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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 001-31305
FOSTER WHEELER AG
(Exact name of registrant as specified in its charter)
     
Switzerland   98-0607469
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
80 Rue de Lausanne    
CH 1202 Geneva, Switzerland   1202
(Address of principal executive offices)   (Zip Code)
41 22 741 8000
(Registrant’s telephone number, including area code)
     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 127,521,939 registered shares (CHF 3.00 par value) were outstanding as of July 23, 2010.
 
 

 


 

FOSTER WHEELER AG
INDEX
         
    3  
 
       
    3  
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    7  
 
       
    37  
 
       
    58  
 
       
    58  
 
       
    59  
 
       
    59  
 
       
    59  
 
       
    59  
 
       
    59  
 
       
    60  
 
       
    61  
 
       
    62  
 EX-10.3
 EX-10.4
 EX-10.5
 EX-10.6
 EX-10.9
 EX-23.1
 EX-23.2
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
FOSTER WHEELER AG AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands of dollars, except per share amounts)

(unaudited)
                                 
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
    2010     2009     2010     2009  
Operating revenues
  $ 1,005,496     $ 1,308,801     $ 1,951,069     $ 2,573,324  
Cost of operating revenues
    857,636       1,088,842       1,631,127       2,190,613  
 
                       
Contract profit
    147,860       219,959       319,942       382,711  
 
                               
Selling, general and administrative expenses
    69,515       69,024       139,820       138,272  
Other income, net
    (11,419 )     (11,490 )     (19,751 )     (19,693 )
Other deductions, net
    8,049       6,898       19,737       12,985  
Interest income
    (2,730 )     (2,426 )     (5,089 )     (5,098 )
Interest expense
    4,044       1,302       8,595       5,469  
Net asbestos-related provision
    2,344       1,756       1,597       3,506  
 
                       
Income before income taxes
    78,057       154,895       175,033       247,270  
Provision for income taxes
    15,409       27,561       37,019       45,564  
 
                       
Net income
    62,648       127,334       138,014       201,706  
 
                       
 
                               
Less: Net income attributable to noncontrolling interests
    3,790       5,130       7,096       6,639  
 
                       
Net income attributable to Foster Wheeler AG
  $ 58,858     $ 122,204     $ 130,918     $ 195,067  
 
                       
 
                               
Earnings per share (see Note 1):
                               
Basic
  $ 0.46     $ 0.97     $ 1.03     $ 1.54  
 
                       
Diluted
  $ 0.46     $ 0.96     $ 1.02     $ 1.54  
 
                       
See notes to consolidated financial statements.

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FOSTER WHEELER AG AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars, except share data and per share amounts)

(unaudited)
                 
    June 30,     December 31,  
    2010     2009  
ASSETS
               
Current Assets:
               
Cash and cash equivalents
  $ 973,913     $ 997,158  
Short-term investments
    240        
Accounts and notes receivable, net:
               
Trade
    478,975       526,525  
Other
    104,038       117,718  
Contracts in process
    195,336       219,774  
Prepaid, deferred and refundable income taxes
    40,214       46,478  
Other current assets
    37,906       33,902  
 
           
Total current assets
    1,830,622       1,941,555  
 
           
Land, buildings and equipment, net
    357,909       398,132  
Restricted cash
    28,189       34,905  
Notes and accounts receivable — long-term
    1,268       1,571  
Investments in and advances to unconsolidated affiliates
    200,502       228,030  
Goodwill
    82,220       88,702  
Other intangible assets, net
    67,945       73,029  
Asbestos-related insurance recovery receivable
    230,112       244,265  
Other assets
    81,596       87,781  
Deferred tax assets
    67,849       89,768  
 
           
TOTAL ASSETS
  $ 2,948,212     $ 3,187,738  
 
           
 
               
LIABILITIES, TEMPORARY EQUITY AND EQUITY
               
Current Liabilities:
               
Current installments on long-term debt
  $ 34,397     $ 36,930  
Accounts payable
    226,421       303,436  
Accrued expenses
    211,374       280,861  
Billings in excess of costs and estimated earnings on uncompleted contracts
    581,464       600,725  
Income taxes payable
    30,585       60,052  
 
           
Total current liabilities
    1,084,241       1,282,004  
 
           
Long-term debt
    149,871       175,510  
Deferred tax liabilities
    59,273       62,956  
Pension, postretirement and other employee benefits
    231,912       270,269  
Asbestos-related liability
    323,947       352,537  
Other long-term liabilities
    162,782       171,405  
Commitments and contingencies
               
 
           
TOTAL LIABILITIES
    2,012,026       2,314,681  
 
           
Temporary Equity:
               
Non-vested share-based compensation awards subject to redemption
    7,339       2,570  
 
           
TOTAL TEMPORARY EQUITY
    7,339       2,570  
 
           
Equity:
               
Registered shares:
               
CHF 3.00 par value; authorized: June 30, 2010 - 190,729,896 shares and December 31, 2009 - 190,649,900 shares; conditionally authorized: June 30, 2010 - 62,101,932 shares and December 31, 2009 - 62,181,928 shares; issued and outstanding: June 30, 2010 - 127,521,939 shares and December 31, 2009 - 127,441,943 shares
    329,630       329,402  
Paid-in capital
    624,180       617,938  
Retained earnings
    453,099       322,181  
Accumulated other comprehensive loss
    (516,725 )     (438,004 )
 
           
TOTAL FOSTER WHEELER AG SHAREHOLDERS’ EQUITY
    890,184       831,517  
 
           
Noncontrolling interests
    38,663       38,970  
 
           
TOTAL EQUITY
    928,847       870,487  
 
           
TOTAL LIABILITIES, TEMPORARY EQUITY AND EQUITY
  $ 2,948,212     $ 3,187,738  
 
           
See notes to consolidated financial statements.

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FOSTER WHEELER AG AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in thousands of dollars)

(unaudited)
                                                                         
                                                    Total Foster              
                                    Retained Earnings/             Wheeler AG              
    Preferred     Common     Registered     Paid-in     (Accumulated     Accumulated Other     Shareholders'     Noncontrolling        
    Shares     Shares     Shares     Capital     Deficit)     Comprehensive Loss     Equity     Interests     Total Equity  
     
Fiscal Six Months Ended June 30, 2009:
                                                                       
Balance at December 26, 2008
  $     $ 1,262     $     $ 914,063     $ (27,975 )   $ (494,788 )   $ 392,562     $ 28,718     $ 421,280  
Net income
                            195,067             195,067       6,639       201,706  
Other comprehensive income, net of tax:
                                                                       
Foreign currency translation
                                  18,516       18,516       391       18,907  
Cash flow hedges
                                  (1,376 )     (1,376 )           (1,376 )
Pension and other postretirement benefits
                                  9,615       9,615       (4 )     9,611  
                                                     
Comprehensive Income
                                                    221,822       7,026       228,848  
                                                     
Issuance of common shares upon exercise of share purchase warrants
                      9                   9             9  
Issuance of common shares upon vesting of restricted awards
          1             (1 )                              
Cancellation of common shares and issuance of registered shares
          (1,263 )     326,070       (324,807 )                              
Repurchase and retirement of shares
                      (28 )                 (28 )           (28 )
Issuance of registered shares upon conversion of preferred shares
                361       (361 )                              
Issuance of registered shares upon vesting of restricted awards
                1       (1 )                              
Issuance of registered shares upon exercise of share purchase warrants
                57       42                   99             99  
Distributions to noncontrolling interests
                                              (21 )     (21 )
Share-based compensation expense -stock options and restricted awards
                      9,851                   9,851             9,851  
     
Balance at June 30, 2009
  $     $     $ 326,489     $ 598,767     $ 167,092     $ (468,033 )   $ 624,315     $ 35,723     $ 660,038  
     
Fiscal Six Months Ended June 30, 2010:
                                                                       
Balance at December 31, 2009
  $     $     $ 329,402     $ 617,938     $ 322,181     $ (438,004 )   $ 831,517     $ 38,970     $ 870,487  
Net income
                            130,918             130,918       7,096       138,014  
Other comprehensive income, net of tax:
                                                                       
Foreign currency translation
                                  (73,368 )     (73,368 )     (71 )     (73,439 )
Cash flow hedges
                                  (2,195 )     (2,195 )           (2,195 )
Pension and other postretirement benefits
                                  (3,158 )     (3,158 )     (2 )     (3,160 )
                                                     
Comprehensive Income
                                                    52,197       7,023       59,220  
                                                     
Issuance of registered shares upon exercise of stock options
                225       1,438                   1,663             1,663  
Issuance of registered shares upon vesting of restricted awards
                3       (3 )                              
Distributions to noncontrolling interests
                                              (7,330 )     (7,330 )
Share-based compensation expense-stock options and restricted awards
                      4,805                   4,805             4,805  
Excess tax benefit related to share-based compensation
                      2                   2             2  
     
Balance at June 30, 2010
  $     $     $ 329,630     $ 624,180     $ 453,099     $ (516,725 )   $ 890,184     $ 38,663     $ 928,847  
     
See notes to consolidated financial statements.

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FOSTER WHEELER AG AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)

(unaudited)
                 
    Fiscal Six Months Ended  
    June 30,     June 30,  
    2010     2009  
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net income
  $ 138,014     $ 201,706  
Adjustments to reconcile net income to cash flows from operating activities:
               
Depreciation and amortization
    24,987       21,446  
Curtailment gain on U.K. defined benefit pension plan
    (20,086 )      
Net asbestos-related provision
    5,622       3,506  
Share-based compensation expense-stock options and restricted awards
    9,574       10,855  
Excess tax benefit related to share-based compensation
    (2 )      
Deferred income tax provision
    20,729       1,174  
Loss on sale of assets
    79       522  
Equity in the net earnings of partially-owned affiliates, net of dividends
    194       3,280  
Other noncash items
          (45 )
Changes in assets and liabilities:
               
(Increase)/decrease in receivables
    (2,436 )     87,406  
Net change in contracts in process and billings in excess of costs and estimated earnings on uncompleted contracts
    32,035       (108,869 )
Decrease in accounts payable and accrued expenses
    (96,770 )     (121,889 )
Net change in other assets and liabilities
    (60,615 )     (5,138 )
 
           
Net cash provided by operating activities
    51,325       93,954  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES
               
Payments related to acquisition of businesses, net of cash acquired
    (1,221 )     (8,883 )
Change in restricted cash
    3,338       (2,817 )
Capital expenditures
    (9,438 )     (26,708 )
Proceeds from sale of assets
    79       454  
Return of investment from unconsolidated affiliates
    3,232        
Increase in short-term investments
    (238 )     (1,261 )
 
           
Net cash used in investing activities
    (4,248 )     (39,215 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES
               
Repurchase and retirement of shares
          (28 )
Distributions to noncontrolling interests
    (7,330 )     (21 )
Proceeds from share purchase warrants exercised
          108  
Proceeds from stock options exercised
    2,628        
Excess tax benefit related to share-based compensation
    2        
Proceeds from issuance of short-term debt
    2,197       2,925  
Proceeds from issuance of long-term debt
          1,865  
Repayment of debt and capital lease obligations
    (9,880 )     (8,682 )
 
           
Net cash used in financing activities
    (12,383 )     (3,833 )
 
           
 
               
Effect of exchange rate changes on cash and cash equivalents
    (57,939 )     24,916  
 
           
 
               
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
    (23,245 )     75,822  
Cash and cash equivalents at beginning of year
    997,158       773,163  
 
           
 
               
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 973,913     $ 848,985  
 
           
See notes to consolidated financial statements.

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FOSTER WHEELER AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands of dollars, except share data and per share amounts)
(unaudited)
1. Summary of Significant Accounting Policies
     Basis of Presentation — The fiscal year of Foster Wheeler AG ends on December 31 of each calendar year. Foster Wheeler AG’s fiscal quarters end on the last day of March, June and September.
     Foster Wheeler AG’s consolidated financial results for the fiscal quarter represent the period from April 1 through June 30 for both fiscal years 2010 and 2009; and the fiscal six months represent the period from January 1, 2010 through June 30, 2010 and December 27, 2008 through June 30, 2009 in fiscal years 2010 and 2009, respectively. Please refer to Note 1 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (“2009 Form 10-K”), filed with the Securities and Exchange Commission on February 25, 2010, for further information on our fiscal year end and related change of country of domicile from Bermuda to Switzerland in February 2009. As part of our change of country of domicile, we cancelled our common shares and issued registered shares. In January 2010, we relocated our principal executive offices to Geneva, Switzerland.
     The consolidated financial results include our U.S. operations, which have a fiscal year that is the 52- or 53- week annual accounting period ending the last Friday in December, and our non-U.S. operations, which have a fiscal year ending December 31.
     The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments only consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year.
     The financial statements and notes are presented in accordance with the requirements of Form 10-Q and do not contain certain information included in our 2009 Form 10-K. The consolidated balance sheet as of December 31, 2009 was derived from the audited financial statements included in our 2009 Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America for annual consolidated financial statements.
     Certain prior period amounts have been reclassified to conform to the current period presentation.
     Principles of Consolidation — The consolidated financial statements include the accounts of Foster Wheeler AG and all significant U.S. and non-U.S. subsidiaries as well as certain entities in which we have a controlling interest. Intercompany transactions and balances have been eliminated.
     Comprehensive income is comprised of net income, as well as adjustments for foreign currency translation, derivative instruments designated as cash flow hedges and pension and other postretirement benefits. Comprehensive income for Foster Wheeler AG, noncontrolling interests and total equity were as follows:
                                 
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
    2010     2009     2010     2009  
Comprehensive Income:
                               
Foster Wheeler AG
  $ 24,155     $ 158,830     $ 52,197     $ 221,822  
Noncontrolling interests
    3,167       5,688       7,023       7,026  
 
                       
Total
  $ 27,322     $ 164,518     $ 59,220     $ 228,848  
 
                       
     In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance to amend the manner in which entities evaluate whether consolidation is required for variable interest entities (“VIE”). The model for determining which enterprise has a controlling financial interest and is the primary beneficiary of a VIE has changed under the new guidance. Furthermore, the new guidance requires an ongoing reconsideration of the primary beneficiary and also amends the events that trigger a reassessment of whether an entity is a VIE. This revised guidance also requires enhanced disclosures about how a company’s involvement with a VIE affects its

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financial statements and exposure to risks. This guidance, which became effective for us on January 1, 2010, did not result in any change to the entities previously included in our consolidated financial statements.
     Variable Interest Entities — We sometimes form separate legal entities such as corporations, partnerships and limited liability companies in connection with the execution of a single contract or project. Upon formation of each separate legal entity, we perform an evaluation to determine whether the new entity is a VIE, and whether we are the primary beneficiary of the new entity, which would require us to consolidate the new entity in our financial results. We reassess our initial determination on whether the entity is a VIE and whether we are the primary beneficiary upon the occurrence of certain events as outlined in current accounting guidelines. If the entity is not a VIE, we determine the accounting for the entity under the voting interest accounting guidelines.
     An entity is determined to be a VIE if either (a) the total equity investment is not sufficient for the entity to finance its own activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (such as the ability to make decisions through voting or other rights or the obligation to absorb losses or the right to receive benefits), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb losses of the entity and/or their rights to receive benefits of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.
     As of June 30, 2010, we participated in certain entities determined to be VIEs, including a gas-fired cogeneration facility in Martinez, California, a waste-to-energy facility in Camden, New Jersey and a refinery/electric power generation project in Chile. We consolidate the operations of both the Martinez and Camden projects while we record our participation in the Chile based project on the equity method of accounting.
     Please see Note 3 for further information on our participation in these projects.
     Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Changes in estimates are reflected in the periods in which they become known. Significant estimates are used in accounting for long-term contracts including estimates of total costs, progress toward completion and customer and vendor claims, employee benefit plan obligations and share-based compensation plans. In addition, we also use estimates when accounting for uncertain tax positions and deferred taxes, asbestos liabilities and expected recoveries and when assessing goodwill for impairment, among others.
     Revenue Recognition on Long-Term Contracts — Revenues and profits on long-term contracts are recorded under the percentage-of-completion method.
     Progress towards completion on fixed-price contracts is measured based on physical completion of individual tasks for all contracts with a value of $5,000 or greater. For contracts with a value less than $5,000, progress toward completion is measured based on the ratio of costs incurred to total estimated contract costs (the cost-to-cost method).
     Progress towards completion on cost-reimbursable contracts is measured based on the ratio of quantities expended to total forecasted quantities, typically man-hours. Incentives are also recognized on a percentage-of-completion basis when the realization of an incentive is assessed as probable. We include flow-through costs consisting of materials, equipment or subcontractor services as both operating revenues and cost of operating revenues on cost-reimbursable contracts when we have overall responsibility as the contractor for the engineering specifications and procurement or procurement services for such costs. There is no contract profit impact of flow-through costs as they are included in both operating revenues and cost of operating revenues.
     Contracts in process are stated at cost, increased for profits recorded on the completed effort or decreased for estimated losses, less billings to the customer and progress payments on uncompleted contracts.

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     At any point, we have numerous contracts in progress, all of which are at various stages of completion. Accounting for revenues and profits on long-term contracts requires estimates of total estimated contract costs and estimates of progress toward completion to determine the extent of revenue and profit recognition. These estimates may be revised as additional information becomes available or as specific project circumstances change. We review all of our material contracts on a monthly basis and revise our estimates as appropriate for developments such as earning project incentive bonuses, incurring or expecting to incur contractual liquidated damages for performance or schedule issues, providing services and purchasing third-party materials and equipment at costs differing from those previously estimated and testing completed facilities, which, in turn, eliminates or confirms completion and warranty-related costs. Project incentives are recognized when it is probable they will be earned. Project incentives are frequently tied to cost, schedule and/or safety targets and, therefore, tend to be earned late in a project’s life cycle.
     Changes in estimated final contract revenues and costs can either increase or decrease the final estimated contract profit. In the period in which a change in estimate is recognized, the cumulative impact of that change is recorded based on progress achieved through the period of change. There were 25 and 19 separate projects that had final estimated contract profit revisions whose impact on contract profit exceeded $1,000 during the fiscal six months ended June 30, 2010 and 2009, respectively. The changes in final estimated contract profit resulted in net increases of $8,600 and $33,700 to reported contract profit in the fiscal quarter and six months ended June 30, 2010, respectively, relating to the revaluation of work performed on contracts in prior periods. The changes in final estimated contract profit resulted in net increases of $20,200 and $26,200 to reported contract profit in the fiscal quarter and six months ended June 30, 2009, respectively, relating to the revaluation of work performed on contracts in prior periods. Please see Note 11 for further information related to changes in final estimated contract profit.
     Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that we seek to collect from customers or others for delays, errors in specifications and designs, contract terminations, disputed or unapproved change orders as to both scope and price or other causes of unanticipated additional costs. We record claims as additional contract revenue if it is probable that the claims will result in additional contract revenue and if the amount can be reliably estimated. These two requirements are satisfied by the existence of all of the following conditions: the contract or other evidence provides a legal basis for the claim; additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of deficiencies in our performance; costs associated with the claim are identifiable or otherwise determinable and are reasonable in view of the work performed; and the evidence supporting the claim is objective and verifiable. If such requirements are met, revenue from a claim may be recorded only to the extent that contract costs relating to the claim have been incurred. Costs attributable to claims are treated as costs of contract performance as incurred and are recorded in contracts in process. As of June 30, 2010, our consolidated financial statements assumed recovery of commercial claims of approximately $15,700, of which approximately $4,000 had yet to be expended. As of December 31, 2009, our consolidated financial statements assumed recovery of commercial claims of approximately $18,700, of which $1,200 had yet to be expended.
     In certain circumstances, we may defer pre-contract costs when it is probable that these costs will be recovered under a future contract. Such deferred costs would then be included in contract costs upon execution of the anticipated contract. We had approximately $200 and $1,200 of deferred pre-contract costs as of June 30, 2010 and December 31, 2009, respectively.
     Certain special-purpose subsidiaries in our global power business group are reimbursed by customers for their costs, including amounts related to repayments of non-recourse project debt, for building and operating certain facilities over the lives of the corresponding service contracts.
     Cash and Cash Equivalents — Cash and cash equivalents include highly liquid short-term investments with original maturities of three months or less at the date of acquisition. Cash and cash equivalents of $775,406 and $772,565 were maintained by our non-U.S. entities as of June 30, 2010 and December 31, 2009, respectively. These entities require a portion of these funds to support their liquidity and working capital needs, as well as to comply with required minimum capitalization and contractual restrictions. Accordingly, a portion of these funds may not be readily available for repatriation to U.S. entities.
     Intangible Assets — Intangible assets consist principally of goodwill, trademarks and patents. Goodwill is allocated to our reporting units on a relative fair value basis at the time of the original purchase price allocation. Patents and trademarks are amortized on a straight-line basis over periods of 3 to 40 years. Customer relationships, pipeline and backlog are amortized on a straight-line basis over periods of 1 to 13 years.

