UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2011
or
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|
o
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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)
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Switzerland
(State or other jurisdiction of incorporation or organization)
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98-0607469
(I.R.S. Employer Identification No.)
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80 Rue de Lausanne
CH 1202 Geneva, Switzerland
(Address of principal executive offices)
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1202
(Zip Code)
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41 22 741 8000
(Registrants 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):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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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 issuers classes of common stock, as
of the latest practicable date: 123,907,971 registered shares (CHF 3.00 par value) were outstanding
as of April 22, 2011.
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)
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Fiscal Three Months Ended March 31,
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2011
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2010
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Operating revenues
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$
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1,036,252
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$
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945,573
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Cost of operating revenues
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936,997
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773,491
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Contract profit
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99,255
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172,082
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Selling, general and administrative expenses
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73,841
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70,305
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Other income, net
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(14,266
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)
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(8,332
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)
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Other deductions, net
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6,117
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11,688
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Interest income
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(3,275
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)
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(2,359
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)
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Interest expense
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3,879
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4,551
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Net asbestos-related provision/(gain)
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400
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(747
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)
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Income before income taxes
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32,559
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96,976
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Provision for income taxes
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7,283
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21,610
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Net income
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|
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25,276
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|
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75,366
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|
|
|
|
|
|
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|
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Less: Net income attributable to noncontrolling interests
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2,305
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3,306
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Net income attributable to Foster Wheeler AG
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$
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22,971
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$
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72,060
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Earnings per share (see Note 1):
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Basic
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$
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0.18
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$
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0.57
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Diluted
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$
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0.18
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$
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0.56
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See notes to consolidated financial statements.
3
FOSTER WHEELER AG AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands of dollars, except share data and per share amounts)
(unaudited)
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March 31, 2011
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December 31, 2010
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$
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1,102,823
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$
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1,057,163
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Accounts and notes receivable, net:
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Trade
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517,676
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577,400
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Other
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107,453
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96,758
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Contracts in process
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171,875
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165,389
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Prepaid, deferred and refundable income taxes
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64,132
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|
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59,977
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Other current assets
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43,688
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37,813
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|
|
|
|
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Total current assets
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2,007,647
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1,994,500
|
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Land, buildings and equipment, net
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372,423
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362,087
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Restricted cash
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33,259
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27,502
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Notes and accounts receivable long-term
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5,940
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2,648
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Investments in and advances to unconsolidated affiliates
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232,431
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217,071
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Goodwill
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91,765
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88,917
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Other intangible assets, net
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65,303
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66,070
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Asbestos-related insurance recovery receivable
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186,776
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194,570
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Other assets
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83,697
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|
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84,078
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Deferred tax assets
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27,594
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|
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23,034
|
|
|
|
|
|
|
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TOTAL ASSETS
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$
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3,106,835
|
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$
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3,060,477
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|
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LIABILITIES, TEMPORARY EQUITY AND EQUITY
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Current Liabilities:
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Current installments on long-term debt
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$
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12,520
|
|
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$
|
11,996
|
|
Accounts payable
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|
|
252,085
|
|
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|
239,071
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|
Accrued expenses
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|
210,980
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|
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|
240,894
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|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
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717,515
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684,090
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|
Income taxes payable
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|
|
32,196
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|
|
|
34,623
|
|
|
|
|
|
|
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Total current liabilities
|
|
|
1,225,296
|
|
|
|
1,210,674
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|
|
|
|
|
|
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Long-term debt
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|
|
158,060
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|
|
|
152,574
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|
Deferred tax liabilities
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|
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43,466
|
|
|
|
42,179
|
|
Pension, postretirement and other employee benefits
|
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|
162,771
|
|
|
|
166,362
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Asbestos-related liability
|
|
|
300,032
|
|
|
|
307,619
|
|
Other long-term liabilities
|
|
|
169,263
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|
|
|
160,785
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|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
2,058,888
|
|
|
|
2,040,193
|
|
|
|
|
|
|
|
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Temporary Equity:
|
|
|
|
|
|
|
|
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Non-vested share-based compensation awards subject to redemption
|
|
|
6,005
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|
|
|
4,935
|
|
|
|
|
|
|
|
|
TOTAL TEMPORARY EQUITY
|
|
|
6,005
|
|
|
|
4,935
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Registered shares:
|
|
|
|
|
|
|
|
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CHF 3.00 par value; authorized: 192,576,583 shares and 192,156,579 shares, respectively;
conditionally authorized: 60,255,245 shares and 60,675,249 shares, respectively;
issued: 129,368,626 shares and 128,948,622 shares, respectively;
outstanding: 124,196,012 shares and 124,635,912 shares, respectively.
|
|
|
335,391
|
|
|
|
334,052
|
|
Paid-in capital
|
|
|
672,013
|
|
|
|
659,739
|
|
Retained earnings
|
|
|
560,559
|
|
|
|
537,588
|
|
Accumulated other comprehensive loss
|
|
|
(439,190
|
)
|
|
|
(464,504
|
)
|
Treasury shares (outstanding: 5,172,614 shares and 4,312,710 shares, respectively)
|
|
|
(128,398
|
)
|
|
|
(99,182
|
)
|
|
|
|
|
|
|
|
TOTAL FOSTER WHEELER AG SHAREHOLDERS EQUITY
|
|
|
1,000,375
|
|
|
|
967,693
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
41,567
|
|
|
|
47,656
|
|
|
|
|
|
|
|
|
TOTAL EQUITY
|
|
|
1,041,942
|
|
|
|
1,015,349
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES, TEMPORARY EQUITY AND EQUITY
|
|
$
|
3,106,835
|
|
|
$
|
3,060,477
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
4
FOSTER WHEELER AG AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in thousands of dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Total Foster
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Wheeler AG
|
|
|
|
|
|
|
|
|
|
Registered
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Shares
|
|
|
Equity
|
|
|
Interests
|
|
|
Total Equity
|
|
Fiscal Three Months Ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
329,402
|
|
|
$
|
617,938
|
|
|
$
|
322,181
|
|
|
$
|
(438,004
|
)
|
|
$
|
|
|
|
$
|
831,517
|
|
|
$
|
38,970
|
|
|
$
|
870,487
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
72,060
|
|
|
|
|
|
|
|
|
|
|
|
72,060
|
|
|
|
3,306
|
|
|
|
75,366
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,452
|
)
|
|
|
|
|
|
|
(36,452
|
)
|
|
|
552
|
|
|
|
(35,900
|
)
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,453
|
)
|
|
|
|
|
|
|
(2,453
|
)
|
|
|
|
|
|
|
(2,453
|
)
|
Pension and other postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,113
|
)
|
|
|
|
|
|
|
(5,113
|
)
|
|
|
(2
|
)
|
|
|
(5,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,042
|
|
|
|
3,856
|
|
|
|
31,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of registered shares upon
exercise of stock options
|
|
|
134
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,069
|
|
|
|
|
|
|
|
1,069
|
|
Issuance of registered shares upon
vesting of restricted share units
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,818
|
)
|
|
|
(4,818
|
)
|
Share-based compensation expense
-stock options and restricted share units
|
|
|
|
|
|
|
2,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,343
|
|
|
|
|
|
|
|
2,343
|
|
Excess tax benefit related to share-based
compensation
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
329,538
|
|
|
$
|
621,216
|
|
|
$
|
394,241
|
|
|
$
|
(482,022
|
)
|
|
$
|
|
|
|
$
|
862,973
|
|
|
$
|
38,008
|
|
|
$
|
900,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
334,052
|
|
|
$
|
659,739
|
|
|
$
|
537,588
|
|
|
$
|
(464,504
|
)
|
|
$
|
(99,182
|
)
|
|
$
|
967,693
|
|
|
$
|
47,656
|
|
|
$
|
1,015,349
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
22,971
|
|
|
|
|
|
|
|
|
|
|
|
22,971
|
|
|
|
2,305
|
|
|
|
25,276
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,076
|
|
|
|
|
|
|
|
21,076
|
|
|
|
154
|
|
|
|
21,230
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,972
|
|
|
|
|
|
|
|
1,972
|
|
|
|
|
|
|
|
1,972
|
|
Pension and other postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,266
|
|
|
|
|
|
|
|
2,266
|
|
|
|
(1
|
)
|
|
|
2,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,285
|
|
|
|
2,458
|
|
|
|
50,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of registered shares upon
exercise of stock options
|
|
|
1,190
|
|
|
|
8,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,809
|
|
|
|
|
|
|
|
9,809
|
|
Issuance of registered shares upon
vesting of restricted share units
|
|
|
149
|
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,672
|
)
|
|
|
(8,672
|
)
|
Capital contribution from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
125
|
|
Share-based compensation expense
-stock options and restricted share units
|
|
|
|
|
|
|
3,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800
|
|
|
|
|
|
|
|
3,800
|
|
Excess tax benefit related to share-based
compensation
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Repurchase of registered shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,216
|
)
|
|
|
(29,216
|
)
|
|
|
|
|
|
|
(29,216
|
)
|
|
|
|
Balance at March 31, 2011
|
|
$
|
335,391
|
|
|
$
|
672,013
|
|
|
$
|
560,559
|
|
|
$
|
(439,190
|
)
|
|
$
|
(128,398
|
)
|
|
$
|
1,000,375
|
|
|
$
|
41,567
|
|
|
$
|
1,041,942
|
|
|
|
|
See notes to consolidated financial statements.
