Exhibit 13.1

SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                1999       1998       1997      1996      1995
================================================================================
                                (In thousands, except per share information)
<S>                         <C>        <C>        <C>       <C>       <C>
RESULTS OF OPERATIONS
Total contract revenues     $506,012   $521,271   $446,432  $418,388  $354,728
Operating income/(loss)       (8,175)    (1,667)     8,020     7,663     5,180
Net income/(loss)             (8,164)    (2,419)     4,953     4,180     2,900
Diluted net income/(loss)
 per share                  $  (1.00)  $  (0.30)  $   0.60  $   0.50  $   0.35
Return on average equity       (16.7)%     (4.4)%      9.3%      8.5%      6.3%
================================================================================
FINANCIAL CONDITION
Total assets                $149,191   $151,861   $144,425  $126,082  $117,376
Working capital             $ 26,073   $ 31,855   $ 36,220  $ 27,417  $ 25,186
Current ratio                   1.31       1.36       1.41      1.36      1.36
Long-term debt              $ 14,867   $  3,138   $     --  $     --  $     --
Shareholders' investment      44,799     52,862     55,862    50,752    47,631
Book value per
 outstanding share              5.48       6.47       6.79      6.19      5.70
Year-end closing
 share price                $   6.63   $   9.75   $   9.75  $   6.38  $   5.00
================================================================================
CASH FLOW
Cash provided by/(used
 in) operating activities   $  1,143   $ (1,379)  $  7,803  $  1,167  $ 15,539
Cash used in investing
 activities                  (10,255)   (11,416)    (2,533)   (3,739)   (2,294)
Cash provided by/(used in)
 financing activities          7,783      1,935        124    (1,251)   (2,547)
--------------------------------------------------------------------------------
Increase/(decrease)
 in cash                    $ (1,329)  $(10,860)  $  5,394  $ (3,823) $ 10,698
================================================================================
BACKLOG
Funded                      $365,300   $447,600   $393,200  $332,800  $299,900
Total                       $657,300   $735,300   $648,700  $543,700  $507,800
================================================================================
SHARE INFORMATION
Year-end shares
 outstanding                   8,181      8,166      8,224     8,197     8,364
Average diluted shares
 outstanding during year       8,175      8,178      8,299     8,383     8,368
================================================================================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS

As  discussed  more fully in Note 2 to the  consolidated  financial  statements,
during the first quarter of 1999, the Company determined that it would no longer
participate  in general  construction  projects for buildings or  transportation
infrastructure.  Accordingly, the Company's Buildings unit was restructured, and
the Company  recorded  related  charges in the amount of $0.8 million during the
first quarter of 1999. During the third and fourth quarters of 1999, the Company
recorded  additional charges totaling $21.1 million associated with construction
projects  in  its  Buildings   and   Transportation   units.   Of  this  amount,
approximately  $5.9 million relates to obligations  determined  during the third
quarter  of  1999  to  certain  subcontractors  and  vendors  associated  with a
construction  project for Universal City  Development  Partners  ("UCDP") at the
Universal Studios theme park in Orlando, FL; another $2.4 million relates to the
March 2000 conditional settlement of litigation related to the UCDP project, the
effects  of which were  recorded  during  the  fourth  quarter of 1999;  and the
remaining  $12.8  million  resulted  from  changes in cost  estimates on several
Transportation-Construction  (heavy and highway)  projects  during the year.  In
connection  with the  Company's  sale of  certain  assets  held by its heavy and
highway division,  additional charges totaling $1.9 million were recorded during
the  fourth  quarter  of 1999.  As a result of this sale,  the  Company  remains
responsible for only five  significant  general  construction  projects,  all of
which are  scheduled to be  completed  by the end of the third  quarter of 2000.
Other  1999  charges  of  $3.2  million  comprised  adjustments  on  engineering
projects, the writeoff of certain intangible assets and severance costs.

TOTAL CONTRACT  REVENUES Total  contract  revenues  decreased to $506 million in
1999 from $521 million in 1998.  The most  significant  1999  fluctuations  were
registered in the form of increases for the  Transportation  and Energy units of
$74 million and $13 million,  respectively, and a decrease of $98 million in the
Buildings unit. The Transportation unit posted significant revenue  improvements
in both its engineering and  construction  divisions as a direct result of state
transportation  funding  increases  associated with the U.S.  government's  1998
federal  transportation  (TEA-21) legislation.  Several new contracts to provide
offshore  operations  and  maintenance  ("O&M")  services,  as well  as  revenue
increases on existing contracts,  accounted for the increase in the Energy unit.
The  substantial   decrease  in  the  Buildings   unit's  revenues  is  directly
attributable  to the  unit's  restructuring  and its  discontinuance  of general
construction services during 1999.

For 1998,  total contract  revenues  increased from $446 million in 1997. All of
the  Company's  business  units  posted  revenue   improvements  for  1998.  The
Buildings,  Transportation,  Energy and Civil units recorded the largest revenue
increases   of  $25  million,   $22  million,   $14  million  and  $13  million,
respectively.  In the Buildings unit, the UCDP project accounted for $60 million
of revenues in 1998 versus only $17 million in 1997. Nearly equal revenue growth
in  each  of the  engineering  and  construction  divisions  contributed  to the
Transportation unit's improvement.  International growth,  including that from a
new  consolidated  joint  venture  which  provides  O&M  services to BP Amoco in
Venezuela,  caused the increase in the Energy unit. The Civil unit's improvement
principally  resulted  from higher  revenues on new O&M  contracts  in its Baker
Support Services, Inc. ("BSSI") division.

GROSS PROFIT
Gross profit decreased to $40.7 million in 1999 from $47.2 million in 1998. As a
percentage of total contract  revenues,  gross profit declined to 8.1% from 9.1%
in 1998. During 1999 and 1998,  project charges totaling $22.6 million and $13.7
million,  respectively,  reduced the Company's  gross  profit.  The 1999 project
charges  primarily   affected  the  Buildings  and   Transportation-Construction
segments in amounts of $8.8 million and $12.8 million,  respectively,  while the
<PAGE>
1998 charges were entirely  recorded on  construction  projects in the Buildings
unit. The gross profit percentage increased in the Civil and Buildings units for
1999,  with decreases in the other units.  In the Company's Civil unit, the BSSI
division  posted both dollar and percentage  improvements in gross profit due to
an overall  change in its mix of projects  following the  completion of its then
most significant  contract in 1998.  Excluding the previously mentioned 1999 and
1998 project charges,  the Buildings  unit's profit  percentage still would have
improved for 1999 due to closer management of its construction  projects as they
were being  completed  during 1999.  Despite  significant  revenue  growth which
improved the gross profit in dollars for the  Transportation  unit's engineering
division,  the unit's overall results  suffered due to the  aforementioned  1999
construction  project  charges.  The Energy unit's  decrease in its gross profit
percentage for 1999 was impacted by  nonrecurring  project-related  difficulties
during the  second  quarter  of 1999.  The  Environmental  unit's  gross  profit
percentage was lower for 1999 due to a change in its mix of contracts.

For 1998,  gross profit decreased from $51.9 million in 1997. As a percentage of
total contract revenues,  gross profit declined in 1998 from 11.6% in 1997. Both
overall  decreases  are  directly   attributable  to  the  aforementioned   1998
construction  project charges. The gross profit percentage increased in 1998 for
all of the Company's  business  units except for the Civil unit,  which remained
relatively  flat, and the Buildings  unit. The Energy and  Transportation  units
registered the most significant overall  improvements in 1998. The Energy unit's
international  growth,  particularly  in  Venezuela,  raised  its  gross  profit
percentage.   Both  the   engineering   and   construction   operations  in  the
Transportation  unit contributed to its  improvement,  with the engineering side
providing  the greater  increase  due to higher  profitability  from several new
projects on which work commenced during 1998. After excluding the aforementioned
1998  construction  losses,  the Buildings unit's gross profit  percentage still
would have been lower for 1998 as the result of its  completion  of certain more
profitable construction projects in late 1997 and early 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses remained constant at $48.9
million in 1999 and 1998.  Expressed as a percentage of total contract revenues,
SG&A  expenses  increased  slightly  to 9.7%  in 1999  from  9.4% in  1998.  The
Company's  1999  charges  discussed  in  Note  2 to the  consolidated  financial
statements had the effect of increasing  SG&A expenses by $4.4 million for 1999.
Excluding these charges,  the 1999 SG&A  percentage  would have been 8.8% due to
lower employee and office lease costs following the Company's first quarter 1999
restructuring  and certain  officer and  employee  terminations  which  occurred
during the year.

SG&A expenses  increased in 1998 from $43.9  million in 1997.  The 1998 increase
principally  reflected an investment in  technological  support costs,  costs of
entry into new transportation  markets,  additional support costs related to the
Energy unit's consolidated joint venture in Venezuela,  and higher international
marketing  costs.  Expressed as a percentage of total  contract  revenues,  SG&A
expenses decreased slightly in 1998 from 9.8% in 1997.

OTHER  INCOME AND EXPENSE
Interest  income  decreased to $155,000 in 1999 from $439,000 in 1998,  due to a
combination  of the Company  being in a net  borrowed  position  throughout  the
majority of 1999 and slightly lower  interest  rates in 1999.  Despite the lower
interest  rates in 1999,  interest  expense  increased  to $948,000 in 1999 from
$145,000 in 1998 due to higher  borrowings  under the Company's credit agreement
with Mellon Bank N.A.  ("Mellon"),  some of which  borrowings  were used for the
purchase of Steen Production Service, Inc. ("Steen") during the third quarter of
1999.  Additional 1999 interest  expense also resulted from notes payable due to
the former  shareholders  of Steen and higher 1999 interest  expense  associated
with certain heavy and highway  construction  equipment that was financed during
the second half of 1998.  Other expense was $273,000 in 1999 versus other income
of $42,000 in 1998,  primarily due to lower 1999  profitability  associated with
unconsolidated joint ventures and higher 1999 expense associated with a minority
<PAGE>
interest in the income of a consolidated Energy unit joint venture.

