10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.   20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2006

Commission file number 1-6627

MICHAEL BAKER CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania	25-0927646
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
Airside Business Park, 100 Airside Drive, Moon Township, PA	15108
(Address of principal executive offices)	(Zip Code)

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

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

Title of Class	Name of each exchange on which registered
Common Stock, par value $1 per share	American Stock Exchange

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes þ      No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large accelerated filer o      Accelerated filer þ      Non-accelerated filer o

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

The aggregate market value of Common Stock held by non-affiliates as of June 30, 2006 (the last business day of the Company’s most recently completed second fiscal quarter) was $149.2 million.   This amount is based on the closing price of the Company’s Common Stock on the American Stock Exchange for that date.   Shares of Common Stock held by executive officers and directors of the Company and by the Company’s Employee Stock Ownership Plan are not included in the computation.

As of February 28, 2007, the Company had 8,698,168 outstanding shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

	Parts of Form 10-K into which
Document	Document is incorporated
Financial Section of Annual Report to Shareholders for the year ended December 31, 2006	I, II
Proxy Statement to be distributed in connection with the 2007 Annual Meeting of Shareholders	III

MICHAEL BAKER CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

TABLE CONTENTS

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		6
Item 1B.	Unresolved Staff Comments		11
Item 2.	Properties		11
Item 3.	Legal Proceedings		11
Item 4.	Submission of Matters to a Vote of Security Holders		12
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		12
Item 6.	Selected Financial Data		13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		13
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		13
Item 8.	Financial Statements and Supplementary Data		14
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		14
Item 9A.	Controls and Procedures		14
Item 9B.	Other Information		17
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		17
Item 11.	Executive Compensation		18
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		18
Item 13.	Certain Relationships and Related Transactions, and Director Independence		18
Item 14.	Principal Accountant Fees and Services		18
PART IV
Item 15.	Exhibits, Financial Statement Schedules		19
Signatures			22
Schedule II — Valuation and Qualifying Accounts
EX-10.1
EX-10.2.C
EX-10.2.D
EX-10.3
EX-13.1
EX-21.1
EX-23.1
EX-23.2
EX-31.1
EX-31.2
EX-32.1
EX-99.1
EX-99.2

Note with respect to Forward-Looking Statements:

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

PART I

Item 1.  Business.

     General

     In this Form 10-K, the terms “we,” “us,” or “our” refer to Michael Baker Corporation and its subsidiaries collectively.   We were founded in 1940 and organized as a Pennsylvania corporation in 1946.   Today, through our operating subsidiaries, we provide engineering and energy expertise for public and private sector clients worldwide.

     Information regarding the amounts of our revenues, income from operations before Corporate overhead allocations, total assets, capital expenditures, and depreciation and amortization expense attributable to our reportable segments is contained in the “Business Segments” note to our consolidated financial statements, which are included within Exhibit 13.1 to this Form 10-K.   Such information is incorporated herein by reference.

     According to the annual listings published in 2006 by Engineering News Record magazine, based on total engineering revenues for 2005, we ranked 37^th among the top 500 U.S. design firms; 13^th among “pure design” firms; 24^th among program management firms; 11^th in water and water supply, including 21^st in sanitary and storm sewers; 25^th among site assessment and compliance firms; 16^th among transportation design firms, including 22^nd in highways, 11^th in bridges and 25^th in airports; 31^st among construction management-for-fee firms; 19^th in transmission lines and aqueducts; 17^th in pipelines (petroleum); 10^th in distribution and warehouses (general building); and 60^th among environmental firms.   In addition, we believe that we are one of the largest providers of outsourced operations and maintenance services to the energy industry in the Gulf of Mexico.

     Strategy

     Our strategy is based on three concepts – growth, profitability and innovation.

     Growth – We seek to grow both organically and through strategic acquisitions.   Organically, we will grow by securing larger and more complex projects and programs that correspond well with our existing knowledge and capabilities in both the Engineering and Energy segments in the United States and abroad.   Our multi-hazard flood mapping and modernization program (MapMod) with FEMA is a prime example of our execution of this concept.   With regard to acquisitions, we will seek opportunities that expand our skill sets or our geographical presence in our core business.

     Profitability – We seek to consistently improve the profitability of our businesses through long-term, performance-based contracting arrangements with our clients.   This strategy is evident in our current mix of contracts, including the FEMA contract mentioned above for Engineering and our service contracts in the Energy segment.

     Innovation – We strive to constantly and consistently innovate ways to deliver services to our clients.   We utilize mapping and geographic information technology in a number of innovative ways, including estimating damage to homes and other facilities in the aftermath of Hurricane Katrina.

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     Business Segments

     Our business segments have been determined based on how executive management makes resource decisions and assesses our performance.   Our two reportable segments are Engineering and Energy.   Information regarding these business segments is contained in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included within Exhibit 13.1 to this Form 10-K.   Such information is incorporated herein by reference.

The following briefly describes our business segments:

Engineering

     Our Engineering segment provides a variety of design and related consulting services, principally in the United States of America (“U.S.”).   Such services include program management, design-build, 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 Engineering segment has designed a wide range of projects, such as highways, bridges, airports, busways, corporate headquarters, data centers, correctional facilities and educational facilities.   This segment also provides services in the water/wastewater, pipeline, emergency and consequence management, resource management, and telecommunications markets.   This segment is susceptible to upward and downward fluctuations in federal and state government spending.

     Our transportation services have benefited from the U.S. federal government’s SAFETEA-LU legislation in recent years.   Additionally, we have benefited from increased federal government spending in the Department of Defense and the Department of Homeland Security, including FEMA, US-VISIT and the Coast Guard.   We partner with other contractors to pursue selected design-build contracts, which continue to be a growing project delivery method within the transportation and civil infrastructure markets.

Energy

     Our Energy segment provides a full range of services to operating energy production facilities worldwide.   This segment’s comprehensive services range from complete outsourcing solutions to specific services such as training, personnel recruitment, pre-operations engineering, maintenance management systems, field operations and maintenance, procurement, and supply chain management. The Energy segment serves both major and smaller independent oil and gas producing companies, but does not pursue exploration opportunities for our own account or own any oil or natural gas reserves.

     One delivery method employed by the segment is managed services, an operating model that has broadened the Energy segment’s service offerings in the offshore Gulf of Mexico and the onshore U.S.   This model has the potential to enhance our operating margins as well as our clients’.   Onshore, we have taken over full managerial and administrative responsibility for clients’ producing properties.   Offshore, the segment has organized a network of marine vessels, helicopters, shore bases, information technology, safety and compliance systems, specialists, and a leadership team that manages the sharing of resources, thereby resulting in improved profitability for participants. Presently, we are working under managed services agreements with oil and gas producers in the Gulf of Mexico and in the Powder River Basin in Wyoming.   Most of these managed services contracts have incentive features that could result in additional payments to us based on our performance.

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     The segment also operates in over a dozen foreign countries, with major projects in Venezuela, Thailand, Algeria and Nigeria.   The local political environment in certain of these countries subjects our related trade receivables, due from subsidiaries of major oil companies, to lengthy collection delays.   Based upon our experience with these clients, after giving effect to our related allowance for doubtful accounts balance at December 31, 2006, we believe that these receivable balances will be fully collectible within one year.   This segment also has some exposure to currency-related gains and losses but a substantial amount of our foreign transactions are settled in the same currency, thereby greatly reducing our exposure to material currency transaction gains and losses.

     Domestic and Foreign Operations

     For the years ended December 31, 2006, 2005 and 2004, our percentages of total contract revenues derived from work performed for U.S.-based clients within the U.S. totaled 87%, 88% and 88%, respectively.   The majority of our domestic revenues comprises engineering work performed in the Mid-Atlantic region of the U.S. and operations and maintenance work performed by our Energy segment in Texas, Louisiana, Wyoming, and the Gulf of Mexico.   Our foreign revenues are derived primarily from our Energy segment.

     Backlog

(In millions)	December 31, 2006		December 31, 2005
Engineering	$	1,057.1	$	1,109.2
Energy		235.4		212.6
Total	$	1,292.5	$	1,321.8

     Our backlog consists of that portion of uncompleted work that is represented by signed or executed contracts.   Most of our contracts with the U.S. federal government and other clients may be terminated at will, or option years may not be exercised; therefore, no assurance can be given that all backlog will be realized.   Of our total backlog at December 31, 2006, $186 million and $211 million are expected to be recognized as revenue within the next year by our Engineering and Energy segments, respectively.

     As of December 31, 2006 and 2005, $467 million and $566 million of our backlog, respectively, related to a $750 million contract in the Engineering segment 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.   The MapMod 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.   Due to the task order structure of the contract, the timing and the amount that we will realize of the original contract value of $750 million remains difficult to predict.    FEMA has identified specific program objectives and priorities which it intends to accomplish under this program. As the initial task orders are completed and progress against objectives is measured, we will become better able to predict realization of this contract award.   In the future, we may be required to reduce the backlog accordingly.

     In our Energy segment, we also consider our clients’ purchase orders for labor services as backlog.   These purchase orders typically have twelve-month terms and cancellation clauses with thirty-day notice provisions.   On a periodic basis, backlog is reduced as related revenue is recognized.   Oil and gas industry merger, acquisition and divestiture transactions affecting our clients can result in increases or decreases in our Energy segment’s backlog.

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     Significant Customers

     Contracts with various branches of the U.S. government accounted for 27%, 31% and 26% of our total contract revenues for the years ended December 31, 2006, 2005 and 2004, respectively.   Our contracts with FEMA accounted for approximately 15%, 20% and 15% of our revenues in 2006, 2005 and 2004, respectively.

     Competitive Conditions

     Our business is highly competitive with respect to all principal services we offer.   Our Engineering and Energy segments compete with numerous public and private firms that provide some or all of the services that we provide.   In the Engineering segment, our competitors range from large national and international firms such as Parsons Brinkerhoff Inc., CH2M Hill Companies, PBS&J, Tetra Tech, URS Corporation and CDM to a vast number of smaller, more localized firms.   In the Energy segment, we compete with units of the Wood Group, the Bristow Group, and smaller privately-held firms.

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

     We believe that the principal competitive factors (in various orders of importance) in the areas of services we offer are quality of service, reputation, experience, technical proficiency, local geographic presence and cost of service.   We believe that we are well positioned to compete effectively by emphasizing the quality of services we offer and our widely known reputation in providing professional engineering services in the Engineering segment and technical and operations and maintenance services in the Energy segment.   We are also dependent upon the availability of staff and our ability to recruit qualified employees.   A shortage of qualified technical professionals currently exists in the engineering industry in the U.S.

     Seasonality

     Based upon our experience, our Engineering segment’s total contract revenues and income from operations have historically been slightly lower for our first fiscal quarter than for the remaining quarters due to the effect of winter weather conditions, particularly in the Mid-Atlantic and Midwest regions of the United States.   Typically, these seasonal weather conditions unfavorably impact our performance of construction management services.   Our Energy segment is not as directly impacted by seasonal weather conditions.

     Personnel

     At December 31, 2006, we had 4,865 total employees, of which our Engineering segment had 2,253 employees, our Energy segment had 2,548 employees, and our Corporate staff included 64 employees.   Of our total employees 4,737 were full-time and 128 were part-time.   Certain employees of our 53%-owned Nigerian subsidiary are subject to an industry-based, in-country collective bargaining agreement.   The remainder of our workforce is not subject to collective bargaining arrangements.   We believe that our relations with employees are good.

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     Executive Officers

     The following represents a listing of our executive officers as of December 31, 2006.  

     Richard L. Shaw — Age 79; Chairman of the Board since 1993 and Chief Executive Officer since September 2006. Formerly Chief Executive Officer from September 1999 to April 2001; President and Chief Executive Officer from September 1993 through September 1994; and President and Chief Executive Officer from April 1984 to May 1992.  

     William P. Mooney — Age 56; Executive Vice President and Chief Financial Officer since June 2000.   Prior to joining us, Mr. Mooney served as Executive Vice President and Chief Financial Officer of FEI Company in Hillsboro, Oregon, a global supplier of capital equipment to the semiconductor and data storage industries, from 1999 to June 2000.

     H. James McKnight — Age 62; Executive Vice President, General Counsel and Secretary since June 2000.   Mr. McKnight has been employed by us since 1995, serving as Senior Vice President, General Counsel and Secretary from 1998 to 2000 and as Vice President, General Counsel and Secretary from 1995 to 1998.

     Monica L. Iurlano — Age 49; Executive Vice President and Chief Resources Officer since May 2002.   Ms. Iurlano previously served as Vice President of Human Resources with L.B. Foster from 1999 to May 2002.   Prior to joining L.B. Foster, Ms. Iurlano served in various management positions at Highmark Blue Cross Blue Shield from 1995 to 1999.   Ms. Iurlano was also previously employed by us from 1992 to 1995 as our Benefits Manager.

     Craig O. Stuver — Age 46; Senior Vice President, Corporate Controller, Treasurer and Chief Accounting Officer since April 2001.   Prior to joining us, Mr. Stuver served as a vice president of finance for Marconi Communications from September 2000 to April 2001.   Mr. Stuver was also previously employed by us from 1992 to 2000, serving in various capacities including Senior Vice President, Corporate Controller and Treasurer briefly in 2000 and as Vice President, Corporate Controller and Assistant Treasurer from 1997 to 2000.

     Bradley L. Mallory — Age 54; President of our Engineering segment since October 2003.   Mr. Mallory previously served as a Senior Vice President from March 2003 through September 2003.   Prior to joining us, Mr. Mallory worked in various management capacities with the Pennsylvania Department of Transportation, including Department Secretary from 1995 to 2003.

     John D. Whiteford — Age 47; Acting General Manager of our Energy segment since July 2006.   Executive Vice President of Michael Baker Jr., Inc., a subsidiary, and Manager of our North Region since June 2000.   Mr. Whiteford previously served in various capacities with us since 1983, including Vice President of our Energy segment from 1997 to 2000.

     James B. Richards — Age 60; Executive Vice President of Michael Baker Jr., Inc. and Manager of our South Region since June 2000.   Since joining us in 1996, Mr. Richards served as Vice President of Michael Baker Jr., Inc. and Regional Manager of our Southeast Region from 1996 to 2000.

     David G. Greenwood — Age 55; Executive Vice President – Marketing, Engineering Segment since April 2005.   Mr. Greenwood previously served in various operational and marketing capacities with us since 1973, including Vice President and Senior Vice President of Michael Baker Jr., Inc. from 1994 to April 2005.

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     James R. Johnson — Age 54; Senior Vice President – Marketing, Energy Segment since August 2005.   Mr. Johnson previously served as a Senior Regional Manager of Operations with Baker Hughes Inc. from June 1991 to August 2005.   Prior to joining Baker Hughes, Mr. Johnson served as a Senior Business Development Manager with Eastman Christiansen Inc. from 1986 to June 1991.

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

     Available Information

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

Item 1A.  Risk Factors.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     We have increased our contract activity with the U.S. federal, state and local governments in recent years.   Our ability to earn revenues from our existing and future government projects will depend upon the availability of funding by our served and targeted government agencies.   We cannot control whether those clients will fund or continue funding our outstanding projects.

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

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

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

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

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

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

     Our international operations are subject to unique risks.   These risks can include: potentially dynamic political and economic environments; civil disturbances, unrest, or violence; volatile labor conditions due to strikes and general difficulties in staffing international operations with highly qualified personnel; and logistical and communication challenges.   Unexpected changes in regulatory requirements in foreign countries as well as inconsistent regulations, diverse licensing, and legal and tax requirements that differ from one country to another could also adversely affect our international projects.

     We also could be subject to exposure to liability due to the Foreign Corrupt Practices Act.

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

     We have made acquisitions which have resulted in the recording of goodwill and intangible assets within our organization.   If these assets become impaired, a material write-off in the required amount would lead to reductions in our profits.

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

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

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

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

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

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

Foreign governmental regulations could adversely affect our business.

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

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

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Item 1B.  Unresolved Staff Comments.

     With respect to comments received from the staff of the Securities and Exchange Commission on our periodic and current reports required under the Securities Act of 1933, no staff comments currently remain unresolved.

Item 2.  Properties.

     Our headquarters office is located in Moon Township, Pennsylvania.   This building, which we lease, has approximately 117,000 square feet of office space and is used by our Corporate and Engineering staff.   Our Engineering and Energy segments primarily occupy leased office space in stand-alone or multi-tenant buildings at costs based on prevailing market prices at lease inception.   In addition to our Moon Township offices, our Engineering segment also has a major leased office in Alexandria, VA, and leases other office space totaling approximately 517,000 square feet in the U.S. and Mexico.   Likewise, our Energy segment has its principal offices in Houston, TX, and leases office space totaling approximately 136,000 square feet in the U.S. and abroad.   These leases expire at various dates through the year 2016.

     We also own a 75,000 square foot office building located in Beaver, Pennsylvania, which is situated on approximately 230 acres and utilized by our Engineering segment.   We believe that our current facilities will be adequate for the operation of our business during the next year, and that suitable additional office space is readily available to accommodate any needs that may arise.   

Item 3.  Legal Proceedings.

     We have been named as a defendant or co-defendant in legal proceedings wherein damages are claimed.   Such proceedings are not uncommon to our business.   We believe that we have recognized adequate provisions for probable and reasonably estimable liabilities associated with these proceedings, and that their ultimate resolutions will not have a material impact on our consolidated financial position or annual results of operations or cash flows.

     FEMA Housing Inspection Contract.  On March 28, 2006, Alltech, Inc. a competitor for the 2006 FEMA Housing Inspection Contract (the “Contract”) filed suit against us in the U.S. District Court for the Eastern District of Virginia alleging, among other claims, that we had misappropriated trade secrets and seeking, in addition to other relief, a temporary restraining order to prevent us from using such alleged trade secrets in our bid to FEMA for the Contract.   On April 6, 2006, the Court refused to grant a temporary restraining order, and on September 12, 2006, Alltech voluntarily dismissed its lawsuit without explanation.   Separately, following an award by FEMA of the Contract to us and the Partnership for Response and Recovery (the “PaRR”) in June 2006, Alltech filed a protest with the Government Accountability Office (the “GAO”) on June 23, 2006.   As a result of the filing of that protest, FEMA issued a stop-work order to us and the PaRR.   We intervened in the protest.   On August 18, 2006, FEMA advised the GAO that it was going to take corrective action, and in response, the GAO dismissed the protest on August 21, 2006.   On September 25, 2006, the PaRR filed a protest with the GAO challenging FEMA’s corrective action.   The GAO denied the PaRR’s protest on December 18, 2006.   FEMA has solicited revised proposals for the Contract from us, the PaRR, and Alltech, and we delivered our proposal to FEMA on February 1, 2007.   We anticipate that the selection of successful firms will occur in the spring of 2007.

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Item 4.  Submission of Matters to a Vote of Security Holders.

(a)	Our annual meeting of shareholders was held on November 29, 2006.
(b)	Each of management’s nominees to the board of directors, as listed in Item 4(c) below, was elected.   There was no solicitation in opposition to management’s nominees.
(c)	Our shareholders elected each of our directors listed below to one-year terms or until their respective successors have been elected. The votes cast by holders of our Common Stock in approving the following directors were:

Name of Director	Votes for		Votes withheld
Robert N. Bontempo		6,189,075		1,785,697
Nicholas P. Constantakis		6,193,469		1,781,303
William J. Copeland		6,086,944		1,887,828
Robert H. Foglesong		6,890,080		1,084,692
Roy V. Gavert, Jr.		6,407,420		1,567,352
John E. Murray, Jr.		6,878,604		1,096,168
Pamela S. Pierce		6,872,346		1,102,426
Richard L. Shaw		6,859,886		1,114,886

PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

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

Holders

     As of February 28, 2007, we had 1,302 holders of our Common Stock.