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     We test goodwill for impairment at the reporting unit level, which is defined as the components one level below our operating segments, because these components constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components. Presently, goodwill exists in two of our reporting units — one within our Global Power Group business segment and one within our Global Engineering and Construction Group, which we refer to as our Global E&C Group, business segment.
     The goodwill impairment test is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the fair value, the second step must be performed to measure the amount of the impairment loss, if any. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. In the fourth quarter of each fiscal year, we evaluate goodwill at each reporting unit to assess recoverability, and impairments, if any, are recognized in earnings. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of the goodwill over the implied fair value of the goodwill. As of December 31, 2009, the estimated fair value of each of the reporting units was sufficiently in excess of its carrying values even after conducting various sensitivity analyses on key assumptions, such that no adjustment to the carrying values of goodwill was required.
     Please see Note 4 for further information related to our goodwill and other identifiable intangible assets.
     Income Taxes — Deferred tax assets/liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
     Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. In evaluating our ability to realize our deferred tax assets within the various tax jurisdictions in which they arise, we consider all available positive and negative evidence, including scheduled reversals of taxable temporary differences, projected future taxable income, tax planning strategies and recent financial performance. Projecting future taxable income requires significant assumptions about future operating results, as well as the timing and character of taxable income in numerous jurisdictions.
     We do not make a provision for incremental income taxes on subsidiary earnings, which have been retained in the subsidiary’s country of domicile, if we expect such earnings to be indefinitely reinvested in that jurisdiction.
     We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
     We recognize interest accrued on the potential tax liability related to unrecognized tax benefits in interest expense, and we recognize any potential penalties in other deductions, net on our consolidated statement of operations.
     Foreign Currency — The functional currency of our non-U.S. operations is typically the local currency of their country of domicile. Assets and liabilities of our non-U.S. subsidiaries are translated into U.S. dollars at period-end exchange rates with the resulting translation adjustment recorded as a separate component within accumulated other comprehensive loss. Income and expense accounts and cash flows are translated at weighted-average exchange rates for the period. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in other deductions, net on our consolidated statement of operations.
     Fair Value Measurements — Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial Accounting Standards Board Accounting Standards Codification, or FASB ASC, 820-10 defines fair value, establishes a fair value hierarchy that prioritizes the inputs used to measure fair value and provides guidance on required disclosures about fair value measurements. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

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     Our financial assets and liabilities that are recorded at fair value on a recurring basis consist primarily of the assets or liabilities arising from derivative financial instruments and defined benefit pension plan assets. We value our derivative financial instruments using broker quotations, or market transactions in either the listed or over-the-counter markets, resulting in fair value measurements using level 2 inputs as defined under the fair value hierarchy. See Note 8 for further information regarding our derivative financial instruments.
     The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value:
     Financial instruments valued independent of the fair value hierarchy:
    Cash, Cash Equivalents and Restricted Cash — The carrying value of our cash, cash equivalents and restricted cash approximates fair value because of the demand nature of many of our deposits or short-term maturity of these instruments.
     Financial instruments valued within the fair value hierarchy:
    Short-term Investments — Short-term investments primarily consist of deposits with maturities in excess of three months but less than one year. Short-term investments are carried at cost plus accrued interest, which approximates fair value.
 
    Long-term Debt — We estimate the fair value of our long-term debt (including current installments) based on the quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities using level 2 inputs.
 
    Foreign Currency Forward Contracts — We estimate the fair value of foreign currency forward contracts by obtaining quotes from financial institutions or market transactions in either the listed or over-the-counter markets, which we further corroborate with observable market data using level 2 inputs.
 
    Interest Rate Swaps — We estimate the fair value of our interest rate swaps based on quotes obtained from financial institutions, which we further corroborate with observable market data using level 2 inputs.
 
    Defined Benefit Pension Plan Assets — We estimate the fair value of our defined benefit pension plan assets at each fiscal year end based on quotes obtained from financial institutions, which we further corroborate with observable market data using level 1 and 2 inputs.
     Retirement of Shares under Share Repurchase Program — On September 12, 2008, we announced a share repurchase program pursuant to which our Board of Directors authorized the repurchase of up to $750,000 of our outstanding shares and the designation of the repurchased shares for cancellation. Based on the aggregate share repurchases under our program through June 30, 2010, we are authorized to repurchase up to $264,773 of our outstanding shares. Any repurchases will be made at our discretion in the open market or in privately negotiated transactions in compliance with applicable securities laws and other legal requirements and will depend on a variety of factors, including market conditions, share price and other factors. The program does not obligate us to acquire any particular number of shares. The program has no expiration date and may be suspended or discontinued at any time.
     All shares acquired under our share repurchase program have been retired upon purchase. The share value, on the consolidated balance sheet, was reduced for the par value of the retired shares. Paid-in capital, on the consolidated balance sheet, was reduced for the excess of fair value and related fees paid above par value for the shares acquired.
     Shares retired under the share repurchase program reduce the weighted-average number of shares outstanding during the reporting period when calculating earnings per share, as described below.
     Earnings per Share — Basic earnings per share is computed by dividing net income attributable to Foster Wheeler AG by the weighted-average number of shares outstanding during the reporting period, excluding non-vested restricted shares. There were no non-vested restricted shares as of June 30, 2010 and 82,980 non-vested restricted shares as of June 30, 2009. Restricted shares and restricted share units (collectively, “restricted awards”) are included in the weighted-average number of shares outstanding when such restricted awards vest.

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     Diluted earnings per share is computed by dividing net income attributable to Foster Wheeler AG by the combination of the weighted-average number of shares outstanding during the reporting period and the impact of dilutive securities, if any, such as outstanding stock options, warrants to purchase shares and the non-vested portion of restricted awards to the extent such securities are dilutive.
     In profitable periods, outstanding stock options and warrants have a dilutive effect under the treasury stock method when the average share price for the period exceeds the assumed proceeds from the exercise of the warrant or option. The assumed proceeds include the exercise price, compensation cost, if any, for future service that has not yet been recognized in the consolidated statement of operations, and any tax benefits that would be recorded in paid-in capital when the option or warrant is exercised. Under the treasury stock method, the assumed proceeds are assumed to be used to repurchase shares in the current period. The dilutive impact of the non-vested portion of restricted awards is determined using the treasury stock method, but the proceeds include only the unrecognized compensation cost and tax benefits as assumed proceeds.
     The computations of basic and diluted earnings per share were as follows:
                                 
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
    2010     2009     2010     2009  
Basic earnings per share:
                               
Net income attributable to Foster Wheeler AG
  $ 58,858     $ 122,204     $ 130,918     $ 195,067  
Weighted-average number of shares outstanding for basic earnings per share
    127,519,766       126,344,093       127,497,450       126,304,157  
 
                       
Basic earnings per share
  $ 0.46     $ 0.97     $ 1.03     $ 1.54  
 
                       
 
                               
Diluted earnings per share:
                               
Net income attributable to Foster Wheeler AG
  $ 58,858     $ 122,204     $ 130,918     $ 195,067  
Weighted-average number of shares outstanding for basic earnings per share
    127,519,766       126,344,093       127,497,450       126,304,157  
Effect of dilutive securities:
                               
Options to purchase shares
    185,598       47,465       243,292       21,821  
Warrants to purchase shares
          478,728             474,067  
Non-vested portion of restricted awards
    173,912       184,892       119,136       67,237  
 
                       
Weighted-average number of shares outstanding for diluted earnings per share
    127,879,276       127,055,178       127,859,878       126,867,282  
 
                       
Diluted earnings per share
  $ 0.46     $ 0.96     $ 1.02     $ 1.54  
 
                       
     The following table summarizes the share equivalent of potentially dilutive securities that have been excluded from the denominator used in the calculation of diluted earnings per share due to their antidilutive effect:
                                 
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
    2010     2009     2010     2009  
Share issuable under outstanding options not included in the computation of diluted earnings per share because the assumed proceeds were greater than the average share price for the period
    1,551,052       2,448,119       1,551,052       3,008,199  
 
                       
     Share-Based Compensation Plans — We estimate the fair value of each option award on the date of grant using the Black-Scholes option valuation model. We then recognize the grant date fair value of each option as compensation expense ratably using the straight-line attribution method over the service period (generally the vesting period). The Black-Scholes model incorporates the following assumptions:
    Expected volatility — we estimate the volatility of our share price at the date of grant using historical volatility adjusted for periods of unusual stock price activity.
    Expected term — we estimate the expected term using the “simplified” method, as outlined in Staff Accounting Bulletin No. 107, “Share-Based Payment.”

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    Risk-free interest rate — we estimate the risk-free interest rate using the U.S. Treasury yield curve for periods equal to the expected term of the options in effect at the time of grant.
    Dividends — we use an expected dividend yield of zero because we have not declared or paid a cash dividend since July 2001 and we do not have any plans to declare or pay any cash dividends.
     We used the following weighted-average assumptions to estimate the fair value of the options granted for the periods indicated:
                 
    Fiscal Six Months Ended
    June 30,   June 30,
    2010   2009
Expected volatility
    69.18 %     69.31 %
Expected term
  3.78 years     3.28 years  
Risk-free interest rate
    1.72 %     1.45 %
Expected dividend yield
    0 %     0 %
     We estimate the fair value of restricted awards using the market price of our shares on the date of grant. We then recognize the fair value of each restricted award as compensation cost ratably using the straight-line attribution method over the service period (generally the vesting period).
     We estimate pre-vesting forfeitures at the time of grant using a combination of historical data and demographic characteristics, and we revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We record share-based compensation expense only for those awards that are expected to vest.
     Recent Accounting Developments — In July 2010, the FASB issued Accounting Standard Update (“ASU”) No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This ASU requires specific disclosures related to the credit quality of an entity’s financing receivables and its allowance for credit losses. Financing receivable is defined in the ASU as a contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset in the entity’s statement of financial position. New disclosures are required for finance receivables and the related allowance for credit losses on a disaggregated basis, which the standard defines as portfolio segment and class of financing receivable. ASU No. 2010-20 is effective for financial statements issued for interim or annual periods ending on or after December 15, 2010. We will amend our disclosures accordingly beginning with our consolidated financial statements included in our Annual Report on Form 10-K for fiscal year 2010.
2. Business Combinations
     In October 2009, we acquired substantially all of the assets of the Houston operations of Atlas Engineering, Inc., a privately held company, for a purchase price of approximately $21,000. The purchase price may be increased by an estimated $12,000 for contingent consideration depending on the acquired company’s EBITDA, as defined in the purchase agreement for this transaction, over the first three years after the closing date. The estimated fair value of the contingent consideration liability on our consolidated balance sheet as of June 30, 2010 was $6,932. The acquired company is active in upstream oil and gas engineering services. The purchase price allocation and pro forma information for this acquisition were not material to our consolidated financial statements. This company’s financial results are included within our Global E&C Group business segment.
     In April 2009, we acquired substantially all of the assets of the offshore engineering division of OPE Holdings Ltd., a Canadian company that is listed on the TSX Venture Exchange and which we refer to as OPE, for a purchase price of approximately $8,900. The acquired company is active in upstream oil and gas engineering services. The purchase price allocation and pro forma information for this acquisition were not material to our consolidated financial statements. This company’s financial results are included within our Global E&C Group business segment.

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3. Investments
Investment in Unconsolidated Affiliates
     We own a noncontrolling interest in two electric power generation projects, one waste-to-energy project and one wind farm project in Italy and in a refinery/electric power generation project in Chile. We also own a noncontrolling interest in a project based in Italy which generates earnings from royalty payments linked to the price of natural gas. Based on the outstanding equity interests of these entities, we own 42% of each of the two electric power generation projects in Italy, 39% of the waste-to-energy project and 50% of the wind farm project. We have a notional 85% equity interest in the project in Chile; however, we are not the primary beneficiary as a result of participating rights held by the minority shareholder. In determining that we are not the primary beneficiary, we considered the minority shareholder’s right to approve activities of the project that most significantly impact the project’s economic performance which include the right to approve or reject the annual financial (capital and operating) budget and the annual operating plan, the right to approve or reject the appointment of the general manager and senior management, and approval rights with respect to capital expenditures beyond those included in the annual budget.
     On February 27, 2010, an earthquake occurred off the coast of Chile that caused significant damage to our unconsolidated affiliate’s Chile based project. The project’s facility suspended normal operating activities from that date. We do not yet have a complete assessment of the extent of the damage or an estimate of the required cost of repairs. However, we believe the property damage insurance coverage in effect will be sufficient to cover the estimated costs of repairing the facility and to substantially compensate the project for the loss of profits while the facility has suspended operations until such time as normal operating activities can resume.

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     We account for these investments in Italy and Chile under the equity method. The following is summarized financial information for these entities (each as a whole) in which we have an equity interest:
                                 
    June 30, 2010     December 31, 2009  
    Italy Based Projects     Chile Based Project     Italy Based Projects     Chile Based Project  
Balance Sheet Data:
                               
Current assets
  $ 234,895     $ 26,083     $ 325,688     $ 46,311  
Other assets (primarily buildings and equipment)
    545,414       122,586       644,344       127,393  
Current liabilities
    111,486       23,112       173,593       40,444  
Other liabilities (primarily long-term debt)
    360,558       56,214       440,942       63,109  
Net assets
    308,265       69,343       355,497       70,151  
                                 
    Fiscal Quarters Ended  
    June 30, 2010     June 30, 2009  
    Italy Based Projects     Chile Based Project     Italy Based Projects     Chile Based Project  
Income Statement Data:
                               
Total revenues
  $ 98,635     $ 6,681     $ 95,084     $ 15,534  
Gross profit
    21,602       (1,198 )     26,095       9,486  
Income before income taxes
    17,169       223       22,616       8,053  
Net earnings
    10,037       185       15,833       6,684  
                                 
    Fiscal Six Months Ended  
    June 30, 2010     June 30, 2009  
    Italy Based Projects     Chile Based Project     Italy Based Projects     Chile Based Project  
Income Statement Data:
                               
Total revenues
  $ 198,273     $ 17,304     $ 199,158     $ 33,346  
Gross profit
    40,579       3,289       39,249       19,900  
Income before income taxes
    31,072       4,394       32,599       16,369  
Net earnings
    17,949       3,647       21,054       13,586  
     The summarized financial information presented above for the Chile based project includes an estimated recovery under a property damage insurance policy sufficient to repair the facility and an estimated recovery under a business interruption insurance policy for fixed costs until the facility becomes fully operational. In accordance with authoritative accounting guidance on business interruption insurance, estimated recovery for lost profits cannot be assumed until substantially all contingencies related to the insurance claim are resolved. A claim for lost profits has recently been submitted to the insurance carrier of the project and we expect that the project will be able to record an estimate for lost profits as the claim is finalized. Therefore, we have not recorded equity earnings in the Chile based project since the earthquake, as the operational costs incurred by the project are offset by the same estimated recovery under the property damage and business interruption insurance policies.
     Our equity in the net earnings of the unconsolidated affiliates in the table above totaled $4,293 and $10,582 for the fiscal quarter and six months ended June 30, 2010 and $10,639 and $16,891 for the fiscal quarter and six months ended June 30, 2009, respectively. Equity in the net earnings of the unconsolidated affiliates is recorded within other income, net on the consolidated statement of operations.
     Our investment in these unconsolidated affiliates, which is recorded within investments in and advances to unconsolidated affiliates on the consolidated balance sheet, totaled $187,596 and $215,280 as of June 30, 2010 and December 31, 2009, respectively. Distributions of $14,198 and $20,686 were received during the fiscal six months ended June 30, 2010 and June 30, 2009, respectively.

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     We have guaranteed certain performance obligations of the Chile based project. We do not expect that the earthquake will require us to contribute to this project under our performance obligations.
     We have a contingent obligation, which is measured annually based on the operating results of the Chile based project for the preceding year and is shared equally with our minority interest partner. We did not have a current payment obligation under this guarantee as of December 31, 2009.
     In addition, we have provided a $10,000 debt service reserve letter of credit to cover debt service payments in the event that the Chile based project does not generate sufficient cash flows to make such payments. We are required to maintain the debt service reserve letter of credit during the term of the Chile based project’s debt, which matures in 2014. As of June 30, 2010, no amounts have been drawn under this letter of credit and, based on our current assessment of the situation following the earthquake in Chile (described above) we do not anticipate any amounts being drawn under this letter of credit.
     We also have a wholly-owned subsidiary that provides operations and maintenance services to the Chile based project. Our fees for the services provided under our operations and maintenance agreement to the Chile based project were $2,459 and $4,920 for the fiscal quarter and six months ended June 30, 2010. We continue to provide our services to the project, which since the earthquake in Chile noted above, have been focused on assessing the damage caused by the earthquake and the related repair for the facility to resume normal operating activities. Our fees for the services provided under our operations and maintenance agreement to the Chile based project for the fiscal quarter and six months ended June 30, 2009 were $2,096 and $4,232, respectively. We record the fees for operations and maintenance services in operating revenues on our consolidated statement of operations. We had a receivable from our unconsolidated affiliate in Chile of $1,735 and $4,916 recorded in trade accounts and notes receivable on our consolidated balance sheet as of June 30, 2010 and December 31, 2009, respectively.
     We also have guaranteed the performance obligations of our wholly-owned subsidiary under the Chile based project’s operations and maintenance agreement. The guarantee is limited to $20,000 over the life of the operations and maintenance agreement, which extends through 2016. No amounts have ever been paid under the guarantee.
Other Investments
     We are the majority equity partner and general partner of a gas-fired cogeneration facility in Martinez, California, and we own 100% of the equity in a waste-to-energy facility in Camden, New Jersey. We have determined that these entities are VIEs and that we are the primary beneficiary of these VIEs since we have the power to direct the activities that most significantly impact the VIE’s performance. These activities include the operations and maintenance of the facility. Accordingly, we consolidate these entities. The aggregate net assets of these entities are presented below.
                 
    June 30,     December 31,  
    2010     2009  
Balance Sheet Data:
               
Current assets
  $ 13,324     $ 14,722  
Other assets (primarily buildings and equipment)
    101,576       104,552  
Current liabilities
    30,220       31,014  
Other liabilities
    786       876  
Net assets
    83,894       87,384  
     Please see Note 12 for further information on the waste-to-energy facility.

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4. Intangible Assets
     We have tracked accumulated goodwill impairments since December 29, 2001, the first day of fiscal year 2002 and our date of adoption of the accounting guidelines within FASB ASC 350-20. There were no accumulated goodwill impairment losses as of that date. The net carrying amount of goodwill by geographic region for our reporting units in our Global E&C Group and Global Power Group was as follows:
                                 
    Global E&C Group     Global Power Group  
    June 30,     December 31,     June 30,     December 31,  
    2010     2009     2010     2009  
U.S.
  $ 36,657     $ 35,436     $     $  
Asia
    1,014       1,012              
Europe
                44,549       52,254  
 
                       
Total
  $ 37,671     $ 36,448     $ 44,549     $ 52,254  
 
                       
     In February 2010, we made a $1,200 contractual payment related to a prior acquisition of a business that is reflected in our Global E&C Group’s U.S. operations.
     The following table details amounts relating to our identifiable intangible assets:
                                                 
    June 30, 2010     December 31, 2009  
    Gross             Net     Gross             Net  
    Carrying     Accumulated     Carrying     Carrying     Accumulated     Carrying  
    Amount     Amortization     Amount     Amount     Amortization     Amount  
Patents
  $ 38,611     $ (25,953 )   $ 12,658     $ 39,304     $ (24,983 )   $ 14,321  
Trademarks
    62,618       (25,463 )     37,155       63,676       (24,487 )     39,189  
Customer relationships, pipeline and backlog
    21,938       (3,806 )     18,132       21,934       (2,415 )     19,519  
 
                                   
Total
  $ 123,167     $ (55,222 )   $ 67,945     $ 124,914     $ (51,885 )   $ 73,029  
 
                                   
     As of June 30, 2010, the net carrying amounts of our identifiable intangible assets were $49,641 for our Global Power Group and $18,304 for our Global E&C Group.
     Amortization expense related to identifiable intangible assets is recorded within cost of operating revenues on the consolidated statement of operations and totaled $1,559 and $3,337 for the fiscal quarter and six months ended June 30, 2010, respectively, and $1,285 and $2,514 for the fiscal quarter and six months ended June 30, 2009, respectively. The following table shows the approximate full year amortization expense in each of the fiscal years 2010 through 2014.
         
    Approximate  
    Amortization  
Fiscal Years:   Expense  
2010
  $ 6,700  
2011
    6,500  
2012
    6,300  
2013
    5,600  
2014
    5,300  

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5. Long-term Debt
     The following table shows the components of our long-term debt:
                                                 
    June 30, 2010     December 31, 2009  
    Current     Long-term     Total     Current     Long-term     Total  
Capital Lease Obligations
  $ 1,753     $ 59,244     $ 60,997     $ 1,492     $ 65,327     $ 66,819  
Special-Purpose Limited Recourse Project Debt:
                                               
Camden County Energy Recovery Associates
    21,865             21,865       21,865             21,865  
FW Power S.r.l.
    6,548       78,124       84,672       7,428       95,661       103,089  
Energia Holdings, LLC
    2,019       11,220       13,239       3,187       13,239       16,426  
Subordinated Robbins Facility Exit Funding Obligations:
                                               
1999C Bonds at 7.25% interest, due October 15, 2024
          1,283       1,283             1,283       1,283  
Term Loan in China at 4.78% interest, due February 25, 2011
    2,212             2,212                    
Term Loan in China at 4.374% interest, due January 8, 2010
                      2,930             2,930  
Other
                      28             28  
 
                                   
Total
  $ 34,397     $ 149,871     $ 184,268     $ 36,930     $ 175,510     $ 212,440  
 
                                   
     U.S. Senior Secured Credit Agreement — On July 30, 2010, Foster Wheeler AG, Foster Wheeler Ltd., certain of Foster Wheeler Ltd.’s subsidiaries and BNP Paribas, as Administrative Agent, entered into a four-year amendment and restatement of our U.S. senior secured credit agreement, which we entered into in October 2006. The amended and restated U.S. senior secured credit agreement provides for a facility of $450,000, and includes a provision which permits future incremental increases of up to $225,000 in total availability under the facility. The amended and restated U.S. senior secured credit agreement permits us to issue up to $450,000 under the letter of credit facility. Letters of credit issued under the amended and restated U.S. senior secured credit agreement have performance pricing that is decreased (or increased) as a result of improvements (or reductions) in our corporate credit rating as reported by Moody’s Investors Service (“Moody’s”) and/or Standard & Poor’s (“S&P”). Based on the current ratings, the letter of credit fees for performance and financial letters of credit issued under the amended and restated U.S. senior secured credit agreement are 1.125% and 2.25% per annum of the outstanding amount, respectively, excluding a nominal fronting fee. We also have the option to use up to $100,000 of the $450,000 for revolving borrowings at a rate equal to adjusted LIBOR, as defined in the agreement, plus 2.25%, subject also to the performance pricing noted above.
     Unamortized fees and expenses in conjunction with the execution of our amended and restated U.S. senior credit agreement were approximately $4,300 and will be amortized to expense over the four-year term of the agreement, commencing in the third fiscal quarter of 2010. As a result of amending and restating our October 2006 U.S. senior secured credit agreement in July 2010 we incurred an impairment charge in the third fiscal quarter of 2010 of $1,600 related to unamortized fees and expenses paid in conjunction with the October 2006 agreement.
     The assets and/or stock of certain of our U.S. and non-U.S. subsidiaries collateralize our obligations under our amended and restated U.S. senior secured credit agreement. Our amended and restated U.S. senior secured credit agreement contains various customary restrictive covenants that generally limit our ability to, among other things, incur additional indebtedness or guarantees, create liens or other encumbrances on property, sell or transfer certain property and thereafter rent or lease such property for substantially the same purposes as the property sold or transferred, enter into a merger or similar transaction, make investments, declare dividends or make other restricted payments, enter into agreements with affiliates that are not on an arms’ length basis, enter into any agreement that limits our ability to create liens or the ability of a subsidiary to pay dividends, engage in new lines of business, with respect to Foster Wheeler AG, change Foster Wheeler AG’s fiscal year or, with respect to Foster Wheeler AG, Foster Wheeler Ltd. and one of our holding company subsidiaries, directly acquire ownership of the operating assets used to conduct any business. In the event that our corporate credit rating as issued by Moody’s is at least Baa3 and as issued by S&P is at least BBB-, all liens securing our obligations under the amended and restated U.S. senior secured credit agreement will be automatically released and terminated.
     In addition, our amended and restated U.S. senior secured credit agreement contains financial covenants requiring us not to exceed a total leverage ratio, which compares total indebtedness to EBITDA, and to maintain a minimum interest coverage ratio, which compares EBITDA to interest expense. All such terms are defined in our amended and restated U.S. senior secured credit agreement. We must be in compliance with the total leverage ratio at all times, while the interest coverage ratio is measured quarterly. We have been in compliance with all financial covenants and other provisions of our U.S. senior secured credit agreement prior and subsequent to our amendment and restatement of the agreement.