5
FOSTER WHEELER AG AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
25,276
|
|
|
$
|
75,366
|
|
Adjustments to reconcile net income to cash flows
from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,671
|
|
|
|
13,059
|
|
Gain on curtailment of defined benefit pension plans
|
|
|
|
|
|
|
(20,086
|
)
|
Net asbestos-related provision/(gain)
|
|
|
400
|
|
|
|
(747
|
)
|
Share-based compensation expense-stock options and
restricted awards
|
|
|
4,871
|
|
|
|
4,602
|
|
Excess tax benefit related to share-based compensation
|
|
|
(4
|
)
|
|
|
(2
|
)
|
Deferred income tax (benefit)/provision
|
|
|
(10,638
|
)
|
|
|
8,605
|
|
(Gain)/loss on sale of assets
|
|
|
(616
|
)
|
|
|
76
|
|
Equity in the net earnings of partially-owned affiliates,
net of dividends
|
|
|
(2,619
|
)
|
|
|
(6,403
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in receivables
|
|
|
65,912
|
|
|
|
8,492
|
|
Net change in contracts in process and billings in excess of
costs and estimated earnings on uncompleted contracts
|
|
|
8,853
|
|
|
|
6,794
|
|
Decrease in accounts payable and accrued expenses
|
|
|
(19,811
|
)
|
|
|
(76,294
|
)
|
Net change in other assets and liabilities
|
|
|
(17,792
|
)
|
|
|
(17,679
|
)
|
|
|
|
|
|
|
|
Net cash provided by/(used in) operating activities
|
|
|
66,503
|
|
|
|
(4,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Payments related to acquisition of businesses, net of cash acquired
|
|
|
|
|
|
|
(1,221
|
)
|
Change in restricted cash
|
|
|
(4,862
|
)
|
|
|
2,630
|
|
Capital expenditures
|
|
|
(11,530
|
)
|
|
|
(6,238
|
)
|
Proceeds from sale of assets
|
|
|
813
|
|
|
|
41
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(15,579
|
)
|
|
|
(4,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Repurchase of shares
|
|
|
(29,216
|
)
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
(8,672
|
)
|
|
|
(4,818
|
)
|
Proceeds from capital contribution from noncontrolling interests
|
|
|
125
|
|
|
|
|
|
Proceeds from stock options exercised
|
|
|
9,101
|
|
|
|
2,034
|
|
Excess tax benefit related to share-based compensation
|
|
|
4
|
|
|
|
2
|
|
Proceeds from issuance of short-term debt
|
|
|
|
|
|
|
2,197
|
|
Repayment of debt and capital lease obligations
|
|
|
(551
|
)
|
|
|
(3,348
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(29,209
|
)
|
|
|
(3,933
|
)
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
23,945
|
|
|
|
(30,532
|
)
|
|
|
|
|
|
|
|
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
45,660
|
|
|
|
(43,470
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
1,057,163
|
|
|
|
997,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
1,102,823
|
|
|
$
|
953,688
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
6
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 AGs fiscal quarters end on the last days of March, June and
September. The fiscal years of our non-U.S. operations are the same as the parents. The fiscal
year of our U.S. operations is the 52- or 53-week annual accounting period ending on the last
Friday in December.
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 consolidated financial statements and notes are presented in accordance with the
requirements of Form 10-Q and do not contain certain information included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2010 (2010 Form 10-K), filed with the Securities
and Exchange Commission on February 28, 2011. The consolidated balance sheet as of December 31,
2010 was derived from the audited financial statements included in our 2010 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.
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, less billings to the customer and progress payments on uncompleted contracts. A full
provision for loss contracts is made at the time the loss becomes probable regardless of the stage
of completion.
7
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 projects 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. The following table summarizes the number of separate projects that experienced final
estimated contract profit revisions with an impact on contract profit in excess of $1,000 relating
to the revaluation of work performed in prior periods:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Number of separate projects
|
|
|
7
|
|
|
|
11
|
|
Net (decrease)/increase in contract profit from the regular revaluation
of final estimated contract profit revisions
|
|
$
|
(4,600
|
)
|
|
$
|
13,100
|
|
The changes in final estimated contract profit revisions during the fiscal three months
ended March 31, 2011 included the impact of two out-of-period corrections for reductions of final
estimated profit totaling $7,800, which included final estimated profit reductions in our Global
E&C Group and our Global Power Group of $3,200 and $4,600, respectively. The corrections were
recorded in the current period as they were not material to previously issued financial statements,
nor are they expected to be material to the full year 2011 financial statements.
Please see Note 11 for further information related to changes in final estimated contract
profit and the impact on business segment results.
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. Our consolidated financial statements included the
following regarding commercial claims:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Assumed recovery of commercial claims
|
|
$
|
6,500
|
|
|
$
|
7,300
|
|
Claims yet to be incurred
|
|
$
|
|
|
|
$
|
|
|
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. Deferred pre-contract costs were
immaterial as of March 31, 2011 and December 31, 2010.
Certain special-purpose subsidiaries in our Global Power Group business segment are reimbursed
by customers for their costs of operating certain facilities over the lives of the corresponding
service contracts. Depending on the specific legal rights and obligations under these
arrangements, in some cases those reimbursements are treated as operating revenues at gross value
and other cases as a reduction of cost.
8
Trade Accounts Receivable
Trade accounts receivable represent amounts billed to customers.
In accordance with terms under our long-term contracts, our customers may withhold certain
percentages of such billings until completion and acceptance of the work performed, which we refer
to as retention receivables. Final payment of retention receivables might not be received within a
one-year period. In conformity with industry practice, however, the full amount of accounts
receivable, including such amounts withheld, are included in current assets on the consolidated
balance sheet. We have not recorded a provision for the outstanding retention receivable balances
as of March 31, 2011 and December 31, 2010.
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 upon the occurrence of certain events and
whether we are the primary beneficiary 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 entitys activities either involve or are conducted on behalf of an
investor that has disproportionately few voting rights.
As of March 31, 2011 and December 31, 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 regarding our participation in these projects.
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.
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. 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:
|
|
|
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.
|
9
|
|
|
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 In accordance with current accounting
guidance, our valuations include the use of net asset values for commingled fund
assets. For other defined benefit pension plan assets, we estimate the fair value at
each fiscal year end based on quotes obtained from financial institutions. We further
corroborate the above valuations 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. On November 4, 2010, our Board of Directors proposed an increase to our share
repurchase program of $335,000 and the designation of the repurchased shares for cancellation,
which was approved by our shareholders at an extraordinary general meeting on February 24, 2011.
Under Swiss law, the cancellation of shares previously repurchased under our share repurchase
program must be approved by our shareholders. Repurchased shares remain as treasury shares on our
balance sheet until cancellation. We obtained specific shareholder approval for the cancellation
of all treasury shares as of December 31, 2010 and amended our Articles of Association to reduce
our share capital accordingly at our 2011 annual general meeting of shareholders on May 3, 2011.
All shares acquired after December 31, 2010 will remain as treasury shares until shareholder
approval for the cancellation is granted at a future general meeting of shareholders. Based on the
aggregate share repurchases under our program through March 31, 2011, we are authorized to
repurchase up to an additional $471,392 of our outstanding shares.
Any repurchases will be made at our discretion 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 treasury shares are carried at cost on the consolidated balance sheet until the
cancellation of the shares has been approved by our shareholders and the cancellation is registered
with the commercial register of the Canton of Zug in Switzerland. Upon the effectiveness of the
cancellation of the shares, the cost of the shares cancelled will be removed from treasury shares,
on the consolidated balance sheet, the par value of the cancelled shares will be removed from
registered shares, on the consolidated balance sheet, and the excess of the cost of the treasury
shares above par value will be removed from paid-in capital, on the consolidated balance sheet.
Once repurchased, treasury shares are no longer considered outstanding, which results in a
reduction to 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.
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 and the
non-vested portion of restricted share units to the extent such securities are dilutive.
In profitable periods, outstanding stock options 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 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 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 share units is determined using the treasury stock method, but the proceeds include only
the unrecognized compensation cost and tax benefits as assumed proceeds.
10
The computations of basic and diluted earnings per share were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
Net income attributable to Foster Wheeler AG
|
|
$
|
22,971
|
|
|
$
|
72,060
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding
for basic earnings per share
|
|
|
124,680,060
|
|
|
|
127,474,887
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.18
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
Net income attributable to Foster Wheeler AG
|
|
$
|
22,971
|
|
|
$
|
72,060
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding
for basic earnings per share
|
|
|
124,680,060
|
|
|
|
127,474,887
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Options to purchase shares
|
|
|
399,159
|
|
|
|
296,254
|
|
Non-vested portion of restricted share units
|
|
|
252,651
|
|
|
|
122,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding
for diluted earnings per share
|
|
|
125,331,870
|
|
|
|
127,893,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.18
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
The following table summarizes options not included in the calculation of diluted
earnings per share as the exercise price of those options was greater than the average share price
for the period, which would result in an antidilutive effect on diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Options not included in the computation of
diluted earnings per share
|
|
|
1,371,549
|
|
|
|
1,369,135
|
|
|
|
|
|
|
|
|
2. Business Combinations
In December 2010, we acquired the assets of a proprietary sulfur recovery technology
business for $1,000. The sulfur recovery technology is used to treat gas streams containing
hydrogen sulfide for the purpose of reducing the sulfur content of fuel products and to recover a
saleable sulfur by-product. The acquisition includes patents, know-how and skilled personnel. The
purchase price allocation and pro forma information for this acquisition were not material to our
consolidated financial statements. This companys financial results are included within our Global
Engineering and Construction Group (Global E&C Group) business segment.
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 50% noncontrolling interest in a project 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 41.65% 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 shareholders right to approve
activities of the project that most significantly impact the projects 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.
11
On February 27, 2010, an earthquake occurred off the coast of Chile that caused significant
damage to our unconsolidated affiliates facility in Chile. As a result of the damage, the
projects facility suspended normal operating activities on that date. Subsequent to that date,
our unconsolidated affiliate filed a claim with its insurance carrier. A preliminary assessment of
the extent of the damage was completed and an estimate of the required cost of repairs was
developed. Based on the assessment and cost estimate, as well as correspondence received from the
insurance carrier, we expect the property damage insurance recovery to be sufficient to cover the
costs of repairing the facility. The insurance carrier also provided a preliminary assessment of
the business interruption insurance recovery due to our unconsolidated affiliate, and has advanced
insurance proceeds against this assessment. Based on this assessment, we expect the business
interruption insurance recovery to substantially compensate our unconsolidated affiliate for the
loss of profits while the facility has suspended normal operating activities. Our unconsolidated
affiliates receivable related to the remaining balance under their property damage and business
interruption insurance recovery assessment was approximately $53,500 as of March 31, 2011, which is
included in current assets in the table below. The facility is currently operating in testing mode
and is expected to resume normal operating activities in the fiscal second quarter of 2011.
The summarized financial information presented below for the project in Chile includes an
estimated recovery under a property damage insurance policy sufficient to cover the costs that have
been incurred to repair the facility and an estimated recovery under a business interruption
insurance policy for fixed costs along with an estimated recovery for lost profits during the
period that the facility has suspended normal operating activities.