Dividends

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

Sales of Unregistered Securities

     We did not sell any unregistered securities during the year ended December 31, 2006.

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Purchases of Equity Securities

     Neither we nor any affiliated purchaser bought any Michael Baker Corporation equity securities during the fourth quarter of 2006.

Item 6.  Selected Financial Data.

     A summary of selected financial data for the five years ended December 31, 2006 is set forth in the “Selected Financial Data” section of Exhibit 13.1 to this Form 10-K.   Such summary is incorporated herein by reference.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation.

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

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

     As of December 31, 2006 and 2005, our primary interest rate risk related to our variable-rate debt obligations, which totaled $11.0 million as of December 31, 2006 and zero as of December 31, 2005.   Assuming a 10% increase in interest rates on these variable-rate debt obligations (i.e., an increase from the actual weighted average interest rate of 8.00% as of December 31, 2006, to a weighted average interest rate of 8.80%), annual interest expense would have been approximately $88,300 higher in 2006 based on the outstanding balance of variable-rate debt obligations as of December 31, 2006.   In addition, as of December 31, 2006 and 2005, we had interest rate risk related to our variable-rate investments (included in cash and cash equivalents), which totaled $0.3 million as of December 31, 2006 and $17.9 million as of December 31, 2005.   Assuming a 10% decrease in interest rates on these variable-rate investments (i.e., a decrease from the actual weighted average interest rate of 4.44% as of December 31, 2006, to a weighted average interest rate of 4.00%), annual interest income would have been approximately $1,200 lower in 2006 based on the outstanding balance of variable-rate investments as of December 31, 2006.   Assuming a 10% decrease in interest rates on these variable-rate investments (i.e., a decrease from the actual weighted average interest rate of 3.23% as of December 31, 2005, to a weighted average interest rate of 2.91%), annual interest income would have been approximately $58,000 lower in 2005 based on the outstanding balance of variable-rate investments as of December 31, 2005.   We had no interest rate swap or exchange agreements as of our 2006 or 2005 year-end dates.   Based on the foregoing discussion, we have no material exposure to interest rate risk.

     We have several foreign subsidiaries that transact portions of their local activities in currencies other than the U.S. Dollar.   At December 31, 2006, such currencies included the British Pound, Mexican Peso, Nigerian Naira, Thai Baht and Venezuelan Bolivar.   These subsidiaries composed 8.6% of our consolidated total assets at December 31, 2006, and 6.4% of our consolidated total contract revenues for the year then ended.   In assessing our exposure to foreign currency exchange rate risk, we recognize that the majority of our foreign subsidiaries’ assets and liabilities reflect ordinary course accounts receivable and accounts payable balances.   These receivable and payable balances are substantially settled in the same currencies as the functional currencies of the related foreign subsidiaries, thereby not exposing us to material transaction gains and losses.   Accordingly, assuming that foreign currency exchange rates could

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change unfavorably by 10%, we have no material exposure to foreign currency exchange rate risk.   We have no foreign currency exchange contracts.

     Based on the nature of our business, we have no direct exposure to commodity price risk.

Item 8.   Financial Statements and Supplementary Data.

     Our consolidated financial statements, together with the reports thereon of our independent registered public accounting firm (Deloitte & Touche LLP) and our predecessor independent registered public accounting firm (PricewaterhouseCoopers LLP), and supplementary financial information are set forth within Exhibit 13.1 to this Form 10-K.   Such financial statements, the reports thereon, and the supplementary financial information are incorporated herein by reference.

     Deloitte & Touche LLP audited our consolidated financial statements as of and for the years ended December 31, 2006 and 2005.   PricewaterhouseCoopers LLP audited our consolidated financial statements for the year ended December 31, 2004.

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

     Not applicable.

Item 9A.   Controls and Procedures.

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

     We carried out an evaluation, under the supervision and with participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2006.   This evaluation considered our various procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.   Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2006.  

     We believe, that the financial statements and other financial information included in this Form 10-K fairly present in all material respects our financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles in the United States (“GAAP”).

Changes in Internal Control Over Financial Reporting

     There were no changes in our “internal control over financial reporting” (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2006, and that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Status of Remediation of Prior Year Material Weaknesses

     We have implemented several changes to our internal control over financial reporting in response to the deficiencies identified in our 2005 Form 10-K.   To address the material weaknesses, we have implemented the following procedures:

(1)	We have emphasized certain key controls in an effort to mitigate significant risks and strengthen our control environment.   In this regard, we have implemented a monitoring function for tax compliance and the recording of related expenses, and increased management’s awareness of the financial reporting risks associated with the recording of insurance reserves.
(2)	We have enhanced our documentation and review of accounting estimates.   Specifically, we ensure that judgments related to estimates are reviewed on a periodic basis and that amounts related to insurance reserves are properly recorded in the financial statements.
(3)	We have enhanced our monitoring of balance sheet accounts by deploying account reconciliation software that facilitates timely access to and reviews of reconciliations.

Management believes that the material weaknesses have been fully remediated.   The remediation efforts are fully implemented, have operated for a period of time, have been tested, and we have concluded that such procedures are operating effectively.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).   Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles.   Our internal control over financial reporting includes policies and procedures that:

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

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

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

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

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal

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control over financial reporting as of December 31, 2006.   This assessment was based on criteria established in the framework Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our internal control over financial reporting was effective at December 31, 2006.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Michael Baker Corporation

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Michael Baker Corporation and subsidiaries (the “Company”) as of December 31, 2006 maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.   The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.   Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

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

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

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

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In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.   Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2006 and our report dated March 15, 2007 expressed an unqualified opinion on those financial statements.   

/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 15, 2007

Item 9B.  Other Information.

     On October 26, 2006, our Board of Directors approved Amendment No. 4 to the Consulting Agreement between us and Richard L. Shaw, Chairman of Michael Baker Corporation, effective April 26, 2007.   The Consulting Agreement was effective from April 25, 2001 through April 26, 2003.   Amendment No. 1 extended the term of this agreement by two years through April 26, 2005, Amendment No. 2 extended the term by another year though April 26, 2006, and Amendment No. 3 extended the term through April 26, 2007.   Amendment No. 4 extends the term of Mr. Shaw’s consulting agreement on the same terms and conditions for an additional one-year period expiring April 26, 2008.

     Effective September 14, 2006, Mr. Shaw’s compensation for the consulting services under the agreement was temporarily suspended due to his re-employment by us as our Chief Executive Officer.   Compensation under the consulting agreement will resume upon Mr. Shaw’s retirement.

PART III

Item 10.   Directors, Executive Officers and Corporate Governance.

     Information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K appears in our definitive Proxy Statement which will be distributed in connection with the 2007 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, or in Part I of this Form 10-K under the caption “Executive Officers.” This information is incorporated herein by reference.

     We have adopted a Code of Ethics for Senior Officers incorporating the provisions required by the Securities and Exchange Commission for our principal executive, financial and accounting officers.   A copy of the Code of Ethics for Senior Officers is posted on our website at www.mbakercorp.com.   In the event we make any amendments to, or grant any waivers from a provision of this code, we will disclose the amendment or waiver and the reasons for the waiver on our website.

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Item 11.  Executive Compensation.

     Information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K appears in our definitive Proxy Statement which will be distributed in connection with the 2007 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A.   This information is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

     Information required by Item 403 of Regulation S-K appears in our definitive Proxy Statement which will be distributed in connection with the 2007 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation.   This information is incorporated herein by reference.

Equity Compensation Plan Information

     The following table provides information as of December 31, 2006 about equity awards under our equity compensation plans and arrangements in the aggregate:

	(a)		(b)		(c)
					Number of securities
					remaining available for future
	Number of securities to		Weighted-average		issuance under equity
	be issued upon exercise		exercise price of		compensation plans
	of outstanding options,		outstanding options,		(excluding securities reflected
Plan Category	warrants and rights		warrants and rights		in column (a))
Equity compensation plans approved by shareholders		235,093	$	13.43		940,257
Equity compensation plans not approved by shareholders		—		—		—
Total		235,093	$	13.43		940,257

Item 13.  Certain Relationships and Related Transactions, and Director Independence.

     Information required by Items 404 and 407(a) of Regulation S-K appears in our definitive Proxy Statement which will be distributed in connection with the 2007 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A.   This information is incorporated herein by reference.

Item 14.  Principal Accountant Fees and Services.

     Information required by Item 9(e) of Schedule 14A appears in our definitive Proxy Statement which will be distributed in connection with the 2007 Annual Meeting of Shareholders and which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A.   This information is incorporated herein by reference.

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PART IV

Item 15.  Exhibits and Financial Statement Schedules.

(a)(1)	The following financial statements are incorporated in Item 8 of Part II of this Report by reference to the consolidated financial statements within Exhibit 13.1 to this Form 10-K:
	Consolidated Statements of Income for each of the three years in the period ended December 31, 2006
	Consolidated Balance Sheets as of December 31, 2006 and 2005
	Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2006
	Consolidated Statements of Shareholders’ Investment for each of the three years in the period ended December 31, 2006
	Notes to Consolidated Financial Statements
	Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)
	Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP)
(a)(2)	Financial statement schedule for the year ended December 31, 2006:
	Schedule II – Valuation and Qualifying Accounts
	Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) on Financial Statement Schedule for the years ended December 31, 2006 and 2005 (included as Exhibit 99.1 to this Form 10-K)
	Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP) on Financial Statement Schedule for the year ended December 31, 2004 (included as Exhibit 99.2 to this Form 10-K)
	All other schedules are omitted because they are either not applicable or the required information is shown in the consolidated financial statements or notes thereto.
(a)(3)	The following exhibits are included herewith as a part of this Report:

Exhibit No.	Description
3.1	Articles of Incorporation, as amended, filed as Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference.
3.2	By-laws, as amended, filed as Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference.
4.1	Rights Agreement dated November 16, 1999, between us and American Stock Transfer and Trust Company, as Rights Agent, filed as Exhibit 4.1 to our Report on Form 8-K dated November 16, 1999, and incorporated herein by reference.
10.1	2006 Incentive Compensation Plan (attachments excluded), filed herewith.*
10.2	Consulting Agreement dated April 25, 2001, by and between us and Richard L. Shaw, filed as Exhibit 10.2(c) to our Quarterly Report on Form 10-Q for the period ended June 30, 2001, and incorporated herein by reference.*

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Exhibit No.	Description
10.2(a)	First Amendment to Consulting Agreement effective April 26, 2003, by and between us and Richard L. Shaw, filed as Exhibit 10.2(a) to our Annual Report on Form 10-K for the year ended December 31, 2003, and incorporated herein by reference.*
10.2(b)	Second Amendment to Consulting Agreement effective April 26, 2005, by and between us and Richard L. Shaw, filed as Exhibit 10.2(a) to our Quarterly Report on Form 10-Q for the period ended June 30, 2005, and incorporated herein by reference.*
10.2(c)	Third Amendment to Consulting Agreement effective April 26, 2006, by and between us and Richard L. Shaw, filed herewith.*
10.2(d)	Fourth Amendment to Consulting Agreement effective April 26, 2007, by and between us and Richard L. Shaw, filed herewith.*
10.3	Employment Agreement dated as of September 14, 2006, by and between us and Richard L. Shaw, filed herewith.*
10.4	First Amended and Restated Loan Agreement dated September 17, 2004, by and between us and Citizens Bank of Pennsylvania, PNC Bank, National Association and Fifth Third Bank, filed as Exhibit 10.4(a) to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, and incorporated herein by reference.
10.5	1995 Stock Incentive Plan amended effective April 23, 1998, filed as Exhibit 10.4 to our Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.*
10.6	1996 Nonemployee Directors’ Stock Incentive Plan, filed as Exhibit A to our definitive Proxy Statement with respect to our 1996 Annual Meeting of Shareholders, and incorporated herein by reference.*
10.7	Office Sublease Agreement dated August 6, 2001, by and between us and Airside Business Park, L.P., filed as Exhibit 10.7 to our Annual Report on Form 10-K for the year ended December 31, 2002 (exhibits omitted), and incorporated herein by reference.
10.7(a)	Third Amendment to Office Sublease Agreement dated February 19, 2003, by and between us and Airside Business Park, L.P., filed as Exhibit 10.7(a) to our Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
10.8	2003 Long-Term Incentive Compensation Plan, filed as Exhibit A to our April 24, 2003 Notice of Annual Meeting and Proxy Statement, and incorporated herein by reference.*
13.1	Selected Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006, Reports of Independent Registered Public Accounting Firms, and Supplemental Financial Information, filed herewith and to be included as the Financial Section of the Annual Report to Shareholders for the year ended December 31, 2006.

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Exhibit No.	Description
21.1	Subsidiaries, filed herewith.
23.1	Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP), filed herewith.
23.2	Consent of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP), filed herewith.
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a), filed herewith.
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a), filed herewith.
32.1	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
99.1	Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) on financial statement schedule for the years ended December 31, 2006 and 2005, filed herewith.
99.2	Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP) on financial statement schedule for the year ended December 31, 2004, filed herewith.

* Management contract or compensatory plan.

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SIGNATURES

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

	MICHAEL BAKER CORPORATION
Dated: March 16, 2007	By:	/s/ Richard L. Shaw
		Richard L. Shaw
		Chairman of the Board and Chief Executive Officer

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

Signature	Title	Date
/s/ Richard L. Shaw Richard L. Shaw	Chairman of the Board and Chief Executive Officer	March 16, 2007
/s/ William P. Mooney William P. Mooney	Executive Vice President and Chief Financial Officer	March 16, 2007
/s/ H. James McKnight	Executive Vice President,	March 16, 2007
H. James McKnight	General Counsel and Secretary
/s/ Craig O. Stuver Craig O. Stuver	Senior Vice President, Corporate Controller and Treasurer (Chief Accounting Officer)	March 16, 2007
/s/ Robert N. Bontempo	Director	March 16, 2007
Robert N. Bontempo
/s/ Nicholas P. Constantakis	Director	March 16, 2007
Nicholas P. Constantakis
/s/ William J. Copeland	Director	March 16, 2007
William J. Copeland
/s/ Robert H. Foglesong	Director	March 16, 2007
Robert H. Foglesong
/s/ Roy V. Gavert, Jr.	Director	March 16, 2007
Roy V. Gavert, Jr.
/s/ John E. Murray, Jr.	Director	March 16, 2007
John E. Murray, Jr.
/s/ Pamela S. Pierce	Director	March 16, 2007
Pamela S. Pierce

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MICHAEL BAKER CORPORATION
Schedule II — Valuation and Qualifying Accounts
For the years ended December 31, 2006, 2005 and 2004
(In thousands)

Column A	Column B		Column C					Column D			Column E
			Additions
	Balance at		Charged to			Charged to		Deductions —			Balance at
Description	beg. of year		expense			other accounts		describe			end of year
For the year ended December 31, 2006:
Income tax valuation allowance	$	6,150	$	1,642	(a)	$	0	$	0		$	7,792
Nigerian prepaid taxes	$	1,560	$	1,006	(b)	$	0		($393	)(c)	$	2,173
Allowance for doubtful accounts	$	746	$	110		$	0		($89	)(c)	$	767
For the year ended December 31, 2005:
Income tax valuation allowance	$	6,227		($77	)(a)	$	0	$	0		$	6,150
Nigerian prepaid taxes	$	1,198	$	362	(b)	$	0	$	0		$	1,560
Allowance for doubtful accounts	$	683	$	572		$	0		($509	)(c)	$	746
For the year ended December 31, 2004:
Income tax valuation allowance	$	4,053	$	2,174	(a)	$	0	$	0		$	6,227
Nigerian prepaid taxes	$	970	$	228	(b)	$	0	$	0		$	1,198
Allowance for doubtful accounts	$	2,392	$	587		$	0		($2,296	)(c)	$	683

(a)	Primarily relates to valuation of federal, state, and foreign net operating losses.
(b)	Relates to the inability to realize Nigerian prepaid income tax assets.
(c)	For the years ended December 31, 2006, 2005 and 2004, the deduction amount primarily reflects accounts receivable balances written off during the year as well as recoveries of allowances previously expensed.

EX-10.1

EXHIBIT 10.1

MICHAEL BAKER CORPORATION
2006 INCENTIVE COMPENSATION PLAN

     Section 1. Purpose. The purpose of the Michael Baker Corporation 2006 Incentive Compensation Plan (the “Plan”) is to provide for an incentive payment opportunity to employees of Michael Baker Corporation (the “Company”) and its subsidiaries, which may be earned upon the achievement of established performance goals. By providing an incentive payment opportunity based upon market-based performance goals, the Company will establish a clear line of sight between the overall performance of the Company and the individual contribution of each employee.

     Section 2. Effective Date. The effective date of this Plan is January 1, 2006. The Plan will remain in effect from year to year (each calendar year shall be referred to herein as a “Plan Year”) until formally amended or terminated in writing by the Company’s Board of Directors (the “Board”).

     Section 3. Administration of the Plan.

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

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

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

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

     Section 4. Eligibility, Groups and Incentive Programs.

     Section 4.01. Eligibility. Any employee of the Company or any wholly-owned subsidiary of the Company shall be eligible to participate in the Plan upon written designation by

the Committee as provided in Section 3.04, excluding employees who are covered under a foreign government regulated bonus plan.

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

          Group 1. Participants in Group 1 shall be the Company’s executive officers, including Divisional Managers.

          Group 2. Participants in Group 2 shall be the Engineering Project Managers, the Energy Project Managers, the Sales Managers and the Office Managers.

          Group 3. Participants in Group 3 shall be any employee who is designated as a Participant in the Plan and who is not otherwise a member of Group 1 or 2.

With respect to a Participant who moves to or from a Group during a Plan Year, such Participant shall be treated as a member of each Group for the period of time in that Group during the Plan Year, and the actual achievement of any Performance Goals, as defined in Section 5.03 of the Plan, established with respect to participation in each Group shall be used to calculate the pro-rated Incentive Award applicable for the period of time in each Group.

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

• The Corporate Incentive Program;

• The Project Manager Incentive Program;

• The Sales Manager Incentive Program;

• The Office Manager Incentive Program; and

• The Discretionary Incentive Program.

All Group 1 Participants shall participate in the Corporate Incentive Program. All Group 2 Participants who are Engineering Project Managers or Energy Project Managers shall participate in the Project Manager Incentive Plan. All Group 2 Participants who are Sales Managers shall participate in the Sales Manager Incentive Program. All Group 2 Participants who are Office Managers shall participate in the Office Manager Incentive Program. All Group 3 Participants shall participate in the Discretionary Incentive Program.

          Section 4.04. Termination of Employment.

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

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

          Section 4.05. Death, Disability or Retirement. If, during a Plan Year, a Participant dies or becomes disabled, within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, or retires after attainment of at least age 55 and with at least 10 years of service with the Company and/or its subsidiaries, the Committee may, in its discretion or under such rules as it may prescribe, make a partial or full Incentive Award to the Participant for the Plan Year provided that the applicable Performance Goals were achieved.

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

     Section 5. Incentive Targets, Incentive Awards and Performance Goals.

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

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

     Section 5.03. Performance Goals.

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

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shareholder return. The Committee shall designate one or more of such Performance Goals as the main Company Performance Goals (the “Main Company Performance Goals”) and the weighting among the various Performance Goals established. The Company Performance Goals are attached hereto as Attachment B. In order for any Incentive Awards to be paid to Participants in any Incentive Program with respect to a Plan Year, the Main Company Performance Goals established by the Committee for such Plan Year (measured at target) must be achieved.

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

               (c) Sales Manager Performance Goals. Within 30 days after the commencement of a Plan Year, the Committee shall establish specific performance goals for the Company’s Sales Managers (“Sales Manager Performance Goals”), which may be based upon one or more of the following objective performance measures and expressed in either, or a combination of, absolute values or rates of change: revenues. The Sales Manager Performance Goals are attached hereto as Attachment D.