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     We had approximately $284,700 and $308,000 of letters of credit outstanding under our U.S. senior secured credit agreement in effect as of June 30, 2010 and December 31, 2009, respectively. The letter of credit fees under the U.S. senior secured credit agreement in effect as of June 30, 2010 ranged from 1.50% to 1.60% of the outstanding amount, excluding a nominal fronting fee. There were no funded borrowings under this agreement as of June 30, 2010 or December 31, 2009.
     During the fiscal six months ended June 30, 2010, one of our subsidiaries based in China repaid its outstanding term loan at the scheduled maturity date. Also during the fiscal six months ended June 30, 2010, the same China based subsidiary entered into a new term loan for 15 million Chinese Yuan (approximately $2,197 at the exchange rate in effect at the inception of the term loan) with an interest rate of 4.78% and maturity date of February 25, 2011.
     The estimated fair values of our long-term debt were $196,198 and $222,165 as of June 30, 2010 and December 31, 2009, respectively. We estimate the fair value of our long-term debt (including current installments) based on the quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities.
6. Pensions and Other Postretirement Benefits
     We have defined benefit pension plans in the United States, the United Kingdom, France, Canada and Finland, and we have other postretirement benefit plans for health care and life insurance benefits in the United States and Canada.
Defined Benefit Pension Plans — Our defined benefit pension plans cover certain full-time employees. Under the plans, retirement benefits are primarily a function of both years of service and level of compensation.
     The U.S. pension plans, which are frozen to new entrants and additional benefit accruals, and the Canadian, Finnish and French plans are non-contributory. The U.K. pension plan, which is closed to new entrants and additional benefit accruals, is contributory.
     During the fiscal first six months of 2010, we capped pensionable salary growth in the U.K. plan to a maximum of 5% and, effective March 31, 2010, we closed the plan for future defined benefit accrual. As a result of the U.K. plan closure, we recognized a curtailment gain in our statement of operations for the fiscal six months ended June 30, 2010 of approximately £13,300 (approximately $20,086 at the exchange rate in effect at the time of the plan closure).
     Based on the minimum statutory funding requirements for fiscal year 2010, we are not required to make any mandatory contributions to our U.S. pension plans. We made mandatory and discretionary contributions totaling approximately $29,200 to our U.S. and non-U.S. pension plans, which included discretionary contributions totaling approximately $17,800 to our U.S. and U.K. pension plans, during the fiscal six months ended June 30, 2010. Based on the minimum statutory funding requirements for fiscal year 2010, we expect to make mandatory and discretionary contributions totaling approximately $39,000 to our U.S. and non-U.S. pension plans in fiscal year 2010.
Other Postretirement Benefit Plans — Certain employees in the United States and Canada may become eligible for health care and life insurance benefits (“other postretirement benefits”) if they qualify for and commence normal or early retirement pension benefits as defined in the U.S. and Canadian pension plans while working for us. Additionally, one of our subsidiaries in the United States also has a benefit plan, referred to as the Survivor Income Plan (“SIP”), which provides coverage for an employee’s beneficiary upon the death of the employee. This plan has been closed to new entrants since 1988.

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     The components of net periodic benefit cost/(credit) for our defined benefit pension plans and other postretirement benefit plans were as follows:
                                                                                 
    Fiscal Quarter Ended June 30, 2010     Fiscal Quarter Ended June 30, 2009  
                                    Other                                     Other  
    Defined Benefit Pension Plans     Postre-     Defined Benefit Pension Plans     Postre-  
    United     United                     tirement     United     United                     tirement  
    States     Kingdom     Other     Total     Benefits     States     Kingdom     Other     Total     Benefits  
Net periodic benefit cost/(credit):
                                                                               
Service cost
  $     $ 174     $ 154     $ 328     $ 21     $     $ 1,350     $ 158     $ 1,508     $ 32  
Interest cost
    4,730       9,895       394       15,019       619       4,972       10,199       445       15,616       1,283  
Expected return on plan assets
    (5,245 )     (9,804 )     (340 )     (15,389 )           (4,291 )     (8,299 )     (291 )     (12,881 )      
Amortization of transition (asset)/obligation
                24       24       (8 )           (12 )     21       9        
Amortization of prior service cost/(credit)
          4       5       9       (989 )           1,924       4       1,928       (1,156 )
Amortization of net actuarial loss/(gain)
    1,748       1,446       142       3,336       (23 )     2,041       3,346       124       5,511       178  
(Curtailment gain)/ settlement charges*
                422       422                         191       191        
 
                                                           
Total net periodic benefit cost/(credit)
  $ 1,233     $ 1,715     $ 801     $ 3,749     $ (380 )   $ 2,722     $ 8,508     $ 652     $ 11,882     $ 337  
 
                                                           
 
                                                                               
Changes recognized in comprehensive income:
                                                                               
Net actuarial loss
  $     $     $     $     $     $     $     $     $     $  
Prior service credit
                                                           
Amortization of transition asset/(obligation)
                (24 )     (24 )     8             12       (21 )     (9 )      
Amortization of prior service (cost)/credit
          (4 )     (5 )     (9 )     989             (1,924 )     (4 )     (1,928 )     1,156  
Amortization of net actuarial (loss)/gain
    (1,748 )     (1,446 )     (142 )     (3,336 )     23       (2,041 )     (3,346 )     (124 )     (5,511 )     (178 )
 
                                                           
Total recognized in comprehensive income
  $ (1,748 )   $ (1,450 )   $ (171 )   $ (3,369 )   $ 1,020     $ (2,041 )   $ (5,258 )   $ (149 )   $ (7,448 )   $ 978  
 
                                                           
                                                                                 
    Fiscal Six Months Ended June 30, 2010     Fiscal Six Months Ended June 30, 2009  
                                    Other                                     Other  
    Defined Benefit Pension Plans     Postre-     Defined Benefit Pension Plans     Postre-  
    United     United                     tirement     United     United                     tirement  
    States     Kingdom     Other     Total     Benefits     States     Kingdom     Other     Total     Benefits  
Net periodic benefit cost/(credit):
                                                                               
Service cost
  $     $ 1,886     $ 319     $ 2,205     $ 55     $     $ 2,608     $ 310     $ 2,918     $ 67  
Interest cost
    9,474       20,125       795       30,394       1,826       9,898       19,740       869       30,507       2,437  
Expected return on plan assets
    (10,257 )     (19,637 )     (675 )     (30,569 )           (8,559 )     (16,059 )     (566 )     (25,184 )      
Amortization of transition (asset)/obligation
                48       48       (8 )           (23 )     41       18        
Amortization of prior service cost/(credit)
          (426 )     10       (416 )     (1,985 )           3,726       8       3,734       (2,313 )
Amortization of net actuarial loss
    3,483       5,501       280       9,264       29       3,918       6,403       239       10,560       423  
(Curtailment gain)/ settlement charges*
          (20,086 )     422       (19,664 )                       191       191        
 
                                                           
Total net periodic benefit cost/(credit)
  $ 2,700     $ (12,637 )   $ 1,199     $ (8,738 )   $ (83 )   $ 5,257     $ 16,395     $ 1,092     $ 22,744     $ 614  
 
                                                           
 
                                                                               
Changes recognized in comprehensive income:
                                                                               
Net actuarial loss
  $     $ 21,130     $     $ 21,130     $     $     $     $     $     $  
Prior service credit
          (9,054 )           (9,054 )                                    
Amortization of transition asset/(obligation)
                (48 )     (48 )     8             23       (41 )     (18 )      
Amortization of prior service (cost)/credit
          426       (10 )     416       1,985             (3,726 )     (8 )     (3,734 )     2,313  
Amortization of net actuarial loss
    (3,483 )     (5,501 )     (280 )     (9,264 )     (29 )     (3,918 )     (6,403 )     (239 )     (10,560 )     (423 )
 
                                                           
Total recognized in comprehensive income
  $ (3,483 )   $ 7,001     $ (338 )   $ 3,180     $ 1,964     $ (3,918 )   $ (10,106 )   $ (288 )   $ (14,312 )   $ 1,890  
 
                                                           
 
*   During the fiscal six months ended June 30, 2010, a curtailment gain resulted from the closure of the U.K. pension plan for future benefit accrual. During the fiscal quarters and six months ended June 30, 2010 and 2009, charges were incurred related to the settlement of pension obligations with former employees of the Canada pension plan.

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7. Guarantees and Warranties
     We have agreed to indemnify certain third parties relating to businesses and/or assets that we previously owned and sold to such third parties. Such indemnifications relate primarily to potential environmental and tax exposures for activities conducted by us prior to the sale of such businesses and/or assets. It is not possible to predict the maximum potential amount of future payments under these or similar indemnifications due to the conditional nature of the obligations and the unique facts and circumstances involved in each particular indemnification.
                     
    Maximum   Carrying Amount of Liability  
    Potential   June 30,     December 31,  
    Payment   2010     2009  
 
                   
Environmental indemnifications
  No limit   $ 8,900     $ 8,800  
Tax indemnifications
  No limit   $     $  
     We also maintain contingencies for warranty expenses on certain of our long-term contracts. Generally, warranty contingencies are accrued over the life of the contract so that a sufficient balance is maintained to cover our aggregate exposure at the conclusion of the project.
                 
    Fiscal Six Months Ended  
    June 30,     June 30,  
Warranty Liability:   2010     2009  
Balance at beginning of year
  $ 110,800     $ 99,400  
Accruals
    11,000       14,900  
Settlements
    (8,400 )     (1,300 )
Adjustments to provisions, including foreign currency translation
    (19,200 )     (5,100 )
 
           
Balance at end of period
  $ 94,200     $ 107,900  
 
           
     We are contingently liable under standby letters of credit, bank guarantees and surety bonds, totaling $913,800 and $943,100 as of June 30, 2010 and December 31, 2009, respectively, primarily for performance guarantees. These balances include the standby letters of credit issued under the U.S. senior credit agreement discussed in Note 5 and from other facilities worldwide. No material claims have been made against these guarantees, and based on our experience and current expectations, we do not anticipate any material claims.
     We have also guaranteed certain performance obligations in a refinery/electric power generation project based in Chile in which we hold a noncontrolling interest. See Note 3 for further information.
8. Derivative Financial Instruments
     We are exposed to certain risks relating to our ongoing business operations. The risks managed by using derivative financial instruments relate primarily to foreign currency exchange rate risk and, to a significantly lesser extent, interest rate risk. Derivative financial instruments are recognized as assets or liabilities at fair value in our consolidated balance sheet.
                                         
    Fair Values of Derivative Financial Instruments
        Asset Derivatives       Liability Derivatives
    Location within                   Location within        
    Consolidated   June 30,   December 31,   Consolidated   June 30,   December 31,
    Balance Sheet   2010   2009   Balance Sheet   2010   2009
Derivatives designated as
hedging instruments
                                       
Interest rate swap contracts
  Other assets   $     $     Other long-term liabilities   $ 8,359     $ 6,554  
Derivatives not designated
as hedging instruments
                                       
Foreign currency forward
contracts
  Contracts in process or billings in excess of costs and estimated earnings on uncompleted contracts     1,632       1,174     Contracts in process or billings in excess of costs and estimated earnings on uncompleted contracts     4,838       4,934  
Foreign currency forward
contracts
  Other accounts
receivable
    22       470     Accounts payable     138       246  
 
                                       
 
                                       
Total derivatives
      $ 1,654     $ 1,644         $ 13,335     $ 11,734  
 
                                       
 
                                       

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     Foreign Currency Exchange Rate Risk
     We operate on a worldwide basis with substantial operations in Europe that subject us to U.S. dollar translation risk mainly relative to the Euro and British pound. Under our risk management policies we do not hedge translation risk exposure. All activities of our non-U.S. affiliates are recorded in their functional currency, which is typically the local currency in the country of domicile of the affiliate. In the ordinary course of business, our affiliates do enter into transactions in currencies other than their respective functional currencies. We seek to minimize the resulting foreign currency transaction risk by contracting for the procurement of goods and services in the same currency as the sales value of the related long-term contract. We further mitigate the risk through the use of foreign currency forward contracts.
                             
    Currency   Hedged Foreign     Notional Amount of     Notional Amount of  
    Hedged   Currency Exposure     Forward Buy Contracts     Forward Sell Contracts  
Functional   (bought or sold   (in equivalent     (in equivalent     (in equivalent  
Currency   forward)   U.S. dollars)     U.S. dollars)     U.S. dollars)  
British pound
  Euro   $ 3,744     $ 1,720     $ 2,024  
 
  Australian dollar     6,482       1,793       4,689  
 
  U.S. dollar     63,504       3,070       60,434  
 
  South African rand     1,256             1,256  
 
                           
Chilean peso
  Euro     129             129  
 
                           
Chinese yuan
  Euro     3,337             3,337  
 
  U.S. dollar     21,342       10,460       10,882  
 
                           
Euro
  U.S. dollar     23,392       1,672       21,720  
 
                           
Polish zloty
  Euro     22,897             22,897  
 
                           
South African rand
  British pound     8,526       8,526        
 
  Singapore dollar     10,201       10,201        
 
                           
U.S. dollar
  Canadian dollar     295       295        
 
  Euro     273       273        
 
  British pound     200       200        
 
  Singapore dollar     46       46        
 
                           
 
                     
 
  Total   $ 165,624     $ 38,256     $ 127,368  
 
                     
 
                           
     The notional amount provides one measure of the transaction volume outstanding as of the balance sheet date. Amounts ultimately realized upon final settlement of these financial instruments, along with the gains and losses on the underlying exposures within our long-term contracts, will depend on actual market exchange rates during the remaining life of the instruments. The contracts mature between fiscal years 2010 and 2013.
     We are exposed to credit loss in the event of non-performance by the counterparties. These counterparties are commercial banks that are primarily rated “BBB+” or better by Standard & Poor’s (or the equivalent by other recognized credit rating agencies).

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     Increases in the fair value of the currencies sold forward result in losses while increases in the fair value of the currencies bought forward result in gains. The gain or loss from the portion of the mark-to-market adjustment related to the completed portion of the underlying contract is included in cost of operating revenues at the same time as the underlying foreign currency exposure occurs. The gain or loss from the remaining portion of the mark-to-market adjustment, specifically the portion relating to the uncompleted portion of the underlying contract is reflected directly in cost of operating revenues in the period in which the mark-to-market adjustment occurs. The incremental gain or loss from the remaining uncompleted portion of our contracts was as follows:
                                         
            Amount of Gain/(Loss) Recognized in Income on Derivatives  
    Location of Gain/(Loss)     Fiscal Quarters Ended     Fiscal Six Months Ended  
Derivatives Not Designated as   Recognized in Income on     June 30,     June 30,     June 30,     June 30,  
Hedging Instruments   Derivative     2010     2009     2010     2009  
Foreign currency forward contracts
  Cost of operating revenues   $ (556 )   $ 3,119     $ (2,007 )   $ 5,338  
Foreign currency forward contracts
  Other deductions, net     (187 )     (95 )     (375 )     277  
 
                               
 
                                       
Total
          $ (743 )   $ 3,024     $ (2,382 )   $ 5,615  
 
                               
     The mark-to-market adjustments on foreign currency forward exchange contracts for these unrealized gains or losses are primarily recorded in either contracts in process or billings in excess of costs and estimated earnings on uncompleted contracts on the consolidated balance sheet.
     During the fiscal six months ended June 30, 2010 and 2009, we included net cash outflows on the settlement of derivatives of $5,804 and $7,690, respectively, within the “net change in contracts in process and billings in excess of costs and estimated earnings on uncompleted contracts,” a component of cash flows from operating activities in the consolidated statement of cash flows.
     Interest Rate Risk
     We use interest rate swap contracts to manage interest rate risk associated with some of our variable rate special-purpose limited recourse project debt. The aggregate notional amount of the receive-variable/pay-fixed interest rate swaps was $70,400 as of June 30, 2010.
     Upon entering into the swap contracts, we designate the interest rate swaps as cash flow hedges. We assess at inception, and on an ongoing basis, whether the interest rate swaps are highly effective in offsetting changes in the cash flows of the project debt. Consequently, we record the fair value of interest rate swap contracts in our consolidated balance sheet at each balance sheet date. Changes in the fair value of the interest rate swap contracts are recorded as a component of other comprehensive income.
                         
            Location of        
            Gain/(Loss)        
            Reclassified from        
            Accumulated     Amount of Gain/(Loss)  
    Amount of Gain/(Loss)     Other     Reclassified from  
    Recognized in Other     Comprehensive     Accumulated Other  
Derivatives in Cash Flow Hedging Relationships   Comprehensive Income     Loss     Comprehensive Loss  
Fiscal Quarter Ended June 30, 2010
                       
Interest rate swap contracts
  $ 9     Interest expense   $  
 
                       
Fiscal Quarter Ended June 30, 2009
                       
Interest rate swap contracts
  $ 1,122     Interest expense   $  
 
                       
Fiscal Six Months Ended June 30, 2010
                       
Interest rate swap contracts
  $ (1,805 )   Interest expense   $  
 
                       
Fiscal Six Months Ended June 30, 2009
                       
Interest rate swap contracts
  $ (711 )   Interest expense   $  

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9. Share-Based Compensation Plans
     Our share-based compensation plans include both restricted awards and stock option awards. Compensation cost for our share-based plans of $4,972 and $9,574 was charged against income for the fiscal quarter and six months ended June 30, 2010, respectively, and $5,501 and $10,855 for the fiscal quarter and six months ended June 30, 2009, respectively. The related income tax benefit recognized in the consolidated statement of operations was $70 and $169 for the fiscal quarter and six months ended June 30, 2010, respectively, and $110 and $220 for the fiscal quarter and six months ended June 30, 2009, respectively. We received $594 and $2,628 in cash from stock option exercises under our share-based compensation plans for the fiscal quarter and six months ended June 30, 2010. There were no option exercises under our share-based compensation plans during the fiscal six months ended June 30, 2009.
     As of June 30, 2010, we had $18,182 and $20,585 of total unrecognized compensation cost related to stock options and restricted awards, respectively. Those costs are expected to be recognized as expense over a weighted-average period of approximately 26 months.
     Our share-based compensation plans include a “change in control” provision, which provides for cash redemption of equity awards issued thereunder in certain limited circumstances. In accordance with Securities and Exchange Commission Accounting Series Release No. 268, “Presentation in Financial Statements of Redeemable Preferred Stocks,” we present the redemption amount of these equity awards as temporary equity on the consolidated balance sheet as the equity award is amortized during the vesting period. The redemption amount represents the intrinsic value of the equity award on the grant date. In accordance with FASB ASC 480-10-S99-3A (formerly EITF Topic D-98, “Classification and Measurement of Redeemable Securities”), we do not adjust the redemption amount each reporting period unless and until it becomes probable that the equity awards will become redeemable (upon a change in control event). Upon vesting of the equity awards, we reclassify the intrinsic value of the equity awards, as determined on the grant date, to permanent equity. A reconciliation of temporary equity for the fiscal six months ended June 30, 2010 and 2009 were as follows:
                 
    June 30,     June 30,  
    2010     2009  
Balance at beginning of year
  $ 2,570     $ 7,586  
Compensation cost during the period for those equity awards with intrinsic value on the grant date
    4,806       5,576  
Intrinsic value of equity awards vested during the period for those equity awards with intrinsic value on the grant date
    (37 )     (4,572 )
 
           
Balance at end of period
  $ 7,339     $ 8,590  
 
           
     Our articles of association provide for conditional capital of 63,207,957 registered shares for the issuance of shares under our share-based compensation plans, outstanding share purchase warrants and other convertible securities we may issue in the future. Conditional capital decreases upon issuance of shares in connection with the exercise of outstanding stock options or vesting of restricted stock units, with an offsetting increase to our issued share capital. As of June 30, 2010, our remaining available conditional capital was 62,101,932 shares.
10. Income Taxes
     The tax provision for each year-to-date period is calculated by multiplying pretax income by the estimated annual effective tax rate for such period. Our effective tax rate can fluctuate significantly from period to period and may differ significantly from the U.S. federal statutory rate as a result of income taxed in various non-U.S. jurisdictions with rates different from the U.S. statutory rate, as a result of our inability to recognize a tax benefit for losses generated by certain unprofitable operations and as a result of the varying mix of income earned in the jurisdictions in which we operate. We have reduced our U.S. and certain non-U.S. tax benefits by a valuation allowance based on a consideration of all available evidence, which indicates that it is more likely than not that some or all of the deferred tax assets will not be realized. In periods when operating units subject to a valuation allowance generate pretax earnings, the corresponding reduction in the valuation allowance favorably impacts our effective tax rate. Conversely, in periods when operating units subject to a valuation allowance generate pretax losses, the corresponding increase in the valuation allowance has an unfavorable impact on our effective tax rate.

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     Fiscal Year 2010
     Our effective tax rate for the fiscal first six months of 2010 was lower than the U.S. statutory rate of 35% due principally to the net impact of the following:
    Income earned in tax jurisdictions with tax rates lower than the U.S. statutory rate, which is expected to contribute to an approximate 18-percentage point reduction in the effective tax rate for the full year 2010.
 