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) based on where the projects
are located:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Italy
|
|
|
Chile
|
|
|
Italy
|
|
|
Chile
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
379,189
|
|
|
$
|
87,983
|
|
|
$
|
396,512
|
|
|
$
|
70,381
|
|
Other assets (primarily buildings and equipment)
|
|
|
414,921
|
|
|
|
115,375
|
|
|
|
395,264
|
|
|
|
117,779
|
|
Current liabilities
|
|
|
185,549
|
|
|
|
53,499
|
|
|
|
202,658
|
|
|
|
43,909
|
|
Other liabilities (primarily long-term debt)
|
|
|
291,323
|
|
|
|
43,927
|
|
|
|
275,466
|
|
|
|
50,132
|
|
Net assets
|
|
|
317,238
|
|
|
|
105,932
|
|
|
|
313,652
|
|
|
|
94,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Italy
|
|
|
Chile
|
|
|
Italy
|
|
|
Chile
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
29,417
|
|
|
$
|
20,817
|
|
|
$
|
99,638
|
|
|
$
|
10,623
|
|
Gross profit
|
|
|
12,067
|
|
|
|
129
|
|
|
|
18,977
|
|
|
|
4,487
|
|
Income before income taxes
|
|
|
9,256
|
|
|
|
14,766
|
|
|
|
13,903
|
|
|
|
4,171
|
|
Net earnings
|
|
|
5,647
|
|
|
|
11,813
|
|
|
|
7,912
|
|
|
|
3,462
|
|
Our investment in these unconsolidated affiliates is recorded within investments in and
advances to unconsolidated affiliates on the consolidated balance sheet and our equity in the net
earnings of these unconsolidated affiliates is recorded within other income, net on the
consolidated statement of operations. The investments and equity earnings of the projects in Italy
and project in Chile are included in our Global E&C Group and Global Power Group business segments,
respectively. Our consolidated financial statements reflect the following amounts related to these
unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Equity in the net earnings of partially owned affiliates
|
|
$
|
12,493
|
|
|
$
|
6,289
|
|
Distributions from equity affiliates
|
|
$
|
9,677
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Total investment in equity affiliates
|
|
$
|
214,899
|
|
|
$
|
200,668
|
|
Our equity earnings for our project in Chile during the fiscal three months ended March
31, 2011 and 2010 were $9,887 and $2,831, respectively, which included our equity interest in the
after tax estimated recovery under our project in Chiles business interruption insurance policy
while the facility has suspended normal operating activities. The increase in equity earnings was
driven primarily by higher marginal rates for electrical power generation included in the projects
business interruption insurance recovery. In accordance with authoritative accounting guidance on
business interruption insurance, we recorded an estimated recovery for lost profits as
substantially all contingencies related to the insurance claim had been resolved as of the fiscal
third quarter of 2010.
12
The two electric power generation projects in Italy, owned by the companies Centro Energia
Teverola S.p.A., (CET) and Centro Energia Ferrara S.p.A., (CEF), in which we hold 41.65% of the
shares in each company, had long-term power off-take agreements in place with the Authority for
Energy (the Energy Authority), which is part of the Italian Economic Development Ministry (the
Ministry). The power off-take agreements with the Energy Authority included an incentivized
tariff during the period of operation. In September 2010, the Ministry announced an option for
certain projects, including those of CEF and CET, to terminate their long-term power off-take
agreements with the Energy Authority in exchange for a lump-sum payment. The payment was
determined by specific calculation under parameters established by the Ministry. In October 2010,
CEF and CET submitted an application to terminate their power off-take agreements and, in December
2010, the Ministry approved the applications. CET and CEF recognized revenue for the full value of
the termination payments in their financial statements for the year ended December 31, 2010.
In light of the termination of the power off-take agreements, we and our respective partners
at CET and CEF reviewed the economic viability of each plant. As a result, a decision was made to
shut down the CET plant effective January 1, 2011. We and our partner in CEF decided to continue
to operate the CEF plant at least temporarily on a merchant basis following the termination of its
power off-take agreement. We and our partner in the CEF plant will continue to review the economic
viability of the project and we may consider a potential sale of the plant in 2011. As a result of
the foregoing operating decisions, CET and CEF recorded impairment charges during the fiscal fourth
quarter of 2010 to write down their fixed assets to fair value in their financial statements.
Additionally, during the fiscal fourth quarter of 2010, our investments in CET and CEF were reduced
by equity losses based on the 2010 financial results of CET and CEF, inclusive of the respective
impairment charges. As a result of the foregoing, the carrying value of our CET and CEF
investments approximated fair value at December 31, 2010. Our equity earnings from our investments
in CET and CEF during the fiscal three months ended March 31, 2011 were insignificant. Our equity
earnings for our CET and CEF investments during the fiscal three months ended March 31, 2010 were
$428 and $511, respectively.
We have guaranteed certain performance obligations of the project in Chile. We do not expect
that the earthquake will require us to contribute to this project under our guarantee of the
projects performance obligations.
We have a contingent obligation, which is measured annually based on the operating results of
the project in Chile 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 March 31, 2011
and December 31, 2010.
In addition, we have provided a $10,000 debt service reserve letter of credit to cover debt
service payments in the event that the project in Chile 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 project in Chiles debt, which matures in 2014. As of March 31, 2011, no amounts
have been drawn under this letter of credit and, based on our current assessment following the
earthquake in Chile as 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. We continue to provide our services to the project while the facility has
suspended normal operating activities, as a result of the earthquake in Chile noted above, which
have been focused on assessing the damage caused by the earthquake and the related repair for the
facility to resume normal operating activities. We record the fees for operations and maintenance
services in operating revenues on our consolidated statement of operations and the corresponding
receivable in trade accounts and notes receivable on our consolidated balance sheet. Our
consolidated financial statements include the following balances related to our project in Chile:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Fees for operations and maintenance services (included in operating revenues)
|
|
$
|
2,660
|
|
|
$
|
2,461
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Receivable from our unconsolidated affiliate in Chile (included in trade receivables)
|
|
$
|
4,140
|
|
|
$
|
632
|
|
We also have guaranteed the performance obligations of our wholly-owned subsidiary under
the project in Chiles 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.
13
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
VIEs performance. These activities include the operations and maintenance of the facilities.
Accordingly, we consolidate these entities. The aggregate net assets of these entities are
presented below.
|
|
|
|
|
|
|
|
|
Balance Sheet Data (excluding intercompany balances):
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Current assets
|
|
$
|
7,122
|
|
|
$
|
15,915
|
|
Other assets (primarily buildings and equipment)
|
|
|
107,250
|
|
|
|
102,457
|
|
Current liabilities
|
|
|
10,740
|
|
|
|
11,177
|
|
Other liabilities
|
|
|
5,081
|
|
|
|
1,791
|
|
Net assets
|
|
|
98,551
|
|
|
|
105,404
|
|
4. Goodwill and Other 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 related to the assessment
of goodwill for impairment. There were no accumulated goodwill impairment losses as of that date.
The following table provides our net carrying amount of goodwill by geographic region in which our
reporting units are located:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global E&C Group
|
|
|
Global Power Group
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
U.S.
|
|
$
|
39,357
|
|
|
$
|
39,357
|
|
|
$
|
|
|
|
$
|
|
|
Asia
|
|
|
1,056
|
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
51,352
|
|
|
|
48,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,413
|
|
|
$
|
40,410
|
|
|
$
|
51,352
|
|
|
$
|
48,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fiscal three months ended March 31, 2010, we made a contractual payment of
$1,221 related to a prior acquisition of a business in our Global E&C Groups U.S. operations.
The following table sets forth amounts relating to our identifiable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Patents
|
|
$
|
41,853
|
|
|
$
|
(29,191
|
)
|
|
$
|
12,662
|
|
|
$
|
41,237
|
|
|
$
|
(28,476
|
)
|
|
$
|
12,761
|
|
Trademarks
|
|
|
64,650
|
|
|
|
(28,645
|
)
|
|
|
36,005
|
|
|
|
63,774
|
|
|
|
(27,764
|
)
|
|
|
36,010
|
|
Customer relationships,
pipeline and backlog
|
|
|
22,359
|
|
|
|
(5,723
|
)
|
|
|
16,636
|
|
|
|
22,329
|
|
|
|
(5,030
|
)
|
|
|
17,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
128,862
|
|
|
$
|
(63,559
|
)
|
|
$
|
65,303
|
|
|
$
|
127,340
|
|
|
$
|
(61,270
|
)
|
|
$
|
66,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, the net carrying amounts of our identifiable intangible assets were
$48,597 for our Global Power Group and $16,706 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. The following table details amounts relating to amortization
expense by period:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Amortization expense
|
|
$
|
1,648
|
|
|
$
|
1,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Approximate full year amortization expense
|
|
$
|
6,200
|
|
|
$
|
5,900
|
|
|
$
|
5,600
|
|
|
$
|
5,300
|
|
|
$
|
5,300
|
|
14
5. Borrowings
The following table shows the components of our long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
Capital Lease Obligations
|
|
$
|
2,626
|
|
|
$
|
59,340
|
|
|
$
|
61,966
|
|
|
$
|
2,574
|
|
|
$
|
59,024
|
|
|
$
|
61,598
|
|
Special-Purpose Limited Recourse Project Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FW Power S.r.l.
|
|
|
7,875
|
|
|
|
86,217
|
|
|
|
94,092
|
|
|
|
7,403
|
|
|
|
81,047
|
|
|
|
88,450
|
|
Energia Holdings, LLC at 11.443% interest,
due April 15, 2015
|
|
|
2,019
|
|
|
|
11,220
|
|
|
|
13,239
|
|
|
|
2,019
|
|
|
|
11,220
|
|
|
|
13,239
|
|
Subordinated Robbins Facility Exit Funding Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999C Bonds at 7.25% interest, due October 15, 2024
|
|
|
|
|
|
|
1,283
|
|
|
|
1,283
|
|
|
|
|
|
|
|
1,283
|
|
|
|
1,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,520
|
|
|
$
|
158,060
|
|
|
$
|
170,580
|
|
|
$
|
11,996
|
|
|
$
|
152,574
|
|
|
$
|
164,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
|
|
|
|
|
|
|
|
$
|
187,696
|
|
|
|
|
|
|
|
|
|
|
$
|
182,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 an aggregate of $225,000 in total additional availability under the
facility. The amended and restated U.S. senior secured credit agreement permits us to issue up to
$450,000 in letters of credit under the 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 Moodys Investors Service, which we refer to as Moodys, and/or Standard & Poors, or S&P. We
received a corporate credit rating of BBB- as issued by S&P during the fiscal third quarter of
2010, which, under the amended and restated U.S. senior secured credit agreement, reduces our
pricing for letters of credit issued under the agreement. Based on our current credit ratings,
letter of credit fees for performance and financial letters of credit issued under the amended and
restated U.S. senior secured credit agreement are 1.000% and 2.000% per annum of the outstanding
amount, respectively, excluding fronting fees. 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 2.000%, subject also to the performance pricing noted above.
