10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT of 1934

For the fiscal year ended December 31, 2009

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 incorporation or organization)	(I.R.S. Employer Identification No.)
Airside Business Park, 100 Airside Drive, Moon Township, PA	15108
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (412) 269-6300

Securities registered pursuant to Section 12(b) of the Act:

Title of Class	Name of Each Exchange on Which Registered
Common Stock, par value $1 per share	NYSE Amex

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes          No   ü  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes          No   ü  

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   ü    No        

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes          No        

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.         

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer          Non-accelerated filer	Accelerated filer    ü        Smaller reporting company
(Do not check if a smaller reporting company)

Indicate by check mark if the registrant is a shell company of the Act (as defined in Rule 12b-2 of the Act).
Yes          No   ü  

The aggregate market value of Common Stock held by non-affiliates as of June 30, 2009 (the last business day of the Company’s most recently completed second fiscal quarter) was $328.2 million. This amount is based on the closing price of the Company’s Common Stock on the New York Stock Exchange Amex for that date. Shares of Common Stock held by executive officers and directors of the Company and by the Company’s 401(k) plan (f/k/a the Employee Stock Ownership Plan) are not included in the computation.

As of February 28, 2010, the Company had 8,907,298 outstanding shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts of Form 10-K into Which Document is Incorporated
Financial Section of Annual Report to Shareholders for the year ended December 31, 2009	I, II
Proxy Statement to be distributed in connection with the 2010 Annual Meeting of Shareholders	III

MICHAEL BAKER CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

TABLE OF CONTENTS

			Page
PART I
	Item 1.	BUSINESS		1
	Item 1A.	RISK FACTORS		7
	Item 1B.	UNRESOLVED STAFF COMMENTS		12
	Item 2.	PROPERTIES		12
	Item 3.	LEGAL PROCEEDINGS		12
	Item 4.	RESERVED		12
PART II
	Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		13
	Item 6.	SELECTED FINANCIAL DATA		15
	Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		15
	Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		15
	Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		15
	Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		15
	Item 9A.	CONTROLS AND PROCEDURES		15
	Item 9B.	OTHER INFORMATION		18
PART III
	Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		18
	Item 11.	EXECUTIVE COMPENSATION		18
	Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		18
	Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		19
	Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		19
PART IV
	Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		20
EX-10.1
EX-10.2.G
EX-10.3.B
EX-13.1
EX-21.1
EX-23.1
EX-23.2
EX-31.1
EX-31.2
EX-32.1
EX-99.1
EX-99.2
EX-99.3

NOTE WITH RESPECT TO FORWARD-LOOKING STATEMENTS:

This Annual Report on Form 10-K, and in particular the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of Exhibit 13.1 hereto, which is incorporated by reference into Item 7 of Part II, contains forward-looking statements concerning our future operations and performance. Forward-looking statements are subject to market, operating and economic risks and uncertainties that may cause our actual results in future periods to be materially different from any future performance suggested herein. Factors that may cause such differences include, among others: the events described in the “Risk Factors” section of this Form 10-K; increased competition; increased costs; changes in general market conditions; changes in industry trends; changes in the regulatory environment; changes in our relationship and/or contracts with the Federal Emergency Management Agency (“FEMA”) and/or other U.S. Federal Government Departments and Agencies; changes in anticipated levels of government spending on infrastructure, including the Safe, Accountable, Flexible, Efficient Transportation Equity Act — A Legacy for Users (“SAFETEA-LU”) and the American Recovery and Reinvestment Act of 2009; changes in loan relationships or sources of financing; changes in management; changes in information systems; and the restatement of financial results. Such forward-looking statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

PART I

Item 1.  BUSINESS.

General

In this Form 10-K, the terms “the Company,” “we,” “us,” or “our” refer to Michael Baker Corporation and its subsidiaries collectively. We were founded in 1940 and organized as a Pennsylvania corporation in 1946. Today, through our operating subsidiaries, we provide engineering design and related consulting services expertise for public and private sector clients worldwide. Our business is principally in the United States of America (“U.S.”).

Our primary markets include Aviation, Defense, Facilities, Geospatial Information Technology, Homeland Security, Municipal & Civil, Pipelines & Utilities, Rail & Transit, Transportation and Water. Among the services the Company provides to clients in these markets are project and program management, design-build (for which we only provide the design portion of services), construction management and inspection, consulting, planning, surveying, mapping, geographic information systems, architectural, interior design, site planning and design, constructability reviews, site assessment and restoration, strategic regulatory analysis and compliance.

We have designed a wide range of projects, such as highways, bridges, airports, busways, corporate headquarters, data centers, correctional facilities and educational facilities. We also provide services in the water/wastewater, pipeline, emergency and consequence management, resource management, and telecommunications markets. Our business is susceptible to upward and downward fluctuations in federal and state government spending.

Our transportation services have benefited from the U.S. federal government’s SAFETEA-LU legislation in recent years and the American Recovery and Reinvestment Act of 2009 (Stimulus). Additionally, we have benefited from increased federal government spending in the Department of Defense (DoD) and the Department of Homeland Security (“DHS”), including FEMA, US-VISIT and the U.S. Coast Guard. We partner with construction contractors to pursue selected design-build contracts which continue to be a growing project delivery method within the transportation and civil infrastructure markets. We also perform work through an unconsolidated joint venture operating in Iraq.

According to the annual listings published in 2008 and 2009 by Engineering News-Record (“ENR”) magazine based on total engineering revenues for 2008, we ranked 41st among the top 500 U.S. design firms; 22nd among “pure design” firms; 11^th in water and 11^th in water supply; 14^th among transportation design firms, including 20^th in highways, and 9^th in bridges; 26^th among construction management-for-fee firms; 18^th in pipelines (oil & gas); and 64^th among environmental firms. According to Building Design & Construction’s report “2009 Giants: Top 300 AEC Firms” based on 2008 market revenues, we ranked 25^th among the Engineers/Architects and 17^th among Top 75 Government Design Firms.

Primary Markets/Services

Many of the ancillary services we offer are provided to the entire spectrum of markets we serve. These services include, but are not limited to, geographic information system, geotechnical engineering and design, services related to the National Environmental Policy Act (“NEPA”), project and program management, construction management and construction services, and general architectural and engineering consulting services. The listing below describes in more detail, services provided to the specific markets we serve.

Aviation:
•	Airfield Lighting, Signing, & Navigation Aide Systems	•	Master Planning & Airport Layout Plans
•	Airport Facilities Planning & Design	•	Roadway & Parking Facility Design
•	Deicing Facilities	•	Runway, Taxiway, & Apron Design
•	Environmental Planning & Design

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Defense:
•	Conservation Conveyance	•	Installation/Site Restoration
•	Facilities Planning, Design & Support	•	Military Construction Program Support
Environmental:
•	Cultural Resources	•	Health, Safety & Environmental
•	Environmental Engineering, Permitting, Investigation	•	Multi-Media Compliance
	& Restoration	•	Natural Resources
•	Environmental Program Management	•	Petroleum Storage Tank Management
•	Environmental Risk Assessment
Facilities:
•	Architecture	•	Interior Design & Space Planning
•	Building Information Modeling (“BIM”)	•	Landscape Architecture
•	Computer Aided Facility Management	•	Maintenance Management Systems
•	Condition Assessments	•	Master Planning
•	Electrical & Mechanical Engineering	•	Site, Structural & Civil Engineering
•	Feasibility Studies	•	Sustainable Design
•	Fire Protection Engineering	•	Urban Design
Geospatial Information Technology:
•	Application Design & Development	•	Mobile LiDAR (“Light Detection And Ranging”) Data
•	Asset Management		Acquisition
•	Consulting	•	Surveying, Mapping, Data Acquisition & Processing
•	Data Access & Visualization	•	Statewide Broadband Mapping
•	Database Development	•	Staffing Support
•	Global Positioning System Services	•	Systems Integration
Homeland Security:
•	Damage Forecasting & Loss Estimation	•	Infrastructure Protection Planning & Design
•	Debris Management	•	Interagency Coordination & Public Outreach
•	Emergency Operations/Response Planning	•	Logistics
•	Evacuation & Sheltering Plans	•	Resource Inventories
•	Hazard Mitigation Planning	•	Risk-Based Strategic Planning
•	Homeland Security Asset Management	•	Security, Threat, Vulnerability, & Risk Assessments
•	Infrastructure Damage Assessments	•	Training & Exercises
Municipal & Civil:
•	Environmental Engineering Compliance Hydrologic &	•	Surface & Deep Mining Permitting & Reclamation
	Hydraulic Models & Studies	•	Water/Wastewater Conveyance & Treatment
•	Municipal Infrastructure Engineering
•	Site Development Plans & Permitting
Pipelines & Utilities:
•	Cold Region Engineering	•	Pipeline Design and Hydraulic Analysis
•	Competency Based Training	•	Route Alignment and Feasibility Studies
•	Failure Investigation and Analysis	•	Telecommunications Studies, Design & Inspection
•	Oil & Gas Pipeline Services	•	Trans-Ocean Submarine Cable Services
•	Operations Engineering	•	Wireless Communications Services
•	Outside Plant Services

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Rail & Transit (Public Transit, High Speed Rail, Passenger Rail, Freight Rail):
•	Architecture & Facilities Infrastructure Design	•	Planning
•	Environmental	•	Pre-Project Consulting
•	Engineering Design	•	Rail Systems Engineering
•	Fleet & Vehicles	•	Value Engineering
Transportation:
•	Bike & Pedestrian	•	Intelligent Transportation Systems
•	Bridge Design	•	Planning
•	Bridge Inspection & Training	•	Public Involvement
•	Cost Estimation	•	Software Development
•	Ecosystem Restoration	•	Toll Roads Traffic Planning, Design, & Analysis
•	Highway Design
Water:
•	Flood Control	•	Stormwater Management
•	Flood Insurance Rate Maps & Studies	•	Stream Stabilization/Restoration
•	Floodplain Delineation & Studies	•	Water Quality & TMDL Services
•	Floodplain Management & River Engineering	•	Water Resources Planning & Asset Management
•	Hydrologic and Hydraulic Modeling	•	Watershed Management
•	Source Water Supply & Protection	•	Wetlands

Discontinued Operations — Energy

Our former Energy segment provided a full range of services for operating third-party oil and gas production facilities worldwide. For the past several years, our Board of Directors, in conjunction with management, had been considering strategic alternatives related to our former Energy business. During the third quarter of 2009, the Board of Directors made the determination to divest this business, and to reinvest the proceeds from the sale into our engineering operations. The divestiture of substantially all of our former Energy subsidiaries was completed as of September 30, 2009. Additionally, the Company sold its interest in B.E.S. Energy Resources Company, Ltd. (“B.E.S.”), an Energy company, on December 18, 2009 to J.S. Technical Services Co., LTD., which is owned by the our former minority partner in B.E.S. As such, the Energy business has been reclassified into “discontinued operations” in our accompanying consolidated financial statements. The data presented in this Form 10-K excludes and gives effect to the disposition of the stock owned by Michael Baker Corporation in Baker/MO Services, Inc., Michael Baker Global, Inc., Baker O&M International, Ltd., Baker Energy de Venezuela, C.A., Overseas Technical Services International, Ltd., Baker OTS International, Inc., SD Forty Five, Ltd., OTS Finance and Management, Ltd., and their respective subsidiaries (“Baker Energy”) as well as B.E.S. The results of Baker Energy and B.E.S. are representative of their results through their respective sale dates.

Strategy

Our strategy is based on four concepts — growth, profitability, innovation, and sustainability.

Growth — We seek to grow both organically and through strategic acquisitions. Organically, we will grow by securing larger and more complex projects and programs that correspond well with our existing knowledge and capabilities, primarily in the United States. For example, we have begun to expand beyond the Departments of Defense and Homeland Security and are now providing services to other federal departments and agencies such as the Departments of Energy and State. Furthermore, we will seek to provide additional and related services to existing clients; for example, offering construction management services to a State Department of Transportation for which we are currently providing only design services. With regard to acquisitions, we will seek opportunities that expand our skill sets and/or our geographical presence in our core business.

Profitability — We seek to consistently improve the profitability of our businesses through long-term, performance-based contracting arrangements with our clients. This strategy is evident in our current mix of contracts. We will also be pursuing projects that utilize alternative delivery methods, such as design-build, which traditionally carry a higher margin as well as performance incentives.

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Innovation — We strive to constantly and consistently innovate ways to deliver services to our clients. For example, in both our transportation and facilities service areas, we are partnering with preferred contractors and pursuing an increased level of design-build contracts, as opposed to the traditional design-bid-build method of project delivery. Additionally, we utilize mapping and geographic information technology in a number of innovative ways.

Sustainability — We are aggressively incorporating long-term environmental, social and economic goals into our daily activities and culture to achieve improved efficiencies, performance and prosperity. As such, we are working methodically to build the appropriate tools and applications to help us succeed in this endeavor and to better serve our clients and the communities where we live and work.

Domestic and Foreign Operations

For the years ended December 31, 2009, 2008 and 2007, our percentages of total contract revenues derived from work performed for U.S.-based clients within the U.S. totaled 90%, 92% and 95%, respectively. The majority of our domestic revenues comprises engineering work performed in the mid-Atlantic region of the U.S.

Contract Backlog

	As of December 31,
(In millions)	2009		2008
Funded	$	461.3	$	449.5
Unfunded		963.9		534.7
Total	$	1,425.2	$	984.2

Of our total funded backlog as of December 31, 2009, $293 million is expected to be recognized as revenue within the next year. Additionally, we expect our sources of revenue within the next year to include recognized unfunded backlog and new work added. Due to the nature of unfunded backlog, consisting of options that have not yet been exercised or task orders that have not yet been approved, we are unable to reasonably estimate what, if any, portion of our unfunded backlog will be realized within the next year.

Funded backlog consists of that portion of uncompleted work represented by signed contracts and/or approved task orders, and for which the procuring agency has appropriated and allocated the funds to pay for the work. Total backlog incrementally includes that portion of contract value for which options have not yet been exercised or task orders have not been approved. We refer to this incremental contract value as unfunded backlog. U.S. government agencies and many state and local governmental agencies operate under annual fiscal appropriations and fund various contracts only on an incremental basis. In addition, our clients may terminate contracts at will or not exercise option years. Our ability to realize revenues from our backlog depends on the availability of funding for various federal, state and local government agencies; therefore, no assurance can be given that all backlog will be realized.

In March 2009, BakerAECOM, LLC, a Delaware limited liability company of which we are the managing member, was informed by FEMA that it has been awarded an IDIQ contract for the FEMA Risk Mapping, Analysis and Planning Program, which is intended to be the successor to the Multi-Hazard Flood Map Modernization Program (“FEMA Map Mod Program”). The resultant performance-based contract has a five-year term with a maximum contract value of up to $600 million. As of December 31, 2009, approximately $34 million is in our funded backlog and $555 million is in our unfunded backlog related to this program.

As of December 31, 2009 and 2008, approximately $40 million and $68 million of our funded backlog, respectively, related to the $750 million FEMA Map Mod Program contract to assist FEMA in conducting a large-scale overhaul of the nation’s flood hazard maps, which commenced late in the first quarter of 2004. This contract includes data collection and analysis, map production, product delivery, and effective program management; and seeks to produce digital flood hazard data, provide access to flood hazard data and maps via the Internet, and implement a nationwide state-of-the-art infrastructure that enables all-hazard mapping. This contract was scheduled to conclude on March 10, 2009; however, FEMA added a contract provision to extend the ordering period through September 2010. We do not anticipate realizing most of the remaining unfunded contract balance ($183 million as of December 31, 2009); as such this was removed from our unfunded backlog in the first quarter of 2009. We expect work and revenue related to our current authorizations to continue through 2010.

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In 2009, we were awarded a contract by the USACE — TAC for architecture-engineering services in its Area of Responsibility, which includes the Middle East, the Arabian Gulf States, Southwest Asia and Africa. We were one of four awardees of the indefinite delivery contract, which is for one year and may be extended by up to four additional years at the government’s discretion. The maximum value of the contract for the entire five-year performance period for all awardees is $240 million (our portion was estimated at $60 million). Under this contract, we may be called upon to provide a full-range of design and construction management services. As of December 31, 2009, approximately $3 million is in our funded backlog and $49 million is in our unfunded backlog related to this contract

Significant Customers

Contracts with various branches, departments and agencies of the U.S. federal government accounted for 49%, 52% and 49% of our total contract revenues for the years ended December 31, 2009, 2008 and 2007, respectively. Our contracts with FEMA accounted for approximately 15%, 20% and 24% of our revenues in 2009, 2008 and 2007, respectively.

Competitive Conditions

Our business is highly competitive with respect to all principal services we offer. We compete with numerous public and private firms that provide some or all of the services that we provide. Our competitors range from large national and international architectural, engineering and construction services firms to a vast number of smaller, more localized firms. Our competitors vary based on the type of the services being proposed.

The competitive conditions in our businesses relate to the nature of the contracts being pursued. Public-sector contracts, consisting mostly of contracts with federal and state governmental entities, are generally awarded through a competitive process, subject to the contractors’ qualifications and experience. We employ cost estimating, scheduling and other techniques for the preparation of these competitive bids. Private-sector contractors compete primarily on the basis of qualifications, quality of performance and price of services. Most private and public-sector contracts for professional services are awarded on a negotiated basis.

We believe that the principal competitive factors in the areas of services we offer are quality of service, reputation, experience, technical proficiency, local geographic presence and cost of service. We believe that we are well positioned to compete effectively by emphasizing the quality of services we offer and our widely known reputation in providing professional engineering services. We are also dependent upon the availability of staff and our ability to recruit qualified employees.

Seasonality

Based upon our experience, our total contract revenues and income from operations have historically been slightly lower for our first fiscal quarter than for the remaining quarters due to the effect of winter weather conditions, particularly in the Mid-Atlantic and Midwest regions of the United States. Typically, these seasonal weather conditions unfavorably impact our performance of construction management services.

Personnel

As of December 31, 2009, we had 2,437 total employees, of which our operations had 2,369 employees and our corporate staff included 68 employees. Of our total employees, 2,135 were full-time and 302 were part-time. We believe that our relations with employees are good.

Executive Officers

The following represents a listing of our executive officers as of February 28, 2010:

Bradley L. Mallory — Age 57; President and Chief Executive Officer of Michael Baker Corporation since February 2008. Formerly Chief Operating Officer of Michael Baker Corporation from October 2007 to February 2008; President of Michael Baker Jr., Inc. from November 2003 to October 2007; Senior Vice President of Michael Baker Jr., Inc. from March 2003 to October 2003; and Secretary of Transportation of the Commonwealth of Pennsylvania from 1995 to 2003.

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Michael J. Zugay — Age 58:  Joined Michael Baker Corporation in February 2009 and has served as Executive Vice President and Chief Financial Officer since April 2009. Prior to joining Michael Baker Corporation, Mr. Zugay was Senior Vice President, Chief Financial Officer and Corporate Secretary of iGate Corporation from April 2001 to March 2008 and held various other positions at iGate from March 1995 to April 2001. Prior to that he served as President and CEO of Bliss-Salem, Inc.

H. James McKnight — Age 65; Executive Vice President, Chief Legal Officer and Corporate Secretary since June 2000. Mr. McKnight has been employed by us since 1995, serving as Senior Vice President, General Counsel and Secretary from 1998 to 2000 and as Vice President, General Counsel and Secretary from 1995 to 1998.

Joseph R. Beck — Age 65; Senior Vice President of Corporate Development since September 2008 and Director of Corporate Development since March 2008. Mr. Beck joined Michael Baker Corporation as an Operations Manager in June 2004. Prior to joining Michael Baker Corporation, Mr. Beck was a Senior Vice President with The IT Group from 1994 to 2002 and was a private consultant and an adjunct professor at the University of Pittsburgh from 2002 to 2004.

David G. Greenwood — Age 58; Executive Vice President — Marketing, since April 2005. Mr. Greenwood previously served in various operational and marketing capacities with us since 1973, including Vice President and Senior Vice President of Michael Baker Jr., Inc. from 1994 to April 2005.

David G. Higie — Age 53; Vice President of Corporate Communications and Investor Relations for Michael Baker Corporation since 2006. Mr. Higie joined Michael Baker Corporation in 1996 as Director of Corporate Communications.

James M. Kempton — Age 35; Vice President and Corporate Controller of Michael Baker Corporation since December 2008, Treasurer since April 2009 and Assistant Corporate Controller from January 2007 through November 2008. Mr. Kempton was previously employed with Ernst and Young from 1997 to 2007 in various positions, including Senior Manager in the Assurance and Advisory Business Services practice.

Samuel C. Knoch — Age 53; Vice President and Chief Risk Officer since March 2009. Prior to joining Michael Baker Corporation, Mr. Knoch was Chief Financial Officer from August 1996 to October 2008 and Treasurer from April 1997 to October 2008 at Tollgrade Communications, Inc. Prior to that appointment, he served as Corporate Controller and Director of Internal Audit at Amsco International, Inc. from July 1993 to August 1996.

G. John Kurgan — Age 60; Executive Vice President since 2007. Mr. Kurgan was previously a Senior Vice President of Michael Baker Jr., Inc. from 1995 to 2007. Mr. Kurgan has held various positions since joining Michael Baker Jr., Inc. in 1974.

Edward L. Wiley — Age 66; Executive Vice President since 2005. Mr. Wiley has also served as an Executive Vice President of Michael Baker Jr., Inc. Mr. Wiley has held various positions since joining Michael Baker Jr., Inc. in 1965.

Michael J. Ziemianski — Age 52; Vice President and Chief Resource Officer since June 2008. Mr. Ziemianski joined Michael Baker Corporation in 2006 as Manager of Corporate Recruiting. Prior to joining Michael Baker Corporation, Mr. Ziemianski was Director of Human Resources at Rapidigm Inc. from 2001 to 2006.

Our executive officers serve at the discretion of the Board of Directors and are elected by the Board or appointed annually for a term of office extending through the election or appointment of their successors.

Available Information

Our Internet website address is www.mbakercorp.com. We post our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports to our website as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission (“SEC”). We make these reports available on our website free of charge. These reports and any amendments to them are also available at the SEC’s website, www.sec.gov. We also post press releases, earnings releases, the Code of Ethics for Senior Officers, the Code of Business Conduct, the Statement of Policy with Respect to Related Party Transactions and the Charters related to the Governance and Nominating Committee, Audit Committee, Environmental, Health, Safety and Compliance Committee and Compensation Committee to our website. The information contained on our website is not incorporated by reference into this Form 10-K and shall not be deemed “filed” under the Securities Exchange Act of 1934, as amended.

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Item 1A.  RISK FACTORS.

In addition to other information referenced in this report, we are subject to a number of specific risks outlined below. If any of these events or uncertainties actually occurs, our business, financial condition, results of operations and cash flows, and/or the market price of our Common Stock could be materially affected. You should carefully consider the following factors and other information contained in this Annual Report on Form 10-K before deciding to invest in our Common Stock.

Changes and fluctuations in the government’s spending priorities could materially affect our future revenue and growth prospects.

Our primary customers, which compose a substantial portion of our revenue and backlog, include agencies of the U.S. federal government and state and local governments and agencies that depend on funding or partial funding provided by the U.S. federal government. Consequently, any significant changes and fluctuations in the government’s spending priorities as a result of policy changes or economic downturns may directly affect our future revenue streams. Legislatures may appropriate funds for a given project on a year-by-year basis, even though the project may take more than one year to perform. As a result, at the beginning of a project, the related contract may only be partially funded, and additional funding is committed only as appropriations are made in each subsequent year. These appropriations, and the timing of payment of appropriated amounts, may be influenced by, among other things, the state of the economy, competing political priorities, curtailments in the use of government contracting firms, increases in raw material costs, delays associated with a lack of a sufficient number of government staff to oversee contracts, budget constraints, the timing and amount of tax receipts, and the overall level of government expenditures. Additionally, reduced spending by the U.S. government may create competitive pressure within our industry which could result in lower revenues and margins in the future.

Unpredictable economic cycles or uncertain demand for our engineering capabilities and related services could cause our revenues to fluctuate or contribute to delays or the inability of customers to pay our fees.

Demand for our services is affected by the general level of economic activity in the markets in which we operate, both in the U.S. and internationally. Our customers, particularly our private sector customers, and the markets in which we compete to provide services, are likely to experience periods of economic decline from time to time. Adverse economic conditions may decrease our customers’ willingness to make capital expenditures or otherwise reduce their spending to purchase our services, which could result in diminished revenues and margins for our business. In addition, adverse economic conditions could alter the overall mix of services that our customers seek to purchase, and increased competition during a period of economic decline could result in us accepting contract terms that are less favorable to us than we might be able to negotiate under other circumstances. Changes in our mix of services or a less favorable contracting environment may cause our revenues and margins to decline. Moreover, our customers may experience difficult business climates from time to time that may decrease our clients’ ability to obtain financing and could cause delays or failures to pay our fees as a result.

The current economic environment may impact our customers’ access to capital and as a result may impact our cash flow and profitability. Due to the current economic environment, we anticipate that our customers’ ability to access capital could impact project activity in 2010 and may impact certain clients’ ability to compensate us for our services. Those outcomes could have a significant impact on our cash flows and may impact our profitability in future periods.

Our ability to recruit, train, and retain professional personnel of the highest quality is a competitive advantage. Our future inability to do so would adversely affect our competitiveness.

Our contract obligations in our markets are performed by our staff of well-qualified engineers, technical professionals, and management personnel. Our future growth potential requires the effective recruiting, training, and retention of these employees. Our inability to retain these well-qualified personnel and recruit additional well-qualified personnel would adversely affect our business performance and limit our ability to perform new contracts.

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If we are unable to accurately estimate and control our contract costs, then we may incur losses on our contracts, which could decrease our operating margins and significantly reduce or eliminate our profits.

It is important for us to control our contract costs so that we can maintain positive operating margins. Recently, more of our business is being conducted on a fixed price basis. Under our fixed-price contracts, we receive a fixed price regardless of what our actual costs will be. Consequently, we realize a profit on fixed-price contracts only if we control our costs and prevent cost over-runs on the contracts. Under our time-and-materials contracts, we are paid for labor at negotiated hourly billing rates and for other expenses. Profitability on our contracts is driven by billable headcount and our ability to manage costs. Under each type of contract, if we are unable to control costs, we may incur losses on our contracts, which could decrease our operating margins and significantly reduce or eliminate our profits.

Due to the nature of the work we perform to complete our contracts, we are subject to potential liability claims and contract disputes.

Our contracts often involve projects where design, construction or systems failures, or accidents, could result in substantially large or punitive damages for which we could have liability. Our practice involves professional judgments regarding the planning, design, development, construction, operations and management of facilities and public infrastructure projects. Although we have adopted a range of insurance, risk management, safety and risk avoidance programs designed to reduce potential liabilities, there can be no assurance that such programs will protect us fully from all risks and liabilities.

We may also experience a delay or withholding of payment for services due to performance disputes. If we are unable to resolve these disputes and collect these payments, we would incur profit reductions and reduced cash flows.

If we miss a required performance standard, fail to timely complete, or otherwise fail to adequately perform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall profitability.

We may commit to a client that we will complete a project by a scheduled date. We may also commit that a project, when completed, will achieve specified performance standards. If the project is not completed by the scheduled date or fails to meet required performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or failure to achieve the required performance standards. The uncertainty of the timing of a project can present difficulties in planning the amount of personnel needed for the project. If the project is delayed or canceled, we may bear the cost of an underutilized workforce that was dedicated to fulfilling the project. In addition, performance of projects can be affected by a number of factors beyond our control, including unavoidable delays from weather conditions, changes in the project scope of services requested by clients or labor or other disruptions. In some cases, should we fail to meet required performance standards, we may also be subject to agreed-upon financial damages, which are determined by the contract. To the extent that these events occur, the total costs of the project could exceed our estimates or, in some cases, incur a loss on a project, which may reduce or eliminate our overall profitability.

We are subject to procurement laws and regulations associated with our government contracts. If we do not comply with these laws and regulations, we may be prohibited from completing our existing government contracts or suspended from government contracting and subcontracting for some period of time or debarred.

Our compliance with the laws and regulations relating to the procurement, administration, and performance of our government contracts is dependent upon our ability to ensure that we properly design and execute compliant procedures.

Our termination from any of our larger government contracts or suspension from future government contracts for any reason would result in material declines in expected revenue. Because U.S. federal laws permit government agencies to terminate a contract for convenience, the U.S. federal government may terminate or decide not to renew our contracts with little or no prior notice.

8

We are subject to routine U.S. federal, state and local government audits related to our government contracts. If audit findings are unfavorable, we could experience a reduction in our profitability.

Our government contracts are subject to audit. These audits may result in the determination that certain costs claimed as reimbursable are not allowable or have not been properly allocated to government contracts according to federal government regulations.

We are subject to audits for several years after payment for services has been received. Based on these audits, government entities may adjust or seek reimbursement for previously paid amounts. None of the audits performed to date on our government contracts have resulted in any significant adjustments to our financial statements. It is possible, however, that an audit in the future could have an adverse effect on our revenue, profits and cash flow.

Our inability to continue to win or renew government contracts could result in material reductions in our revenues and profits.

We have increased our contract activity with the U.S. federal, state and local governments in recent years. We compete for and win a number of these contracts based on application of a quality based standard. Our ability to earn revenues from our existing and future government projects will depend upon the continuation of these quality based selection standards as well as the availability of funding by our served and targeted government agencies. We cannot control whether those clients will fund or continue funding our outstanding projects.

If our relationship or reputation with government clients deteriorates for any reason and affects our ability to win new contracts or renew existing ones, we could experience a material revenue decline.