               (d) Office Manager Performance Goals. Within 30 days after the commencement of a Plan Year, the Committee shall establish specific performance goals for the Company’s Office Managers (“Office Manager Performance Goals”), which may be based upon one or more of the following objective performance measures and expressed in either, or a combination of, absolute values or rates of change: revenues, expenses. The Office Manager Performance Goals are attached hereto as Attachment E.

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

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

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(iv)	Office Manager Incentive Program. The Participant Performance Goals for each Group 2 Participant in the Office Manager Incentive Program shall be (x) the Main Company Performance Goals and (y) the Office Manager Performance Goals, weighted per Attachment F.
(v)	Discretionary Incentive Program. The Participant Performance Goals for the Participants in the Discretionary Incentive Program shall be (x) the Main Company Performance Goals and (y) other goals as established by the Committee in its discretion, weighted per Attachment F.

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

          Section 5.04. Discretion. The Committee shall have no discretion to increase any Incentive Target or Incentive Award payable that would otherwise be due upon attainment of the Performance Goals, but the Committee may in its discretion reduce or eliminate such Incentive Target or Incentive Award.

          Section 5.05. Determination of Incentive Award. The amount of a Participant’s Incentive Award for a Plan Year, if any, shall be determined by the Committee or its delegate in accordance with the level of achievement of the applicable Participant Performance Goals, the Participant’s Incentive Target for such level of achievement, and the other terms of the Plan. Provided the conditions set forth in Section 5.02 are achieved for any Plan Year, Incentive Awards payable shall be calculated as a percentage of each of the respective Incentive Targets, such percentage being equal to (i) 80% of the extent, if any, to which the Company’s income before taxes exceeds the Company Performance Goal target for such item, as identified on Attachment B, divided by (ii) the cumulative total of all Incentive Targets, expressed in terms of dollar amounts, assigned under the Plan for such Plan Year.

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

     Section 6. Payment to Participants.

          Section 6.01. Timing of Payment. Any Incentive Award for a Plan Year shall be paid to the Participant, or in the case of death to the Participant’s beneficiary, on or before March 15th of the following year.

          Section 6.02. Beneficiary Designation. The deemed beneficiary of a Participant for this Plan will be the beneficiary elected by the Participant under the Company’s Life Insurance Plan; provided that a Participant may elect a different beneficiary by filing a completed designation of beneficiary form with the Committee or its delegate in the form prescribed. Such designation may be made, revoked or changed by the Participant at any time before death but such designation of beneficiary will not be effective and supersede all prior designations until it is received and acknowledged by the Committee or its delegate. If the Committee has any doubt as to the proper beneficiary to receive payments hereunder, the

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Committee shall have the right to withhold such payments until the matter is finally adjudicated. However, any payment made in good faith shall fully discharge the Committee, the Company, its subsidiaries and the Board from all further obligations with respect to that payment.

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

     Section 7. Miscellaneous.

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

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

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

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

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

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

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

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

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

          Section 7.10. Unsecured Creditor. The Plan constitutes a mere promise by the Company or a subsidiary to make benefit payments in the future. The Company’s and the subsidiaries’ obligations under the Plan shall be unfunded and unsecured promises to pay. The Company and the subsidiaries shall not be obligated under any circumstance to fund their respective financial obligations under the Plan. Any of them may, in its discretion, set aside funds in a trust or other vehicle, subject to the claims of its creditors, in order to assist it in meeting its obligations under the Plan, if such arrangement will not cause the Plan to be considered a funded deferred compensation plan. To the extent that any Participant or beneficiary or other person acquires a right to receive payments under the Plan, such right shall be no greater than the right, and each Participant and beneficiary shall at all times have the status, of a general unsecured creditor of the Company or a subsidiary.

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EX-10.2.C

Exhibit 10.2.c

AMENDMENT NO. 3
TO CONSULTING AGREEMENT

     This AMENDMENT NO. 3 to the Consulting Agreement between the parties is entered into by and between Michael Baker Corporation, a Pennsylvania Corporation (the “Corporation”) and Richard L. Shaw, an individual (the “Executive”), effective April 26, 2006.

WHEREAS, the Corporation and the Executive entered into the Consulting Agreement, a true and correct copy of which is attached hereto as Exhibit A, effective April 25, 2001, and continuing for a two (2) year term until April 26, 2003; and

WHEREAS, the Corporation and the Executive entered into Amendment No. 1 to Consulting Agreement, effective April 26, 2003, a true and correct copy of which is attached hereto as Exhibit B, extending the term of the Consulting Agreement for an additional two (2) year period until April 26, 2005; and

WHEREAS, the Corporation and the Executive entered into Amendment No. 2 to the Consulting Agreement, effective April 26, 2005, a true and correct copy of which is attached hereto as Exhibit C, extending the term of the Consulting Agreement for an additional one (1) year period until April 26, 2006; and

WHEREAS, the Corporation and the Executive now desire to extend the term of the Consulting Agreement upon the same terms and conditions for an additional one (1) year period until April 26, 2007;

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

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

     IN WITNESS WHEREOF, effective April 26, 2006, the parties have executed this AMENDMENT NO. 3 to the Consulting Agreement.

	MICHAEL BAKER CORPORATION
Attest:	(The “Corporation”)
/s/ H. James McKnight	By:	/s/ Donald P. Fusilli, Jr.
H. James McKnight		Donald P. Fusilli, Jr.
Secretary		President & Chief Executive Officer
Witness:	Richard L. Shaw
	(The “Executive”)
/s/ Beverly J. Merriman	/s/ Richard L. Shaw

EX-10.2.D

Exhibit 10.2.d

AMENDMENT NO. 4
TO CONSULTING AGREEMENT

This AMENDMENT NO. 4 to the Consulting Agreement between the parties is entered into by and between Michael Baker Corporation, a Pennsylvania Corporation (the “Corporation”) and Richard L. Shaw, an individual (the “Executive”), effective April 26, 2007.

WHEREAS, the Corporation and the Executive entered into the Consulting Agreement, a true and correct copy of which is attached hereto as Exhibit A, effective April 25, 2001, and continuing for a two (2) year term until April 26, 2003; and

WHEREAS, the Corporation and the Executive entered into Amendment No. 1 to Consulting Agreement, effective April 26, 2003, a true and correct copy of which is attached hereto as Exhibit B, extending the term of the Consulting Agreement for an additional two (2) year period until April 26, 2005; and

WHEREAS, the Corporation and the Executive entered into Amendment No. 2 to the Consulting Agreement, effective April 26, 2005, a true and correct copy of which is attached hereto as Exhibit C, extending the term of the Consulting Agreement for an additional one (1) year period until April 26, 2006; and

WHEREAS, the Corporation and the Executive entered into Amendment No. 3 to the Consulting Agreement, effective April 26, 2006, a true and correct copy of which is attached hereto as Exhibit D, extending the term of the Consulting Agreement for an additional one (1) year period until April 26, 2007; and

WHEREAS, the Corporation and the Executive now desire to extend the term of the Consulting Agreement upon the same terms and conditions for an additional one (1) year period until April 26, 2008;

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

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

     IN WITNESS WHEREOF, effective April 26, 2007, the parties have executed this AMENDMENT NO. 4 to the Consulting Agreement.

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

EX-10.3

Exhibit 10.3

SUPPLEMENTAL AGREEMENT NO. 6

This Supplemental Agreement No. 6 dated as of September 14, 2006 is entered into by and between MICHAEL BAKER CORPORATION, a Pennsylvania corporation (hereinafter referred to as the “Corporation”) and RICHARD L. SHAW, an individual (hereinafter referred to as the “Executive”).

WITNESSETH:

     WHEREAS, the Corporation and the Executive entered into an Employment Agreement dated April 12, 1988 and subsequently amended the Employment Agreement by Supplemental Agreement No. 1 dated March 17, 1992, Supplemental Agreement No. 2 dated October 1, 1994, Supplemental Agreement No. 3 dated June 1, 1995, Supplemental Agreement No. 4 dated March 1, 1998, and Supplemental Agreement No. 5, dated September 7, 1999 (hereinafter collectively the “Agreement”); and

     WHEREAS, pursuant to the Agreement, the Corporation has retained the Executive as a consultant after the Executive’s retirement; and

     WHEREAS, upon the Corporation’s Chief Executive Officer leaving his employment with the Corporation and at the request of the Corporation’s Board of Directors, the Executive has re-assumed the full-time position as Chief Executive Officer of the Corporation effective September 14, 2006 and has agreed to serve in such capacity until a successor is appointed; and

     WHEREAS, the Corporation and the Executive now desire to further amend and supplement the Agreement in recognition of these recent changes in the Executive’s status;

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

1.	Effective September 14, 2006, Executive shall re-assume the full-time position as Chief Executive Officer of the Corporation with such duties and responsibilities as described in Section 2 of the Agreement, and shall be compensated for his services at an annual rate of $430,497.60 or such higher rate as the Board of Directors of the Corporation may from time to time determine, payable in approximately equal bi-weekly installments.
2.	During his service as Chief Executive Officer of the Corporation, Executive shall be entitled to participate in all plans, programs and receive all benefits which the Corporation may have in effect for its executive employees.
3.	Commencing October 1, 2006 and during the period the Executive serves as Chief Executive Officer of the Corporation, payments and benefits otherwise available to Executive during the Consulting Term under Section 5 of the Agreement shall be suspended, provided that the Corporation shall continue to cover the cost of the “65 Special” health insurance and coverage for the Executive and his spouse without interruption. The Consulting Term shall continue to run during this period, and upon conclusion of Executive’s service as Chief Executive

	Officer prior to expiration of the Consulting Term, Executive shall revert to consultant status and the payments and benefits available under Section 5 shall recommence for the balance of the Consulting Term.
4.	All other terms and conditions of the Agreement shall remain in full force and effect and are hereby ratified by both parties, and the Agreement is hereby incorporated by reference as if fully stated herein.

IN WITNESS WHEREOF, the parties have executed this Supplemental Agreement No. 6 as of the day and year first above written.

	MICHAEL BAKER CORPORATION
ATTEST:	(The “Corporation”)
/s/ Marcia S. Wolk	By:	/s/ H. James McKnight
Marcia S. Wolk Assistant Secretary		H. James McKnight Executive Vice President, General Counsel & Corporate Secretary
WITNESS:	RICHARD L. SHAW (The “Executive”)
/s/ Silvana Travanti	/s/ Richard L. Shaw

EX-13.1

EXHIBIT 13.1

SELECTED FINANCIAL DATA

(In thousands, except per
share information)	2006 *			2005			2004			2003			2002
Results of Operations
Total contract revenues	$	651,012		$	579,278		$	552,046		$	426,761		$	405,264
Income from operations		18,513			16,882			18,868			5,720			16,354
Net income/(loss)		11,831			5,051			8,394			(800	)		9,039
Diluted earnings/(loss) per share	$	1.36		$	0.58		$	0.98		$	(0.10	)	$	1.06
Return/(loss) on average equity		13.5	%		6.5	%		12.1	%		(1.2	)%		14.8	%
Financial Condition
Total assets	$	266,123		$	225,461		$	215,013		$	181,099		$	145,495
Working capital	$	68,726		$	49,264		$	43,624		$	42,768		$	35,512
Current ratio		1.45			1.35			1.32			1.42			1.47
Long-term debt	$	11,038		$	—		$	—		$	13,481		$	—
Shareholders’ investment		95,120			79,824			74,781			64,343			65,977
Book value per outstanding share		10.94			9.40			8.78			7.73			7.87
Year-end closing share price	$	22.65		$	25.55		$	19.60		$	10.35		$	10.95
Cash Flow
Net cash (used in)/provided by operating activities	$	(9,343	)	$	12,440		$	28,477		$	(14,675	)	$	(9,139	)
Net cash (used in)/provided by investing activities		(14,933	)		(7,078	)		(4,055	)		(4,787	)		121
Net cash provided by/(used in) financing activities		18,417			(1,792	)		(18,077	)		18,703			421
(Decrease)/increase in cash	$	(5,859	)	$	3,570		$	6,345		$	(759	)	$	(8,597	)
Backlog	$	1,292,500		$	1,321,800		$	1,399,500		$	720,700		$	545,200
Share Information
Year-end shares outstanding		8,698			8,490			8,519			8,320			8,384
Diluted weighted average shares outstanding		8,718			8,715			8,554			8,403			8,543

* For further discussion, see the “Fourth Quarter Adjustments” note to our accompanying consolidated financial statements.

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

     The following discussion should be read in conjunction with our “Selected Financial Data” and our consolidated financial statements and related notes. The discussion in this section contains forward-looking statements that involve risks and uncertainties. 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.

Business Overview and Environment

     We provide engineering and energy expertise for public and private sector clients worldwide. Our primary services include engineering design for the transportation and civil infrastructure markets, architectural and environmental services, construction management services for buildings and transportation projects, and maintenance of oil and gas production facilities. 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 affected 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 engineering and energy markets. We could be affected by additional external factors such as price fluctuations and capital expenditures in the energy industry.

Engineering

     For the past several years, we have observed increased federal spending activity by the Department of Defense (“DoD”) and the Department of Homeland Security (“DHS”), including the Federal Emergency Management Agency (“FEMA”). In turn, we have focused more marketing and sales activity on these agencies of the United States of America (“U.S.”) federal government. As a result of pursuing this strategy, we have significantly increased our revenues from U.S. federal government contracting activity over the last several years. Additional government spending in these areas or on transportation infrastructure could result in profitability and liquidity improvements for us. Significant contractions in any of these areas could unfavorably impact our profitability and liquidity. In 2005, the U.S. Congress approved a six-year $286.5 billion transportation infrastructure bill entitled SAFETEA-LU, the Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for Users. This funding reflects an increase of approximately 46% over its predecessor, TEA-21. With this bill enacted, we saw an increase in state spending on transportation infrastructure projects for the year ended December 31, 2006, and we expect this activity to grow at a more accelerated rate in 2007. Our second quarter acquisition of Buck Engineering, P.C. (“Buck”) added stream and wetlands restoration capabilities which we expect to leverage with departments of transportation in various states. Significant Engineering contracts awarded during 2006 and early 2007 are as follows:

     2006 Contracts

• Indefinite Delivery/Indefinite Quantity (“IDIQ”) contract with a one-year base period and four, one-year option periods with the DHS to provide program and project management services for facilities and engineering projects within the US-VISIT program. The maximum ordering limitation is $10 million for the base year and the four option years for a total of $50 million.

• Contract to be the lead designer for a $183 million design/build highway reconstruction project on Interstate 15 in Ogden, Utah. We will be providing the design services for the project, which are valued at $16.4 million.

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     2007 Contracts

• A five-year, $45 million IDIQ contract with the U.S. Army Corps of Engineers, Ft. Worth District, to provide architectural and engineering design services nationwide in support of the Department of Homeland Security’s efforts to secure U.S. borders.

• A four-year, $24 million Environmental Services Cooperative Agreement with the U.S. Department of the Army to perform a conservation conveyance. Services to be provided by us and our team members are valued at $15 million under this contract.

• A $9.8 million contract with the Pennsylvania Department of Transportation to provide construction management support and construction inspection services for administering an estimated $130 million reconstruction or replacement of portions of U.S. Route 15 and Interstate 81 in Cumberland County, Pennsylvania.

     In March 2004, we announced that we had been awarded a five-year contract with FEMA for up to $750 million to serve as the program manager to develop, plan, manage, implement, and monitor the Multi-Hazard Flood Map Modernization Program for flood hazard mitigation across the U.S. and its territories. Approximately $467 million of this contract value was included in our backlog as of December 31, 2006.

     During the second quarter of 2006, we were initially awarded a separate five-year, up-to-$750 million, performance-based contract from FEMA to provide program management and individual housing inspection services to assess damage caused by natural disasters. A protest was filed by another bidder and later dismissed relative to this award, and FEMA is currently conducting a re-selection process. While we believe that we have provided an acceptable proposal with respect to qualification and pricing, we can give no assurance that we will be re-selected or when such re-selection process will be completed. As such, no related amounts have been included in our backlog as of December 31, 2006.

Energy

     During 2006, we continued to increase our presence into the deepwater Gulf of Mexico and international markets, where oil and gas producers are currently investing significant amounts of capital for new projects. An important contributor to our success in these areas is our compliance with applicable health, safety and environmental regulations for our clients. As evidence of our improvements in this regard, we were awarded the 2005 National Safety Award for Excellence (“SAFE”) by the U.S. Department of the Interior’s Minerals Management Service during the second quarter of 2006. We were also the recipient of three district SAFE awards and named a finalist for the 2006 National SAFE award during the first quarter of 2007. Significant Energy contracts awarded during 2006 are as follows:

• A five-year, multi-million dollar contract with Escambia Operating Company, LLC (“Escambia”) to operate and maintain its gas producing properties and facilities at the Big Escambia Field in Alabama.

• A five-year, multi-million dollar managed services contract with Brooks Range Petroleum Corporation to provide exploration, development and operations services for their prospect fields on the North Slope of Alaska.

• A maintenance technician contract with Cabinda Gulf Oil Company Ltd. for its Angolan production regions. This contract for five years plus one option year has a value of approximately $10 million.

• A two-year, multi-million dollar contract with Stone Energy to provide offshore operations and maintenance labor services in the Gulf of Mexico.

     During 2005, our Energy segment received an onshore managed services contract in the Powder River Basin of Wyoming from Storm Cat Energy to operate and maintain its coal bed methane production facilities, which are adjacent to the Huber properties (another Energy client).

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Executive Overview

     Our total contract revenues were $651 million for 2006, a 12% increase over the $579 million reported for 2005. This increase was driven by 30% year-over-year growth in our Energy segment, which benefited from two large contract awards in mid-year 2006. Revenue growth in our Engineering segment was modest at 2%. Our Engineering growth was primarily related to transportation-related services and included a minor increase from a 2006 acquisition, offset by a 14% decline in FEMA-related revenue.

     Our 2006 results of operations benefited from a number of adjustments related to tax liabilities and associated penalties and interest expense accrued primarily in prior years, with a portion relating to 2006, which favorably impacted our pre-tax income by approximately $8.0 million during the fourth quarter. Offsetting these adjustments were legal costs totaling $2.2 million which were incurred during 2006 in connection with litigation related to our bid on a new housing inspection services contract for FEMA. Professional fees totaling $1.8 million were also incurred during 2006 in connection with the restatement of our consolidated financial statements from 2001 through the first quarter of 2005. These favorable tax liability adjustments, unfavorable bid-related legal costs, and unfavorable restatement-related professional fees are not expected to recur in future periods.

     Our earnings per diluted common share were $1.36 for 2006, a 134% increase over the $0.58 per diluted common share reported for 2005. Income from operations in our Energy segment improved from a 2005 operating loss of $6.0 million to a 2006 operating profit of $6.3 million, although the 2006 operating profit includes $5.2 million of favorable effects from tax-related settlements. Our 2006 net income and earnings per share also benefited from a much lower effective income tax rate, which declined from 67% in 2005 to 43% in 2006 due to higher levels of foreign income associated with the favorable tax settlements.