Fees and expenses incurred in conjunction with the execution of our amended and restated U.S.
senior credit agreement were approximately $4,300 and are being amortized to expense over the
four-year term of the agreement, which commenced in the fiscal third quarter of 2010.
The assets and/or stock of certain of our 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 AGs
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 Moodys 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.
15
We had approximately $296,100 and $310,100 of letters of credit outstanding under our
U.S. senior secured credit agreement in effect as of March 31, 2011 and December 31, 2010,
respectively. The letter of credit fees under the U.S. senior secured credit agreement outstanding
as of March 31, 2011 and December 31, 2010 ranged from 1.00% to 2.00% of the outstanding amount,
excluding fronting fees. There were no funded borrowings outstanding under the agreement as of
March 31, 2011 or December 31, 2010.
6. Pensions and Other Postretirement Benefits
We have defined benefit pension plans in the United States, or U.S., the United Kingdom,
or U.K., Canada, Finland, France, India and South Africa, and we have other postretirement benefit
plans for health care and life insurance benefits in the U.S. and Canada.
Defined Benefit Pension Plans
Our defined benefit pension plans, or pension plans, cover
certain full-time employees. Under the pension plans, retirement benefits are primarily a function
of both years of service and level of compensation. The U.S. pension plans, which are closed to
new entrants and additional benefit accruals, and the Canada, Finland, France and India pension
plans are non-contributory. The U.K. pension plan, which is closed to new entrants and additional
benefit accruals, and the South Africa pension plan are both contributory plans.
Effective March 31, 2010, we closed the U.K. pension 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 in the fiscal three months ended March 31, 2010 of approximately £13,300
(approximately $20,100 at the exchange rate in effect at the time of the pension plan closure).
Based on the minimum statutory funding requirements for fiscal year 2011, we are not required
to make any mandatory contributions to our U.S. pension plans. The following table provides
details on fiscal year 2011 mandatory contribution activity for our non-U.S. pension plans:
|
|
|
|
|
Contributions in the fiscal three months ended March 31, 2011
|
|
$
|
3,900
|
|
Remaining contributions expected for fiscal year 2011
|
|
|
20,300
|
|
|
|
|
|
Contributions expected for fiscal year 2011
|
|
$
|
24,200
|
|
|
|
|
|
We did not make any discretionary contributions during the fiscal first three months of
2011; however, we may elect to make discretionary contributions to our U.S. and/or non-U.S. pension
plans during fiscal year 2011.
Other Postretirement Benefit Plans
Certain employees in the U.S. 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
Canada pension plans while working for us. Additionally, one of our subsidiaries in the U.S. also
has a benefit plan, referred to as the Survivor Income Plan (SIP), which provides coverage for an
employees beneficiary upon the death of the employee. This plan has been closed to new entrants
since 1988.
16
The components of net periodic benefit cost/(credit) for our defined benefit pension plans and
other postretirement benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
Defined Benefit
|
|
|
Other Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
Net periodic benefit cost/(credit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
369
|
|
|
$
|
1,877
|
|
|
$
|
27
|
|
|
$
|
34
|
|
Interest cost
|
|
|
15,611
|
|
|
|
15,375
|
|
|
|
912
|
|
|
|
1,207
|
|
Expected return on plan assets
|
|
|
(18,141
|
)
|
|
|
(15,180
|
)
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
3,454
|
|
|
|
5,928
|
|
|
|
77
|
|
|
|
52
|
|
Amortization of prior service (credit)/cost
|
|
|
9
|
|
|
|
(425
|
)
|
|
|
(891
|
)
|
|
|
(996
|
)
|
Amortization of transition obligation
|
|
|
12
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
Curtailment gain*
|
|
|
|
|
|
|
(20,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost/(credit)
|
|
$
|
1,314
|
|
|
$
|
(12,487
|
)
|
|
$
|
125
|
|
|
$
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes recognized in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
|
|
|
$
|
21,130
|
|
|
$
|
|
|
|
$
|
|
|
Prior service credit
|
|
|
|
|
|
|
(9,054
|
)
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
(3,454
|
)
|
|
|
(5,928
|
)
|
|
|
(77
|
)
|
|
|
(52
|
)
|
Amortization of prior service credit/(cost)
|
|
|
(9
|
)
|
|
|
425
|
|
|
|
891
|
|
|
|
996
|
|
Amortization of transition obligation
|
|
|
(12
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other
comprehensive income before tax
|
|
$
|
(3,475
|
)
|
|
$
|
6,549
|
|
|
$
|
814
|
|
|
$
|
944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
During the fiscal three months ended March 31, 2010, a curtailment gain resulted from the
closure of the U.K. pension plan for future benefit accrual.
|
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 Payment
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Environmental indemnifications
|
|
No limit
|
|
$
|
8,100
|
|
|
$
|
8,400
|
|
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 Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Warranty Liability:
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
100,300
|
|
|
$
|
110,800
|
|
Accruals
|
|
|
7,600
|
|
|
|
6,800
|
|
Settlements
|
|
|
(4,900
|
)
|
|
|
(3,600
|
)
|
Adjustments to provisions, including foreign currency translation
|
|
|
100
|
|
|
|
(11,500
|
)
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
103,100
|
|
|
$
|
102,500
|
|
|
|
|
|
|
|
|
We are contingently liable under standby letters of credit, bank guarantees and surety
bonds, totaling $1,065,900 and $1,010,600 as of March 31, 2011 and December 31, 2010, respectively,
primarily for guarantees of our performance on projects currently in execution or under warranty.
These amounts include the standby letters of credit issued under the U.S. senior secured 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.
17
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
|
|
|
|
Balance Sheet
|
|
|
March 31,
|
|
|
December 31,
|
|
|
Balance Sheet
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
Location
|
|
|
2011
|
|
|
2010
|
|
|
Location
|
|
|
2011
|
|
|
2010
|
|
Derivatives designated as
hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
|
Other assets
|
|
$
|
|
|
|
$
|
|
|
|
Other long-term liabilities
|
|
$
|
5,860
|
|
|
$
|
6,903
|
|
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
|
|
|
3,299
|
|
|
|
2,112
|
|
|
|
Contracts
in process or billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
1,263
|
|
|
|
2,978
|
|
Foreign currency forward
contracts
|
|
Other accounts receivable
|
|
|
298
|
|
|
|
367
|
|
|
Accounts payable
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
3,597
|
|
|
$
|
2,479
|
|
|
|
|
|
|
$
|
7,123
|
|
|
$
|
9,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Exchange Rate Risk
We operate on a worldwide basis with substantial operations in Europe that subject us to
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 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 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.
The notional amount of foreign currency forward contracts provides one measure of the
transaction volume outstanding as of the balance sheet date. As of March 31, 2011, we had a total
gross notional amount of $232,043 related to foreign currency forward contracts. 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 2011 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 S&P (or the
equivalent by other recognized credit rating agencies).
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. For foreign currency forward
contracts used to mitigate currency risk on our projects, the gain or loss from the portion of the
mark-to-market adjustment related to the completed portion of the underlying project 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 project is reflected directly in cost
of operating revenues in the period in which the mark-to-market adjustment occurs. We also utilize
foreign currency forward contracts to mitigate non-project related currency risks, which are
recorded in other deductions, net. The gain or loss from the remaining uncompleted portion of our
projects and other non-project related transactions were as follows:
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) Recognized in
|
|
|
|
|
|
|
|
Income on Derivatives
|
|
Derivatives Not Designated as
|
|
Location of Gain/(Loss) Recognized
|
|
|
Fiscal Three Months Ended March 31,
|
|
Hedging Instruments
|
|
in Income on Derivative
|
|
|
2011
|
|
|
2010
|
|
Foreign currency forward contracts
|
|
Cost of operating revenues
|
|
$
|
1,814
|
|
|
$
|
(1,451
|
)
|
Foreign currency forward contracts
|
|
Other deductions, net
|
|
|
70
|
|
|
|
(188
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,884
|
|
|
$
|
(1,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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 first three months ended March 31, 2011 and 2010, we included net cash
inflows/(outflows) on the settlement of derivatives of $182 and $(2,548), 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 $78,100 as of March 31, 2011.
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.
The impact from interest rate swap contracts in cash flow hedging relationships was as
follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Gain/(loss) recognized in Other comprehensive income
|
|
$
|
847
|
|
|
$
|
(2,936
|
)
|
Loss reclassified from Accumulated other comprehensive loss
|
|
|
615
|
|
|
|
1,122
|
|
9. Share-Based Compensation Plans
Our share-based compensation plans include both restricted share units and stock option
awards. The following table summarizes our share-based compensation expense and related income tax
benefit:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Share-based compensation
|
|
$
|
4,871
|
|
|
$
|
4,602
|
|
Related income tax benefit
|
|
|
81
|
|
|
|
99
|
|
As of March 31, 2011, we had $15,338 and $19,089 of total unrecognized compensation cost
related to stock options and restricted share units, respectively. Those amounts are expected to
be recognized as expense over a weighted-average period of approximately 26 months.
19
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 shares using a look-back
period which coincides with the expected term, defined below. We believe using a
look-back period which coincides with the expected term is the most appropriate
measure for determining expected volatility.
|
|
|
|
Expected term we estimate the expected term using the simplified method, as
outlined in Staff Accounting Bulletin No. 107, Share-Based Payment.
|
|
|
|
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 estimate the fair value of each restricted share unit award using the market price of our
shares on the date of grant. We then recognize the fair value of each restricted share unit award
as compensation cost ratably using the straight-line attribution method over the service period
(generally the vesting period).
Certain of our executives have been awarded performance-based restricted stock units. Under
these awards, the number of restricted stock units that ultimately vest depend on our share price
performance against specified performance goals, which are defined in our performance-based award
agreement. We estimate the grant date fair value of the performance-based restricted share unit
award using a Monte Carlo valuation model. We then recognize the fair value of each restricted
share unit award as compensation cost ratably using the straight-line attribution method over the
service period (generally the vesting period). During the fiscal three months ended March 31,
2011, performance-based restricted share units totaling 92,971 were granted at an estimated grant
date fair value of $25.08 per unit.
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 current accounting guidance regarding the
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 first three months ended March 31, 2011 and 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
Balance at beginning of year
|
|
$
|
4,935
|
|
|
$
|
2,570
|
|
Compensation cost during the period for those equity awards with
intrinsic value on the grant date
|
|
|
2,580
|
|
|
|
2,279
|
|
Intrinsic value of equity awards vested during the period for
those equity awards with intrinsic value on the grant date
|
|
|
(1,510
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
6,005
|
|
|
$
|
4,829
|
|
|
|
|
|
|
|
|
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 and other convertible or
exercisable 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 share
units, with an offsetting increase to our issued share capital. As of March 31, 2011, our
remaining available conditional capital was 60,255,245 shares.