Interest income  decreased in 1998 from $552,000 in 1997, due to the combination
of a lower daily average  investment amount and slightly lower interest rates in
1998.  Other income  decreased in 1998 from  $811,000 in 1997,  primarily due to
1998 expense  related to the minority  interest in the income of a  consolidated
Energy  unit  joint  venture  and 1997  gains  realized  on the sales of certain
investments.  Interest  expense  increased  in 1998 from  $39,000 in 1997 as the
result of the  aforementioned  1998  financing  of  certain  heavy  and  highway
construction equipment.

INCOME TAXES
The  Company's  1999  benefit from income  taxes  resulted in an  effective  tax
benefit  rate of 12% in 1999,  compared  to  provisions  for  income  taxes that
resulted in effective tax rates of (82)% in 1998 and 47% in 1997. The difference
between  these   percentages  and  the  34%  statutory  U.S.   federal  rate  is
attributable primarily to state and foreign income taxes and foreign withholding
taxes.  The  minimal  income tax benefit for 1999 and the income tax expense for
1998 result  from the effects of certain  foreign and state taxes that cannot be
offset against tax benefits derived from other jurisdictions.

CONTRACT BACKLOG

The Company's funded backlog, which consists of that portion of uncompleted work
represented  by  signed  contracts  and  for  which  the  procuring  agency  has
appropriated  and allocated  the funds to pay for the work,  was $365 million at
December  31,  1999,  a decrease  from $448  million  at the end of 1998.  Total
backlog,  which incrementally  includes that portion of contract value for which
options are still to be exercised  (unfunded  backlog),  was $657 million at the
end of 1999 versus $735 million at the end of 1998.  The overall 1999  decreases
in funded and total  backlog  are  principally  attributable  to the  previously
discussed wind-down of the Company's two construction  divisions,  which thereby
caused funded and total backlog  reductions in the Buildings and  Transportation
units for 1999. The most  significant 1999 increases in funded and total backlog
were  registered  in the  Company's  Civil-BSSI  and  Transportation-Engineering
segments.

With reference to the Company's 1999  restructuring,  funded backlog  related to
the  business  that will be  continued  by the Company was $316 million and $300
million,  and total  backlog was $608 million and $587  million,  as of year-end
1999 and 1998, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating  activities was $1.1 million in 1999, compared to
net cash  used in  operating  activities  of $1.4  million  in 1998 and net cash
provided  by  operating  activities  of $7.8  million  in 1997.  The  1999  cash
improvement  resulted  primarily from net  reductions in  receivables  and other
contract-related   assets   associated  with  the  wind-down  of  the  Company's
construction  operations.  The  decrease for 1998 was  primarily  related to the
Company's 1998 net loss, while the 1997  improvement was mainly  attributed to a
combination  of the Company's  higher net income and the collection of retention
amounts totaling $3.0 million on a significant construction project.

Net cash used in investing  activities was $10.3 million in 1999,  $11.4 million
in 1998 and $2.5  million in 1997.  Although  the 1997 amount  solely  comprises
capital  expenditures,  the 1999 and 1998  amounts also include $4.9 million and
$0.8 million,  respectively,  that was paid relative to the  acquisition  of new
subsidiaries  (as  discussed  in  Notes 3 and 13 to the  consolidated  financial
statements).  The Company's capital expenditures included computer equipment and
software purchases totaling $2.8 million in 1999,  compared with $3.9 million in
1998 and $1.4 million in 1997.  During 1997,  the Company  acquired  most of its
computer  equipment  under  operating  leases,  but converted to the purchase of
computer  equipment for economic  reasons in 1998. An additional $3.5 million of
<PAGE>
the overall 1999 decrease and the 1998 increase is  attributable to the purchase
of heavy and highway construction equipment needed for new projects added during
1998.

Net cash provided by financing  activities was $7.8 million in 1999, compared to
$1.9 million in 1998 and $0.1 million in 1997.  Of the  Company's  1999 proceeds
from long-term  debt,  $10.1 million  represents  borrowings  against its credit
agreement  with  Mellon,  while  the  1998  proceeds  related  entirely  to  the
aforementioned  purchase of heavy and highway construction  equipment.  The 1999
and  1998   repayments  of  long-term   debt  correlate  to  both  the  financed
construction  equipment and the acquisitions of new  subsidiaries.  In 1998, the
Company also paid $0.8 million to acquire 96,379  treasury  shares under a stock
repurchase program.

Working  capital  decreased  to $26.1  million at  December  31, 1999 from $31.9
million at December  31,  1998.  The  Company's  current  ratios were 1.31:1 and
1.36:1 at the end of 1999 and 1998,  respectively.  Both the working capital and
current  ratio at year-end  1999 were  primarily  impacted by the effects of the
construction-related  charges discussed in Note 2 to the consolidated  financial
statements.

In 1998,  the  Company  extended  the term of its credit  agreement  with Mellon
through May 31, 2001.  This agreement  provides for a commitment of $25 million,
which  covers  borrowings  and  letters  of credit.  As of  December  31,  1999,
borrowings  totaling $10.1 million were outstanding  under the agreement,  along
with outstanding letters of credit totaling $2.3 million. As disclosed in Note 8
to the consolidated  financial  statements,  the agreement was unsecured through
December 1999, at which time Mellon acted to secure the agreement as a result of
the  Company's  third  quarter 1999 charges and its related  financial  covenant
violations. Accordingly, borrowings under the agreement are currently secured by
the  receivables  and stock of the Company and most of its  subsidiaries.  These
financial  covenants  were again not  achieved  for the fourth  quarter of 1999.
Mellon  has waived  through  the end of the first  quarter  of 2000,  its rights
related to certain fourth quarter 1999 loan covenant violations. The Company and
Mellon have agreed on certain  amendments  to the related loan  covenants,  such
that the  Company  believes  it will be able to achieve  the  amended  covenants
during 2000.  These  amendments also included a provision that borrowings  under
the agreement shall be limited to 80% of eligible receivables,  as determined by
Mellon.  Management  believes that the credit agreement will be adequate to meet
its borrowing and letter of credit requirements for at least the next year.

Short- and  long-term  liquidity is further  dependent  upon  appropriations  of
public funds for infrastructure and other  government-funded  projects,  capital
spending levels in the private sector, and the demand for the Company's services
in  the  oil  and  gas  markets.  Additional  external  factors  such  as  price
fluctuations in the energy industry could affect the Company. The current TEA-21
legislation  will provide  significant  increases in funding for  transportation
infrastructure  projects in 2000 and beyond. At this time,  management  believes
that its funds  generated from  operations and its existing credit facility will
be sufficient to meet its operating and capital expenditure  requirements for at
least the next year.

The  Company has  historically  been  required  to provide  bid and  performance
bonding on certain construction  contracts,  and has a $500 million bonding line
available through Travelers Casualty & Surety Company of America. As a result of
its 1999 restructuring, the Company will become increasingly less reliant on its
bonding line during 2000. Accordingly, management believes that its bonding line
will be sufficient to meet its bid and  performance  needs for at least the next
year.

YEAR 2000 COMPLIANCE

In early January 2000, the Company successfully completed its assessment process
relative to the arrival of the 21st century.  As a result of management's effort
<PAGE>
to identify  and resolve in advance  any  potential  issues that could have been
expected to arise  coincident  with the changeover to the year 2000, the Company
has  experienced  no  significant   Year  2000  problems  with  its  information
technology  systems since December 31, 1999.  Year 2000 compliance was primarily
achieved  through  the normal and  recurring  process  of system  upgrades,  the
software  costs of which were  covered  under  related  maintenance  agreements.
Accordingly, the incremental costs associated with Year 2000 compliance were not
material to the  Company's  consolidated  results of operations or its financial
position.

Management  previously believed that its "most reasonably likely worst case Year
2000  scenario"  posed the  potential  for payment  delays from some  customers,
including agencies of the U.S. federal government, due to their possible lack of
readiness  for the  new  century.  No such  payment  delays  have  significantly
impacted the Company's cash flow since December 31, 1999.

The Company considers its own Year 2000 compliance process  completed;  however,
the impact of Year 2000  issues on the  Company  will  continue to depend on how
related issues have been addressed by third parties that provide services to the
Company. To date, the Company has not been adversely impacted to any significant
extent by the failure of third parties to address Year 2000 issues.  The Company
has  developed  contingency  plans to address  risks  associated  with Year 2000
issues  that may arise.  There can be no  assurance  that these plans will fully
mitigate any problems that may arise in the future.

The foregoing Year 2000 discussions  constitute a Year 2000 Readiness Disclosure
within the meaning of the Year 2000 Readiness and Disclosure Act of 1998.