Developments Regarding Foreign and Domestic Tax Liabilities

     During the fourth quarter of 2006, we resolved a number of outstanding foreign and domestic tax and tax-related liabilities related to our Energy segment. In November 2006, a domestic sales and use tax matter was settled for $0.1 million (including related interest), for which we had accrued $4.8 million through September 30, 2006. This resulted in a favorable reversal of tax and interest liabilities totaling $4.7 million during the fourth quarter. We also settled certain other foreign payroll tax exposures, which resulted in the reversal of approximately $2.1 million in tax, penalty and interest liabilities during the fourth quarter. In addition, a foreign payroll tax exposure accrued at December 31, 2005 was resolved. This resulted in the reversal of a related tax liability totaling $1.2 million during the fourth quarter of 2006. We expect that additional tax exposures will be settled in our Energy segment during 2007; however, we are currently unable to estimate what impact, if any, those settlements may have on our 2007 earnings. The impact of these 2006 reversals, as well as 2006 payments, on our liability balances recorded at December 31, 2005 was as follows:

									Balances
	Balances at								at
Tax-related liabilities arising from	December		2006			2006			December
2005 restatement	31, 2005		Payments			Reversals			31, 2006
	(in millions)
Penalties and interest on taxes	$	6.4	$	(0.5	)	$	(2.1	)	$	3.8
Domestic sales and use taxes		3.2		(0.1	)		(3.1	)		—
International payroll taxes		5.7		(1.7	)		(1.6	)		2.4
International value added taxes		1.4		(0.2	)		—			1.2
International income taxes		4.7		(2.9	)		—			1.8
Total	$	21.4	$	(5.4	)	$	(6.8	)	$	9.2

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     The above table does not include additional tax liabilities related to our 2006 operations. During the first nine months of 2006, we recorded additional tax and interest totaling $1.2 million associated with the domestic sales and use tax issue, which was reversed in the fourth quarter. In addition to the amounts included in the preceding table, penalties and interest totaling $1.0 million were incurred during 2006 related to our outstanding exposures as of December 31, 2005.

Results of Operations

     The following table reflects a summary of our operating results (excluding intercompany transactions) for the years ended December 31, 2006, 2005 and 2004. We evaluate the performance of our segments primarily based on income from operations before Corporate overhead allocations. Corporate overhead is allocated between our Engineering and Energy segments based on a three-part formula comprising revenues, assets and payroll.

Total Contract Revenues/Income from Operations
(dollars in millions)	2006			2005			2004
Engineering
Total contract revenues	$	380.1		$	371.1		$	343.3
Income from operations pre-Corporate overhead		30.1			40.2			33.2
Percentage of Engineering revenues		7.9	%		10.8	%		9.7	%
Less: Corporate overhead		(16.5	)		(13.6	)		(11.3	)
Percentage of Engineering revenues		4.3	%		3.7	%		3.3	%
Income from operations		13.6			26.6			21.9
Percentage of Engineering revenues		3.6	%		7.2	%		6.4	%
Energy
Total contract revenues		270.9			208.2			208.7
Income/(loss) from operations pre-Corporate overhead		12.5			(0.9	)		2.7
Percentage of Energy revenues		4.6	%		(0.4	)%		1.3	%
Less: Corporate overhead		(6.2	)		(5.1	)		(4.7	)
Percentage of Energy revenues		2.3	%		2.4	%		2.3	%
Income/(loss) from operations		6.3			(6.0	)		(2.0	)
Percentage of Energy revenues		2.3	%		(2.9	)%		(1.0	)%
Total Business Segments
Total contract revenues		651.0			579.3			552.0
Income from operations pre-Corporate overhead		42.6			39.3			35.9
Percentage of total business segment revenues		6.5	%		6.8	%		6.5	%
Less: Corporate overhead		(22.7	)		(18.7	)		(16.0	)
Percentage of total business segment revenues		3.5	%		3.2	%		2.9	%
Income from operations — segments		19.9			20.6			19.9
Percentage of total business segment revenues		3.1	%		3.6	%		3.6	%
Other Corporate/Insurance expense		(1.4	)		(3.7	)		(1.0	)
Total Company – Income from operations	$	18.5		$	16.9		$	18.9
Percentage of total Company revenues		2.8	%		2.9	%		3.4	%

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Comparisons for the Years Ended December 31, 2006 and 2005

Total Contract Revenues

     Our total contract revenues were $651.0 million in 2006 compared to $579.3 million in 2005, reflecting an increase of $71.7 million or 12%. The main driver of this increase relates to 30% year-over-year growth in our Energy segment.

     Engineering. Revenues were $380.1 million for 2006 compared to $371.1 million for 2005, reflecting an increase of $9.0 million or 2%. The majority of our 2006 revenues in the Engineering segment was generated by our transportation practice (37% of total) and our projects with FEMA (26% of total).

     The following table presents Engineering revenues by client type for 2006 and 2005:

Revenues by client type	2006				2005
	(dollars in millions)
Federal government clients	$	175.6	46	%	$	179.8	48	%
State and local government clients		150.9	40	%		152.2	41	%
Domestic private industry clients		53.6	14	%		39.1	11	%
Total Engineering revenues	$	380.1	100	%	$	371.1	100	%

     The increase in our Engineering segment’s revenue was generated primarily by a 13% increase in transportation-related revenues and the acquisition of Buck which added revenue of $6.3 million in 2006. This increase was partially offset by a decrease in FEMA-related revenues. Total revenues from FEMA were $100 million and $114 million for 2006 and 2005, respectively. The 2006 decrease in FEMA revenue was primarily associated with higher subcontractor costs in 2005 associated with completing the initial scope of the information infrastructure required for the map modernization project during 2005. In addition, as a result of achieving certain performance levels on the map modernization project, we recognized revenues associated with incentive awards totaling $2.1 million and $6.4 million for 2006 and 2005, respectively. The higher awards for 2005 represent a combination of the availability of a larger incentive award pool in 2005 as compared to 2006 and lower performance levels being achieved on the project in 2006, which resulted in our recognition of a lower percentage of the available 2006 incentive award pool.

     Energy. Revenues were $270.9 million for 2006 compared to $208.2 million for 2005, reflecting an increase of $62.7 million or 30%. The Energy segment serves both major and smaller independent oil and gas producing companies in both the U.S and foreign markets.

     The following table presents Energy revenues by market for 2006 and 2005:

Revenues by market	2006				2005
	(dollars in millions)
Domestic	$	200.6	74	%	$	143.7	69	%
Foreign		70.3	26	%		64.5	31	%
Total Energy revenues	$	270.9	100	%	$	208.2	100	%

     The 30% increase in Energy’s revenues in 2006 was the direct result of the previously mentioned contracts awarded during 2006. These contracts included offshore operations and maintenance work in the Gulf of Mexico with Stone Energy and onshore managed services contracts with Escambia and Brooks Range Petroleum Corporation. Internationally, Energy’s revenues also benefited from the scheduled shut downs of a liquefied natural gas facility in Nigeria, for which we provided operations and maintenance services on two separate occasions during 2006 versus only once in 2005. During the shut-

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down period, high levels of effort are expended to complete preventative and other maintenance and then place the facility back into service quickly. These activities generate revenues over a short period of time and do not recur until the next scheduled shut-down period. In addition, we received new contracts in Western Africa during 2006, which were offset by the loss of a major contract in Venezuela.

Gross Profit

     Our gross profit was $88.3 million in 2006 compared to $83.4 million in 2005, reflecting an increase of $4.9 million or 6%. Gross profit expressed as a percentage of contract revenues decreased to 13.6% in 2006 from 14.4% in 2005. Direct labor and subcontractor costs are major components of our cost of work performed due to the project-related nature of our service businesses. Direct labor costs expressed as a percentage of contract revenues were 30.1% for 2006 compared to 30.8% for 2005, while subcontractor costs expressed as a percentage of revenues were 24.4% and 22.7% in 2006 and 2005, respectively. Incremental employee medical costs in both the Engineering and Energy segments for 2006 also contributed to the increase in our cost of work performed over 2005.

     Engineering. Gross profit was $64.6 million in 2006 compared to $72.2 million in 2005, reflecting a decrease of $7.6 million or 10%. Engineering’s gross profit expressed as a percentage of revenues decreased to 17.0% in 2006 from 19.5% in 2005. In 2006, gross profit expressed as a percentage of revenues was negatively impacted by a decrease of $4.3 million in the aforementioned incentive awards on the FEMA map modernization project, coupled with legal costs totaling $2.2 million incurred during 2006 in connection with litigation related to our bid on a new housing inspection services contract for FEMA. In addition, Engineering’s labor utilization rates for 2006 were lower by 1.5% when compared to 2005 and negatively impacted Engineering’s gross profit expressed as a percentage of revenues. These lower labor utilization rates in 2006 are attributable to a higher level of Baker labor hours worked in 2005 in connection with the FEMA map modernization project, combined with a higher level of proposal activity in the first half of 2006 and multiple delays of anticipated projects during 2006. The 2006 proposal activity includes our effort to acquire the housing inspection services contract for FEMA, which was initially awarded to us but subsequently protested.

     Energy. Gross profit was $25.1 million in 2006 compared to $14.9 million in 2005, reflecting an increase of $10.2 million or 69%. Gross profit expressed as a percentage of contract revenues increased to 9.3% in 2006 from 7.1% in 2005. This increase in gross profit expressed as a percentage of revenues relates to the previously mentioned 30% increase in revenues coupled with lower project overhead costs expressed as a percentage of contract revenues for 2006 as compared to 2005. Gross profit increased by $8.7 million in our managed services business as a result of higher profitability on the aforementioned new contracts which commenced in 2006. Also favorably impacting gross profit expressed as a percentage of revenues was the improved performance of our computerized maintenance management and operations assurance services (“CMMS”) contracts, which contributed $1.4 million of gross profit in 2006 versus a gross loss of approximately $0.1 million in 2005, and a performance-based incentive bonus totaling $0.7 million that was earned on a project in our managed services business during the first quarter of 2006. In 2006, the Energy segment recorded tax liability adjustments which reduced its cost of work performed by approximately $1.6 million. These adjustments related to several foreign payroll tax exposures that were settled or resolved in the fourth quarter. In addition, the Energy segment’s gross profit expressed as a percentage of revenues was favorably impacted by lower workers’ compensation claims expense in 2006 versus 2005.

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Selling, General and Administrative Expenses

     Our selling, general and administrative (“SG&A”) expenses were $69.8 million in 2006 compared to $66.5 million in 2005, reflecting an increase of $3.3 million or 5%. This overall increase in SG&A expenses is the direct result of higher corporate overhead costs in 2006. Corporate overhead increased primarily due to professional fees of $1.8 million incurred during the first nine months of 2006 that were associated with the previously mentioned restatement of our consolidated financial statements, and higher costs associated with headcount additions. SG&A expenses expressed as a percentage of contract revenues decreased to 10.7% in 2006 from 11.5% in 2005. This overall decrease in SG&A expenses expressed as a percentage of contract revenues is related to our 12% increase in total contract revenues for 2006.

     Engineering. SG&A expenses were $51.0 million in 2006 compared to $45.5 million in 2005, reflecting an increase of $5.5 million or 12%. SG&A expenses expressed as a percentage of revenues increased to 13.4% in 2006 from 12.3% in 2005. In addition to an increase of $2.8 million in allocated corporate overhead expenses, the Engineering segment’s SG&A expenses increased by $2.1 million in 2006 due primarily to increases in bid and proposal costs, as well as other increases in legal and other professional fees, project management training costs, and personnel-related costs compared to 2005.

     Energy. SG&A expenses were $18.8 million in 2006 compared to $20.9 million in 2005, reflecting a decrease of $2.1 million or 10%. SG&A expenses expressed as a percentage of revenues decreased to 6.9% in 2006 from 10.0% in 2005. This decrease in SG&A expenses expressed as a percentage of revenues is primarily attributable to the aforementioned 30% increase in revenues coupled with the favorable effect of the aforementioned tax liability adjustments recorded in 2006. In 2006, the Energy segment recorded tax liability adjustments which reduced its SG&A expenses by approximately $3.6 million. These adjustments related to a favorable settlement of sales and use tax liabilities and reductions in penalties related to various foreign taxes. Partially offsetting these favorable adjustments was an increase of $1.2 million in allocated corporate overhead expenses and professional fees of $1.0 million for audit and tax services related to our settlements of past due taxes in 2006.

Other Income/(Expense)

     All other income and expense categories totaled $2.1 million of income for 2006 compared to $1.8 million of expense for 2005. A portion of this favorable impact was the result of our unconsolidated joint ventures producing equity income of $1.3 million in 2006 compared to $0.5 million in 2005. This increase in equity income as compared to 2005 primarily related to additional costs recognized in 2005 related to a goodwill impairment charge and other costs incurred as a result of Hurricanes Katrina and Rita.

     Interest income increased to $0.5 million in 2006 compared to $0.3 million in 2005. This increase resulted primarily from interest income collected in connection with a favorable claim settlement and a tax refund received during 2006. Our recurring interest expense increased to $1.0 million in 2006 compared to $0.1 million in 2005 primarily due to our being in a net borrowed position under our Unsecured Credit Agreement (“Credit Agreement”) during the majority of 2006. We were in a net invested position under our Credit Agreement for the majority of 2005.

     As a result of our underpayment of certain income, payroll, value added, and sales and use taxes in our Energy segment during 2005 and prior years, we accrued $1.4 million in interest expense in 2005. During 2006, favorable settlements and resolutions of these tax liabilities resulted in the reversal of previously accrued interest expense totaling $1.6 million. In addition, interest expense related to unresolved and unsettled tax exposures totaling $0.6 million was accrued during 2006.

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     Our “other, net” income/(expense) was $0.4 million of income for 2006 compared to $1.1 million of expense for 2005. The 2006 income amount included currency-related gains totaling $0.4 million. The 2005 expense amount included currency-related losses of $0.5 million, a writedown on an equity investment totaling $0.2 million, and other miscellaneous expense.

Income Taxes

     Our provisions for income taxes resulted in effective tax rates of 43% and 67% in 2006 and 2005, respectively. The variance between the U.S. federal statutory rate and our effective rate for these periods is primarily due to taxes on foreign revenue and income, which we are not able to offset with U.S. foreign tax credits, and to foreign losses with no U.S. tax benefit. The foreign pre-tax book income was approximately $5.7 million for 2006 compared to a loss of $3.4 million for 2005. The change in foreign pre-tax book income from a loss in 2005 to a profit in 2006 created a significant fluctuation in the effective rate relative to foreign taxes. The effective rate related to foreign taxes was 6% and 26% in 2006 and 2005, respectively, reflecting a 20% rate reduction from the previous year. The foreign tax expense from 2005 to 2006 did not fluctuate significantly; however, when applied to the amount of pre-tax book income, a significant rate impact resulted because a significant portion of our foreign tax expense is typically computed based on deemed profits and would not be impacted by the amount of pre-tax book income from year to year. Our effective rate was also lower because of state income taxes, a favorable mix of permanent items as compared to the prior year and an income tax benefit realized from a U.S. income tax refund received in 2006 related to an amended return.

Comparisons for the Years Ended December 31, 2005 and 2004

Total Contract Revenues

     Our total contract revenues were $579.3 million in 2005 compared to $552.0 million in 2004, reflecting an increase of $27.3 million or 5%.

     Engineering. Revenues were $371.1 million in 2005 compared to $343.4 million in 2004, reflecting an increase of $27.7 million or 8%. This increase in revenues reflects the addition of the previously mentioned FEMA map modernization project. Total revenue from FEMA was $114 million in 2005 versus $80 million in 2004. Much of the FEMA revenue growth was associated with the cost of expanding the information infrastructure required for the project in 2005. In addition, as a result of achieving certain performance levels from the second quarter of 2004 through the third quarter of 2005 on this project, the Engineering segment recognized revenue associated with incentive awards totaling $6.4 million during 2005. FEMA incentive award revenues totaled $0.4 million in 2004. Revenues for 2005 from Engineering’s private and public sector clients increased 9% and 8%, respectively.

     The following table presents Engineering revenues by client type for 2005 and 2004:

Revenue by client type	2005				2004
	(dollars in millions)
Federal government clients	$	179.8	48	%	$	142.9	42	%
State and local government clients		152.2	41	%		166.6	48	%
Domestic private industry clients		39.1	11	%		33.9	10	%
Total Engineering revenues	$	371.1	100	%	$	343.4	100	%

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     Energy. Revenues were $208.2 million in 2005 compared to $208.7 million in 2004, reflecting a slight decrease of $0.5 million. This minor decrease reflects lower revenues on certain contracts in Energy’s CMMS business, partially offset by revenue increases associated with the additions of a multi-million dollar contract with Anglo-Suisse Offshore Partners, LLC (“ASOP”) to operate, maintain and optimize the performance of ASOP’s offshore oil and gas producing properties in the Gulf of Mexico, an onshore contract with Storm Cat Energy to operate and maintain its coal bed methane production facilities, and a multi-million dollar contract to provide operations assurance services for the Agbami Floating Production Storage and Offloading Project in deepwater offshore Nigeria. The lower 2005 revenues associated with CMMS contracts were due to the wind down of several projects during late 2004 and early 2005. Also negatively impacting Energy revenues in 2005 was the loss of certain offshore projects in the Gulf of Mexico, where properties were sold and we were not able to retain the contracts with the new owners.

     The following table presents Energy revenues by market for 2005 and 2004:

Revenue by market	2005				2004
	(dollars in millions)
Domestic	$	143.7	69	%	$	147.5	71	%
International		64.5	31	%		61.2	29	%
Total Energy revenues	$	208.2	100	%	$	208.7	100	%

Gross Profit

     Our gross profit was $83.4 million in 2005 compared to $86.4 million in 2004, reflecting a decrease of $3.0 million or 4%. Gross profit expressed as a percentage of contract revenues decreased to 14.4% in 2005 from 15.7% in 2004. Direct labor costs expressed as a percentage of contract revenues were 30.8% for 2005 compared to 30.5% for 2004, while subcontractor costs expressed as a percentage of revenues were 22.7% and 21.5% in 2005 and 2004, respectively. Gross profit for 2005 was also unfavorably impacted by $1.3 million related to adverse development on a professional liability insurance claim. We also increased our reserve for medical insurance claims by $0.7 million during 2005 and the majority of this expense was allocated to cost of work performed, thereby reducing gross profit for both the Engineering and Energy segments.

     Engineering. Gross profit was $72.2 million in 2005 compared to $66.7 million in 2004, reflecting an increase of $5.5 million or 8%. Gross profit expressed as a percentage of revenues increased slightly to 19.5% in 2005 from 19.4% in 2004. With respect to FEMA, the positive effect of the aforementioned incentive awards was partially offset by a higher use of subcontractors to build the information infrastructure in 2005.

     Energy. Gross profit was $14.9 million in 2005 compared to $20.7 million in 2004, reflecting a decrease of $5.8 million or 28%. Gross profit expressed as a percentage of revenues decreased to 7.1% in 2005 from 9.9% in 2004. In 2005, gross profit expressed as a percentage of revenues was adversely affected by the previously mentioned loss of certain projects in the Gulf of Mexico and the resulting change in our contract mix toward lower-margin labor-based contracts, and the delays and cancellations of certain CMMS contracts that occurred during 2005. Additionally, higher costs related to workers’ compensation and general liability claims had a negative impact on gross profit for 2005.

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Selling, General and Administrative Expenses

     Our SG&A expenses were $66.5 million in 2005 compared to $67.6 million in 2004, reflecting a decrease of $1.1 million or 2%. SG&A expenses expressed as a percentage of total contract revenues decreased to 11.5% in 2005 from 12.2% in 2004. This decrease in SG&A expenses expressed as a percentage of revenues primarily reflects the combination of significantly lower incentive compensation expense in both Engineering and Energy for 2005 and the 5% increase in revenues. In addition to significantly lower incentive compensation expense recorded in 2005 due to our lower 2005 financial performance, amounts previously accrued at December 31, 2004 under our long-term incentive compensation plan totaling $0.3 million were reversed in the second quarter of 2005 when such amounts were no longer considered to be payable under the plan. Offsetting these decreases in SG&A expenses expressed as a percentage of revenues was the unfavorable 2005 effect of our settling certain litigation. This settlement had the effect of increasing our SG&A expenses (specifically Corporate overhead expense) by $0.9 million in the second quarter of 2005. Aside from the effect of this litigation settlement, Corporate overhead expense increased by $1.8 million for 2005, primarily due to higher salary and salary-related costs and professional fees. Professional fees related to the restatement totaled $0.5 million in 2005.