20
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. Deferred tax assets and liabilities are established for tax
attributes (credits or loss carryforwards) and temporary differences between the book and tax basis
of assets and liabilities. Within each jurisdiction and taxpaying component, current and
noncurrent deferred tax assets and liabilities are combined and presented as a net amount.
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. We have decreased our December 31, 2010 deferred tax
assets (current and non-current) and noncurrent deferred tax liabilities in equal amounts in order
to reflect the net presentation of deferred tax assets and liabilities by jurisdiction consistent
with our March 31, 2011 presentation.
Fiscal Year 2011
Our effective tax rate for the fiscal first three months of 2011 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 14-percentage point reduction
in the effective tax rate for the full year 2011.
|
|
|
|
A valuation allowance increase for the quarter because we are unable to recognize a
tax benefit for year-to-date losses subject to valuation allowance in the United
States.
|
|
|
|
Discrete items for the quarter, including, primarily, changes in judgment regarding
unrecognized tax benefits and certain adjustments to deferred taxes and taxes payable
for prior years.
|
Both the valuation allowance increase and the discrete items for the quarter are not expected
to significantly change the effective tax rate for the full year 2011.
Our effective tax rate for the fiscal first three months of 2010 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 19-percentage point reduction in the
effective tax rate.
|
|
|
|
Total changes in our valuation allowance contributed to an approximate
five-percentage point increase in the effective tax rate as a result of the impact of a
net 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).
|
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 2006.
A number of tax years are under audit by the relevant tax authorities in various
jurisdictions, including the U.S. and several states within the U.S. We anticipate that several of
these audits may be concluded in the foreseeable future, including in the remainder of fiscal year
2011. 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.
21
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
facilities, distribution facilities, gasification facilities and processing facilities associated
with the metals and mining sector. 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. Additionally, our Global E&C Group is also involved in the development, engineering,
construction, ownership and operation of power generation facilities, from conventional and
renewable sources, and of waste-to-energy facilities in Europe. 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.
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 power production facilities.
Our Global Power Groups steam generating equipment includes a broad 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, municipal solid waste and waste flue gases into steam, which can be used
for power generation, district heating or for industrial processes.
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.
22
Operating Revenues
We conduct our business on a global basis. Operating revenues by industry and business
segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Operating Revenues (Third-Party) by Industry:
|
|
|
|
|
|
|
|
|
Power generation
|
|
$
|
195,129
|
|
|
$
|
155,180
|
|
Oil refining
|
|
|
363,529
|
|
|
|
315,838
|
|
Pharmaceutical
|
|
|
11,184
|
|
|
|
12,597
|
|
Oil and gas
|
|
|
272,047
|
|
|
|
297,622
|
|
Chemical/petrochemical
|
|
|
153,977
|
|
|
|
132,107
|
|
Power plant operation and maintenance
|
|
|
28,329
|
|
|
|
24,322
|
|
Environmental
|
|
|
2,559
|
|
|
|
3,124
|
|
Other, net of eliminations
|
|
|
9,498
|
|
|
|
4,783
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,036,252
|
|
|
$
|
945,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues (Third-Party) by Business Segment:
|
|
|
|
|
|
|
|
|
Global E&C Group
|
|
$
|
823,743
|
|
|
$
|
779,684
|
|
Global Power Group
|
|
|
212,509
|
|
|
|
165,889
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,036,252
|
|
|
$
|
945,573
|
|
|
|
|
|
|
|
|
EBITDA
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.
23
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 Three Months Ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(2)
|
|
$
|
46,804
|
|
|
$
|
41,668
|
|
|
$
|
26,464
|
|
|
$
|
(21,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Net income attributable to noncontrolling interests
|
|
|
2,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest expense
|
|
|
3,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and amortization
|
|
|
12,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
32,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Provision for income taxes
|
|
|
7,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
25,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
2,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Foster Wheeler AG
|
|
$
|
22,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(2)
|
|
$
|
111,280
|
|
|
$
|
99,933
|
|
|
$
|
29,883
|
|
|
$
|
(18,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Net income attributable to noncontrolling interests
|
|
|
3,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest expense
|
|
|
4,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and amortization
|
|
|
13,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
96,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Provision for income taxes
|
|
|
21,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
75,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
3,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Foster Wheeler AG
|
|
$
|
72,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes general corporate income and expense, our captive insurance operation and the elimination of transactions and balances related to
intercompany interest.
|
|
(2)
|
|
EBITDA includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Net (decrease)/increase in contract profit from the regular revaluation
of final estimated contract profit revisions*:
|
|
|
|
|
|
|
|
|
Global E&C**
|
|
$
|
800
|
|
|
$
|
9,200
|
|
Global Power Group**
|
|
|
(5,400
|
)
|
|
|
3,900
|
|
|
|
|
|
|
|
|
Total**
|
|
|
(4,600
|
)
|
|
|
13,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asbestos-related provision/(gain) in C&F Group***
|
|
|
400
|
|
|
|
(700
|
)
|
Curtailment
gain on the closure of the U.K. pension plan for future defined benefit accrual in our Global E&C Group
|
|
|
|
|
|
|
20,100
|
|
|
|
|
*
|
|
Please refer to Revenue Recognition on Long-Term Contracts in Note 1 for further
information regarding changes in our final estimated contract profit.
|
|
**
|
|
The changes in final estimated contract profit revisions during the fiscal three months
ended March 31, 2011 included the impact of two out-of-period corrections for reductions of
final estimated profit totaling $7,800, which included final estimated profit reductions in
our Global E&C Group and our Global Power Group of $3,200 and $4,600, respectively. The
corrections were recorded in the current period as they were not material to previously issued
financial statements, nor are they expected to be material to the full year 2011 financial
statements.
|
|
***
|
|
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 as disclosed in our 2010 Form 10-K. The only
significant intersegment transactions relate to interest on intercompany balances. We account for
interest on those arrangements as if they were third-party transactionsi.e. at current market
rates, and we include the elimination of that activity in the results of the C&F Group.
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.
24
United States
A summary of our U.S. claim activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
Number of Claims by period:
|
|
2011
|
|
|
2010
|
|
Open claims at beginning of year
|
|
|
124,420
|
|
|
|
125,100
|
|
New claims
|
|
|
1,280
|
|
|
|
1,210
|
|
Claims resolved
|
|
|
(2,120
|
)
|
|
|
(880
|
)
|
|
|
|
|
|
|
|
Open claims at end of period
|
|
|
123,580
|
|
|
|
125,430
|
|
|
|
|
|
|
|
|
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 first fiscal quarter of 2026. 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.
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Asbestos-related assets recorded within:
|
|
|
|
|
|
|
|
|
Accounts and notes receivable-other
|
|
$
|
55,858
|
|
|
$
|
54,449
|
|
Asbestos-related insurance recovery receivable
|
|
|
156,576
|
|
|
|
165,452
|
|
|
|
|
|
|
|
|
Total asbestos-related assets
|
|
$
|
212,434
|
|
|
$
|
219,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos-related liabilities recorded within:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
48,100
|
|
|
$
|
59,000
|
|
Asbestos-related liability
|
|
|
269,833
|
|
|
|
278,500
|
|
|
|
|
|
|
|
|
Total asbestos-related liabilities
|
|
$
|
317,933
|
|
|
$
|
337,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance by claim category:
|
|
|
|
|
|
|
|
|
Open claims
|
|
$
|
61,977
|
|
|
$
|
78,460
|
|
Future unasserted claims
|
|
|
255,956
|
|
|
|
259,040
|
|
|
|
|
|
|
|
|
Total asbestos-related liabilities
|
|
$
|
317,933
|
|
|
$
|
337,500
|
|
|
|
|
|
|
|
|
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 each fiscal year-end for the next 15 years. Since that time, we have recorded our
estimated asbestos liability at a level consistent with ARPCs reasonable best estimate. Our
estimated asbestos liability decreased during the fiscal first three months of 2011 as a result of
indemnity and defense cost payments totaling approximately $21,600, partially offset by an increase
of $2,000 related to the accrual of our rolling 15-year asbestos-related liability estimate. The
total asbestos-related liabilities are comprised of our estimates for our liability relating to
open (outstanding) claims being valued and our liability for future unasserted claims through the
first fiscal quarter of 2026.
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 first quarter of 2026, 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 first fiscal quarter of 2026, 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 first quarter of 2026.
Through March 31, 2011, total cumulative indemnity costs paid were approximately $744,300 and
total cumulative defense costs paid were approximately $347,300. Historically, defense costs have
represented approximately 31.8% of total defense and indemnity costs. The overall historic average
combined indemnity and defense cost per resolved claim through March 31, 2011 has been
approximately $3.0. The average cost per resolved claim is increasing and we believe it will
continue to increase in the future.
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 first
three months of 2011, our subsidiaries reached an agreement to settle their
25
disputed
asbestos-related insurance coverage with an additional insurer. As a result of this settlement, we
increased our asbestos-related insurance asset and recorded a gain of $1,600 in the first fiscal
quarter ended March 31, 2011.
Asbestos-related assets under executed settlement agreements with insurers due in the next 12
months are recorded within accounts and notes receivable-other and amounts due beyond 12 months are
recorded within asbestos-related insurance recovery receivable. Asbestos-related insurance
recovery receivable also includes our best estimate of actual and probable insurance recoveries
relating to our liability for pending and estimated future asbestos claims through the first fiscal
quarter of 2026. Our asbestos-related assets have not been discounted for the time value of
money.
Our insurance recoveries 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. We have considered the financial viability and legal obligations of our
subsidiaries insurance carriers and believe that the insurers or their guarantors will continue to
reimburse a significant portion of claims and defense costs relating to asbestos litigation. As of
March 31, 2011 and December 31, 2010, we have not recorded an allowance for uncollectible balances
against our asbestos-related insurance assets. We write off receivables from insurers that have
become insolvent; there have been no such write-offs during the fiscal three months ended March 31,
2011 and 2010. 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.
