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

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

     We provide engineering expertise for public and private sector clients worldwide. Beginning with the first quarter of 2010, we changed our segment disclosure to align with how the business is now being managed. Our Transportation and Federal business segments provide a variety of services to the Company’s markets. The Transportation segment provides services for Transportation, Aviation, and Rail & Transit markets and the Federal segment provides services for Defense, Facilities, Geospatial Information Technology, Homeland Security, Municipal & Civil, Pipelines & Utilities and Water markets. 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. 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 are retrospectively reflecting our Federal and Transportation segments in our financial statements and related financial information for the years ended December 31, 2009 and 2008. For the year ended December 31, 2007, we have not provided retrospective segment information because of a significant reconfiguration of the underlying reporting structure in our accounting system that was effective January 1, 2008, which makes it impractical to present the 2007 segment information in a manner that conforms to the current operating segment presentation.

     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 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.

     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 our Federal segment’s 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, and an increase in work performed on certain other federal projects. In addition, our Transportation segment had increases on several existing 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 Federal segment’s 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

Our revenues totaled $445.2 million for 2009 compared to $455.9 million for 2008, reflecting a decrease of $10.7 million or 2%. This decrease was driven by our Federal segment, offset by an increase in revenues in our Transportation segment.

Transportation. Revenues were $196.3 million for 2009 compared to $180.8 million for 2008, reflecting an increase of $15.5 million or 9%. The following table presents Transportation revenues by client type:

(Dollars in millions)		2009								2008
Revenues by client type
Federal government		$	9.7				5	%		$	7.0				4	%
State and local government			163.4				83	%			155.8				86	%
Domestic private industry			23.2				12	%			18.0				10	%
Total revenues		$	196.3				100	%		$	180.8				100	%

This increase was primarily driven by increases in work performed for the Pennsylvania Department of Transportation of $7.5 million, North Texas Tollway Authority of $2.7 million, the Ohio Department of Transportation of $2.6 million, as well as increases on several other existing projects.

Federal. Revenues were $248.9 million for 2009 compared to $275.1 million for 2008, reflecting a decrease of $26.2 million or 10%. The following table presents Federal revenues by market:

(Dollars in millions)		2009								2008
Revenues by client type
Federal government		$	207.8				83	%		$	231.8				85	%
State and local government			17.6				7	%			20.0				7	%
Domestic private industry			23.5				9	%			23.3				8	%
Total revenues		$	248.9				100	%		$	275.1				100	%

The decrease in our Federal segment’s revenues for 2009 was driven by a decrease in work performed on our FEMA contracts of $26.3 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.

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 FEMA project incentive awards of $1.0 million. Total gross profit included Corporate expense of $1.1 million for 2009 versus $1.1 million of income for 2008 that was not allocated to our segments. We experienced a

reduction in costs of $1.7 million related to our self-insured professional liability claims during 2008 as compared to unfavorable claims development related to our self insured professional liabilty in 2009 which drove this year-over-year change in Corporate expense.

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 performed for our unconsolidated subsidiary operating in Iraq, while the decrease in work performed for FEMA drove the decrease in subcontractor costs period over period.

Transportation. Gross profit was $36.3 million for 2009 compared to $28.7 million for 2008, reflecting an increase of $7.6 million or 26%. The increase in gross profit for 2009 is primarily attributable to an increase in revenue volume and margin improvements compared to 2008. Transportation’s gross profit expressed as a percentage of revenues was 18.5% in 2009 compared to 15.9% in 2008. The increase in gross profit expressed as a percentage of revenue was driven by project mix.

Federal. Gross profit was $52.8 million for 2009 compared to $54.7 million for 2010, reflecting a decrease of $2.1 million or 4%. The decrease in gross profit for 2009 is primarily attributable to a decrease in revenue volume and by a reduction in project incentive awards of $1.0 million. Gross profit expressed as a percentage of revenues was 21.2% in 2009 compared to 19.9% in 2008. The increase in gross profit expressed as a percentage of revenue was driven by project mix, offset by a decrease in project incentive awards of $1.0 million as compared to 2008.

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. SG&A expenses for the Transportation segment were $28.3 million for 2009 compared to $24.8 million for 2008, reflecting an increase of $3.5 million or 14%. SG&A expenses for the Transportation segment expressed as a percentage of revenues increased to 14.4% for 2009 from 13.8% for 2008. SG&A expenses for the Federal segment were $28.8 million for 2009 compared to $26.3 million for 2008, reflecting an increase of $2.5 million or 10%. SG&A expenses for the Federal segment expressed as a percentage of revenues increased to 11.6% for 2009 from 9.6% for 2008.

Overhead costs are primarily allocated between the Transportation and Federal segments based on that segment’s percentage of total direct labor. As a result of the allocation, SG&A by segment directly fluctuated in relation to the increases or decrease in the Transportation and Federal segment’s direct labor percentage of total direct labor. Also included in total SG&A for 2009 and 2008 were Corporate-related costs of $0.3 million and $0.1 million, respectively, which were not allocated to our segments.