<PAGE>

<TABLE>
<CAPTION>
MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

                                                FOR THE YEARS ENDED DECEMBER 31,
                                                --------------------------------
                                                   1999       1998         1997
================================================================================
                                        (In thousands, except per share amounts)
--------------------------------------------------------------------------------
<S>                                            <C>        <C>          <C>
Total contract revenues                        $506,012   $521,271     $446,432

Cost of work performed                          465,273    474,027      394,527
--------------------------------------------------------------------------------
     GROSS PROFIT                                40,739     47,244       51,905

Selling, general and administrative expenses     48,914     48,911       43,885
--------------------------------------------------------------------------------
     INCOME/(LOSS) FROM OPERATIONS               (8,175)    (1,667)       8,020

Other income/(expense):
     Interest income                                155        439          552
     Interest expense                              (948)      (145)         (39)
     Other, net                                    (273)        42          811
--------------------------------------------------------------------------------
     INCOME/(LOSS) BEFORE INCOME TAXES           (9,241)    (1,331)       9,344

Provision for/(benefit from) income taxes        (1,077)     1,088        4,391
--------------------------------------------------------------------------------

     NET INCOME/(LOSS)                         $ (8,164)  $ (2,419)    $  4,953
================================================================================

     BASIC AND DILUTED NET INCOME/
       (LOSS) PER SHARE                        $  (1.00)  $  (0.30)    $   0.60
================================================================================
<FN>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
MICHAEL BAKER CORPORATION
CONSOLIDATED BALANCE SHEETS
                                                  AS OF DECEMBER 31,
                                                  ------------------
                                                   1999         1998
================================================================================
                                                   (In thousands)
<S>                                           <C>          <C>
ASSETS
CURRENT ASSETS
   Cash and cash equivalents                  $   3,685    $   5,014
   Receivables                                   77,964       82,672
   Cost of contracts in progress and
    estimated earnings, less billings            20,803       22,407
   Prepaid expenses and other                     7,363       10,192
--------------------------------------------------------------------------------
     TOTAL CURRENT ASSETS                       109,815      120,285
--------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET               17,120       17,458
--------------------------------------------------------------------------------
OTHER ASSETS
   Goodwill and other intangible assets, net     14,563        7,507
   Other assets                                   7,693        6,611
--------------------------------------------------------------------------------
     TOTAL OTHER ASSETS                          22,256       14,118
--------------------------------------------------------------------------------
     TOTAL ASSETS                             $ 149,191    $ 151,861
================================================================================

LIABILITIES AND SHAREHOLDERS' INVESTMENT
--------------------------------------------------------------------------------
CURRENT LIABILITIES
   Current portion of long-term debt          $   3,526    $     823
   Accounts payable                              28,862       43,356
   Accrued employee compensation                 10,462        9,141
   Accrued insurance                              7,884        6,155
   Other accrued expenses                        19,453       19,387
   Excess of billings on contracts in
    progress over cost and estimated earnings    13,555        9,568
--------------------------------------------------------------------------------
     TOTAL CURRENT LIABILITIES                   83,742       88,430
--------------------------------------------------------------------------------
OTHER LIABILITIES
    Long-term debt                               14,867        3,138
    Other                                         5,783        7,431
--------------------------------------------------------------------------------
     TOTAL LIABILITIES                          104,392       98,999
================================================================================

SHAREHOLDERS' INVESTMENT
   Common Stock, par value $1, authorized
    44,000,000 shares, issued 7,170,663 and
    7,150,179 shares, in 1999 and 1998,
    respectively                                  7,171        7,150
   Series B Common Stock, par value $1,
    authorized 6,000,000 shares, issued
    1,313,816 and 1,319,114 shares, in 1999
    and 1998, respectively                        1,314        1,319
   Additional paid-in capital                    37,084       37,002
   Retained earnings                              1,283        9,447
<PAGE>

   Less 302,989 and 303,359 shares of
    Common Stock in treasury, at cost, in
    1999 and 1998, respectively                  (2,053)      (2,056)
--------------------------------------------------------------------------------
    TOTAL SHAREHOLDERS' INVESTMENT               44,799       52,862
--------------------------------------------------------------------------------
    TOTAL LIABILITIES AND SHAREHOLDERS'
     INVESTMENT                               $ 149,191    $ 151,861
================================================================================
<FN>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              FOR THE YEARS ENDED DECEMBER 31,
                                              --------------------------------
                                                 1999        1998        1997
================================================================================
                                                     (In thousands)
<S>                                          <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss)                            $ (8,164)   $ (2,419)   $  4,953
Adjustments to reconcile net income/(loss)
 to net cash provided by/(used in)
 operating activities:
  Depreciation and amortization                 7,408       5,049       4,483
  Deferred income taxes                        (3,117)       (695)      1,827
  Changes in assets and liabilities,
   net of acquisitions:
     (Increase)/decrease in receivables
      and contracts in progress                16,293      (8,276)    (13,514)
     Increase/(decrease) in accounts payable
      and accrued expenses                    (17,789)      9,216       9,534
     (Increase)/decrease in other net assets    6,512      (4,254)        520
--------------------------------------------------------------------------------
      TOTAL ADJUSTMENTS                         9,307       1,040       2,850
--------------------------------------------------------------------------------
      NET CASH PROVIDED BY/(USED
       IN) OPERATING ACTIVITIES                 1,143      (1,379)      7,803
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Additions to property, plant and
   equipment                                   (5,337)    (10,573)     (2,533)
  Acquisition of Steen Production Service, Inc.(4,918)         --          --
  Acquisition of GeoResearch, Inc.                 --        (843)         --
--------------------------------------------------------------------------------
      NET CASH USED IN INVESTING ACTIVITIES   (10,255)    (11,416)     (2,533)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from long-term debt                 10,167       3,516          --
  Repayments of long-term debt                 (2,454)       (964)         --
  Proceeds from exercise of stock options          70         183         124
  Payments to acquire treasury stock               --        (800)         --
--------------------------------------------------------------------------------
      NET CASH PROVIDED BY FINANCING
       ACTIVITIES                               7,783       1,935         124
--------------------------------------------------------------------------------
      NET INCREASE/(DECREASE) IN CASH AND
       CASH EQUIVALENTS                        (1,329)    (10,860)      5,394
      CASH AND CASH EQUIVALENTS,
       BEGINNING OF YEAR                        5,014      15,874      10,480
--------------------------------------------------------------------------------
      CASH AND CASH EQUIVALENTS,
       END OF YEAR                           $  3,685    $  5,014    $ 15,874
================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
    Interest paid                            $    669    $    165    $     50
    Income taxes paid                        $    387    $  2,588    $  2,039
================================================================================
<FN>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
MICHAEL BAKER CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
--------------------------------------------------------------------------------
                                 SERIES B
                         COMMON    COMMON
                          STOCK     STOCK      TREASURY    ADDITIONAL
                            PAR       PAR  ----------------   PAID-IN  RETAINED
                       VALUE $1  VALUE $1  SHARES    AMOUNT   CAPITAL  EARNINGS
================================================================================
                                         (In Thousands)
<S>                      <C>       <C>        <C>    <C>      <C>        <C>
Balance, Dec. 31, 1996   $7,056    $1,349     208    $1,260   $36,694    $6,913
    Net income               --        --      --        --        --     4,953
    Series B Common
     Stock conversions
     to Common Stock          6        (6)     --        --        --        --
    Restricted stock
     issued                   3        --      --        --        21        --
    Issuance of
     Treasury stock          --        --      (1)       (4)        2        --
    Stock options
     exercised               22        --      --        --       102        --
    Other                    --        --      --        --         3        --
--------------------------------------------------------------------------------
Balance, Dec. 31, 1997    7,087     1,343     207     1,256    36,822    11,866
    Net loss                 --        --      --        --        --    (2,419)
    Series B Common
     Stock conversions
     to Common Stock         24       (24)     --        --        --        --
    Restricted stock
     issued                   4        --      --        --        32        --
    Treasury stock
     purchases               --        --      96       800        --        --
    Stock options
     exercised               35        --      --        --       148        --
--------------------------------------------------------------------------------
Balance, Dec. 31, 1998    7,150     1,319     303     2,056    37,002     9,447
    Net loss                 --        --      --        --        --    (8,164)
    Series B Common
     Stock conversions
     to Common Stock          5        (5)     --        --        --        --
    Restricted stock
     issued                   4        --      --        --        24        --
    Issuance of
     Treasury stock          --        --      --        (3)       --        --
    Stock options
     exercised               12        --      --        --        58        --
--------------------------------------------------------------------------------
Balance, Dec. 31, 1999   $7,171    $1,314     303    $2,053   $37,084   $ 1,283
================================================================================
<FN>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>
</TABLE>

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
The  consolidated  financial  statements  include the accounts of Michael  Baker
Corporation and its subsidiaries (the "Company"),  and joint ventures over which
it maintains  control.  All  intercompany  accounts and  transactions  have been
eliminated in consolidation.

ACCOUNTING FOR CONTRACTS
Total  contract  revenues  have been  recorded  on the  percentage-of-completion
method of accounting for the majority of engineering and construction  contracts
in the  Buildings,  Civil,  Environmental  and  Transportation  units.  Contract
revenues attributable to claims and unapproved change orders are recognized when
realization is probable and the amounts can be reliably  estimated.  Earnings on
fixed-price  contracts are determined by multiplying  the total  estimated gross
profit for the contracts by the percentage of physical completion to date (which
approximates costs incurred to date in relation to total estimated costs),  less
earnings  recognized  in  prior  periods.   Earnings  under  cost  reimbursement
contracts  are  principally  recorded as costs are  incurred.  In the event that
legal  costs are  expected  to be  incurred in  connection  with  defending  the
Company's  position related to claims or litigation on projects,  such costs are
accrued  at the  time  they  are  probable  of  being  incurred  and  reasonably
estimable.  As work is performed  under  long-term  contracts,  estimates of the
costs are reviewed and, when  necessary,  revised on a current  basis.  Contract
costs  include  costs of  subcontracts,  direct  labor,  supplies and  overhead.
Estimated losses on contracts in progress are recorded as they are identified.

Total contract revenues for the operations and maintenance  contracts within the
Civil  and  Energy  units are  primarily  recognized  as  related  services  are
provided.  The Civil unit's  government  contracts are typically  binding on the
Company  for a  multi-year  period  and  are  renewable  at  the  option  of the
respective  government  agency.  Modifications  to contract terms that result in
retroactive  adjustments to contract revenues are recognized when realization is
probable.