Our involvement in partnerships, joint ventures, and use of subcontractors exposes us to additional legal and market reputation damages.

Our methods of service delivery include the use of partnerships, subcontractors, joint ventures and other ventures. If our partners or subcontractors fail to satisfactorily perform their obligations as a result of financial or other difficulties, we may be unable to adequately perform or deliver our contracted services. Under these circumstances, we may be required to make additional investments and provide additional services to ensure the adequate performance and delivery of the contracted services. Additionally, we may be exposed to claims for damages that are a result of a partner’s or subcontractor’s performance. We could also suffer contract termination and damage to our reputation as a result of a partner’s or subcontractor’s performance.

In addition, we may participate in partnerships, joint ventures or other ventures in which we do not hold the controlling interest. To the extent the partner with the controlling interest in such an arrangement makes decisions that negatively impact that entity, our business, financial condition and results of operations could be negatively impacted.

Employee, partner, joint venture, or subcontractor misconduct or our overall failure to comply with laws or regulations could weaken our ability to win contracts, which could result in reduced revenues and profits.

Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of our employees, agents or partners could have a significant negative impact on our business and reputation. Such misconduct could include the failure to comply with government procurement regulations, regulations regarding the protection of classified information, regulations prohibiting bribery and other foreign corrupt practices, regulations regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls over financial reporting, environmental laws, and any other applicable laws or regulations. For example, we regularly provide services that may be highly sensitive or that relate to critical national security matters; if a security breach were to occur, our ability to procure future government contracts could be severely limited. The precautions we take to prevent and detect these activities may not be effective, and we could face unknown risks or losses. Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, loss of security clearance, and suspension or debarment from contracting, which could weaken our ability to win contracts and result in reduced revenues and profits and could have a material adverse impact on our business, financial condition, and results of operations.

9

Our profits and revenues could suffer if we are involved in legal proceedings, investigations and disputes.

We engage in services that can result in substantial injury or damages that may expose us to legal proceedings, investigations and disputes. For example, in the ordinary course of our business, we may be involved in legal disputes regarding personal injury and wrongful death claims, employee or labor disputes, professional liability claims, and general commercial disputes involving project cost overruns and liquidated damages as well as other claims. In addition, in the ordinary course of our business, we frequently make professional judgments and recommendations about environmental and engineering conditions of project sites for our clients. We may be deemed to be responsible for these judgments and recommendations if they are later determined to be inaccurate. Any unfavorable legal ruling against us could result in substantial monetary damages or even criminal violations. We maintain insurance coverage as part of our overall legal and risk management strategy to minimize our potential liabilities. In addition, our insurance policies contain exclusions that insurance providers may use to deny us insurance coverage. If we sustain liabilities that exceed our insurance coverage or for which we are not insured, it could have a material adverse impact on our results of operations and financial condition, including our profits and revenues.

We are engaged in highly competitive markets that pose challenges to continued revenue growth.

Our business is characterized by competition for contracts within the government and private sectors in which service contracts are typically awarded through competitive bidding processes. We compete with a large number of other service providers who offer the principal services we offer. In this competitive environment, we must provide technical proficiency, quality of service, and experience to ensure future contract awards and revenue and profit growth.

Our international business operations are subject to unique risks and challenges that create increased uncertainty in these markets.

Our international operations are subject to unique risks. These risks can include: potentially dynamic social, political and economic environments; civil disturbances, unrest, or violence including terrorism associated with operating in a war zone; volatile labor conditions due to strikes and general difficulties in staffing international operations with highly qualified personnel; and logistical and communication challenges. Unexpected changes in regulatory requirements in foreign countries as well as inconsistent regulations, diverse licensing, and legal and tax requirements that differ from one country to another could also adversely affect our international projects. Additionally, there may be limitations on our ability to repatriate foreign earnings in certain jurisdictions. We also could be subject to exposure to liability due to the Foreign Corrupt Practices Act.

Our goodwill or other intangible assets could become impaired and result in a material reduction in our profits.

We have made acquisitions which have resulted in the recording of goodwill and intangible assets within our organization, and we plan to make additional acquisitions going forward. Our goodwill balance is evaluated for potential impairment during the second quarter of each year and in certain other circumstances. The evaluation of impairment involves comparing the current fair value of the business to the recorded value, including goodwill. To determine the fair value of the business, we utilize both the “Income Approach,” which is based on estimates of future net cash flows and the “Market Approach,” which observes transactional evidence involving similar businesses. If these assets become impaired, a material write-off in the required amount could lead to reductions in our profits.

We use “percentage-of-completion” accounting methods for many of our projects. This method may result in volatility in stated revenues and profits.

Our revenues and profits for many of our contracts are recognized ratably as those contracts are performed. This rate is based primarily on the proportion of labor costs incurred to date to total labor costs projected to be incurred for the entire project. This method of accounting requires us to calculate revenues and profit to be recognized in each reporting period for each project based on our predictions of future outcomes, including our estimates of the total cost to complete the project, project schedule and completion date, the percentage of the project that is completed and the amounts of any probable unapproved change orders. Our failure to accurately estimate these often subjective factors could result in reduced profits or losses for certain contracts.

10

Our government contracts may give the government the right to modify, delay, curtail or terminate our contracts at their convenience at any time prior to their completion. Therefore, our backlog is subject to unexpected adjustments, delays and cancellations.

We cannot assure that our funded or unfunded backlog will be realized as revenues or that, if realized, it will result in profits. Projects may remain in our backlog for an extended period of time prior to project execution and, once project execution begins, revenues may occur unevenly over current and future periods. Our ability to earn revenues from our backlog depends on the availability of funding for various U.S. federal, state, local and foreign government agencies. In addition, most of our domestic and international industrial clients have termination for convenience provisions in their contracts. Therefore, project terminations, suspensions or reductions in scope may occur from time to time with respect to contracts reflected in our backlog. Project cancellations, delays and scope adjustments could further reduce the dollar amount of our backlog and the revenues and profits that we actually earn.

We are not insured for a significant portion of our claims exposure, which could materially and adversely affect our operating income and profitability.

We are self-insured or carry deductibles for most of our insurance coverages, including certain insurance programs related to discontinued businesses. Because of these deductibles and self-insured retention amounts, we have significant exposure to fluctuations in the number and severity of claims. As a result, our insurance and claims expense could increase in the future. Under certain conditions, we may elect or be required to increase our self-insured or deductible amounts, which would increase our already significant exposure to expense from claims. If any claim exceeds our coverage, we would bear the excess expense, in addition to our other self-insured amounts. If the frequency or severity of claims or our expenses increase, our operating income and profitability could be materially adversely affected.

Foreign governmental regulations could adversely affect our business.

Many aspects of our foreign operations are subject to governmental regulations in the countries in which we operate, including regulations relating to currency conversion, repatriation of earnings, taxation of our earnings and the earnings of our personnel, and the increasing requirement in some countries to make greater use of local employees and suppliers, including, in some jurisdictions, mandates that provide for greater local participation in the ownership and control of certain local business assets.

Our operations are also subject to the risk of changes in laws and policies which may impose restrictions on our business, including trade restrictions, and could have a material adverse effect on our operations. Our future operations and earnings may be adversely affected by new legislation, new regulations or changes in, or new interpretations of, existing regulations, and the impact of these changes could be material.

Our inability to achieve the Credit Agreement’s financial covenants, after a cure period, amend/replace the commitment beyond 2011 or the inability of one or more financial institutions in the consortium to meet its commitment under our Credit Agreement could impact our liquidity for working capital needs or our growth strategy.

Our Unsecured Credit Agreement (“Credit Agreement”) is with a consortium of financial institutions and provides for a commitment of $60 million through October 1, 2011. The commitment includes the sum of the principal amount of revolving credit loans outstanding and the aggregate face value of outstanding standby letters of credit. The Credit Agreement requires us to meet minimum equity, leverage, interest and rent coverage, and current ratio covenants. If any of these financial covenants or certain other conditions of borrowing is not achieved, under certain circumstances, after a cure period, the banks may demand the repayment of all borrowings outstanding and/or require deposits to cover the outstanding letters of credit. In addition, in future periods we may leverage our Credit Agreement for working capital needs or to facilitate our growth strategy, specifically utilizing our available credit to fund strategic acquisitions. Our inability to achieve the Credit Agreement’s financial covenants, after a cure period, amend/replace the commitment beyond 2011 or the inability of one or more financial institutions in the consortium to meet its commitment under our Credit Agreement could impact our liquidity for working capital needs or our growth strategy.

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Our business strategy is to grow the business both organically and through acquisitions. This strategy of growth may subject us to certain risks and uncertainties.

As part of our strategy, we seek to grow both organically and through strategic acquisitions. Our organic initiatives may involve entering new markets where we currently do not have a presence. Risks associated with achieving our organic growth objectives include higher than anticipated levels of competition, incorrect assumptions about the timing of market development and size, and the relative experience levels of key company personnel involved in the development of new markets on the our behalf. Acquisitions also present a myriad of risks, including failure to realize anticipated synergies, difficulties with the integration of the acquired business and/or with the retention of key management personnel from the acquired company, cultural differences with the acquired company, significant transaction costs associated with the purchase and assimilation of the business, the risk of subjecting our company to unknown liabilities associated with the acquired business, and the potential impairment of goodwill associated with the transaction. In addition, there is a risk that we may not be able to identify suitable targets at appropriate valuations that will enable us to execute on our growth strategy. Furthermore, the current credit markets may impact our ability to finance certain opportunities or may unfavorably impact the cost of capital in such a transaction. Also, as part of executing an acquisition, we may utilize equity in the Company to partially fund the transaction, which could dilute share ownership. In the event we use our cash or borrowings under our Credit Agreement as consideration for certain acquisitions we may make, we could significantly reduce our liquidity.

Item 1B.  UNRESOLVED STAFF COMMENTS.

Not applicable.

Item 2.  PROPERTIES.

Our headquarters office is located in Moon Township, Pennsylvania. This building, which we lease, has approximately 117,000 square feet of office space and is used by our corporate and operations staff. We primarily occupy leased office space in stand-alone or multi-tenant buildings at costs based on prevailing market prices at lease inception. In addition to our Moon Township offices, we also have leased office space totaling approximately 448,000 square feet in the U.S. as of December 31, 2009, which includes a major leased office in Alexandria, VA. These leases expire at various dates through the year 2018.

We also own a 75,000 square foot office building located in Beaver, Pennsylvania, which is situated on approximately 177 acres. We believe that our current facilities will be adequate for the operation of our business during the next year, and that suitable additional office space is readily available to accommodate any needs that may arise.

Item 3.  LEGAL PROCEEDINGS.

We have been named as a defendant or co-defendant in legal proceedings wherein damages are claimed. Such proceedings are not uncommon to our business. We believe that we have recognized adequate provisions for probable and reasonably estimable liabilities associated with these proceedings, and that their ultimate resolutions will not have a material impact on our consolidated financial position or annual results of operations or cash flows. We currently have no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our subsidiaries is a party or of which any of our property is the subject.

Item 4.  RESERVED.

Not applicable.

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PART II

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Information relating to the market for our Common Stock and other matters related to the holders thereof is set forth in the “Supplemental Financial Information” section of Exhibit 13.1 to this Form 10-K. Such information is incorporated herein by reference.

Holders

As of February 28, 2010, we had 996 holders of our Common Stock.

Dividends

Our present policy is to retain any earnings to fund our operations and growth. We have not paid any cash dividends since 1983 and have no plans to do so in the foreseeable future. Our Credit Agreement with our banks places certain limitations on dividend payments.

Sales of Unregistered Securities

We did not sell any unregistered securities during the year ended December 31, 2009.

Purchases of Equity Securities

Neither we nor any affiliated purchaser bought any Michael Baker Corporation equity securities during the fourth quarter of 2009.

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Performance Graph

The following graph shows the changes over the past five-year period in the value of $100 invested in (1) the Common Stock of Michael Baker Corporation, (2) the Russell 2000 Index, (3) our old peer group (consisting of URS Corporation and Tetra Tech, Inc.), and (4) our new peer group (consisting of AECOM Technology Corp., Hill International, Inc., Jacobs Engineering Group Inc., Stantec Inc. and URS Corp.). The values of each investment are based on share price appreciation, with reinvestment of all dividends, assuming any were paid. For each graph, the investments are assumed to have occurred at the beginning of each period presented.

As a result of the sale of our Energy business we updated our peer group for the performance graph to reflect a more accurate representation of our engineering only business.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Michael Baker Corporation, The Russell 2000 Index,

An Old Peer Group And A New Peer Group

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Item 6.  SELECTED FINANCIAL DATA.

A summary of selected financial data for the five years ended December 31, 2009 is set forth in the “Selected Financial Data” section of Exhibit 13.1 to this Form 10-K. Such summary is incorporated herein by reference.

Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

A discussion and analysis of our results of operations, cash flow and financial condition is set forth in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of Exhibit 13.1 to this Form 10-K. This discussion is incorporated herein by reference.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As of December 31, 2009, we had highly liquid investments included in our cash and cash equivalents and municipal bonds (“variable-rate investments”), which totaled $105.3 million and $2.2 million, respectively, as of December 31, 2009. The majority of the Company’s cash and cash equivalents were held in money market funds as of December 31, 2009. Our Credit Agreement provides for a commitment of $60 million through October 1, 2011. As of December 31, 2009, there were no borrowings (“variable-rate debt”) outstanding under the Credit Agreement. Based on the amounts of our investments and borrowings, we have no material exposure to interest rate risk.

Based on the nature of our business, we have no direct exposure to commodity price risk. We have no material exposure to foreign currency exchange rate risk and no foreign currency exchange contracts.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our consolidated financial statements as of December 31, 2009 and 2008 and for the three years ended December 31, 2009, together with the report thereon of our independent registered public accounting firm (Deloitte & Touche LLP), and supplementary financial information are set forth within Exhibit 13.1 to this Form 10-K. Such financial statements, the report thereon, and the supplementary financial information are incorporated herein by reference.

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

Item 9A.  CONTROLS AND PROCEDURES.

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2009. This evaluation considered various procedures designed to ensure that information we disclose in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2009.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements

15

for external purposes in accordance with GAAP. Our internal control over financial reporting includes policies and procedures that:

(i) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets;

(ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and our directors; and

(iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2009. The assessment was based on criteria established in the framework Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s internal control over financial reporting was effective as of December 31, 2009.

Changes in Internal Control Over Financial Reporting

There were no changes in our “internal control over financial reporting” (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2009, and that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Michael Baker Corporation

We have audited the internal control over financial reporting of Michael Baker Corporation and subsidiaries (the “Company”) as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2009 of the Company and our report dated March 15, 2010 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 15, 2010

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Item 9B.  OTHER INFORMATION.

Not applicable.

PART III

Item 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K appears in our definitive Proxy Statement, which will be distributed in connection with the 2010 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, or in Part I of this Form 10-K under the caption “Executive Officers.” This information is incorporated herein by reference.

Code of Ethics for Senior Officers

We have adopted a Code of Ethics for Senior Officers that includes the provisions required under applicable Securities and Exchange Commission regulations for a code of ethics. A copy of the Code of Ethics for Senior Officers is posted on our website at http://www.mbakercorp.com and is available in print to any shareholder who requests it. In the event that we make any amendments to or waivers from this Code, we will discuss the amendment or waiver and the reasons for such on our website.

The obligations of the Code of Ethics for Senior Officers supplement, but do not replace, the Code of Business Conduct applicable to our directors, officers and employees. A copy of the Code of Business Conduct is posted on our website at http://www.mbakercorp.com and is available in print to any shareholder who requests it.

Item 11.  EXECUTIVE COMPENSATION.

Information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K appears in our definitive Proxy Statement, which will be distributed in connection with the 2010 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. This information is incorporated herein by reference.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Information required by Item 403 of Regulation S-K appears in our definitive Proxy Statement, which will be distributed in connection with the 2010 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. This information is incorporated herein by reference.

Equity Compensation Plan Information

The following table provides information as of December 31, 2009 about equity awards under our equity compensation plans and arrangements in the aggregate:

					(c)
					Number of Securities
	(a)		(b)		Remaining Available for
	Number of Securities to		Weighted-Average		Future Issuance Under
	be Issued upon Exercise		Exercise Price of		Equity Compensation Plans
	of Outstanding Options,		Outstanding Options,		(Excluding Securities
Plan Category	Warrants and Rights		Warrants and Rights		Reflected in Column (a))
Equity compensation plans approved by shareholders		104,463	$	22.87		131,000
Equity compensation plans not approved by shareholders		—		—		—
Total		104,463	$	22.87		131,000

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Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Information required by Items 404 and 407(a) of Regulation S-K appears in our definitive Proxy Statement, which will be distributed in connection with the 2010 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. This information is incorporated herein by reference.

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Information required by Item 9(e) of Schedule 14A appears in our definitive Proxy Statement, which will be distributed in connection with the 2010 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A. This information is incorporated herein by reference.

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PART IV

Item 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1)   The following financial statements are incorporated in Item 8 of Part II of this Report by reference to the consolidated financial statements within Exhibit 13.1 to this Form 10-K:

Consolidated Statements of Income for each of the three years in the period ended December 31, 2009	15
Consolidated Balance Sheets as of December 31, 2009 and 2008	16
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2009	17
Consolidated Statements of Shareholders’ Investment for each of the three years in the period ended December 31, 2009	18
Notes to Consolidated Financial Statements	19
Management’s Report to Shareholders on Its Responsibility for Financial Statements	43
Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)	44

(a)(2)   Financial statement schedule for the year ended December 31, 2009:

Schedule II — Valuation and Qualifying Accounts

(In thousands)			Additions Charged to
	Beginning					Other						Ending
Description	Balance		Expense			Accounts			Deductions			Balance
For the year ended December 31, 2009:
Income tax valuation allowance	$	5,085	$	10,518	(1)	$	(3,007	)(2)	$	(1,138	)(3)	$	11,458
Nigerian prepaid tax allowance		1,669		—			(1,669	)(2)		—			—
Allowance for doubtful accounts		2,765		6,761	(4)		(703	)(2)		(8,100	)(5)		723
For the year ended December 31, 2008:
Income tax valuation allowance	$	6,245	$	—		$	—		$	(1,160	)(3)	$	5,085
Nigerian prepaid tax allowance		1,799		152	(6)		—			(282	)(7)		1,669
Allowance for doubtful accounts		1,463		3,436	(4)		—			(2,134	)(5)		2,765
For the year ended December 31, 2007:
Income tax valuation allowance	$	7,792	$	—		$	—		$	(1,547	)(3)	$	6,245
Nigerian prepaid tax allowance		2,173		505	(6)		—			(879	)(7)		1,799
Allowance for doubtful accounts		767		1,272	(4)		—			(576	)(5)		1,463

(1)	Relates to valuation allowances for capital losses totaling approximately $9.0 million and foreign tax credits totaling approximately $1.5 million.
(2)	Primarily relates to reserves that were included in the net assets that were part of the sale of our Energy business.
(3)	Relates to a reduction in federal, state, and foreign net operating losses and related valuation allowances.
(4)	The expense primarily reflects accounts receivable balances reserved during the year. Accounts receivable balances related to Storm Cat Energy, a customer of our former Energy business, accounted for $6.0 million and $1.6 million of the expense for the years ended December 31, 2009 and 2008, respectively.
(5)	The deduction amount primarily reflects accounts receivable balances written off during the year as well as recoveries of allowances previously expensed. The Storm Cat reserves totaling $7.6 million were written off in the third quarter of 2009 and are presented as a reduction.

20

(6)	Relates to the inability to realize Nigerian prepaid income tax assets.
(7)	The deduction amount primarily reflects recoveries of prepaid tax amounts previously expensed.

Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) on Financial Statement Schedule for the years ended December 31, 2009 and 2008 (included as Exhibit 99.3 to this Form 10-K).

All other schedules are omitted because they are either not applicable or the required information is shown in the consolidated financial statements or notes thereto.

(a)(3)   The following exhibits are included herewith as a part of this Report:

Exhibit No.			Description
	3	.1	Articles of Incorporation, as amended, filed as Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference.
	3	.2	By-laws, as amended, filed as Exhibit 3.1 to our Report on Form 8-K dated October 29, 2009, and incorporated herein by reference.
	4	.1	Amendment to Rights Agreement dated November 5, 2009, between us and American Stock Transfer and Trust Company, as Rights Agent, filed as Exhibit 4.1 to our Report on Form 8-K dated November 5, 2009, and incorporated herein by reference.
	10	.1	2009 Incentive Compensation Plan (attachments excluded), filed herewith.*
	10	.2	Consulting Agreement dated April 25, 2001, by and between us and Richard L. Shaw, filed as Exhibit 10.2(c) to our Quarterly Report on Form 10-Q for the period ended June 30, 2001, and incorporated herein by reference.*
	10	.2(a)	First Amendment to Consulting Agreement effective April 26, 2003, by and between us and Richard L. Shaw, filed as Exhibit 10.2(a) to our Annual Report on Form 10-K for the year ended December 31, 2003, and incorporated herein by reference.*
	10	.2(b)	Second Amendment to Consulting Agreement effective April 26, 2005, by and between us and Richard L. Shaw, filed as Exhibit 10.2(a) to our Quarterly Report on Form 10-Q for the period ended June 30, 2005, and incorporated herein by reference.*
	10	.2(c)	Third Amendment to Consulting Agreement effective April 26, 2006, by and between us and Richard L. Shaw, filed as Exhibit 10.2(c) to our Annual Report on Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.*
	10	.2(d)	Fourth Amendment to Consulting Agreement effective April 26, 2007, by and between us and Richard L. Shaw, filed as Exhibit 10.2(d) to our Annual Report on Form 10-K for the year ended December 31, 2006, and incorporated herein by reference.*
	10	.2(e)	Fifth Amendment to Consulting Agreement effective April 26, 2008, by and between us and Richard L. Shaw, filed as Exhibit 10.2(e) to our Annual Report on Form 10-K for the year ended December 31, 2007, and incorporated herein by reference.*
	10	.2(f)	Sixth Amendment to Consulting Agreement effective April 26, 2009, by and between us and Richard L. Shaw, filed as Exhibit 10.2 to our Report on Form 8-K dated April 17, 2009, and incorporated herein by reference.*
	10	.2(g)	Seventh Amendment to Consulting Agreement effective April 26, 2010, by and between us and Richard L. Shaw, filed herewith.*
	10	.3	First Amended and Restated Loan Agreement dated September 17, 2004, by and between us and Citizens Bank of Pennsylvania, PNC Bank, National Association and Fifth Third Bank, filed as Exhibit 10.4(a) to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, and incorporated herein by reference.
	10	.3(a)	First Amendment to the First Amended and Restated Loan Agreement dated September 1, 2007, by and between us and Citizens Bank of Pennsylvania, PNC Bank, National Association and Fifth Third Bank, filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended September 30, 2007, and incorporated herein by reference.
	10	.3(b)	Second Amendment to the First Amended and Restated Loan Agreement dated September 25, 2009, by and between us and Citizens Bank of Pennsylvania, PNC Bank, National Association and Fifth Third Bank, filed herewith.
	10	.4	1995 Stock Incentive Plan amended effective April 23, 1998, filed as Exhibit 10.4 to our Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.*

21

Exhibit No.			Description
	10	.5	1996 Nonemployee Directors’ Stock Incentive Plan, filed as Exhibit A to our definitive Proxy Statement with respect to our 1996 Annual Meeting of Shareholders, and incorporated herein by reference.*
	10	.5(a)	Amendment to the 1996 Nonemployee Directors’ Stock Incentive Plan, filed as Appendix B to our definitive Proxy Statement with respect to our 2004 Annual Meeting of Shareholders, and incorporated herein by reference.*
	10	.6	Office Sublease Agreement dated August 6, 2001, by and between us and Airside Business Park, L.P., filed as Exhibit 10.7 to our Annual Report on Form 10-K for the year ended December 31, 2002 (exhibits omitted), and incorporated herein by reference.
	10	.6(a)	Third Amendment to Office Sublease Agreement dated February 19, 2003, by and between us and Airside Business Park, L.P., filed as Exhibit 10.7(a) to our Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
	10	.7	Employment Agreement between us and Bradley L. Mallory, dated June 17, 2008, filed as Exhibit 10.1 to our Report on Form 8-K dated June 17, 2008, and incorporated herein by reference.*
	10	.8	Form of Employment Continuation Agreement between Joseph R. Beck, David J. Greenwood, David G. Higie, James M. Kempton, Samuel C. Knoch, G. John Kurgan, Bradley L. Mallory, H. James McKnight, Edward L. Wiley, Michael Ziemianski and Michael J. Zugay, filed as Exhibit 10.1 to our Report on Form 8-K dated April 17, 2009, and incorporated herein by reference.*
	10	.9	Share Purchase Agreement, dated as of September 30, 2009, by and among Michael Baker Corporation, Baker Holding Corporation, Baker OTS, Inc., Michael Baker International, Inc., Wood Group E.&P.F. Holdings, Inc., Wood Group Holdings (International) Limited and Wood Group Engineering and Operations Support Limited, filed as Exhibit 10.1 to our Report on Form 8-K dated September 30, 2009, and incorporated herein by reference.
	13	.1	Selected Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009, Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP), and Supplemental Financial Information, filed herewith and to be included as the Financial Section of the Annual Report to Shareholders for the year ended December 31, 2009.
	21	.1	Subsidiaries, filed herewith.
	23	.1	Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP), filed herewith.
	23	.2	Consent of Independent Registered Public Accounting Firm (Schneider Downs & Co., Inc.), filed herewith.
	31	.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a), filed herewith.
	31	.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a), filed herewith.
	32	.1	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
	99	.1	Audited financial statements for our unconsolidated subsidiary, Stanley Baker Hill, LLC, for the year ended December 31, 2009, filed herewith.
	99	.2	Unaudited financial statements for our unconsolidated subsidiary, Stanley Baker Hill, LLC, for the years ended December 31, 2008 and 2007, filed herewith.
	99	.3	Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) on financial statement schedule for the years ended December 31, 2009, 2008 and 2007, filed herewith.

* Management contract or compensatory plan.

22

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MICHAEL BAKER CORPORATION
Dated: March 15, 2010	By:	/s/ Bradley L. MalloryBradley L. Mallory President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on our behalf and in the capacities indicated as of March 15, 2010:

Signature	Title
/s/ Bradley L. Mallory Bradley L. Mallory	President, Chief Executive Officer and Director (Principal Executive Officer)
/s/ Michael J. Zugay Michael J. Zugay	Executive Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ James M. Kempton James M. Kempton	Vice President, Corporate Controller and Treasurer (Principal Accounting Officer)
/s/ Richard L. Shaw Richard L. Shaw	Chairman of the Board
/s/ Robert N. Bontempo Robert N. Bontempo	Director
/s/ Nicholas P. Constantakis Nicholas P. Constantakis	Director
/s/ Robert H. Foglesong Robert H. Foglesong	Director
/s/ Mark E. Kaplan Mark E. Kaplan	Director
/s/ John E. Murray, Jr. John E. Murray, Jr.	Director
/s/ Pamela S. Pierce Pamela S. Pierce	Director
/s/ David N. Wormley David N. Wormley	Director

23

EX-10.1

Exhibit 10.1

MICHAEL BAKER CORPORATION

INCENTIVE COMPENSATION PLAN

     Section 1. Purpose. The purpose of the Michael Baker Corporation Incentive Compensation Plan (the “Plan”) is to provide for an incentive payment opportunity to employees of Michael Baker Corporation (the “Company”) and its subsidiaries, which may be earned upon the achievement of established financial performance goals. By providing a payment based upon profitability, the Company will establish rewards based on the overall performance of the Company and the individual contribution of each employee.

     Section 2. Effective Date. The effective date of this Plan is January 1, 2009. The Plan will remain in effect from year to year (each calendar year shall be referred to herein as a “Plan Year”) until formally amended or terminated in writing by the Company’s Board of Directors (the “Board”).

     Section 3. Administration of the Plan.

          Section 3.01. Committee. Full power and authority to administer, construe and interpret the Plan, and any incentive program described within the Plan (any “Incentive Program”) shall be vested in the Compensation Committee of the Board (the “Committee”). The Committee may delegate to any agent as it deems appropriate to assist it with the administration of the Plan. Any determination, action or records of the Committee shall be final, conclusive and binding on all Plan Participants, as defined in Section 3.04 of the Plan, and their beneficiaries, heirs, personal representatives, executors and administrators, and upon the Company and all other persons having or claiming to have any right or interest in or under the Plan.

          Section 3.02. Rules and Regulations. The Committee may, from time to time, establish rules, forms and procedures of general application for the administration of the Plan and each Incentive Program. The Committee shall determine the Targets and Awards, as defined in Sections 5.01 and 5.02 of the Plan, designate the employees who are to participate in the Plan and determine the Group to which a Participant is assigned, as defined in Section 4.02 of the Plan.

          Section 3.03. Quorum. A majority of the members of the Committee shall constitute a quorum for purposes of transacting business relating to the Plan. The acts of a majority of the members present (in person, or by conference telephone) at any meeting of the Committee at which there is a quorum, or acts reduced to and approved unanimously in writing by all of the Committee members, shall be valid acts of the Committee.

          Section 3.04. Notice of Participation. Each employee who is designated to participate shall receive notice informing the employee of the Plan, which notice may also specify the group in which the employee is designated to participate. Designation of participation does not guarantee a participant (a “Participant”) that an Incentive Award will be earned, or that such Participant will continue to participate in the same group for the current Plan Year (based upon the achievement of Group qualification metrics) or for future Plan Years.

     Section 4. Eligibility, Groups and Incentive Programs.