    A valuation allowance increase because we are unable to recognize a tax benefit for losses subject to valuation allowance in certain jurisdictions (primarily the United States), which is expected to contribute an approximate five-percentage point increase in the effective tax rate for the full year 2010.
     Fiscal Year 2009
     Our effective tax rate for the fiscal first six months of 2009 was lower than the U.S. statutory rate of 35% due principally to the impact of the following:
    Income earned in tax jurisdictions with tax rates lower than the U.S. statutory rate, which contributed to an approximate 18-percentage point reduction in the effective tax rate.
 
    A valuation allowance increase because we were unable to recognize a tax benefit for losses subject to valuation allowance in certain jurisdictions (primarily the United States), which contributed to an approximate three-percentage point increase in the effective tax rate.
     These variances were partially offset by the reduction of valuation allowances in certain jurisdictions and other permanent differences.
     We evaluate, on a quarterly basis, the need for the valuation allowances against deferred tax assets in those jurisdictions in which we currently maintain a valuation allowance. Such evaluation includes a review of all available evidence, both positive and negative, in determining whether a valuation allowance is necessary.
     Our subsidiaries file income tax returns in numerous tax jurisdictions, including the United States, several U.S. states and numerous non-U.S. jurisdictions around the world. Tax returns are also filed in jurisdictions where our subsidiaries execute project-related work. The statute of limitations varies by jurisdiction. Because of the number of jurisdictions in which we file tax returns, in any given year the statute of limitations in a number of jurisdictions may expire within 12 months from the balance sheet date. As a result, we expect recurring changes in unrecognized tax benefits due to the expiration of the statute of limitations, none of which are expected to be individually significant. With few exceptions, we are no longer subject to U.S. (including federal, state and local) or non-U.S. income tax examinations by tax authorities for years before fiscal year 2005.
     A number of tax years are under audit by the relevant state and non-U.S. tax authorities. We anticipate that several of these audits may be concluded in the foreseeable future, including in fiscal year 2010. Based on the status of these audits, it is reasonably possible that the conclusion of the audits may result in a reduction of unrecognized tax benefits. However, it is not possible to estimate the magnitude of any such reduction at this time.
     We recognize interest accrued on the unrecognized tax benefits in interest expense and penalties on the unrecognized tax benefits in other deductions, net on our consolidated statement of operations. During the fiscal quarter and six months ended June 30, 2010, we recorded net interest expense of $292 and $1,234, respectively, which were net of previously accrued interest expense that were ultimately not assessed of $1,126 and $1,130, respectively. During the fiscal quarter ended June 30, 2010, there was no net change in penalties on unrecognized tax benefits; however, during the six months ended June 30, 2010, we recorded a net reduction of penalties on unrecognized tax benefits of $101, which was net of previously accrued tax penalties that were ultimately not assessed of $1,382. During the fiscal quarter and six months ended June 30, 2009, we recorded a net reduction of interest expense of $2,176 and $2,238, respectively, which were net of previously accrued interest expense that were ultimately not assessed of $2,670 and $3,169, respectively, and net penalties on unrecognized tax benefits of $526 and $424, respectively, which were net of previously accrued tax penalties that were ultimately not assessed of $214 and $791, respectively.

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11. Business Segments
     We operate through two business groups: our Global E&C Group and our Global Power Group.
Global E&C Group
     Our Global E&C Group, which operates worldwide, designs, engineers and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, oil refining, chemical and petrochemical, pharmaceutical and biotechnology facilities and related infrastructure, including power generation and distribution facilities, and gasification facilities. Our Global E&C Group is also involved in the design of facilities in new or developing market sectors, including carbon capture and storage, solid fuel-fired integrated gasification combined-cycle power plants, coal-to-liquids, coal-to-chemicals and biofuels. Our Global E&C Group generates revenues from design, engineering, procurement and construction and project management activities pursuant to contracts spanning up to approximately four years in duration and from returns on its equity investments in various power production facilities.
     Our Global E&C Group provides the following services:
    Design, engineering, project management, construction and construction management services, including the procurement of equipment, materials and services from third-party suppliers and contractors.
 
    Environmental remediation services, together with related technical, engineering, design and regulatory services.
 
    Development, engineering, procurement, construction, ownership and operation of power generation facilities, from conventional and renewable sources, and waste-to-energy facilities in Europe.
 
    Design and supply of direct-fired furnaces used in a wide range of refining, petrochemical, chemical, oil and gas processes, including fired heaters and waste heat recovery units. In addition, our Global E&C Group also designs and supplies the fired heaters which form an integral part of its proprietary delayed coking and hydrogen production technologies.

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Global Power Group
     Our Global Power Group designs, manufactures and erects steam generating and auxiliary equipment for electric power generating stations, district heating and industrial facilities worldwide and owns and/or operates several cogeneration, independent power production and waste-to-energy facilities, as well as power generation facilities for the process and petrochemical industries. Our Global Power Group generates revenues from engineering activities, equipment supply, construction contracts, operating and maintenance agreements, royalties from licensing its technology, and from returns on its investments in several power production facilities.
     Our Global Power Group’s steam generating equipment includes a full range of technologies, offering independent power producers, utilities, municipalities and industrial clients high-value technology solutions for converting a wide range of fuels, such as coal, lignite, petroleum coke, oil, gas, solar, biomass and municipal solid waste, into steam, which can be used for power generation, district heating or for industrial processes.
     Our Global Power Group offers several other products and services related to steam generators:
    Designs, manufactures and installs auxiliary and replacement equipment for utility power and industrial facilities, including surface condensers, feed water heaters, coal pulverizers, steam generator coils and panels, biomass gasifiers, and replacement parts for steam generators.
 
    Nitrogen-oxide (“NOx”) reduction systems and components for pulverized coal steam generators such as selective catalytic reduction systems, low NOx combustion systems, low NOx burners, primary combustion and overfire air systems and components, fuel and combustion air measuring and control systems and components.
 
    A broad range of site services including construction and erection services, maintenance engineering, steam generator upgrading and life extension, and plant repowering.
 
    Research and development in the areas of combustion, fluid and gas dynamics, heat transfer, materials and solid mechanics.
 
    Technology licenses to other steam generator suppliers in select countries.
Corporate and Finance Group
     In addition to these two business groups, which also represent operating segments for financial reporting purposes, we report corporate center expenses, our captive insurance operation and expenses related to certain legacy liabilities, such as asbestos, in the Corporate and Finance Group (“C&F Group”), which we also treat as an operating segment for financial reporting purposes.

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          EBITDA is the primary measure of operating performance used by our chief operating decision maker. We define EBITDA as net income attributable to Foster Wheeler AG before interest expense, income taxes, depreciation and amortization.
          A reconciliation of EBITDA to net income attributable to Foster Wheeler AG is shown below:
                                 
            Global     Global     C&F  
    Total     E&C Group     Power Group     Group(1)  
Fiscal Quarter Ended June 30, 2010:
                               
Operating revenues (third-party)
  $ 1,005,496   $ 842,461   $ 163,035   $  
 
                       
EBITDA (2)
  $ 90,239     $ 85,460     $ 26,396     $ (21,617 )
 
                         
Add: Net income attributable to noncontrolling interests
    3,790                      
Less: Interest expense
    4,044                          
Less: Depreciation and amortization
    11,928                          
 
                             
Income before income taxes
    78,057                          
Less: Provision for income taxes
    15,409                          
 
                             
Net income
    62,648                          
Less: Net income attributable to noncontrolling interests
    3,790                          
 
                             
Net income attributable to Foster Wheeler AG
  $ 58,858                          
 
                             
 
                               
Fiscal Quarter Ended June 30, 2009:
                               
Operating revenues (third-party)
  $ 1,308,801   $ 1,030,471   $ 278,330   $  
 
                       
EBITDA (3)
  $ 161,962     $ 130,628     $ 53,780     $ (22,446 )
 
                         
Add: Net income attributable to noncontrolling interests
    5,130                      
Less: Interest expense
    1,302                          
Less: Depreciation and amortization
    10,895                          
 
                             
Income before income taxes
    154,895                          
Less: Provision for income taxes
    27,561                          
 
                             
Net income
    127,334                          
Less: Net income attributable to noncontrolling interests
    5,130                          
 
                             
Net income attributable to Foster Wheeler AG
  $ 122,204                          
 
                             
 
                               
Fiscal Six Months Ended June 30, 2010:
                               
Operating revenues (third-party)
  $ 1,951,069   $ 1,622,145   $ 328,924   $  
 
                       
EBITDA (4)
  $ 201,519     $ 185,393     $ 56,279     $ (40,153 )
 
                         
Add: Net income attributable to noncontrolling interests
    7,096                      
Less: Interest expense
    8,595                          
Less: Depreciation and amortization
    24,987                          
 
                             
Income before income taxes
    175,033                          
Less: Provision for income taxes
    37,019                          
 
                             
Net income
    138,014                          
Less: Net income attributable to noncontrolling interests
    7,096                          
 
                             
Net income attributable to Foster Wheeler AG
  $ 130,918                          
 
                             
 
                               
Fiscal Six Months Ended June 30, 2009:
                               
Operating revenues (third-party)
  $ 2,573,324   $ 1,982,883   $ 590,441   $  
 
                       
EBITDA (5)
  $ 267,546     $ 211,910     $ 102,563     $ (46,927 )
 
                         
Add: Net income attributable to noncontrolling interests
    6,639                      
Less: Interest expense
    5,469                          
Less: Depreciation and amortization
    21,446                          
 
                             
Income before income taxes
    247,270                          
Less: Provision for income taxes
    45,564                          
 
                             
Net income
    201,706                          
Less: Net income attributable to noncontrolling interests
    6,639                          
 
                             
Net income attributable to Foster Wheeler AG
  $ 195,067                          
 
                             

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(1)   Includes general corporate income and expense, our captive insurance operation and the elimination of transactions and balances related to intercompany interest.
 
(2)   Includes in the fiscal quarter ended June 30, 2010: increased contract profit of $8,600 from the regular revaluation of final estimated contract profit*: $8,100 in our Global E&C Group and $500 in our Global Power Group; and a net provision of $2,344 in our C&F Group on the revaluation of our asbestos liability and related asset**.
 
(3)   Includes in the fiscal quarter ended June 30, 2009: increased contract profit of $20,200 from the regular revaluation of the final estimated contract profit*: $18,000 in our Global E&C Group and $2,200 in our Global Power Group; and a net provision of $1,756 in our C&F Group on the revaluation of our asbestos liability and related asset**.
 
(4)   Includes in the fiscal six months ended June 30, 2010: increased contract profit of $33,700 from the regular revaluation of final estimated contract profit*: $25,200 in our Global E&C Group and $8,500 in our Global Power Group; a $20,086 curtailment gain in our Global E&C Group on the closure of the U.K. pension plan for future defined benefit accrual; and a net provision of $1,597 in our C&F Group on the revaluation of our asbestos liability and related asset**.
 
(5)   Includes in the fiscal six months ended June 30, 2009: increased contract profit of $26,200 from the regular revaluation of final estimated contract profit*: $24,500 in our Global E&C Group and $1,700 in our Global Power Group; and a net provision of $3,506 in our C&F Group on the revaluation of our asbestos liability and related asset**.
 
*   Please refer to “Revenue Recognition on Long-Term Contracts” in Note 1 for further information regarding changes in our final estimated contract profit.
 
**   Please refer to Note 12 for further information regarding the revaluation of our asbestos liability and related asset.
          The accounting policies of our business segments are the same as those described in our summary of significant accounting policies. The only significant intersegment transactions relate to interest on intercompany balances. We account for interest on those arrangements as if they were third party transactions—i.e. at current market rates, and we include the elimination of that activity in the results of the C&F Group.
          Operating revenues by industry were as follows:
                                 
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
Operating Revenues (Third-Party) by Industry:   2010     2009     2010     2009  
Power generation
  $ 145,782     $ 261,859     $ 300,962     $ 561,156  
Oil refining
    391,860       366,879       707,698       666,994  
Pharmaceutical
    11,894       19,234       24,491       34,604  
Oil and gas
    301,574       304,541       599,196       594,407  
Chemical/petrochemical
    118,663       320,642       250,770       653,682  
Power plant operation and maintenance
    26,857       27,816       51,179       51,909  
Environmental
    3,477       2,886       6,601       6,682  
Other, net of eliminations
    5,389       4,944       10,172       3,890  
 
                       
Total
  $ 1,005,496     $ 1,308,801     $ 1,951,069     $ 2,573,324  
 
                       
12. Litigation and Uncertainties
Asbestos
          Some of our U.S. and U.K. subsidiaries are defendants in numerous asbestos-related lawsuits and out-of-court informal claims pending in the United States and the United Kingdom. Plaintiffs claim damages for personal injury alleged to have arisen from exposure to or use of asbestos in connection with work allegedly performed by our subsidiaries during the 1970s and earlier.

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          United States
          A summary of our U.S. claim activity is as follows:
                                 
    Number of Claims  
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
    2010     2009     2010     2009  
Open claims at beginning of year
    125,430       131,010       125,100       130,760  
New claims
    1,000       1,040       2,210       2,340  
Claims resolved
    (3,940 )     (1,550 )     (4,820 )     (2,600 )
 
                       
Open claims at end of period
    122,490       130,500       122,490       130,500  
 
                       
          We had the following U.S. asbestos-related assets and liabilities recorded on our consolidated balance sheet as of the dates set forth below. Total U.S. asbestos-related liabilities are estimated through the fiscal second quarter of 2025. Although it is likely that claims will continue to be filed after that date, the uncertainties inherent in any long-term forecast prevent us from making reliable estimates of the indemnity and defense costs that might be incurred after that date.
                 
    June 30,     December 31,  
    2010     2009  
Asbestos-related assets recorded within:
               
Accounts and notes receivable-other
  $ 53,700     $ 65,600  
Asbestos-related insurance recovery receivable
    200,100       208,400  
 
           
Total asbestos-related assets
  $ 253,800     $ 274,000  
 
           
 
               
Asbestos-related liabilities recorded within:
               
Accrued expenses
  $ 57,400     $ 59,800  
Asbestos-related liability
    293,900       316,700  
 
           
Total asbestos-related liabilities
  $ 351,300     $ 376,500  
 
           
          Since fiscal year-end 2004, we have worked with Analysis, Research & Planning Corporation, or ARPC, nationally recognized consultants in the United States with respect to projecting asbestos liabilities, to estimate the amount of asbestos-related indemnity and defense costs at year-end for the next 15 years. Since that time, we have recorded our estimated asbestos liability at a level consistent with ARPC’s reasonable best estimate. Based on its review of fiscal year 2009 activity, ARPC recommended that the assumptions used to estimate our future asbestos liability be updated as of fiscal year end 2009. Accordingly, we developed a revised estimate of our aggregate indemnity and defense costs through fiscal year end 2024 considering the advice of ARPC. In fiscal year 2009, we revalued our liability for asbestos indemnity and defense costs through fiscal year end 2024 to $376,500, which brought our liability to a level consistent with ARPC’s reasonable best estimate. Our estimated asbestos liability decreased during the fiscal six months ended June 30, 2010 as a result of payments totaling approximately $34,000, partially offset by an increase of $8,800 related to the rolling 15-year asbestos-related liability estimate.
          The amount paid for asbestos litigation, defense and case resolution was $18,500 and $34,000 for the fiscal quarter and six months ended June 30, 2010, respectively, and $13,400 and $34,000 for the fiscal quarter and six months ended June 30, 2009, respectively. During the fiscal quarter and six months ended June 30, 2010, we had net cash outflows of approximately $200 and $6,600, respectively, resulting from asbestos liability indemnity and defense costs payments in excess of insurance settlement proceeds. During the fiscal quarter and six months ended June 30, 2009, we had net cash outflows of approximately $10,800 and $17,200, respectively, resulting from asbestos liability indemnity and defense costs payments in excess of insurance settlement proceeds. Through June 30, 2010, total cumulative indemnity costs paid were approximately $714,200 and total cumulative defense costs paid were approximately $327,600.
          As of June 30, 2010, total asbestos-related liabilities were comprised of an estimated liability of $129,900 relating to open (outstanding) claims being valued and an estimated liability of $221,400 relating to future unasserted claims through the fiscal second quarter of 2025.

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          Our liability estimate is based upon the following information and/or assumptions: number of open claims, forecasted number of future claims, estimated average cost per claim by disease type — mesothelioma, lung cancer and non-malignancies — and the breakdown of known and future claims into disease type — mesothelioma, lung cancer or non-malignancies. The total estimated liability, which has not been discounted for the time value of money, includes both the estimate of forecasted indemnity amounts and forecasted defense costs. Total defense costs and indemnity liability payments are estimated to be incurred through the fiscal second quarter of 2025, during which period the incidence of new claims is forecasted to decrease each year. We believe that it is likely that there will be new claims filed after the fiscal second quarter of 2025, but in light of uncertainties inherent in long-term forecasts, we do not believe that we can reasonably estimate the indemnity and defense costs that might be incurred after the fiscal second quarter of 2025. Historically, defense costs have represented approximately 31.4% of total defense and indemnity costs.
          The overall historic average combined indemnity and defense cost per resolved claim through June 30, 2010 has been approximately $2.9. The average cost per resolved claim is increasing and we believe it will continue to increase in the future.
          The asbestos-related asset recorded within accounts and notes receivable-other as of June 30, 2010 reflects amounts due in the next 12 months under executed settlement agreements with insurers and does not include any estimate for future settlements. The recorded asbestos-related insurance recovery receivable includes an estimate of recoveries from insurers in the unsettled insurance coverage litigation (referred to below) based upon the application of New Jersey law to certain insurance coverage issues and assumptions relating to cost allocation and other factors as well as an estimate of the amount of recoveries under existing settlements with other insurers. Such amounts have not been discounted for the time value of money.
          Since fiscal year-end 2005, we have worked with Peterson Risk Consulting LLC, nationally recognized experts in the United States with respect to the estimation of insurance recoveries, to review our estimate of the value of the settled insurance asset and assist in the estimation of our unsettled asbestos insurance asset. Based on insurance policy data, historical claim data, future liability estimates including the expected timing of payments and allocation methodology assumptions we provided them, Peterson Risk Consulting LLC provided an analysis of the unsettled insurance asset as of December 31, 2009. We utilized that analysis to determine our estimate of the value of the unsettled insurance asset as of June 30, 2010.
          As of June 30, 2010, we estimated the value of our unsettled asbestos insurance asset related to ongoing litigation in New York state court with our subsidiaries’ insurers at $3,700. The litigation relates to the amounts of insurance coverage available for asbestos-related claims and the proper allocation of the coverage among our subsidiaries’ various insurers and our subsidiaries as self-insurers. We believe that any amounts that our subsidiaries might be allocated as self-insurer would be immaterial.
          An adverse outcome in the pending insurance litigation described above could limit our remaining insurance recoveries and result in a reduction in our insurance asset. However, a favorable outcome in all or part of the litigation could increase remaining insurance recoveries above our current estimate. If we prevail in whole or in part in the litigation, we will re-value our asset relating to remaining available insurance recoveries based on the asbestos liability estimated at that time.
          Over the last several years, certain of our subsidiaries have entered into settlement agreements calling for insurers to make lump-sum payments, as well as payments over time, for use by our subsidiaries to fund asbestos-related indemnity and defense costs and, in certain cases, for reimbursement for portions of out-of-pocket costs previously incurred.
          During the fiscal six months ended June 30, 2010, our subsidiaries reached agreements to settle their disputed asbestos-related insurance coverage with two additional insurers. As a result of these settlements, we increased our asbestos-related insurance asset and recorded gains of $3,000 and $7,000, respectively in the fiscal quarter and six months ended June 30, 2010.
          We intend to continue to attempt to negotiate additional settlements with insurers where achievable on a reasonable basis in order to minimize the amount of future costs that we would be required to fund out of the cash flows generated from our operations. Unless we settle with the remaining insurers at recovery amounts significantly in excess of our current estimate, it is likely that the amount of our insurance settlements will not cover all future asbestos-related costs and we will be required to fund a portion of such future costs, which will reduce our cash flows and working capital.

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          In fiscal year 2006, we were successful in our appeal of a New York state trial court decision that previously had held that New York, rather than New Jersey, law applies in the above coverage litigation with our subsidiaries’ insurers, and as a result, we increased our insurance asset and recorded a gain of $19,500. On February 13, 2007, our subsidiaries’ insurers were granted permission by the appellate court to appeal the decision to the New York Court of Appeals, the state’s highest court. On October 11, 2007, the New York Court of Appeals upheld the appellate court decision in our favor.
          Even if the coverage litigation is resolved in a manner favorable to us, our insurance recoveries (both from the litigation and from settlements) may be limited by insolvencies among our insurers. We have not assumed recovery in the estimate of our asbestos insurance asset from any of our currently insolvent insurers. Other insurers may become insolvent in the future and our insurers may fail to reimburse amounts owed to us on a timely basis. Failure to realize the expected insurance recoveries, or delays in receiving material amounts from our insurers, could have a material adverse effect on our financial condition and our cash flows.
          Based on the fiscal year-end 2009 liability estimate, an increase of 25% in the average per claim indemnity settlement amount would increase the liability by $57,500 and the impact on expense would be dependent upon available additional insurance recoveries. Assuming no change to the assumptions currently used to estimate our insurance asset, this increase would result in a charge in the statement of operations in the range of approximately 70% to 80% of the increase in the liability. Long-term cash flows would ultimately change by the same amount. Should there be an increase in the estimated liability in excess of this 25%, the percentage of that increase that would be expected to be funded by additional insurance recoveries will decline.
          During the fiscal quarter and six months ended June 30, 2010, we recognized net provisions of $2,344 and $1,597, respectively, on the revaluation of our asbestos liability and related asset resulting from the gain of $3,000 and $7,000, respectively, on the settlement of coverage litigation with asbestos insurance carriers, as noted above, partially offset by increases in our provision related to the revaluation of our asbestos liability and related asset resulting from our rolling 15-year asbestos liability estimate.
          During the fiscal quarter and six months ended June 30, 2010, we had net cash outflows of approximately $200 and $6,600, respectively, resulting from asbestos liability indemnity and defense costs payments in excess of insurance settlement proceeds. We expect to have net cash inflows of $7,900 as a result of insurance settlement proceeds in excess of the asbestos liability indemnity and defense costs for the full fiscal year 2010. This estimate assumes no additional settlements with insurance companies or elections by us to fund additional payments. As we continue to collect cash from insurance settlements and assuming no increase in our asbestos-related insurance liability or any future insurance settlements, the asbestos-related insurance receivable recorded on our consolidated balance sheet will continue to decrease.
          The estimate of the liabilities and assets related to asbestos claims and recoveries is subject to a number of uncertainties that may result in significant changes in the current estimates. Among these are uncertainties as to the ultimate number and type of claims filed, the amounts of claim costs, the impact of bankruptcies of other companies with asbestos claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, as well as potential legislative changes. Increases in the number of claims filed or costs to resolve those claims could cause us to increase further the estimates of the costs associated with asbestos claims and could have a material adverse effect on our financial condition, results of operations and cash flows.