ACCOUNTING FOR JOINT VENTURES
The Company's  proportionate  share of  majority-owned,  project-specific  joint
venture  revenue  and  cost  of  contracts  is  included  in  the   accompanying
Consolidated  Statements of Income.  In the  accompanying  Consolidated  Balance
Sheets, the Company records its interest in all majority-owned, project-specific
joint  ventures  based on the  equity  method  of  accounting  for  investments.
Depending on whether the related  projects  are expected to be completed  within
one year, the Company's  investment in these joint  ventures is included  within
either prepaid expenses and other current assets or other non-current  assets in
the  accompanying  Consolidated  Balance  Sheets.  All 50% or less  interests in
ventures are recorded on the equity method in the  accompanying  Balance  Sheets
and Consolidated Statements of Income.

FAIR VALUE OF  FINANCIAL  INSTRUMENTS
The fair  value of  financial  instruments  classified  as  current  assets  and
liabilities  approximates  carrying  value due to the  short-term  nature of the
instruments.  Substantially all long-term debt is based on rates that float with
the current prime rate;  accordingly,  the carrying  value of these  obligations
approximates their fair value.

USE OF ESTIMATES
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported  amounts of assets and  liabilities  and the  disclosure  of
contingent  assets and  liabilities as of the date of the financial  statements,
and the reported  amounts of revenues and  expenses  for the  reporting  period.
<PAGE>
Actual  results  could differ from those which result from using the  estimates.
The  use  of  estimates  is  an  integral  part  of  applying  the   percentage-
of-completion method of accounting for contracts.

CASH AND CASH  EQUIVALENTS
Cash and cash  equivalents  include  cash on hand or  deposit  and other  highly
liquid  instruments  with  original  maturities  of three  months  or less.  Any
outstanding checks which create book overdrafts within banking  institutions are
reclassified as accounts payable; such amounts totaled $3,920,000 and $9,141,000
at December 31, 1999 and 1998, respectively.

DEPRECIATION AND AMORTIZATION
Depreciation  on property,  plant and equipment is recorded using  straight-line
and  accelerated  methods over the  estimated  useful  lives of the assets.  The
estimated  useful lives range from 5 to 40 years on buildings  and  improvements
and from 3 to 20 years on equipment  and  vehicles.  Amortization  of intangible
assets is provided primarily on a straight-line  basis over the estimated useful
lives of the assets,  which range from 7 to 10 years.  Upon disposal of property
items, 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.

GOODWILL
Goodwill,  which  represents  the  excess  of cost over net  assets of  acquired
companies, is being amortized on a straight-line basis over periods ranging from
10 to 20 years. The Company  evaluates at each balance sheet date whether events
and  circumstances  have occurred that indicate  possible  impairment,  and uses
estimates  of future  undiscounted  net cash flows over the  remaining  lives in
measuring whether goodwill is recoverable.

EARNINGS PER COMMON SHARE
Basic and diluted net income per share computations are based upon 8,175,090 and
8,178,067 weighted average shares  outstanding for 1999 and 1998,  respectively.
For 1997,  basic and  diluted net income per share  computations  are based upon
weighted averages shares outstanding of 8,207,786 and 8,299,083, respectively.

RECLASSIFICATIONS
Certain 1998 balance sheet amounts have been  reclassified  to conform with 1999
classifications.

2.   CONSTRUCTION, RESTRUCTURING AND OTHER CHARGES

During  1998 and 1999,  the  Company  recorded  losses  related to the  CityWalk
construction project being performed by Baker Mellon Stuart  Construction,  Inc.
("BMSCI"),  a  wholly-owned  subsidiary  of  the  Company,  for  Universal  City
Development  Partners  ("UCDP") at the Universal  Studios theme park in Orlando,
Florida.  This project  involved the construction of a new entrance to the park,
which  comprises  a  shopping  area,  restaurants  and  a  large  cineplex,  and
represented BMSCI's largest active construction contract during 1998. Under this
contract,  BMSCI acted as the construction  manager and self-performed a portion
of the work.

Following its inception in May 1997, the project suffered delays and performance
issues arose. On March 5, 1999,  BMSCI was terminated by UCDP from this project,
which was over 90%  complete.  UCDP  alleged  contract  breaches  related to the
quality of work, contract  administration and delays in project completion,  and
sought damages,  including consequential damages related to project delays. Both
parties filed  lawsuits in this matter  during the first quarter of 1999.  BMSCI
alleged  unfair and deceptive  trade  practices,  breach of implied  warranty of
plans and specifications,  breach of contract,  wrongful  termination,  tortuous
interference with business relationships, and breach of implied contract of good
faith and fair dealing,  and sought damages,  interest,  court costs and further
relief.   Certain  subcontractors  also  sued  BMSCI  and  its  surety,  seeking
reimbursement for costs incurred and related damages.
<PAGE>
The UCDP project  losses  recorded by the Company in the fourth  quarter of 1998
totaled  $10.9  million,  and  reflected  costs  incurred  in excess of  amounts
provided  for in the  contract,  estimated  legal costs to defend the  Company's
position,  the reversal of the  cumulative  gross profit  totaling  $1.1 million
recorded  through the third quarter of 1998,  and certain other costs related to
the  termination.  During the third quarter of 1999,  management and its counsel
determined  that the Company was obligated to pay amounts  totaling $5.9 million
to certain subcontractors and vendors for work performed or services provided on
this project and for which they had not  previously  been paid,  and  additional
losses in this amount were recorded.

A non-binding, court-ordered mediation process before a mediator mutually agreed
by both parties commenced in January 2000. On March 22, 2000,  mediation of this
matter resulted in a conditional  settlement agreement being entered into by the
Company;  BMSCI; Travelers Casualty and Surety Company of America ("Travelers"),
which provided performance and payment bonds on behalf of BMSCI; UCDP; Hellmuth,
Obata & Kassabaum,  Inc.,  which designed the project;  and the  court-appointed
mediator.  Pursuant  to the  terms  of the  settlement  agreement,  the  parties
resolved the claims  between  them,  and BMSCI agreed to pay UCDP $2.0  million.
BMSCI remains  responsible  for  resolution of all remaining  subcontractor  and
vendor claims, the most significant of which is the subject of a suit brought by
ADF International,  Inc. ("ADF"), BMSCI's subcontractor for structural steel and
miscellaneous metals,  against BMSCI and Travelers.  The conditional  settlement
agreement is subject to and  conditioned  upon  acceptance  and signature by the
Project Policy Insurer not later than March 31, 2000.

On  November  24,  1998,  ADF filed  suit in  Federal  Court  against  BMSCI and
Travelers  seeking  damages  for alleged  breaches  of contract  relating to the
project. BMSCI and its surety answered the complaint (and amended complaint) and
BMSCI filed a  counterclaim.  BMSCI and its counsel  believe it has valid claims
against ADF and  defenses to claims by ADF.  BMSCI  intends to pursue and defend
these claims  vigorously.  BMSCI further  intends to engage in  negotiations  to
settle all other  subcontractor  and vendor claims.  The Company believes it has
made adequate provisions for all subcontractor and vendor claims, including ADF,
in the accompanying consolidated financial statements.

In  connection  with the  conditional  settlement  agreement,  and the estimated
amounts that will be required to settle with  subcontractors  and  vendors,  the
Company  recorded  additional  charges  totaling $2.4 million  during the fourth
quarter of 1999.  Other  Buildings unit charges  totaling $2.8 million were also
recorded   during  1998  related  to  the  settlement  of   construction-related
litigation and charges on other completed construction projects.

In connection with the UCDP litigation,  the Company determined during the first
quarter  of 1999 that it would no longer  participate  in  general  construction
projects  for  buildings  or  transportation  infrastructure.  Accordingly,  the
Company's  Buildings unit was  restructured,  and the Company  recorded  related
charges  totaling $0.8 million  during the first  quarter of 1999.  Such charges
reflected  severance  costs  associated with employee  terminations,  writedowns
related to fixed asset  impairments,  and lease costs for certain  office  space
permanently idled by the restructuring.

Certain  assets  held by the  Company's  Transportation-Construction  (heavy and
highway)  segment,  including  substantially  all fixed assets and the remaining
contractual  rights and obligations  associated  with eight active  construction
projects,  were sold to A&L,  Inc.  ("A&L") in March 2000 in  exchange  for cash
proceeds  of $0.7  million  and  A&L's  assumption  of  certain  debt and  lease
obligations.  In connection with this sale,  charges  totaling $1.9 million were
recorded  during the fourth  quarter of 1999.  Such  charges  primarily  reflect
writedowns  related to fixed  asset  impairments,  equipment  lease  termination
costs,  and lease  costs  for  certain  office  space  permanently  idled by the
restructuring. As a result of the sale, the Company remains responsible for only
four  significant  heavy and  highway  construction  projects,  all of which are
<PAGE>
scheduled  for  completion  by the  end of the  third  quarter  of  2000.  These
remaining projects are being managed for the Company by A&L.

During 1999,  additional  charges  totaling  $12.8  million ($8.1 million in the
fourth  quarter)  were  recorded  in the  Company's  Transportation-Construction
segment due to changes in  estimates on several  heavy and highway  construction
projects.

Other 1999  charges  totaling  $3.2  million  comprised  the writeoff of certain
goodwill  and  other  intangible  assets  associated  with  the  Company's  1998
acquisition of GeoResearch, Inc. ("GeoResearch"), severance costs related to the
departure  of  certain  former  officers  and  employees,   and  adjustments  on
Engineering projects in the Buildings, Civil and Transportation units.

The foregoing  1999 and 1998 charges  increased  cost of work performed by $22.6
million and  selling,  general and  administrative  expenses by $4.4  million in
1999, and increased cost of work performed by $13.7 million for 1998.

3.   ACQUISITION

On September 1, 1999,  Baker/MO  Services,  Inc.  ("Baker/MO"),  a  wholly-owned
subsidiary of the Company,  purchased all of the  outstanding  shares of capital
stock of Steen Production Service, Inc. ("Steen"), a Louisiana corporation, from
its shareholders (the "Sellers"). Steen is an operations and maintenance company
which  provides  pumping and gauging  services to oil and gas  facilities in the
Gulf of Mexico.