The following table summarizes our net asbestos-related provision/(gain):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Provision for revaluation
|
|
$
|
2,000
|
|
|
$
|
3,245
|
|
Gain on the settlement of coverage litigation
|
|
|
(1,600
|
)
|
|
|
(3,992
|
)
|
|
|
|
|
|
|
|
Net asbestos-related provision/(gain)
|
|
$
|
400
|
|
|
$
|
(747
|
)
|
|
|
|
|
|
|
|
Our net asbestos-related provision/(gain) is the result of our revaluation of our
asbestos liability and related asset resulting from adjustments for actual settlement experience
different from our estimates and the accrual of our rolling 15-year asbestos liability estimate,
partially offset by gains on the settlement of coverage litigation with asbestos insurance
carriers.
The following table summarizes our approximate asbestos-related payments and insurance
proceeds:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Asbestos litigation, defense and case resolution payments
|
|
$
|
21,600
|
|
|
$
|
15,500
|
|
Insurance proceeds
|
|
|
(9,100
|
)
|
|
|
(9,100
|
)
|
|
|
|
|
|
|
|
Net asbestos-related payments
|
|
$
|
12,500
|
|
|
$
|
6,400
|
|
|
|
|
|
|
|
|
We expect to have net cash outflows of $5,700 as a result of asbestos liability indemnity
and defense payments in excess of insurance settlement proceeds for the full fiscal year 2011.
This estimate assumes no additional settlements with insurance companies and no 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, 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.
Based on the fiscal year-end 2010 liability estimate, an increase of 25% in the average per
claim indemnity settlement amount would increase the liability by $52,300 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 of approximately 80% of the increase in the liability. Long-term
cash flows would ultimately change by the same amount. Should there be an
26
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.
United Kingdom
Some of our subsidiaries in the United Kingdom have also received claims alleging personal
injury arising from exposure to asbestos. To date, 968 claims have been brought against our U.K.
subsidiaries of which 289 remained open as of March 31, 2011. None of the settled claims has
resulted in material costs to us. The following table summarizes our asbestos-related liabilities
and assets for our U.K. subsidiaries based on open (outstanding) claims and our estimate for future
unasserted claims through the first fiscal quarter of 2026:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Asbestos-related assets:
|
|
|
|
|
|
|
|
|
Accounts and notes receivable-other
|
|
$
|
1,998
|
|
|
$
|
1,927
|
|
Asbestos-related insurance recovery receivable
|
|
|
30,199
|
|
|
|
29,119
|
|
|
|
|
|
|
|
|
Total asbestos-related assets
|
|
$
|
32,197
|
|
|
$
|
31,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos-related liabilities:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
1,998
|
|
|
$
|
1,927
|
|
Asbestos-related liability
|
|
|
30,199
|
|
|
|
29,119
|
|
|
|
|
|
|
|
|
Total asbestos-related liabilities
|
|
$
|
32,197
|
|
|
$
|
31,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance by claim category:
|
|
|
|
|
|
|
|
|
Open claims
|
|
$
|
5,851
|
|
|
$
|
5,782
|
|
Future unasserted claims
|
|
|
26,346
|
|
|
|
25,264
|
|
|
|
|
|
|
|
|
Total asbestos-related liabilities
|
|
$
|
32,197
|
|
|
$
|
31,046
|
|
|
|
|
|
|
|
|
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 $55,000.
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 clients right under the original
contract to reject the plants under our availability guaranty) and the clients 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 late 2011.
27
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 projects 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 projects achievement of substantial completion, which has been delayed due
to failures on our clients part to properly manage and execute the project. The client has taken
the position that we are responsible for the projects 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 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. Our
client has commenced a separate arbitration against the power plant owner, seeking monetary damages
and delay liquidated damage assessment refunds for schedule and productivity impacts due to force
majeure events and other
power plant owner-caused delays. The power plant owner has counterclaimed seeking monetary
damages for deficient plant performance including the alleged inability of the boilers to sustain
reliable operation. Our client has asserted a claim against us in our arbitration with the client
for damages in an unspecified amount due to alleged boiler performance problems. It is our
position that the existence of the owner-to-client claim does not affect our liability under our
contract with the client. We cannot predict the ultimate outcome of this dispute at this
time.
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, 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.
28
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 several additional residences, even though
TCE has not been detected in the wells at those residences. The hookups to the agreed-upon
residences have been completed. 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, FWECs 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.
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.
29
With regard to the foregoing, the waste-to-energy facility operated by our Camden County
Energy Recovery Associates, LP (CCERA) project subsidiary is subject to certain revisions to New
Jerseys mercury air emission regulations. The revisions make CCERAs mercury control requirements
more stringent, especially when the last phase of the revisions becomes effective in 2012. CCERAs
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 projects 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.
30
ITEM 2. MANAGEMENTS 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 managements 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, 2010, which we refer to as our 2010 Form 10-K.
Safe Harbor Statement
This managements 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 2010 Form 10-K, which we filed with the Securities and Exchange Commission, or SEC, on February
28, 2011, 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;
|
|
|
|
|
the search for a permanent Chief Executive Officer;
|
|
|
|
|
benefits, effects or results of our strategic renewal initiative;
|
|
|
|
|
further deterioration in global economic conditions;
|
|
|
|
|
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 global competition;
|
|
|
|
|
compliance with our debt covenants;
|
|
|
|
|
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.
31
In addition, this managements 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 and other expenses, in the
Corporate and Finance Group, which we refer to as the C&F Group.
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.
Summary Financial Results for the Fiscal Three Months Ended March 31, 2011
Our summary financial results for the fiscal three months ended March 31, 2011 and 2010
are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
Operating revenues
(1)
|
|
$
|
1,036,252
|
|
|
$
|
945,573
|
|
Contract profit
(1)
|
|
|
99,255
|
|
|
|
172,082
|
|
Selling, general and administrative expenses
(1)
|
|
|
73,841
|
|
|
|
70,305
|
|
Net income attributable to Foster Wheeler AG
|
|
|
22,971
|
|
|
|
72,060
|
|
Earnings per share :
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.18
|
|
|
|
0.57
|
|
Diluted
|
|
|
0.18
|
|
|
|
0.56
|
|
Net cash provided by operating activities
(2)
|
|
|
66,503
|
|
|
|
(4,217
|
)
|
|
|
|
(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.
|
Cash and cash equivalents totaled $1,102,823 and $1,057,163 as of March 31, 2011 and December
31, 2010, respectively.
Net income attributable to Foster Wheeler AG decreased in the fiscal first three months of
2011, compared to the same period of 2010, primarily driven by the pretax decrease in
contract profit of $72,800, partially offset by increased equity earnings in our Global Power
Groups project in Chile.
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.
32
In the engineering and construction industry, we expect long-term demand to be strong for the
end products produced by our clients, and we believe that this long-term demand will continue to
stimulate investment by our clients in new, expanded and upgraded facilities. The global economic
downturn experienced in 2008 and 2009 caused many of our engineering and construction 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. During fiscal year 2010
and the beginning of fiscal year 2011, we have been seeing an increased number of our clients
implementing their capital spending plans. Some of these clients are continuing to release
tranches of work on a piecemeal basis, conducting further analysis before deciding to proceed with
their investments or re-evaluating the size, timing or configuration of specific planned projects.
We are also seeing clients re-activating planned projects that had previously been placed on hold
and developing new projects. 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.
During fiscal year 2010 and the beginning of fiscal year 2011, we have seen an improvement in
the demand in some markets for the products and services of our Global Power Group, based on
increased new proposal activity. We believe this demand will continue to improve during fiscal
year 2011, driven primarily by growing electricity demand and industrial production as economies
around the world continue to recover. 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
The tables below summarize our new orders and backlog of unfilled orders by period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
March 31, 2010
|
|
New orders, measured in future revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Global E&C Group*
|
|
$
|
719,800
|
|
|
$
|
896,600
|
|
|
$
|
476,300
|
|
Global Power Group
|
|
|
143,700
|
|
|
|
422,600
|
|
|
|
462,200
|
|
|
|
|
|
|
|
|
|
|
|
Total*
|
|
$
|
863,500
|
|
|
$
|
1,319,200
|
|
|
$
|
938,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Balances include Global E&C Group flow-through
revenues, as defined in the section entitled Results of
Operations-Operating Revenues within this Item 2.
|
|
|
|
$
|
338,400
|
|
|
$
|
335,100
|
|
|
$
|
58,100
|
|
|
|
|
As of
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
March 31, 2010
|
|
Backlog of unfilled orders, measured in future revenues
|
|
$
|
3,849,300
|
|
|
$
|
3,979,500
|
|
|
$
|
4,027,800
|
|
Backlog, measured in Foster Wheeler scope*
|
|
$
|
2,624,100
|
|
|
$
|
2,643,200
|
|
|
$
|
2,306,700
|
|
E&C man-hours in backlog (in thousands)
|
|
|
12,500
|
|
|
|
12,700
|
|
|
|
13,500
|
|
|
|
|
*
|
|
As defined in the section entitled Backlog and New Orders within this Item 2.
|
Please refer to the section entitled Backlog and New Orders within this Item 2 for
further detail.
Results of Operations
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
Global E&C Group
|
|
$
|
823,743
|
|
|
$
|
779,684
|
|
|
$
|
44,059
|
|
|
|
5.7
|
%
|
Global Power Group
|
|
|
212,509
|
|
|
|
165,889
|
|
|
|
46,620
|
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,036,252
|
|
|
$
|
945,573
|
|
|
$
|
90,679
|
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 further dependent
upon the strength of the various geographic markets and industries we serve and our ability to
address those markets and industries.
33
Our operating revenues by geographic region, based upon where our projects are being executed,
for the fiscal three months ended March 31, 2011 and 2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
Africa
|
|
$
|
54,920
|
|
|
$
|
34,980
|
|
|
$
|
19,940
|
|
|
|
57.0
|
%
|
Asia
|
|
|
188,315
|
|
|
|
212,631
|
|
|
|
(24,316
|
)
|
|
|
(11.4
|
)%
|
Australasia and other*
|
|
|
240,021
|
|
|
|
253,060
|
|
|
|
(13,039
|
)
|
|
|
(5.2
|
)%
|
Europe
|
|
|
187,628
|
|
|
|
199,910
|
|
|
|
(12,282
|
)
|
|
|
(6.1
|
)%
|
Middle East
|
|
|
69,833
|
|
|
|
73,923
|
|
|
|
(4,090
|
)
|
|
|
(5.5
|
)%
|
North America
|
|
|
233,618
|
|
|
|
126,641
|
|
|
|
106,977
|
|
|
|
84.5
|
%
|
South America
|
|
|
61,917
|
|
|
|
44,428
|
|
|
|
17,489
|
|
|
|
39.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,036,252
|
|
|
$
|
945,573
|
|
|
$
|
90,679
|
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Australasia and other primarily represents Australia, New Zealand and the Pacific Islands.
|
Our operating revenues increased in the fiscal first three months of 2011, compared to
the same period in 2010, primarily as a result of increased flow-through revenues of $99,000, as
described below. Our operating revenues were relatively flat excluding the impact of the change in
flow-through revenues in the fiscal first three months of 2011, compared to the same period in
2010, which was the net result of decreased operating revenues in our Global E&C Group,
substantially offset by increased operating revenues in our Global Power Group. Foreign currency
fluctuations had a minimal impact on the change in operating revenues from the fiscal first three
months of 2011, compared to the same period in 2010.