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 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

     For the year ended December 31, 2007, we have not provided retrospective segment information because of a significant reconfiguration of the underlying reporting structure in our accounting system that was effective January 1, 2008, which makes it impractical to present the 2007 segment information in a manner that conforms to the current operating segment presentation. Our segment reporting presentation prior to the sale of Baker Energy consisted of an Energy segment and an Engineering segment. We divested substantially all of our subsidiaries that pertained to our former Energy segment on September 30, 2009. As such, the results of our former Energy segment is presented as discontinued operations for the three years ended December 31, 2009 and our Engineering segment’s results are presented as our continuing operations. As such, the 2007 continuing operations presentation is comparable to 2009 and 2008 results that were further bifurcated for the current Transportation and Federal business segments presentation.

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:

Revenues by client type		2008								2007
						(Dollars in millions)
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 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.

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 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, 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 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
(In millions)						Within 1				1 — 3				3 — 5				After 5
Contractual obligations		Total				year				years				years				years
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

     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
(In millions)						Within 1				2 — 3				4 — 5				After 5
Off-Balance Sheet Arrangements		Total				year				years				years				years
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.

     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.

     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.

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.

MICHAEL BAKER CORPORATION
CONSOLIDATED BALANCE SHEETS

		As of
		December 31,				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.

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.

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 comprehensiveincome, 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.

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.

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 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.

     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.

     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 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.

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. BUSINESS SEGMENTS

     Beginning with the first quarter of 2010, the Company changed its segment disclosure to align it with how the business is now being managed. The Company’s Transportation and Federal business segments reflect how executive management makes resource decisions and assesses its performance. Each segment operates under a separate management group and produces discrete financial information which is reviewed by management. The accounting policies of the business segments are the same as those described in the summary of significant accounting policies. The Company is retrospectively reflecting its Federal and Transportation segments in its financial statements for the years ended December 31, 2009 and 2008. For the year ended December 31, 2007, the Company could not provide retrospective segment information because of a significant reconfiguration of the underlying reporting structure in its accounting system that was effective January 1, 2008 which makes it impractical to present the 2007 segment information in a manner that conforms with the current operating segment presentation. The Company’s segment reporting presentation through the second quarter of 2009 consisted of an Energy segment and an Engineering segment. The Company divested substantially all of its subsidiaries that pertained to its former Energy segment on September 30, 2009. As such, the results of the former Energy segment is presented as discontinued operations for the three years ended December 31, 2009 and Engineering segment’s results are presented as the Company’s continuing operations. As such, the 2007 continuing operations are comparable to 2009 and 2008 results that were further bifurcated for the current Transportation and Federal business segments presentation.

     The Transportation segment provides services for Transportation, Aviation, and Rail & Transit markets and the Federal segment provides services for Defense, Facilities, Geospatial Information Technology, Homeland Security, Municipal & Civil, Pipelines & Utilities and Water markets. 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.

     The Company evaluates the performance of its segments primarily based on income from operations. Corporate overhead includes functional unit costs related to finance, legal, human resources, information technology, communications, and other Corporate functions. Corporate overhead is allocated between the Transportation and Federal segments based on that segment’s percentage of total direct labor.

          The following tables reflect disclosures for the Company’s business segments:

		For the year ended December 31,
(In millions)		2009				2008
Revenues
Transportation		$	196.3			$	180.8
Federal			248.9				275.1
Total revenues		$	445.2			$	455.9

		For the year ended December 31,
(In millions)		2009				2008
Gross Profit
Transportation		$	36.2			$	28.7
Federal			52.8				54.7
Corporate			(1.0	)			1.1
Total gross profit			88.0				84.5
Less: SG&A
Transportation			(28.3	)			(24.8	)
Federal			(28.8	)			(26.3	)
Corporate			(0.3	)			(0.1	)
Total SG&A			(57.4	)			(51.2	)
Total operating income
Transportation			7.9				3.9
Federal			24.0				28.4
Corporate			(1.3	)			1.0
Total operating income		$	30.6			$	33.3
Depreciation and amortization expense:
Transportation		$	1.4			$	1.0
Federal			1.7				1.5
Corporate			2.5				2.5
Total		$	5.6			$	5.0
Capital expenditures:
Transportation		$	2.0			$	2.1
Federal			2.9				1.4
Corporate			0.4				0.6
Total		$	5.3			$	4.1

		As of December 31,
		2009				2008
Segment assets:
Transportation		$	81.3			$	78.3
Federal			64.4				74.1
Corporate			133.1				139.7
Total		$	278.8			$	292.1

		As of December 31,
		2009				2008
Equity investments in unconsolidated subsidiaries:
Transportation		$	0.1			$	0.1
Federal			2.0				1.8
Total		$	2.1			$	1.9

		For the year ended December 31,
		2009				2008
Income from unconsolidated subsidiaries:
Federal		$	7.1			$	3.1

     The Company has determined that interest expense, interest income and intersegment revenues, by segment, are immaterial for further disclosure in these consolidated financial statements.

     The Company’s enterprise-wide disclosures are as follows (in millions):

		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

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

6. 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 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

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.

7. 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 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