The purchase price for the shares of Steen was $10,826,000, including promissory
notes totaling $4,380,000, which will be paid to the Sellers in two equal annual
installments,   and  including  certain  non-competition   covenants  valued  at
$2,000,000.  Interest on the promissory notes will accrue from September 1, 1999
at the prime rate as announced by Mellon Bank, N.A. ("Mellon"), and also will be
paid  in  two  annual  installments.   The  Company  has  guaranteed  Baker/MO's
obligation to pay all  principal and interest  under the  promissory  notes.  In
addition, the Company,  through its Baker/MO subsidiary,  entered into five-year
employment agreements with each of the two Sellers.

This  acquisition  has  been  accounted  for  as a  purchase.  Accordingly,  the
operating  results of Steen have been included in the accompanying  Consolidated
Statement of Income  since  September  1, 1999.  As required  under the purchase
method of  accounting,  the  acquisition  costs have been  allocated  to the net
assets  acquired  based  upon the fair  market  value to the  Company  as of the
acquisition  date. The excess of acquisition costs over the fair market value of
the acquired assets and liabilities is being amortized on a straight-line  basis
over 20 years.

The Company's  operating  results for the years ended December 31, 1999 and 1998
are required to be presented on a pro forma basis assuming that the  acquisition
of Steen had been effective at the beginning of each respective  period. The pro
forma information which follows is not necessarily  indicative of the results of
operations  as they  may be in the  future  or as they  might  have  been in the
periods  indicated,  if the acquisition had been consummated at the beginning of
each respective  period.  The pro forma information gives effect to, among other
things,  depreciation  and  amortization  expense on revalued  assets  acquired;
incremental employee benefit costs;  additional interest expense that would have
been incurred in borrowing  the initial  amounts paid for the  acquisition  (and
corresponding  adjustments  of  interest  income  earned);  additional  interest
expense  associated  with the notes  payable to the Sellers;  and the income tax
benefit associated with the foregoing pro forma adjustments.

<PAGE>
Assuming  that Steen had been  acquired on January 1, 1999,  the  unaudited  pro
forma  operating  results of the  Company for the year ended  December  31, 1999
would have approximated the following:  Total contract revenues of $517,007,000;
Net loss of  $(8,880,000);  and Basic and diluted net loss per share of $(1.09).
Assuming  that Steen had been  acquired on January 1, 1998,  the  unaudited  pro
forma  operating  results of the  Company for the year ended  December  31, 1998
would have approximated the following:  Total contract revenues of $538,247,000;
Net loss of $(3,349,000); and Basic and diluted net loss per share of $(0.41).

4.   CONTRACTS

The  total  cost of  contracts  in  progress  (used  to  determine  cost of work
performed)  plus   accumulated   gross  profit  recorded  was  $910,838,000  and
$1,007,668,000 at December 31, 1999 and 1998, respectively.  Billings to date on
contracts  in  progress  at December  31,  1999 and 1998 were  $903,590,000  and
$994,829,000, respectively.

Trade  accounts  receivable  totaling  $5,857,000 and $9,097,000 at December 31,
1999 and 1998,  respectively,  relate to retainage  provisions  under  long-term
contracts  which  will  be due  upon  completion  of  the  contracts.  Based  on
management's  estimates,  substantially all of the retention balance at December
31, 1999 is expected to be collected in 2000.

As of  December  31, 1999 and 1998,  accounts  payable  included  amounts due to
subcontractors  of  $2,087,000  and  $4,623,000,  respectively,  which have been
retained  under  contractual  terms pending the completion and acceptance of the
work performed by the subcontractors.

Certain  subsidiaries  of the Company  participate  in joint  ventures  that are
typically  formed to  accomplish  a specific  project  and then  dissolved  upon
completion  of the  project.  The number of joint  ventures in which the Company
participates  and the size,  scope and  duration of the  projects  vary  between
periods. Summarized financial information for these joint ventures is as follows
(in millions):

                                             50% OR LESS EQUITY INVESTEES
                                             FOR THE YEARS ENDED DECEMBER 31,
                                             --------------------------------
                                             1999           1998         1997
--------------------------------------------------------------------------------
Total contract revenues                     $13.4          $ 8.2        $ 6.0
Gross profit                                  0.8            1.4          1.2
Income from operations                         --            0.7          1.2
Net income/(loss)                           $(0.1)         $ 0.5        $ 0.4
--------------------------------------------------------------------------------

                                             GREATER THAN 50% EQUITY INVESTEES
                                             FOR THE YEARS ENDED DECEMBER 31,
                                             --------------------------------
                                             1999           1998         1997
--------------------------------------------------------------------------------
Total contract revenues                     $16.0          $12.2        $10.7
Gross profit                                  2.4            0.7          0.7
Income from operations                        2.3            0.7          0.7
Net income                                  $ 2.4          $ 0.7        $ 0.7
--------------------------------------------------------------------------------

<PAGE>

As described in Note 1, the results of the operations for project-specific joint
ventures in which the Company  owns  greater than a 50% interest are included in
the Company's results of operations on a proportionate  share basis. The portion
of investee  results of  operations  shown above and  included in the  Company's
consolidated results of operations are as follows (in millions):

                                            GREATER THAN 50% EQUITY INVESTEES
                                             FOR THE YEARS ENDED DECEMBER 31,
                                             --------------------------------
                                             1999           1998         1997
--------------------------------------------------------------------------------
Total contract revenues                     $ 9.1          $ 6.8        $ 9.1
Gross profit                                  1.4            0.3          0.4
Income from operations                        1.3            0.3          0.4
Net income                                  $ 1.4          $ 0.4        $ 0.4
--------------------------------------------------------------------------------

The Company's  equity  investment  in these joint  ventures was  $4,699,000  and
$2,028,000 at December 31, 1999 and 1998, respectively.

Summarized  balance sheet  information  for the Company's  joint  ventures is as
follows (in millions):

                                      50% OR LESS           GREATER THAN 50%
                                    EQUITY INVESTEES        EQUITY INVESTEES
                                   AS OF DECEMBER 31,       AS OF DECEMBER 31,
                                   ------------------       ------------------
                                    1999      1998           1999     1998
--------------------------------------------------------------------------------
Current assets                     $ 7.3     $ 3.1          $ 7.3    $ 4.6
Noncurrent assets                    4.7       0.1            0.8       --
Current liabilities                  5.1       2.1            2.0      2.9
Noncurrent liabilities             $ 2.0     $  --          $ 1.1    $  --
--------------------------------------------------------------------------------

Consistent with industry practice, within each of the Company's operating units,
credit is granted to customers  for the payment of services  rendered.  Although
the  Company  has a  diversified  client  base,  a  substantial  portion  of its
receivables and net  underbillings  reflected in the  accompanying  Consolidated
Balance   Sheets  is   dependent   upon  U.S.   federal  and  state   government
appropriations.

Internationally,  the  Company  conducts  business  in certain  countries  where
unstable  governments subject the Company's related trade receivables,  due from
subsidiaries of major oil companies,  to unique  collection  delays.  Based upon
past experience with these clients,  management  believes that these receivables
will be fully collectible.

5.   BUSINESS SEGMENT INFORMATION

The  Company  has five  operating  business  units.  The  Buildings,  Energy and
Environmental  units each  represent  separate  reportable  segments,  while the
Transportation   and  Civil  units  each  comprise  two   reportable   segments.
Accordingly, the Company has the following seven reportable segments:
<PAGE>

o     The  Buildings  unit has  historically  provided  a  variety  of  services
      including  design-build,   construction  management,   planning,   program
      management,  general  contracting,   architectural  and  interior  design,
      construction inspection and constructability  reviews; however, the unit's
      offering of general contracting services was discontinued during 1999 (see
      Note 2).

o    The Civil unit  includes two  reportable  segments.  The  Civil-Engineering
     segment  provides  surveying,   mapping,  geographic  information  systems,
     planning,  design and  construction  management.  The  Civil-Baker  Support
     Services  Inc.  ("BSSI")  segment   principally   provides  operations  and
     maintenance services on U.S. military bases.

o    The Energy unit offers services that include turbine overhauls,  mechanical
     services  including major equipment  outages,  operations and  maintenance,
     in-shop and onsite  mechanical  reconditioning  and  training  services for
     energy producers.

o    The Environmental unit provides a combination of engineering and consulting
     services in both the public and private markets.

o    The   Transportation   unit   includes   two   reportable   segments.   The
     Transportation-Engineering   segment  provides  planning,  design,  program
     management  and  software  development  capabilities.  The  Transportation-
     Construction  segment historically  provided general construction  services
     related to highways,  bridges,  airports,  busways and other transportation
     facilities;  however,  all  bidding  activity  ceased  during 1999 and this
     segment's  operations are currently in the process of being wound down (see
     Note 2).

The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting  policies (see Note 1). The Company evaluates
the performance of its segments primarily based on income before income taxes.