     Engineering. SG&A expenses were $45.5 million in 2005 compared to $44.8 million in 2004, reflecting an increase of $0.7 million or 2%. SG&A expenses expressed as a percentage of revenues decreased to 12.3% in 2005 from 13.1% in 2004. This decrease in SG&A expenses expressed as a percentage of revenues is primarily related to the aforementioned lower incentive compensation expense in conjunction with increased revenues partially offset by higher corporate overhead and litigation expenses.

     Energy. SG&A expenses were $20.9 million in 2005 compared to $22.7 million in 2004, a decrease of $1.8 million or 8%. SG&A expenses expressed as a percentage of revenues decreased to 10.0% in 2005 from 10.9% in 2004. This decrease in SG&A expenses expressed as a percentage of revenues was primarily related to the aforementioned lower incentive compensation expense in conjunction with increased revenues partially offset by higher corporate overhead and litigation expenses.

Other Income/(Expense)

     All other income and expense categories totaled $1.8 million of expense for 2005 compared to $0.1 million of expense for 2004. A portion of this unfavorable impact was the result of our unconsolidated joint ventures producing equity income of $0.5 million in 2005 compared to $0.6 million in 2004.

     Interest income increased to $0.3 million in 2005 compared to $0.1 million in 2004. Our recurring interest expense decreased to $0.1 million in 2005 compared to $0.3 million in 2004. Both of these variances were attributable to our being in a net invested position under our Credit Agreement during the majority of 2005 as compared to a net borrowed position for the majority of 2004.

     As a result of our underpayment of certain income, payroll, value added, and sales and use taxes in our Energy segment during 2005 and prior years, we accrued $1.4 million in interest expense in 2005 compared to $1.2 million for 2004.

     Our “other, net” income/(expense) was $1.1 million of expense for 2005 compared to $0.6 million of income for 2005. The 2005 expense amount included currency-related losses of $0.5 million, a writedown on an equity investment totaling $0.2 million, and other miscellaneous expenses. The 2004 income amount included a gain on the sale of an investment totaling $0.2 million and currency-related gains totaling $0.1 million.

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Income Taxes

     Our provisions for income taxes resulted in effective tax rates of 67% in 2005 and 55% in 2004. The variance between the U.S. federal statutory rate and the effective rate for these periods is due primarily to taxes on foreign income, which we are not able to offset with U.S. foreign tax credits. Our effective rate is also impacted by state income taxes, permanent items that are not deductible for U.S. tax purposes and Nigerian income taxes that are levied on a deemed profit basis.

Contract Backlog

(In millions)	December 31, 2006		December 31, 2005
Engineering	$	1,057.1	$	1,109.2
Energy		235.4		212.6
Total	$	1,292.5	$	1,321.8

     Backlog consists of that portion of uncompleted work that is represented by signed or executed contracts. Most of our contracts with the federal government and other clients may be terminated at will, or option years may not be exercised; therefore, no assurance can be given that all backlog will be realized.

     As of December 31, 2006 and 2005, $467 million and $566 million of our backlog, respectively, related to a $750 million contract in the Engineering segment 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. Due to the task order structure of the contract, realization of the timing and the amount we will realize of the original contract value of $750 million remains difficult to predict. FEMA has identified specific program objectives and priorities which it intends to accomplish under this program. As the initial task orders are completed and progress against objectives is measured, we will become better able to predict realization of this contract award. In the future, we may be required to reduce the backlog accordingly.

     In our Energy segment, we also consider our clients’ purchase orders for labor services as backlog. These purchase orders typically have a twelve-month term and cancellation clauses with thirty-day notice provisions. On a periodic basis, backlog is reduced as related revenue is recognized. Oil and gas industry merger, acquisition and divestiture transactions affecting our clients can result in increases and decreases in our Energy segment’s backlog.

Liquidity and Capital Resources

     We have three principal sources of liquidity to fund our operations, our existing cash and cash equivalents, cash generated by operations, and our available capacity under our Credit Agreement. In addition, certain customers have provided us with cash advances for use as working capital amounts under contracts related to those customers’ contracts. At December 31, 2006 and 2005, we had $13.2 million and $19.0 million in cash and cash equivalents and $68.7 million and $49.3 million in working capital, respectively. Our available capacity under our Credit Agreement, after consideration of current borrowings and outstanding letters of credit, was approximately $38.8 million (65%) and $53.0 million (88%) at December 31, 2006 and 2005, respectively. Our current ratios were 1.45 to 1 and 1.35 to 1 at the end of 2006 and 2005, respectively. The $19.4 million increase in working capital at December 31, 2006 was primarily driven by increases in accounts receivable and unbilled revenues, partially offset by a decrease in cash and increases in accounts payable and billings in excess of revenues. The increases in

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receivables and unbilled revenues as of December 31, 2006 were primarily related to significant growth in our Energy segment revenues during the fourth quarter of 2006. Our cash flows are primarily impacted from period to period by fluctuations in working capital. Factors such as our contract mix, commercial terms, and delays in the start of projects may impact our working capital. In line with industry practice, for many of our contracts we accumulate costs during a given month and then bill those costs in the following month. 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, 2006 and 2005, $16.2 million and $16.0 million, respectively, of our accounts payable balance comprised invoices with “pay-when-paid” terms.

Cash Used in/Provided by Operating Activities

     Cash used in operating activities was $9.3 million for 2006, and cash provided by operating activities was $12.4 million and $28.5 million for 2005 and 2004, respectively.

     The decrease in cash provided by operating activities for 2006 resulted in part from income tax payments totaling $12.2 million in 2006 compared to $0.9 million in payments made during 2005. The increase in payments for 2006 primarily resulted from the utilization of U.S. federal net operating loss carryforwards in 2005 which reduced our tax payments for 2005. Our higher 2006 forecasted taxable income resulted in higher quarterly estimated tax payments to the U.S. federal government during the year. In addition, approximately $2.9 million of the 2006 tax payments related to international income taxes for the settlement of prior period income tax liabilities. Furthermore, we paid an incremental $1.9 million in foreign payroll and value added taxes to settle several prior tax periods. Increases in both of our segments’ accounts receivable balances and an increase in our Energy segment’s net unbilled revenues, offset partially by a decrease in our Engineering segment’s net unbilled revenues, were the primary factors in our 2006 decrease in cash provided from operating activities. While our revenues increased during the year by $71.7 million or 12%, the aggregate of accounts receivables and unbilled revenues, net of billings in excess, increased by $24.2 million or 16%. One of the key drivers in the increase in receivables as compared to the increase in revenues is the significant growth in our Energy segment’s revenues in the fourth quarter, during which the Energy segment earned 30% of its 2006 revenues. This, in turn, increased our receivables and net unbilled revenue balances as of December 31, 2006.

     The decrease in cash provided by operating activities for 2005 resulted primarily from lower net income, higher days sales outstanding associated with our net unbilled revenues, and lower accrued compensation (related to the 2004 incentive compensation bonuses that were paid in 2005).

     The cash provided by operating activities for 2004 was the direct result of significantly higher net income, higher payables at year-end 2004 associated with Engineering’s FEMA project, the accrued Engineering and Energy 2004 incentive compensation bonuses, and the accrued 2004 discretionary contribution to our 401(k) retirement plan totaling $1.5 million.

Cash Used in Investing Activities

     Cash used in investing activities was $14.9 million, $7.1 million, and $4.1 million in 2006, 2005 and 2004, respectively. The increase in cash used in investing activities for 2006 reflects the net cash paid for the acquisition of Buck totaling $11.2 million and capital expenditures of $3.8 million. Except for the acquisition of Buck in 2006, our cash used in investing activities related entirely to capital expenditures, with the majority relating to office and field equipment, computer and software equipment and leasehold improvements. We also acquire various assets through operating leases, which reduce the level of capital expenditures that would otherwise be necessary to operate both segments of our business.

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Cash Provided by/Used in Financing Activities

     Cash provided by financing activities was $18.4 million for 2006, and cash used in financing activities was $1.8 million and $18.1 million for 2005 and 2004, respectively.

     Cash provided by financing activities for 2006 primarily related to net borrowings under our Credit Agreement totaling $11.0 million, which were used for short-term working capital needs and to finance the Buck acquisition. In addition, our book overdrafts increased in the amount of $6.0 million, and we received proceeds from the exercise of stock options totaling $2.0 million. This was offset by payments on capital lease obligations totaling $0.6 million.

     Cash used in financing activities for 2005 primarily related to the repurchase of 104,300 shares of our common stock totaling $1.8 million. In addition, we received proceeds from the exercise of stock options totaling $0.6 million. This was offset by payments on capital lease obligations totaling $0.6 million.

     The cash used in financing activities during 2004 resulted from repayments of long-term debt totaling $13.5 million, the elimination of a book overdraft balance from year-end 2003 and payments for capital lease obligations of $0.3 million, partially offset by proceeds from the exercise of stock options totaling $1.7 million.

     As of December 31, 2006, 520,319 of the total 1,000,000 Board authorized treasury shares had been repurchased. We made no treasury share repurchases during 2006. Under our Credit Agreement which became effective in September 2004, our treasury share repurchases are subject to certain limitations during the four-year term of the Credit Agreement.

Credit Agreement

     Our Credit Agreement is with a consortium of financial institutions. The Credit Agreement provides for a revolving commitment of $60 million through September 17, 2008. 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 $15.0 million. As of December 31, 2006, borrowings outstanding under the Credit Agreement were $11.0 million and the outstanding LOCs were $10.2 million. As of December 31, 2005, there were no borrowings outstanding under the Credit Agreement; however, outstanding LOCs totaled $7.0 million as of that date. 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 EBITDA to indebtedness). 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 are not achieved, under certain circumstances, after a cure period, the banks may demand the repayment of all borrowings outstanding and/or require deposits to cover the outstanding letters of credit. We were in compliance with these financial covenants at December 31, 2006 and we expect to be in compliance with these financial covenants for at least the next year.

     In connection with the restatement of our consolidated financial statements through March 31, 2005, we did not timely file various Securities and Exchange Commission (“SEC”) filings during 2006. As a result, several covenant violations related to the timing of our financial reporting occurred under the Credit Agreement. The lenders waived these violations as a result of us becoming current on those SEC filings as of September 30, 2006.

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Financial Condition & Liquidity

     We plan to utilize our cash and borrowing capacity under the Credit Agreement for, among other things, short-term working capital needs, to satisfy contractual obligations, to support strategic opportunities that management identifies, to fund capital expenditures, and to make our remaining foreign tax payments. One of our strategies is to pursue growth in our core business. We consider acquisitions, investments and geographic expansion as components of our growth strategy and intend to use both existing cash and the Credit Agreement to fund such endeavors. As part of our strategy, we also periodically review our segments, and our service offerings within those segments, 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. If we commit to funding future acquisitions, we may need to adjust our Credit Agreement to reflect a longer repayment period on borrowings used for acquisitions. After giving effect to the foregoing, we believe that the combination of 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 foreseeable future.

Contractual Obligations and Off-Balance Sheet Arrangements

     A summary of our contractual obligations and off-balance sheet arrangements as of December 31, 2006 are as follows:

(in millions)			Payments due by period
			Within 1		2 – 3		4 – 5		After 5
Contractual obligations	Total		year		years		years		years
Operating lease obligations (1)	$	62.0	$	17.8	$	25.6	$	12.9	$	5.7
Long-term debt and interest (2)		11.0		—		11.0		—		—
Purchase obligations (3)		4.2		1.8		2.3		0.1		—
Other long-term liabilities (4)		0.9		—		—		—		0.9
Capital lease obligations (5)		1.6		0.9		0.7		—		—
Total contractual obligations	$	79.7	$	20.5	$	39.6	$	13.0	$	6.6

(1)	We utilize operating leases to provide for use of certain assets in our daily business activities. This balance includes office space of $52.0 million, with the remaining balance relating to computers, computer-related equipment, and motor vehicles. The lease payments for use of these assets are recorded as expenses, but do not appear as liabilities on our consolidated balance sheets.
(2)	The long-term debt and interest related to borrowings under our Credit Agreement totaling $11.0 million, which were used for short-term working capital needs and for financing the Buck acquisition.
(3)	Our purchase obligations relate to legally binding agreements to purchase goods or services at agreed prices. These obligations include maintenance agreements related to our information and telecommunication systems of $3.6 million and other obligations of $0.6 million.
(4)	The majority of this $0.9 million balance represents deferred compensation for our Board of Directors.
(5)	Capital leases include computers, computer-related equipment and motor vehicles.

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(in millions)			Amount of commitment expiration per period
			Within 1		2 – 3		4 – 5		Over 5
Off-Balance Sheet Arrangements	Total		year		years		years		years
Standby letters of credit	$	10.2	$	—	$	10.2	$	—	$	—
Performance and payment bonds		5.3		0.2		—		4.4		0.7
Total commercial commitments	$	15.5	$	0.2	$	10.2	$	4.4	$	0.7

     Our banks issue standby letters of credit on our behalf under the Credit Agreement discussed above. As of December 31, 2006, 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 at December 31, 2006. 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 in our Engineering segment. 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 Engineering 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. The percentage-of-completion method is also used to account for certain construction-type contracts in our Energy segment. 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, 2006, 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 Engineering segment contracts in accordance with AICPA Statement of Position (“SOP”) 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Under certain circumstances, we may agree to provide new or additional engineering services to a client without a fully executed contract or change order. In these instances,

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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 $1.4 million as of both December 31, 2006 and 2005, 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.

     Our Energy segment recognizes revenue for the majority of its contracts in accordance with SEC Staff Accounting Bulletin No. (“SAB”) 104, “Revenue Recognition.” SAB 104 requires that revenue should generally be recognized only after (1) persuasive evidence of an arrangement exists, (2) the related services have been rendered, (3) our selling price is fixed or determinable, and (4) collectibility is reasonably assured.

     Income and Other Taxes. We account for income taxes in accordance with Statement of Financial Accounting Standards No. (“SFAS”) 109. 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 operate, 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.

     As a result of the restatements of our consolidated financial statements through the first quarter of 2005, we have recorded significant liabilities for foreign income tax and other taxes as well as related penalties and interest. These amounts were estimated and recorded based on applicable statutory tax rates, and will be reduced in future periods based on tax payments, settlements and other resolutions. The amounts of these payments, settlements and other resolutions may differ from the amounts estimated and recorded.

     Goodwill. During the second quarter of each year, we perform a valuation of the goodwill associated with our operating segments. 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 plan for the future and estimated results of future operations. Changes in the business plan 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 in conformity with accounting principles generally accepted in the U.S. 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

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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. We do not believe that material changes to these estimates are reasonably likely to occur.

Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 123(R), which replaces SFAS 123 and supersedes Accounting Principles Board Opinion No. (“APB”) 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires that the expense resulting from all share-based payment transactions be recognized in the financial statements. This statement applies to all awards granted after the required effective date, and does not apply to awards granted in periods before the required effective date, except if prior awards are modified, repurchased or cancelled after the effective date. We adopted the provisions of SFAS 123(R) on January 1, 2006 and used the modified prospective application method in our adoption. SFAS 123(R) did not have a material impact on our financial statements since we have been recording our stock-based compensation expense under the fair value method in accordance with SFAS 123 since January 1, 2003.

     In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections, a replacement of APB No. 20 and FASB Statement No. 3.” SFAS 154 requires, among other things, retrospective application, unless impracticable, to prior period financial statements for voluntary changes in accounting principles and changes required by an accounting pronouncement in the unusual circumstances in which the pronouncement does not include specific transition provisions. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets should be accounted for as a change in accounting estimate affected by a change in accounting principle. The guidance for reporting the correction of an error in previously issued financial statements and the change of an accounting estimate will not change from APB 20. SFAS 154 was effective for us beginning January 1, 2006. The adoption of this standard did not have a material impact on our consolidated financial statements.

     In June 2006, the FASB issued FASB Interpretation (“FIN”) 48, “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109.” FIN 48 prescribes recognition and measurement standards for a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with FIN 48 is a two step process. The first step is the determination of whether a tax position should be recognized in the financial statements. Under FIN 48, a tax position taken or expected to be taken in a tax return is to be recognized only if we determine that it is more likely than not that the tax position will be sustained upon examination by the tax authorities based upon the technical merits of the position. In step two, for those tax positions which should be recognized, the measurement of a tax position is determined as being the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006. We will adopt FIN 48 in the first quarter of 2007, with the adoption to be treated as a cumulative-effect reduction to retained earnings in the range of $0.6 to $0.9 million as of January 1, 2007.

     In June 2006, the FASB issued Emerging Issues Task Force (“EITF”) Issue No. 06-3, “How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation).” EITF 06-3 provides guidance on disclosing the accounting policy for the income statement presentation of any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer on either a gross (included in revenues and costs) or a net (excluded from revenues) basis. In addition, EITF 06-3 requires disclosure of any such taxes that are reported on a gross basis as well as the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented. EITF 06-3 will be effective for us as of January 1, 2007. As EITF 06-3 provides only

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disclosure requirements, the adoption of this standard is not expected to have a material impact on our consolidated financial statements.

     In September 2006, the SEC issued SAB 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 provides interpretive guidance on how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both an income statement and balance sheet approach and then evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required as long as management properly applies its previous approach and all relevant facts and circumstances were considered. If prior years’ financial statements are not restated, the cumulative effect adjustment is recorded in opening retained earnings as of the beginning of the fiscal year of adoption. SAB 108 was effective for us for the year ended December 31, 2006. The adoption of SAB 108 did not have an impact on our consolidated financial statements.

     In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Earlier adoption is permitted, provided that financial statements have not yet been issued for that fiscal year, including financial statements for an interim period within that fiscal year. We will adopt the provisions of SFAS 157 on January 1, 2008 and do not expect any impact on our consolidated financial statements.