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.
Please refer to the section entitled Business Segments, within this Item 2, for further
discussion related to operating revenues and our view of the market outlook for both of our
operating groups.
Contract Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
$
|
99,255
|
|
|
$
|
172,082
|
|
|
$
|
(72,827
|
)
|
|
|
(42.3
|
)%
|
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.
Contract profit declined during the fiscal first three months of 2011, compared to
the same period in 2010, driven by our Global E&C Group and, to a lesser extent, our Global Power
Group. Our contract profit decline also included the impact of a curtailment gain of approximately
$20,100 recognized in the fiscal first three months of 2010 related to our Global E&C Groups U.K.
pension plan that was closed for future defined benefit accrual. Please refer to the section
entitled Business Segments, within this Item 2, for further information related to contract
profit for both of our operating groups.
34
Selling, General and Administrative (SG&A) Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
$
|
73,841
|
|
|
$
|
70,305
|
|
|
$
|
3,536
|
|
|
|
5.0
|
%
|
SG&A expenses include the costs associated with general management, sales pursuit,
including proposal expenses, and research and development costs.
SG&A expenses increased in the fiscal first three months of 2011, compared to the same period
in 2010, primarily as a result of increased general overhead costs of $1,800 and sales pursuit
costs of $1,700, while research and development costs were relatively unchanged.
Other Income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
$
|
14,266
|
|
|
$
|
8,332
|
|
|
$
|
5,934
|
|
|
|
71.2
|
%
|
Other income, net during the fiscal first three months of 2011, consisted
primarily of equity earnings of $12,300 generated from our investments, primarily from our
ownership interests in build, own and operate projects in Italy and Chile.
Other income, net increased in the fiscal first three months of 2011, compared to
2010, primarily driven by significantly increased equity earnings in our Global Power Groups
project in Chile of $7,100, partially offset by decreased equity earnings of $900 related to two of
our Global E&C Groups projects in Italy that terminated their power off-take agreements with a
local energy authority during the fiscal fourth quarter of 2010.
For further information related to our equity earnings, please refer to the sections within
this Item 2 entitled Business Segments-Global Power Group for our Global Power Groups project
in Chile and Business Segments-Global E&C Group for our Global E&C Groups projects in Italy,
as well as Note 3 to the consolidated financial statements in this quarterly report on Form 10-Q.
Other Deductions, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
$
|
6,117
|
|
|
$
|
11,688
|
|
|
$
|
(5,571
|
)
|
|
|
(47.7
|
)%
|
Other deductions, net includes various items, such as legal fees, consulting fees, bank
fees, net penalties on unrecognized tax benefits and the impact of net foreign exchange
transactions within the period. Net foreign exchange transactions include the net amount of
transaction losses and gains 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 first three months of 2011 consisted primarily
of $3,400 of legal fees, $800 of bank fees, $700 of net penalties on unrecognized tax benefits and
$600 of consulting fees, partially offset by a $500 net foreign exchange transaction gain. The
decrease in other deductions, net in the fiscal first three months of 2011, compared to
the same period in 2010, was primarily the net result of a favorable impact of $5,000 related to
the change in net foreign exchange transactions.
Net
foreign exchange transactions in the fiscal first three months of 2011 resulted
in a net gain of $500. The net gain was primarily driven 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.
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
$
|
3,275
|
|
|
$
|
2,359
|
|
|
$
|
916
|
|
|
|
38.8
|
%
|
Interest
income increased in the fiscal first three months of 2011, compared to
the same period in 2010, primarily as a result of higher interest rates and investment yields and,
to a lesser extent, higher average cash and cash equivalents balances, while the impact of foreign
currency fluctuations was relatively unchanged.
35
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
$
|
3,879
|
|
|
$
|
4,551
|
|
|
$
|
(672
|
)
|
|
|
(14.8
|
)%
|
Interest
expense decreased in the fiscal first three months of 2011, compared
to the same period in 2010, which was the net result of a favorable impact from decreased average
borrowings, partially offset by increased interest expense on unrecognized tax benefits of $700.
Net Asbestos-Related Provision/(Gain)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
$
|
400
|
|
|
$
|
(747
|
)
|
|
$
|
1,147
|
|
|
|
N/M
|
|
The change in the net asbestos-related provision/(gain) in the fiscal first
three months of 2011, compared to the same period in 2010, primarily resulted from a decreased
gain on the settlement of coverage litigation with asbestos insurance carriers of $2,400, partially
offset by a decrease in our provision related to the revaluation of our asbestos liability of
$1,300. The decrease in our provision primarily related to a charge during the fiscal first three
months of 2010 related to the revaluation of our asbestos liability, as actual claim settlement
experience differed from our estimates.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
Provision for income taxes
|
|
$
|
7,283
|
|
|
$
|
21,610
|
|
|
$
|
(14,327
|
)
|
|
|
(66.3
|
)%
|
Effective Tax Rate
|
|
|
22.4
|
%
|
|
|
22.3
|
%
|
|
|
|
|
|
|
|
|
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. Deferred tax assets and liabilities are established for tax
attributes (credits or loss carryforwards) and temporary differences between the book and tax basis
of assets and liabilities. Within each jurisdiction and taxpaying component, current and
noncurrent deferred tax assets and liabilities are combined and presented as a net amount.
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. We have decreased our December 31, 2010 deferred tax
assets (current and non-current) and noncurrent deferred tax liabilities in equal amounts in order
to reflect the net presentation of deferred tax assets and liabilities by jurisdiction consistent
with our March 31, 2011 presentation.
36
Fiscal Year 2011
Our effective tax rate for the fiscal first three months of 2011 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 14-percentage point reduction
in the effective tax rate for the full year 2011.
|
|
|
|
A valuation allowance increase for the quarter because we are unable to recognize a
tax benefit for year-to-date losses subject to valuation allowance in the United
States.
|
|
|
|
Discrete items for the quarter, including, primarily, changes in judgment regarding
unrecognized tax benefits and certain adjustments to deferred taxes and taxes payable
for prior years.
|
Both the valuation allowance increase and the discrete items for the quarter are not expected
to significantly change the effective tax rate for the full year 2011.
Fiscal Year 2010
Our effective tax rate for the fiscal first three 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 contributed to an approximate 19-percentage point reduction in the
effective tax rate.
|
|
|
|
Total changes in our valuation allowance contributed to an approximate
five-percentage point increase in the effective tax rate as a result of the impact of a
net 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).
|
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 2026 and beyond, based on current
tax laws.
Net Income Attributable to Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
$
|
2,305
|
|
|
$
|
3,306
|
|
|
$
|
(1,001
|
)
|
|
|
(30.3
|
)%
|
Net income attributable to noncontrolling interests represents third-party ownership
interests in the net income of our Global Power Groups Martinez, California gas-fired cogeneration
subsidiary and our manufacturing subsidiaries in Poland and the Peoples Republic of China as well
as our Global E&C Groups subsidiaries in Malaysia and South Africa. The change in net income
attributable to noncontrolling interests is based upon changes in the net income 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 first three
months of 2011, compared to the same period in 2010, primarily resulted from our operations in
South Africa. The decrease in net income attributable to noncontrolling interests also included
the net impact of an increase in our operations in Martinez, California, significantly offset by a
decrease from our operations in the Peoples Republic of China.
EBITDA
EBITDA, as discussed and defined below, is the primary measure of operating performance
used by our chief operating decision maker.
In addition to our 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, or C&F Group, which we also treat as an operating segment for financial reporting purposes.
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
$
|
46,804
|
|
|
$
|
111,280
|
|
|
$
|
(64,476
|
)
|
|
|
(57.9
|
)%
|
EBITDA decreased in the fiscal first three months of 2011, compared to the same period in
2010, primarily driven by decreased contract profit which included the unfavorable impact of the
inclusion of a curtailment gain recognized in the fiscal first three months of 2010 related to our
Global E&C Groups U.K. pension plan that was closed for future defined benefit accrual, partially
offset by increased equity earnings in our Global Power Groups project in Chile. 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 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.
|
A reconciliation of EBITDA to net income attributable to Foster Wheeler AG is shown below.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
C&F
|
|
|
|
Total
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Group
(1)
|
|
Fiscal Three Months Ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(2)
|
|
$
|
46,804
|
|
|
$
|
41,668
|
|
|
$
|
26,464
|
|
|
$
|
(21,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest expense
|
|
|
3,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and amortization
|
|
|
12,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Provision for income taxes
|
|
|
7,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Foster Wheeler AG
|
|
$
|
22,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(2)
|
|
$
|
111,280
|
|
|
$
|
99,933
|
|
|
$
|
29,883
|
|
|
$
|
(18,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest expense
|
|
|
4,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Depreciation and amortization
|
|
|
13,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Provision for income taxes
|
|
|
21,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Foster Wheeler AG
|
|
$
|
72,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes general corporate income and expense, our captive insurance operation
and the elimination of transactions and balances related to intercompany interest.
|
|
(2)
|
|
EBITDA includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
Net (decrease)/increase in contract profit from the regular revaluation
of final estimated contract profit revisions*:
|
|
|
|
|
|
|
|
|
Global E&C**
|
|
$
|
800
|
|
|
$
|
9,200
|
|
Global Power Group**
|
|
|
(5,400
|
)
|
|
|
3,900
|
|
|
|
|
|
|
|
|
Total**
|
|
|
(4,600
|
)
|
|
|
13,100
|
|
|
|
|
|
|
|
|
Net asbestos-related provision/(gain) in C&F Group***
|
|
|
400
|
|
|
|
(700
|
)
|
Curtailment gain on the closure of the U.K. pension plan
for future defined benefit accrual in our Global E&C Group
|
|
|
|
|
|
|
20,100
|
|
|
|
|
*
|
|
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.
|
|
**
|
|
The changes in final estimated contract profit revisions during the fiscal three months
ended March 31, 2011 included the impact of two out-of-period corrections for reductions of
final estimated profit totaling $7,800, which included final estimated profit reductions in
our Global E&C Group and our Global Power Group of $3,200 and $4,600, respectively. The
corrections were recorded in the current period as they were not material to previously issued
financial statements, nor are they expected to be material to the full year 2011 financial
statements.
|
|
***
|
|
Please refer to Note 12 to the consolidated financial statements in this quarterly
report on Form 10-Q 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 as disclosed in our 2010 Form 10-K. The only
significant intersegment transactions relate to interest on intercompany balances. We account for
interest on those arrangements as if they were third-party transactionsi.e. at current market
rates, and we include the elimination of that activity in the results of the C&F Group.