          Section 4.01. Eligibility. Any employee of the Company or any wholly-owned subsidiary of the Company shall be eligible to participate in the Plan upon written designation by the Committee as provided in Section 3.04, excluding employees who are covered under a foreign government regulated bonus plan.

          Section 4.02. Designation of Groups. Any employee who is designated by the Committee as a Participant for a Plan Year may be assigned as a member of one of the following Groups:

Group 1.	Participants in Group 1 may include the Company’s executive officers, including Divisional, Department or Office Managers.
Group 2.	Participants in Group 2 may include Project Managers.
Group 3.	Participants in Group 3 may include any employee who is designated as a Participant in the Plan and who is not otherwise assigned as a member of Group 1 or 2.

          Section 4.03. Incentive Programs. The following Incentive Programs may be administered under the Plan:

• The Corporate Incentive Program;

• The Engineering Incentive Program;

• The Project Manager Incentive Program; and

• The Discretionary Incentive Program.

All Group 1 Participants are eligible to participate in the Corporate Incentive Program or the Engineering Incentive Program, if offered; provided that if such program(s) are not offered Group 1 Participants shall be eligible to participate in the Discretionary Incentive Program, if offered. All Group 2 Participants are eligible to participate in the Project Manager Incentive Plan, if offered; provided that if such program is not offered Group 2 Participants shall be eligible to participate in the Discretionary Incentive Program, if offered. All Group 3 Participants are eligible to participate in the Discretionary Incentive Program, if offered. Notwithstanding the foregoing, the Committee may elect to offer the discretionary bonus program as provided in Section 5.06 hereof, in lieu of any or all of such Incentive Programs.

          Section 4.04. Termination of Employment.

               (a) Except as provided in Section 4.05 of the Plan, a Participant whose employment with the Company and all subsidiaries is terminated, either voluntarily, by mutual agreement or by involuntary termination for cause following the end of a Plan Year but prior to the payment of an Incentive Award for such Plan Year will forfeit all right to such unpaid Incentive Awards, except as otherwise determined by the Committee or its delegate; provided further that a Participant whose employment is terminated by the Company and all subsidiaries involuntarily other than for cause following the end of a Plan Year shall not forfeit all right to such unpaid Incentive Awards.

               (b) Except as provided in Section 4.05 of the Plan, a Participant whose employment with the Company and all subsidiaries is terminated voluntarily, by mutual agreement or involuntarily for cause at any time during a Plan Year shall forfeit all rights to any Incentive Awards for the Plan Year during which termination occurs. A Participant whose employment is terminated by the Company and all subsidiaries involuntarily other than for cause on or before June 30 of any Plan Year shall forfeit all rights to any Incentive Awards for the Plan Year during which termination occurs; provided further that a Participant whose employment is terminated by the Company and all subsidiaries involuntarily other than for cause after June 30 of a Plan Year shall be entitled to a pro-rated Incentive Award for the period of employment,

subject to the other terms and conditions of the Plan and the achievement of the applicable Performance Goals.

               (c) All incentive awards that are forfeited as provided in Section 4.04 (a) and (b) above may be allocated to or among remaining plan participants within the discretion of the Committee.

          Section 4.05. Death, Disability or Retirement. If, during a Plan Year, a Participant dies or becomes disabled, within the meaning of Section 409A(a)(2)(C) of the Internal Revenue Code of 1986, as amended, or retires after attainment of at least age 55 and with at least 10 years of service with the Company and/or its subsidiaries, the Committee may, in its discretion or under such rules as it may prescribe, make a partial or full Incentive Award to the Participant for the Plan Year provided that the applicable Performance Goals were achieved.

          Section 4.06. New Participants. New employees of the Company or any wholly-owned subsidiary of the Company hired after June 30 of a Plan Year and designated for participation will become Group 3 Participants during such Plan Year. New employees hired on or before June 30 and designated for participation may participate (on a pro-rated basis) in any Group during such Plan Year based upon achievement of Group qualification metrics.

     Section 5. Incentive Targets, Incentive Awards and Performance Goals. Incentive payment targets and performance goals may be established, as provided in this Section 5, for any program other than the Discretionary Incentive Program or discretionary bonus program and, may, to the extent determined by the Committee, be applicable to such discretionary programs.

          Section 5.01. Incentive Targets. Each Participant under the Plan may be assigned an incentive payment target (an “Incentive Target”) that shall be determined based on market competitive levels, and which may be expressed as a percentage of the Participant’s base salary or other basis, as related to the level of achievement attained. Incentive Targets shall be determined within 30 days after the commencement of each Plan Year and approved by the Committee. The Incentive Targets for the current Plan Year are attached hereto as Attachment A.

          Section 5.02. Incentive Awards. No incentive award payment (“Incentive Award”) may exceed the Participant’s Incentive Target. Payment of any Incentive Award under the Plan shall be contingent upon (i) the achievement of the Main Company Performance Goals (measured at target), as defined in Section 5.03(a) of the Plan, for the Plan Year, (ii) the achievement of the applicable Participant Performance Goals, as defined in Section 5.03 of the Plan, for the particular Incentive Program in which the Participant is a member for the Plan Year, (iii) the Participant’s receiving an overall “Meets Expectations” rating on the values/work standards portion of his or her Company performance review form for the Plan Year and (iv) the determination of the amount payable under Section 5.05 of the Plan.

          Section 5.03. Performance Goals.

               (a) Company Performance Goals. Within 30 days after the commencement of a Plan Year, the Committee shall establish specific performance goals for the Company (“Company Performance Goals”), which may be based upon one or more of the following objective performance measures and expressed in either, or a combination of, absolute values or rates of change: earnings per share, earnings per share growth rates, return on total capital, stock price, revenues, costs, net income, operating income, income before taxes, operating margin, cash flow, market share, return on equity, return on assets and total shareholder return. The Committee shall designate one or more of such Performance Goals as the main Company Performance Goals (the “Main Company Performance Goals”) and the

weighting among the various Performance Goals established. The Company Performance Goals are attached hereto as Attachment B. In order for any Incentive Awards to be paid to Participants in any Incentive Program with respect to a Plan Year, the Main Company Performance Goals established by the Committee for such Plan Year (measured at target) must be achieved.

               (b) Divisional Performance Goals. Within 30 days after the commencement of a Plan Year, the Committee may establish specific performance goals for the Company’s divisions or business units (“Divisional Performance Goals”), which may be based upon one or more of the following objective performance measures and expressed in either, or a combination of, absolute values or rates of change: revenues, costs, net income, operating income, income before taxes, operating margin, cash flow, market share, return on equity or return on assets. The Divisional Performance Goals are attached hereto as Attachment C.

               (c) Participants’ Performance Goals. Within 90 days after the commencement of the Plan Year, the Committee may establish performance goals for the Participants in each of the Incentive Programs (“Participant Performance Goals”) as follows:

(i)	Corporate Incentive Program. The Participant Performance Goals for all Participants in the Corporate Incentive Program shall be the Company Performance Goals and, in the case of Group 1 Participants who are Divisional Managers, Divisional Performance Goals, weighted per Attachment F.
(ii)	Engineering Incentive Program. The Participant Performance Goals for all Participants in the Engineering Incentive Program shall be the Engineering Performance Goals and, in the case of Group 1 Participants who are Engineering Managers, Engineering Performance Goals, weighted per Attachment F.
(iii)	Project Manager Incentive Program. The Participant Performance Goals for each Group 2 Participant in the Project Manager Incentive Program shall be (x) the Main Company Performance Goals and (y) the level of achievement of budgeted project profits measured for the Plan Year on those particular projects for which the Participant is primarily responsible, weighted per Attachment F.
(iv)	Discretionary Incentive Program. The Participant Performance Goals for the Participants in the Discretionary Incentive Program shall be (x) the Main Company Performance Goals and (y) other goals as established by the Committee in its discretion, weighted per Attachment F.

               (d) When the Participant Performance Goals are established, the Committee shall also specify the manner in which the level of achievement of such Participant Performance Goals shall be calculated. The Committee may determine that unusual items or certain specified events or occurrences, including changes in accounting standards or tax laws, shall be excluded from the calculation, or may within their discretion adjust the performance goals.

          Section 5.04. Discretion. The Committee shall have no discretion to increase any Incentive Target or Incentive Award payable that would otherwise be due upon attainment of the

Performance Goals, but the Committee may in its discretion reduce or eliminate such Incentive Target or Incentive Award.

          Section 5.05. Determination of Incentive Award. The amount of a Participant’s Incentive Award for a Plan Year, if any, shall be determined by the Committee or its delegate, in its discretion, after considering the level of achievement of the Company Performance Goals, and the extent to which that achievement results in funding of incentive awards, the applicable Participant Performance Goals, the Participant’s Incentive Target for such level of achievement, and the other terms of the Plan.

          Section 5.06. Determination of Other Bonuses. The Committee may grant, from time to time in its sole discretion, a bonus to any Participant based on any criteria it determines. Such bonus, if specifically designated by the Committee as payable under this Plan, shall be subject to such provisions of the Plan as it shall specify.

     Section 6. Payment to Participants.

          Section 6.01. Timing of Payment. Any Incentive Award for a Plan Year shall be paid to the Participant, or in the case of death to the Participant’s beneficiary, within 2¹/2 months following the end of such Plan Year in which the right to payment is no longer subject to a substantial risk of forfeiture. Notwithstanding the foregoing, in the event such amount is conditioned upon a separation from service and not compensation the Participant could receive without separating from service, then no such payments may be made to the Participant who is a “specified employee” under section 409A of the Internal Revenue Code of 1986, as amended, until the first day following the six-month anniversary of the Participant’s termination.

          Section 6.02. Beneficiary Designation. The deemed beneficiary of a Participant for this Plan will be the beneficiary elected by the Participant under the Company’s Life Insurance Plan; provided that a Participant may elect a different beneficiary by filing a completed designation of beneficiary form with the Committee or its delegate in the form prescribed. Such designation may be made, revoked or changed by the Participant at any time before death but such designation of beneficiary will not be effective and supersede all prior designations until it is received and acknowledged by the Committee or its delegate. If the Committee has any doubt as to the proper beneficiary to receive payments hereunder, the Committee shall have the right to withhold such payments until the matter is finally adjudicated. However, any payment made in good faith shall fully discharge the Committee, the Company, its subsidiaries and the Board from all further obligations with respect to that payment.

          Section 6.03. Tax Withholding. All Incentive Awards and bonuses shall be subject to Federal income, FICA, and other tax withholding as required by applicable law.

     Section 7. Miscellaneous.

          Section 7.01. No Recourse. If the actual level of achievement of any Performance Goal taken into account for determination of an Incentive Award is found to be incorrect by the Company’s independent certified public accountants and was more than the correct amount, there shall be no recourse by the Company against any person or estate. However, the Company shall have the right to correct such error by reducing any subsequent payments yet to be made under the Plan for current and future Plan Years by the entire excess amount of any Incentive Awards paid over the correct amounts.

          Section 7.02. Merger or Consolidation. All obligations for amounts earned but not yet paid under the Plan shall survive any merger, consolidation or sale of all or substantially all of the Company’s or a subsidiary’s assets to any entity, and be the liability of the successor to

the merger or consolidation or the purchaser of assets, unless otherwise agreed to by the parties thereto.

          Section 7.03. Gender and Number. The masculine pronoun whenever used in the Plan shall include the feminine and vice versa. The singular shall include the plural and the plural shall include the singular whenever used herein unless the context requires otherwise.

          Section 7.04. Construction. The provisions of the Plan shall be construed, administered and governed by the laws of the Commonwealth of Pennsylvania, including its statute of limitations provisions, but without reference to conflicts of law principles. Titles of Sections of the Plan are for convenience of reference only and are not to be taken into account when construing and interpreting the provisions of the Plan.

          Section 7.05. Non-alienation. Except as may be required by law, neither the Participant nor any beneficiary shall have the right to, directly or indirectly, alienate, assign, transfer, pledge, anticipate or encumber (except by reason of death) any amount that is or may be payable hereunder, including in respect of any liability of a Participant or beneficiary for alimony or other payments for the support of a spouse, former spouse, child or other dependent, prior to actually being received by the Participant or beneficiary hereunder, nor shall the Participant’s or beneficiary’s rights to benefit payments under the Plan be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Participant or beneficiary or to the debts, contracts, liabilities, engagements, or torts of any Participant or beneficiary, or transfer by operation of law in the event of bankruptcy or insolvency of the Participant or any beneficiary, or any legal process.

          Section 7.06. No Employment Rights. Neither the adoption of the Plan nor any provision of the Plan shall be construed as a contract of employment between the Company or a subsidiary and any employee or Participant, or as a guarantee or right of any employee or Participant to future or continued employment with the Company or a subsidiary, or as a limitation on the right of the Company or a subsidiary to discharge any of its employees with or without cause. Specifically, designation as a Participant does not create any rights, and no rights are created under the Plan, with respect to continued or future employment or conditions of employment.

          Section 7.07. Minor or Incompetent. If the Committee determines that any Participant or beneficiary entitled to a payment under the Plan is a minor or incompetent by reason of physical or mental disability, it may, in its sole discretion, cause any payment thereafter becoming due to such person to be made to any other person for his benefit, without responsibility to follow application of amounts so paid. Payments made pursuant to this provision shall completely discharge the Company, its subsidiaries, the Plan, the Committee and the Board.

          Section 7.08. Illegal or Invalid Provision. In case any provision of the Plan shall be held illegal or invalid for any reason, such illegal or invalid provision shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced without regard to such.

          Section 7.09. Amendment or Termination of this Plan. The Board shall have the right to amend or terminate the Plan at any time, provided that any amendment or termination shall not affect any Incentive Awards earned but unpaid. No employee or Participant shall have any vested right to payment of any Incentive Award hereunder prior to its payment. The Company shall notify affected employees in writing of any amendment or Plan termination.

          Section 7.10. Unsecured Creditor. The Plan constitutes a mere promise by the Company or a subsidiary to make benefit payments in the future. The Company’s and the

subsidiaries’ obligations under the Plan shall be unfunded and unsecured promises to pay. The Company and the subsidiaries shall not be obligated under any circumstance to fund their respective financial obligations under the Plan. Any of them may, in its discretion, set aside funds in a trust or other vehicle, subject to the claims of its creditors, in order to assist it in meeting its obligations under the Plan, if such arrangement will not cause the Plan to be considered a funded deferred compensation plan. To the extent that any Participant or beneficiary or other person acquires a right to receive payments under the Plan, such right shall be no greater than the right, and each Participant and beneficiary shall at all times have the status, of a general unsecured creditor of the Company or a subsidiary.

EX-10.2.G

Exhibit 10.2 (g)

AMENDMENT NO. 7
TO CONSULTING AGREEMENT

     This AMENDMENT NO. 7 to the Consulting Agreement between the parties is entered into by and between Michael Baker Corporation, a Pennsylvania Corporation (the “Corporation”) and Richard L. Shaw, an individual (the “Executive”), effective April 26, 2010.

     WHEREAS, the Corporation and the Executive entered into the Consulting Agreement, effective April 25, 2001, a true and correct copy of which (along with all amendments thereto) is attached hereto as Exhibit A, as last amended by Amendment No. 6 to the Consulting Agreement, effective April 26, 2009 extending the term of the Agreement until April 26, 2010; and

     WHEREAS, the Corporation and the Executive now desire to extend the term of the Consulting Agreement upon the same terms and conditions for an additional one (1) year period until April 26, 2011;

     NOW THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, incorporating the foregoing WHEREAS clauses and intending to be legally bound hereby, THE PARTIES AGREE AS FOLLOWS:

The term of the Consulting Agreement effective April 25, 2001 between the parties as amended by Amendment No. 1 effective April 26, 2003, Amendment No. 2 effective April 26, 2005, Amendment No. 3 effective April 26, 2006, Amendment No. 4 effective April 26, 2007, Amendment No. 5 effective April 26, 2008, and Amendment No. 6 effective April 26, 2009, shall be, and the same hereby is, extended for an additional one (1) year period from April 26, 2010 until April 26, 2011 upon the same terms and conditions.

     IN WITNESS WHEREOF, effective April 26, 2010, the parties have executed this AMENDMENT NO. 7 to the Consulting Agreement extending the term thereof until April 26, 2011.

	MICHAEL BAKER CORPORATION
Attest:	(The “Corporation”)
/s/ Marcia S. Wolk	By:	/s/ H. James McKnight
Marcia S. Wolk		H. James McKnight
Assistant Secretary		Executive Vice President
Witness:
	Richard L. Shaw
	(The “Executive”)
/s/ Patricia A. Smith	/s/ Richard L. Shaw

EX-10.3.B

Exhibit 10.3(b)

SECOND AMENDMENT TO THE FIRST AMENDED
AND RESTATED LOAN AGREEMENT

          THIS SECOND AMENDMENT TO THE FIRST AMENDED AND RESTATED LOAN AGREEMENT (this “Amendment”), dated as of September 25, 2009, by and among MICHAEL BAKER CORPORATION, a Pennsylvania corporation (“MBC”), MICHAEL BAKER, JR., INC., a Pennsylvania corporation (“Michael Baker Jr.”), BAKER/MO SERVICES, INC., a Texas corporation (“Baker/MO”), BAKER/OTS, INC., a Delaware corporation (“Baker/OTS”), BAKER ENGINEERING NY, INC., a New York corporation (“Baker NY”) (MBC, Michael Baker Jr., Baker/MO, Baker/OTS and Baker NY are sometimes individually referred to herein as a “Borrower” and collectively as the “Borrowers”), the Bank parties hereto from time to time and CITIZENS BANK OF PENNSYLVANIA, a banking association organized and existing under the laws of the Commonwealth of Pennsylvania, as administrative agent for the Bank parties hereunder (in such capacity, together with the successors in such capacity, the “Agent”).

W I T N E S S E T H:

          WHEREAS, the Borrowers, the Banks and the Agent entered into that certain First Amended and Restated Loan Agreement dated as of September 17, 2004, as amended by letter agreements dated as of September 30, 2005, December 31, 2005, June 15, 2006, June 20, 2008 and by First Amendment to the First Amended and Restated Loan Agreement dated as of September 1, 2007, as the same may have been further amended from time to time (the “First Amended and Restated Loan Agreement” or the “Existing Credit Agreement”), pursuant to which the Bank parties to the First Amended and Restated Loan Agreement made a revolving credit facility in the maximum aggregate amount of $60,000,000 available to Borrowers and the Swing Line Lender (as defined in the First Amended and Restated Loan Agreement) made a swing line facility in the maximum aggregate amount of $5,000,000 available to the Borrowers;

          WHEREAS, the parties to this Amendment, in their mutual interest, have agreed to amend certain provisions of the First Amended and Restated Loan Agreement and to waive certain Events of Default, all as provided for and upon the terms and conditions set forth in this Amendment; and

          NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

     1. Defined Terms. All terms used in this Amendment and not otherwise defined herein shall have the meanings ascribed to them in the Existing Credit Agreement. The Existing Credit Agreement and this Amendment are to be treated as one agreement and are together referred to hereafter as the “Agreement”.

     2. Recitals. The recitals set forth above are fully incorporated into this Amendment by reference. All references to “Agent” shall refer to Agent in its capacity as agent for the Banks

and for the benefit of itself and the Banks and on behalf of itself and the Banks, as provided for and contemplated under the Loan Documents.

     3. Amendment of Certain Defined Terms.

          (a) The following terms contained in Section 1.01 of the Existing Credit Agreement are amended and restated as follows:

               (i) “Agreement” shall mean the First Amended and Restated Loan Agreement entered into by and among the Borrowers, the Banks and the Agent dated as of September 17, 2004, as amended by the First Amendment dated as of the First Amendment Date and the Second Amendment dated as of the Second Amendment Date, as the same may be further amended, modified or supplemented from time to time.

          (b) The following terms shall be inserted in Section 1.01 of the Existing Credit Agreement in the appropriate alphabetical order:

               (i) “Cash Equivalent Investments” shall mean any of the following, to the extent acquired for investment and not with a view to achieving trading profits: (i) direct obligations of the United States of America or any agency thereof, (ii) obligations guaranteed by the United States of America, (iii) prime commercial paper (rated by Moody’s Investors Service at not less than a A-2 and by Standard & Poors at not less than P-2), (iv) certificates of deposit or repurchase agreements issued by any Bank or any commercial bank having capital and surplus in excess of One Hundred Million Dollars ($100,000,000), (v) deposit accounts in and banker’s acceptances of, commercial banks, (vi) investments (other than equity investments listed on Schedule 3.18 attached hereto and the loans set forth in Section 6.04(f) below) in any other Borrower or Subsidiary incurred in the ordinary course of business and pursuant to usual and customary terms in the form of advances to such Borrower or Subsidiary; provided, however, that (A) the total amount of all such future advances made by the Borrower to those Subsidiaries which are not Borrowers, minus (B) the total amount of all such advances made by those Subsidiaries which are not Borrowers to the Borrowers shall not, at any time, exceed Fifteen Million and 00/100 Dollars ($15,000,000) and provided, further, that the total amount of all such advances made by the Borrowers to any single Subsidiary that is not a Borrower shall not exceed Ten Million and 00/100 Dollars $10,000,000), (vii) United States of America domiciled Investment Company Act of 1940 Institutional Rule 2a-7 approved money market funds, and (viii) municipal securities which are (A) obligations of a state, territory, or possession of the United States of America that are guaranteed by the United States of America, or (B) pre-refunded.

               (ii) “Second Amendment” shall mean the Second Amendment to the First Amended and Restated Loan Agreement by and among the Borrowers, the Agent and the Banks dated as of the Second Amendment Date.

               (iii) “Second Amendment Date” shall mean September 25, 2009.

     4. Amendment of Section 6.04(e). Subsection (e) of Section 6.04 of the Existing Credit Agreement shall be amended and restated as follows:

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     “(e) Cash Equivalent Investments;

     5. Amendment of Section 6.04(h). Subsection (h) of Section 6.04 of the Existing Credit Agreement shall be amended and restated as follows:

     “(h) other investments in an aggregate amount not to exceed at any time the lesser of (i) Fifteen Million and 00/100 Dollars ($15,000,000) and (ii) fifty percent (50%) of the fair market value of the Borrowers’ Cash Equivalent Investments at the time of calculation.”

     6. Amendment of Section 6.07(d). Subsection (d) of Section 6.07 of the Existing Credit Agreement shall be amended and restated as follows:

     “(d) so long as no Event of Default or Potential Default shall have occurred, a sale or sales (either in one or a series of related transactions) of the capital stock or substantially all of the assets of Baker/OTS, Baker/MO and Michael Baker Global, any of their Subsidiaries or any Subsidiaries of Michael Baker International, including, without limitation, B.E.S. Energy Resources Company, Ltd. and Baker Energy de Venezuela, C.A., , provided that the Net Proceeds received by the Borrowers from the sale of such capital stock or assets are at least Thirty Million Dollars ($30,000,000). In the event that Borrowers sell all or substantially all of the capital stock or assets of Baker/OTS, Baker/MO and/or Michael Baker Global and/or any of their Subsidiaries or any Subsidiaries of Michael Baker International, including, without limitation, B.E.S. Energy Resources Company, Ltd. and Baker Energy de Venezuela, C.A. in accordance with the terms of this subsection (d), the Agent and the Banks shall amend the Agreement and any other Loan Documents to remove Baker/OTS and Baker/MO as “Borrowers” under this Agreement and any other Loan Documents and release Baker/OTS and Baker/MO from any liability or obligation in connection with this Agreement or any of the other Loan Documents.”

     7. Waiver. The Borrowers have advised the Agent and the Banks that during the fiscal periods ended December 31, 2008, March 31, 2009 and June 30, 2009 the Borrower have made investments in securities and obligations that the Borrowers believed were “cash equivalent investments” but which were not permitted by the terms of Subsection (e) of Section 6.04 of the Agreement and as a result an Event of Default has occurred under Section 7.01(e) of the Agreement (the “Existing Default”). The Agent and each of the Banks hereby waive the occurrence of the Existing Default. The foregoing waiver does not constitute a continuing waiver of any provision of the Agreement or any of the other Loan Documents and except as specifically provided above, the Agent and the Banks hereby expressly reserve all rights, remedies, powers, and privileges they have or may have under the Agreement, any of the Loan Documents, or any agreement, document, instrument, or applicable Law or equity.

     8. Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     9. Saving Clause. Except as specifically amended or modified by this Amendment, all parties to this Amendment hereby confirm and ratify the Existing Credit Agreement in its

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entirety, including without limitation, the Exhibits, Schedules and Annexes thereto and agree to be bound by the terms thereof.

     10. Fees and Expenses. The Borrower shall pay to the Agent all costs and expenses (including reasonable attorneys fees) incurred by the Agent in connection with the negotiation, execution and delivery of this Amendment.

     11. Authorization. Each individual signing this Amendment on behalf of a legal entity represents that such individual is an authorized representative of such legal entity.

[Signature pages begin on following page]

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SIGNATURE PAGE 1 OF 4 TO THE SECOND AMENDMENT TO THE AMENDED
AND RESTATED LOAN AGREEMENT

          IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed and delivered this Amendment as of the date first above written.

BORROWERS:
MICHAEL BAKER CORPORATION
By: Title:	/s/ Michael J. Zugay Exec. VP and CFO
MICHAEL BAKER, JR., INC.
By: Title:	/s/ Michael J. Zugay Exec. VP and CFO
BAKER/MO SERVICES, INC.
By: Title:	/s/ Michael J. Zugay Exec. VP and CFO
BAKER/OTS, INC.
By: Title:	/s/ Michael J. Zugay Exec. VP and CFO
BAKER ENGINEERING NY, INC.
By:	/s/ Michael J. Zugay
Title:	Exec. VP and CFO

SIGNATURE PAGE 2 OF 4 TO THE SECOND AMENDMENT TO THE AMENDED
AND RESTATED LOAN AGREEMENT

AGENT:
CITIZENS BANK OF PENNSYLVANIA
By: Title:	/s/ John J. Ligday, Jr. Senior Vice President

SIGNATURE PAGE 3 OF 4 TO THE SECOND AMENDMENT TO THE AMENDED
AND RESTATED LOAN AGREEMENT

PNC BANK, NATIONAL ASSOCIATION
By: Title:	/s/ Troy Brown Vice President

SIGNATURE PAGE 4 OF 4 TO THE SECOND AMENDMENT TO THE AMENDED AND RESTATED LOAN AGREEMENT

FIFTH THIRD BANK
By: Title:	/s/ Neil Corry-Roberts Senior Vice President

EX-13.1

EXHIBIT 13.1

SELECTED FINANCIAL DATA

(In thousands, except per share information)

	2009			2008			2007			2006			2005
Results of Operations
Continuing Operations
Revenues	$	445,177		$	455,929		$	401,463		$	380,062		$	371,102
Operating income		30,558			33,300			26,491			8,146			17,834
Net income		24,572			22,558			17,330			5,654			11,690
Diluted earnings per share	$	2.75		$	2.54		$	1.95		$	0.65		$	1.34
Return on shareholders’
investment		15.5	%		17.5	%		16.6	%		6.5	%		15.1	%
Total Michael Baker Corporation
Net income	$	26,921		$	29,154		$	19,340		$	10,332		$	5,051
Diluted earnings per share	$	3.01		$	3.28		$	2.18		$	1.19		$	0.58
Return on shareholders’
investment		17.0	%		22.6	%		18.5	%		11.9	%		6.5	%
Financial Condition
Total assets	$	278,844		$	292,062		$	276,350		$	263,916		$	225,461
Working capital	$	154,357		$	114,209		$	84,629		$	67,227		$	49,264
Current ratio		2.59			1.84			1.56			1.44			1.35
Long-term debt	$	—		$	—		$	—		$	11,038		$	—
Shareholders’ Investment		173,433			142,644			115,057			93,621			79,824
Book value per outstanding share		19.47			16.11			13.06			10.76			9.40
Year-end closing share price	$	41.40		$	36.91		$	41.10		$	22.65		$	25.55
Cash Flow
Net cash provided by/(used in)
operating activities	$	36,365		$	32,228		$	26,635		$	(9,343	)	$	12,440
Net cash provided by/(used in)
investing activities		19,398			(5,285	)		(1,560	)		(14,933	)		(7,078	)
Net cash provided by/(used in)
financing activities		446			55			(16,205	)		18,417			(1,792	)
Increase/(decrease) in cash and cash equivalents	$	56,209		$	26,998		$	8,870		$	(5,859	)	$	3,570
Backlog	$	1,425,200		$	984,200		$	1,122,200		$	1,057,100		$	1,109,300
Share Information
Year-end shares outstanding		8,907			8,855			8,810			8,698			8,490
Diluted weighted average shares outstanding		8,933			8,891			8,874			8,718			8,715

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our “Selected Financial Data” and our consolidated financial statements and related notes. The discussion in this section contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are based on our current expectations about future events. These expectations are subject to risks and uncertainties, many of which are beyond our control. For a discussion of important risk factors that could cause actual results to differ materially from those described or implied by the forward-looking statements contained herein, see the “Note with Respect to Forward-Looking Statements” and “Risk Factors” sections included in our Annual Report on Form 10-K for the year ended December 31, 2009.