<PAGE>
The following  tables reflect the required  disclosures  for the Company's seven
segments (in millions):

<TABLE>
<CAPTION>
                                            1999       1998       1997
================================================================================
TOTAL CONTRACT REVENUES:
<S>                                       <C>        <C>        <C>
 Buildings unit                           $ 53.8     $151.6     $126.4
 Civil unit:
    Engineering                             68.1       69.1       67.7
    BSSI                                    53.5       61.8       50.5
 Energy unit                                80.2       68.6       54.8
 Environmental unit                         28.5       22.7       21.5
 Transportation unit:
    Engineering                             90.2       72.3       62.0
    Construction                           130.9       75.2       63.5
--------------------------------------------------------------------------------
       SUBTOTAL - SEGMENTS                $505.2     $521.3     $446.4
  Corporate                                  0.8        0.0        0.0
--------------------------------------------------------------------------------
       TOTAL                              $506.0     $521.3     $446.4
================================================================================

                                            1999       1998       1997
================================================================================
INCOME/(LOSS) BEFORE TAXES:
 Buildings unit                           $ (7.8)    $(13.9)    $  0.9
 Civil unit:
    Engineering                              1.8        3.5        3.7
    BSSI                                     1.5        0.1         --
 Energy unit                                 2.9        4.0        2.3
 Environmental unit                          1.6        1.0        0.4
 Transportation unit:
    Engineering                              4.1        2.9        1.0
    Construction                           (14.0)       0.7        0.6
--------------------------------------------------------------------------------
       SUBTOTAL - SEGMENTS                  (9.9)      (1.7)       8.9
  Corporate/Insurance                        0.7        0.4        0.4
--------------------------------------------------------------------------------
       TOTAL                              $ (9.2)    $ (1.3)    $  9.3
================================================================================
<PAGE>
                                            1999       1998
================================================================================
SEGMENT ASSETS:
 Buildings unit                           $  7.4     $ 30.5
 Civil unit:
    Engineering                             23.3       18.7
    BSSI                                    15.8       15.6
 Energy unit                                40.3       27.9
 Environmental unit                          4.8        5.1
 Transportation unit:
    Engineering                             28.9       21.7
    Construction                            17.4       20.6
--------------------------------------------------------------------------------
       SUBTOTAL - SEGMENTS                 137.9      140.1
  Corporate/Insurance                       11.3       11.8
--------------------------------------------------------------------------------
       TOTAL                              $149.2     $151.9
================================================================================

                                            1999       1998      1997
================================================================================
CAPITAL EXPENDITURES:
 Buildings unit                           $  0.2     $  0.3    $  0.1
 Civil unit:
    Engineering                              1.0        1.4       0.6
    BSSI                                     0.4        0.8       0.3
 Energy unit                                 0.6        1.2       0.4
 Environmental unit                          0.1        0.2        --
 Transportation unit:
    Engineering                              1.2        1.3       0.3
    Construction                             0.7        4.2       0.3
--------------------------------------------------------------------------------
       SUBTOTAL - SEGMENTS                   4.2        9.4       2.0
  Corporate                                  1.1        1.2       0.5
--------------------------------------------------------------------------------
       TOTAL                              $  5.3     $ 10.6    $  2.5
================================================================================

                                            1999       1998      1997
================================================================================
DEPRECIATION AND AMORTIZATION:
 Buildings unit                           $  0.2     $  0.2    $  0.2
 Civil unit:
    Engineering                              1.9        0.7       0.4
    BSSI                                     0.8        0.6       0.5
 Energy unit                                 1.5        1.1       1.2
 Environmental unit                          0.1        0.1       0.1
 Transportation unit:
    Engineering                              0.9        0.6       0.5
    Construction                             0.9        0.7       0.5
--------------------------------------------------------------------------------
       SUBTOTAL - SEGMENTS                   6.3        4.0       3.4
  Corporate                                  1.1        1.0       1.1
--------------------------------------------------------------------------------
       TOTAL                              $  7.4     $  5.0    $  4.5
================================================================================
</TABLE>

<PAGE>
The Company has determined that the intersegment  revenues,  interest income and
expense,  equity in the net  income of  investees  accounted  for by the  equity
method and the amount of investment in equity method investees,  by segment, are
immaterial for further disclosure in these financial statements.

The required enterprise-wide disclosures are as follows (in millions):
<TABLE>
<CAPTION>
                                            1999       1998      1997
================================================================================
<S>                                       <C>        <C>       <C>
TOTAL CONTRACT REVENUES BY TYPE OF SERVICE:
 Engineering                              $202.5     $178.4    $164.2
 Construction                              169.9      212.4     176.9
 Operations & Maintenance                  133.6      130.5     105.3
--------------------------------------------------------------------------------
       TOTAL                              $506.0     $521.3    $446.4
================================================================================

                                            1999       1998      1997
================================================================================
TOTAL CONTRACT REVENUES BY GEOGRAPHIC ORIGIN:
  Domestic                                $455.2     $475.2    $403.6
  Foreign                                   50.8       46.1      42.8
--------------------------------------------------------------------------------
       TOTAL                              $506.0     $521.3    $446.4
================================================================================

                                            1999       1998      1997
================================================================================
TOTAL CONTRACT REVENUES BY PRINCIPAL MARKETS:
United States government                    21.4%      27.1%     23.8%
Various state governmental
  and quasi-governmental agencies           46.9%      34.4%     40.9%
Commercial, industrial and private clients  31.7%      38.5%     35.3%
================================================================================
</TABLE>

The  Company's  business is  substantially  conducted in the U.S. No  individual
contract accounted for more than 10% of the Company's total contract revenues in
1999 or 1997;  however,  several  contracts with the Pennsylvania  Department of
Transportation  provided 11% of the Company's  total contract  revenues in 1999.
The  aforementioned  contract with UCDP accounted for 12% of the Company's total
contract revenues in 1998.

<PAGE>
6.   PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
                                             1999           1998
================================================================================
<S>                                       <C>            <C>
Land                                      $   552        $   552
Buildings and improvements                  7,091          6,832
Equipment and vehicles                     42,319         41,137
--------------------------------------------------------------------------------
       TOTAL, AT COST                      49,962         48,521
Less - Accumulated depreciation           (32,842)       (31,063)
--------------------------------------------------------------------------------
       NET PROPERTY, PLANT
        AND EQUIPMENT                     $17,120        $17,458
================================================================================
</TABLE>

7.   GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
                                              1999          1998
================================================================================
<S>                                       <C>            <C>
Goodwill, net of accumulated
  amortization of $3,927 and
  $2,867 respectively                     $ 12,219       $ 6,091
Other intangible assets, net of
  accumulated amortization of
  $2,916 and $2,344 respectively             2,344         1,416
--------------------------------------------------------------------------------
       NET INTANGIBLE ASSETS              $ 14,563       $ 7,507
================================================================================
</TABLE>

Effective  September 1, 1999, the Company acquired all of the outstanding shares
of capital stock of Steen from its  shareholders in a transaction  accounted for
as a  purchase.  The  Company  recorded  goodwill  and other  intangible  assets
totaling $9,164,000 during the third quarter of 1999.

Effective October 1, 1998, the Company acquired all of the outstanding shares of
capital stock of GeoResearch from its shareholder in a transaction accounted for
as a purchase. While this transaction is not considered material for purposes of
detailed  disclosure,  the Company recorded goodwill and other intangible assets
totaling  $1,943,000 during the fourth quarter of 1998. During the third quarter
of 1999,  the  Company  determined  that the  value of the  goodwill  and  other
intangible  assets were impaired and wrote off the unamortized  balance of these
intangible assets totaling $825,000.

8.   LONG-TERM DEBT AND BORROWING AGREEMENTS

The Company has a credit agreement (the "Agreement") with Mellon, which provides
for a commitment of $25 million  through May 31, 2001. The  commitment  includes
the sum of the principal  amount of revolving  credit loans  outstanding and the
aggregate face value of outstanding  letters of credit. As of December 31, 1999,
borrowings of  $10,088,000  were  outstanding  under the  Agreement,  along with
outstanding letters of credit totaling $2,262,000.

<PAGE>
The  Agreement  provides for the Company to borrow at the Bank's prime  interest
rate, and for the Company to meet certain cash flow, leverage, interest coverage
and tangible net worth requirements.  Under the Agreement,  the Company pays the
Bank  commitment  fees of 3/8%  per  year  based on the  unused  portion  of the
commitment.

The Agreement was unsecured through December 1999, at which time Mellon acted to
secure the  Agreement as a result of the  Company's  third  quarter 1999 charges
(see  Note  2) and  its  related  financial  covenant  violations.  Accordingly,
borrowings  under the  Agreement are currently  secured by the  receivables  and
stock of the Company and most of its  subsidiaries.  These  financial  covenants
were  again not  achieved  for the  fourth  quarter  of 1999.  Mellon has waived
through the end of the first quarter of 2000,  its rights  related to the fourth
quarter  1999 loan  covenant  violations.  The Company and Mellon have agreed on
amendments to the related loan covenants, such that the Company believes it will
be able to achieve the amended  covenants  during 2000.  These  amendments  also
included a provision that borrowings under the Agreement shall be limited to 80%
of eligible receivables, as determined by Mellon.

The maximum amount of borrowings outstanding under the Agreement during 1999 was
$20,641,000.  For 1999, the average daily balance  outstanding  when the Company
was in a net borrowing  position was $6,711,000 at a weighted  average  interest
rate of 7.4%. For 1998, the average daily balance  outstanding  when the Company
was in a net borrowing  position was $2,584,000 at a weighted  average  interest
rate of 8.0%. The proceeds from 1999 borrowings under the Agreement were used to
for the purchase of Steen and to meet various working capital requirements.

Other amounts totaling  $8,305,000 at December 31, 1999, and included in current
portion of long-term  debt and long-term debt in the  accompanying  Consolidated
Balance  Sheet,  represent  amounts  associated  with the Steen and  GeoResearch
acquisitions,  in addition to amounts due for construction equipment financed in
1998.  These  notes and  obligations  mature  as  follows:  $3,526,000  in 2000,
$3,190,000 in 2001,  $938,000 in 2002,  $379,000 in 2003,  $162,000 in 2004, and
$110,000 thereafter.  The interest rates with respect to these notes ranged from
4.44% to 8.50% as of December 31, 1999.

9.   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.  During  1998,  the
Company  repurchased  96,379  treasury  shares of Common Stock at market  prices
ranging  from  $7.53 to $8.87 per  share,  for a total  price of  $800,000.  The
Company made no treasury share repurchases during 1999 or 1997.