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          United Kingdom
          Some of our subsidiaries in the United Kingdom have also received claims alleging personal injury arising from exposure to asbestos. To date, 950 claims have been brought against our U.K. subsidiaries of which 289 remained open as of June 30, 2010. None of the settled claims has resulted in material costs to us.
          As of June 30, 2010, we recorded total liabilities of $33,200 comprised of an estimated liability relating to open (outstanding) claims of $5,500 and an estimated liability relating to future unasserted claims through the fiscal second quarter of 2025 of $27,700. Of the total, $3,200 was recorded in accrued expenses and $30,000 was recorded in asbestos-related liability on the consolidated balance sheet. An asset in an equal amount was recorded for the expected U.K. asbestos-related insurance recoveries, of which $3,200 was recorded in accounts and notes receivable-other and $30,000 was recorded as asbestos-related insurance recovery receivable on the consolidated balance sheet. The liability estimates are based on a U.K. House of Lords judgment that pleural plaque claims do not amount to a compensable injury and accordingly, we have reduced our liability assessment. If this ruling is reversed by legislation, the total asbestos liability and related asset recorded in the U.K. would be approximately $50,500.
Project Claims
          In the ordinary course of business, we are parties to litigation involving clients and subcontractors arising out of project contracts. Such litigation includes claims and counterclaims by and against us for canceled contracts, for additional costs incurred in excess of current contract provisions, as well as for back charges for alleged breaches of warranty and other contract commitments. If we were found to be liable for any of the claims/counterclaims against us, we would incur a charge against earnings to the extent a reserve had not been established for the matter in our accounts or if the liability exceeds established reserves.
          Due to the inherent commercial, legal and technical uncertainties underlying the estimation of all of the project claims described herein, the amounts ultimately realized or paid by us could differ materially from the balances, if any, included in our financial statements, which could result in additional material charges against earnings, and which could also materially adversely impact our financial condition and cash flows.
          Power Plant Dispute — Ireland
          In 2006, a dispute arose with a client because of material corrosion that occurred at two power plants we designed and built in Ireland, which began operation in December 2005 and June 2006. There was also corrosion that occurred to subcontractor-provided emissions control equipment and induction fans at the back-end of the power plants which is due principally to the low set point temperature design of the emissions control equipment that was set by our subcontractor. We have identified technical solutions to resolve the boiler tube corrosion and emissions control equipment corrosion and during the fiscal fourth quarter of 2008 entered into a settlement with the client under which we are implementing the technical solutions in exchange for a full release of all claims related to the corrosion (including a release from the client’s right under the original contract to reject the plants under our availability guaranty) and the client’s agreement to share the cost of the ameliorative work related to the boiler tube corrosion. Accordingly, the client withdrew its notice of arbitration in January 2009, which was originally filed in May 2008.
          Between fiscal year 2006 and the end of fiscal year 2008, we recorded charges totaling $61,700 in relation to this project. The implementation of the technical solutions is anticipated to be completed in 2011.
          Power Plant Arbitration — North America
          In January 2010, we commenced arbitration against our client in connection with a power plant project in Louisiana seeking, among other relief, a declaration as to our rights under our purchase order with respect to $17,800 in retention monies and an $82,000 letter of credit held by the client. The purchase order was for the supply of two boilers and ancillary equipment for the project. The project was substantially completed and released for commercial operation in February 2010. Our client is the project’s engineering, procurement and construction contractor. Under the terms of the purchase order, significant reductions to the retention and letter of credit monies are to occur upon the project’s achievement of substantial completion, which has been delayed due to failures on our client’s part to properly manage and execute the project. The client has taken the position that we are responsible for the project’s delays and, subsequent to service of our arbitration demand, has served its own arbitration demand, seeking to assess us with all associated late substantial completion liquidated damages under our purchase order, together with liquidated damages for alleged late material and equipment deliveries, and back charges for corrective work and other damages arising out of allegedly defective materials and equipment delivered by us. The client contends it is owed in

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excess of $69,000 under our purchase order as a result of our alleged failures. There is a risk that the client will attempt to call all or part of the letter of credit during the pendency of the proceeding. We are of the opinion that any such call would be wrongful and entitle us to seek return of the funds and any other damages arising out of the call. We cannot predict the ultimate outcome of this dispute at this time.
          Camden County Waste-to-Energy Project
          One of our project subsidiaries, Camden County Energy Recovery Associates, LP (“CCERA”) owns and operates a waste-to-energy facility in Camden County, New Jersey (the “Project”). The Pollution Control Finance Authority of Camden County (“PCFA”) issued bonds to finance the construction of the Project and to acquire a landfill for Camden County’s use. Pursuant to a loan agreement between the PCFA and CCERA, proceeds from the bonds were loaned by the PCFA to CCERA and used by CCERA to finance the construction of the facility. Accordingly, the proceeds of this loan were recorded as debt on CCERA’s balance sheet and, therefore, are included in our consolidated balance sheet. CCERA’s obligation to service the debt incurred pursuant to the loan agreement is limited to depositing all tipping fees and electric revenues received with the trustee of the PCFA bonds. The trustee is required to pay CCERA its service fees prior to servicing the PCFA bonds. CCERA has no other debt repayment obligations under the loan agreement with the PCFA.
          In 1997, the United States Supreme Court effectively invalidated New Jersey’s long-standing municipal solid waste flow rules and regulations, eliminating the guaranteed supply of municipal solid waste to the Project with its corresponding tipping fee revenue. As a result, tipping fees have been reduced to market rate in order to provide a steady supply of fuel to the Project. Since the ruling, those market-based revenues have not been, and are not expected to be, sufficient to service the debt on outstanding bonds issued by the PCFA to finance the construction of the Project.
          In 1998, CCERA filed suit against the PCFA and other parties seeking, among other things, to void the applicable contracts and agreements governing the Project (Camden County Energy Recovery Assoc. v. N.J. Department of Environmental Protection, et al., Superior Court of New Jersey, Mercer County, L-268-98). Since 1999, the State of New Jersey has provided subsidies sufficient to ensure the payment of each of the PCFA’s debt service payments as they became due, but the State’s current appropriations act includes an appropriation that appears insufficient to make the full debt service payment due in December 2010. The bonds outstanding in connection with the Project were issued by the PCFA, not by us or CCERA, and the bonds are not guaranteed by either us or CCERA. In the litigation, the defendants have asserted, among other things, that an equitable portion of the outstanding debt on the Project should be allocated to CCERA even though CCERA did not guarantee the bonds.
          At this time, we cannot determine the ultimate outcome of the foregoing and the potential effects on CCERA and the Project. If the State of New Jersey were to fail to subsidize the debt service, and there were to be a default on a debt service payment, the bondholders might proceed to attempt to exercise their remedies, by among other things, seizing the collateral securing the bonds. We do not believe this collateral includes CCERA’s plant.
Environmental Matters
          CERCLA and Other Remedial Matters
          Under U.S. federal statutes, such as the Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), the Clean Water Act and the Clean Air Act, and similar state laws, the current owner or operator of real property and the past owners or operators of real property (if disposal of toxic or hazardous substances took place during such past ownership or operation) may be jointly and severally liable for the costs of removal or remediation of toxic or hazardous substances on or under their property, regardless of whether such materials were released in violation of law or whether the owner or operator knew of, or was responsible for, the presence of such substances. Moreover, under CERCLA and similar state laws, persons who arrange for the disposal or treatment of hazardous or toxic substances may also be jointly and severally liable for the costs of the removal or remediation of such substances at a disposal or treatment site, whether or not such site was owned or operated by such person, which we refer to as an off-site facility. Liability at such off-site facilities is typically allocated among all of the financially viable responsible parties based on such factors as the relative amount of waste contributed to a site, toxicity of such waste, relationship of the waste contributed by a party to the remedy chosen for the site and other factors.
          We currently own and operate industrial facilities and we have also transferred our interests in industrial facilities that we formerly owned or operated. It is likely that as a result of our current or former operations,

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hazardous substances have affected the facilities or the real property on which they are or were situated. We also have received and may continue to receive claims pursuant to indemnity obligations from the present owners of facilities we have transferred, which claims may require us to incur costs for investigation and/or remediation.
          We are currently engaged in the investigation and/or remediation under the supervision of the applicable regulatory authorities at two of our or our subsidiaries’ former facilities (including Mountain Top, which is described below). In addition, we sometimes engage in investigation and/or remediation without the supervision of a regulatory authority. Although we do not expect the environmental conditions at our present or former facilities to cause us to incur material costs in excess of those for which reserves have been established, it is possible that various events could cause us to incur costs materially in excess of our present reserves in order to fully resolve any issues surrounding those conditions. Further, no assurance can be provided that we will not discover additional environmental conditions at our currently or formerly owned or operated properties, or that additional claims will not be made with respect to formerly owned properties, requiring us to incur material expenditures to investigate and/or remediate such conditions.
          We have been notified that we are a potentially responsible party (“PRP”) under CERCLA or similar state laws at three off-site facilities. At each of these sites, our liability should be substantially less than the total site remediation costs because the percentage of waste attributable to us compared to that attributable to all other PRPs is low. We do not believe that our share of cleanup obligations at any of the off-site facilities as to which we have received a notice of potential liability will exceed $500 in the aggregate. We have also received and responded to a request for information from the United States Environmental Protection Agency (“USEPA”) regarding a fourth off-site facility. We do not know what, if any, further actions USEPA may take regarding this fourth off-site facility.
          Mountain Top
          In February 1988, one of our subsidiaries, Foster Wheeler Energy Corporation (“FWEC”), entered into a Consent Agreement and Order with the USEPA and the Pennsylvania Department of Environmental Protection (“PADEP”) regarding its former manufacturing facility in Mountain Top, Pennsylvania. The order essentially required FWEC to investigate and remediate as necessary contaminants, including trichloroethylene (“TCE”), in the soil and groundwater at the facility. Pursuant to the order, in 1993 FWEC installed a “pump and treat” system to remove TCE from the groundwater. It is not possible at the present time to predict how long FWEC will be required to operate and maintain this system.
          In the fall of 2004, FWEC sampled the private domestic water supply wells of certain residences in Mountain Top and identified approximately 30 residences whose wells contained TCE at levels in excess of Safe Drinking Water Act standards. The subject residences are located approximately one mile to the southwest of where the TCE previously was discovered in the soils at the former FWEC facility. Since that time, FWEC, USEPA, and PADEP have cooperated in responding to the foregoing. Although FWEC believed the evidence available was not sufficient to support a determination that FWEC was responsible for the TCE in the residential wells, FWEC immediately provided the affected residences with bottled water, followed by water filters, and, pursuant to a settlement agreement with USEPA, it hooked them up to the public water system. Pursuant to an amendment of the settlement agreement, FWEC subsequently agreed with USEPA to arrange and pay for the hookup of approximately five additional residences, even though TCE has not been detected in the wells at those residences. FWEC is incurring costs related to public outreach and communications in the affected area, and it may be required to pay the agencies’ costs in overseeing and responding to the situation. FWEC is also incurring further costs in connection with a Remedial Investigation / Feasibility Study (“RI/FS”) that in March 2009 it agreed to conduct. In April 2009, USEPA proposed for listing on the National Priorities List (“NPL”) an area consisting of its former manufacturing facility and the affected residences, but it also stated that the proposed listing may not be finalized if FWEC complies with its agreement to conduct the RI/FS. FWEC submitted comments opposing the proposed listing. FWEC has accrued its best estimate of the cost of the foregoing and it reviews this estimate on a quarterly basis.
          Other costs to which FWEC could be exposed could include, among other things, FWEC’s counsel and consulting fees, further agency oversight and/or response costs, costs and/or exposure related to potential litigation, and other costs related to possible further investigation and/or remediation. At present, it is not possible to determine whether FWEC will be determined to be liable for some or all of the items described in this paragraph or to reliably estimate the potential liability associated with the items. If one or more third-parties are determined to be a source of the TCE, FWEC will evaluate its options regarding the potential recovery of the costs FWEC has incurred, which options could include seeking to recover those costs from those determined to be a source.

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          Other Environmental Matters
          Our operations, especially our manufacturing and power plants, are subject to comprehensive laws adopted for the protection of the environment and to regulate land use. The laws of primary relevance to our operations regulate the discharge of emissions into the water and air, but can also include hazardous materials handling and disposal, waste disposal and other types of environmental regulation. These laws and regulations in many cases require a lengthy and complex process of obtaining licenses, permits and approvals from the applicable regulatory agencies. Noncompliance with these laws can result in the imposition of material civil or criminal fines or penalties. We believe that we are in substantial compliance with existing environmental laws. However, no assurance can be provided that we will not become the subject of enforcement proceedings that could cause us to incur material expenditures. Further, no assurance can be provided that we will not need to incur material expenditures beyond our existing reserves to make capital improvements or operational changes necessary to allow us to comply with future environmental laws.
          With regard to the foregoing, the waste-to-energy facility operated by our CCERA project subsidiary is subject to certain revisions to New Jersey’s mercury air emission regulations. The revisions make CCERA’s mercury control requirements more stringent, especially when the last phase of the revisions becomes effective in 2012. CCERA’s management believes that the data generated during recent stack testing tends to indicate that the facility will be able to comply with even the most stringent of the regulatory revisions without installing additional control equipment. Even if the equipment had to be installed, CCERA could assert that the project’s sponsor would be responsible to pay for the equipment. However, the sponsor may not have sufficient funds to do so or may assert that it is not so responsible. Estimates of the cost of installing the additional control equipment are approximately $30,000 based on our last assessment.
          In June 2010, CCERA received an Administrative Order of Revocation and Notice of Civil Administrative Penalty Assessment from the New Jersey Department of Environmental Protection (“NJDEP”). The Administrative Order alleged that CCERA had violated its permit emission limit for total PM-10, particulate matter 10 micrometers or less, during its March 2010 annual stack testing (8.08 pounds per hour against a permit limit of 7.02 pounds per hour), and it provided for the revocation of the permit to operate CCERA’s Unit A, one of CCERA’s three units. CCERA re-tested Unit A on June 22, 2010, and the re-test results indicate that the PM-10 emissions were well below its permit limit. In response to CCERA’s request for a hearing and a stay of the revocation order, NJDEP, on July 8, 2010, agreed to stay the revocation of the above-described permit until October 15, 2010. Management intends to seek rescission of the revocation by NJDEP, but, at present, there can be no assurance that NJDEP will agree to rescind the revocation, and management cannot predict what impact the foregoing might have on CCERA.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (amounts in thousands of dollars, except share data and per share amounts)
          The following is management’s discussion and analysis of certain significant factors that have affected our financial condition and results of operations for the periods indicated below. This discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in this quarterly report on Form 10-Q and our annual report on Form 10-K for the fiscal year ended December 31, 2009, which we refer to as our 2009 Form 10-K.
Safe Harbor Statement
          This management’s discussion and analysis of financial condition and results of operations, other sections of this quarterly report on Form 10-Q and other reports and oral statements made by our representatives from time to time may contain forward-looking statements that are based on our assumptions, expectations and projections about Foster Wheeler AG and the various industries within which we operate. These include statements regarding our expectations about revenues (including as expressed by our backlog), our liquidity, the outcome of litigation and legal proceedings and recoveries from customers for claims and the costs of current and future asbestos claims and the amount and timing of related insurance recoveries. Such forward-looking statements by their nature involve a degree of risk and uncertainty. We caution that a variety of factors, including but not limited to the factors described in Part I, Item 1A, “Risk Factors,” in our 2009 Form 10-K, which we filed with the Securities and Exchange Commission, or SEC, on February 25, 2010, and the following, could cause business conditions and our results to differ materially from what is contained in forward-looking statements:
    benefits, effects or results of our redomestication or the relocation of our principal executive offices to Geneva, Switzerland;
 
    further deterioration in the economic conditions in the United States and other major international economies;
 
    changes in investment by the oil and gas, oil refining, chemical/petrochemical and power generation industries;
 
    changes in the financial condition of our customers;
 
    changes in regulatory environments;
 
    changes in project design or schedules;
 
    contract cancellations;
 
    changes in our estimates of costs to complete projects;
 
    changes in trade, monetary and fiscal policies worldwide;
 
    compliance with laws and regulations relating to our global operations;
 
    currency fluctuations;
 
    war and/or terrorist attacks on facilities either owned by us or where equipment or services are or may be provided by us;
 
    interruptions to shipping lanes or other methods of transit;
 
    outcomes of pending and future litigation, including litigation regarding our liability for damages and insurance coverage for asbestos exposure;
 
    protection and validity of our patents and other intellectual property rights;
 
    increasing competition by non-U.S. and U.S. companies;
 
    compliance with our debt covenants;

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    recoverability of claims against our customers and others by us and claims by third parties against us; and
 
    changes in estimates used in our critical accounting policies.
          Other factors and assumptions not identified above were also involved in the formation of these forward-looking statements and the failure of such other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us.
          In addition, this management’s discussion and analysis of financial condition and results of operations contains several statements regarding current and future general global economic conditions. These statements are based on our compilation of economic data and analyses from a variety of external sources. While we believe these statements to be reasonably accurate, global economic conditions are difficult to analyze and predict and are subject to significant uncertainty and as a result, these statements may prove to be wrong. The challenges and drivers for each of our business segments are discussed in more detail in the section entitled “—Results of Operations-Business Segments,” within this Item 2.
          We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any additional disclosures we make in proxy statements, quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K filed with the SEC.
Overview
          We operate through two business groups — the Global Engineering & Construction Group, which we refer to as our Global E&C Group, and our Global Power Group. In addition to these two business groups, we also report corporate center expenses, our captive insurance operation and expenses related to certain legacy liabilities, such as asbestos, in the Corporate and Finance Group, which we refer to as the C&F Group.
          Since fiscal year 2007, we have been exploring, and intend to continue to explore, acquisitions within the engineering and construction industry to strategically complement or expand on our technical capabilities or access to new market segments. We are also exploring acquisitions within the power generation industry to complement our Global Power Group product offering. However, there is no assurance that we will consummate any acquisitions in the future.
          During fiscal year 2009, we acquired substantially all of the assets of the offshore engineering division of OPE Holdings Ltd., a Canadian company that is listed on the TSX Venture Exchange and which we refer to as OPE, and we acquired substantially all of the assets of the Houston operations of Atlas Engineering, Inc., a privately held company. Both of these acquisitions expand our Global E&C Group’s upstream oil and gas engineering services capabilities.

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     Results for the Fiscal Second Quarter and Six Months ended June 30, 2010
          Our summary financial results for the fiscal quarter and six months ended June 30, 2010 and 2009 are as follows:
                                 
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,     June 30,     June 30,  
    2010     2009     2010     2009  
Consolidated Statement of Operations Data:
                               
Operating revenues (1)
  $ 1,005,496     $ 1,308,801     $ 1,951,069     $ 2,573,324  
Contract profit (1)
    147,860       219,959       319,942       382,711  
Selling, general and administrative expenses (1)
    69,515       69,024       139,820       138,272  
Net income attributable to Foster Wheeler AG
    58,858       122,204       130,918       195,067  
Earnings per share :
                               
Basic
    0.46       0.97       1.03       1.54  
Diluted
    0.46       0.96       1.02       1.54  
Net cash provided by operating activities (2)
                    51,325       93,954  
 
(1)   Please refer to the section entitled “—Results of Operations” within this Item 2 for further discussion.
 
(2)   Please refer to the section entitled “—Liquidity and Capital Resources” within this Item 2 for further discussion.
          Our cash and cash equivalents were $973,900 and $997,200 as of June 30, 2010 and December 31, 2009, respectively.
          Net income attributable to Foster Wheeler AG decreased in the fiscal second quarter of 2010, compared to the same period of 2009, primarily as a result of decreased contract profit. Please refer to the discussion within the section entitled “—Results of Operations” within this Item 2.
          Net income attributable to Foster Wheeler AG decreased in the fiscal six months ended June 30, 2010, compared to the same period of 2009, primarily as a result of decreased contract profit and an increase in our effective tax rate, partially offset by a curtailment gain related to our U.K. pension plan that has been closed for future benefit accrual. Please refer to the discussion within the section entitled “—Results of Operations” within this Item 2.
          Challenges and Drivers
          Our primary operating focus continues to be booking quality new business and executing our contracts well. The global markets in which we operate are largely dependent on overall economic growth and the resultant demand for oil and gas, electric power, petrochemicals and refined products.
          In our Global E&C business, we expect long-term demand to be strong for the end products produced by our clients, and to continue to stimulate investment by our clients in new and expanded plants. The global economic downturn experienced in 2008 and 2009 caused many of our E&C clients to reevaluate the size, timing and scope of their capital spending plans in relation to the kinds of energy, petrochemical and pharmaceutical projects that we execute, but as the global economic outlook continues to improve, we have noted signs of market improvement. We are seeing increasing numbers of our clients implementing their 2010 capital spending plans. A number of these clients are, however, releasing tranches of work on a piecemeal basis, conducting further analysis before deciding to proceed with their investments or reevaluating the size, timing or configuration of specific planned projects. We are also seeing clients re-activating planned projects that were placed on hold in 2009. The challenges and drivers for our Global E&C Group are discussed in more detail in the section entitled “—Results of Operations-Business Segments-Global E&C Group-Overview of Segment,” within this Item 2.