Discontinued Operations — Energy

In previous filings, we presented an Engineering and an Energy business segment; our former Energy segment provided a full range of services for operating third-party oil and gas production facilities worldwide. For the past several years, our Board of Directors, in conjunction with management, had been considering strategic alternatives related to our former Energy business. During the third quarter of 2009, the Board of Directors made the determination to divest this business, and to reinvest the proceeds from the sale into our engineering operations. The divestiture of substantially all of our former Energy subsidiaries was completed as of September 30, 2009. Additionally, we sold our interest in B.E.S. Energy Resources Company, Ltd. (“B.E.S.”), an Energy company, on December 18, 2009 to J.S. Technical Services Co., LTD., which is owned by our former minority partner in B.E.S. As such, the Energy business has been reclassified into “discontinued operations” in our accompanying consolidated financial statements. The results for the years ended December 31, 2009, 2008 and 2007 give effect to the disposition of the stock owned by Michael Baker Corporation in Baker/MO Services, Inc., Michael Baker Global, Inc., Baker O&M International, Ltd., Baker Energy de Venezuela, C.A., Overseas Technical Services International, Ltd., Baker OTS International, Inc., SD Forty Five, Ltd., OTS Finance and Management, Ltd., and their respective subsidiaries (“Baker Energy”) as well as B.E.S. The results of Baker Energy and B.E.S. are representative of their results through their respective sale dates, while other legacy discontinued operations costs related to the Energy business were still being incurred though the end of the 2009.

Business Overview and Environment

As B.E.S., the final operating unit of our former Energy Segment, was disposed of on December 18, 2009, we may reconsider how we manage the business going forward. The potential changes may include modifying financial reports, which may, in turn, impact how our Chief Executive Officer evaluates the business and makes decisions on allocating resources. Should we make such changes, it may impact our historical segment reporting in future periods.

We provide engineering expertise for public and private sector clients worldwide. Our primary markets include Aviation, Defense, Facilities, Geospatial Information Technology, Homeland Security, Municipal and Civil, Pipelines and Utilities, Rail and Transit, Transportation and Water. Among the services we provide to our clients in these markets are program management, design-build (for which we only provide the design portion of services), construction management, consulting, planning, surveying, mapping, geographic information systems, architectural and interior design, construction inspection, constructability reviews, site assessment and restoration, strategic regulatory analysis and regulatory compliance. We view our short and long-term liquidity as being dependent upon our results of operations, changes in working capital and our borrowing capacity. Our financial results are impacted by appropriations of public funds for infrastructure and other government-funded projects, capital spending levels in the private sector, and the demand for our services in the various engineering markets in which we compete.

We have significantly increased our revenues from U.S. federal government contracting in the past several years and continue to view this as a growth market. Federal government spending by our primary clients, including that for the Department of Defense (“DoD”) and the Department of Homeland Security (“DHS”), continues to increase. The Department of Homeland Security’s Federal Emergency Management Agency (“FEMA”), awarded BakerAECOM, LLC (“BakerAECOM”), a Delaware limited liability company of which we are the managing member, an Indefinite-Delivery/Indefinite-Quantity (“IDIQ”) contract for Production and Technical Services for FEMA’s Risk Mapping, Analysis and Planning Program (“Risk MAP Program”) on March 9, 2009. The resultant performance-based contract has a 60-month term with a 12-month base period and four, 12-month option periods with a maximum contract value of $600 million. In February 2009, the US Congress passed the American Recovery and Reinvestment Act of 2009 (“ARRA”), which contained approximately $130 billion for highways, buildings and other public works

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projects. We believe that we are positioned in all of our services lines to perform work that the Federal government, as well as state and local governments, are procuring as a result of this legislation. Key state and local clients for us, particularly in Transportation design and construction phase services, received funding as a result of the infrastructure stimulus package. The Company has benefitted from funding in this sector and we believe we will continue to derive future benefits. ARRA has, in some respects, become a funding bridge since the current legislation for transportation — the Safe, Accountable, Flexible, Efficient Transportation Equity Act — A Legacy for Users (“SAFETEA-LU”) expired September 30, 2009. Short term extensions of federal transportation legislation commonly occur (multiple extensions have already occurred for SAFETEA-LU) and cause transportation clients to defer long term commitments for major complex projects. So we believe ARRA has become an interim funding mechanism. We expect this situation to continue through 2010.

Significant contracts awarded during 2009 and early 2010 include:

•  BakerAECOM was awarded an IDIQ contract by FEMA for Production and Technical Services for FEMA’s Risk MAP Program which is intended to be the successor to the Multi-Hazard Flood Map Modernization Program (“FEMA Map Mod Program”). The resultant performance-based contract has a five-year term with a maximum contract value of up to $600 million.

•  An approximately $75.0 million IDIQ contract, which is for one year and may be extended by up to four additional years, was awarded by the Naval Facilities Engineering Command to provide architectural and engineering services for Multimedia Environmental Compliance Engineering Support to the Navy and Other Department of Defense entities.

•  An approximately $60.0 million IDIQ contract, which is for one year and may be extended by up to four additional years, was awarded by the U.S. Army Corps of Engineers (“USACE”) Transatlantic Programs Center (“TAC”) for architecture-engineering services in its Area of Responsibility, which includes the Middle East, the Arabian Gulf States, Southwest Asia and Africa.

•  A $15.0 million, five-year contract with the Pennsylvania Department of Transportation, Bureau of Public Transportation, for planning and oversight of public transportation projects across Pennsylvania.

•  A $12.0 million contract to provide design work on the expansion of the I-15 Corridor Reconstruction project for the Utah Department of Transportation.

•  A $10.8 million agreement with Alamo Regional Mobility Authority to provide engineering and environmental consulting services in Bexar County, Texas.

•  A $8.3 million agreement with the New Jersey Turnpike Authority to provide design services for the widening of multiple intersections on the Garden State Parkway.

•  A $5.4 million contract to provide design services for the new $70 million Equipment Maintenance and Operations Center located in Rockville, Maryland for Montgomery County.

•  A $5.0 million, two-year agreement to provide construction management support and construction inspection services on 17 separate construction projects for the Pennsylvania Department of Transportation.

•  A $5.0 million engineering contract from Alaska’s Department on Natural Resources to evaluate alternatives for a pipeline system to deliver natural gas from the North Slope of Alaska to in-State Alaska projects; determine a valid pre-feasibility level estimate for the cost of gas transportation; determine a right-of-way, and evaluate associated construction and logistics requirements.

Our five-year IDIQ contract with FEMA for up to $750 million to serve as the program manager to develop, plan, manage, implement, and monitor, the FEMA Map Mod Program, for flood hazard mitigation across the U.S. and its territories was scheduled to conclude on March 10, 2009. FEMA added a contract provision that extended the ordering period through September 2010. As of December 31, 2009, approximately $40 million is in our funded backlog related to this program, including authorization to continue a portion of previous services through September 2010. We do not anticipate realizing most of the remaining contract balance ($183 million as of December 31, 2009); as such this was removed from our unfunded backlog in the first quarter of 2009. We expect work and revenue related to our current authorizations to continue through 2010.

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Our unconsolidated subsidiary’s current Iraq IDIQ contract ended in September 2009, and it is not anticipated that further contract funding will be added to this contract vehicle. Current funded task order work may be extended but we anticipate that it will be materially completed by September 2010.

Executive Overview

Our revenues from continuing operations were $445.2 million for the year ended December 31, 2009, a 2% decrease from the $455.9 million reported for the same period in 2008. The decrease in revenue in our business for 2009 was primarily related to a decrease in work performed on our FEMA contracts of approximately $26.3 million, offset by an increase in work performed for our unconsolidated subsidiary operating in Iraq, an increase in work performed on certain federal and state projects, and increases on several existing transportation projects.

Our earnings per diluted common share for continuing operations were $2.75 for the year ended December 31, 2009, compared to $2.54 per diluted common share reported for 2008. Our earnings per diluted common share were $3.01 for the year ended December 31, 2009, compared to $3.28 per diluted common share reported for 2008. Income from continuing operations for the year ended December 31, 2009 was $24.6 million, compared to $22.6 million for 2008. These results were primarily driven by an increase in work and profitability improvements for our unconsolidated subsidiary in Iraq, a reduction of approximately 4% in our 2009 effective tax rate as compared to 2008 due to the utilization of foreign tax credits, and profitability improvements on certain federal and state projects. Income from discontinued operations related to our former Energy segment, including the loss on the sale, was $2.3 million for 2009, a decrease from $6.6 million for 2008.

Results of Operations

Comparisons of the Year Ended December 31, 2009 and 2008

Revenues

(dollars in millions)	2009				2008
Revenues by client type
Federal government	$	217.5	49	%	$	238.8	52	%
State and local government		181.0	41	%		173.2	38	%
Domestic private industry		46.7	10	%		43.9	10	%
Total revenues	$	445.2	100	%	$	455.9	100	%

The decrease in our revenues was driven by the net decrease in work performed on our FEMA contracts of $26.3 million and a decrease in total project incentive awards of $1.0 million as compared to 2008, partially offset by an increase of $2.4 million in federal government work performed for our unconsolidated subsidiary operating in Iraq, and increases on several existing transportation projects.

Total revenues from FEMA were $67 million and $93 million for 2009 and 2008, respectively. This decrease is primarily as a result of approaching the contract close out date for the FEMA Map Mod Program. While we would anticipate activity to increase for the new FEMA Risk MAP Program in future periods, this program is not expected to completely replace the FEMA Map Mod Program revenue on a prospective basis. As a result of achieving certain performance levels on the FEMA Map Mod Program, we recognized revenues from project incentive awards totaling $3.1 million and $4.1 million for 2009 and 2008, respectively.

Gross Profit

Our gross profit totaled $88.0 million for 2009 compared to $84.5 million for 2008, reflecting an increase of $3.5 million or 4%. Gross profit expressed as a percentage of revenues was 19.8% for 2009 compared to 18.5% for 2008. This increase in gross profit and gross profit expressed as a percentage of revenues was driven by margin improvement related to project mix, partially offset by a reduction in project incentive awards of $1.0 million.

Direct labor and subcontractor costs are major components in our cost of work performed due to the project-related nature of our service businesses. Direct labor costs expressed as a percentage of revenues were 27.5% for 2009 compared to 25.1% for 2008, while subcontractor costs expressed as a percentage of revenues were 21.5% and 26.9% for 2009 and 2008, respectively. Expressed as a percentage of revenues, direct labor increased due to work

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performed for our unconsolidated subsidiary operating in Iraq, while other project mix changes drove the decrease in subcontractor costs period over period.

Selling, General and Administrative Expenses (“SG&A”)

Our SG&A expenses totaled $57.4 million for 2009 compared to $51.2 million for 2008, reflecting an increase of $6.2 million or 12%. SG&A expenses increased year-over-year due to an increase in corporate overhead costs and an increase of $0.5 million for organic growth initiatives, partially offset by favorable insurance settlements totaling approximately $1.0 million. SG&A expenses expressed as a percentage of revenues increased to 12.9% in 2009 compared to 11.2% for 2008. This overall increase in SG&A expenses expressed as a percentage of revenues is primarily driven by the aforementioned increase for organic growth initiatives and the increase in corporate overhead costs of $3.5 million, primarily related to incentive compensation accruals, stock-based compensation, and retention costs.

Other Income/(Expense)

“Other income/(expense)” aggregated to income of $7.4 million for 2009 compared to income of $3.7 million for 2008. “Other income/(expense)” primarily included equity income from our unconsolidated subsidiary of $7.1 million for 2009 compared to $3.1 million for 2008. The increase in equity income from our unconsolidated subsidiary was primarily related to improved margins on extensions of work orders being performed by our unconsolidated subsidiary operating in Iraq. Also included in “Other income/(expense)” is a minimal amount of interest income, interest expense, and currency-related gains and losses.

Income Taxes

Our provisions for income taxes from continuing operations resulted in effective income tax rates of approximately 35% and 39% for the year ended December 31, 2009 and 2008, respectively.

The variance between the U.S. federal statutory rate of 35% and our effective income tax rates for these periods is primarily due to state income taxes and permanent items that are not deductible for U.S. tax purposes. Additionally, in 2009, the impact of state income taxes and permanent differences was fully offset by our ability to utilize $1.4 million of foreign tax credits.

Income from Discontinued Operations

As a result of the sale of our Energy business, we have presented those results on a discontinued operations basis. Income from discontinued operations was $2.3 million for 2009 as compared to $6.6 million in 2008, which represented a decrease of $4.3 million. These amounts are comprised as follows:

(in thousands)	2009			2008
Income from discontinued operations before income tax (benefit)/ provision and loss on sale	$	2,295		$	13,497
(Benefit)/provision for income taxes		(4,913	)		6,825
Income from discontinued operations before loss on sale		7,208			6,672
Loss on sale of discontinued operations before income tax benefit		(5,287	)		—
Benefit for income taxes		(563	)		—
Loss on sale of discontinued operations, net of tax		(4,724	)		—
Income from discontinued operations		2,484			6,672
Less: Net income attributable to noncontrolling interests		(135	)		(76	)
Income from discontinued operations	$	2,349		$	6,596

Income from Discontinued Operations Attributable to Michael Baker Corporation

We recorded income from discontinued operations before income taxes of approximately $2.3 million for 2009 as compared to $13.5 million for 2008. This represents a decrease as compared to the corresponding period of $11.2 million. The results of Baker Energy and B.E.S. are representative of their results through their respective sale dates, while other legacy discontinued operations costs related to the Energy business were still being incurred

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though the end of the 2009. The primary drivers for the year-over-year change resulted from the write-off of a bankrupt customer’s receivable balance totaling $6.0 million, accruals recorded related to an assessment received for payroll taxes of $1.9 million in one of our former international subsidiaries in 2009 and increased workers compensation expense of $1.0 million, partially offset by the favorable impact of the reversal of a $2.5 million reserve due to the settlement of a contract-related claim. The 2008 income amount benefited by the recognition of a non-recurring project incentive award of $1.1 million from a former onshore managed services client in 2008, coupled with the favorable impacts of tax penalty and interest reductions of $1.6 million and $1.6 million, respectively.

The income tax benefit attributable to discontinued operations was approximately $4.9 million in 2009, as compared to a provision for income taxes of approximately $6.8 million in 2008. Prior to the quarter ended September 30, 2009, we were in an overall foreign loss position for U.S. Federal income tax purposes, which precluded us from utilizing credits for taxes paid in foreign jurisdictions. However, as a result of generating sufficient foreign source income to offset our overall foreign loss, we have now concluded that we can utilize those tax credits. This resulted in the reversal of deferred tax liabilities for a net impact of $5.9 million related to unremitted foreign source earnings, which are taxable for U.S. federal tax purposes, but can be offset if there are sufficient foreign tax credits that can be utilized. Additionally, we recorded a deferred tax asset of approximately $2.0 million related to foreign tax credits. A valuation allowance totaling $1.5 million was placed against those foreign tax credits as we have concluded we will not be able to utilize those credits in future periods based on our forecasted foreign source income in future periods. In 2008 the provision for income taxes includes the normal course provisions for income taxes during the year for our former Energy operations, including income taxes in our former international operations, some of which are based on a deemed profits tax which are assessed based on revenues.

Loss on Sale of Energy

In conjunction with the sale of Baker Energy on September 30, 2009, we recorded a loss of $5.1 million. The loss for Baker Energy was the result of the recognition of transaction fees of approximately $2.2 million, the recognition of cumulative currency translation adjustments of approximately $2.2 million, and the deficiency between the net assets conveyed and the consideration received of approximately $0.6 million. The transaction fees were primarily comprised of investment banker fees of approximately $0.6 million, legal fees of approximately $0.3 million, and payments of approximately $1.3 million for an Energy management retention plan with the proceeds payable upon the sale of the business.

The loss on the sale of Baker Energy was offset by a tax benefit of approximately $0.6 million. The majority of the loss resulted in a capital loss carryforward of approximately $26.1 million for tax purposes, for which a deferred tax asset and related valuation allowance totaling $9.0 million is recorded due to our expected inability to utilize it. Should we be able to generate capital gains within the five-year carryforward period, the reserved portion of that deferred tax asset may also be utilized; however, our current projections do not forecast sufficient capital gains necessary to utilize that asset.

In conjunction with the sale of B.E.S on December 18, 2009, we recorded a loss of $0.2 million. The loss for B.E.S. had nominal fees associated with its sale.

Comparisons of the Years Ended December 31, 2008 and 2007

Revenues

Revenues were $455.9 million for 2008 compared to $401.5 million for 2007, reflecting an increase of $54.4 million or 14%. The following table presents revenues by client type:

(dollars in millions)	2008				2007
Revenues by client type
Federal government	$	238.8	52	%	$	196.5	49	%
State and local government		173.2	38	%		160.7	40	%
Domestic private industry		43.9	10	%		44.3	11	%
Total revenues	$	455.9	100	%	$	401.5	100	%

The increase in revenues for 2008 was primarily related to an increase of $17.0 million in work performed for our unconsolidated subsidiary operating in Iraq, an increase of $16.9 million in work performed as support for the Department of Homeland Security’s efforts to secure U.S. borders, increases on several existing transportation

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projects, an increase of $1.9 million due to a favorable non-recurring project settlement, as well as growth in most of our practice areas. The increase in 2008 revenues was partially offset by a decrease in total project incentive awards of $5.4 million as compared to 2007.

Total revenues from FEMA were $93 million and $98 million for 2008 and 2007, respectively. As a result of achieving certain performance levels on the FEMA Map Mod Program, we recognized revenues from project incentive awards totaling $4.1 million and $4.7 million for 2008 and 2007, respectively. The decreased project incentive awards on the FEMA Map Mod Program for 2008 represents a lower project incentive award pool as compared to 2007, while we have achieved higher performance levels on the tasks completed, which resulted in our recognition of a higher percentage of the available project incentive award pool for 2008.

Gross Profit

Gross profit was $84.5 million for 2008 compared to $79.6 million for 2007, reflecting an increase of $4.9 million or 6%. The increase in gross profit for 2008 is primarily attributable to improved revenue volume compared to 2007, the favorable non-recurring project settlement of $1.9 million and a reduction in costs of $1.7 million related to our self-insured professional liability claims during 2008. Gross profit expressed as a percentage of revenues was 18.5% in 2008 compared to 19.8% in 2007. Gross profit expressed as a percentage of revenues decreased as a result of the decrease in project incentive awards of $5.4 million, an increase of $5.1 million in incentive compensation expense related to project personnel, and an increase of $2.1 million in medical costs as compared to 2007, partially offset by the reduction in costs related to our self-insured professional liability claims of $1.7 million during 2008.

Direct labor and subcontractor costs are major components in our cost of work performed due to the project-related nature of our service businesses. Direct labor costs expressed as a percentage of revenues were 25.1% for 2008 compared to 24.5% for 2007, while subcontractor costs expressed as a percentage of revenues were 26.9% for both 2008 and 2007. Expressed as a percentage of revenues, direct labor increased due to work performed for our unconsolidated subsidiary operating in Iraq, while our project mix and subcontractor costs remained consistent year over year.

Selling, General and Administrative Expenses

SG&A expenses were $51.2 million for 2008 compared to $53.1 million for 2007, reflecting a decrease of $1.9 million or 4%. SG&A expenses expressed as a percentage of revenues decreased to 11.2% for 2008 from 13.2% for 2007. This decrease is primarily related to cost containment measures implemented during 2008. The decrease in SG&A expenses expressed as a percentage of revenues is driven primarily by a combination of the 14% increase in revenues during 2008 and the aforementioned effects of cost containment.

Other Income/(Expense)

The “Other income/(expense)” aggregated to income of $3.7 million for 2008 compared to income of $1.9 million for 2007. “Other income/(expense)” primarily included equity income from our unconsolidated subsidiary of $3.1 million for 2008 compared to $2.2 million for 2007. The increase in equity income from our unconsolidated subsidiary was primarily related to new work orders being performed by our unconsolidated subsidiary operating in Iraq. Also included in “Other income/(expense)” is a minimal amount of interest income, interest expense, and currency-related gains and losses.

Income Taxes

Our provisions for income taxes resulted in effective income tax rates of 39% in both 2008 and 2007. The variance between the U.S. federal statutory rate and our effective rate for these periods is primarily due to state income taxes and permanent items which are not deductible for U.S. tax purposes.

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Income from Discontinued Operations

As a result of the sale of our Energy business, we have presented those results on a discontinued operations basis. Income from discontinued operations was $6.6 million for 2008 as compared to $2.0 million in 2007, which represented an increase of $4.6 million. These amounts are comprised as follows:

(in thousands)	2008			2007
Income from discontinued operations before income tax	$	13,497		$	5,283
Provision for income taxes		6,825			3,306
Less: Net (income)/loss attributable to noncontrolling interests		(76	)		33
Income from discontinued operations	$	6,596		$	2,010

Income from Discontinued Operations Attributable to Michael Baker Corporation

The Company recorded income from discontinued operations before income taxes of approximately $13.5 million for 2008 as compared to $5.3 million for 2007. This represents an increase as compared to the corresponding period of $8.2 million. The primary drivers for the year-over-year change resulted from a decrease of $5.4 million in self-insured general liability costs as a result of more favorable claims activity in 2008, the recognition of a non-recurring project incentive award of $1.1 million from a former onshore managed services client in 2008, coupled with the favorable impacts of tax penalty of $1.6 million and interest reductions of another $1.6 million. These increases were partially offset by a reserve for a contract-related claim of $2.5 million and a bad debt reserve of $1.6 million related to a portion of a bankrupt customer’s receivables.

In 2008 and 2007, the provision for income taxes includes the normal course provisions for income taxes during the year for our former Energy operations, including income taxes in our former international operations, some of which are based on a deemed profits tax which are assessed based on revenues.

Contract Backlog

	As of December 31,
(in millions)	2009		2008
Funded	$	461.3	$	449.5
Unfunded		963.9		534.7
Total	$	1,425.2	$	984.2

Of our total funded backlog as of December 31, 2009, $293 million is expected to be recognized as revenue within the next year. Additionally, we expect our sources of revenue within the next year to include recognized unfunded backlog and new work added. Due to the nature of unfunded backlog, consisting of options that have not yet been exercised or task orders that have not yet been approved, we are unable to reasonably estimate what, if any, portion of our unfunded backlog will be realized within the next year.

Funded backlog consists of that portion of uncompleted work represented by signed contracts and/or approved task orders, and for which the procuring agency has appropriated and allocated the funds to pay for the work. Total backlog incrementally includes that portion of contract value for which options have not yet been exercised or task orders have not been approved. We refer to this incremental contract value as unfunded backlog. U.S. government agencies and many state and local governmental agencies operate under annual fiscal appropriations and fund various contracts only on an incremental basis. In addition, our clients may terminate contracts at will or not exercise option years. Our ability to realize revenues from our backlog depends on the availability of funding for various federal, state and local government agencies; therefore, no assurance can be given that all backlog will be realized.

In March 2009, BakerAECOM was informed by FEMA that it had been awarded an IDIQ contract for the Risk MAP Program, which is intended to be the successor to the FEMA Map Mod Program. The resultant performance-based contract has a five-year term with a maximum contract value of up to $600 million. As of December 31, 2009, approximately $34 million is in our funded backlog and $555 million is in our unfunded backlog related to this program.

As of December 31, 2009 and 2008, approximately $40 million and $68 million of our funded backlog, respectively, related to the $750 million FEMA Map Mod Program contract to assist FEMA in conducting a large-scale overhaul of

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the nation’s flood hazard maps, which commenced late in the first quarter of 2004. This contract includes data collection and analysis, map production, product delivery, and effective program management; and seeks to produce digital flood hazard data, provide access to flood hazard data and maps via the Internet, and implement a nationwide state-of-the-art infrastructure that enables all-hazard mapping. This contract was scheduled to conclude on March 10, 2009; however, FEMA added a contract provision that extended the ordering period through September 2010. We do not anticipate realizing most of the remaining contract balance ($183 million as of December 31, 2009); as such this was removed from our unfunded backlog in the first quarter of 2009. We expect work and revenue related to our current authorizations to continue through 2010.

In 2009, we were awarded a contract by the USACE — TAC for architecture-engineering services in its Area of Responsibility, which includes the Middle East, the Arabian Gulf States, Southwest Asia and Africa. We were one of four awardees of the indefinite delivery contract, which is for one year and may be extended by up to four additional years at the government’s discretion. The maximum value of the contract for the entire five-year performance period for all awardees is $240 million (our portion was estimated at $60 million). Under this contract, we may be called upon to provide a full-range of design and construction management services. As of December 31, 2009, approximately $3 million is in our funded backlog and $49 million is in our unfunded backlog related to this contract.

Liquidity and Capital Resources

We have three principal sources of liquidity to fund our operations: our existing cash, cash equivalents, and investments; cash generated by operations; and our available capacity under our Unsecured Credit Agreement (“Credit Agreement”), which is with a consortium of financial institutions and provides for a commitment of $60 million through October 1, 2011. As of December 31, 2009 and 2008, we had $105.3 million and $49.1 million of cash and cash equivalents, respectively, and $154.4 million and $114.2 million in working capital, respectively. As of December 31, 2009, we had $2.5 million and $2.2 million of short-term investments and available for sale securities, respectively. Additionally, $10.0 million was received in February 2010 for the Baker Energy sale under the net asset adjustment provision of the stock purchase agreement. The net asset adjustment is presented under the heading “Proceeds receivable — Energy sale” in the Company’s consolidated balance sheet as of December 31, 2009. Our available capacity under our $60.0 million Credit Agreement, after consideration of outstanding letters of credit, was approximately $50.6 million (84% availability) and $51.0 million (85% availability) as of December 31, 2009 and 2008, respectively. Our current ratios were 2.59 to 1 and 1.84 to 1 as of December 31, 2009 and 2008, respectively.

Our cash flows are primarily impacted from period to period by fluctuations in working capital. Factors such as our contract mix, commercial terms, days sales outstanding (“DSO”) and delays in the start of projects may impact our working capital. In line with industry practice, we accumulate costs during a given month and then bill those costs in the following month for many of our contracts. While salary costs associated with the contracts are paid on a bi-weekly basis, certain subcontractor costs are generally not paid until we receive payment from our customers. As of December 31, 2009 and 2008, $19.5 million and $17.6 million, respectively, of our accounts payable balance comprised invoices with “pay-when-paid” terms. Due to the current economic environment, we anticipate that our customers’ inability to access capital could impact project activity for 2010 and may impact certain customer’s ability to compensate us for our services.

Cash Provided by Operating Activities

Cash provided by operating activities was $36.4 million, $32.2 million and $26.6 million for years ended December 31, 2009, 2008 and 2007, respectively.

Our cash provided by operating activities for 2009 resulted primarily from net income of $27.2 million and the dividends received from our unconsolidated subsidiary of $7.3 million. Also favorably impacting our cash provided by operating activities was a decrease in our prepaid balance as of December 31, 2009.

Our total days sales outstanding in receivables and unbilled revenues, net of billings in excess, decreased from 86 days at year-end 2008 to 81 days as of December 31, 2009. This decrease is driven mainly by the sale of our Energy business, which historically had a higher days sales outstanding than our continuing operations.

Our cash provided by operating activities for 2008 resulted primarily from net income of $29.2 million. This increase was partially offset by a decrease in our accounts payable as of December 31, 2008, which was due to a decrease in activity related to certain of our managed services contracts in our divested Energy business. In addition, during 2008,

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we returned a Baker Energy managed services client’s cash advances totaling $6.0 million as a result of a reduction in related activity on that contract.

Cash Provided by/(Used in) Investing Activities

Cash provided by investing activities was $19.4 million in 2009, while cash used in investing activities was $5.3 million and $1.6 million for the years ended December 31, 2008 and 2007, respectively. Cash provided by investing activities for 2009 included approximately $37.9 million of cash conveyed to us from the buyer upon the sale of Baker Energy. This cash receipt was partially offset by existing cash of approximately $7.8 million conveyed to the buyer upon the sale of Baker Energy. This cash, which related to our former Energy business’ international operations, was reimbursed through the sale agreement net asset adjustment; however, the proceeds of the net asset adjustment were not received prior to the balance sheet date. Cash provided by investing activities for 2009 also included approximately $0.9 million of net cash conveyed to us upon the sale of B.E.S.

Our cash used in investing activities related to investment activities and capital expenditures. The majority of our 2009 capital additions pertain to computer software purchases, office equipment and leasehold improvements related to office openings or relocations, and vehicles. Additionally, during 2009, we purchased an Optech Lynx Mobile LiDAR (Light Detection and Ranging) system which expands our offerings of advanced geospatial technology solutions related to surveying and mapping services. We also acquired various assets through operating leases, which reduced the level of capital expenditures that would have otherwise been necessary to operate our business. Cash used in investing activities for 2009 also included $2.5 million and $2.2 million related to the purchase of short-term investments and available-for-sale securities, respectively.

Cash Provided by/(Used in) Financing Activities

Our financing activities primarily related to proceeds from the exercise of stock options and payments on capital lease operations. The cash used in financing activities for 2007 also reflects net repayments of borrowings totaling $11.0 million under our Credit Agreement and a decrease in our book overdrafts.

Credit Agreement

Our Credit Agreement is with a consortium of financial institutions and provides for a commitment of $60.0 million through October 1, 2011. The commitment includes the sum of the principal amount of revolving credit loans outstanding and the aggregate face value of outstanding standby letters of credit (“LOCs”) not to exceed $20.0 million. As of December 31, 2009 and 2008, there were no borrowings outstanding under the Credit Agreement and the outstanding LOCs were $9.4 million and $9.0 million, respectively.

The Credit Agreement provides for us to borrow at the bank’s prime interest rate or at LIBOR plus an applicable margin determined by our leverage ratio (based on a measure of indebtedness to EBITDA). The Credit Agreement requires us to meet minimum equity, leverage, interest and rent coverage, and current ratio covenants. If any of these financial covenants or certain other conditions of borrowing is not achieved, under certain circumstances, after a cure period, the banks may demand the repayment of all borrowings outstanding and/or require deposits to cover the outstanding letters of credit.