     In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Liabilities, Including an Amendment of FASB Statement No. 115,” which permits entities to choose, at specific election dates, to measure eligible financial assets and liabilities at fair value (referred to as the “fair value option”) and report associated unrealized gains and losses in earnings. SFAS 159 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. SFAS 159 does not eliminate disclosure requirements of other accounting standards, including fair value measurement disclosures in SFAS 157. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We may adopt the provisions of SFAS 159 on January 1, 2008 and we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

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MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

	For the years ended December 31,
(In thousands, except per share amounts)	2006			2005			2004
Total contract revenues	$	651,012		$	579,278		$	552,046
Cost of work performed		562,675			495,883			465,601
Gross profit		88,337			83,395			86,445
Selling, general and administrative expenses		69,824			66,513			67,577
Income from operations		18,513			16,882			18,868
Other income/(expense):
Equity income from unconsolidated subsidiaries		1,253			500			581
Interest income		467			341			84
Interest expense		(978	)		(128	)		(252	)
Reductions/(expense) related to interest on unpaid taxes, net (Notes 11 and 21)		964			(1,392	)		(1,162	)
Other, net		417			(1,086	)		600
Income before income taxes		20,636			15,117			18,719
Provision for income taxes		8,805			10,066			10,325
Net income		11,831			5,051			8,394
Other comprehensive income/(loss):
Foreign currency translation adjustments, net of $75 tax for 2006 and zero in 2005 and 2004		545			425			(217	)
Reclassification adjustment for gain on sale of an investment included in net income, net of $89 tax benefit		—			—			(109	)
Comprehensive income	$	12,376		$	5,476		$	8,068
Basic earnings per share	$	1.39		$	0.59		$	1.00
Diluted earnings per share	$	1.36		$	0.58		$	0.98

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

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MICHAEL BAKER CORPORATION
CONSOLIDATED BALANCE SHEETS

ASSETS

	As of December 31,
(In thousands)	2006		2005
Current Assets
Cash and cash equivalents	$	13,182	$	19,041
Receivables, net of allowance of $767 and $746, respectively		97,815		79,177
Unbilled revenues on contracts in progress		94,548		84,654
Prepaid expenses and other		16,044		8,373
Total current assets		221,589		191,245
Property, Plant and Equipment, net		21,323		21,805
Long-term Assets
Goodwill		17,092		8,471
Other intangible assets, net		483		190
Other long-term assets		5,636		3,750
Total other long-term assets		23,211		12,411
Total assets	$	266,123	$	225,461

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

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MICHAEL BAKER CORPORATION

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ INVESTMENT

	As of December 31,
(In thousands, except share amounts)	2006			2005
Current Liabilities
Accounts payable	$	54,700		$	45,570
Accrued employee compensation		26,354			25,475
Accrued insurance		13,809			11,544
Billings in excess of revenues on contracts in progress		17,415			13,060
Current deferred tax liability		18,063			13,197
Income taxes payable		6,068			9,827
Other accrued expenses and current liabilities		16,454			23,308
Total current liabilities		152,863			141,981
Long-term Liabilities
Commitments and contingencies (Note 11)		—			—
Long-term debt		11,038			—
Other long-term liabilities		4,004			2,900
Long-term deferred tax liabilities		3,098			756
Total liabilities		171,003			145,637
Shareholders’ Investment
Common Stock, par value $1, authorized 44,000,000 shares, issued 9,193,705 and 8,985,168 shares in 2006 and 2005, respectively		9,194			8,985
Additional paid-in capital		44,676			41,965
Retained earnings		46,170			34,339
Accumulated other comprehensive loss - Cumulative foreign currency translation adjustments		(159	)		(704	)
Less – 495,537 shares of Common Stock in treasury, at cost, in both 2006 and 2005		(4,761	)		(4,761	)
Total shareholders’ investment		95,120			79,824
Total liabilities and shareholders’ investment	$	266,123		$	225,461

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

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MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the years ended December 31,
(In thousands)	2006			2005			2004
Cash Flows from Operating Activities
Net income	$	11,831		$	5,051		$	8,394
Adjustments to reconcile net income to net cash (used in)/ provided by operating activities:
Depreciation and amortization		5,970			5,093			4,919
Stock-based compensation expense		271			128			674
Tax benefits of stock-based compensation		673			140			493
Excess tax benefits from stock-based compensation		(48	)		(21	)		(17	)
Deferred income tax expense		7,208			2,743			7,922
Changes in assets and liabilities:
(Increase)/decrease in receivables		(15,712	)		372			(4,628	)
Increase in unbilled revenues and billings in excess, net		(6,033	)		(7,447	)		(28,360	)
(Increase)/decrease in other net assets		(8,658	)		6,315			(3,014	)
Increase/(decrease) in accounts payable		1,793			(3,258	)		25,644
(Decrease)/increase in accrued expenses		(6,638	)		3,324			16,450
Total adjustments		(21,174	)		7,389			20,083
Net cash (used in)/provided by operating activities		(9,343	)		12,440			28,477
Cash Flows from Investing Activities
Additions to property, plant and equipment, net		(3,763	)		(7,078	)		(4,055	)
Acquisition of Buck Engineering, P.C., net of cash acquired		(11,170	)		—			—
Net cash used in investing activities		(14,933	)		(7,078	)		(4,055	)
Cash Flows from Financing Activities
Borrowings of/(payments on) long-term debt, net		11,038			—			(13,481	)
Increase/(decrease) in book overdrafts		5,989			—			(6,022	)
Proceeds from exercise of stock options		1,974			576			1,734
Payments for capital lease obligations		(632	)		(581	)		(325	)
Excess tax benefits from stock-based compensation		48			21			17
Payments to acquire treasury stock		—			(1,808	)		—
Net cash provided by/(used in) financing activities		18,417			(1,792	)		(18,077	)
Net (decrease)/increase in cash and cash equivalents		(5,859	)		3,570			6,345
Cash and cash equivalents, beginning of year		19,041			15,471			9,126
Cash and cash equivalents, end of year	$	13,182		$	19,041		$	15,471
Supplemental Disclosures of Cash Flow Data
Cash paid during the year for:
Interest paid	$	763		$	163		$	283
Income taxes paid	$	12,225		$	864		$	2,557
Supplemental Schedule of Non-Cash Investing and Financing Activities
Vehicles & equipment acquired through capital lease obligations	$	554		$	675		$	1,063
Assets acquired on credit	$	222		$	41		$	516

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

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MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ INVESTMENT

	Common													Accumulated
	stock,								Additional					other
	par value		Treasury						paid in			Retained		comprehensive
(In thousands)	$1		Shares			Amount			capital			earnings		income/(loss)
Balance, January 1, 2004	$	8,711		(391	)	$	(2,953	)	$	38,494		$	20,894	$	(803	)
Net income		—		—			—			—			8,394		—
Stock options exercised		192		—			—			2,035			—		—
Restricted stock issued		7		—			—			(7	)		—		—
Amortization of restricted stock		—		—			—			63			—
Options granted		—		—			—			80			—		—
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		—		—			—			—			—		(217	)
Reclassification adjustment for gain on sale of investment		—		—			—			—			—		(109	)
Balance, December 31, 2004		8,910		(391	)		(2,953	)		40,665			29,288		(1,129	)
Net income		—		—			—			—			5,051		—
Stock options exercised		43		—			—			673			—		—
Restricted stock issued		32		—			—			359			—		—
Amortization of restricted stock		—		—			—			134			—		—
Options granted		—		—			—			134			—		—
Treasury stock purchases		—		(104	)		(1,808	)		—			—		—
Other comprehensive income, net of tax:
Foreign currency translation adjustments		—		—			—			—			—		425
Balance, December 31, 2005		8,985		(495	)		(4,761	)		41,965			34,339		(704	)
Net income		—		—			—			—			11,831		—
Stock options exercised		198		—			—			2,449			—		—
Restricted stock issued		11		—			—			(9	)		—		—
Amortization of restricted stock		—		—			—			141			—		—
Options granted		—		—			—			130			—		—
Other comprehensive income, net of tax:
Foreign currency translation adjustments		—		—			—			—			—		545
Balance, December 31, 2006	$	9,194		(495	)	$	(4,761	)	$	44,676		$	46,170	$	(159	)

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

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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 and energy expertise for public and private sector clients worldwide. The Company’s primary engineering services include engineering design for transportation and civil infrastructure markets, architectural, environmental services, and construction management services for buildings and transportation projects. The Company’s primary energy services include the operation and maintenance of oil and gas production facilities whose assets and natural resource reserves are owned by the third parties.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

     The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and jointly-owned subsidiaries over which it exercises control. The Company does not have any variable interest entities for which it has been determined to be the primary beneficiary under Financial Accounting Standards Board (“FASB”) Interpretation No. (“FIN”) 46R, “Consolidation of Variable Interest Entities,” and that, as such, would require consolidation. Minority interest amounts relating to the Company’s less-than-wholly-owned consolidated subsidiaries are included within the “Other, net” caption in its Consolidated Statements of Income and within the “Other long-term liabilities” 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 renders services to 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 Engineering and Energy related 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 in the Company’s Engineering segment under the percentage-of-completion method of accounting in accordance with AICPA Statement of Position (“SOP”) 81-1, “Accounting for Performance of Construction-Type and Certain Performance-Type Contracts.” 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 during the period in which the change is identified. 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.

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     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. They may include changes in specifications or design, manner of performance, facilities, equipment, materials, sites and period of completion of the work.

     In certain circumstances, the Company may agree to provide new or additional engineering 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 in the Company’s Engineering segment, the Company is not contractually permitted to earn a margin on subcontractor costs and ODCs. The majority of all other Engineering contracts are also structured such that margin is earned on direct labor costs, and not on subcontractor costs and ODCs. In accordance with Emerging Issues Task Force Issue No. (“EITF”) 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and EITF 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred,” the Company has assessed the indicators provided in EITF 99-19 and determined that the Company will include its direct labor costs, subcontractor costs and ODCs in computing and reporting the Company’s total contract revenues as long as the Company remains responsible to the client for the fulfillment of the contract and for the overall acceptability of all services provided.

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     In the Company’s Energy segment, revenue on contracts that do not qualify for percentage-of-completion accounting, is recognized in accordance with the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. (“SAB”) 104, “Revenue Recognition.” Under SAB 104, revenue is recognized only after; (1) persuasive evidence of an arrangement exists, (2) the related services have been rendered, (3) the selling price is fixed or determinable, and (4) collectibility is reasonably assured.

     Total contract revenues for the operations and maintenance contracts in the Company’s Energy segment are primarily recognized as related services are provided in accordance with SAB 104. Performance bonuses are earned under certain operations and maintenance contracts in the Energy segment. These bonuses are recorded as revenues when all criteria of SAB 104 have been met.

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 estimates in recording profit incentives and/or award fee revenues under its contracts, in the assessment of its exposure to insurance claims that fall below policy deductibles, in the determination of its liabilities for incurred but not reported insurance claims, incentive compensation and income tax expense, and to assess its litigation and 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 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 loss history that is then subjected to actuarial techniques in the determination of the proposed liability. Actual losses may vary from the amounts estimated via actuarial projections. Any increases or decreases in loss amounts estimated are recognized in the period in which the loss is determined.

- 27 -

Income Taxes

     The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. (“SFAS”) 109, “Accounting for 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 operates, 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 could result 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 accruals associated with underpaid income taxes and related adjustments are included in the “Reductions/(expense) related to interest on unpaid taxes, net” caption 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 2006 and 2005. For the year ended December 31, 2004, other comprehensive income consisted of foreign currency translation adjustments and unrealized gain on an equity investment, net of tax. In the first quarter of 2004, the Company sold a previous common stock investment and the related accumulated unrealized gain as of December 31, 2003 was reclassified from accumulated other comprehensive loss to other income as a realized gain.

Foreign Currency Translation

     Most of the Company’s foreign subsidiaries utilize the local currencies as the functional currency. Accordingly, assets and liabilities of these subsidiaries are 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 are recorded as a separate component of shareholders’ investment. The Company also has a foreign subsidiary for which the functional currency is the U.S. Dollar. The resulting translation gains or losses for this subsidiary are included in the Company’s Consolidated Statements of Income.

Fair Value of Financial Instruments

     The fair value of financial instruments classified as cash and cash equivalents, receivables, accounts payable, capital lease obligations and other long-term liabilities approximates carrying value due to the short-term nature or the relative liquidity of the instruments. The fair value of long-term debt approximates carrying value due to the variable nature of this instrument.

- 28 -

Cash and Cash Equivalents

     Cash and cash equivalents include cash on hand or deposit, and money market mutual funds with remaining maturities of less than 90 days at the time of purchase.

Concentrations of Credit Risk and Allowance for Uncollectible Amounts

     Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company’s cash and cash equivalents are maintained in accounts held in deposit accounts that are generally not insured.

     The Company reduces accounts receivable by estimating an allowance for amounts that may become uncollectible in the future. Management determines the estimated allowance for uncollectible 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 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 which are accounted for using the purchase method of accounting. 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 in accordance with SFAS 142, “Goodwill and Other Intangible Assets.” The Company’s goodwill balance of each reporting unit, as defined by SFAS 142, is evaluated for potential impairment during the second quarter of each year or when events occur or circumstances change that could cause the balance to be impaired. Reporting units for purposes of this test are identical to the Company’s operating segments, which are further discussed in the “Business Segments” note. 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 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 betterments 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.

- 29 -

     The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software in accordance with SOP 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” 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 these allowances as a deferred rent liability in its Consolidated Balance Sheets. These asset amounts are amortized on a straight-line basis over the shorter of the term of the lease or useful life of the asset as additional amortization expense and a reduction to rent expense, respectively. The deferred rent liability balances are recognized over the term of the lease. Lease agreements sometimes contain rent escalation clauses, which are recognized on a straight-line basis over the life of the lease in accordance with SFAS 13, “Accounting for Leases,” as amended. Lease terms generally range from 1 to 10 years with one or more fair market value renewal options. For leases with renewal options, the Company records rent expense and amortizes the leasehold improvements on a straight-line basis over the 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 according to SFAS 13.

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 Options

     Stock options 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. Prior to January 1, 2006, as permitted under SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” the Company applied the prospective method, under which it expensed the fair value of all stock options granted, modified or settled.

- 30 -

     Effective January 1, 2006, the Company adopted SFAS 123(R). This statement replaces SFAS 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion No. (“APB”) 25. SFAS 123(R) requires that all stock-based compensation be measured at the fair value of the award and be recognized as an expense in the Company’s results of operations. The Company adopted this statement using the modified prospective method, which requires the Company to recognize compensation expense on a prospective basis. These expenses will be recognized as a component of the Company’s selling, general and administrative costs, as these costs relate to options issued to Directors. Prior years’ financial statements have not been restated. SFAS 123(R) also requires that excess tax benefits related to stock-based compensation be reflected as financing cash inflows instead of operating cash inflows.

Reclassifications

     Certain reclassifications have been made to prior years’ consolidated statements of income, consolidated balance sheets, consolidated statements of cash flows and consolidated statements of shareholders’ investment in order to conform to the current year presentation.

3. RECENT ACCOUNTING PRONOUNCEMENTS

     In December 2004, the FASB issued SFAS 123(R). As discussed under the Company’s “Accounting for Stock Options” caption in the “Summary of Significant Accounting Policies” note, the Company adopted the provisions of SFAS 123(R) on January 1, 2006. SFAS 123(R) did not have a material impact on the Company’s financial statements since it had been recording its stock-based compensation expense under the fair value method in accordance with SFAS 123 since January 1, 2003.

     In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154 requires, among other things, retrospective application, unless impracticable, to prior period financial statements for voluntary changes in accounting principles and changes required by an accounting pronouncement in the unusual circumstance in which the pronouncement does not include specific transition provisions. SFAS 154 also requires that a change in the depreciation, amortization, or depletion method for long-lived, nonfinancial assets should be accounted for as a change in accounting estimate affected by a change in accounting principle. The guidance for reporting the correction of an error in previously issued financial statements and the change of an accounting estimate will not change from APB 20. SFAS 154 was effective for the Company beginning January 1, 2006. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

     In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109.” FIN 48 prescribes recognition and measurement standards for a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with FIN 48 is a two step process. The first step is the determination of whether a tax position should be recognized in the financial statements. Under FIN 48, a tax position taken or expected to be taken in a tax return is to be recognized only if the Company determines that it is more likely than not that the tax position will be sustained upon examination by the tax authorities based upon the technical merits of the position. In step two, for those tax positions which should be recognized, the measurement of a tax position is determined as being the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 in the first quarter of 2007, with the adoption to be treated as a cumulative-effect reduction to retained earnings in the range of $0.6 to $0.9 million as of January 1, 2007.

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     In June 2006, the FASB issued EITF 06-3, “How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation).” EITF 06-3 provides guidance on disclosing the accounting policy for the income statement presentation of any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer on either a gross (included in revenues and costs) or a net (excluded from revenues) basis. In addition, EITF 06-3 requires disclosure of any such taxes that are reported on a gross basis as well as the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented. EITF 06-3 will be effective for the Company as of January 1, 2007. As EITF 06-3 provides only disclosure requirements, the adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

     In September 2006, the SEC issued SAB 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 provides interpretive guidance on how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both an income statement and balance sheet approach and then evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required as long as management properly applies its previous approach and all relevant facts and circumstances were considered. If prior years’ financial statements are not restated, the cumulative effect adjustment should be recorded in opening retained earnings as of the beginning of the fiscal year of adoption. SAB 108 was effective for the Company for the year ended December 31, 2006. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

     In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Earlier adoption is permitted, provided that financial statements have not yet been issued for that fiscal year, including financial statements for an interim period within that fiscal year. The Company will adopt the provisions of SFAS 157 on January 1, 2008 and does not expect any impact on its consolidated financial statements.

     In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Liabilities, Including an Amendment of FASB Statement No. 115,” which permits entities to choose, at specific election dates, to measure eligible financial assets and liabilities at fair value (referred to as the “fair value option”) and report associated unrealized gains and losses in earnings. SFAS 159 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. SFAS 159 does not eliminate disclosure requirements of other accounting standards, including fair value measurement disclosures in SFAS 157. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company may adopt the provisions of SFAS 159 on January 1, 2008 and does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

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4. BUSINESS ACQUISITION

     On April 6, 2006, the Company purchased 100% of the stock of Buck Engineering, P.C. (“Buck”), a North Carolina-based planning and environmental engineering firm. Buck had 2005 revenues of approximately $13 million and approximately 60 employees at the time of the acquisition. Buck’s assets consisted primarily of receivables and fixed assets totaling $2.9 million and $0.6 million, respectively, as of the acquisition date. The acquisition was accounted for under the purchase method in accordance with SFAS 141, “Business Combinations,” and in accordance therewith, the total purchase price of approximately $11.2 million, net of cash acquired of approximately $0.1 million, was allocated to the assets acquired and liabilities assumed based upon their estimated fair values. Of the total purchase amount, $8.6 million (including $0.2 million in acquisition fees) was paid in 2006, while the remaining $2.6 million is being held in escrow and is expected to be released to the sellers in 2007. This allocation resulted in an increase of $8.6 million and $0.8 million to the Engineering segment’s goodwill and other intangible asset balances, respectively. The other intangible assets balance relates primarily to the value of customer backlog at the time of the acquisition. Beginning on April 6, 2006, revenue from Buck has been included in the Company’s consolidated financial statements as a component of the Engineering business segment. The purchase price allocation for this acquisition has been finalized. Pro forma financial information has not been included due to the immateriality of this acquisition.

5. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

     The Company’s unconsolidated joint ventures provide engineering, program management, construction management and operations and maintenance 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.

6. BUSINESS SEGMENTS

     The Company’s Engineering and Energy business segments reflect how 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.

     Engineering. The Engineering segment provides a variety of design and related consulting services. Such services include program management, design-build, 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.

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     Energy. The Energy segment provides a full range of services for operating third-party energy production facilities worldwide. These services range from complete outsourcing solutions to specific services such as training, personnel recruitment, pre-operations engineering, maintenance management systems, field operations and maintenance, procurement, and supply chain management. Many of these service offerings are enhanced by the utilization of this segment’s managed services operating model as a service delivery method. The Energy segment serves both major and smaller independent oil and gas producing companies, but does not pursue exploration opportunities for its own account or own any oil or natural gas reserves.

     The Company evaluates the performance of its segments primarily based on operating income before Corporate overhead allocations. Corporate overhead includes functional unit costs related to finance, legal, human resources, information technology and communications, and is allocated between the Engineering and Energy segments based on a three-part formula comprising revenues, assets and payroll.

     The following tables reflect the required disclosures for the Company’s business segments (in millions):

Total Contract Revenues/Income from Operations
	2006			2005			2004
Engineering
Total contract revenues	$	380.1		$	371.1		$	343.3
Income from operations before Corporate overhead		30.1			40.2			33.2
Less: Corporate overhead		(16.5	)		(13.6	)		(11.3	)
Income from operations		13.6			26.6			21.9
Energy
Total contract revenues		270.9			208.2			208.7
Income/(loss) from operations before Corporate overhead		12.5			(0.9	)		2.7
Less: Corporate overhead		(6.2	)		(5.1	)		(4.7	)
Income/(loss) from operations		6.3			(6.0	)		(2.0	)
Total business segments
Total contract revenues		651.0			579.3			552.0
Income from operations before Corporate overhead		42.6			39.3			35.9
Less: Corporate overhead		(22.7	)		(18.7	)		(16.0	)
Income from operations — segments		19.9			20.6			19.9
Other Corporate/Insurance expense		(1.4	)		(3.7	)		(1.0	)
Total Company — Income from operations	$	18.5		$	16.9		$	18.9

	2006		2005		2004
Segment assets:
Engineering	$	133.2	$	116.6	$	113.7
Energy		114.8		80.4		71.8
Subtotal – segments		248.0		197.0		185.5
Corporate/Insurance		18.1		28.5		29.5
Total	$	266.1	$	225.5	$	215.0

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	2006		2005		2004
Capital expenditures:
Engineering	$	3.3	$	2.9	$	3.4
Energy		0.7		2.3		1.1
Subtotal – segments		4.0		5.2		4.5
Corporate		1.1		2.6		1.1
Total	$	5.1	$	7.8	$	5.6

	2006		2005		2004
Depreciation and amortization expense:
Engineering	$	2.6	$	2.0	$	2.3
Energy		1.1		1.3		1.0
Subtotal – segments		3.7		3.3		3.3
Corporate		2.3		1.8		1.6
Total	$	6.0	$	5.1	$	4.9

     The Company has determined that interest expense, interest income, intersegment revenues, and the amount of investment in equity method investees, by segment, are immaterial for further disclosure in these financial statements. Reductions/(expense) related to interest on unpaid taxes, net, which related entirely to the Energy segment, was $1.0 million, $(1.4) million and $(1.2) million for 2006, 2005 and 2004, respectively. The Company’s equity in the net income of investees accounted for by the equity method, which was approximately $1.3 million in 2006, $0.5 in 2005 and $0.6 in 2004, is not evaluated in the performance of the segments by the Company’s management.