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          In our Global Power Group business, new order activity has been unfavorably affected by several trends which began in fiscal year 2008 and have continued through fiscal year 2010. We believe, however, that demand for new solid-fuel steam generators has begun to improve in fiscal year 2010, driven primarily by growing electricity demand and industrial production as economies around the world recover from the recent global economic downturn. The challenges and drivers for our Global Power Group are discussed in more detail in the section entitled “—Results of Operations-Business Segments-Global Power Group-Overview of Segment,” within this Item 2.
     New Orders and Backlog of Unfilled Orders
                         
    Fiscal Quarters Ended  
    June 30,     March 31,     June 30,  
    2010     2010     2009  
New orders, measured in future revenues
  $ 935,600     $ 938,500     $ 933,800  
                         
    As of  
    June 30,     March 31,     December 31,  
    2010     2010     2009  
Backlog of unfilled orders, measured in future revenues
  $ 3,713,300     $ 4,027,800     $ 4,112,800  
Backlog, measured in Foster Wheeler scope*
  $ 2,229,800     $ 2,306,700     $ 2,068,600  
E&C man-hours in backlog (in thousands)
    14,100       13,500       12,700  
 
*   As defined in the section entitled “—Backlog and New Orders” within this Item 2.
          Our Global E&C Group’s new orders, measured in future revenues, were $770,800 in the fiscal second quarter of 2010, which increased compared to $476,300 in the fiscal first quarter of 2010 and decreased compared to $847,700 in the fiscal second quarter of 2009. These new orders are inclusive of flow-through revenues, as defined below, of $283,200, $58,100 and $335,700 for the fiscal second quarter of 2010, fiscal first quarter of 2010 and fiscal second quarter of 2009, respectively.
          Our Global Power Group’s new orders were $164,800 in the fiscal second quarter of 2010, which decreased compared to $462,200 in the fiscal first quarter of 2010 and increased compared to $86,100 in the fiscal second quarter of 2009.
          The challenges and drivers for our Global E&C Group and our Global Power Group are discussed in more detail in the section entitled “—Business Segments,” within this Item 2.
Results of Operations:
     Operating Revenues:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 1,005,496     $ 1,308,801     $ (303,305 )     (23.2 )%
Fiscal Six Months Ended
  $ 1,951,069     $ 2,573,324     $ (622,255 )     (24.2 )%
          We operate through two business groups: our Global E&C Group and our Global Power Group. Please refer to the section entitled “—Business Segments,” within this Item 2, for a discussion of the products and services of our business segments.
          The composition of our operating revenues varies from period to period based on the portfolio of contracts in execution during any given period. Our operating revenues are therefore dependent on our portfolio of contracts, the strength of the various geographic markets and industries we serve and our ability to address those markets and industries.

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          The geographic dispersion of our consolidated operating revenues for the fiscal quarter and six months ended June 30, 2010 and June 30, 2009 based upon where our projects are being executed, were as follows:
                                                                 
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,                     June 30,     June 30,              
    2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Asia
  $ 208,584     $ 439,102     $ (230,518 )     (52.5 )%   $ 421,215     $ 830,882     $ (409,667 )     (49.3 )%
Australasia and other*
    308,450       266,571       41,879       15.7 %     596,490       515,938       80,552       15.6 %
Europe
    223,439       286,445       (63,006 )     (22.0 )%     423,349       577,860       (154,511 )     (26.7 )%
Middle East
    51,515       110,164       (58,649 )     (53.2 )%     125,438       218,006       (92,568 )     (42.5 )%
North America
    150,268       157,761       (7,493 )     (4.7 )%     276,909       327,746       (50,837 )     (15.5 )%
South America
    63,240       48,758       14,482       29.7 %     107,668       102,892       4,776       4.6 %
 
                                               
Total
  $ 1,005,496     $ 1,308,801     $ (303,305 )     (23.2 )%   $ 1,951,069     $ 2,573,324     $ (622,255 )     (24.2 )%
 
                                               
 
*   Australasia and other primarily represents Australia, South Africa, New Zealand and the Pacific Islands.
          Our consolidated operating revenues declined in the fiscal quarter and six months ended June 30, 2010, compared to the same periods in fiscal year 2009. The declines in both periods were primarily the result of decreased flow-through revenues, as described below, and decreased volume of business in our Global Power Group. Our consolidated operating revenues decreased approximately 16% and 21%, respectively, excluding the impact of the change in flow-through revenues and foreign currency fluctuations in the fiscal quarter and six months ended June 30, 2010, compared to the same periods in 2009.
          Flow-through revenues and costs result when we purchase materials, equipment or third-party services on behalf of our customer on a reimbursable basis with no profit on the materials, equipment or third-party services and where we have the overall responsibility as the contractor for the engineering specifications and procurement or procurement services for the materials, equipment or third-party services included in flow-through costs. Flow-through revenues and costs do not impact contract profit or net earnings.
          Our Global E&C Group experienced decreases in operating revenues of 18% in both the fiscal quarter and six months ended June 30, 2010, compared to the same periods in 2009, which include the impact of decreased flow-through revenues in both periods. Excluding flow-through revenues, our Global E&C Group’s operating revenues decreased 6% in both the fiscal quarter and six months ended June 30, 2010, compared to the same periods in 2009. The decrease in the fiscal second quarter of 2010, compared to the same period in 2009, resulted from foreign currency fluctuations relative to the U.S. dollar, primarily driven by the British pound and Euro, and a decline in volume of business. The decrease in the fiscal six months ended June 30, 2010, compared to the same period in 2009, resulted from a decline in volume of business, while foreign currency fluctuations had a relatively minimal impact. Please refer to the section entitled “—Business Segments,” within this Item 2, for a discussion of our view of the market outlook for our Global E&C Group.
          Our Global Power Group experienced decreases in operating revenues of 41% and 44%, respectively, in the fiscal quarter and six months ended June 30, 2010, compared to the same periods in 2009, which was the result of decreased volume of business. Please refer to the section entitled “—Business Segments,” within this Item 2, for a discussion of our view of the market outlook for our Global Power Group.
     Contract Profit:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 147,860     $ 219,959     $ (72,099 )     (32.8 )%
Fiscal Six Months Ended
  $ 319,942     $ 382,711     $ (62,769 )     (16.4 )%
          Contract profit is computed as operating revenues less cost of operating revenues. “Flow-through” amounts are recorded both as operating revenues and cost of operating revenues with no contract profit. Contract profit margins are computed as contract profit divided by operating revenues. Flow-through revenues reduce the contract profit margin as they are included in operating revenues without any corresponding impact on contract profit. As a result, we analyze our contract profit margins excluding the impact of flow-through revenues as we believe that this is a more accurate measure of our operating performance.
          The decrease in our contract profit in the fiscal second quarter of 2010, compared to the same period in 2009, resulted from decreases in both our operating groups. Please refer to the section entitled “—Business Segments,” within this Item 2, for further information.

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          Both of our operating groups experienced decreased contract profit in the fiscal six months ended June 30, 2010, compared to the same period in 2009, which was partially offset by a curtailment gain of approximately $20,100 related to our U.K. pension plan that has been closed for future benefit accrual. Please refer to the section entitled “—Business Segments,” within this Item 2, for further information.
     Selling, General and Administrative (SG&A) Expenses:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 69,515     $ 69,024     $ 491       0.7 %
Fiscal Six Months Ended
  $ 139,820     $ 138,272     $ 1,548       1.1 %
          SG&A expenses include the costs associated with general management, sales pursuit, including proposal expenses, and research and development costs.
          The increase in SG&A expenses in the fiscal second quarter of 2010, compared to the same period in 2009, resulted primarily from an increase in general overhead costs of $2,300, which was partially offset by decreases in sales pursuit costs of $1,300 and research and development costs of $500.
          The increase in SG&A expenses in the fiscal six months ended June 30, 2010, compared to the same period in 2009, resulted primarily from an increase in sales pursuit costs of $1,900, which was partially offset by a decrease in research and development costs of $700, while general overhead costs were relatively unchanged.
     Other Income, net:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 11,419     $ 11,490     $ (71 )     (0.6 )%
Fiscal Six Months Ended
  $ 19,751     $ 19,693     $ 58       0.3 %
          Other income, net in the fiscal second quarter of 2010 consisted primarily of $4,800 in equity earnings generated from our investments, primarily from our ownership interests in build, own and operate projects in Italy and $2,400 of value-added tax refunds and other non-income tax credits. Other income, net was relatively unchanged in the fiscal second quarter of 2010, compared to the same period in 2009, which was the net result of decreases in equity earnings in our Global Power Group’s project in Chile of $4,000 and our Global E&C Group’s projects in Italy of $2,300, offset by other activities which included $1,700 of value-added tax refunds and other non-income tax credits.
          Other income, net in the fiscal six months ended June 30, 2010 consisted primarily of $11,300 in equity earnings generated from our investments, primarily from our ownership interests in build, own and operate projects in Italy and Chile and $3,200 of value-added tax refunds and other non-income tax credits. Other income, net was relatively unchanged in the fiscal six months ended June 30, 2010, compared to the same period in 2009. This was the net result of decreases in equity earnings in our Global Power Group’s project in Chile of $5,000 and our Global E&C Group’s projects in Italy of $1,300, offset by other activities including $2,500 of value-added tax refunds and other non-income tax credits.
          Our Global Power Group’s project in Chile experienced decreased equity earnings in the fiscal quarter and six months ended June 30, 2010, as compared to the same periods in 2009, as a result of the project facility’s suspension of normal operating activities since February 2010 due to significant damage caused by an earthquake that occurred off the coast of Chile on February 27, 2010. Our Global Power Group’s equity earnings assume an estimated recovery under a property damage insurance policy sufficient to repair the facility and an estimated recovery under a business interruption insurance policy for fixed costs until the facility becomes fully operational; however, in accordance with authoritative accounting guidance on business interruption insurance, there is currently no estimated recovery for lost profits. A claim for lost profits has recently been submitted to the insurance carrier of the project and we expect that the project will be able to record an estimate for lost profits as the claim is finalized. We believe the property damage insurance coverage in effect will be sufficient to cover the estimated costs of repairing the facility and to substantially compensate the project for the loss of profits while the facility has suspended operations until such time as normal operating activities can resume.

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     Other Deductions, net:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 8,049     $ 6,898     $ 1,151       16.7 %
Fiscal Six Months Ended
  $ 19,737     $ 12,985     $ 6,752       52.0 %
          Other deductions, net in the fiscal second quarter of 2010 consisted primarily of $6,400 of legal fees, $1,000 of bank fees and $700 of consulting fees.
          Other deductions, net in the fiscal second quarter of 2009 consisted primarily of $3,300 of legal fees, $1,400 of consulting fees, $900 of bank fees, a $500 provision for dispute resolution and environmental remediation costs, a $500 loss on the sale of fixed assets and a net $500 in tax penalties, which included $200 of previously accrued tax penalties that were ultimately not assessed, partially offset by $800 of net foreign exchange gains. Net foreign exchange gains include the net amount of transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of our subsidiaries.
          Other deductions, net in the fiscal six months ended June 30, 2010 consisted primarily of $9,900 of legal fees, $4,600 of net foreign exchange transaction losses, $2,200 of consulting fees and $1,900 of bank fees, partially offset by a net reduction in tax penalties of $100, which included $1,400 of previously accrued tax penalties that were ultimately not assessed. The net foreign exchange transaction losses in the fiscal six months ended June 30, 2010 resulted primarily from exchange rate fluctuations on cash balances held by certain of our subsidiaries that were denominated in a currency other than the functional currency of those subsidiaries.
          Other deductions, net in the fiscal six months ended June 30, 2009 consisted primarily of $7,400 of legal fees, $2,000 of consulting fees, $1,900 of bank fees, a net $400 in tax penalties, which included $800 of previously accrued tax penalties that were ultimately not assessed, a $600 provision for dispute resolution and environmental remediation costs and a $500 loss on the sale of fixed assets, partially offset by $1,500 of net foreign exchange gains.
     Interest Income:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 2,730     $ 2,426     $ 304       12.5 %
Fiscal Six Months Ended
  $ 5,089     $ 5,098     $ (9 )     (0.2 )%
          Interest income in the fiscal second quarter of 2010 increased, compared to the same period in 2009, which was primarily the result of increased income generated from higher average cash and cash equivalents balances. Interest income in the fiscal six months ended June 30, 2010 was relatively unchanged, compared to the same period in 2009, which was the net result of decreased interest income from lower interest rates and investment yields, offset by increased income generated from higher average cash and cash equivalents balances during fiscal year 2010 and a slight favorable impact from foreign currency fluctuations.
     Interest Expense:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 4,044     $ 1,302     $ 2,742       210.6 %
Fiscal Six Months Ended
  $ 8,595     $ 5,469     $ 3,126       57.2 %
          The increase in interest expense in the fiscal quarter and six months ended June 30, 2010, compared to the same periods in 2009, primarily resulted from net increases of $2,500 and $3,500, respectively, in accrued interest expense on unrecognized tax benefits.
          During the fiscal quarter and six months ended June 30, 2010, we recorded net accrued interest expense on unrecognized tax benefits of $300 and $1,300, respectively, which both periods were net of previously accrued interest expense that was ultimately not assessed of $1,100. During the fiscal quarter and six months ended June 30, 2009, we recorded a net reduction of accrued interest expense on unrecognized tax benefits in both periods of $2,200, which were net of previously accrued interest expense that was ultimately not assessed of $2,700 and $3,200, respectively.

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     Net Asbestos-Related Provision:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 2,344     $ 1,756     $ 588       33.5 %
Fiscal Six Months Ended
  $ 1,597     $ 3,506     $ (1,909 )     (54.4 )%
          The increase in the net asbestos-related provision in the fiscal second quarter of 2010, compared to the same period in 2009, primarily resulted from an increase of $3,600 to our provision related to the revaluation of our asbestos liability, partially offset by a gain of $3,000 on the settlement of coverage litigation with an asbestos insurance carrier.
          The decrease in the net asbestos-related provision in the fiscal six months ended June 30, 2010, compared to the same period in 2009, primarily resulted from a gain of $7,000 on the settlement of coverage litigation with two asbestos insurance carriers, partially offset by an increase of $5,100 to our provision related to the revaluation of our asbestos liability.
     Provision for Income Taxes:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 15,409     $ 27,561     $ (12,152 )     (44.1 )%
Effective Tax Rate
    19.7 %     17.8 %                
 
                               
Fiscal Six Months Ended
  $ 37,019     $ 45,564     $ (8,545 )     (18.8 )%
Effective Tax Rate
    21.1 %     18.4 %                
          The tax provision for each year-to-date period is calculated by multiplying pretax income by the estimated annual effective tax rate for such period. Our effective tax rate can fluctuate significantly from period to period and may differ significantly from the U.S. federal statutory rate as a result of income taxed in various non-U.S. jurisdictions with rates different from the U.S. statutory rate, as a result of our inability to recognize a tax benefit for losses generated by certain unprofitable operations and as a result of the varying mix of income earned in the jurisdictions in which we operate. In addition, our deferred tax assets are reduced by a valuation allowance when, based upon available evidence, it is more likely than not that the tax benefit of loss carryforwards (or other deferred tax assets) will not be realized in the future. In periods when operating units subject to a valuation allowance generate pretax earnings, the corresponding reduction in the valuation allowance favorably impacts our effective tax rate. Conversely, in periods when operating units subject to a valuation allowance generate pretax losses, the corresponding increase in the valuation allowance has an unfavorable impact on our effective tax rate.

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          Fiscal Year 2010
          Our effective tax rate for the fiscal first six months of 2010 was lower than the U.S. statutory rate of 35% due principally to the net impact of the following:
    Income earned in tax jurisdictions with tax rates lower than the U.S. statutory rate, which is expected to contribute to an approximate 18-percentage point reduction in the effective tax rate for the full year 2010.
 
    A valuation allowance increase because we are unable to recognize a tax benefit for losses subject to valuation allowance in certain jurisdictions (primarily the United States), which is expected to contribute an approximate five-percentage point increase in the effective tax rate for the full year 2010.
          Fiscal Year 2009
          Our effective tax rate for the fiscal first six months of 2009 was lower than the U.S. statutory rate of 35% due principally to the net impact of the following:
    Income earned in tax jurisdictions with tax rates lower than the U.S. statutory rate, which contributed to an approximate 18-percentage point reduction in the effective tax rate.
 
    A valuation allowance increase because we were unable to recognize a tax benefit for losses subject to valuation allowance in certain jurisdictions (primarily the United States), which contributed to an approximate three-percentage point increase in the effective tax rate.
          These variances were partially offset by the reduction of valuation allowances in certain jurisdictions and other permanent differences.
          We monitor the jurisdictions for which valuation allowances against deferred tax assets were established in previous years, and we evaluate, on a quarterly basis, the need for the valuation allowances against deferred tax assets in those jurisdictions. Such evaluation includes a review of all available evidence, both positive and negative, in determining whether a valuation allowance is necessary.
          For statutory purposes, the majority of the U.S. federal tax benefits, against which valuation allowances have been established, do not expire until fiscal year 2025 and beyond, based on current tax laws.
     Net Income Attributable to Noncontrolling Interests:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 3,790     $ 5,130     $ (1,340 )     (26.1 )%
Fiscal Six Months Ended
  $ 7,096     $ 6,639     $ 457       6.9 %
          Net income attributable to noncontrolling interests represents third-party ownership interests in the results of our Global Power Group’s Martinez, California gas-fired cogeneration subsidiary and our manufacturing subsidiaries in Poland and the People’s Republic of China as well as our Global E&C Group’s subsidiaries in Malaysia and South Africa. The change in net income attributable to noncontrolling interests is based upon changes in the underlying earnings of these subsidiaries and/or changes in the noncontrolling interests’ ownership interest in the subsidiaries.
          The decrease in net income attributable to noncontrolling interests in the fiscal second quarter of 2010, compared to the same period in 2009, primarily resulted from our operations in Malaysia and Poland, partially offset by our operations in Martinez, California.
          The increase in net income attributable to noncontrolling interests in the fiscal six months ended June 30, 2010, compared to the same period in 2009, primarily resulted from our operations in Martinez, California and South Africa, partially offset by our operations in Malaysia and Poland.

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     EBITDA:
                                 
    June 30, 2010     June 30, 2009     $ Change     % Change  
Fiscal Quarters Ended
  $ 90,239     $ 161,962     $ (71,723 )     (44.3 )%
Fiscal Six Months Ended
  $ 201,519     $ 267,546     $ (66,027 )     (24.7 )%
          EBITDA decreased in the fiscal second quarter of 2010, compared to the same period in 2009, primarily driven by decreased contract profit in both of our business groups. Please refer to the preceding discussion within this “—Results of Operations” section.
          EBITDA decreased in the fiscal six months ended June 30, 2010, compared to the same period in 2009, primarily driven by decreased contract profit in both of our business groups, partially offset by a curtailment gain of $20,100 related to our U.K. pension plan that has been closed for future benefit accrual. Please refer to the preceding discussion of each of these items within this “—Results of Operations” section.
          See the individual segment explanations below for additional details.
          EBITDA is a supplemental financial measure not defined in generally accepted accounting principles, or GAAP. We define EBITDA as income attributable to Foster Wheeler AG before interest expense, income taxes, depreciation and amortization. We have presented EBITDA because we believe it is an important supplemental measure of operating performance. Certain covenants under our U.S. senior secured credit agreement, as in effect as of June 30, 2010 and as amended and restated in July 2010, use an adjusted form of EBITDA such that in the covenant calculations the EBITDA as presented herein is adjusted for certain unusual and infrequent items specifically excluded in the terms of our U.S. senior secured credit agreement. We believe that the line item on the consolidated statement of operations entitled “net income attributable to Foster Wheeler AG” is the most directly comparable GAAP financial measure to EBITDA. Since EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net income attributable to Foster Wheeler AG as an indicator of operating performance or any other GAAP financial measure. EBITDA, as calculated by us, may not be comparable to similarly titled measures employed by other companies. In addition, this measure does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs. As EBITDA excludes certain financial information that is included in net income attributable to Foster Wheeler AG, users of this financial information should consider the type of events and transactions that are excluded. Our non-GAAP performance measure, EBITDA, has certain material limitations as follows:
    It does not include interest expense. Because we have borrowed money to finance some of our operations, interest is a necessary and ongoing part of our costs and has assisted us in generating revenue. Therefore, any measure that excludes interest expense has material limitations;
 
    It does not include taxes. Because the payment of taxes is a necessary and ongoing part of our operations, any measure that excludes taxes has material limitations; and
 
    It does not include depreciation and amortization. Because we must utilize property, plant and equipment and intangible assets in order to generate revenues in our operations, depreciation and amortization are necessary and ongoing costs of our operations. Therefore, any measure that excludes depreciation and amortization has material limitations.

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          A reconciliation of EBITDA to net income attributable to Foster Wheeler AG is shown below.
                                 
            Global     Global     C&F  
    Total     E&C Group     Power Group     Group(1)  
Fiscal Quarter Ended June 30, 2010:
                               
EBITDA (2)
  $ 90,239     $ 85,460     $ 26,396     $ (21,617 )
 
                         
Less: Interest expense
    4,044                          
Less: Depreciation and amortization
    11,928                          
Less: Provision for income taxes
    15,409                          
 
                             
Net income attributable to Foster Wheeler AG
  $ 58,858                          
 
                             
 
                               
Fiscal Quarter Ended June 30, 2009:
                               
EBITDA (3)
  $ 161,962     $ 130,628     $ 53,780     $ (22,446 )
 
                         
Less: Interest expense
    1,302                          
Less: Depreciation and amortization
    10,895                          
Less: Provision for income taxes
    27,561                          
 
                             
Net income attributable to Foster Wheeler AG
  $ 122,204                          
 
                             
 
                               
Fiscal Six Months Ended June 30, 2010:
                               
EBITDA (4)
  $ 201,519     $ 185,393     $ 56,279     $ (40,153 )
 
                         
Less: Interest expense
    8,595                          
Less: Depreciation and amortization
    24,987                          
Less: Provision for income taxes
    37,019                          
 
                             
Net income attributable to Foster Wheeler AG
  $ 130,918                          
 
                             
 
                               
Fiscal Six Months Ended June 30, 2009:
                               
EBITDA (5)
  $ 267,546     $ 211,910     $ 102,563     $ (46,927 )
 
                         
Less: Interest expense
    5,469                          
Less: Depreciation and amortization
    21,446                          
Less: Provision for income taxes
    45,564                          
 
                             
Net income attributable to Foster Wheeler AG
  $ 195,067                          
 
                             
 
(1)   Includes general corporate income and expense, our captive insurance operation and the elimination of transactions and balances related to intercompany interest.
 
(2)   Includes in the fiscal quarter ended June 30, 2010: increased contract profit of $8,600 from the regular revaluation of final estimated contract profit*: $8,100 in our Global E&C Group and $500 in our Global Power Group; and a net provision of $2,300 in our C&F Group on the revaluation of our asbestos liability and related asset**.
 