The Company's Common Stock is divided into two series, Common Stock and Series B
Common Stock. Each share of Common Stock entitles the holder thereof to one vote
on all matters submitted to the shareholders,  and each share of Series B Common
Stock entitles the holder thereof to ten votes on all such matters.

The Company's Articles of Incorporation authorize the issuance of 300,000 shares
of Cumulative  Preferred Stock, par value $1 per share. At December 31, 1999 and
1998, there were no shares of such Preferred Stock outstanding.

10.  RIGHTS AGREEMENT

Effective  November 11, 1999, the Company's Board of Directors  adopted a Rights
Agreement (the "Rights Agreement") that is intended to provide that shareholders
receive fair treatment in the event of any proposed takeover of the Company. The
existence  of the Rights  Agreement  should  encourage  potential  acquirers  to
negotiate with the Company's  Board of Directors  prior to any hostile  takeover
attempt  and  should  give the Board of  Directors  increased  leverage  in such
negotiations.  The Rights  Agreement was not adopted in response to any specific
offer or hostile takeover threat.
<PAGE>

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 has acquired  twenty-five percent or more of
the  Company's  outstanding  Common  Stock or has  announced a tender offer that
would result in the acquisition of twenty-five  percent 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.

Assuming the Rights have not been redeemed, after a person or group has acquired
twenty-five  percent or more of the Company's  outstanding  Common  Stock,  each
Right (other than those owned by a holder of twenty-five  percent 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 Common Stock of the acquiring  party
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 fifty percent or more of the  outstanding  Common Stock,
the Company's Board of Directors may exchange the Rights (other than those owned
by the acquiring person or its affiliates) for Common Stock of the Company at an
exchange ratio of one share of Common Stock per Right.

Initially,  the Rights  will not be  exercisable  and  certificates  will not be
issued.  The Rights will be  evidenced  by and trade with the  Company's  Common
Stock until they become exercisable and are separated from the Common Stock upon
the occurrence of certain future events. Until that time, one Right will also be
issued  with  respect  to each new  share of  Common  Stock  that  shall  become
outstanding.  The Rights  will  expire on  November  16,  2009,  unless they are
earlier exchanged or redeemed.

11.  LEASE COMMITMENTS

Rent expense under  noncancellable  operating  leases was  $11,521,000  in 1999,
$11,687,000 in 1998 and $10,364,000 in 1997.

Minimum annual rentals payable under noncancellable  operating leases in each of
the five years after December 31, 1999 are $10,556,000,  $7,927,000, $4,815,000,
$1,939,000 and $1,046,000,  respectively.  These noncancellable leases relate to
office space,  computer  equipment,  office  equipment and vehicles,  with lease
terms ranging from one to 10 years.

<PAGE>
12.  INCOME TAXES

The provision for income taxes consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                       1999           1998          1997
================================================================================
<S>                                 <C>            <C>           <C>
CURRENT INCOME TAXES:
  Federal                           $   (70)       $    18       $ 1,401
  State                                 295            246           139
  Foreign                             1,815          1,519         1,024
--------------------------------------------------------------------------------
     TOTAL CURRENT INCOME TAXES       2,040          1,783         2,564
--------------------------------------------------------------------------------
DEFERRED INCOME TAXES:
  Federal                            (3,345)          (799)        1,705
  State                                 228            104           122
--------------------------------------------------------------------------------
     TOTAL DEFERRED INCOME TAXES     (3,117)          (695)        1,827
--------------------------------------------------------------------------------
     TOTAL PROVISION FOR/(BENEFIT
       FROM) INCOME TAXES           $(1,077)       $ 1,088       $ 4,391
================================================================================
</TABLE>
The following is a reconciliation  of income taxes at the federal statutory rate
to income taxes recorded by the Company (in thousands):
<TABLE>
<CAPTION>
                                       1999           1998           1997
================================================================================
<S>                                 <C>            <C>            <C>
Computed income
  taxes at U.S. federal
  statutory rate                    $(3,142)       $  (453)       $ 3,177
Foreign taxes, net of
  federal income tax
  benefits                            1,180          1,003            676
State income taxes,
  net of federal income
  tax benefit                           340            225            172
Nondeductible charges                   542            313            300
Other, net                                3             --             66
--------------------------------------------------------------------------------
     TOTAL PROVISION FOR/(BENEFIT
       FROM) INCOME TAXES           $(1,077)       $ 1,088        $ 4,391
================================================================================
</TABLE>
The domestic and foreign components of the Company's income/(loss) before income
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
                                        1999          1998           1997
================================================================================
<S>                                 <C>            <C>            <C>
Domestic                            $(12,355)      $(4,203)       $ 7,148
Foreign                                3,114         2,872          2,196
--------------------------------------------------------------------------------
     TOTAL                          $ (9,241)      $(1,331)       $ 9,344
================================================================================
</TABLE>

<PAGE>
The components of the Company's  deferred  income tax assets and  liabilities at
December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
                                              1999         1998
================================================================================
<S>                                        <C>          <C>
DEFERRED INCOME TAX ASSETS:
  Deductible temporary differences:
   Provision for expenses and losses       $ 7,123      $ 6,341
   Contract overbillings                       980          666
   Federal tax operating loss
     carryforward                            1,650           --
   Accrued vacation pay                      1,169        1,301
   Fixed and intangible assets                 728          852
   Minimum tax credits                         379          379
   Charitable contribution carryforward        277          307
   Other                                        90          135
--------------------------------------------------------------------------------
  TOTAL DEFERRED INCOME TAX ASSETS          12,396        9,981
--------------------------------------------------------------------------------
DEFERRED INCOME TAX LIABILITIES:
   Contract underbillings                   (7,232)      (7,507)
   Undistributed foreign earnings           (1,359)      (1,494)
--------------------------------------------------------------------------------
  TOTAL DEFERRED INCOME TAX LIABILITIES     (8,591)      (9,001)
--------------------------------------------------------------------------------
  NET DEFERRED TAX ASSET                   $ 3,805      $   980
================================================================================
</TABLE>

As of December 31, 1999, the Company had a U.S. net operating loss  carryforward
of $4,854,000  that expires in the year 2019. The Company also has  contribution
carryforwards totaling $814,000 at December 31, 1999 that expire in 2000 through
2003 and minimum tax credit carryforwards totaling $379,000 at December 31, 1999
that do not expire.

The  Company's  U.S.  income tax returns for the years 1996  through 1998 remain
subject to audit.  Management  believes that adequate  provisions have been made
for income taxes at December 31, 1999.

13.  CONTINGENCIES

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 is  self-insured  up to certain  limits with respect to its workers'
compensation and general liability exposures. Provisions for losses expected for
these exposures are recorded based upon the Company's estimates of the aggregate
liability  for  claims  incurred.   Such  estimates  utilize  certain  actuarial
assumptions  followed in the insurance industry.  Insurance coverage is obtained
for catastrophic  exposures as well as those risks required to be insured by law
or contract.

The Company has been named as a defendant or co-defendant  in legal  proceedings
wherein  substantial  damages are claimed.  Such proceedings are not uncommon to
the Company's business.  After  consultations with counsel,  management believes
that the Company has recognized  adequate provisions for probable and reasonably

<PAGE>
estimable liabilities associated with these proceedings, and that their ultimate
resolutions  will  not  have a  material  adverse  effect  on  the  consolidated
financial position or annual results of operations of the Company.

The Company  currently is a party to two material  legal  proceedings.  The more
significant  proceeding relates to BMSCI's construction  contract with UCDP (see
Note 2).

The other  significant  proceeding  relates to a lawsuit  brought in 1987 in the
Supreme Court of the State of New York, Bronx County, by the Dormitory Authority
of the State of New York against a number of parties,  including the Company and
one of its  wholly-owned  subsidiaries,  that  asserts  breach of  contract  and
alleges  damages  of  $13,000,000.  The  Company,  which  was not a party to the
contract  underlying the lawsuit,  contends that there is no  jurisdiction  with
respect to the  Company and that it cannot be held liable for any conduct of the
subsidiary.  Both the Company and the subsidiary are contesting liability issues
and have filed  cross-claims  and  third-party  claims  against  other  entities
involved in the project.

In another matter,  on September 30, 1998, the Company  purchased all the issued
and outstanding shares of GeoResearch, a District of Columbia corporation,  from
its former owner. In connection with this transaction, the Company agreed to pay
the former owner  certain cash  consideration  in  installments,  repay  certain
indebtedness  of  GeoResearch,  and pay as contingent  consideration  an earnout
amount  (if any)  based  upon a  formula  tied to the  operating  profit  of the
Company's and GeoResearch's  combined  geotechnical  businesses,  in excess of a
specified  threshold,  for the year ending  December  31,  2001.  The  threshold
contemplated  substantial growth in the combined  businesses over the years 1999
through 2001. In addition, GeoResearch entered into an Employment Agreement with
the former owner  commencing  October 1, 1998 and continuing  until December 31,
2001, unless sooner terminated as provided therein.  GeoResearch  terminated the
former  owner's  Employment  Agreement  in 1999 and the Company  ceased  further
payments under the Stock Purchase  Agreement  alleging material breaches of both
Agreements  by the  former  owner.  In  addition,  GeoResearch  and the  Company
initiated  arbitration as provided for by the agreements,  seeking reimbursement
of amounts paid to the former owner as part of the transaction. The former owner
disputes the claims by the Company and  GeoResearch  and the termination and has
counterclaimed  against the Company and GeoResearch seeking to recover remaining
amounts under the Employment  Agreement,  the remaining  installments  under the
Stock Purchase Agreement ($875,000), and to establish entitlement to the earnout
which by its terms cannot exceed $5.3 million. At December 31, 1999, the Company
still had the  remaining  installments  under the Stock  Purchase  Agreement  of
$875,000 recorded as a liability in its accompanying Consolidated Balance Sheet.
GeoResearch and the Company are  aggressively  pursuing their claims against the
former owner of GeoResearch and contesting any liability;  however,  the outcome
of this matter cannot presently be determined.