Although only $9.4 million of our credit capacity was utilized under this facility as of December 31, 2009, in future periods we may leverage our Credit Agreement to facilitate our growth strategy, specifically utilizing our available credit to fund strategic acquisitions. The inability of one or more financial institutions in the consortium to meet its commitment under our Credit Agreement could impact that growth strategy. Currently, we believe that we will be able to readily access our Credit Agreement as necessary. We intend to negotiate an extension of the Credit Agreement beyond October 1, 2011 during 2010.

Financial Condition & Liquidity

As of December 31, 2009, we had $105.3 million of cash and cash equivalents. In response to the turmoil in the financial services industry, our management determined that capital preservation is a critical factor in executing on our short-term and long-term strategies. As such, the determination was made to maintain the majority of our cash balances in certificates of deposit, highly rated bonds and money market funds that primarily hold U.S. Government-backed obligations. As the global credit markets continue to stabilize, our management will consider transferring these funds into other short-term, highly liquid investments that might yield a higher return; however, we believe that this

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strategy to preserve our current cash position is the prudent course of action in the current environment. We principally maintain our cash and cash equivalents, certificates of deposit and bonds in accounts held by major banks and financial institutions. To date, none of these institutions in which we hold our cash, money market funds, certificates of deposit and bonds have gone into bankruptcy or been forced into receivership. The majority of our funds are held in accounts in which the amounts on deposit are not covered by or exceed available insurance. Although there is no assurance that one or more institutions in which we hold our cash and cash equivalents, certificates of deposit and bonds will not fail, we currently believe that we will be able to readily access our funds when needed.

We plan to utilize our cash, investments and borrowing capacity under the Credit Agreement for, among other things, short-term working capital needs, including the satisfaction of contractual obligations and payment of taxes, to fund capital expenditures, and to support strategic opportunities that management identifies. We continue to pursue growth in our core businesses and are specifically seeking to expand our engineering operations through organic growth and strategic acquisitions that align with our core competencies. We consider acquisitions, or related investments, for the purposes of geographic expansion and/or improving our market share as key components of our growth strategy and intend to use both existing cash, investments and the Credit Agreement to fund such endeavors. We also periodically review our business, and our service offerings within that business, for financial performance and growth potential. As such, we may also consider streamlining our current organizational structure if we conclude that such actions would further increase our operating efficiency and strengthen our competitive position over the long term.

On September 30, 2009, the stock of Baker Energy was sold for gross proceeds of $47.9 million, consisting of $37.9 million received at closing and $10.0 million received in February 2010 under the net asset adjustment provision of the stock purchase agreement. The net asset adjustment is presented under the heading “Proceeds receivable — Energy sale” in our accompanying consolidated balance sheet as of December 31, 2009. On December 18, 2009, the stock of B.E.S. was sold for net proceeds of $0.9 million. We anticipate utilizing the proceeds realized from these divestitures in our engineering operations, principally through strategic acquisitions of firms that would enhance our current service offerings or allow us to expand our operations geographically, most likely domestically, in order to continue to grow our business.

If we commit to funding future acquisitions, we may need to restructure our Credit Agreement, add a temporary credit facility, and/or pursue other financing vehicles in order to execute such transactions. In the current credit environment, if we would restructure our Credit Agreement or add a temporary credit facility with our existing bank group, it is possible that either action could unfavorably impact the pricing under our existing Credit Agreement. In addition, if we were to pursue other financing vehicles, it is likely that the pricing of such a credit vehicle would be higher than that currently available to us under the Credit Agreement. We may also explore issuing equity to fund some portion of an acquisition. We believe that the combination of our cash and cash equivalents, cash generated from operations and our existing Credit Agreement will be sufficient to meet our operating and capital expenditure requirements for the next twelve months and beyond.

Contractual Obligations and Off-Balance Sheet Arrangements

A summary of our contractual obligations and off-balance sheet arrangements as of December 31, 2009 are as follows:

			Payments due by period
			Within 1		1-3		3-5		After 5
(in millions)	Total		year		years		years		years
Contractual obligations
Operating lease obligations(1)	$	68.9	$	14.9	$	21.7	$	14.0	$	18.3
Purchase obligations(2)		12.1		5.4		6.7		—		—
Other long-term liabilities(3)		1.6		—		0.5		—		1.1
Capital lease obligations(4)		0.4		0.2		0.2		—		—
Total contractual obligations	$	83.0	$	20.5	$	29.1	$	14.0	$	19.4

⁽¹⁾ We utilize operating leases to provide for use of certain assets in our daily business activities. This balance includes office space of $62.9 million, with the remaining balance relating to computers, computer-related equipment, and motor vehicles. The lease payments for use of these assets are recorded as expenses, but do not appear as liabilities on our consolidated balance sheets.

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(2)	Our purchase obligations relate to legally binding agreements to purchase goods or services at agreed prices, but do not appear as liabilities on our consolidated balance sheets. These obligations primarily relate to office equipment and maintenance obligations.
(3)	The majority of the $1.1 million balance for obligations after five years represents deferred compensation for our Board of Directors while the $0.5 million obligation within two to three years represents our liability for stock appreciation rights.
(4)	Capital leases include computers and computer-related equipment.

Liabilities totaling $3.9 million as of December 31, 2009 recorded for uncertainty in income taxes are excluded from the above table due to the inability to make a reliable estimate of the period of any future cash settlement.

			Amount of commitment expiration per period
			Within 1		2-3		4-5		After 5
(in millions)	Total		year		years		years		years
Off-Balance Sheet Arrangements
Standby letters of credit	$	9.4	$	9.4	$	—	$	—	$	—
Performance and payment bonds		14.3		6.3		0.7		7.3		—
Total commercial commitments	$	23.7	$	15.7	$	0.7	$	7.3	$	—

Our banks issue standby letters of credit on our behalf under the aforementioned Credit Agreement. As of December 31, 2009, the majority of our outstanding LOCs were issued to insurance companies to serve as collateral for payments the insurers are required to make under certain of our self-insurance programs. These LOCs may be drawn upon in the event that we do not reimburse the insurance companies for claims payments made on our behalf. Such LOCs renew automatically on an annual basis unless either the LOC is returned to the bank by the beneficiaries or our banks elect not to renew them.

Bonds are provided on our behalf by certain insurance carriers. The beneficiaries under these performance and payment bonds may request payment from our insurance carriers in the event that we do not perform under the project or if subcontractors are not paid. We do not expect any amounts to be paid under our outstanding bonds as of December 31, 2009. In addition, we believe that our bonding lines will be sufficient to meet our bid and performance bonding needs for at least the next year.

Critical Accounting Estimates

We have identified the following critical accounting estimates as those that are most important to the portrayal of our results of operations and financial condition, and which require management’s most difficult, subjective or complex judgments and estimates.

Project Cost Estimates to Complete.  We utilize the percentage-of-completion method of accounting for the majority of our contracts. Revenues for the current period on these contracts are determined by multiplying the estimated margin at completion for each contract by the project’s percentage of completion to date, adding labor costs, subcontractor costs and other direct costs incurred to date, and subtracting revenues recognized in prior periods. In applying the percentage-of-completion method, a project’s percent complete as of any balance sheet date is computed as the ratio of labor costs incurred to date divided by the total estimated labor costs at completion. Estimated labor costs at completion reflect labor costs incurred to date plus an estimate of the labor costs to complete the project. As changes in estimates of total labor costs at completion and/or estimated total losses on projects are identified, appropriate earnings adjustments are recorded during the period that the change or loss is identified. Due to the volume and varying degrees of complexity of our active projects, as well as the many factors that can affect estimated costs at completion, the computations of these estimates require the use of complex and subjective judgments. Accordingly, labor cost estimates to complete require regular review and revision to ensure that project earnings are not misstated. We have a history of making reasonably dependable estimates of costs at completion on our contracts that follow the percentage-of-completion method; however, due to uncertainties inherent in the estimation process, it is possible that estimated project costs at completion could vary from our estimates. As of December 31, 2009, we do not believe that material changes to project cost estimates at completion for any of our open projects are reasonably likely to occur.

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Revenue Recognition.  As referenced above, we recognize revenue under the percentage-of-completion method for the majority of our contracts. Under certain circumstances, we may agree to provide new or additional services to a client without a fully executed contract or change order. In these instances, although the costs of providing these services are expensed as incurred, the recognition of related contract revenues are delayed until the contracts and/or change orders have been fully executed by the clients, other suitable written project approvals are received from the clients, or until management determines that revenue recognition is appropriate based on the probability of client acceptance. The probability of client acceptance is assessed based on such factors as our historical relationship with the client, the nature and scope of the services to be provided, and management’s ability to accurately estimate the realizable value of the services to be provided. Under this policy, we had not recognized potential future revenues estimated at $3.5 million and $2.5 million as of December 31, 2009 and 2008, respectively, for which the related costs had already been expensed as of these dates. The consistent application of this policy may result in revenues being recognized in a period subsequent to the period in which the related costs were incurred and expensed. Profit incentives and/or award fees are recorded as revenues when the amounts are both probable and reasonably estimable.

Income and Other Taxes.  We record our annual current tax provision based upon our book income plus or minus any permanent and temporary differences multiplied by the statutory rate in the appropriate jurisdictions where we operate. In certain foreign jurisdictions where we previously operated, income tax is based on a deemed profit methodology. The calculation of our annual tax provision may require interpreting tax laws and regulations and could result in the use of judgments or estimates which could cause our recorded tax liability to differ from the actual amount due.

We recognize current tax assets and liabilities for estimated taxes refundable or payable on tax returns for the current year. We also recognize deferred tax assets or liabilities for the estimated future tax effects attributable to temporary differences, net operating losses, undistributed foreign earnings, and various other credits and carryforwards. Our current and deferred tax assets and liabilities are measured based on provisions in enacted tax laws in each jurisdiction where we operate. We do not consider the effects of future changes in tax laws or rates in the current period. We analyze our deferred tax assets and place a valuation allowance on those assets if we do not expect the realization of these assets to be more likely than not.

Goodwill.  During the second quarter of each year and in certain other circumstances, we perform a valuation of the goodwill associated with our business. To the extent that the fair value of the business, including the goodwill, is less than the recorded value, we would write down the value of the goodwill. The valuation of the goodwill is affected by, among other things, our business plans for the future and estimated results of future operations. Changes in our business plans and/or in future operating results may have an impact on the valuation of the assets and therefore could result in our recording a related impairment charge.

Contingencies.  The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and also affect the amounts of revenues and expenses reported for each period. Specifically, management estimates are inherent in the assessment of our exposure to insurance claims that fall below policy deductibles and to litigation and other legal claims and contingencies, as well as in determining our liabilities for incurred but not reported insurance claims. Significant judgments by us and reliance on third-party experts are utilized in determining probable and/or reasonably estimable amounts to be recorded or disclosed in our financial statements. The results of any changes in accounting estimates are reflected in the financial statements of the period in which the changes are determined. Based on the information that is currently available, we do not believe that material changes to these estimates are reasonably likely to occur.

Recent Accounting Pronouncements

In June 2009, the FASB issued authoritative guidance codifying GAAP. The Codification did not change GAAP but reorganizes the literature. We adopted the new Codification when referring to GAAP on September 30, 2009. The adoption of this authoritative guidance did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued authoritative guidance amending the timing and considerations of analyses performed to determine if the Company’s variable interests give it a controlling financial interest in a variable interest entity, as well as requires additional disclosures. We adopted the provisions of this guidance on January 1, 2010. The adoption of this authoritative guidance did not have a material impact on our consolidated financial statements.

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In May 2009, the FASB issued authoritative guidance that incorporates guidance into accounting literature that was previously addressed only in auditing standards and is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In February 2010, the FASB amended this guidance to remove the requirement for Securities and Exchange Commission (“SEC”) filers to disclose the date through which an entity has evaluated subsequent events. We adopted this authoritative guidance on June 30, 2009 and adopted the revised provisions for our December 31, 2009 consolidated financial statements. This guidance did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued authoritative guidance that establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and separately from the parent company’s equity. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires that both amounts are disclosed on the face of the Consolidated Statement of Income. On January 1, 2009, we applied the provisions of this guidance to our accounting for noncontrolling interests and our financial statement disclosures. The disclosure provisions of the standard have been applied to all periods presented in the accompanying consolidated financial statements.

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MICHAEL BAKER CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

	For the year ended December 31,
(in thousands, except per share amounts)	2009			2008			2007
Revenues	$	445,177		$	455,929		$	401,463
Cost of work performed		357,197			371,397			321,850
Gross profit		87,980			84,532			79,613
Selling, general and administrative expenses		57,422			51,232			53,122
Operating income		30,558			33,300			26,491
Other income/(expense):
Equity income from unconsolidated subsidiary		7,057			3,065			2,224
Interest income		160			642			303
Interest expense		(70	)		(93	)		(554	)
Other, net		257			66			(55	)
Income before noncontrolling interests and income taxes		37,962			36,980			28,409
Less: Income attributable to noncontrolling interests		(156	)		—			—
Income before income taxes		37,806			36,980			28,409
Provision for income taxes		13,234			14,422			11,079
Net income from continuing operations attributable to Michael Baker Corporation		24,572			22,558			17,330
Income from discontinued operations, net of tax		7,208			6,672			1,977
Loss on sale of discontinued operations, net of tax		(4,724	)		—			—
Less: Net (income)/loss attributable to noncontrolling interests		(135	)		(76	)		33
Net income from discontinued operations attributable to Michael Baker Corporation		2,349			6,596			2,010
Net income attributable to Michael Baker Corporation		26,921			29,154			19,340
Other comprehensive income/(loss) — Foreign currency translation adjustments with reclassification adjustments		2,232			(2,661	)		255
Less: Foreign currency translation adjustments attributable to noncontrolling interests with reclassification adjustments		(233	)		526			(107	)
Comprehensive income attributable to Michael Baker Corporation	$	28,920		$	27,019		$	19,488
Earnings per share (“E.P.S.”) attributable to Michael Baker Corporation
Basic E.P.S. — Continuing operations	$	2.77		$	2.56		$	1.98
Diluted E.P.S. — Continuing operations		2.75			2.54			1.95
Basic E.P.S. — Net income		3.04			3.31			2.21
Diluted E.P.S. — Net income	$	3.01		$	3.28		$	2.18

The accompanying notes are an integral part of the consolidated financial statements.

15

MICHAEL BAKER CORPORATION

CONSOLIDATED BALANCE SHEETS

	As of December 31,
(in thousands, except share amounts)	2009			2008
ASSETS
Current Assets
Cash and cash equivalents	$	105,259		$	49,050
Short term investments		2,500			—
Available for sale securities		2,155			—
Proceeds receivable — Energy sale		9,965			—
Receivables, net of allowances of $723 and $2,765, respectively		76,455			113,676
Unbilled revenues on contracts in progress		49,605			70,455
Prepaid expenses and other		5,407			16,756
Total current assets		251,346			249,937
Property, Plant and Equipment, net		12,578			16,671
Other Long-term Assets
Goodwill		9,626			17,092
Other intangible assets, net		76			162
Deferred tax asset		—			1,209
Other long-term assets		5,218			6,991
Total other long-term assets		14,920			25,454
Total assets	$	278,844		$	292,062
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
Current Liabilities
Accounts payable	$	31,948		$	42,421
Accrued employee compensation		23,000			35,530
Accrued insurance		9,576			11,632
Billings in excess of revenues on contracts in progress		19,102			17,449
Deferred income tax liability		3,958			9,923
Income taxes payable		1,355			4,946
Other accrued expenses		8,050			13,827
Total current liabilities		96,989			135,728
Long-term Liabilities
Deferred income tax liability		346			7,121
Other long-term liabilities		7,769			6,297
Total liabilities		105,104			149,146
Shareholders’ Investment
Common Stock, par value $1, authorized 44,000,000 shares,
issued 9,402,835 and 9,350,835, respectively		9,403			9,351
Additional paid-in capital		49,989			48,405
Retained earnings		119,135			92,214
Accumulated other comprehensive loss		(333	)		(2,565	)
Less — 495,537 shares of Common Stock in treasury, at cost		(4,761	)		(4,761	)
Total Michael Baker Corporation shareholders’ investment		173,433			142,644
Noncontrolling interests		307			272
Total shareholders’ investment		173,740			142,916
Total liabilities and shareholders’ investment	$	278,844		$	292,062

The accompanying notes are an integral part of the consolidated financial statements.

16

MICHAEL BAKER CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
(in thousands)	2009			2008			2007
Cash Flows from Operating Activities
Net income	$	27,212		$	29,230		$	19,307
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Net income from discontinued operations		(2,484	)		(6,672	)		(1,977	)
Depreciation and amortization		5,592			4,952			5,039
Stock-based compensation expense		1,063			772			436
Tax benefit of stock compensation		232			117			975
Excess tax benefits from stock-based compensation		(5	)		(17	)		(26	)
Deferred income tax (benefit)/expense		(5,152	)		(2,794	)		1,751
Equity affiliates’ earnings		(7,057	)		(3,065	)		(2,224	)
Equity affiliates’ dividends received		7,300			2,700			1,528
Loss on disposal of fixed assets		154			94			229
Changes in assets and liabilities:
Increase in receivables		(2,234	)		(7,311	)		(4,233	)
Decrease/(increase) in unbilled revenues and billings in excess, net		4,103			5,480			(2,895	)
Decrease/(increase) in other net assets		7,764			1,114			(134	)
(Decrease)/increase in accounts payable		(4,652	)		439			3,236
(Decrease)/increase in accrued expenses		(7,779	)		9,584			(1,196	)
Net cash provided by continuing operations		24,057			34,623			19,816
Net cash provided by/(used in) discontinued operations		12,308			(2,395	)		6,819
Net cash provided by operating activities		36,365			32,228			26,635
Cash Flows from Investing Activities
Additions to property, plant and equipment		(5,421	)		(3,472	)		(1,206	)
Purchase of short-term investments		(2,500	)		—			—
Purchase of available-for-sale securities		(2,155	)		—			—
Investment in equity affiliates		(400	)		—			—
Net cash used in continuing operations		(10,476	)		(3,472	)		(1,206	)
Net cash provided by/(used in) discontinued operations		29,874			(1,813	)		(354	)
Net cash provided by/(used in) investing activities		19,398			(5,285	)		(1,560	)
Cash Flows from Financing Activities
Payments on long-term debt, net		—			—			(11,038	)
Decrease in book overdrafts		—			—			(4,164	)
Capital contribution from noncontrolling interest		152			—			—
Proceeds from exercise of stock options		632			366			1,381
Payments on capital lease obligations		(333	)		(285	)		(383	)
Excess tax benefits from stock-based compensation		5			17			26
Net cash provided by/(used in) continuing operations		456			98			(14,178	)
Net cash used in discontinued operations		(10	)		(43	)		(2,027	)
Net cash provided by/(used in) financing activities		446			55			(16,205	)
Net increase in cash and cash equivalents		56,209			26,998			8,870
Cash and cash equivalents, beginning of year		49,050			22,052			13,182
Cash and cash equivalents, end of year	$	105,259		$	49,050		$	22,052

The accompanying notes are an integral part of the consolidated financial statements.

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MICHAEL BAKER CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ INVESTMENT

																				Accumulated
	Common stock,										Additional						Non-			other			Total
	par value $1				Treasury						paid-in			Retained			controlling			comprehensive			shareholders’
(in thousands)	Shares		Amount		Shares			Amount			capital			earnings			interest			(loss)/income			investment
Balance, January 1, 2007		9,194	$	9,194		(496	)	$	(4,761	)	$	44,676		$	44,671		$	398		$	(159	)	$	94,019
Net income attributable to Michael Baker Corporation		—		—		—			—			—			19,340			—			—			19,340
Impact of adopting FIN 48		—		—		—			—			—			(951	)		—			—			(951	)
Stock options exercised		101		101		—			—			1,280			—			—			—			1,381
Options granted		—		—		—			—			184			—			—			—			184
Tax benefit of stock compensation		—		—		—			—			975			—			—			—			975
Restricted stock issued		11		11		—			—			(11	)		—			—			—			—
Amortization of restricted stock		—		—		—			—			252			—			—			—			252
Noncontrolling interest net loss		—		—		—			—			—			—			(309	)		—			(309	)
Other comprehensive income, net of tax:
Foreign currency translation adjustments		—		—		—			—			—			—			107			255			362
Balance, December 31, 2007		9,306	$	9,306		(496	)	$	(4,761	)	$	47,356		$	63,060		$	196		$	96		$	115,253
Net income attributable to Michael Baker Corporation		—		—		—			—			—			29,154			—			—			29,154
Stock options exercised		33		33		—			—			333			—			—			—			366
Options granted		—		—		—			—			287			—			—			—			287
Tax benefit of stock compensation		—		—		—			—			117			—			—			—			117
Restricted stock issued		12		12		—			—			(12	)		—			—			—			—
Amortization of restricted stock		—		—		—			—			324			—			—			—			324
Noncontrolling interest net loss		—		—		—			—			—			—			602			—			602
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		—		—		—			—			—			—			(526	)		(2,661	)		(3,187	)
Balance, December 31, 2008		9,351	$	9,351		(496	)	$	(4,761	)	$	48,405		$	92,214		$	272		$	(2,565	)	$	142,916
Net income attributable to Michael
Baker Corporation		—		—		—			—			—			26,921			—			—			26,921
Stock options exercised		40		40		—			—			592			—			—			—			632
Options granted		—		—		—			—			359			—			—			—			359
Tax benefit of stock compensation		—		—		—			—			232			—			—			—			232
Restricted stock issued		12		12		—			—			(12	)		—			—			—			—
Amortization of restricted stock		—		—		—			—			413			—			—			—			413
Noncontrolling interest — net
Investment in shares		—		—		—			—			—			—			152			—			152
Divestiture of subsidiary		—		—		—			—			—			—			(176	)		—			(176	)
Net income		—		—		—			—			—			—			291			—			291
Other comprehensive income, net of tax:
Reclassification adjustment for foreign currency translation included in the current period loss from discontinued operations		—		—		—			—			—			—			(232	)		2,069			1,837
Foreign currency translation adjustments		—		—		—			—			—			—			—			163			163
Balance, December 31, 2009		9,403	$	9,403		(496	)	$	(4,761	)	$	49,989		$	119,135		$	307		$	(333	)	$	173,740

The accompanying notes are an integral part of the consolidated financial statements.

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MICHAEL BAKER CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   NATURE OF BUSINESS

Michael Baker Corporation (the “Company”) was founded in 1940 and organized as a Pennsylvania corporation in 1946. Currently, through its operating subsidiaries, the Company provides engineering expertise for public and private sector clients worldwide. The Company’s primary markets include Aviation, Defense, Facilities, Homeland Security, Municipal and Civil, Pipelines and Utilities, Rail and Transit, Transportation and Water. Among the services the Company provides to clients in these markets are program management, design-build (for which the Company provides only the design portion of services), construction management, consulting, planning, surveying, mapping, geographic information systems, architectural and interior design, construction inspection, constructability reviews, site assessment and restoration, strategic regulatory analysis and regulatory compliance.

Geographic and market information

	For the year ended December 31,
	2009		2008		2007
Revenues by geographic origin:
Domestic	$	401.0	$	417.2	$	383.2
Foreign(1)		44.2		38.7		18.3
Total	$	445.2	$	455.9	$	401.5

⁽¹⁾ The Company defines foreign contract revenue as work performed outside the U.S. irrespective of the client’s U.S. or non-U.S. ownership.

Revenues by principal markets:
United States government	49	%	52	%	49	%
Various state governmental and quasi-government
agencies	41	%	38	%	40	%
Commercial, industrial and private clients	10	%	10	%	11	%

One of the Company’s clients, the Federal Emergency Management Agency (“FEMA”), accounted for approximately 15%, 20% and 24% of the Company’s revenues in 2009, 2008 and 2007, respectively.

2.   BASIS OF PRESENTATION

On September 30, 2009, the Company divested substantially all of its subsidiaries that pertained to its former Energy segment (the “Energy sale”). Additionally, the Company sold its interest in B.E.S. Energy Resources Company, Ltd. (“B.E.S.”), an Energy company, on December 18, 2009 to J.S. Technical Services Co., LTD., which is owned by the Company’s former minority partner in B.E.S. As a result of the dispositions, the results of the Company’s former Energy segment have been reclassified as discontinued operations for all periods presented in the consolidated financial statements. See further discussion in the “Discontinued Operations” note.

The Consolidated Balance Sheet of the Company as of December 31, 2009 and the Consolidated Statements of Income and Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007 give effect to the disposition of the stock owned by Michael Baker Corporation in Baker/MO Services, Inc., Michael Baker Global, Inc., Baker O&M International, Ltd., Baker Energy de Venezuela, C.A., Overseas Technical Services International, Ltd., Baker OTS International, Inc., SD Forty Five, Ltd., OTS Finance and Management, Ltd., and their respective subsidiaries (“Baker Energy”) as well as B.E.S.

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, jointly-owned subsidiaries over which it exercises control and entities for which it has been determined to be the primary beneficiary. Noncontrolling interest amounts relating to the Company’s less-than-wholly-owned consolidated subsidiaries are included within the “Net (income)/loss attributable to noncontrolling interests” captions in its

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Consolidated Statements of Income and within the “Noncontrolling interests” caption in its Consolidated Balance Sheets. Investments in non-consolidated affiliates, including joint ventures, over which the Company exercises significant influence, are accounted for under the equity method. The Company may render services to certain of its joint ventures. The Company records revenue in the period in which such services are provided. Investments in non-consolidated affiliates in which the Company owns less than 20% are accounted for under the cost method. All intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition and Accounting for Contracts

The Company earns revenue by providing services, typically through Cost-Plus, Fixed-Price, and Time-and-Materials contracts. In providing these services, the Company typically incurs direct labor costs, subcontractor costs, and certain other direct costs (“ODCs”) which include “out-of-pocket” expenses.

Revenue is recognized under the percentage-of-completion method of accounting. Revenues for the current period are determined by multiplying the estimated margin at completion for each contract by the project’s percentage of completion to date, adding labor costs, subcontractor costs and ODCs incurred to date, and subtracting revenues recognized in prior periods. In applying the percentage-of-completion method to these contracts, the Company measures the extent of progress toward completion as the ratio of labor costs incurred to date over total estimated labor costs at completion. As work is performed under contracts, estimates of the costs to complete are regularly reviewed and updated. As changes in estimates of total costs at completion on projects are identified, appropriate earnings adjustments are recorded using the cumulative catch-up method. Provisions for estimated losses on uncompleted contracts are recorded during the period in which such losses become evident. Profit incentives and/or award fees are recorded as revenues when the amounts are both probable and reasonably estimable.

Change orders are modifications of an original contract that effectively change the provisions of the contract without adding new provisions. Either the Company or its customer may initiate change orders, which may include changes in specifications or design, manner of performance, facilities, equipment, materials, sites and the period of completion of the work.

In certain circumstances, the Company may agree to provide new or additional services to a client without a fully executed contract or change order. In these instances, although the costs of providing these services are expensed as incurred, the recognition of related contract revenues is delayed until the contracts and/or change orders have been fully executed by the clients, other suitable written project approvals are received from the clients, or until management determines that revenue recognition is appropriate based on the probability of client acceptance. The probability of client acceptance is assessed based on such factors as the Company’s historical relationship with the client, the nature and scope of the services to be provided, and management’s ability to accurately estimate the realizable value of the services to be provided.

Claims are amounts in excess of agreed contract price that the Company seeks to collect from its clients or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs. Revenues related to claims, which arise from customer-caused delays or change orders unapproved as to both scope and price, are recorded only when the amounts have been agreed with the client.

The majority of the Company’s contracts fall under the following types:

•  Cost-Plus.  Tasks under these contracts can have various cost-plus features. Under cost-plus fixed fee contracts, clients are billed for the Company’s costs, including both direct and indirect costs, plus a fixed negotiated fee. Under cost-plus fixed rate contracts, clients are billed for the Company’s costs plus negotiated fees or rates based on its indirect costs. Some cost-plus contracts provide for award fees or penalties based on performance criteria in lieu of a fixed fee or fixed rate. Contracts may also include performance-based award fees or incentive fees.

•  Fixed-Price.  Under fixed-price contracts, the Company’s clients are billed at defined milestones for an agreed amount negotiated in advance for a specified scope of work.

•  Time-and-Materials.  Under the Company’s time-and-materials contracts, the Company negotiates hourly billing rates and charges based on the actual time that it expended, in addition to other direct costs incurred in connection with the contract. Time-and-materials contracts typically have a stated contract value.

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Under certain cost-type contracts with governmental agencies, the Company is not contractually permitted to earn a margin on subcontractor costs and ODCs. The majority of all other contracts are also structured such that margin is earned on direct labor costs, and not on subcontractor costs and ODCs.

The Company assesses the terms of its contracts and determines whether it will report its revenues and related costs on a gross or net basis.

The Company’s policy for the income statement presentation of any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between the Company and one of its customers is to present such taxes on a net basis in its consolidated financial statements.

Unbilled Revenues on Contracts in Progress and Billings in Excess of Revenues on Contracts in Progress

Unbilled revenues on contracts in progress in the accompanying Consolidated Balance Sheets represent unbilled amounts earned and reimbursable under contracts in progress. These amounts become billable according to the contract terms, which consider the passage of time, achievement of certain milestones or completion of the project. The majority of contracts contain provisions that permit these unbilled amounts to be invoiced in the month after the related costs are incurred. Generally, unbilled amounts will be billed and collected within one year.