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

	2006		2005		2004
Total contract revenues by geographic origin:
Domestic	$	565.3	$	507.3	$	483.6
Foreign		85.7		72.0		68.4
Total	$	651.0	$	579.3	$	552.0

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

	2006			2005			2004
Total contract revenues by principal markets:
United States government		27.0	%		31.0	%		25.9	%
Various state governmental and quasi-governmental agencies		23.1	%		26.3	%		30.2	%
Commercial, industrial and private clients		49.9	%		42.7	%		43.9	%

     In the Engineering segment, one customer, the Federal Emergency Management Agency (“FEMA”), accounted for approximately 15%, 20% and 15% of the Company’s total contract revenues in 2006, 2005 and 2004, respectively. Long-lived assets are principally held in the U.S.

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7. CONTRACTS

     Revenues and billings to date on contracts in progress at December 31, 2006 and 2005 were as follows (in millions):

	2006			2005
Revenues	$	3,005		$	2,798
Billings		(2,928	)		(2,726	)
Net unbilled revenue	$	77		$	72

     A portion of the trade receivable balances totaling $6,018,000 and $4,837,000 at December 31, 2006 and 2005, respectively, relates to retainage provisions under long-term contracts which will be due upon completion of the contracts. Based on management’s estimates, $4,743,000 and $4,089,000 of these retention balances at December 31, 2006 and 2005, respectively, were expected to be collected within one year of the balance sheet dates, and were therefore included in the receivables, net balances. The remaining retention balances are reflected as “Other long-term assets” in the Company’s Consolidated Balance Sheets.

     The Company had allowances for doubtful accounts totaling $767,000 and $746,000 as of December 31, 2006 and 2005, respectively. These allowance amounts reflect receivable balances for which collection is doubtful, and have been netted against the receivables balances shown in the Consolidated Balance Sheets.

     Internationally, the Company conducts business in certain countries where the local political environment subjects the Company’s related trade receivables, due from subsidiaries of major oil companies, to lengthy collection delays. Based upon past experience with these clients, after giving effect to the Company’s related allowance for doubtful accounts balance at December 31, 2006, management believes that these receivable balances will be fully collectible within one year.

     Under certain circumstances, the Company may agree to provide new or additional engineering services to a client without a fully executed contract or change order. In these instances, although the costs of providing these services are expensed as incurred, the recognition of related contract revenues are delayed until the contracts and/or change orders have been fully executed by the clients, other suitable written project approvals are received from the clients, or until management determines that revenue recognition is appropriate based on the probability of client acceptance. Under this policy, the Company had not recognized potential future revenues estimated at $1.4 million as of both December 31, 2006 and 2005, respectively, for which the related costs had already been expensed as of these dates.

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

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8. INCOME TAXES

     The components of income/(loss) before income taxes are as follows (in thousands):

	2006		2005			2004
Domestic	$	14,953	$	18,561		$	18,868
Foreign		5,683		(3,444	)		(149	)
Total	$	20,636	$	15,117		$	18,719

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

	2006			2005		2004
Current income taxes:
U.S. federal*	$	(2,916	)	$	4,173	$	127
Foreign		3,419			2,625		2,121
State		1,156			525		155
Total current income tax provision		1,659			7,323		2,403
Deferred income taxes:
U.S. federal*		7,706			2,291		7,118
Foreign		(101	)		165		369
State		(459	)		287		435
Total deferred income tax provision		7,146			2,743		7,922
Total provision for income taxes	$	8,805		$	10,066	$	10,325

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

     As a result of additional tax deductions related to vested restricted stock awards and stock option exercises, tax benefits have been recognized as contributed capital for the years ended December 31, 2006, 2005 and 2004 in the amounts of $673,000, $140,000 and $493,000, respectively.

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

	2006			2005			2004
Computed income taxes at U.S. federal statutory rate	$	7,223		$	5,291		$	6,552
Taxes on foreign income and losses		77			3,189			1,323
Taxes on foreign deemed profits		1,252			806			1,219
Benefit from foreign earnings indefinitely reinvested		—			(947	)		—
IRS refund claims, net		(801	)		—			—
Deferred tax on foreign earnings not indefinitely reinvested		545			225			326
State income taxes, net of federal income tax benefit		365			812			591
Permanent differences		400			646			499
Change in reserves		(177	)		—			—
Change in valuation allowance, federal		—			—			(123	)
Other		(79	)		44			(62	)
Total provision for income taxes	$	8,805		$	10,066		$	10,325

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     The components of the Company’s deferred income tax assets and liabilities at December 31, 2006 and 2005 are as follows (in thousands):

	2006			2005
Deferred income tax assets:
Accruals not currently deductible for tax purposes	$	9,221		$	9,699
Billings in excess of revenues		6,472			10,528
Tax loss carryforwards		8,654			6,948
Fixed and intangible assets		152			—
All other items		350			70
Gross deferred tax assets		24,849			27,245
Valuation allowance for deferred tax assets		(7,792	)		(6,150	)
Net deferred tax assets		17,057			21,095
Deferred income tax liabilities:
Unbilled revenues		(33,407	)		(31,653	)
Undistributed foreign earnings		(2,169	)		(1,624	)
Fixed and intangible assets		(2,546	)		(1,771	)
All other items		(96	)		—
Gross deferred tax liabilities		(38,218	)		(35,048	)
Net deferred tax liabilities	$	(21,161	)	$	(13,953	)

     In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes it is more likely than not that the Company will realize the benefits of these deductible differences at December 31, 2006. The Company has provided valuation allowances against gross deferred tax assets related primarily to state and foreign net operating losses. The amount of the deferred tax asset considered realizable could be reduced in the future if estimates of future taxable income during the carryforward period are reduced.

     The Company has state net operating loss (“NOL”) carryforwards with an aggregate tax benefit of $4,736,000, which expire from 2009 to 2026. A valuation allowance of $3,703,000 has been established for these deferred tax assets. In addition, certain of the Company’s foreign subsidiaries have NOL carryforwards aggregating $3,801,000, which expire in varying amounts starting in 2006; some of these have no expiration dates. A full valuation allowance of $3,801,000 has been established for the foreign NOL carryforwards. The Company has also recorded a valuation allowance of $171,000 against other foreign deferred tax assets.

     The Company has federal capital loss carryforwards totaling $117,000 as of December 31, 2006, which are available to offset future capital gains. These carryforwards will expire in 2008. A full valuation allowance of $117,000 has been established for these deferred tax assets.

     During 2005, the Company made a decision to indefinitely reinvest all earnings from the Company’s Venezuelan subsidiary. As of December 31, 2006, the cumulative amount of foreign undistributed net earnings related to the Company’s Venezuelan subsidiary, for which no deferred taxes have been

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provided, was $2,841,000. The decision to indefinitely reinvest these earnings resulted in a $947,000 U.S. tax benefit in 2005, since U.S. taxes had previously been provided on these earnings.

     The Company has certain other non-U.S. subsidiaries for which U.S. taxes have been provided to the extent that a U.S. tax liability could arise upon any remittance of earnings from the non-U.S. subsidiaries. As of December 31, 2006, the Company provided $2,169,000 of U.S. taxes attributable to the undistributed earnings of non-U.S. subsidiaries. Upon any actual remittance of such earnings, certain countries may impose withholding taxes that, subject to certain limitations, would then be available for use as credits against any U.S. tax liability in that period.

     The American Jobs Creation Act of 2004 created a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing for an 85% dividends-received deduction for certain dividends from controlled corporations. After evaluating its effects, the Company did not utilize this provision during 2005.

     During 2006, the Internal Revenue Service completed their examination of the Company’s 2002 consolidated U.S. income tax, which resulted in a refund of $128,000. The Company’s 2004 and 2005 U.S. income tax returns were under examination as of December 31, 2006; however, management does not believe any material adjustments will result from these exams. The Company also received an IRS refund of $806,000 during 2006 related to a previously filed amended return claim. Management believes that adequate provisions have been made for income taxes at December 31, 2006.

9. GOODWILL AND OTHER INTANGIBLE ASSETS

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

	2006		2005
Goodwill:
Engineering	$	9,627	$	1,006
Energy		7,465		7,465
Total goodwill		17,092		8,471
Other intangible assets, net of accumulated amortization of $2,366 and $1,810, respectively		483		190
Goodwill and other intangible assets, net	$	17,575	$	8,661

     There was no change in the carrying amount of goodwill attributable to each business segment for the year ended December 31, 2005 and the activity for 2006 was as follows (in thousands):

	Engineering		Energy		Total
Balance at December 31, 2005	$	1,006	$	7,465	$	8,471
Goodwill from Buck acquisition		8,621		—		8,621
Balance at December 31, 2006	$	9,627	$	7,465	$	17,092

     Under SFAS 142, the Company’s goodwill balance is not being amortized and goodwill impairment tests are being performed at least annually. The Company completed its most recent annual evaluation of the carrying value of its goodwill during the second quarter of 2006. As a result of such evaluation, no impairment charge was required. Similarly, no goodwill impairment charges were required in 2005 or 2004.

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     As of December 31, 2006, the Company’s other intangible assets balance comprises a non-compete agreement (totaling $2.0 million, which is fully amortized) from its 1998 purchase of Steen Production Services, Inc., as well as intangibles primarily related to the value of the contract backlog at the time of the Company’s 2006 acquisition of Buck (totaling $849,000 with accumulated amortization of $366,000 as of December 31, 2006). These identifiable intangible assets with finite lives are being amortized over their estimated useful lives. Substantially all of these intangible assets will be fully amortized over the next five years. Amortization expense recorded on the other intangible assets balance was $556,000 for the year ended December 31, 2006 and $286,000 for both 2005 and 2004. Estimated future amortization expense for other intangible assets as of December 31, 2006 is as follows (in thousands):

For the year ending December 31,
2007	$	208
2008		113
2009		86
2010		40
2011		34
Thereafter		2
Total	$	483

10. PROPERTY, PLANT AND EQUIPMENT

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

	2006			2005
Land	$	486		$	486
Buildings and improvements		5,600			5,531
Furniture, fixtures, and office equipment		11,198			11,232
Equipment and vehicles		2,547			2,275
Computer hardware		5,483			12,398
Computer software		19,323			19,521
Leasehold improvements		5,594			5,092
Equipment and vehicles under capital lease		2,841			2,410
Total, at cost		53,072			58,945
Less – Accumulated depreciation and amortization		(31,749	)		(37,140	)
Net property, plant and equipment	$	21,323		$	21,805

     Depreciation expense was $4,792,000, $4,215,000 and $4,254,000 for the years ended December 31, 2006, 2005 and 2004, respectively. The majority of the Company’s vehicles are leased and are accounted for as operating leases; however, certain of these vehicle leases are accounted for as capital leases. Assets under capital lease in the above table primarily represent vehicles leased by the Company. These assets are being amortized over the shorter of the lease term or the estimated useful life of the asset. Amortization expense related to capital leases was $622,000, $592,000 and $379,000 for the years 2006, 2005 and 2004, respectively. As of December 31, 2006 and 2005, the Company has recorded $1,523,000 and $1,022,000 in accumulated amortization for assets under capital lease.

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11. COMMITMENTS & CONTINGENCIES

Commitments

     At December 31, 2006, the Company had certain guarantees and indemnifications outstanding which could result in future payments to third parties. These guarantees generally result from the conduct of the Company’s business in the normal course. The Company’s outstanding guarantees at December 31, 2006 were as follows:

	Maximum
	undiscounted
(Dollars in millions)	future payments
Standby letters of credit:*
Insurance related	$	10.0
Other		0.2
Performance and payment bonds*		5.3

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

     The Company’s banks issue standby letters of credit (“LOCs”) on the Company’s behalf under the Unsecured Credit Agreement (the “Credit Agreement”) as discussed more fully in the “Long-term Debt and Borrowing Agreements” note. As of December 31, 2006, the majority of the balance of the Company’s outstanding LOCs was issued to insurance companies to serve as collateral for payments the insurers are required to make under certain of the Company’s self-insurance programs. These LOCs may be drawn upon in the event that the Company does not reimburse the insurance companies for claims payments made on its behalf. These LOCs renew automatically on an annual basis unless either the LOCs are returned to the bank by the beneficiaries or the banks elect not to renew them.

     Bonds are provided on the Company’s behalf by certain insurance carriers. The beneficiaries under these performance and payment bonds may request payment from the Company’s insurance carriers in the event that the Company does not perform under the project or if subcontractors are not paid. The Company does not expect any amounts to be paid under its outstanding bonds at December 31, 2006. In addition, the Company believes that its bonding lines will be sufficient to meet its bid and performance bonding needs for at least the next year.

Contingencies

     Tax exposures. The Company currently believes that amounts recorded for certain tax, penalty, and interest exposures aggregating $9.2 million at December 31, 2006 (identified through its 2005 restatement process) may ultimately be increased or reduced dependent on the ultimate settlement with the respective taxing authorities. During 2006, certain of the Company’s previously identified tax exposures were reduced based on assessments of tax obligations to the Company’s clients in situations where the Company had the obligation to charge the client for these taxes, collect the tax and remit it to the tax authorities. In addition, other 2006 reductions were attributable to the settlement of taxes and related penalties and interest at less than full statutory rates in situations where the tax, penalty and interest obligations were previously estimated and accrued at full statutory rates. Other 2006 reductions were recorded based on new information which became available in the fourth quarter of 2006 or early 2007. Actual payments could differ from amounts estimated at December 31, 2006 due to favorable or unfavorable tax settlements and/or further negotiations of tax, penalties and interest at less than full statutory rates. Based on information currently available, these estimates have been determined to reflect probable liabilities. However, depending on the outcome of future tax settlements, negotiations and discussions with tax authorities, subsequent conclusions may be reached which result in favorable or

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unfavorable adjustments to the Company’s estimates in future periods. For further discussion of tax exposures settled during 2006, see the “Fourth Quarter Adjustments” footnote.

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

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

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

     The Company relies on qualified actuaries to assist in determining the level of reserves to establish for both insurance-related claims that are known and have been asserted against the Company as well as for insurance-related claims that are believed to have been incurred based on actuarial analysis, but have not yet been reported to the Company’s claims administrators as of the respective balance sheet dates. The Company includes any adjustments to such insurance reserves in its consolidated results of operations.

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

     Reliance liquidation. The Company’s professional liability insurance coverage had been placed on a claims-made basis with Reliance Insurance Group (“Reliance”) for the period July 1, 1994 through June 30, 1999. In 2001, the Pennsylvania Insurance Commissioner placed Reliance into liquidation. The Company remains uncertain at this time what effect this action will have on its recoveries with respect to claims made against the Company or its subsidiaries when Reliance coverage was in effect. A wholly-owned subsidiary of the Company was subject to one substantial claim which fell within the Reliance coverage period. This claim was settled in the amount of $2.5 million, and paid by the Company in 2003. Due to the liquidation of Reliance, the Company is currently uncertain what amounts paid to settle this claim will be recoverable under the insurance policy with Reliance. The Company is pursuing a claim in the Reliance liquidation and believes that some recovery will result from the liquidation, but the amount of such recovery cannot currently be estimated. The Company had no related receivables recorded from Reliance as of December 31, 2006 and 2005.

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12. LEASE COMMITMENTS

     The Company’s non-cancelable leases relate to office space, computer hardware and software, office equipment and vehicles with lease terms ranging from 1 to 10 years. Rent expense under non-cancelable operating leases was $18,556,000, $16,590,000 and $15,265,000 for 2006, 2005 and 2004, respectively. Future annual minimum lease payments under non-cancelable capital and operating leases as of December 31, 2006 were as follows (in thousands):

	Capital lease		Operating lease
Fiscal year	obligations		obligations		Total
2007	$	933	$	17,811	$	18,744
2008		490		14,568		15,058
2009		191		11,005		11,196
2010		2		8,670		8,672
2011		—		4,215		4,215
Thereafter		—		5,737		5,737
Total	$	1,616	$	62,006	$	63,622

13. LONG-TERM DEBT AND BORROWING AGREEMENTS

     The Company’s Credit Agreement is with a consortium of financial institutions. The Credit Agreement provides for a commitment of $60 million through September 17, 2008. The commitment includes the sum of the principal amount of revolving credit loans outstanding (for which there is no sublimit) and the aggregate face value of outstanding LOCs (which have a sublimit of $15.0 million). As of December 31, 2006, borrowings outstanding under the Credit Agreement were $11.0 million and outstanding standby LOCs were $10.2 million. As of December 31, 2005, there were no borrowings outstanding under the Credit Agreement; however, outstanding LOCs totaled $7.0 million as of that date. Under the Credit Agreement, the Company pays bank commitment fees of 3/8% per year based on the unused portion of the commitment.

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

     In connection with the restatement of the Company’s consolidated financial statements through March 31, 2005, the Company did not timely file various SEC filings during 2006. As a result, several covenant violations related to the timing of the Company’s financial reporting occurred under the Credit Agreement. The lenders waived these violations as a result of the Company becoming current on those SEC filings as of September 30, 2006.

     The average daily balance outstanding for the days that the Company was in a borrowed position was $15,564,000 and $1,983,000 at weighted-average interest rates of 6.89% and 4.15% for 2006 and 2005, respectively. The proceeds from these borrowings under the Credit Agreement during 2006 and 2005 were used to meet various working capital requirements, in addition to financing the 2006 Buck acquisition.

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14. EARNINGS PER SHARE

     The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years ended December 31, 2006, 2005 and 2004.

(In thousands except per share data)	2006		2005		2004
Net income	$	11,831	$	5,051	$	8,394
Basic weighted average shares outstanding		8,520		8,507		8,402
Basic earnings per share	$	1.39	$	0.59	$	1.00
Effect of dilutive securities:
Stock options		198		208		152
Diluted weighted average shares outstanding		8,718		8,715		8,554
Diluted earnings per share	$	1.36	$	0.58	$	0.98

     The Company had zero stock options as of December 31, 2006 and 2005, and 174,624 as of December 31, 2004, which were not included in the computations of diluted shares outstanding for the respective twelve-month periods because the option exercise prices were greater than the average market prices of the common shares.

15. CAPITAL STOCK

     In 1996, the Board of Directors authorized the repurchase of up to 500,000 shares of the Company’s Common Stock in the open market. In 2003, the Board of Directors authorized an additional repurchase of up to 500,000 shares for a total authorization of 1,000,000 shares. During 2005, the Company repurchased 104,300 treasury shares at an average market price of $17.11 per share (based on market prices ranging from $16.35 to $18.56 per share) for a total cost of $1,808,000. As of December 31, 2006, 520,319 treasury shares had been repurchased under the Board’s authorizations. The Company made no treasury share repurchases during 2006 and 2004.