(3)   Includes in the fiscal quarter ended June 30, 2009: increased contract profit of $20,200 from the regular revaluation of final estimated contract profit*: $18,000 in our Global E&C Group and $2,200 in our Global Power Group; and a provision of $1,800 in our C&F Group on the revaluation of our asbestos liability and related asset**.
 
(4)   Includes in the fiscal six months ended June 30, 2010: increased contract profit of $33,700 from the regular revaluation of final estimated contract profit*: $25,200 in our Global E&C Group and $8,500 in our Global Power Group; a $20,100 curtailment gain in our Global E&C Group on the closure of the U.K. pension plan for future defined benefit accrual; and a net provision of $1,600 in our C&F Group on the revaluation of our asbestos liability and related asset**.
 
(5)   Includes in the fiscal six months ended June 30, 2009: increased contract profit of $26,200 from the regular revaluation of final estimated contract profit*: $24,500 in our Global E&C Group and $1,700 in our Global Power Group; and a provision of $3,500 in our C&F Group on the revaluation of our asbestos liability and related asset**.
 
*   Please refer to “Revenue Recognition on Long-Term Contracts” in Note 1 to the consolidated financial statements in this quarterly report on Form 10-Q for further information regarding changes in our final estimated contract profit.
 
**   Please refer to Note 12 to the consolidated financial statements in this quarterly report on Form 10-Q for

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further information regarding the revaluation of our asbestos liability and related asset.
          The accounting policies of our business segments are the same as those described in our summary of significant accounting policies. The only significant intersegment transactions relate to interest on intercompany balances. We account for interest on those arrangements as if they were third-party transactions—i.e. at current market rates, and we include the elimination of that activity in the results of the C&F Group.
Business Segments
          EBITDA, as discussed and defined above, is the primary measure of operating performance used by our chief operating decision maker.
     Global E&C Group
                                                                 
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,                     June 30,     June 30,              
    2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Operating revenues
  $ 842,461     $ 1,030,471     $ (188,010 )     (18.2 )%   $ 1,622,145     $ 1,982,883     $ (360,738 )     (18.2 )%
 
                                               
EBITDA
  $ 85,460     $ 130,628     $ (45,168 )     (34.6 )%   $ 185,393     $ 211,910     $ (26,517 )     (12.5 )%
 
                                               
     Results
          The geographic dispersion of our Global E&C Group’s operating revenues for the fiscal quarters and six months ended June 30, 2010 and June 30, 2009 based upon where our projects are being executed, were as follows:
                                                                 
    Fiscal Quarters Ended   Fiscal Six Months Ended  
    June 30,     June 30,                     June 30,     June 30,              
    2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Asia
  $ 172,137     $ 413,434     $ (241,297 )     (58.4 )%   $ 359,408     $ 780,396     $ (420,988 )     (53.9 )%
Australasia and other*
    307,799       264,921       42,878       16.2 %     595,396       512,401       82,995       16.2 %
Europe
    164,955       153,198       11,757       7.7 %     306,762       306,038       724       0.2 %
Middle East
    50,654       110,164       (59,510 )     (54.0 )%     121,194       218,006       (96,812 )     (44.4 )%
North America
    94,315       59,691       34,624       58.0 %     153,861       118,349       35,512       30.0 %
South America
    52,601       29,063       23,538       81.0 %     85,524       47,693       37,831       79.3 %
 
                                               
Total
  $ 842,461     $ 1,030,471     $ (188,010 )     (18.2 )%   $ 1,622,145     $ 1,982,883     $ (360,738 )     (18.2 )%
 
                                               
 
*   Australasia and other primarily represents Australia, South Africa, New Zealand and the Pacific Islands.
          Our Global E&C Group experienced decreases in operating revenues of 18% in both the fiscal quarter and six months ended June 30, 2010, compared to the same periods in 2009, which include the impact of decreased flow-through revenues in both periods. Excluding flow-through revenues, our Global E&C Group’s operating revenues decreased 6% in both the fiscal quarter and six months ended June 30, 2010, compared to the same periods in 2009. The decrease in the fiscal second quarter of 2010, compared to the same period in 2009, resulted from foreign currency fluctuations relative to the U.S. dollar, primarily driven by the British pound and Euro, and a decline in volume of business. The decrease in the fiscal six months ended June 30, 2010, compared to the same period in 2009, resulted from a decline in volume of business, while foreign currency fluctuations had a relatively minimal impact. Please refer to the “—Overview of Segment” section below for a discussion of our Global E&C Group’s market outlook.
          The decrease in our Global E&C Group’s EBITDA in the fiscal second quarter of 2010, compared to the same period in 2009, resulted primarily from the impact of the following:
    Decreased contract profit of $40,500, primarily as a result of decreased contract profit margins.
 
    Increased net foreign exchange transaction losses of $2,500, which resulted primarily from the impact of exchange rate fluctuations on cash balances that were denominated in a currency other than the functional currency of our subsidiaries that held these cash balances.
 
    A decrease in equity earnings in our Global E&C Group’s projects in Italy of $2,300.

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          The decrease in our Global E&C Group’s EBITDA in the fiscal six months ended June 30, 2010, compared to the same period in 2009, resulted primarily from the net impact of the following:
    Decreased contract profit of $38,600, primarily as a result of decreased contract profit margins and, to a lesser extent, volume decrease in operating revenues.
 
    Increased net foreign exchange transaction losses of $7,600, which resulted primarily from the impact of exchange rate fluctuations on cash balances that were denominated in a currency other than the functional currency of our subsidiaries that held these cash balances.
 
    A decrease in equity earnings in our Global E&C Group’s projects in Italy of $1,300.
          The decrease in EBITDA was partially offset by a curtailment gain of $20,100 related to our U.K. pension plan that has been closed for future benefit accrual, which was included in contract profit.
          Overview of Segment
          Our Global E&C Group, which operates worldwide, designs, engineers and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, oil refining, chemical and petrochemical, pharmaceutical and biotechnology facilities and related infrastructure, including power generation and distribution facilities, and gasification facilities. Our Global E&C Group is also involved in the design of facilities in new or developing market sectors, including carbon capture and storage, solid fuel-fired integrated gasification combined-cycle power plants, coal-to-liquids, coal-to-chemicals and biofuels. Our Global E&C Group generates revenues from design, engineering, procurement, construction and project management activities pursuant to contracts spanning up to approximately four years in duration and from returns on its equity investments in various power production facilities.
          Our Global E&C Group owns one of the leading technologies (SYDECSM delayed coking) used in refinery residue upgrading, in addition to other refinery residue upgrading technologies (solvent deasphalting and visbreaking), and a hydrogen production process used in oil refineries and petrochemical plants. The Global E&C Group also designs and supplies direct-fired furnaces, including fired heaters and waste heat recovery generators, used in a range of refinery, chemical, petrochemical, oil and gas processes, including furnaces used in its proprietary delayed coking and hydrogen production technologies. Additionally, our Global E&C Group has experience with, and is able to work with, a wide range of processes owned by others.
          Although the global economy is showing signs of recovery, several of our clients are continuing to reevaluate the size, timing and scope of their capital spending plans in relation to the kinds of energy, petrochemical and pharmaceuticals projects that we execute. We have seen instances of postponement or cancellation of prospects; clients releasing us to proceed on projects in phases; conducting further analysis before deciding to proceed with their investments; resizing, reconfiguring or relocating of prospective projects to make them more economically viable and intensified competition among engineering and construction contractors which has resulted in pricing pressure. These factors may continue in the second half of fiscal year 2010. However, we continue to see projects moving forward and clients starting to re-examine previously postponed projects to review the business cases for proceeding with such projects. In addition, we believe world demand for energy and chemicals will continue to grow over the long term and that clients will continue to invest in new and upgraded capacity to meet that demand. We have noted signs of market improvement. Moreover, we have continued to be successful in booking contracts of varying types and sizes in our key end markets, including the award of a feasibility study and front-end engineering contract for a new refinery in Iraq, an engineering, procurement and construction management contract in Cameroon for a refinery upgrade and modernization, and project management contracts for the development of two oilfields in the United Arab Emirates. Our success in this regard is a reflection of our technical expertise, our long-term relationships with clients, and our selective approach in pursuit of new prospects where we believe we have significant differentiators.

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     Global Power Group
                                                                 
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,                     June 30,     June 30,              
    2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Operating revenues
  $ 163,035     $ 278,330     $ (115,295 )     (41.4 )%   $ 328,924     $ 590,441     $ (261,517 )     (44.3 )%
 
                                               
 
                                                               
EBITDA
  $ 26,396     $ 53,780     $ (27,384 )     (50.9 )%   $ 56,279     $ 102,563     $ (46,284 )     (45.1 )%
 
                                               
          Results
          The geographic dispersion of our Global Power Group’s operating revenues for the fiscal quarters and six months ended June 30, 2010 and June 30, 2009 based upon where our projects are being executed, were as follows:
                                                                 
    Fiscal Quarters Ended     Fiscal Six Months Ended  
    June 30,     June 30,                     June 30,     June 30,              
    2010     2009     $ Change     % Change     2010     2009     $ Change     % Change  
Asia
  $ 36,447     $ 25,668     $ 10,779       42.0 %   $ 61,807     $ 50,486     $ 11,321       22.4 %
Australasia and other*
    651       1,650       (999 )     (60.5 )%     1,094       3,537       (2,443 )     (69.1 )%
Europe
    58,484       133,247       (74,763 )     (56.1 )%     116,587       271,822       (155,235 )     (57.1 )%
Middle East
    861             861       N/M       4,244             4,244       N/M  
North America
    55,953       98,070       (42,117 )     (42.9 )%     123,048       209,397       (86,349 )     (41.2 )%
South America
    10,639       19,695       (9,056 )     (46.0 )%     22,144       55,199       (33,055 )     (59.9 )%
 
                                               
Total
  $ 163,035     $ 278,330     $ (115,295 )     (41.4 )%   $ 328,924     $ 590,441     $ (261,517 )     (44.3 )%
 
                                               
 
*   Australasia and other primarily represents Australia, South Africa, New Zealand and the Pacific Islands.
 
    N/M — not meaningful.
          Our Global Power Group experienced decreases in operating revenues of 41% and 44%, respectively, in the fiscal quarter and six months ended June 30, 2010, compared to the same periods in 2009, which was the result of decreased volume of business. Please refer to the "—Overview of Segment” section below for a discussion of our Global Power Group’s market outlook.
          The decrease in our Global Power Group’s EBITDA in the fiscal second quarter of 2010, compared to the same period in 2009, resulted primarily from the net impact of the following:
    Decreased contract profit of $26,300, primarily as a result of the volume decrease in operating revenues, partially offset by increased contract profit margins.
 
    A decrease in equity earnings in our Global Power Group’s project in Chile of $4,000, which was primarily due to the suspension of normal operating activities by the project as a result of an earthquake which occurred on February 27, 2010 off the coast of Chile. We have not recorded equity earnings in the Chile based project since the earthquake, as the operational costs incurred by the project are offset by the same estimated recovery under the property damage and business interruption insurance policies. Please refer to the “—Liquidity and Capital Resources-Outlook” section within this Item 2 for further discussion of the damage and timing of the recognition of expected insurance recoveries.
     The decrease in our Global Power Group’s EBITDA in the fiscal first six months of 2010, compared to the same period in 2009, resulted primarily from the net impact of the following:
    Decreased contract profit of $43,600, primarily as a result of the volume decrease in operating revenues, partially offset by increased contract profit margins.
 
    A decrease in equity earnings in our Global Power Group’s project in Chile of $5,000, which was primarily due to the suspension of normal operating activities by the project as a result of an earthquake which occurred on February 27, 2010 off the coast of Chile. We have not recorded equity earnings in the Chile based project since the earthquake, as the operational costs incurred by the project are offset by the same estimated recovery under the property damage and business interruption insurance policies. Please refer to the “—Liquidity and Capital Resources-Outlook” section within this Item 2 for further discussion of the damage and timing of the recognition of expected insurance recoveries.

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          Overview of Segment
          Our Global Power Group designs, manufactures and erects steam generators and auxiliary equipment for electric power generating stations, district heating and power plants and industrial facilities worldwide. Our competitive differentiation in serving these markets is the ability of our products to cleanly and efficiently burn a wide range of fuels, singularly or in combination. In particular, our CFB steam generators are able to burn coals of varying quality, as well as petroleum coke, lignite, municipal waste, waste wood, biomass, and numerous other materials. Among these fuel sources, coal is the most widely used, and thus the market drivers and constraints associated with coal strongly affect the steam generator market and our Global Power Group’s business. Additionally, our Global Power Group owns and/or operates several cogeneration, independent power production and waste-to-energy facilities, as well as power generation facilities for the process and petrochemical industries.
          In our Global Power Group business, new order activity has been unfavorably affected by several trends which began in fiscal year 2008 and which may continue in the future. Weakness in the global economy has reduced the near-term growth in demand for electricity and steam for industrial production processes. In addition, political and environmental sensitivity regarding coal-fired steam generators caused a number of our Global Power Group’s prospective projects to be postponed or cancelled as clients experienced difficulty in obtaining the required environmental permits or decided to wait for additional clarity regarding state and federal regulations. This environmental concern has been especially pronounced in the U.S. and Western Europe, and is linked to the view that solid-fuel-fired steam generators contribute to global warming through the discharge of greenhouse gas emissions into the atmosphere. In addition, the depressed level of natural gas pricing experienced in fiscal years 2009 and 2010, increased the attractiveness of that fuel, in relation to coal, for the generation of electricity. Finally, the constraints on the global credit market are impacting and may continue to impact some of our clients’ investment plans as these clients are affected by the availability and cost of financing, as well as their own financial strategies, which could include cash conservation. We believe that demand for new solid-fuel steam generators will improve in the second half of fiscal year 2010 driven primarily by growing electricity demand and industrial production as economies around the world recover from the recent global economic downturn. We are now seeing increased demand for our products in Asia and Eastern Europe as evidenced by increased proposal activity. However, the significant reduction of new contract awards in fiscal year 2009 has and is likely to continue to impact our financial performance in fiscal year 2010.
          Longer-term, we believe that world demand for electrical energy will continue to grow and that solid-fuel-fired steam generators will continue to fill a significant portion of the incremental growth in new generating capacity. In addition, we are seeing a growing need to repower older coal plants with new clean coal plants driven by the need to improve environmental, economical, and reliability performance of mature coal plant fleets in the U.S., Europe and Russia. The fuel-flexibility of our CFB steam generators enables them to burn a variety of fuels other than coal and to produce carbon-neutral electricity when fired by biomass. In addition, our utility steam generators can be designed to incorporate supercritical steam technology, which significantly improves power plant efficiency and reduces power plant emissions.
          We have recently received an award to carry out the detailed engineering and supply of a pilot-scale (approximately 30 MWth) CFB steam generator, which incorporates our carbon-capturing Flexi-BurnTM technology. Once operational, this pilot facility will be utilized to validate the design of a full-scale carbon-capturing CFB power plant. Further, we have recently signed, together with other parties, a grant agreement with the European Commission, or EC, to support the technology development of a commercial scale (approximately 300 MWe) Carbon Capture and Storage, or CCS, demonstration plant featuring our Flexi-BurnTM CFB technology. If the technology development work demonstrates that the project meets its specified technology and investment goals, construction of the commercial scale demonstration plant could begin in 2012 and the plant could be operational by 2015. This project is one of the six European based CCS projects selected for funding by the EC under the European Energy Program for Recovery and it is the only selected project utilizing CFB technology for CCS application.

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Liquidity and Capital Resources
          Fiscal First Six Months of 2010 Activities
          Our cash and cash equivalents and restricted cash balances were:
                                 
    As of              
    June 30,     December 31,              
    2010     2009     $ Change     % Change  
Cash and cash equivalents
  $ 973,913     $ 997,158     $ (23,245 )     (2.3 )%
Short-term investments
    240             240       N/M  
Restricted cash
    28,189       34,905       (6,716 )     (19.2 )%
 
                       
Total
  $ 1,002,342     $ 1,032,063     $ (29,721 )     (2.9 )%
 
                       
 
    N/M — not meaningful.
          Total cash and cash equivalents, short-term investments and restricted cash held by our non-U.S. entities as of June 30, 2010 and December 31, 2009 were $802,800 and $806,800, respectively.
          During the fiscal first six months of 2010 we experienced a decrease in cash and cash equivalents of $23,200, primarily as a result of a $57,900 decrease due to exchange rate changes, $9,400 of capital expenditures, $7,700 net repayment of debt and capital lease obligations and $7,300 of distributions to noncontrolling interests, partially offset by $51,300 of cash provided by operating activities, $3,300 change in restricted cash and a $3,200 return of investment from unconsolidated affiliates.
          Cash Flows from Operating Activities:
             
Fiscal Six Months Ended
June 30, 2010   June 30, 2009   $ Change   % Change
$51,325
  $93,954   $(42,629)   (45.4)%
          Net cash provided by operating activities in the fiscal first six months of 2010 primarily resulted from cash provided by net income of $138,000, which includes non-cash charges of $41,100, partially offset by cash used for working capital of $88,700, mandatory and discretionary contributions to our pension plans of $29,200, which included discretionary contributions of $17,800, and net asbestos-related payments of $6,600 (please refer to Note 12 to the consolidated financial statements in this quarterly report on Form 10-Q for further information on net asbestos-related payments).
          Net cash provided by operating activities in the first fiscal six months of 2009 was primarily from net income of $201,700, which includes non-cash charges of $40,700, partially offset by cash used for working capital needs of $125,500, net payments for asbestos liability and defense costs in excess of proceeds from settlements with asbestos insurance carriers of $17,200, and mandatory contributions to our non-U.S. pension plans of $12,700.
          The decrease in cash provided by operating activities of $42,600 in the fiscal first six months of 2010, compared to the same period of 2009, resulted primarily from decreased net income of $63,700, increased contributions to our pension plans of $16,500, primarily from discretionary contributions in fiscal year 2010 as noted above, partially offset by a decrease in cash used for working capital of $36,800.
          Cash used for working capital was $88,700 and $125,500 in the fiscal first six months of 2010 and 2009, respectively. Working capital varies from period to period depending on the mix, stage of completion and commercial terms and conditions of our contracts and the timing of the related cash receipts. We experienced a decrease in cash used for working capital during the fiscal first six months of 2010, compared to the same period of 2009, as cash receipts from client billings increased relative to cash used for services rendered and purchases of materials and equipment. The decrease in cash used for working capital during the fiscal first six months of 2010 was driven by cash generated by our Global Power Group, partially offset by an increase in cash used by our Global E&C Group.

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          As more fully described below in “—Outlook,” we believe our existing cash balances and forecasted net cash provided from operating activities will be sufficient to fund our operations throughout the next 12 months. Our ability to increase or maintain our cash flows from operating activities in future periods will depend in large part on the demand for our products and services and our operating performance in the future. Please refer to the sections entitled “—Global E&C Group-Overview of Segment” and “—Global Power Group-Overview of Segment” above for our view of the outlook for each of our business segments.
          Cash Flows from Investing Activities:
             
Fiscal Six Months Ended
June 30, 2010   June 30, 2009   $ Change   % Change
$(4,248)   $(39,215)   $34,967   (89.2)%
          The net cash used in investing activities in the fiscal first six months of 2010 was attributable primarily to capital expenditures of $9,400 and a contractual payment of $1,200 related to a prior acquisition of a business, partially offset by cash provided by a decrease in restricted cash of $3,300 and return of investment from unconsolidated affiliates of $3,200.
          The net cash used in investing activities in the fiscal first six months of 2009 was primarily from capital expenditures of $26,700, which included $11,300 of expenditures in FW Power S.r.l. as we continued construction of the electric power generating wind farm projects in Italy, the $8,900 purchase price paid for substantially all of the assets of the offshore engineering division of OPE and an increase in restricted cash of $2,800 driven by an increase in the balance required for collateralized standby letters of credit, bank guarantees and surety bonds.
          The capital expenditures in the fiscal first six months of 2010 and 2009 related primarily to project construction (including the fiscal year 2009 wind farm project expenditures in FW Power S.r.l., noted above), leasehold improvements, information technology equipment and office equipment. Our capital expenditures decreased $17,300 in the fiscal first six months of 2010, compared to the same period of 2009, as a result of decreased expenditures in both our Global E&C Group and Global Power Group.
          Cash Flows from Financing Activities:
             
Fiscal Six Months Ended
June 30, 2010   June 30, 2009   $ Change   % Change
$(12,383)   $(3,833)   $(8,550)   223.1%
          The net cash used in financing activities in the fiscal first six months of 2010 was attributable primarily to the repayment of short-term and long-term project debt and capital lease obligations of $9,900 and distributions to noncontrolling interests of $7,300, partially offset by cash provided from exercises of stock options of $2,600 and proceeds from the issuance of new short-term debt of $2,200.
          The net cash used in financing activities in the fiscal first six months of 2009 was attributable primarily to the repayment of debt and capital lease obligations of $8,700, partially offset by proceeds from the issuance of debt of $4,800.