Billings in excess of revenues on contracts in progress in the accompanying Consolidated Balance Sheets represent accumulated billings to clients in excess of the related revenue recognized to date. The Company anticipates that the majority of such amounts will be earned as revenue within one year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and also affect the amounts of revenues and expenses reported for each period. Actual results could differ from those which result from using such estimates. The use of estimates is an integral part of determining cost estimates to complete under the percentage-of-completion method of accounting for contracts. Management also utilizes various other estimates, including but not limited to recording profit incentives and/or award fee revenues under its contracts, assessment of its exposure to insurance claims that fall below policy deductibles, determination of its liabilities for incurred-but-not-reported insurance claims, incentive compensation and income tax expense, and to assess its litigation, other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the consolidated financial statements of the period in which the changes become evident.

The Company self-insures certain risks, including certain employee health benefits, professional liability and automobile liability. The accrual for self-insured liabilities includes estimates of the costs of reported and unreported claims and is based on estimates of loss using assumptions made by management, including the consideration of actuarial projections. These estimates of loss are derived from computations which combine loss history and actuarial methods in the determination of the liability. Actual losses may vary from the amounts estimated via actuarial or management’s projections. Any increases or decreases in loss amounts estimated are recognized in the period in which the actual loss is determined.

Income Taxes

The Company records its annual current tax provision based upon its book income, plus or minus any permanent and temporary differences, multiplied by the statutory rate in the majority of the jurisdictions where it operates. In certain foreign jurisdictions where it operated, income tax is based on a deemed profit methodology. The calculation of the Company’s annual tax provision may require interpreting tax laws and regulations and from time to time results in the use of judgments or estimates which could cause its recorded tax liability to differ from the actual amount due.

The Company recognizes current tax assets and liabilities for estimated taxes refundable or payable on tax returns for the current year. It also recognizes deferred tax assets or liabilities for the estimated future tax effects attributable to temporary differences, net operating losses, undistributed foreign earnings, and various credits and carryforwards. The Company’s current and deferred tax assets and liabilities are measured based on provisions in enacted tax laws in each jurisdiction where it operates. The Company does not consider the effects of future changes in tax laws or rates in the current period. The Company analyzes its deferred tax assets and places valuation allowances on those assets if it does not expect the realization of these assets to be more likely than not.

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Penalties estimated for underpaid income taxes are included in selling, general and administrative expenses in the Company’s Consolidated Statements of Income. Interest associated with underpaid income taxes and related adjustments are included in the “Interest expense” caption in the Company’s Consolidated Statements of Income.

Foreign Currency Translation

With the sale of Baker Energy and B.E.S., substantially all of the Company’s foreign subsidiaries were divested by December 31, 2009. Most of those foreign subsidiaries utilized the local currencies as the functional currency. Accordingly, assets and liabilities of these subsidiaries were translated to U.S. Dollars at exchange rates in effect at the balance sheet date, whereas income and expense accounts are translated at average exchange rates during the year. The resulting translation adjustments were recorded as a separate component of shareholders’ investment. In addition to certain Baker Energy foreign subsidiaries that were divested by December 31, 2009, the Company also has an Engineering foreign subsidiary for which the functional currency is the U.S. Dollar. The resulting translation gains or losses for this subsidiary is included in the Company’s Consolidated Statements of Income.

Other Comprehensive Income/(Loss)

The only component of the Company’s accumulated other comprehensive income/(loss) balance related to foreign currency translation adjustments for 2009, 2008 and 2007.

Fair Value of Financial Instruments

The fair value of financial instruments classified as cash and cash equivalents, short-term investments, available-for-sale securities, receivables, unbilled revenues, accounts payable, capital lease obligations and other liabilities approximates carrying value due to the short-term nature or the relative liquidity of the instruments. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand or deposit or other similar highly liquid investments with remaining maturities of less than 90 days at the time of purchase. The majority of the Company’s funds were held in money market funds comprised of U.S. Government-backed obligations as of December 31, 2009.

Short-term Investments

Short-term investments are comprised of certificates of deposit with remaining maturities of greater than 90 days but less than one year at the time of purchase and are recorded at fair value. Interest related to the certificates of deposit is included in “Interest income” in the Company’s Consolidated Statements of Income.

Available-for-Sale Securities

Available-for-sale securities are comprised of highly rated municipal bonds and are recorded at fair value. Interest related to the available-for-sale securities is included in “Interest income” in the Company’s Consolidated Statements of Income.

Concentrations of Credit Risk and Allowance for Doubtful Accounts

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, available-for-sale securities, trade receivables, and related unbilled revenues. The Company’s cash and cash equivalents are deposited in various high-credit-quality financial institutions. The majority of such deposits are not covered by or are in excess of the Federal Deposit Insurance Corporation limits.

The Company reduces accounts receivable by estimating an allowance for amounts that are expected to become uncollectible in the future. Management determines the estimated allowance for doubtful accounts based on its evaluation of collection efforts, the financial condition of the Company’s clients, which may be dependent on the type of client and current economic conditions to which the client may be subject, and other considerations. Although the Company has a diversified client base, a substantial portion of the Company’s receivables and net unbilled revenues on contracts in progress reflected in its Consolidated Balance Sheets are due from U.S. federal and state governments. Contracts and subcontracts with the U.S. federal and state governments usually contain standard provisions for permitting the government to modify, curtail or terminate the contract for convenience of the government

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if program requirements or budgetary constraints change. Upon such a termination, the Company is generally entitled to recover costs incurred, settlement expenses and profit on work completed prior to termination, which significantly reduces the Company’s credit risk with these types of clients.

Goodwill and Intangible Assets

The Company may record goodwill and other intangible assets in connection with business combinations. Goodwill, which represents the excess of acquisition cost over the fair value of the net tangible and intangible assets of acquired companies, is not amortized. The Company’s goodwill balance is evaluated for potential impairment during the second quarter of each year and in certain other circumstances. The evaluation of impairment involves comparing the current fair value of the business to the recorded value, including goodwill. To determine the fair value of the business, the Company utilizes both the “Income Approach,” which is based on estimates of future net cash flows and the “Market Approach,” which observes transactional evidence involving similar businesses. Intangible assets are stated at the fair value as of the date acquired in a business combination. Amortization of finite-lived intangible assets is provided on a straight-line basis over the estimated useful lives of the assets.

Property, Plant and Equipment

All additions, including improvements to existing facilities, are recorded at cost. Maintenance and repairs are charged to expense as incurred. Depreciation on property, plant and equipment is principally recorded using the straight-line method over the estimated useful lives of the assets. The estimated useful lives typically are 40 years on buildings, 3 to 10 years on furniture, fixtures and office equipment, 3 years on field equipment and vehicles, and 3 to 7 years on computer hardware and software. Assets held under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Upon the disposal of property, the asset and related accumulated depreciation accounts are relieved of the amounts recorded therein for such items, and any resulting gain or loss is reflected in income in the year of disposition.

The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software. During the software application development stage, capitalized costs include the cost of the software, external consulting costs and internal payroll costs for employees who are directly associated with a software project. Similar costs related to software upgrades and enhancements are capitalized if they result in added functionality which enables the software to perform tasks it was previously incapable of performing. These capitalized software costs are included in “Property, Plant and Equipment, net” in the Company’s Consolidated Balance Sheets. Software maintenance, data conversion and training costs are expensed in the period in which they are incurred.

Leases

The Company leases office space with lease terms ranging from 1 to 10 years. These lease agreements typically contain tenant improvement allowances and rent holidays. In instances where one or more of these items are included in a lease agreement, the Company records allowances as a deferred rent liability in its Consolidated Balance Sheets. These amounts are amortized on a straight-line basis over the term of the lease as a reduction to rent expense. Lease agreements sometimes contain rent escalation clauses, which are recognized on a straight-line basis over the life of the lease. For leases with renewal options, the Company records rent expense and amortizes the leasehold improvements on a straight-line basis over the shorter of the useful life or original lease term, exclusive of the renewal period. When a renewal occurs, the Company records rent expense over the new term. The Company expenses any rent costs incurred during the period of time it performs construction activities on newly leased property.

The Company leases computer hardware and software, office equipment and vehicles with lease terms ranging from 1 to 7 years. Before entering into a lease, an analysis is performed to determine whether a lease should be classified as a capital or an operating lease.

Impairment of Long-lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets which are held and used in operations are considered impaired if the carrying value of the asset exceeds the undiscounted future cash flows from the asset. If impaired, an appropriate charge is recorded to adjust the carrying value of the long-lived asset to its estimated fair value. The Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows from the asset using an appropriate discount rate.

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Accounting for Stock-Based Compensation

Stock options and restricted stock are granted to non-employee directors of the Company at the fair market value of the Company’s stock on the date of the grant. Proceeds from the exercise of common stock options are credited to shareholders’ investment at the date the options are exercised.

All stock-based compensation is measured at the grant-date fair value of the award and is recognized as an expense in the Company’s results of operations. These expenses are recognized as a component of the Company’s selling, general and administrative costs, as these costs relate to stock-based compensation issued to non-employee directors and the Chief Executive Officer of the Company. The excess tax benefits related to stock-based compensation is reflected as financing cash inflows instead of operating cash inflows.

4.   RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance codifying Generally Accepted Accounting Principles in the United States (“GAAP”). The Codification did not change GAAP but reorganizes the literature. The Company adopted the new Codification when referring to GAAP on September 30, 2009. The adoption of this authoritative guidance did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued authoritative guidance amending the timing and considerations of analyses performed to determine if the Company’s variable interests give it a controlling financial interest in a variable interest entity, as well as requires additional disclosures. The Company adopted the provisions of this guidance on January 1, 2010. The adoption of this authoritative guidance did not have a material impact on the consolidated financial statements.

In May 2009, the FASB issued authoritative guidance that incorporates guidance into accounting literature that was previously addressed only in auditing standards and is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In February 2010, the FASB amended this guidance to remove the requirement for Securities and Exchange Commission (“SEC”) filers to disclose the date through which an entity has evaluated subsequent events. The Company adopted this authoritative guidance on June 30, 2009 and adopted the revised provisions for its December 31, 2009 consolidated financial statements. This guidance did not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued authoritative guidance that establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and separately from the parent company’s equity. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires that both amounts are disclosed on the face of the Consolidated Statement of Income. On January 1, 2009, the Company applied the provisions of this guidance to its accounting for noncontrolling interests and its financial statement disclosures. The disclosure provisions of the standard have been applied to all periods presented in the accompanying consolidated financial statements.

5.   DISCONTINUED OPERATIONS

On September 30, 2009, the Company entered into a definitive agreement with Wood Group E.&P.F. Holdings, Inc., Wood Group Holdings (International) Limited and Wood Group Engineering and Operations Support Limited, subsidiaries of international energy services company John Wood Group PLC (each a “Buyer” and, collectively, the “Buyers”) to sell Baker Energy. Baker Energy provided a full range of services for operating third-party oil and gas production facilities worldwide. Additionally, the Company sold its interest in B.E.S. on December 18, 2009 to J.S. Technical Services Co., LTD., which is owned by the Company’s former minority partner in B.E.S.

The results of operations of the Company’s Energy business have been classified as discontinued operations in the accompanying consolidated financial statements for all periods presented. The results of Baker Energy and B.E.S. are representative of their results through their respective sale dates. Corporate overhead costs were not allocated to the

24

Energy business for the discontinued operations presentation. The operating results of the Energy business for the years ended December 31, 2009, 2008 and 2007 were as follows:

	For the year ended December 31,
(in thousands)	2009			2008			2007
Revenues	$	160,418		$	243,466		$	325,502
Cost of work performed		144,734			214,341			304,619
Gross profit		15,684			29,125			20,883
Selling, general and administrative expenses		13,204			18,984			15,999
Income from discontinued operations		2,480			10,141			4,884
Other (expense)/income		(185	)		3,356			399
Income from discontinued operations before income taxes and loss on sale		2,295			13,497			5,283
(Benefit)/provision for income taxes		(4,913	)		6,825			3,306
Income from discontinued operations before loss on sale		7,208			6,672			1,977
Loss on sale of discontinued operations, net of tax		(4,724	)		—			—
Income from discontinued operations		2,484			6,672			1,977
Less: Net (income)/loss attributable to noncontrolling interests		(135	)		(76	)		33
Net income from discontinued operations attributable to Michael Baker Corporation	$	2,349		$	6,596		$	2,010

On September 30, 2009, the stock of Baker Energy was sold for gross proceeds of $47.9 million, consisting of $37.9 million received at closing and $10.0 million received in February 2010 under the net asset adjustment provision of the stock purchase agreement. Included in the net assets conveyed to the buyer was approximately $7.8 million in cash utilized by Baker Energy’s international operations for working capital needs. This cash was reimbursed to the Company through the net asset adjustment. The net asset adjustment is presented under the heading “Proceeds receivable — Energy sale” in the Company’s consolidated balance sheet as of December 31, 2009. Net proceeds are based on the cash received at closing, the receivable derived from the net asset adjustment, net of the Company’s costs associated with the transaction. Transaction costs consist of investment banker fees related to the marketing and sale of Baker Energy, legal fees and management retention payments due to certain employees of Baker Energy that were contingent upon the sale of Baker Energy.

On December 18, 2009, the stock of B.E.S. was sold for gross proceeds of $1.1 million. Net proceeds are based on the cash received at closing, net of the Company’s costs associated with the transaction. Transaction costs consist of investment banker fees related to the marketing and sale of B.E.S., legal fees and Thailand tax withholdings and fees.

The Company incurred a loss of $4.5 million on the Baker Energy sale and $0.2 million on the B.E.S. sale, which is presented as a loss on sale of discontinued operations in the Company’s consolidated statement of income. The Baker Energy and B.E.S. sale net proceeds and the loss on sale were as follows:

Baker Energy Sale Proceeds

(in thousands)
Gross sale proceeds received at closing	$	37,944
Net asset adjustment receivable		9,965
Gross proceeds		47,909
Less:
Investment banker and legal fees		(907	)
Management retention payments		(1,304	)
Net proceeds from sale of Baker Energy	$	45,698

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Baker Energy Loss on Sale

(in thousands)
Net proceeds from sale	$	45,698
Net assets of Baker Energy as of September 30, 2009		(48,469	)
Realization of cumulative translation adjustments		(2,174	)
Non-controlling interest in Baker Energy		(127	)
Tax benefit related to transaction costs		563
Loss on sale of Baker Energy, net of tax benefit	$	(4,509	)

B.E.S. Sale Proceeds

(in thousands)
Gross sale proceeds	$	1,056
Less:
Investment banker and legal fees		(16	)
Thailand withholdings and fees		(149	)
Net proceeds from sale of B.E.S.	$	891

B.E.S. Loss on Sale

(in thousands)
Net proceeds from B.E.S. sale	$	891
Net assets of B.E.S. as of December 18, 2009		(1,514	)
Realization of cumulative translation adjustments		105
Non-controlling interest in B.E.S.		303
Loss on sale of B.E.S., net of tax	$	(215	)

Reflected in the December 31, 2009 consolidated balance sheet are both liabilities and assets related to Baker Energy’s workers’ compensation, automobile and health insurances through September 30, 2009. As part of the sale of Baker Energy, the buyer agreed to assume the liabilities associated with those insurances, subject to certain indemnifications, as of September 30, 2009. However, corresponding liabilities representing the reserves associated with these insurances, including reserves for incurred but not reported (“IBNR”) claims, are included in the Company’s consolidated balance sheet as those insurances are written to the Company, rather than to a Baker Energy entity. As such, the Company is required to maintain its reserves for these insurances in its consolidated balance sheet. As the buyer assumed the liabilities associated with these insurances, the Company has also recorded a corresponding receivable from the buyer. As of December 31, 2009, there were approximately $6.4 million of Baker Energy insurance liabilities related to Baker Energy’s workers’ compensation, automobile and health insurances recorded on the Company’s Consolidated Balance Sheet, with a corresponding receivable of approximately $6.4 million also recorded.

6.   EQUITY INCOME FROM UNCONSOLIDATED SUBSIDIARY

The Company’s unconsolidated joint ventures provide engineering, program management, and construction management services. Joint ventures, the combination of two or more partners, are generally formed for a specific project. Management of the joint venture is typically controlled by a joint venture executive committee, typically comprising a representative from each joint venture partner with equal voting rights. The executive committee provides management oversight and assigns work efforts to the joint venture partners.

The majority of the Company’s unconsolidated joint ventures have no employees and minimal operating expenses. For these joint ventures, the Company’s own employees render services that are billed to the joint venture, which are then billed to a third-party customer by the joint venture. These joint ventures function as pass-through entities to bill the third-party customer. The Company includes revenues related to the services performed for these joint ventures and the costs associated with these services in its results of operations. The Company also has unconsolidated joint ventures that have their own employees and operating expenses and to which the Company generally makes a capital

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contribution. The Company accounts for its investments in unconsolidated joint ventures using the equity method. The Company includes equity income from unconsolidated joint ventures as a component of non-operating income in its Consolidated Statements of Income as this equity income is derived from entities taxed as partnerships.

Equity income from unconsolidated subsidiary reflects the Company’s ownership of 33.33% of the members’ equity of Stanley Baker Hill, LLC (“SBH”). SBH is a joint venture formed in February 2004 between Stanley Consultants, Inc., Hill International, Inc., and Michael Baker, Jr. Inc., a subsidiary of the Company. Equity income from SBH for the years ended December 31, 2009, 2008 and 2007 was $7.1 million, $3.1 million and $2.2 million, respectively. SBH has a contract for an Indefinite Delivery and Indefinite Quantity (“IDIQ”) for construction management and general architect-engineer services for facilities in Iraq with the U.S. Army Corps of Engineers. The Company’s unconsolidated joint venture’s current Iraq IDIQ contract ended in September 2009, and it is not anticipated that further contract funding will be added to this contract vehicle. Current funded task order work may be extended but the Company anticipates that it will be materially completed by September 2010.

The following table presents summarized financial information for the Company’s unconsolidated subsidiary, SBH:

	For the year ended December 31,
(in thousands)	2009		2008		2007
Contract revenue earned	$	154,140	$	130,408	$	77,226
Gross profit		21,763		9,693		6,993
Net Income	$	21,161	$	9,195	$	6,663

	As of
	December 31,		December 31,
(in thousands)	2009		2008
Current assets	$	17,377	$	27,970
Noncurrent assets		20		7
Current liabilities	$	12,594	$	22,436

As of December 31, 2009 and 2008, the Company reported receivables and unbilled revenues on contracts in progress totaling $3.8 million and $6.9 million, respectively, from SBH for work performed by the Company as a subcontractor to SBH. Such amounts were payable in accordance with the subcontract agreement between the Company and SBH. Revenue from SBH pursuant to such subcontract agreement for the years ended December 31, 2009, 2008 and 2007 was $34.5 million, $32.1 million and $15.1 million, respectively.

7.   CONTRACTS

Revenues and billings to date on contracts in progress were as follows (in millions):

	As of December 31,
	2009			2008
Revenues	$	1,702		$	2,915
Billings		(1,671	)		(2,862	)
Net unbilled revenue	$	31		$	53

A portion of the trade receivable balances totaling $5,890,000 and $5,712,000 as of December 31, 2009 and 2008, respectively, relates to retainage provisions under long-term contracts which will be due upon completion of the contracts. Based on management’s estimates, $4,634,000 and $4,715,000 of these retention balances as of December 31, 2009 and 2008, respectively, were expected to be collected within one year of the balance sheet dates, and were therefore included in the “Receivables, net” balances. The remaining retention balances are reflected as “Other long-term assets” in the Company’s Consolidated Balance Sheets.

Under certain circumstances, the Company may agree to provide new or additional services to a client without a fully executed contract or change order. In these instances, although the costs of providing these services are expensed as incurred, the recognition of related contract revenues are delayed until the contracts and/or change orders have been fully executed by the clients, other suitable written project approvals are received from the clients, or until management determines that revenue recognition is appropriate based on the probability of client acceptance. Under this policy, the

27

Company had not recognized potential future revenues estimated at $3.5 million and $2.5 million as of December 31, 2009 and 2008, respectively, for which the related costs had already been expensed as of these dates.

Federal government contracts are subject to the U.S. Federal Acquisition Regulations (“FAR”). These contracts and certain contracts with state and local agencies are subject to periodic routine audits, which generally are performed by the Defense Contract Audit Agency (“DCAA”) or applicable state agencies. These agencies’ audits typically apply to the Company’s overhead rates, cost proposals, incurred government contract costs and internal control systems. During the course of its audits, the auditors may question incurred costs if it believes the Company has accounted for such costs in a manner inconsistent with the requirements of the FAR or the U.S. Cost Accounting Standards, and may recommend that certain costs be disallowed. Historically, the Company has not experienced significant disallowed costs as a result of these audits; however, management cannot provide assurance that future audits will not result in material disallowances of incurred costs.

8.   INCOME TAXES

The following table presents the components of the Company’s provision for income taxes:

	For the year ended December 31,
(in thousands)	2009			2008		2007
Provision/(benefit) for income taxes:
Continuing operations	$	13,234		$	14,422	$	11,079
Discontinued operations		(4,913	)		6,825		3,306
Loss on sale of discontinued operations		(563	)		—		—
Provision for income taxes	$	7,758		$	21,247	$	14,385

Continuing Operations

The components of income before income taxes for continuing operations are as follows (in thousands):

	For the year ended December 31,
	2009		2008			2007
Domestic	$	37,559	$	37,337		$	28,033
Foreign		247		(357	)		376
Total	$	37,806	$	36,980		$	28,409

The income tax provision for continuing operations consists of the following (in thousands):

	For the year ended December 31,
	2009		2008		2007
Current income tax provision/(benefit):
U.S. federal*	$	15,807	$	14,404	$	8,533
Foreign		164		305		126
State		2,415		2,507		669
Total current income tax provision		18,386		17,216		9,328

	For the year ended December 31,
	2009			2008			2007
Deferred income tax (benefit)/provision:
U.S. federal*		(4,473	)		(2,044	)		1,259
Foreign		—			90			(134	)
State		(679	)		(840	)		626
Total deferred income tax (benefit)/provision		(5,152	)		(2,794	)		1,751
Total income tax provision	$	13,234		$	14,422		$	11,079

* Includes U.S. taxes related to foreign income.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	As of December 31,
	2009			2008			2007
Unrecognized tax benefits:
Beginning of the year	$	1,873		$	1,909		$	1,656
Additions based on tax positions related to the current year		1,230			224			197
Additions for tax positions of prior years		—			352			511
Reductions for tax positions of prior years		—			(6	)		(455	)
Settlements with taxing authorities		—			(333	)		—
Lapses of statutes of limitations		(69	)		(273	)		—
End of the year	$	3,034		$	1,873		$	1,909

As of December 31, 2009, the Company’s reserve for uncertain tax positions totaled approximately $3.0 million, of which the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate totaled $2.5 million. The Company recognizes interest and penalties related to uncertain income tax positions in interest expense and selling, general, and administrative expenses, respectively, in its consolidated statements of income. During 2009 and 2008, the Company recognized immaterial amounts of interest and penalty adjustments relating to uncertain tax positions. As a comparison, during 2007, the Company recognized interest and penalty expense totaling $0.8 million. The Company also had approximately $1.3 million accrued for potential payment of interest and penalties as of December 31, 2009, 2008 and 2007. The Company expects the reserve for unrecognized tax benefits to decrease by approximately $0.5 million to $1.0 million within the next twelve months as a result of statute expirations. The Company recorded a reserve for uncertain tax positions totaling approximately $1.7 million and reduced its opening retained earnings balance by $1.0 million as of January 1, 2007.

As a result of additional tax deductions related to vested restricted stock awards and stock option exercises, tax benefits have been recognized as contributed capital for the years ended December 31, 2009, 2008 and 2007 in the amounts of $0.2 million, $0.1 million and $1.0 million, respectively.

The following is a reconciliation of income taxes computed at the federal statutory rate to income tax expense recorded for continuing operations (in thousands):

	For the year ended December 31,
	2009			2008			2007
Computed income taxes at U.S. federal statutory rate	$	13,234		$	12,943		$	9,943
Foreign tax credits		(1,421	)		—			—
State income taxes, net of federal income tax benefit		856			958			767
Tax expense/(benefit) on foreign income and losses		78			520			(140	)
Permanent differences		704			78			116
Change in reserves		143			(55	)		228
Deferred tax on foreign earnings not indefinitely reinvested		(253	)		163			—
Other		(107	)		(185	)		165
Total income tax provision	$	13,234		$	14,422		$	11,079

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The components of the Company’s deferred income tax assets and liabilities are as follows (in thousands):

	As of December 31,
	2009			2008
Deferred income tax assets:
Accruals not currently deductible for tax purposes	$	8,221		$	8,578
Billings in excess of revenues		7,325			6,624
Tax loss carryforwards		11,048			6,495
Foreign tax credits		1,961			—
Fixed and intangible assets		62			91
All other items		605			457
Gross deferred tax assets		29,222			22,245
Valuation allowance for deferred tax assets		(11,458	)		(5,085	)
Net deferred tax assets		17,764			17,160
Deferred income tax liabilities:
Unbilled revenues		(18,366	)		(23,877	)
Undistributed foreign earnings		—			(6,163	)
Fixed and intangible assets		(2,841	)		(2,766	)
All other items		(861	)		(14	)
Gross deferred tax liabilities		(22,068	)		(32,820	)
Net deferred tax liabilities	$	(4,304	)	$	(15,660	)

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes it is more likely than not that the Company will realize the benefits of these deductible differences as of December 31, 2009. The Company has provided valuation allowances against gross deferred tax assets related primarily to capital loss carryforwards, and foreign tax credits related to the sale of its energy business , as discussed within the following caption “Discontinued Operations,” and state net operating losses as it has concluded that it is not more likely than not that this benefit will be realized. The amount of the deferred tax asset considered realizable could be reduced in the future if estimates of future taxable income during the carryforward period are reduced. Net deferred tax assets totaling $1.4 million are included within the Company’s Consolidated Balance Sheet as of December 31, 2008. Of these net deferred tax assets, included within the caption “Prepaid expenses and other” within the Company’s Consolidated Balance Sheet are $0.2 million of net current deferred tax assets as of December 31, 2008. There were no net current or net long-term deferred tax assets as of December 31, 2009.

The Company has gross state net operating loss (“NOL”) carryforwards totaling $37.3 million resulting in net state tax effected NOL’s of $3.1 million, which expire from 2010 to 2028. A net state valuation allowance of $1.4 million has been established for these deferred tax assets.

The IRS completed its examinations of the Company’s 2004 and 2005 U.S. income tax returns in 2007, which resulted in a reduction to the Company’s net operating loss carry-forward of $0.5 million. The Company is subject to audit for the 2006, 2007, 2008 and 2009 tax years in the majority of the states in which the Company operates. The Company is also subject to audits in various foreign jurisdictions for tax years ranging from 1997 to the present. Management believes that adequate provisions have been made for income taxes as of December 31, 2009.

Discontinued Operations

In certain foreign jurisdictions, the Company’s subsidiaries were subject to a deemed profits tax that was assessed based on revenue. In other foreign jurisdictions or situations, the Company’s subsidiaries were subject to income taxes based on taxable income. In certain of these situations, the Company’s estimated income tax payments during the year (which are withheld from client invoices at statutory rates) exceeded the tax due per the income tax returns when filed; however, no practical method of refund could be affected. As a result, related income tax assets were routinely assessed for realizability, and valuation allowances against these tax assets were recorded when it was more likely than not that such tax assets would not be realized.

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Prior to this year, the Company was in an overall foreign loss position for U.S. Federal income tax purposes, which precluded the Company from utilizing credits for taxes paid in foreign jurisdictions. However, as a result of generating sufficient foreign source income to offset the Company’s overall foreign loss, the Company has now concluded that it can utilize those tax credits, resulting in the reversal of deferred tax liabilities for a net impact of $5.9 million, related to unremitted foreign source earnings which are taxable for U.S. federal tax purposes, but can be offset if there are sufficient foreign tax credits that can be utilized.

As a result of the sale of Energy, the company realized certain tax gains and losses. The sale of certain US and foreign subsidiaries resulted in approximately $26.1 million of capital losses for which a deferred tax asset and related valuation allowance totaling $9.0 million is recorded as it is not more likely than not that such capital losses can be utilized within the five-year carryforward period. The sale of certain foreign entities resulted in U.S. taxable gains for which foreign tax credits became available. The Company recorded a deferred tax asset of $2.0 million related to these credits along with a $1.5 million valuation allowance. Also included in discontinued operations is foreign tax expense of approximately $2.0 million related to operations of Energy business through December 31, 2009.

9.   SHORT-TERM INVESTMENTS

The Company’s short-term investments are comprised of certificates of deposit with remaining maturities of greater than 90 days but less than one year at the time of purchase and are recorded at fair value. As of December 31, 2009 the Company held short-term investments of $2,500,000 and there were no holdings as of December 31, 2008. Interest income from the short-term investments was nominal for 2009.

10.   AVAILABLE-FOR-SALE SECURITIES

The Company’s available-for-sale securities are comprised of highly rated municipal bonds and are recorded at fair value. As of December 31, 2009 the Company held available-for-sale securities of $2,155,000 and there were no holdings as of December 31, 2008. Interest income from the available-for-sale securities was nominal for 2009 since the Company purchased these securities late in December 2009.

11.   FAIR VALUE MEASUREMENTS

The FASB’s guidance defines fair value as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. Under this guidance, valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, this guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

•  Level 1 — Quoted prices in active markets for identical assets or liabilities.

