively. These SG&A expenses related entirely to legal costs
associated with the ADF and HOK litigation, and the third-quarter 2002 writedown
of a non-trade receivable balance in connection with an offer to settle a
dispute related to the sale of a business.
Selling, general and administrative expenses expressed as a percentage of total
contract revenues for the Company's ongoing operations increased slightly to
11.3% for the first nine months of 2002 from 11.0% for the first nine months of
2001. This overall increase is attributable to the increased Engineering
personnel-related costs and higher professional fees (discussed in the preceding
paragraph) and pre-implementation expenses incurred during the first quarter of
2002 in connection with a new Enterprise Resource Planning ("ERP") system, as
partially offset by significantly lower incentive compensation expense and the
absence of goodwill amortization expense in 2002. In the Energy segment, SG&A
expenses expressed as a percentage of revenues decreased to 9.8% in the first
nine months of 2002 from 11.2% in 2001. The reasons for this variance are
consistent with those discussed in the preceding paragraph. In the Engineering
segment, SG&A expenses expressed as a percentage of revenues increased to 12.3%
for the first nine months of 2002 from 10.8% for the same period of 2001. In
addition to the higher first quarter 2002 ERP costs, the reasons for this
variance are again consistent with those discussed in the preceding paragraph.
For the Non-Core operations, SG&A expenses increased to $2.4 million in the
first nine months of 2002 from $2.2 million in the first nine months of 2001.
Again, the 2002 Non-Core SG&A expenses related entirely to legal costs
associated with the ADF and HOK litigation and the previously mentioned
non-trade receivable writedown.
OTHER INCOME
Interest income was lower for the third quarter and first nine months of 2002
predominantly due to the significant reduction in interest rates that occurred
during 2001. Interest expense also was lower for these periods of 2002 as
compared to the same periods in 2001 due to the Company's third quarter 2001
repayment of all remaining seller-financed debt related to the 1999 Steen
acquisition, and the favorable February 2002 rulings on the ADF matters which
made the further recording of interest expense on the ADF escrow unnecessary.
Other expense for the third quarter and first nine months of 2002 resulted
almost entirely from minority interest related to the income of two consolidated
subsidiaries partially offset by income from an unconsolidated joint venture in
the Energy segment.
INCOME TAXES
During the third quarter of 2002, the Company reduced its year-to-date effective
rate for income taxes from 44.5% to 42.5%, thereby resulting in an effective tax
rate of 40.8% for the quarter. This reduction reflects a more favorable mix of
estimated domestic and foreign taxable income for the year ending December 31,
2002 as a result of the ADF litigation settlement discussed in Note 5 to the
accompanying financial statements. During the third quarter of 2001, the Company
increased its year-to-date effective tax rate from 45.7% to 46.1%, thereby
resulting in a 47.0% rate for the quarter.
-15-
The lower effective rate of 42.5% for the first nine months of 2002 primarily
results from the Company's 2002 adoption of SFAS 142 under which no goodwill
amortization expense is reflected in the Company's pre-tax income, as well as
higher domestic pre-tax income due to the ADF settlement.
CONTRACT BACKLOG
(In millions) SEPT. 30, 2002 Dec. 31, 2001
- --------------------------------------------------------------------------------------------------
Engineering $ 418.8 $ 378.9
Energy 114.9 130.7
- --------------------------------------------------------------------------------------------------
Total $ 533.7 $ 509.6
==================================================================================================
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.
Among the more significant new work added in the Engineering segment during the
third quarter of 2002 were three new transportation-related contracts totaling
$17.3 million, a contract to develop a long-term wastewater control plan
totaling $7.5 million, a $6.0 million contract to provide an air quality study,
and a change order on an existing contract to provide additional GIS and support
services in the amount of $3.3 million. In the Energy segment, backlog decreased
during the third quarter of 2002 due to expected reductions associated with
certain OPCO properties in the Gulf of Mexico. Since the end of the third
quarter, the Energy segment has been named to provide services under new
contracts that are expected to be added to backlog during the fourth quarter of
2002.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $0.2 million for the first nine months
of 2002 as compared to net cash provided by operating activities of $9.7 million
for the same period of 2001. This decrease in cash provided by operating
activities was the result of the first quarter 2002 payment of 2001 incentive
compensation bonuses and increases in receivables and net contract-related
assets.
Net cash provided by investing activities was $3.5 million for the first nine
months of 2002, compared to cash used in investing activities of $6.8 million
for the same period of 2001. The cash provided by investing activities for the
first nine months of 2002 reflects the receipt of $12.3 million of the funds
placed into escrow during 2001 in connection with the ADF litigation, as reduced
by capital expenditures of $7.8 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 net
cash used in investing activities for the first nine months of 2001 reflected
the funding of $12.7 million into the previously mentioned escrow account and
capital expenditures of $3.1 million, as partially offset by proceeds from the
sale of short-term investments totaling $9.0 million. The increase in capital
expenditures for the first nine months of 2002 resulted
-16-
from the Company's purchase and development of computer software totaling $5.8
million related to the implementation of a new ERP system.
Net cash provided by financing activities was $0.6 million for the first nine
months of 2002, compared to net cash used in financing activities of $2.3
million for the first nine months of 2001. The net cash provided by financing
activities for the first nine months of 2002 primarily reflects proceeds from
the exercise of stock options. Net cash used in financing activities for 2001
primarily reflects the final payment of $2.2 million on a seller note associated
with the 1999 Steen acquisition and payments of $0.3 million to acquire 24,300
additional treasury shares, as partially offset by proceeds from stock option
exercises.