     As of December 31, 2006, the difference between the number of treasury shares repurchased under these authorizations and the number of treasury shares listed on the consolidated balance sheets relates to an exchange of Series B Common Stock for 23,452 Common shares which occurred during the first quarter of 2002. The remaining difference relates to 1,330 shares issued to employees as bonus share awards in the late 1990s.

     Under the Credit Agreement (which became effective in September 2004), the Company’s treasury share repurchases cannot exceed $5 million during the four-year term of the Credit Agreement.

     The Articles of Incorporation authorize the issuance of 6,000,000 shares of Series B Common Stock, par value $1 per share, which would entitle the holders thereof to ten votes per share on all matters submitted for shareholder votes. At December 31, 2006 and 2005, there were no shares of such Series B Stock outstanding. The Company has no plans of issuing any Series B Common Stock in the near future. The Articles of Incorporation also authorize the issuance of 300,000 shares of Cumulative Preferred Stock, par value $1 per share. At December 31, 2006 and 2005, there were no shares of such Preferred Stock outstanding.

16. RIGHTS AGREEMENT

     In 1999, the Board of Directors adopted a Rights Agreement (the “Rights Agreement”). In connection with the Rights Agreement, the Company declared a distribution of one Right (a “Right”) for each outstanding share of Common Stock to shareholders of record at the close of business on November 30, 1999. The Rights will become exercisable after a person or group, excluding the Company’s

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Employee Stock Ownership Plan (“ESOP”) has acquired 25% or more of the Company’s outstanding Common Stock or has announced a tender offer that would result in the acquisition of 25% or more of the Company’s outstanding Common Stock. The Board of Directors has the option to redeem the Rights for $0.001 per Right prior to their becoming exercisable. The Rights will expire on November 16, 2009, unless they are earlier exchanged or redeemed.

     Assuming the Rights have not been redeemed, after a person or group has acquired 25% or more of the Company’s outstanding Common Stock, each Right (other than those owned by a holder of 25% or more of the Common Stock) will entitle its holder to purchase, at the Right’s then current exercise price, a number of shares of the Company’s Common Stock having a value equal to two times the exercise price of the Rights. In addition, at any time after the Rights become exercisable and prior to the acquisition by the acquiring party of 50% or more of the outstanding Common Stock, the Board of Directors may exchange the Rights (other than those owned by the acquiring person or its affiliates) for the Company’s Common Stock at an exchange ratio of one share of Common Stock per Right.

17. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

     The Company maintains a defined contribution retirement program through its ESOP, in which substantially all employees are eligible to participate. The ESOP offers participants several investment options, including a variety of mutual funds and Company stock. Contributions to the ESOP are derived from a 401(k) Salary Redirection Program with a Company matching contribution, and a discretionary contribution as determined by the Board of Directors. Under the 401(k) Salary Redirection Program, for the Engineering segment, the Company matches up to 100% of the first 3% and 50% of the next full 3% of eligible salary contributed, thereby resulting in a Company match of as much as 4.5% of eligible salary contributed. For the Energy segment, the Company matches 50% of the first 6% of eligible salary contributed, thereby resulting in a Company match of as much as 3% of eligible salary contributed. The Company’s matching contributions are invested not less than 25% in its Common Stock (purchased through open market transactions), with the remaining 75% being available to invest in mutual funds or its Common Stock, as directed by the participants. The Company’s required cash contributions under this program amounted to $5,881,000, $5,349,000 and $5,006,000 in 2006, 2005 and 2004, respectively. An additional discretionary employer contribution of $1,500,000 for 2004 was approved by the Board of Directors in February 2005, and accrued as of December 31, 2004. No discretionary employer contributions were approved by the Board of Directors in either 2006 or 2005.

     As of December 31, 2006, the market value of all ESOP investments was $215.2 million, of which 16% represented the market value of the ESOP’s investment in the Company’s Common Stock. The Company’s ESOP held 17% of both the shares and voting power of its outstanding Common Stock at December 31, 2006. Each participant who has shares of Common Stock allocated to his or her account will have the authority to direct the Trustee with respect to the vote and all non-directed shares will be voted in the same proportion as the directed shares.

18. DEFERRED COMPENSATION PLAN

     The Company has a nonqualified deferred compensation plan that provides benefits payable to non-employee directors at specified future dates, upon retirement, or death. Under the plan, participants may elect to defer their compensation received for their services as directors. This deferred compensation plan is unfunded; therefore, benefits are paid from the general assets of the Company. Participant cash deferrals earn a return based on the Company’s long-term borrowing rate as of the beginning of the plan year. The total of participant deferrals, which is reflected in “Other long-term liabilities,” was approximately $0.7 million at both December 31, 2006 and 2005.

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19. STOCK OPTION PLANS

     As of December 31, 2006, the Company had two fixed stock option plans under which stock options can be exercised. Under the 1995 Stock Incentive Plan (the “Plan”), the Company was authorized to grant options for an aggregate of 1,500,000 shares of Common Stock to key employees through its expiration on December 14, 2004. Under the amended 1996 Non-employee Directors’ Stock Incentive Plan (the “Directors’ Plan”), the Company was authorized to grant options and restricted shares for an aggregate of 400,000 shares of Common Stock to non-employee board members through February 18, 2014. The Directors Plan was amended by a vote at the annual meeting of shareholders in April 2004 to increase the number of shares available for grant to 400,000 from 150,000 shares. Under both plans, the exercise price of each option equals the average market price of the Company’s stock on the date of grant. Unless otherwise established, one-fourth of the options granted to key employees became immediately vested and the remaining three-fourths vested in equal annual increments over three years under the now expired Plan, while the options under the Directors’ Plan become fully vested on the date of grant and become exercisable six months after the date of grant. Vested options remain exercisable for a period of ten years from the grant date under both plans. As of December 31, 2006, all outstanding options were fully vested under both plans. The number of options exercisable under both plans as of December 31, 2006, 2005 and 2004 was 221,093, 334,791 and 318,030, respectively.

     Under the Directors’ Plan, each non-employee director was issued 1,500 restricted shares of Common Stock in 2006 and 2005 and 1,000 restricted shares in 2004, for a total of 10,500 shares in 2006, 12,000 shares in 2005 and 7,000 shares in 2004. The Company recognized compensation expense totaling $141,000, $135,000, and $63,000 related to the issuance of these restricted shares in 2006, 2005, and 2004, respectively. Restrictions on the shares expire two years after the issue date. Additionally, each non-employee Board member was issued 2,000 options in 2006, 2005 and 2004 for a total of 14,000, 16,000 and 14,000 options, and the Company recognized compensation expense related to these options in the amounts of $130,000, $133,000 and $80,000, respectively. The exercise prices associated with these option grants were equal to the average market prices on the dates of the grants.

     In December 2004, the FASB issued SFAS 123(R), which replaced SFAS 123 and supersedes APB 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) also amended SFAS 95, “Statement of Cash Flows,” to require reporting of excess tax benefits from the exercises of stock-based compensation awards as a financing cash inflow rather than as an operating cash inflow. SFAS 123(R) requires that the expense resulting from all share-based payment transactions be recognized in the financial statements. This statement applies to all awards granted after the required effective date. In March 2005, the SEC released SAB 107 to assist registrants in implementing SFAS 123(R) while enhancing the information that investors receive.

     The Company adopted the provisions of SFAS 123(R) on January 1, 2006 using the modified prospective application method. The modified prospective method does not require adjustments to prior period financial statements and measures expected future compensation cost for stock-based awards at fair value on the grant date.

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     The following table summarizes all stock option activity for both plans in 2006, 2005 and 2004:

				Weighted average		Aggregate		Weighted average
	Shares subject			exercise price		intrinsic		contractual life
	to option			per share		value		remaining in years
Balance at January 1, 2004		624,281		$	10.32
Options granted		14,000			12.63
Options exercised		(192,136	)		7.88
Options forfeited or expired		—			—
Balance at December 31, 2004		446,145		$	11.44	$	3,642,376		5.6
Options granted		16,000			20.16
Options exercised		(43,015	)		13.39
Options forfeited or expired		—			—
Balance at December 31, 2005		419,130		$	11.57	$	5,860,112		4.8
Options granted		14,000			20.28
Options exercised		(198,037	)		9.97
Options forfeited or expired		—			—
Balance at December 31, 2006		235,093		$	13.43	$	2,166,673		4.5

     The weighted average fair value of options granted during 2006, 2005 and 2004 was $9.15, $6.71 and $6.59, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2006, 2005 and 2004 was $2,154,000, $362,000 and $1,447,000, respectively. As of December 31, 2006, no shares of the Company’s Common Stock remained available for future grant under the expired Plan, while 203,500 shares were available for future grant under the Directors’ Plan.

     The following table summarizes information about stock options outstanding under both plans as of December 31, 2006:

	Options outstanding						Options exercisable
					Weighted
	Number of		Average		average		Number of		Weighted average
Range of exercise prices	options		life*		exercise price		options		exercise price
$6.25 - $9.00		33,429		3.8	$	7.99		33,429	$	7.99
$9.53 - $12.85		78,128		2.6		10.64		78,128		10.64
$15.035 - $20.28		123,536		5.9		16.67		109,536		16.21
Total		235,093		4.5	$	13.43		221,093	$	13.00

* Average life remaining in years

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

	2006			2005			2004
Weighted average risk-free interest rate		5.4	%		5.4	%		5.5	%
Weighted average expected volatility		44.1	%		44.5	%		45.4	%
Expected option life	7.6 years			6 years			6 years
Expected dividend yield		0	%		0	%		0	%

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

     Pro forma information regarding net income and earnings per share, as if stock-based compensation expense for the Company’s stock based awards had been determined in accordance with the fair value method prescribed in SFAS 123 for 2005 and 2004, is immaterial for disclosure.

20. RELATED PARTY TRANSACTIONS

     Effective April 25, 2001, the Company entered into a Consulting Agreement with Richard L. Shaw when he retired from his position as Chief Executive Officer. Through subsequent amendments, this agreement has been extended through April 26, 2008. The Consulting Agreement provides an annual compensation amount for consulting services in addition to the Company covering the costs of health insurance and maintains life insurance for the executive. The Consulting Agreement also provides for a supplemental retirement benefit of $5,000 per month commencing at the expiration of the consulting term. Mr. Shaw’s total consulting fees were $79,689, $184,689 and $106,252 for the years ended December 31, 2006, 2005 and 2004, respectively.

     Effective September 14, 2006, Mr. Shaw’s compensation for the consulting services under the agreement was temporarily suspended due to his re-employment by the Company as its Chief Executive Officer. Compensation under the consulting agreement will resume upon Mr. Shaw’s retirement from the Company.

21. FOURTH QUARTER ADJUSTMENTS

     During the fourth quarter of 2006, a number of outstanding foreign and domestic tax liabilities were settled. One liability related to a domestic sales and use tax exposure that was settled for approximately $121,000, which includes $9,000 in accrued interest. The Company had accrued approximately $4,825,000, including $402,000 of interest, for this liability, resulting in a favorable reversal of approximately $4,704,000. In addition, certain foreign payroll tax exposure items that had been accrued for by the Company were resolved, resulting in the reversal of approximately $1,188,000 during the fourth quarter. Furthermore, the applicable taxing authorities settled certain foreign payroll tax liabilities, resulting in the reversal of approximately $449,000 in taxes and $1,675,000 in penalties and interest during the fourth quarter. These reversals resulted from settlements of taxes and related penalties and interest at less than full statutory rates, whereas the Company had originally accrued these taxes at full statutory rates. Also, the Company benefited from a fourth quarter IRS refund in the amount of $806,000 related to an amended return. In addition, during the first quarter of 2007, the Company became aware of new information related to a partially-insured general liability claim. After consideration of this new information, the Company determined that its self-insurance reserve for this claim should be increased by $1.0 million. Collectively for the quarter, these adjustments had no impact on total contract revenues and increased gross profit by approximately $637,000, income before taxes by approximately $7,016,000 and net income by approximately $5,818,000.

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22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of the unaudited quarterly results of operations for the two years ended December 31, 2006 (in thousands, except per share information):

	2006 – Three Months Ended
	Mar. 31		June 30		Sept. 30			Dec. 31(1)
Total contract revenues	$	145,547	$	155,903	$	170,194		$	179,368
Gross profit		20,767		22,673		20,209			24,688
Income before income taxes		3,224		2,731		1,429			13,252
Net income/(loss)		1,720		1,126		(324	)		9,309
Diluted earnings/(loss) per common share	$	0.20	$	0.13	$	(0.04	)	$	1.07

(1) For further discussion, see the “Fourth Quarter Adjustments” footnote.

	2005 – Three Months Ended
	Mar. 31		June 30		Sept. 30		Dec. 31
Total contract revenues	$	144,195	$	142,765	$	148,733	$	143,585
Gross profit		22,375		18,645		20,838		21,537
Income before income taxes		6,632		1,918		3,543		3,024
Net income		2,855		42		1,340		814
Diluted earnings per common share	$	0.33	$	0.00	$	0.15	$	0.10

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

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

The Company’s 2006 and 2005 financial statements have been audited by Deloitte & Touche LLP, independent registered public accounting firm, as selected by the Audit Committee. Management has made available to Deloitte & Touche LLP all the Company’s financial records and related data, as well as the minutes of shareholders’ and directors’ meetings. The Company’s 2004 financial statements were audited by PricewaterhouseCoopers LLP, independent registered public accounting firm.

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

/s/ Richard L. Shaw Richard L. Shaw

Chairman of the Board and Chief Executive Officer

/s/ William P. Mooney William P. Mooney

Executive Vice President and Chief Financial Officer

/s/ Craig O. Stuver Craig O. Stuver

Senior Vice President, Corporate Controller and Treasurer (Chief Accounting Officer)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Michael Baker Corporation

We have audited the accompanying consolidated balance sheets of Michael Baker Corporation and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ investment, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Michael Baker Corporation and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP Pittsburgh, Pennsylvania

March 15, 2007

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Report of Independent Registered Public Accounting Firm

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

In our opinion, the consolidated statements of income, shareholders’ investment and cash flows for the year ended December 31, 2004 present fairly, in all material respects, the results of operations and cash flows of Michael Baker Corporation for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania

March 15, 2005, except for the restatement described in Note 2

(not presented herein) to the consolidated financial statements

appearing under Exhibit 13.1 of the Company’s 2005 Annual Report

on Form 10-K, as to which the date is August 15, 2006

SUPPLEMENTAL FINANCIAL INFORMATION

Market Information — Common Shares

     The principal market on which the Company’s Common Stock is traded is the American Stock Exchange under the ticker symbol “BKR.” High and low closing prices of the Company’s Common Stock for each quarter during 2006 and 2005 were as follows:

	2006								2005
	Fourth		Third		Second		First		Fourth		Third		Second		First
High	$	23.05	$	22.40	$	28.65	$	28.33	$	27.00	$	27.60	$	22.95	$	24.55
Low		20.05		20.10		20.55		26.00		22.19		18.00		16.32		18.00

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EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

The following entities, unless otherwise indicated, are wholly-owned direct or indirect subsidiaries of the Registrant as of December 31, 2006:

		State or Country
	Name	of Organization
1.	Baker Construction, Inc.	Delaware
2.	Baker Global Project Services, Inc.	Delaware
3.	Baker Holding Corporation	Delaware
4.	Baker/OTS, Inc.	Delaware
5.	International Pipeline Services, Inc.	Delaware
6.	Michael Baker International, Inc.	Delaware
7.	Baker Engineering, Inc.	Illinois
8.	Michael Baker Jr. Company	Nevada
9.	Michael Baker Architects/Engineers, P.C.	New Jersey
10.	Baker Engineering NY, Inc.	New York
11.	Baker Environmental, Inc.	Pennsylvania
12.	Baker Heavy & Highway, Inc.	Pennsylvania
13.	Baker Mellon Stuart Construction, Inc.	Pennsylvania
14.	Michael Baker Global, Inc.	Pennsylvania
15.	Michael Baker Jr., Inc.	Pennsylvania
16.	Baker/MO Services, Inc.	Texas
17.	Vermont General Insurance Company	Vermont
18.	Baker Energy International, Ltd.	Cayman Islands
19.	Baker O&M International, Ltd.	Cayman Islands
20.	Baker/OTS International, Inc.	Cayman Islands
21.	Overseas Technical Services (Middle East) Ltd.	Cayman Islands
22.	Michael Baker de Mexico S.A. de C.V.	Mexico
23.	Baker/OTS Ltd.	United Kingdom
24.	OTS International Training Services Ltd.	United Kingdom
25.	Overseas Technical Services (Harrow) Ltd.	United Kingdom
26.	SD Forty-Five Ltd.	United Kingdom
27.	OTS Finance and Management Ltd.	Vanuatu
28.	Overseas Technical Services International, Ltd.	Vanuatu

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-05987, 333-59941, 033-62887, 333-69306, 333-123232 on Forms S-8 of our report dated March 15, 2007, relating to the consolidated financial statements of Michael Baker Corporation and subsidiaries (the “Company”) incorporated by reference in the Annual Report on Form 10-K of Michael Baker Corporation for the year ended December 31, 2006, and of our reports on the Company’s financial statement schedule, and management’s report on the effectiveness of internal control over financial reporting.

/s/ Deloitte & Touche LLP

Pittsburgh, Pennsylvania
March 15, 2007

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-05987; No. 333-59941; No. 033-62887, No. 333-69306 and No. 333-123232) of Michael Baker Corporation of our report dated March 15, 2005, except for the restatement described in Note 2 (not presented herein) to the consolidated financial statements appearing under Exhibit 13.1 of the Company’s 2005 Annual Report on Form 10-K, as to which the date is August 15, 2006, relating to the consolidated financial statements which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP    

Pittsburgh, Pennsylvania
March 15, 2007

EX-31.1

Exhibit 31.1

I, Richard L. Shaw, certify that:

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

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

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

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

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

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

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

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

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

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

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

/s/ Richard L. Shaw

Chairman of the Board and Chief Executive Officer

Date: March 16, 2007

EX-31.2

Exhibit 31.2

I, William P. Mooney, certify that:

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

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

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

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

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

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

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

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

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

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

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

/s/ William P. Mooney

Executive Vice President and Chief Financial Officer

Date: March 16, 2007

EX-32.1

Exhibit 32.1

ADDITIONAL CERTIFICATIONS

     Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Michael Baker Corporation (the “Company”), hereby certifies that the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Richard L. Shaw   Chairman of the Board and Chief Executive Officer Date: March 16, 2007

     Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Michael Baker Corporation (the “Company”), hereby certifies that the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William P. Mooney	Date: March 16, 2007
Executive Vice President and Chief Financial Officer

     These additional certifications are being furnished solely pursuant to 18 U.S.C. Section 1350, and are not being filed as part of the Report or as a separate disclosure document.

EX-99.1

Exhibit 99.1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Michael Baker Corporation

We have audited the consolidated financial statements of Michael Baker Corporation and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and for the years then ended, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, and have issued our reports thereon dated March 15, 2007; such consolidated financial statements and report are included in your 2006 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company for the years ended December 31, 2006 and 2005 listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Pittsburgh, Pennsylvania
March 15, 2007

EX-99.2

Exhibit 99.2

Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule

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

Our audit of the consolidated statements of income, shareholders’ investment and cash flows for the year ended December 31, 2004 referred to in our report dated March 15, 2005, except for the restatement described in Note 2 (not presented herein) to the consolidated financial statements appearing under Exhibit 13.1 of the Company’s 2005 Annual Report on Form 10-K, as to which the date is August 15, 2006 (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP     

Pittsburgh, Pennsylvania
March 15, 2005, except for the restatement described in Note 2
(not presented herein) to the consolidated financial statements
appearing under Exhibit 13.1 of the Company’s 2005 Annual Report
on Form 10-K, as to which the date is August 15, 2006