•  Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•  Level 3 — Unobservable inputs (i.e. projections, estimates, interpretations, etc.) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2009:

	Fair value measurements at December 31, 2009
				Quoted market			Significant
				prices in active			other			Significant
				markets for			observable			unobservabe
				identical assets			inputs			inputs
(in thousands)	Total			(Level 1)			(Level 2)			(Level 3)
Short-term investments	$	2,500		$	2,500		$	—		$	—
Available-for-sale securities		2,155			—			2,155			—
Total Investments	$	4,655		$	2,500		$	2,155		$	—
Percent to total		100	%		54	%		46	%		—

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12.   GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consist of the following (in thousands):

				Other
				intangible
	Goodwill			assets, net
Balance, January 1, 2008	$	17,092		$	275
Less:
Amortization		—			(113	)
Balance, December 31, 2008	$	17,092		$	162
Less:
Amortization		—			(86	)
Sale of Baker Energy		(7,466	)		—
Balance, December 31, 2009	$	9,626		$	76

The reduction in goodwill related to the sale of our Energy business represents the carrying value of the legacy goodwill amounts attributable to Baker Energy. The Company’s goodwill balance is not being amortized and goodwill impairment tests are being performed at least annually. Annually, the Company evaluates the carrying value of its goodwill during the second quarter. No goodwill impairment charges were required in connection with these evaluations for 2009, 2008 and 2007.

As of December 31, 2009, the Company’s other intangible assets balance represented the value of the contract backlog at the time of the Company’s 2006 acquisition of Buck Engineering, P.C. (“Buck”) (totaling $849,000 with accumulated amortization of $773,000 as of December 31, 2009). These identifiable intangible assets with finite lives are being amortized over their estimated useful lives. Substantially all of these intangible assets will be fully amortized over the next three years. Amortization expense recorded on the other intangible assets balance was $86,000, $113,000 and $208,000 for 2009, 2008 and 2007, respectively. The non-compete agreement (totaling $2.0 million, which was fully amortized as of the sale date) from the Company’s 1998 purchase of Steen Production Services, Inc., was written off as part of the sale of Baker Energy.

Estimated future amortization expense for other intangible assets as of December 31, 2009 is as follows (in thousands):

For the year ending December 31,
2010	$	40
2011		34
2012		2
Total	$	76

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13.   PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following (in thousands):

	As of December 31,
	2009			2008
Land	$	486		$	486
Buildings and improvements		4,992			5,892
Furniture, fixtures, and office equipment		12,738			12,146
Equipment and vehicles		221			2,818
Computer hardware		1,271			3,754
Computer software		19,015			19,265
Leasehold improvements		4,923			5,766
Equipment and vehicles under capital lease		1,283			1,460
Total, at cost		44,929			51,587
Less — Accumulated depreciation and amortization		(32,351	)		(34,916	)
Net property, plant and equipment	$	12,578		$	16,671

Depreciation expense for continuing operations was $5,179,000, $4,609,000 and $4,501,000 for the years ended December 31, 2009, 2008 and 2007, respectively. Depreciation expense for discontinued operations was $660,000, $656,000 and $503,000 for the years ended December 31, 2009, 2008 and 2007, respectively. The majority of the Company’s vehicles are leased and are accounted for as operating leases; however, certain of these vehicle leases are accounted for as capital leases. Assets under capital lease in the above table primarily represent vehicles and computer equipment leased by the Company. These assets are being amortized over the shorter of the lease term or the estimated useful life of the assets. Amortization expense for continuing operations related to capital leases was $327,000, $230,000 and $330,000 for the years 2009, 2008 and 2007, respectively. Amortization expense for discontinued operations related to capital leases was $10,000, $42,000 and $197,000 for the years 2009, 2008 and 2007, respectively. As of December 31, 2009 and 2008, the Company had recorded $933,000 and $739,000, respectively, in accumulated amortization for assets under capital lease.

14.   COMMITMENTS & CONTINGENCIES

Commitments

The Company had certain guarantees and indemnifications outstanding which could result in future payments to third parties. These guarantees generally result from the conduct of the Company’s business in the normal course. The Company’s outstanding guarantees as of December 31, 2009 were as follows:

	Maximum undiscounted
	future payments
Standby letters of credit*:
Insurance related	$	8.9
Other		0.5
Performance and payment bonds*	$	14.3

* These instruments require no associated liability on the Company’s Consolidated Balance Sheet.

The Company’s banks issue standby letters of credit (“LOCs”) on the Company’s behalf under the Unsecured Credit Agreement (the “Credit Agreement”) as discussed more fully in the “Long-term Debt and Borrowing Agreements” note. As of December 31, 2009, the majority of the balance of the Company’s outstanding LOCs was issued to insurance companies to serve as collateral for payments the insurers are required to make under certain of 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 its behalf. These LOCs renew automatically on an annual basis unless either the LOCs are returned to the bank by the beneficiaries or the banks elect not to renew them.

Bonds are provided on the Company’s behalf by certain insurance carriers. The beneficiaries under these performance and payment bonds may request payment from the Company’s insurance carriers in the event that

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the Company does not perform under the project or if subcontractors are not paid. The Company does not expect any amounts to be paid under its outstanding bonds as of December 31, 2009. In addition, the Company believes that its bonding lines will be sufficient to meet its bid and performance bonding needs for at least the next year.

Contingencies

Camp Bonneville Project.  In 2006, Michael Baker Jr., Inc. (“MB Jr.”), a subsidiary of the Company, entered into a contract whereby it agreed to perform certain services (the “Services”) in connection with a military base realignment and closure (“BRAC”) conservation conveyance of the Camp Bonneville property (the “Property”) located in Clark County, Washington. The Property was formerly owned by the United States Army (the “Army”). MB Jr’s. contract for the performance of the Services is with the Bonneville Conservation Restoration and Renewal Team (“BCRRT”), a not-for-profit corporation which holds title to the Property. BCRRT, in turn, has a contract with Clark County, Washington (the “County”) to perform services in connection with the Property and is signatory to a prospective purchaser consent decree (“PPCD”) with the Washington Department of Ecology (“WDOE”) regarding cleanup on the Property. The County is funding the services via an Environmental Cooperative Services Agreement (“ESCA”) grant from the Army and ultimately intends to use the Property as a park when cleanup is complete. As part of the Services, MB Jr., through a subcontractor, MKM Engineers (“MKM”), is performing remediation of hazardous waste and military munitions including Munitions and Explosives of Concern (“MEC”) on the Property.

Based upon the discovery of additional MEC to be remediated at the site, the WDOE has significantly increased the cleanup required to achieve site closure. WDOE put a Cleanup Action Plan (“CAP”) containing these increased requirements out for public comment on June 8, 2009 at which point BCRRT, with the assistance of MB Jr. and MKM, entered into dispute resolution with WDOE regarding the CAP. Dispute resolution continues, with one significant area of disagreement remaining. That area involves the cleanup requirements in the western slopes of the Property.

MB Jr’s. contract with BCRRT is fixed price, as is MB Jr’s. contract with MKM. These contracts provide for two avenues of financial relief from the fixed price. First, the Army has agreed to provide Army Contingent Funding (“ACF”) to cover cost overruns associated with military munitions remediation. ACF is available once the County and its contractors have expended 120% of the $10.7 million originally estimated for military munitions remediation costs. Once this threshold has been reached, the ACF would cover ninety percent (90%) of actual costs up to a total of $7.7 million.

On June 1, 2009, at the urging of BCRRT, MB Jr. and MKM (hereinafter the “BCRRT Team”), the County sent a letter to the Army requesting that it begin the process of releasing ACF to cover additional costs of munitions response, and on June 26, 2009 the Army responded by requesting documentation of the costs incurred to date. On September 1, 2009, the BCRRT Team submitted this additional documentation to the County, and the County promptly sent this information to the Army. On October 20, 2009 the Army responded to the County’s request for ACF denying payment. The BCRRT Team strenuously disagrees with the Army’s reasons for doing so. In December of 2009, the BCRRT Team met with the Army and the Army requested that the BCRRT Team provide more information regarding cost documentation already submitted and additional cost documentation in order to update the ACF claim through December of 2009. This information and cost documentation was provided in January of 2010.

On September 4, 2009, MKM suspended munitions response work on the site due to lack of funding. MB Jr. has been in discussions with MKM since the suspension but has not been successful in reaching an agreement with MKM regarding its resumption of work. On September 11, 2009 the County notified BCRRT, MB Jr. and MKM that the County believed BCRRT, MB Jr. and MKM were in breach of their obligations under their agreements, based on MKM’s anticipated failure to complete work in the central impact target area (“CITA”) portion of the Property by October 1, 2009 in accordance with an interim schedule set by WDOE. BCRRT requested and received an extension of the completion date for the CITA work to November 4, 2009, but the CITA work was not completed by that date. MB Jr’s. current position is that the CITA work completion date set by WDOE is not required by its contract. In late November of 2009, the BCRRT Team suspended work on the Bonneville site due to onset of winter weather. The work remains suspended. The BCRRT Team is in talks with the County and WDOE regarding the resumption of work.

In addition to the availability of ACF as a possible avenue of financial relief, the Army has retained responsibility for certain conditions (hereinafter “Army Retained Conditions” or “ARC”) which are unknown and not reasonably expected based on the information the Army provided to the County and its contractors during the negotiation of the ESCA. The BCRRT Team has finalized and submitted a claim to the Army based upon ARC’s in January of 2010.

MB Jr. has engaged outside counsel to assist in this matter. At this time, it is too early to determine the matter’s outcome, although to date all parties appear focused on resolving the aforementioned issues.

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Legal Proceedings.  The Company has been named as a defendant or co-defendant in certain other legal proceedings wherein damages are claimed. Such proceedings are not uncommon to the Company’s business. After consultations with counsel, management believes that it has recognized adequate provisions for probable and reasonably estimable liabilities associated with these proceedings, and that their ultimate resolutions will not have a material impact on its consolidated financial statements.

Credit Risk.  On November 10, 2008, Storm Cat Energy (“Storm Cat”), a client of Baker Energy, filed for Chapter 11 bankruptcy protection. Shortly before the bankruptcy filing, on October 29, 2008, in an effort to protect the Company’s interests, the Company amended its ongoing contract with Storm Cat to provide for (i) the payment to the Company of $1.3 million of outstanding Storm Cat receivables and prepayment for future services under the contract, (ii) the conversion of remaining receivables (plus additional charges that may accrue) equal to $7.6 million as of November 10, 2008 into an unsecured promissory note at 6% interest to mature on April 30, 2009, and (iii) the subordination of the Company’s liens to those of the principal lenders provided that the monthly payments under the contract remain current. As a result of the bankruptcy, the promissory note was never executed, although the Company received the $1.3 million payment and received prepayments for the work it performed through September 30, 2009.

At the time of the bankruptcy, Storm Cat had $65 million in prepetition secured bank debt outstanding. Following the bankruptcy, approximately $14 million in debtor in possession (“DIP”) financing was established to continue Storm Cat operations and pursue a liquidity event, including the potential sale of Storm Cat properties. The terms of the DIP financing provide that it shall have priority over the prepetition debt and share pro-rata with valid mechanics’ lien holders. The Company has perfected its valid mechanics’ liens totaling approximately $7.3 million, while the remaining $0.3 million of its outstanding receivables do not qualify for liens. Under applicable law and absent any subordination, valid mechanics’ liens may have priority over prepetition debt.

Storm Cat marketed their properties and bids were received in February 2009. Although different bids were received for different properties or groups of properties, none of the bids received were deemed acceptable by the prepetition lenders, and all the bids were rejected. Alternatives were considered, and in August 2009 a term sheet for the reorganization of Stormcat was circulated and was being considered by the parties.

Under this proposal, Baker Energy would receive Series C Preferred Units in the reorganized Storm Cat. The units would be junior in liquidation to Series A and Series B Preferred Units. In addition, the proposal requires that various non-Baker Energy claims must be repaid in full prior to any payment with regard to any of the Preferred Units. Assuming those payments are made, the payments must be made with respect to the Series A and Series B Units and to an employee profit sharing pool before Baker Energy could realize any proceeds. In total, there are about $75 million of distributions to be made before any payments would be made to Baker Energy. Distributions would have to exceed $135 million before Baker Energy’s claim would be paid in full. The Company had advised Storm Cat that it would not object to this proposed plan, provided that the Storm Cat bankruptcy estate would not seek to recover approximately $1.3 million in potential preference claims from Baker Energy.

The reorganization scenario appeared to be the most likely outcome for Storm Cat. Attempts to sell the company or liquidate its assets did not yield bids that were high enough to be acceptable to creditors. Market prices for natural gas had not recovered to a level that would lead to higher asset values, thereby also reducing the value of Baker Energy’s lien position. As a result, during the quarter ended September 30, 2009, the Company had determined that recovery of its remaining unreserved receivable of $6.0 million was no longer probable. As such, the Company wrote off an additional $6.0 million in the third quarter of 2009 in recognition that due to changed circumstances, the collection of its $7.6 million receivable was unlikely. ($1.6 million was previously reserved in the fourth quarter of 2008.) The additional write down of $6.0 million is reflected in the Company’s “Income from discontinued operations, net of tax,” for 2009. Since under the reorganization proposal the Company required that the Storm Cat bankruptcy estate would not seek to recover the potential preference payment, the Company did not established a reserve for that amount.

Effective September 30, 2009, the Company sold the stock of various companies comprising its Energy business. As part of the stock sale, the Storm Cat contract and rights to collect the Storm Cat receivable were transferred to the buyers. No value was assigned to the receivable. However, the buyers have agreed that in the event that they recover any value for the receivable, 50 percent of that value will be transferred to the Company.

Services Agreement.  Effective September 30, 2009, as part of the sale to the buyers of Baker Energy, the Company sold the stock of Baker/MO Services, Inc. (“Baker/MO”) which was party to a Restated and Amended Operations, Maintenance and Services Agreement dated effective January 1, 2005 (the “Services Agreement”). Baker/MO was party to the Services Agreement with J.M. Huber Corporation (“Huber”) pursuant to which Baker/MO agreed to provide

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certain operation, maintenance, exploration, development, production and administrative services with respect to certain oil and gas properties owned by Huber in the State of Wyoming. In October 2006, the Wyoming Department of Audit initiated a sales and use tax audit against Huber for the time period 2003 through 2005. In February 2008, the Department of Audit issued revised preliminary audit findings against Huber in the amount of $4.3 million in tax, interest and penalties in relation to services provided under the Service Agreement. In November 2008, following a meeting between Huber, the Company and Wyoming tax officials, the Department of Audit reduced the assessment to $3.1 million. Huber notified the Company of a claim for indemnification under the Services Agreement, and the Company and Huber entered into an agreement regarding their respective responsibilities for the assessment. Another meeting with the Wyoming tax officials was held on May 1, 2009, during which the Company and Wyoming tax officials agreed to a settlement which reduced the total assessment to $0.2 million. Huber agreed to bear responsibility for that reduced assessment amount during the second quarter. Based on this settlement and Huber’s agreement to bear responsibility for that revised assessment, the Company was able to reduce its reserves for this matter by $2.1 million in the first quarter of 2009 and by an additional $0.4 million in the second quarter of 2009. These reductions are included in the Company’s “Income from discontinued operations, net of tax,” for 2009.

Self-Insurance.  Insurance coverage is obtained for catastrophic exposures, as well as those risks required to be insured by law or contract. The Company requires its insurers to meet certain minimum financial ratings at the time the coverages are placed; however, insurance recoveries remain subject to the risk that the insurer will be financially able to pay the claims as they arise. The Company is insured with respect to its workers’ compensation and general liability exposures subject to certain deductibles or self-insured retentions. Loss provisions for these exposures are recorded based upon the Company’s estimates of the total liability for claims incurred. Such estimates utilize certain actuarial assumptions followed in the insurance industry.

The Company is self-insured for its primary layer of professional liability insurance through a wholly-owned captive insurance subsidiary. The secondary layer of the professional liability insurance continues to be provided, consistent with industry practice, under a “claims-made” insurance policy placed with an independent insurance company. Under claims-made policies, coverage must be in effect when a claim is made. This insurance is subject to standard exclusions.

The Company establishes reserves for both insurance-related claims that are known and have been asserted against the Company, as well as for insurance-related claims that are believed to have been incurred but have not yet been reported to the Company’s claims administrators as of the respective balance sheet dates. The Company includes any adjustments to such insurance reserves in its consolidated results of operations.

The Company is self-insured with respect to its primary medical benefits program subject to individual retention limits. As part of the medical benefits program, the Company contracts with national service providers to provide benefits to its employees for medical and prescription drug services. The Company reimburses these service providers as claims related to the Company’s employees are paid by the service providers.

Reliance Liquidation.  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. In 2001, the Pennsylvania Insurance Commissioner placed Reliance into liquidation. Due to the subsequent liquidation of Reliance, the Company is currently uncertain what amounts paid by the Company to settle certain claims totaling in excess of $2.5 million will be recoverable under the insurance policy with Reliance. The Company is pursuing a claim in the Reliance liquidation and believes that some recovery will result from the liquidation, but the amount of such recovery cannot currently be estimated. The Company was notified in December 2009 that it would be receiving a $140,000 distribution from Reliance, which was subsequently received in January 2010. This amount was recognized in 2009 and was recorded as a receivable as of December 31, 2009. This distribution was not the final settlement and the Company may recover additional amounts in future periods. The Company had no other related receivables recorded from Reliance as of December 31, 2009 and December 31, 2008.

15.   LEASE COMMITMENTS

The Company’s non-cancelable leases relate to office space, computer hardware and software, office equipment and vehicles with lease terms ranging from 1 to 10 years. Rent expense under non-cancelable operating leases for continuing operations was $15,701,000, $15,815,000 and $17,319,000 for the years ended December 31, 2009, 2008 and 2007, respectively. Rent expense under non-cancelable operating leases for discontinued operations was $1,716,000, $2,660,000 and $2,486,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

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Future annual minimum lease payments under non-cancelable capital and operating leases as of December 31, 2009 were as follows (in thousands):

	Capital lease		Operating lease
For the year ending December 31,	obligations		obligations		Total
2010	$	188	$	14,903	$	15,091
2011		161		11,569		11,730
2012		—		10,081		10,081
2013		—		7,375		7,375
2014		—		6,659		6,659
Thereafter		—		18,336		18,336
Total	$	349	$	68,923	$	69,272

16.   LONG-TERM DEBT AND BORROWING AGREEMENTS

The Company’s Credit Agreement is with a consortium of financial institutions and provides for a commitment of $60 million through October 1, 2011. The commitment includes the sum of the principal amount of revolving credit loans outstanding (for which there is no sub-limit) and the aggregate face value of outstanding LOCs (which have a sub-limit of $20.0 million). As of December 31, 2009 and 2008, there were no borrowings outstanding under the Credit Agreement and outstanding LOCs were $9.4 million and $9.0 million, respectively.

Under the Credit Agreement, the Company pays bank commitment fees on the unused portion of the commitment, ranging from 0.2% to 0.375% per year based on the Company’s leverage ratio. There were no borrowings during 2009 and nominal borrowings during 2008.

The Credit Agreement provides pricing options for the Company to borrow at the bank’s prime interest rate or at LIBOR plus an applicable margin determined by the Company’s leverage ratio (based on a measure of indebtedness to earnings before interest, taxes, depreciation, and amortization (“EBITDA”)). The Credit Agreement also requires the Company to meet minimum equity, leverage, interest and rent coverage, and current ratio covenants. In addition, the Company’s Credit Agreement with its banks places certain limitations on dividend payments. If any of these financial covenants or certain other conditions of borrowing are not achieved, under certain circumstances, after a cure period, the banks may demand the repayment of all borrowings outstanding and/or require deposits to cover the outstanding letters of credit.

17.   EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (in thousands, except per share data):

	For the year ended December 31,
(in thousands)	2009		2008		2007
Net income from continuing operations attributable to
Michael Baker Corporation	$	24,572	$	22,558	$	17,330
Net income from discontinued operations attributable to
Michael Baker Corporation		2,349		6,596		2,010
Net income attributable to Michael Baker Corporation	$	26,921	$	29,154	$	19,340

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	For the year ended December 31,
(in thousands, except per share data)	2009		2008		2007
Basic:
Weighted average shares outstanding		8,855		8,811		8,742
Earnings per share:
Continuing operations	$	2.77	$	2.56	$	1.98
Discontinued operations		0.27		0.75		0.23
Total	$	3.04	$	3.31	$	2.21
Diluted:
Effect of dilutive securities -
Stock options and restricted shares		78		80		132
Weighted average shares outstanding		8,933		8,891		8,874
Earnings per share:
Continuing operations	$	2.75	$	2.54	$	1.95
Discontinued operations		0.26		0.74		0.23
Total	$	3.01	$	3.28	$	2.18

As of December 31, 2009 and 2008, there were 32,000 and 16,000, respectively, of the Company’s stock options that were excluded from the computations of diluted shares outstanding because the option exercise prices were more than the average market price of the Company’s common shares. As of December 31, 2007, all of the Company’s stock options were included in the computations of diluted shares outstanding because the option exercise prices were less than the average market price of the Company’s common shares.

18.   CAPITAL STOCK

In 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 2003, the Board of Directors authorized an additional repurchase of up to 500,000 shares for a total authorization of 1,000,000 shares. As of December 31, 2009, 520,319 treasury shares had been repurchased under the Board’s authorizations. The Company made no treasury share repurchases during 2009 or 2008.

As of December 31, 2009 and 2008, the difference between the number of treasury shares repurchased under these authorizations and the number of treasury shares listed on the consolidated balance sheets relates to an exchange of Series B Common Stock for 23,452 Common shares which occurred in 2002. The remaining difference relates to 1,330 shares issued to employees as bonus share awards in the late 1990s.

Under the Credit Agreement, the Company’s treasury share repurchases cannot exceed $5.0 million during the term of the Credit Agreement.

The Articles of Incorporation authorize the issuance of 6,000,000 shares of Series B Common Stock, par value $1 per share, which would entitle the holders thereof to ten votes per share on all matters submitted for shareholder votes. As of December 31, 2009 and 2008, there were no shares of such Series B Stock outstanding. The Company has no plans of issuing any Series B Common Stock in the near future. The Articles of Incorporation also authorize the issuance of 300,000 shares of Cumulative Preferred Stock, par value $1 per share. As of December 31, 2009 and 2008, there were no shares of such Preferred Stock outstanding.

19.   RIGHTS AGREEMENT

In 1999, the Board of Directors adopted a Rights Agreement (the “Rights Agreement”). In connection with the Rights Agreement, the Company declared a distribution of one Right (a “Right”) for each outstanding share of Common Stock to shareholders of record at the close of business on November 30, 1999. The Rights will become exercisable after a person or group, excluding the Company’s Baker 401(k) Plan, (“401(k) Plan”) has acquired 25% or more of the Company’s outstanding Common Stock or has announced a tender offer that would result in the acquisition of 25% or more of the Company’s outstanding Common Stock. The Board of Directors has the option to redeem the Rights for $0.001 per Right prior to their becoming exercisable. On November 5, 2009, the Company extended the term of the Rights Agreement by three years. The Rights will now expire on November 16, 2012, unless they are earlier exchanged or redeemed.

Assuming the Rights have not been redeemed, after a person or group has acquired 25% or more of the Company’s outstanding Common Stock, each Right (other than those owned by a holder of 25% or more of the Common Stock)

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will entitle its holder to purchase, at the Right’s then current exercise price, a number of shares of the Company’s Common Stock having a value equal to two times the exercise price of the Rights. In addition, at any time after the Rights become exercisable and prior to the acquisition by the acquiring party of 50% or more of the outstanding Common Stock, the Board of Directors may exchange the Rights (other than those owned by the acquiring person or its affiliates) for the Company’s Common Stock at an exchange ratio of one share of Common Stock per Right.

20.   BAKER 401(k) PLAN

The Company maintains a defined contribution retirement program through its 401(k) Plan, in which substantially all employees are eligible to participate. The 401(k) Plan offers participants several investment options, including a variety of mutual funds and Company stock. Contributions to the 401(k) Plan are derived from a 401(k) Salary Redirection Program with a Company matching contribution, and a discretionary contribution as determined by the Board of Directors. Under the 401(k) Salary Redirection Program, the Company matches up to 100% of the first 3% and 50% of the next 3% of eligible salary contributed, thereby providing the opportunity for a Company match of as much as 4.5% of eligible salary contributed. The Company’s matching contributions are invested not less than 25% in its Common Stock (purchased through open market transactions), with the remaining 75% being available to invest in mutual funds or its Common Stock, as directed by the participants. The Company’s required cash contributions under this program amounted to $6,065,000, $5,424,000 and $4,781,000 in 2009, 2008 and 2007, respectively, for continuing operations. The Company’s required cash contributions under this program amounted to $1,010,000, $1,283,000 and $896,000 in 2009, 2008 and 2007, respectively, for discontinued operations. In 2007, an additional discretionary employer contribution of $352,000 for continuing operations and $198,000 for discontinued operations was approved by the Board of Directors and accrued as of December 31, 2007. No discretionary employer contributions were approved by the Board of Directors in either 2009 or 2008.

As of December 31, 2009, the market value of all 401(k) Plan investments was $254.1 million, of which 16% represented the market value of the 401(k) Plan’s investment in the Company’s Common Stock. The Company’s 401(k) Plan held 11% of both the shares and voting power of its outstanding Common Stock as of December 31, 2009. Each participant who has shares of Common Stock allocated to their account will have the authority to direct the Trustee with respect to the vote and all non-directed shares will be voted in the same proportion as the directed shares.

21.   DEFERRED COMPENSATION PLAN

The Company has a nonqualified deferred compensation plan that provides benefits payable to non-employee directors at specified future dates, upon retirement, or death. Under the plan, participants may elect to defer their compensation received for their services as directors. This deferred compensation plan is unfunded; therefore, benefits are paid from the general assets of the Company. Participant cash deferrals earn a return based on the Company’s long-term borrowing rate as of the beginning of the plan year. The total of participant deferrals, which is primarily reflected as “Other long-term liabilities” in the Company’s consolidated balance sheets, was approximately $960,000 and $924,000 as of December 31, 2009 and 2008, respectively.

22.   STOCK BASED COMPENSATION

As of December 31, 2009, the Company had two fixed stock option plans under which stock options can be exercised. Under the 1995 Stock Incentive Plan (the “Plan”), the Company was authorized to grant options for an aggregate of 1,500,000 shares of Common Stock to key employees through its expiration on December 14, 2004. Under the amended 1996 Non-employee Directors’ Stock Incentive Plan (the “Directors’ Plan”), the Company is authorized to grant options and restricted shares for an aggregate of 400,000 shares of Common Stock to non-employee board members through February 18, 2014. Under both plans, the exercise price of each option equals the average market price of the Company’s stock on the date of grant. Unless otherwise established, one-fourth of the options granted to key employees became immediately vested and the remaining three-fourths vested in equal annual increments over three years under the now expired Plan, while the options under the Directors’ Plan become fully vested on the date of grant and become exercisable six months after the date of grant. Vested options remain exercisable for a period of ten years from the grant date under both plans.

During the second quarter of 2009, the Company issued 12,000 restricted shares and granted 16,000 options to the non-employee directors. As of December 31, 2008, all outstanding options were fully vested under both plans. There were 104,463, 112,463 and 145,520 exercisable options under both plans as of December 31, 2009, 2008 and 2007, respectively.

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The following table summarizes all stock option activity for both plans in 2009, 2008 and 2007:

								Weighted
				Weighted				average
	Shares			average		Aggregate		contractual life
	subject			exercise price		intrinsic		remaining
	to option			per share		value		in years
Balance at January 1, 2007		235,093		$	13.43
Options granted		14,000			26.86
Options exercised		(101,573	)		13.60
Options forfeited or expired		(2,000	)		6.84
Balance at December 31, 2007		145,520		$	14.70	$	3,841,521		4.8
Options granted		16,000			37.53
Options exercised		(33,057	)		11.06
Balance at December 31, 2008		128,463		$	18.48	$	2,377,316		5.4
Options granted		16,000			40.46
Options exercised		(40,000	)		15.81
Balance at December 31, 2009		104,463		$	22.87	$	1,935,885		5.3

The weighted average fair value of options granted during 2009, 2008 and 2007 was $22.46, $17.91 and $13.13, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2009, 2008 and 2007 was $880,000, $460,000 and $2,153,000, respectively. As of December 31, 2009, no shares of the Company’s Common Stock remained available for future grant under the expired Plan, while 131,000 shares were available for future grant under the Directors’ Plan.

The following table summarizes information about stock options outstanding under both plans as of December 31, 2009:

	Options outstanding						Options exercisable
					Weightd				Weightd
	Number				average		Number		average
	of		Average		exercise		of		exercise
Range of exercise prices	options		life(1)		price		options		price
$6.25 — $8.55		15,429		1.9	$	8.39		15,429	$	8.39
$10.025 — $15.625		33,034		2.5		14.33		33,034		14.33
$20.16 — $26.86		24,000		6.5		22.43		24,000		22.43
$37.525 — $40.455		32,000		9.1		38.99		32,000		38.99
Total		104,463		5.3	$	22.87		104,463	$	22.87

⁽¹⁾ Average life remaining in years.

The fair value of options on the respective grant dates was estimated using a Black-Scholes option pricing model, based on the following assumptions:

	As of December 31,
	2009			2008			2007
Weighted average risk-free interest rate		3.4	%		1.9	%		3.7	%
Weighted average expected volatility		48.7	%		43.4	%		34.1	%
Expected option life		7.4 years			7.9 years			8.0 years
Expected dividend yield		0.00	%		0.00	%		0.00	%

The average risk-free interest rate is based on the U.S. Treasury yield with a term to maturity that approximates the option’s expected life as of the grant date. Expected volatility is determined using historical volatilities of the underlying market value of the Company’s stock obtained from public data sources. The expected life of the stock options is determined using historical data adjusted for the estimated exercise dates of the unexercised options.