Working capital increased to $47.6 million at September 30, 2002 from $41.0
million at December 31, 2001. The Company's current ratio was 1.62:1 at the end
of the third quarter of 2002, compared to 1.48:1 at year-end 2001. Both of these
increases were impacted favorably by the third quarter 2002 impact of the ADF
settlement (as discussed in Note 5 to the accompanying financial statements).
During November 2002, the Company paid $5.0 million into escrow as a result of
the ADF settlement.
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 September 30, 2002, no borrowings
were outstanding under the Agreement; however; letters of credit totaling $7.8
million were outstanding as of this date.
The Company currently has a bonding line available through Travelers Casualty
and Surety Company of America. At September 30, 2002, bonds totaling $39.9
million were outstanding under this line. Of this outstanding amount, bonds
totaling $36.3 million related to the Company's former construction operations.
Management believes that this bonding line will be sufficient to meet its bid
and performance bonding needs for at least the next year.
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 errors and omissions 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. Currently, Baker Environmental, Inc. ("BEI"), a
wholly-owned subsidiary of the Company, is subject to one substantial claim
which, if decided adversely to the Company, would be within the scope of an
insurance policy issued by Reliance. This claim reflects an action by LTV Steel
Company ("LTV") against BEI, which is pending in the U.S. District Court for the
Western District
-17-
of Pennsylvania, and resulted from the failure of a landfill for which BEI
provided services. Although LTV claims damages of $10-11 million, the litigation
is in progress and, at this time, it is uncertain whether BEI will have any
liability with respect to this claim and, if so, whether any such liability will
be funded by Reliance. Based on the uncertainty associated with BEI's liability
for this claim, and with Reliance's ability to fund such liability, if any, the
Company has not accrued any amounts for this matter in its consolidated
financial statements as of September 30, 2002.
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 provided significant transportation funding increases to the
various state agencies since its approval in 1998. During 2002, however, the
Company has seen the transportation market slowing due to Federal and state
budget constraints. Management expects that transportation funding will receive
significant attention during the Federal budget approval process this year, but
cannot predict the outcome. During 2002, the Company has also seen increased
Federal spending activity on FEMA, Department of Defense and Homeland Security
activities. Additional government spending in these areas 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. If the Company commits to funding future
acquisitions, it may need to adjust its financing strategies by lengthening
existing debt maturities or seeking alternative debt instruments. At this time,
management 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
investments, which totaled $13.2 million as of September 30, 2002. If interest
rates on investments were to change unfavorably by 10%, the Company would have
no material exposure to interest rate risk. 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.
-18-
ITEM 4. 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.
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 in Item 3 of the Company's Annual Report on Form 10-K and Note 4 to
the Company's consolidated financial statements for the year ended December 31,
2001, Baker Mellon Stuart Construction, Inc. ("BMSCI"), a wholly-owned
subsidiary of the Company, had been subject to certain claims by ADF
International, Inc. ("ADF") in connection with a construction project being
performed by BMSCI during 1999 and 2000 at the Universal Studios theme park in
Orlando, Florida.
In separate rulings during February 2002, the U.S. Court of Appeals for the 11th
Circuit reversed both of the U.S. District Court's prior judgments for liability
and attorneys' fees and costs on behalf of BMSCI and remanded the ADF matters
back to the District Court for further proceedings.
Court-mandated mediation of the ADF litigation was conducted in Orlando, Florida
on October 23-25, 2002. As a result of the mediation, the Company reached a
settlement with ADF providing for the payment of $5.0 million by the Company to
ADF. Also resulting from the mediation, the Company agreed to release its
existing claim against Hellmuth, Obata & Kassabaum, Inc. ("HOK") arising out of
the same project, in exchange for an additional payment of $2.75 million by HOK
to ADF. Legal releases are currently being exchanged among the parties to
finalize the settlement. The $5.0 million settlement was subsequently paid by
the Company into an escrow account in November 2002, and will be released to ADF
upon the execution of legal releases by all parties involved in the matter. See
additional discussion in Note 5 to the accompanying financial statements.
-19-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
The following exhibit is included herewith as a part of this Report:
Exhibit No. Description
----------- -----------
10.4(c) Third Amendment to Loan Agreement dated July 31,
2002, by and between the Company and Citizens Bank
of Pennsylvania, National City Bank of
Pennsylvania and Fifth Third Bank, filed herewith.
(b) Reports on Form 8-K
--------------------
During the quarter ended September 30, 2002, the Company filed no
reports on Form 8-K.
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: November 14, 2002
- -----------------------------------
William P. Mooney
Executive Vice President and
Chief Financial Officer
/s/ Craig O. Stuver Dated: November 14, 2002
- -----------------------------------
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 registrant'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: November 14, 2002
- ------------------------------------
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: November 14, 2002
- ------------------------------------
William P. Mooney
Executive Vice President and
Chief Financial Officer
-22-
ADDITIONAL CERTIFICATIONS
Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Michael Baker
Corporation (the "Company"), hereby certifies that the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2002 (the "Report")
fully complies with the requirements of Section 13(a) or 15(d), as applicable,
of the Securities Exchange Act of 1934 and that the information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Donald P. Fusilli, Jr. Dated: November 14, 2002
- -------------------------------------
Donald P. Fusilli, Jr.
President and Chief Executive Officer
Pursuant to 18 U.S.C. ss. 1350, the undersigned officer of Michael Baker
Corporation (the "Company"), hereby certifies that the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2002 (the "Report")
fully complies with the requirements of Section 13(a) or 15(d), as applicable,
of the Securities Exchange Act of 1934 and that the information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ William P. Mooney Dated: November 14, 2002
- -------------------------------------
William P. Mooney
Executive Vice President and
Chief Financial Officer
These additional certifications are being furnished solely pursuant to 18 U.S.C.
Section 1350, and are not being filed as part of the Report or as a separate
disclosure document.
-23-