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          Outlook
          Our liquidity forecasts cover, among other analyses, existing cash balances, cash flows from operations, cash repatriations from non-U.S. entities, changes in working capital activities, unused credit line availability and claim recoveries and proceeds from asset sales, if any. These forecasts extend over a rolling 12-month period. Based on these forecasts, we believe our existing cash balances and forecasted net cash provided by operating activities will be sufficient to fund our operations throughout the next 12 months. Based on these forecasts, our primary cash needs will be working capital, capital expenditures, asbestos liability indemnity and defense costs and acquisitions. We may also use cash to repurchase shares under our share repurchase program, as described further below, under which we are authorized to repurchase up to $264,773 of our outstanding shares. The majority of our cash balances are invested in short-term interest bearing accounts with maturities of less than three months. We continue to consider investing some of our cash in longer-term investment opportunities, including the acquisition of other entities or operations in the engineering and construction industry or power industry and/or the reduction of certain liabilities such as unfunded pension liabilities. We may elect to make additional discretionary contributions to our U.S. and/or U.K. pension plans during fiscal year 2010.
          It is customary in the industries in which we operate to provide standby letters of credit, bank guarantees or performance bonds in favor of clients to secure obligations under contracts. We believe that we will have sufficient letter of credit capacity from existing facilities throughout the next 12 months.
          Our U.S. operating entities do not generate sufficient cash flows to fund our obligations related to corporate overhead expenses and asbestos-related liabilities incurred in the U.S. Additionally, we are dependent on cash repatriations to cover essentially all payments and expenses of our Switzerland based corporate overhead expenses and to fund the acquisition of our shares under our share repurchase program described below. Consequently, we require cash repatriations to the U.S. and Switzerland from our entities located in other countries in the normal course of our operations to meet our Swiss and U.S. cash needs and have successfully repatriated cash for many years. We believe that we can repatriate the required amount of cash to the U.S. and Switzerland. Additionally, we continue to have access to the revolving credit portion of our U.S. senior secured credit facility, if needed.
          During the fiscal first six months of 2010, we had net cash outflows of approximately $6,600, resulting from asbestos liability indemnity and defense costs payments in excess of insurance settlement proceeds. We expect to have net cash inflows of $7,900 as a result of insurance settlement proceeds in excess of the asbestos liability indemnity and defense costs for the full fiscal year 2010. This estimate assumes no additional settlements with insurance companies or elections by us to fund additional payments. As we continue to collect cash from insurance settlements and assuming no increase in our asbestos-related insurance liability or any future insurance settlements, the asbestos-related insurance receivable recorded on our balance sheet will continue to decrease.
          On July 30, 2010, Foster Wheeler AG, Foster Wheeler Ltd., certain of Foster Wheeler Ltd.’s subsidiaries and BNP Paribas, as Administrative Agent, entered into a four-year amendment and restatement of our U.S. senior secured credit agreement, which we entered into in October 2006. The amended and restated U.S. senior secured credit agreement provides for a facility of $450,000, and includes a provision which permits future incremental increases of up to $225,000 in total availability under the facility. The amended and restated U.S. senior secured credit agreement permits us to issue up to $450,000 under the letter of credit facility. Letters of credit issued under the amended and restated U.S. senior secured credit agreement have performance pricing that is decreased (or increased) as a result of improvements (or reductions) in our corporate credit rating as reported by Moody’s Investors Service (“Moody’s”) and/or Standard & Poor’s (“S&P”). Based on the current ratings, the letter of credit fees for performance and financial letters of credit issued under the amended and restated U.S. senior secured credit agreement are 1.125% and 2.25% per annum of the outstanding amount, respectively, excluding a nominal fronting fee. This performance pricing is not expected to materially impact our liquidity or capital resources in fiscal year 2010. We also have the option to use up to $100,000 of the $450,000 for revolving borrowings at a rate equal to adjusted LIBOR, as defined in the agreement, plus 2.25%, subject also to the performance pricing noted above.
          The assets and/or stock of certain of our U.S. and non-U.S. subsidiaries collateralize our obligations under our amended and restated U.S. senior secured credit agreement. In the event that our corporate credit rating as issued by Moody’s is at least Baa3 and as issued by S&P is at least BBB-, all liens securing our obligations under the amended and restated U.S. senior secured credit agreement will be automatically released and terminated.
          We had approximately $284,700 and $308,000 of letters of credit outstanding under our U.S. senior secured credit agreement in effect as of June 30, 2010 and December 31, 2009, respectively. There were no funded

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borrowings under our U.S. senior secured credit agreement in effect as of June 30, 2010 or December 31, 2009. We do not intend to borrow under our U.S. senior secured credit facility during fiscal year 2010. Please refer to Note 5 to the consolidated financial statements in this quarterly report on Form 10-Q for further information regarding our debt obligations.
          On February 27, 2010, an earthquake occurred off the coast of Chile that caused significant damage to the refinery/electric power generation project in which we hold an 85% noncontrolling interest. The project’s facility suspended normal operating activities from that date. We do not yet have a complete assessment of the extent of the damage or an estimate of the required cost of repairs. However, we believe the property damage insurance coverage in effect will be sufficient to cover the estimated costs of repairing the facility and to substantially compensate the project for the loss of profits while the facility has suspended operations until such time as normal operating activities can resume. Please refer to Note 3 to the consolidated financial statements in this quarterly report on Form 10-Q for further information on our equity interest in this project.
          We are not required to make any mandatory contributions to our U.S. pension plans in fiscal year 2010 based on the minimum statutory funding requirements. We made mandatory and discretionary contributions totaling approximately $29,200 to our pension plans, which included discretionary contributions totaling approximately $17,800 to our U.S. and U.K. pension plans, during the fiscal six months ended June 30, 2010. Based on the minimum statutory funding requirements for fiscal year 2010, we expect to make mandatory and discretionary contributions totaling approximately $39,000 to our U.S. and non-U.S. pension plans. The Patient Protection and Affordable Care Act and the Health Care and Education and Reconciliation Act were signed into law in the U.S. in March 2010. The law includes a significant number of health-related provisions, most of which will take effect beginning in 2011 or later. At this time we do not expect that the law will have a significant impact on our financial condition, results of operations or cash flows.
          On September 12, 2008, we announced a share repurchase program pursuant to which our Board of Directors authorized the repurchase of up to $750,000 of our outstanding shares and the designation of the repurchased shares for cancellation. Based on the aggregate share repurchases under our program through June 30, 2010, we are authorized to repurchase up to $264,773 of our outstanding shares. Any repurchases will be made at our discretion in the open market or in privately negotiated transactions in compliance with applicable securities laws and other legal requirements and will depend on a variety of factors, including market conditions, share price and other factors. The program does not obligate us to acquire any particular number of shares. The program has no expiration date and may be suspended or discontinued at any time. Any repurchases made pursuant to the share repurchase program will be funded using our cash on hand. Cumulatively through August 5, 2010, we have repurchased 18,098,519 shares for an aggregate cost of approximately $485,600 (which includes commissions of $400). We have executed the repurchases in accordance with 10b5-1 repurchase plans as well as other open market purchases. The 10b5-1 repurchase plans allow us to purchase shares at times when we may not otherwise do so due to regulatory or internal restrictions. Purchases under the 10b5-1 repurchase plans are based on parameters set forth in the plans.
          We have not declared or paid a cash dividend since July 2001 and we do not have any plans to declare or pay any cash dividends. Our U.S. senior secured credit agreement, as in effect as of June 30, 2010 and as amended and restated in July 2010, contains limitations on cash dividend payments as well as other restricted payments.
Off-Balance Sheet Arrangements
          We own several noncontrolling interests in power projects in Chile and Italy. Certain of the projects have third-party debt that is not consolidated in our balance sheet. We have also issued certain guarantees for the Chile based project. Please refer to Note 3 to the consolidated financial statements in this quarterly report on Form 10-Q for further information related to these projects.
Backlog and New Orders
          New orders are recorded and added to the backlog of unfilled orders based on signed contracts as well as agreed letters of intent, which we have determined are legally binding and likely to proceed. Although backlog represents only business that is considered likely to be performed, cancellations or scope adjustments may and do occur. The elapsed time from the award of a contract to completion of performance may be up to approximately four years. The dollar amount of backlog is not necessarily indicative of our future earnings related to the performance of such work due to factors outside our control, such as changes in project schedules, scope adjustments or project cancellations. We cannot predict with certainty the portion of backlog to be performed in a

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given year. Backlog is adjusted quarterly to reflect new orders, project cancellations, deferrals, revised project scope and cost and sales of subsidiaries, if any.
     Backlog measured in Foster Wheeler scope reflects the dollar value of backlog excluding third-party costs incurred by us on a reimbursable basis as agent or principal, which we refer to as flow-through costs. Foster Wheeler scope measures the component of backlog with profit potential and corresponds to our services plus fees for reimbursable contracts and total selling price for fixed-price or lump-sum contracts.
     New Orders, Measured in Terms of Future Revenues
                                                 
    June 30, 2010     June 30, 2009  
    Global     Global             Global     Global        
    E&C Group     Power Group     Total     E&C Group     Power Group     Total  
By Project Location:
                                               
Fiscal Quarters Ended
                                               
North America
  $ 229,600     $ 33,500     $ 263,100     $ 367,000     $ 43,400     $ 410,400  
South America
    26,700       5,000       31,700       40,700       5,200       45,900  
Europe
    139,900       79,400       219,300       165,900       29,800       195,700  
Asia
    159,500       46,000       205,500       174,700       7,600       182,300  
Middle East
    106,200       300       106,500       40,400             40,400  
Australasia and other*
    108,900       600       109,500       59,000       100       59,100  
 
                                   
Total
  $ 770,800     $ 164,800     $ 935,600     $ 847,700     $ 86,100     $ 933,800  
 
                                   
 
                                               
Fiscal Six Months Ended
                                               
North America
  $ 290,500     $ 104,200     $ 394,700     $ 449,400     $ 83,300     $ 532,700  
South America
    52,800       8,000       60,800       50,300       7,500       57,800  
Europe
    227,300       416,200       643,500       249,700       71,900       321,600  
Asia
    249,900       96,600       346,500       689,100       19,600       708,700  
Middle East
    161,500       300       161,800       89,500             89,500  
Australasia and other*
    265,100       1,700       266,800       129,200       300       129,500  
 
                                   
Total
  $ 1,247,100     $ 627,000     $ 1,874,100     $ 1,657,200     $ 182,600     $ 1,839,800  
 
                                   
 
                                               
By Industry:
                                               
Fiscal Quarters Ended
                                               
Power generation
  $ 16,700     $ 138,000     $ 154,700     $ 3,000     $ 58,300     $ 61,300  
Oil refining
    499,600             499,600       505,000             505,000  
Pharmaceutical
    21,900             21,900       16,400             16,400  
Oil and gas
    90,300             90,300       100,700             100,700  
Chemical/petrochemical
    128,000             128,000       213,100             213,100  
Power plant operation and maintenance
          26,800       26,800             27,800       27,800  
Environmental
    3,200             3,200       800             800  
Other, net of eliminations
    11,100             11,100       8,700             8,700  
 
                                   
Total
  $ 770,800     $ 164,800     $ 935,600     $ 847,700     $ 86,100     $ 933,800  
 
                                   
 
                                               
Fiscal Six Months Ended
                                               
Power generation
  $ 24,000     $ 575,800     $ 599,800     $ 17,500     $ 140,900     $ 158,400  
Oil refining
    708,300             708,300       1,048,100             1,048,100  
Pharmaceutical
    31,900             31,900       34,200             34,200  
Oil and gas
    176,300             176,300       241,900             241,900  
Chemical/petrochemical
    281,000             281,000       313,600             313,600  
Power plant operation and maintenance
          51,200       51,200             41,700       41,700  
Environmental
    9,500             9,500       4,700             4,700  
Other, net of eliminations
    16,100             16,100       (2,800 )           (2,800 )
 
                                   
Total
  $ 1,247,100     $ 627,000     $ 1,874,100     $ 1,657,200     $ 182,600     $ 1,839,800  
 
                                   
 
*   Australasia and other primarily represents Australia, South Africa, New Zealand and the Pacific Islands.

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     Backlog, Measured in Terms of Future Revenues
                                                 
    As of June 30, 2010     As of December 31, 2009  
    Global     Global             Global     Global        
    E&C Group     Power Group     Total     E&C Group     Power Group     Total  
By Contract Type:
                                               
Lump-sum turnkey
  $     $ 382,400     $ 382,400     $ 100     $ 169,300     $ 169,400  
Other fixed-price
    346,800       380,300       727,100       215,800       306,300       522,100  
Reimbursable
    2,558,900       47,400       2,606,300       3,297,700       128,700       3,426,400  
Eliminations
    900       (3,400 )     (2,500 )     (900 )     (4,200 )     (5,100 )
 
                                   
Total
  $ 2,906,600     $ 806,700     $ 3,713,300     $ 3,512,700     $ 600,100     $ 4,112,800  
 
                                   
 
                                               
By Project Location:
                                               
North America
  $ 606,500     $ 179,500     $ 786,000     $ 472,700     $ 198,900     $ 671,600  
South America
    148,200       35,100       183,300       185,300       52,700       238,000  
Europe
    292,200       452,800       745,000       432,800       228,500       661,300  
Asia
    580,200       120,200       700,400       728,400       93,200       821,600  
Middle East
    193,100       19,200       212,300       226,000       27,800       253,800  
Australasia and other*
    1,086,400       (100 )     1,086,300       1,467,500       (1,000 )     1,466,500  
 
                                   
Total
  $ 2,906,600     $ 806,700     $ 3,713,300     $ 3,512,700     $ 600,100     $ 4,112,800  
 
                                   
 
                                               
By Industry:
                                               
Power generation
  $ 17,700     $ 688,700     $ 706,400     $ 18,900     $ 482,100     $ 501,000  
Oil refining
    1,521,400             1,521,400       1,597,900             1,597,900  
Pharmaceutical
    24,300             24,300       21,300             21,300  
Oil and gas
    1,008,900             1,008,900       1,559,400             1,559,400  
Chemical/petrochemical
    311,500             311,500       299,800             299,800  
Power plant operation and maintenance
          118,000       118,000             118,000       118,000  
Environmental
    9,900             9,900       8,200             8,200  
Other, net of eliminations
    12,900             12,900       7,200             7,200  
 
                                   
Total
  $ 2,906,600     $ 806,700     $ 3,713,300     $ 3,512,700     $ 600,100     $ 4,112,800  
 
                                   
 
                                               
Backlog, measured in terms of Foster Wheeler Scope
                                               
Total
  $ 1,434,800     $ 795,000     $ 2,229,800     $ 1,480,100     $ 588,500     $ 2,068,600  
 
                                   
 
                                               
E & C Man-hours in Backlog (in thousands)
                                               
Total
    14,100               14,100       12,700               12,700  
 
                                       
 
*   Australasia and other primarily represents Australia, South Africa, New Zealand and the Pacific Islands.
     The foreign currency translation impact on backlog and Foster Wheeler scope backlog resulted in decreases of $299,700 and $218,700, respectively, as of June 30, 2010 compared to December 31, 2009.
Inflation
     The effect of inflation on our financial results is minimal. Although a majority of our revenues are realized under long-term contracts, the selling prices of such contracts, established for deliveries in the future, generally reflect estimated costs to complete the projects in these future periods. In addition, many of our projects are reimbursable at actual cost plus a fee, while some of the fixed-price contracts provide for price adjustments through escalation clauses.
Application of Critical Accounting Estimates
     Our consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America. Management and the Audit Committee of our Board of Directors approve the critical accounting policies.
     A full discussion of our critical accounting policies and estimates is included in our 2009 Form 10-K. We did not have a significant change to the application of our critical accounting policies and estimates during the fiscal first six months of 2010.

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Accounting Developments
     In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This ASU requires specific disclosures related to the credit quality of an entity’s financing receivables and its allowance for credit losses. Financing receivable is defined in the ASU as a contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset in the entity’s statement of financial position. New disclosures are required for finance receivables and the related allowance for credit losses on a disaggregated basis, which the standard defines as portfolio segment and class of financing receivable. ASU No. 2010-20 is effective for financial statements issued for interim or annual periods ending on or after December 15, 2010. We will amend our disclosures accordingly beginning with our consolidated financial statements included in our Annual Report on Form 10-K for fiscal year 2010.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     During the fiscal first six months of 2010, there were no material changes in the market risks as described in our annual report on Form 10-K for the fiscal year ended December 31, 2009.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
     We maintain disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.
     As of the end of the period covered by this report, our chief executive officer and our chief financial officer carried out an evaluation, with the participation of our Disclosure Committee and management, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) pursuant to Exchange Act Rule 13a-15. Based on this evaluation, our chief executive officer and our chief financial officer concluded, at the reasonable assurance level, that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
     There were no changes in our internal control over financial reporting in the fiscal three months ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
     Please refer to Note 12 to the consolidated financial statements in this quarterly report on Form 10-Q for a discussion of legal proceedings, which is incorporated by reference in this Part II.
ITEM 1A. RISK FACTORS
     Information regarding our risk factors appears in Part I, Item 1A, “Risk Factors,” in our annual report on Form 10-K for the fiscal year ended December 31, 2009, which we filed with the SEC on February 25, 2010. There have been no material changes in those risk factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers (amounts in thousands of dollars, except share data and per share amounts).
     On September 12, 2008, we announced a share repurchase program pursuant to which our Board of Directors authorized the repurchase of up to $750,000 of our outstanding shares and the designation of the repurchased shares for cancellation. Based on the aggregate share repurchases under our program through June 30, 2010, we are authorized to repurchase up to $264,773 of our outstanding shares. As noted in the table below, there were no purchases under our share repurchase program during the fiscal second quarter of 2010.
                                 
                    Total Number     Approximate  
                    of Shares     Dollar Value  
                    Purchased as     of Shares that  
                    Part of     May Yet Be  
            Average     Publicly     Purchased  
    Total Number     Price     Announced     Under the  
    of Shares     Paid per     Plans     Plans or  
Fiscal Month   Purchased(1)     Share     or Programs     Programs  
April 1, 2010 through April 30, 2010
        $                
May 1, 2010 through May 31, 2010
                         
June 1, 2010 through June 30, 2010
                         
 
                         
Total
        $       - (2)   $ 264,773  
 
                         
 
(1)   During the fiscal second quarter of 2010, we did not repurchase any shares in open market transactions pursuant to our share repurchase program. We are authorized to repurchase up to $264,773 of our outstanding shares. The repurchase program has no expiration date and may be suspended for periods or discontinued at any time. We did not repurchase any shares other than through our publicly announced repurchase programs.
 
(2)   As of June 30, 2010, an aggregate of 18,098,519 shares were purchased for a total of $485,227 since the inception of the repurchase program announced on September 12, 2008.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
     None.

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ITEM 5. OTHER INFORMATION
     On July 30, 2010, we and certain of our subsidiaries entered into an amended and restated U.S. senior secured credit agreement with BNP Paribas, as Administrative Agent, BNP Paribas Securities Corp., as Sole Bookrunner and Sole Lead Arranger, and HSBC Bank USA, National Association, Wells Fargo Bank, N.A., Credit Agricole Corporate and Investment Bank and Natixis, as Syndication Agents. The amended and restated credit agreement constitutes a material definitive agreement for purposes of Item 1.01 of Form 8-K. The amended and restated credit agreement is attached to this Quarterly Report on Form 10-Q as Exhibit 10.9. A summary of the terms and conditions of the amended and restated credit agreement is set forth in Note 5 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q. The summary is qualified in its entirety by reference to the attached amended and restated credit agreement.

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ITEM 6.   EXHIBITS
     
Exhibit No.   Exhibits
3.1
  Articles of Association of Foster Wheeler AG. (Filed as Exhibit 3.1 to Foster Wheeler AG’s Form 8-K, dated February 6, 2009 and filed on February 9, 2009, and incorporated herein by reference.)
 
3.2
  Organizational Regulations of Foster Wheeler AG. (Filed as Exhibit 3.2 to Foster Wheeler AG’s Form 8-K, dated February 6, 2009 and filed on February 9, 2009, and incorporated herein by reference.)
 
4.0
  Foster Wheeler AG hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of Foster Wheeler AG and its consolidated subsidiaries to the Commission upon request.
 
10.1*
  Employment Agreement, dated as of May 10, 2010, between Foster Wheeler Inc. and Robert C. Flexon. (Filed as Exhibit 10.1 to Foster Wheeler AG’s Form 8-K, dated May 10, 2010 and filed on May 12, 2010, and incorporated herein by reference.)
 
10.2*
  Second Amendment to the Employment Agreement, dated as of May 4, 2010, between Foster Wheeler Inc. and Franco Baseotto. (Filed as Exhibit 10.1 to Foster Wheeler AG’s Form 8-K, dated May 4, 2010 and filed on May 10, 2010, and incorporated herein by reference.)
 
10.3*
  Second Amendment to the Employment Agreement, dated as of May 4, 2010, between Foster Wheeler Inc. and Beth Sexton.
 
10.4*
  Employment Agreement, dated as of May 28, 2010, between Foster Wheeler Inc., Michael Liebelson and Foster Wheeler International Corp.
 
10.5*
  Third Amendment to the Employment Agreement, dated as of May 25, 2010, between Foster Wheeler Inc. and Rakesh K. Jindal.
 
10.6*
  Second Amendment to the Employment Agreement, dated as of July 16, 2010, between Foster Wheeler Inc. and Lisa Z. Wood.
 
10.7*
  Form of Employee Nonqualified Stock Option Agreement effective May 2010 with respect to certain employees and executive officers. (Filed as Exhibit 10.16 to Foster Wheeler AG’s Form 10-Q, for the fiscal quarter ended March 31, 2010, and incorporated herein by reference.)
 
10.8*
  Form of Employee Restricted Stock Unit Award Agreement effective May 2010 with respect to certain employees and executive officers. (Filed as Exhibit 10.17 to Foster Wheeler AG’s Form 10-Q, for the fiscal quarter ended March 31, 2010, and incorporated herein by reference.)
 
10.9
  Amended and Restated Credit Agreement, dated July 30, 2010, among Foster Wheeler AG, Foster Wheeler Ltd., Foster Wheeler LLC, Foster Wheeler USA Corporation, Foster Wheeler North America Corp., Foster Wheeler Energy Corporation, Foster Wheeler International Corporation, and Foster Wheeler Inc., as Borrowers, the guarantors party thereto, the lenders party thereto, BNP Paribas as Administrative Agent, BNP Paribas Securities Corp. as Sole Bookrunner and Sole Lead Arranger, and HSBC Bank USA, National Association, Wells Fargo Bank, N.A., Crédit Agricole Corporate and Investment Bank, and Natixis, as Syndication Agents.
 
23.1
  Consent of Analysis, Research & Planning Corporation.
 
23.2
  Consent of Peterson Risk Consulting LLC.
 
31.1
  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Robert C. Flexon.
 
31.2
  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Franco Baseotto.
 
32.1
  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Robert C. Flexon.
 
32.2
  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Franco Baseotto.
 
101.INS
  XBRL Instance Document
 
101.SCH
  XBRL Taxonomy Extension Schema
 
101.CAL
  XBRL Taxonomy Extension Calculation Linkbase
 
101.DEF
  XBRL Taxonomy Extension Definition Linkbase
 
101.LAB
  XBRL Taxonomy Extension Label Linkbase
 
101.PRE
  XBRL Taxonomy Extension Presentation Linkbase
 
*   Management contract or compensation plan or arrangement required to be filed as an exhibit to this form pursuant to Item 15(b) of this report.

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Table of Contents

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  FOSTER WHEELER AG
(Registrant)
 
 
Date: August 5, 2010  /s/ Robert C. Flexon    
  Robert C. Flexon  
  Chief Executive Officer   
 
     
Date: August 5, 2010  /s/ Franco Baseotto    
  Franco Baseotto  
  Executive Vice President, Chief Financial Officer And Treasurer   

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