During the second quarter of 2008, the Company issued 40,000 Stock Appreciation Rights (“SARs”), which vest at varying intervals over a three-year period, in connection with the Company’s Chief Executive Officer’s employment agreement. Future payments for the SARs will be made in cash, subject to the Company’s discretion to make such payments in shares of the Company’s common stock under the terms of a shareholder-approved employee equity

40

incentive plan. The Company did not have an active shareholder-approved employee equity plan as of December 31, 2009. The Company has recorded a liability for these SARs of $454,000 and $162,000 as of December 31, 2009 and 2008, respectively, within the “Other long-term liabilities” caption in its Consolidated Balance Sheet. The fair value of the SARs was estimated using a Black-Scholes option pricing model and will require revaluation on a quarterly basis. Based on the fair value of these SARs as of December 31, 2009, the Company anticipates recording additional expense ratably through the second quarter of 2011 of approximately $406,000.

The Company recognized total stock based compensation expense related to its restricted stock, options and SARs of $1,063,000, $772,000 and $436,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

23.   RELATED PARTY TRANSACTIONS

Effective April 25, 2001, the Company entered into a consulting agreement with Richard L. Shaw when he retired from his position as Chief Executive Officer. Through subsequent amendments, this agreement has been extended through April 26, 2011. The consulting agreement provides an annual compensation amount for consulting services in addition to the Company covering the costs of health insurance and maintaining life insurance for the executive. The consulting agreement also provides for a supplemental retirement benefit of $5,000 per month as well as the continuation of the life and health insurance benefits commencing at the expiration of the consulting term.

Effective September 14, 2006, Mr. Shaw’s compensation for the consulting services under the agreement was temporarily suspended due to his re-employment by the Company as its Chief Executive Officer. Effective March 1, 2008, compensation under the consulting agreement resumed upon Mr. Shaw’s retirement from the Company. Mr. Shaw’s total consulting fees were $106,000 and $89,000 for the years ended December 31, 2009 and 2008, respectively.

24.   SUPPLEMENTAL DISCLOSURES OF CASH FLOW DATA

The following table is provided as a supplement to the Company’s indirect-method statement of cash flows and reflects cash paid for interest and income taxes:

	For the year ended December 31,
	2009		2008		2007
Interest paid	$	14	$	199	$	349
Income taxes paid	$	18,925	$	21,098	$	14,490

Assets acquired on credit or through capital lease obligations were nominal for the years ended December 31, 2009, 2008 and 2007.

25.   QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations for the two years ended December 31, 2009 and gives effect to the disposition of our Energy business, which is presented as discontinued operations (in thousands, except per share information):

	2009 — Three months ended
	Mar. 31		June 30		Sept. 30		Dec. 31
Revenues	$	115,084	$	113,323	$	110,153	$	106,617
Gross profit		22,683		22,683		22,239		20,375
Income before noncontrolling interest and income taxes		10,289		8,921		10,919		7,833
Net income/(loss) attributable to Michael Baker Corporation
Continuing operations		6,276		5,481		6,956		5,859
Discontinued operations		1,563		1,569		322		(1,105	)
Total		7,839		7,050		7,278		4,754
Diluted earnings/(loss) per common share
Continuing operations		0.70		0.62		0.78		0.65
Discontinued operations		0.18		0.17		0.03		(0.12	)
Total	$	0.88	$	0.79	$	0.81	$	0.53

41

	2008 — Three months ended
	Mar. 31		June 30		Sept. 30		Dec. 31(1)
Revenues	$	108,644	$	113,519	$	119,155	$	114,611
Gross profit		20,843		23,827		23,788		16,074
Income before noncontrolling interest and income taxes		9,260		13,222		11,317		3,181
Net income attributable to Michael Baker Corporation
Continuing operations		5,649		8,157		6,811		1,941
Discontinued operations		466		101		4,982		1,047
Total		6,115		8,258		11,793		2,988
Diluted earnings per common share
Continuing operations		0.64		0.91		0.78		0.21
Discontinued operations		0.05		0.01		0.55		0.13
Total	$	0.69	$	0.92	$	1.33	$	0.34

⁽¹⁾ During the fourth quarter, the Company’s Board of Directors approved a discretionary increase in incentive compensation related to the Company’s 2008 operating performance, which resulted in the recognition of $4.0 million of additional incentive compensation expense. The Company’s discontinued operations were unfavorably impacted in the fourth quarter of 2008 by a $1.6 million bad debt reserve related to a portion of a bankrupt client’s receivables and a $2.5 million reserve for a contract-related claim.

42

MANAGEMENT’S REPORT TO SHAREHOLDERS ON
ITS RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management of Michael Baker Corporation is responsible for preparing the accompanying consolidated financial statements and for ensuring their integrity and objectivity. These financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and fairly represent the transactions and financial position of the Company. The financial statements include amounts that are based on management’s best estimates and judgments.

The Company’s 2009, 2008 and 2007 financial statements have been audited by Deloitte & Touche LLP, independent registered public accounting firm, as selected by the Audit Committee. Management has made available to Deloitte & Touche LLP all the Company’s financial records and related data, as well as the minutes of shareholders’ and directors’ meetings.

The Audit Committee is composed of directors who are not officers or employees of the Company. It meets regularly with members of management, the internal auditors and the independent registered public accounting firm to discuss the adequacy of the Company’s internal control over financial reporting, its financial statements, and the nature, extent and results of the audit effort. Both the Company’s internal auditors and its independent registered public accounting firm have free and direct access to the Audit Committee without the presence of management.

/s/ Bradley L. Mallory

Bradley L. Mallory

President and Chief Executive Officer

/s/ Michael J. Zugay

Michael J. Zugay

Executive Vice President
and Chief Financial Officer

/s/ James M. Kempton

James M. Kempton

Vice President and Corporate Controller

43

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Michael Baker Corporation:

We have audited the accompanying consolidated balance sheets of Michael Baker Corporation and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders’ investment, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Michael Baker Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for noncontrolling interests in 2007 and 2008.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Pittsburgh, Pennsylvania

March 15, 2010

44

SUPPLEMENTAL FINANCIAL INFORMATION

Market Information — Common Shares

The principal market on which the Company’s Common Stock is traded is the NYSE Amex under the ticker symbol “BKR.” High and low closing prices of the Company’s Common Stock for each quarter for the years ended December 31, 2009 and 2008 were as follows:

	2009								2008
	Fourth		Third		Second		First		Fourth		Third		Second		First
High	$	41.40	$	42.96	$	43.69	$	42.60	$	37.90	$	38.34	$	22.79	$	41.00
Low		34.95		33.48		25.44		24.70		18.29		22.95		19.61		22.05

45

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

The following entities, unless otherwise indicated, are wholly-owned direct or indirect subsidiaries of the Registrant as of December 31, 2009:

		State or Country
	Name	of Organization
1.	Baker Global Project Services, Inc.	Delaware
2.	Baker Holding Corporation	Delaware
3.	Baker/OTS, Inc.	Delaware
4.	Michael Baker International, Inc.	Delaware
5.	Michael Baker Architects/Engineers, P.C.	New Jersey
6.	Michael Baker Engineering, Inc.	New York
7.	Baker Vessels, Inc.	Pennsylvania
8.	Michael Baker Jr., Inc.	Pennsylvania
9.	Vermont General Insurance Company	Vermont
10.	Baker Engineering International, Ltd.	Cayman Islands
11.	Overseas Technical Services (Middle East) Ltd.	Cayman Islands
12.	Michael Baker de Mexico S.A. de C.V.	Mexico

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-05987, 333-59941, 033-62887, 333-69306, 333-123232 on Forms S-8 of our reports dated March 15, 2010, relating to the financial statements (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the change in accounting for noncontrolling interests in 2007 and 2008) and financial statement schedule of Michael Baker Corporation (the “Company”), and the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2009.

/s/ Deloitte & Touche LLP  

Pittsburgh, Pennsylvania 

March 15, 2010 

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements of Michael Baker Corporation on Form S-8 (Nos. 333-05987, 333-59941, 033-62887, 333-69306, 333-123232), of our report dated February 12, 2010, related to the financial statements of Stanley Baker Hill, LLC as of December 31, 2009 and for the year then ended, appearing in this Annual Report of Michael Baker Corporation on Form 10-K for the year ended December 31, 2009.

/s/ Schneider Downs & Co., Inc.
Pittsburgh, Pennsylvania

March 12, 2010

EX-31.1

EXHIBIT 31.1

I, Bradley L. Mallory, certify that:

1. I have reviewed this report on Form 10-K of Michael Baker Corporation;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Bradley L. Mallory

Bradley L. Mallory

President, Chief Executive Officer and Director

Date: March 15, 2010

46

EX-31.2

EXHIBIT 31.2

I, Michael J. Zugay, certify that:

1. I have reviewed this report on Form 10-K of Michael Baker Corporation;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael J. Zugay

Michael J. Zugay

Executive Vice President and Chief Financial Officer

Date: March 15, 2010

47

EX-32.1

EXHIBIT 32.1

ADDITIONAL CERTIFICATIONS

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Michael Baker Corporation (the “Company”), hereby certifies that the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (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/ Bradley L. Mallory	Date: March 15, 2010
Bradley L. Mallory President, Chief Executive Officer and Director

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Michael Baker Corporation (the “Company”), hereby certifies that the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (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/ Michael J. Zugay	Date: March 15, 2010
Michael J. Zugay
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.

48

EX-99.1

EXHIBIT 99.1

STANLEY BAKER HILL, LLC
Beaver, Pennsylvania

Financial Statements
For the year ended December 31, 2009

and Report of Independent Registered Public
Accounting Firm Thereon

CONTENTS

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		1
FINANCIAL STATEMENTS
Balance Sheet, December 31, 2009		2
Statements for the years ended December 31, 2009:
Operations and Changes in Members’ Equity		3
Cash Flows		4
Notes to Financial Statements		5

STANLEY BAKER HILL, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2009

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Stanley Baker Hill, LLC

Beaver, Pennsylvania

We have audited the accompanying balance sheet of Stanley Baker Hill, LLC (Company) as of December 31, 2009, and the related statements of operations and changes in members’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stanley Baker Hill, LLC as of December 31, 2009, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Schneider Downs & Co., Inc.

Pittsburgh, Pennsylvania

February 12, 2010

1

STANLEY BAKER HILL, LLC

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009
STANLEY BAKER HILL, LLC

BALANCE SHEET
DECEMBER 31, 2009

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,769,000
Receivables		14,599,865
Costs and estimated earnings in excess of billings on uncompleted contracts		173,480
Prepaid expenses		834,036
Total Current Assets		17,376,381
EQUIPMENT AND SOFTWARE, net		20,298
TOTAL ASSETS	$	17,396,679
LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	12,418,981
Other current liabilities		175,045
Total Current Liabilities		12,594,026
MEMBERS’ EQUITY
MEMBERS’ EQUITY		4,802,653
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	17,396,679

See notes to financial statements.

2

STANLEY BAKER HILL, LLC

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009
STANLEY BAKER HILL, LLC

STATEMENT OF OPERATIONS AND CHANGES IN MEMBERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2009

CONTRACT REVENUE EARNED	$	154,140,155
COST OF REVENUE EARNED
Direct costs		79,373,556
Indirect costs		53,003,192
Gross Profit		21,763,407
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		638,845
Income From Operations		21,124,562
INTEREST INCOME		36,757
Net Income		21,161,319
MEMBERS’ EQUITY
Beginning of year		5,541,334
Distributions		(21,900,000	)
End of year	$	4,802,653

See notes to financial statements.

3

STANLEY BAKER HILL, LLC

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009
STANLEY BAKER HILL, LLC

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2009

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	21,161,319
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,335
Changes in assets and liabilities:
Receivables		8,027,568
Costs and estimated earnings in excess of billings on uncompleted contracts		(638,932	)
Prepaid expenses		(354,191	)
Accounts payable		(9,014,549	)
Other current liabilities		114,575
Net Cash Provided By Operating Activities		19,306,125
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and software		(23,132	)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions		(21,900,000	)
Net Decrease In Cash And Cash Equivalents		(2,617,007	)
CASH AND CASH EQUIVALENTS
Beginning of year		4,386,007
End of year	$	1,769,000

See notes to financial statements.

4

STANLEY BAKER HILL, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE 1 — ORGANIZATION

Stanley Baker Hill, LLC (Company) is a joint venture formed in February 2004 between Stanley Consultants, Inc. (Stanley), Michael Baker, Jr., Inc. (Baker) and Hill International, Inc. (Hill). The Company provides various architect-engineer services in Iraq for the U.S. Army Corps of Engineers Transatlantic Program Center (U.S. Corps). The Company has a contract for an indefinite delivery and indefinite quantity for construction management and general architect-engineer services for facilities in Iraq with U.S. Corps. Anticipated completion of open contracts is likely to occur in September 2010, barring any additional new contracts or modification to existing contracts obtained in 2010.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies consistently applied by management in the preparation of the accompanying financial statements follows:

The Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (Codification). The Codification became the single source of authoritative nongovernmental United States generally accepted accounting principles (GAAP), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and related literature. The Codification eliminates the previous GAAP hierarchy and establishes one level of authoritative GAAP. All other literature is considered nonauthoritative. The Codification was effective for fiscal years ending after September 15, 2009.

Use of Estimates — The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Operating Cycle — The Company’s work is performed under cost-plus-fee contracts and fixed-price contracts. The length of the Company’s contracts varies, but is typically less than a year. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets, since they will be satisfied in the normal course of contract completion, although that might require more than one year at times.

Cash and Cash Equivalents — The Company maintains, at various financial institutions, cash and certificates of deposit that might exceed federally insured amounts at times. For purposes of the statements of cash flows, the Company considers all interest-bearing money market funds and noninterest-bearing accounts to be cash and cash equivalents.

Revenue Recognition and Contract Accounting — The Company typically incurs direct labor costs, subcontractor costs and certain other indirect costs (ODCs) in connection with architect-engineer services. Contracts are structured such that margin is earned on labor costs and not on ODCs. The Company includes revenues related to its direct labor, subcontractors and ODCs in its total contract revenues as long as the Company remains responsible to the client for the acceptability of the services provided.

The Company recognizes revenues under the percentage-of-completion method of accounting. Revenues on fixed-price contracts with a predetermined scope of work are determined by multiplying the estimated margin at completion for each contract by the project’s percentage of completion to date, adding labor costs, subcontractor costs and ODCs incurred to date, and subtracting revenues recognized in prior periods. In applying the percentage-of-completion method to these contracts, the Company measures the extent of progress toward completion as the ratio of labor costs incurred to date over total estimated labor costs at completion. As work is performed under contracts, estimates of the costs to complete are regularly reviewed and updated. As changes in estimates of total costs at completion on projects are identified, appropriate earnings adjustments are recorded during the period that the change is identified.

For contracts with predetermined time period of service, revenue is recognized on a ratio of time elapsed as compared to the total length of the contract.

5

The majority of new task orders in 2009 were fixed-price contracts, and the remaining new task orders were time-and-materials arrangements. For time-and-materials task orders, revenue is recognized and billed by multiplying the number of hours expended by our professionals in the performance of the contract by the established billing rates.

Provisions for estimated losses on uncompleted contracts are recorded during the period in which such losses are determined. Revenues related to contractual claims that arise from customer-caused delays or change orders unapproved as to both scope and price are recorded only when the amounts have been agreed with the client. Profit incentives and/or award fees are recorded as revenues when the amounts are both probable and reasonably estimable.

The current asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenue recognized in excess of amounts billed. The current liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents amounts billed in excess of revenue recognized.

Equipment and Leasehold Improvements — Equipment and leasehold improvements are stated at the lower of cost or fair value. Depreciation and amortization are provided on the straight-line method over the estimated useful lives of the assets. Repairs and maintenance that do not extend the lives of the applicable assets are charged to expense as incurred. Gain or loss resulting from the retirement or other disposition of assets is included in income.

Income Taxes — The Company is organized as an LLC and is not subject to federal or state income taxes. Accordingly, no provision has been made for current or deferred income taxes in these financial statements. The taxable income of the Company is included in the tax returns of the individual members.

Effective January 1, 2009, the Company adopted the Codification Topic for Income Taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This topic also provides guidance on de-recognition, classification, interest and penalties, disclosure and transition. The adoption of this topic did not have a material impact on the Company’s consolidated financial statements. As of December 31, 2009, no liability for unrecognized tax positions was required to be recorded.

Subsequent Events — Subsequent events are defined as events or transactions that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. Management has evaluated subsequent events through February 12, 2010, the date on which the financial statements were available to be issued.

NOTE 3 — RECEIVABLES

Receivables at December 31, 2009 consist of the following:

Contract receivables:
Contracts in progress	$	14,582,865
Other		17,000
	$	14,599,865

NOTE 4 — COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Costs incurred to date, estimated earnings and the related progress billings to date on contracts in progress at December 31, 2009 are as follows:

Costs incurred on uncompleted contracts	$	87,768,654
Estimated earnings		15,938,361
Revenue recognized		103,707,015
Less — Billings to date		103,533,535
Costs and estimated earnings in excess of billings on uncompleted contracts	$	173,480

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This amount is reflected in the accompanying balance sheet under the caption “Costs and estimated earnings in excess of billings on uncompleted contracts.”

NOTE 5 — EQUIPMENT AND SOFTWARE

Equipment and software at December 31, 2009 consist of the following:

Computer hardware	$	67,203
Furniture and fixtures		2,153
		69,356
Less — Accumulated depreciation		49,058
	$	20,298

NOTE 6 — RELATED PARTY TRANSACTIONS

The Company engages in significant related-party transactions as a result of the three partners providing a majority of the costs of contract services. In accordance with the Operating Agreement of the Company, the members also charge the Company for time incurred for management and administrative services at agreed-upon rates. A summary of the related party transactions included in the financial statements at December 31, 2009 is as follows:

			Costs of
	Accounts		Services
	Payable		Incurred
Stanley	$	3,437,835	$	33,904,272
Baker		3,963,195		33,946,307
Hill		3,534,291		34,539,795
	$	10,935,321	$	102,390,374

NOTE 7 — COMMITMENTS AND CONTINGENCIES

The Company is a defendant in one legal proceeding encountered in the normal course of its business. Additionally, the Company has received a letter threatening lawsuit over a separate matter. In the opinion of management, based upon discussion with counsel, the ultimate outcome of these matters will not have a material adverse effect on the financial position, results of operations or cash flow of the Company.

NOTE 8 — FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist primarily of cash, receivables, accounts payable and other current liabilities. The carrying amount of these assets and liabilities approximate fair value due to the short-term nature of such instruments.

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EX-99.2

EXHIBIT 99.2

STANLEY BAKER HILL, LLC

Beaver, Pennsylvania

Financial Statements

For the years ended December 31, 2008 and 2007

CONTENTS

	Page
FINANCIAL STATEMENTS
Balance Sheets, December 31, 2008 and 2007		1
Statements for the years ended December 31, 2008 and 2007:
Operations and Changes in Members’ Equity		2
Cash Flows		3
Notes to Financial Statements		4

STANLEY BAKER HILL, LLC

BALANCE SHEETS

	December 31,
	2008		2007
ASSETS
Current Assets
Cash and cash equivalents	$	4,386,007	$	3,434,247
Receivables		22,627,433		14,357,702
Costs and estimated earnings in excess of billings on uncompleted contracts		476,702		551,923
Prepaid expenses		479,845		633,565
Total Current Assets		27,969,987		18,977,437
EQUIPMENT AND SOFTWARE, net		7,501		18,843
TOTAL ASSETS	$	27,977,488	$	18,996,280
LIABILITIES
Current Liabilities
Accounts payable	$	21,433,530	$	13,130,359
Billings in excess of costs and estimated earnings on uncompleted contracts		942,154		—
Other current liabilities, including accrued distributions		60,470		1,419,830
Total Current Liabilities		22,436,154		14,550,189
MEMBERS’ EQUITY
MEMBERS’ EQUITY		5,541,334		4,446,091
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	27,977,488	$	18,996,280

1

STANLEY BAKER HILL, LLC

STATEMENTS OF OPERATIONS AND CHANGES IN MEMBERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

	2008						2007
				Percent of						Percent of
				Contract						Contract
				Revenue						Revenue
	Amount			Earned			Amount			Earned
CONTRACT REVENUE EARNED	$	130,408,583			100.0	%	$	77,226,356			100.0	%
COST OF REVENUE EARNED
Direct costs		70,734,042			54.2			45,261,638			58.6
Indirect costs		49,981,006			38.3			24,971,364			32.3
Gross Profit		9,693,535			7.5			6,993,354			9.1
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		577,912			0.4			464,886			0.6
Income From Operations		9,115,623			7.1			6,528,468			8.5
INTEREST INCOME		79,620			0.1			134,685			0.2
Net Income		9,195,243			7.2	%		6,663,153			8.7	%
MEMBERS’ EQUITY
Beginning of year		4,446,091						2,366,651
Distributions		(8,100,000	)					(4,583,713	)
End of year	$	5,541,334					$	4,446,091

2

STANLEY BAKER HILL, LLC

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	9,195,243		$	6,663,153
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,082			11,944
Changes in assets and liabilities:
Receivables		(8,269,731	)		(10,904,519	)
Costs and estimated earnings in excess of billings on uncompleted contracts		75,221			502,525
Prepaid expenses		153,720			(525,688	)
Accounts payable		8,303,171			10,105,075
Billings in excess of costs and estimated earnings on uncompleted contracts		942,154			—
Other current liabilities		(1,359,360	)		1,328,593
Net Cash Provided By Operating Activities		9,059,500			7,181,083
Cash Flows from Investing Activities
Purchases of equipment and software		(7,740	)		(12,850	)
Cash Flows from Financing Activities
Distributions		(8,100,000	)		(4,911,737	)
Net Increase In Cash And Cash Equivalents		951,760			2,256,496
Cash And cash equivalents
Beginning of year		3,434,247			1,177,751
End of year	$	4,386,007		$	3,434,247
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
At December 31, 2006, the Company accrued $328,025 in distributions that were paid in 2007.

See notes to financial statements.

3

STANLEY BAKER HILL, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

NOTE 1 — ORGANIZATION

Stanley Baker Hill, LLC (Company) is a joint venture formed in February 2004 between Stanley Consultants, Inc. (Stanley), Michael Baker, Jr., Inc. (Baker) and Hill International, Inc. (Hill). The Company provides various architect-engineer services in Iraq for the U.S. Army Corps of Engineers Transatlantic Program Center (U.S. Corps). The Company has a contract for an indefinite delivery and indefinite quantity for construction management and general architect-engineer services for facilities in Iraq with U.S. Corps. Anticipated completion of open contracts is likely to occur in September 2009, barring any additional new or modification to existing contracts obtained in 2009.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies consistently applied by management in the preparation of the accompanying financial statements follows:

Use of Estimates — The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Operating Cycle — The Company’s work is performed under cost-plus-fee contracts and fixed-price contracts. The length of the Company’s contracts varies but is typically less than a year. Assets and liabilities related to long-term contracts are included in current assets and current liabilities in the accompanying balance sheets as they will be satisfied in the normal course of contract completion, although that might require more than one year at times.

Cash and Cash Equivalents — The Company maintains, at various financial institutions, cash and certificates of deposit that might exceed federally insured amounts at times. For purposes of the statements of cash flows, the Company considers all interest-bearing money market funds and noninterest-bearing accounts to be cash and cash equivalents.

Revenue Recognition and Contract Accounting — The Company typically incurs direct labor costs, subcontractor costs and certain other indirect costs (ODCs) in connection with architect-engineer services. Contracts are structured such that margin is earned on labor costs and not on ODCs. The Company includes revenues related to its direct labor, subcontractors and ODCs in its total contract revenues as long as the Company remains responsible to the client for the acceptability of the services provided.

The Company recognizes revenues under the percentage-of-completion method of accounting. Revenues for the current period on fixed-price contracts are determined by multiplying the estimated margin at completion for each contract by the project’s percentage of completion to date, adding labor costs, subcontractor costs and ODCs incurred to date, and subtracting revenues recognized in prior periods. In applying the percentage-of-completion method to these contracts, the Company measures the extent of progress toward completion as the ratio of labor costs incurred to date over total estimated labor costs at completion. As work is performed under contracts, estimates of the costs to complete are regularly reviewed and updated. As changes in estimates of total costs at completion on projects are identified, appropriate earnings adjustments are recorded during the period that the change is identified.

The majority of new task orders in 2008 and 2007 were fixed-price contracts, and the remaining new task orders were time and materials arrangements. For time and materials task orders, revenue is recognized and billed by multiplying the number of hours expended by our professionals in the performance of the contract by the established billing rates.

Provisions for estimated losses on uncompleted contracts are recorded during the period in which such losses are determined. Revenues related to contractual claims that arise from customer-caused delays or change orders unapproved as to both scope and price are recorded only when the amounts have been agreed with the client. Profit incentives and/or award fees are recorded as revenues when the amounts are both probable and reasonably estimable.

4

The current asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenue recognized in excess of amounts billed. The current liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents amounts billed in excess of revenue recognized.

Equipment and Leasehold Improvements — Equipment and leasehold improvements are stated at the lower of cost or fair value. Depreciation and amortization are provided on the straight-line method over the estimated useful lives of the assets. Repairs and maintenance that do not extend the lives of the applicable assets are charged to expense as incurred. Gain or loss resulting from the retirement or other disposition of assets is included in income.

Income Taxes — The Company is organized as an LLC and is not subject to federal or state income taxes. Accordingly, no provision has been made for current or deferred income taxes in these financial statements. The taxable income of the Company is included in the tax returns of the individual members.

Fair Value — During 2008, the Company adopted the provisions of Statement No. 157, “Fair Value Measurement” (FAS 157) and Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (FAS 159) issued by the Financial Accounting Standards Board (FASB). The adoption of FAS 157 and FAS 159 had no impact on its financial statements.

Recent Accounting Pronouncements — The FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes: an Interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement principles for financial statement disclosure of tax positions taken or expected to be taken on a tax return. FIN 48 is effective for the Company for fiscal years beginning after December 15, 2008. The Company is assessing the impact that the adoption of FIN 48 will have on its financial statements.

NOTE 3 — RECEIVABLES

Receivables at December 31, 2008 and 2007 consist of the following:

	2008		2007
Contract receivables:
Contracts in progress	$	22,621,058	$	14,350,557
Other receivables		6,375		7,145
	$	22,627,433	$	14,357,702

NOTE 4 — COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Costs incurred to date, estimated earnings and the related progress billings to date on contracts in progress at December 31 are as follows:

	2008			2007
Costs incurred on uncompleted contracts	$	89,520,628		$	40,752,084
Estimated earnings		74,381,259			27,881,450
Revenue recognized		163,901,887			68,633,534
Less — Billings to date		164,367,339			68,081,611
Costs and estimated earnings in excess of billings on uncompleted contracts	$	(465,452	)	$	551,923

	2008			2007
This information is included in the accompanying balance sheets under the following captions:
Costs and estimated earnings in excess billings on uncompleted contracts	$	476,702		$	551,923
Billings in excess of costs and estimated earnings on uncompleted contracts		(942,154	)		—
	$	(465,452	)	$	551,923

5

NOTE 5 — EQUIPMENT AND SOFTWARE

Equipment and software at December 31, 2008 and 2007 consist of the following:

	2008		2007
Computer hardware	$	44,071	$	36,331
Furniture and fixtures		2,153		2,153
				38,484
Less — Accumulated depreciation		38,723		19,641
	$	7,501	$	18,843

NOTE 6 — RELATED PARTY TRANSACTIONS

The Company engages in significant related-party transactions as a result of the three partners providing a majority of the costs of contract services. In accordance with the Operating Agreement of the Company, the members also charge the Company for time incurred for management and administrative services at agreed-upon rates. A summary of the related party transactions included in the financial statements at December 31, 2008 and 2007 is as follows:

	2008				2007
			Costs of				Costs of
	Accounts		Services		Accounts		Services
	Payable		Incurred		Payable		Incurred
Stanley	$	6,352,232	$	32,843,163	$	3,512,189	$	16,899,473
Baker		6,076,186		33,182,914		2,901,519		15,418,896
Hill		6,378,192		32,772,740		3,392,107		15,361,446
	$	18,806,610	$	98,798,817	$	9,805,815	$	47,679,815

NOTE 7 — BACKLOG

The Company had signed contracts to complete approximately $115,394,990 of work in 2009.

NOTE 8 — COMMITMENTS AND CONTINGENCIES

The Company is a defendant in one legal proceeding encountered in the normal course of its business. Additionally, the Company has received a letter threatening lawsuit over a separate matter. In the opinion of management, based upon discussion with counsel, the ultimate outcome of these matters will not have a material adverse effect on the financial position or results of operations of the Company.

6

EX-99.3

EXHIBIT 99.3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Michael Baker Corporation

We have audited the consolidated financial statements of Michael Baker Corporation and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and for each of the three years in the period ended December 31, 2009, and the Company’s internal control over financial reporting as of December 31, 2009, and have issued our reports thereon dated March 15, 2010 (which report on the consolidated financial statements expresses an unqualified opinion and includes an explanatory paragraph regarding the Company’s change in accounting for noncontrolling interests in 2007 and 2008), such consolidated financial statements and reports are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Pittsburgh, Pennsylvania

March 15, 2010

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