At December 31, 1999,  certain  subcontractors  performing  work on  uncompleted
Company and  joint-venture  construction  contracts and certain  contractors  on
construction  management  projects had not been required to furnish  performance
bonds. In the opinion of management,  provision has been made for all costs that
will be incurred as a result of such  contractors  not  performing in accordance
with their agreements.

14.  EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

The  Company  maintains a defined  contribution  retirement  program  through an
Employee Stock Ownership Plan ("ESOP"), in which substantially all employees are
eligible to  participate.  In addition to providing a vehicle for  investment in
Company stock, the ESOP offers  participants  several other investment  options.
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  Company's  Board  of  Directors.  Under  the  401(k)  Salary
<PAGE>
Redirection  Program,  the Company  matches  100% of the first 5% and 50% of the
next 1% of eligible salary  contributed by participants.  The Company's matching
contributions are invested not less than 25% in Michael Baker Corporation Common
Stock, with the remaining 75% being available to invest in Baker Common Stock or
mutual  funds,  as  directed  by the  participants.  From July 1,  1997  through
December 31, 1998, the Company's matching contributions were not permitted to be
less than 50%  invested  in Baker  Common  Stock  with the  remaining  50% being
available to invest in Baker Common  Stock or mutual  funds,  as directed by the
participants.  Prior to July 1997,  the Company's  matching  contributions  were
required to be invested 100% in Baker Common Stock. Company  contributions under
this program amounted to $4,565,000, $4,312,000 and $3,321,000 in 1999, 1998 and
1997, respectively.

As of  December  31,  1999,  the  market  value  of  all  ESOP  investments  was
$101,647,000, of which 23% represented the market value of the ESOP's investment
in Michael Baker  Corporation  Common Stock.  The Company's ESOP held 42% of the
shares and 72% of the voting power for the outstanding Common Stock and Series B
Common Stock of the Company at the end of 1999.

15.  STOCK OPTION PLANS

As of December 31, 1999, the Company has two fixed stock option plans. Under the
amended 1995 Stock  Incentive  Plan (the "Plan"),  the Company may grant options
for an aggregate of 1,500,000 shares of Common Stock to key employees. Under the
1996  Nonemployee  Directors' Stock Incentive Plan (the "Directors  Plan"),  the
Company may grant  options and  restricted  shares for an  aggregate  of 150,000
shares of Common  Stock to  nonemployee  board  members.  Under both plans,  the
exercise price of each option equals the market price of the Company's  stock on
the date of grant.  Unless  otherwise  established,  one-fourth  of the  options
granted  to  key  employees  become   immediately   vested,  and  the  remaining
three-fourths  vest in annual  one-fourth  increments  under the Plan, while the
options  under the  Directors'  Plan are fully  vested at date of grant.  Vested
options remain  exercisable  for a period of ten years from the grant date under
both plans.

Under the Directors  Plan, each  nonemployee  director was issued 500 restricted
shares of Common Stock,  for a total of 3,500 shares of restricted  stock issued
in 1999 and 1998. The Company recognized  compensation expense totaling $27,000,
$35,000 and $31,000 related to the issuance of these restricted  shares in 1999,
1998 and 1997,  respectively.  Restrictions on the shares expire two years after
the issue date.
<PAGE>
The following table summarizes all stock option activity for both plans in 1999,
1998 and 1997:
<TABLE>
<CAPTION>
                                                  AVERAGE
                                     SHARES      EXERCISE
                                    SUBJECT         PRICE
                                  TO OPTION     PER SHARE
--------------------------------------------------------------------------------
<S>                                 <C>           <C>
BALANCE AT DECEMBER 31, 1996        194,692       $  4.94
 Options granted                    179,593       $  6.90
 Options exercised                  (22,690)      $  5.48
 Options forfeited                  (10,581)      $  5.76
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997        341,014       $  5.92
 Options granted                    402,397       $  9.96
 Options exercised                  (35,191)      $  5.20
 Options forfeited                   (2,639)      $  6.46
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998        705,581       $  8.25
 Options granted                     67,289       $  7.18
 Options exercised                  (11,686)      $  6.02
 Options forfeited                 (145,368)      $  9.60
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999        615,816       $  7.86
================================================================================
</TABLE>

The weighted  average fair value of options granted during 1999,  1998, and 1997
was $3.87, $5.37 and $3.94, respectively.

The following table summarizes information about stock options outstanding under
both plans as of December 31, 1999:

<TABLE>
<CAPTION>

OPTIONS      EXERCISE  OUTSTANDING     AVERAGE    EXERCISABLE
GRANTED IN      PRICE      OPTIONS       LIFE*        OPTIONS
--------------------------------------------------------------------------------
<S>           <C>          <C>             <C>         <C>
Jan. 1995     $  5.00       90,884         5.0         90,884
Feb. 1996     $  4.81       38,282         6.2         38,282
May 1996      $  5.03        4,000         6.4          4,000
Feb. 1997     $  6.91      133,555         7.2        105,623
May 1997      $  6.84        7,000         7.4          7,000
Feb. 1998     $  9.53       87,949         8.2         51,773
Apr. 1998     $ 10.13      186,857         8.4          7,000
Feb. 1999     $  9.00       10,289         9.2          2,571
July 1999     $  7.81        7,000         9.6          7,000
Sept. 1999    $  6.72       50,000         9.8         35,117
--------------------------------------------------------------------------------
    Total                  615,816         7.6        349,250
================================================================================
<FN>
*Average life remaining in years
</FN>
</TABLE>

<PAGE>
As permitted under Statement of Financial Accounting Standards No. ("SFAS") 123,
"Accounting  for  Stock-Based  Compensation,"  the  Company  continues  to apply
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees,"  and  related  Interpretations  in its  accounting  for  stock-based
compensation   plans,  and  adopted  SFAS  123  for  disclosure  purposes  only.
Accordingly,  no  compensation  cost was recognized for stock options granted in
1999,  1998 or 1997. If  compensation  costs for the Company's  stock  incentive
plans had been determined  based on the fair value at the grant dates for awards
under  those  plans,  consistent  with the method  prescribed  by SFAS 123,  the
Company's  net income and diluted net income per share  amounts  would have been
reduced.

If SFAS 123 had been used to account for both stock option plans,  the Company's
pro forma net income/(loss)  amounts would have been $(8,524,000),  $(2,669,000)
and  $4,725,000  for  the  years  ended  December  31,  1999,   1998  and  1997,
respectively.  Similarly,  the Company's pro forma diluted net income/(loss) per
share would have been  $(1.04),  $(0.33) and $0.57 for the years ended  December
31, 1999, 1998, and 1997, respectively.

The fair value of options on the  respective  grant dates was estimated  using a
Black-Scholes option pricing model with certain assumptions. The key assumptions
used  include a  weighted  average  risk-free  interest  rate of 5.9%,  weighted
average expected  volatility of 49.2%, an expected option life of 6 years, and a
0% expected dividend yield.

16.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited  quarterly results of operations for
the  two  years  ended  December  31,  1999  (in  thousands,  except  per  share
information):
<TABLE>
<CAPTION>

                                     1999 - THREE MONTHS ENDED
--------------------------------------------------------------------------------
                          March 31*      June 30    Sept. 30*     Dec. 31*
--------------------------------------------------------------------------------
<S>                        <C>          <C>          <C>          <C>
Total contract revenues    $115,118     $134,066     $129,790     $127,038
Gross profit                 13,459       15,885        6,158        5,237
Income/(loss) before
 income tax                     780        3,537       (5,438)      (8,120)
Net income/(loss)               413        1,875       (4,017)      (6,435)
Diluted net income/(loss)
 per common share          $   0.05     $   0.23     $  (0.49)    $  (0.79)
================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                      1998 - THREE MONTHS ENDED
--------------------------------------------------------------------------------
                           March 31       June 30     Sept. 30     Dec. 31*
--------------------------------------------------------------------------------
<S>                        <C>           <C>          <C>          <C>
Total contract revenues    $ 111,097     $127,118     $135,803     $147,253
Gross profit                  12,244       15,742       15,764        3,494
Income/(loss) before
 income tax                    1,378        3,123        3,947       (9,779)
Net income/(loss)                730        1,655        2,093       (6,897)
Diluted net income/(loss)
 per common share          $    0.09     $   0.20     $   0.25     $  (0.84)
================================================================================
<FN>
*Includes  Buildings and Transportation  unit project charges and Buildings unit
restructuring charges (see Note 2).
</FN>
</TABLE>
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of Michael Baker Corporation

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of income, of shareholders' investment and of cash flows
present  fairly,  in all material  respects,  the financial  position of Michael
Baker  Corporation and its  subsidiaries  (the Company) at December 31, 1999 and
1998,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles  generally accepted in the United States.  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 of these  statements in accordance with auditing  standards
generally accepted in the United States,  which 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 audits  provide a reasonable  basis for the opinion  expressed
above.




PricewaterhouseCoopers LLP
Pittsburgh, PA
March 29, 2000



SUPPLEMENTAL FINANCIAL INFORMATION

Market Information - Common Shares

The  principal  market on which the Michael  Baker  Corporation  Common Stock is
traded is the American Stock Exchange. High and low closing prices of the Common
Stock for each quarter during 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                     1999                                   1998
--------------------------------------------------------------------------------
       First  Second     Third    Fourth     First   Second     Third   Fourth
--------------------------------------------------------------------------------
<S>    <C>     <C>       <C>       <C>      <C>     <C>       <C>       <C>
High   9 5/8       8     7 7/8     6 5/8    10 1/2  10  1/2    9  1/2   10 3/8
Low    6 5/8   6 1/2     5 5/8         5     8 1/2   9 1/16   6 11/16    7 1/4
================================================================================
</TABLE>