39
Business Segments
Global E&C Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
Operating revenues
|
|
$
|
823,743
|
|
|
$
|
779,684
|
|
|
$
|
44,059
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
41,668
|
|
|
$
|
99,933
|
|
|
$
|
(58,265
|
)
|
|
|
(58.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
Our Global E&C Groups operating revenues by geographic region for the fiscal three
months ended March 31, 2011 and 2010, based upon where our projects are being executed, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
Africa
|
|
$
|
54,920
|
|
|
$
|
34,735
|
|
|
$
|
20,185
|
|
|
|
58.1
|
%
|
Asia
|
|
|
118,698
|
|
|
|
187,271
|
|
|
|
(68,573
|
)
|
|
|
(36.6
|
)%
|
Australasia and other*
|
|
|
240,021
|
|
|
|
252,862
|
|
|
|
(12,841
|
)
|
|
|
(5.1
|
)%
|
Europe
|
|
|
113,376
|
|
|
|
141,807
|
|
|
|
(28,431
|
)
|
|
|
(20.0
|
)%
|
Middle East
|
|
|
60,931
|
|
|
|
70,540
|
|
|
|
(9,609
|
)
|
|
|
(13.6
|
)%
|
North America
|
|
|
181,337
|
|
|
|
59,546
|
|
|
|
121,791
|
|
|
|
204.5
|
%
|
South America
|
|
|
54,460
|
|
|
|
32,923
|
|
|
|
21,537
|
|
|
|
65.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
823,743
|
|
|
$
|
779,684
|
|
|
$
|
44,059
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Australasia and other primarily represents Australia, New Zealand and the Pacific Islands.
|
Our
Global E&C Group experienced an increase in operating revenues of 6% in the fiscal
first three months of 2011, compared to the same period in 2010. The increase in the period was
primarily driven by increased flow-through revenues of $99,200, while foreign currency fluctuations
had a minimal impact. Excluding flow-through revenues, our Global E&C Groups operating revenues
decreased 13% in the fiscal first three months of 2011, compared to the same period in 2010.
Please refer to the Overview of Segment section below for a discussion of our Global E&C Groups market outlook.
The decrease in our Global E&C Groups EBITDA in the fiscal first three months of 2011,
compared to the same period in 2010, resulted primarily from the net impact of the following:
|
|
|
Decreased contract profit of $45,200, excluding the impact of a curtailment gain
recognized in the fiscal first three months of 2010 related to our U.K. defined benefit
pension plan noted below, which primarily resulted from decreased contract profit
margins and, to a lesser extent, decreased volume of operating revenues, excluding
flow-through revenues.
|
|
|
|
|
The unfavorable impact of the inclusion of a $20,100 curtailment gain recognized in
the fiscal first three months of 2010 related to our U.K. defined benefit pension plan
that was closed for future benefit accrual, which was included in contract profit.
|
|
|
|
|
Decreased equity earnings of $900 related to two of our Global E&C Groups projects
in Italy that terminated their power off-take agreements with a local energy authority
during the fiscal fourth quarter of 2010.
|
|
|
|
|
A favorable impact of $6,200 related to the change in net foreign exchange
transactions, which was primarily driven 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.
|
During 2010, two of our equity interest investments in electric power generation projects in
Italy, Centro Energia Teverola S.p.A., or CET, and Centro Energia Ferrara S.p.A., or CEF,
terminated long-term incentivized power off-take agreements that they had in place with the
Authority for Energy. In light of the termination of the power off-take agreements, we and our
respective partners at CET and CEF reviewed the economic viability of each plant. As a result, a
decision was made to shut down the CET plant effective January 1, 2011. We and our partner in CEF
decided to continue to operate the CEF plant at least temporarily on a merchant basis following the
termination of its power off-take agreement. We and our partner in the CEF plant will continue to
review the economic viability of the project and we may consider a potential sale of the plant in
2011. As a result of the foregoing operating decisions, CET and CEF recorded impairment charges
during the fiscal fourth quarter of 2010 to write down their fixed assets to fair value in their
financial statements. Additionally, during the fiscal fourth quarter of 2010, our investments in
CET and CEF were reduced by equity losses based on CET and CEFs 2010 financial results, inclusive
of the respective impairment charges. As a result of the foregoing, the carrying value of
40
our CET
and CEF investments approximated fair value at December 31, 2010. Our equity earnings from our
investments in CET and CEF during the fiscal three months ended March 31, 2011 were insignificant.
Our equity earnings for our CET and CEF investments during the fiscal three months ended March 31,
2010 were $428 and $511, respectively. Please refer to Note 3 to the consolidated financial
statements in this quarterly report on Form 10-Q for more information.
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
facilities, distribution facilities, gasification facilities and processing facilities associated
with the metals and mining sector. 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. Additionally, our Global E&C Group is also involved in the development, engineering,
construction, ownership and operation of power generation facilities, from conventional and
renewable sources, and of waste-to-energy facilities in Europe.
|
|
|
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.
|
|
|
|
|
Design and supply of 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.
|
Our Global E&C Group owns one of the leading technologies (SYDEC
SM
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. During the fiscal fourth quarter of 2010, our Global E&C Group acquired
a proprietary sulfur recovery technology through a business acquisition. The sulfur recovery
technology is used to treat gas streams containing hydrogen sulfide for the purpose of reducing the
sulfur content of fuel products and to recover a saleable sulfur by-product. Additionally, our
Global E&C Group has experience with, and is able to work with, a wide range of processes owned by
others.
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 generates equity earnings from returns on its noncontrolling interest investments in
various power production facilities.
In the engineering and construction industry, we expect long-term demand to be strong for the
end products produced by our clients, and we believe that this long-term demand will continue to
stimulate investment by our clients in new, expanded and upgraded facilities. The global economic
downturn experienced in 2008 and 2009 caused many of our engineering and construction 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.
As the global economy has started to recover, we have noted signs of market improvement.
During fiscal year 2010 and the beginning of fiscal year 2011, we have been seeing an increased
number of our clients implementing their capital spending plans. Some of these clients are
continuing to release tranches of work on a piecemeal basis, conducting further analysis before
deciding to proceed with their investments or re-evaluating the size, timing or configuration of
specific planned projects. We are also seeing clients re-activating planned projects that had
previously been placed on hold and developing new projects. We are also seeing intensified
competition among engineering and construction contractors, which has resulted in pricing pressure.
These factors may continue through the remainder of fiscal year 2011.
41
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. Moreover, we have continued to be successful in booking contracts of varying types and
sizes in our key end markets, including a new contract award for the front-end engineering design,
or FEED, project for a chemicals complex expansion in China, a FEED and engineering. procurement,
and construction management, or EPCm, project for a refinery revamp in Asia, an EPCm project for a
delayed coker revamp in Europe, a refinery FEED project in South America, a feasibility study for a
potash project in Canada, a FEED project for facilities related to copper production in Chile, and
a detailed design contract for deepwater export pipelines in the Gulf of Mexico. 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.
Global Power Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
Operating revenues
|
|
$
|
212,509
|
|
|
$
|
165,889
|
|
|
$
|
46,620
|
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
26,464
|
|
|
$
|
29,883
|
|
|
$
|
(3,419
|
)
|
|
|
(11.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
Our Global Power Groups operating revenues by geographic region for the fiscal three
months ended March 31, 2011 and 2010, based upon where our projects are being executed, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
Africa
|
|
$
|
|
|
|
$
|
245
|
|
|
$
|
(245
|
)
|
|
|
(100.0
|
)%
|
Asia
|
|
|
69,617
|
|
|
|
25,360
|
|
|
|
44,257
|
|
|
|
174.5
|
%
|
Australasia and other*
|
|
|
|
|
|
|
198
|
|
|
|
(198
|
)
|
|
|
(100.0
|
)%
|
Europe
|
|
|
74,252
|
|
|
|
58,103
|
|
|
|
16,149
|
|
|
|
27.8
|
%
|
Middle East
|
|
|
8,902
|
|
|
|
3,383
|
|
|
|
5,519
|
|
|
|
163.1
|
%
|
North America
|
|
|
52,281
|
|
|
|
67,095
|
|
|
|
(14,814
|
)
|
|
|
(22.1
|
)%
|
South America
|
|
|
7,457
|
|
|
|
11,505
|
|
|
|
(4,048
|
)
|
|
|
(35.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
212,509
|
|
|
$
|
165,889
|
|
|
$
|
46,620
|
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Australasia and other primarily represents Australia, New Zealand and the Pacific Islands.
|
Our Global Power Group experienced a significant increase in operating revenues in the
fiscal three months ended March 31, 2011, compared to the same period in 2010. The increase was
attributable to an increased volume of business, while foreign currency fluctuations had a minimal
impact on the change. Please refer to the Overview of Segment section below for a discussion
of our Global Power Groups market outlook.
The decrease in our Global Power Groups EBITDA in the fiscal first three months of 2011,
compared to the same period in 2010, resulted primarily from the net impact of the following:
|
|
|
Decreased contract profit of $9,200, primarily as a result of decreased contract
profit margins, including the impact of an out-of-period correction for a reduction of
final estimated profit of approximately $4,600 which is discussed in the preceding
section within this Item 2 entitled Results of Operations-EBITDA, despite a benefit
from the volume increase in operating revenues noted above.
|
|
|
|
|
An increase in equity earnings in our Global Power Groups project in Chile of
$7,100, driven primarily by higher marginal rates for electrical power generation
included in the projects business interruption insurance recovery. Please see below
for further discussion.
|
On February 27, 2010, an earthquake occurred off the coast of Chile that caused significant
damage to our Global Power Groups project in Chile. As a result of the damage, the projects
facility suspended normal operating activities on that date. The project included an estimated
recovery under its business interruption insurance policy in its financial statements while the
facility suspended normal operating activities. The facility is currently operating in testing
mode and is expected to resume normal operating activities in the fiscal second quarter of 2011.
Our Global Power Groups equity earnings from the project in Chile in the fiscal three months ended
March 31, 2011 and 2010 were $9,900 and $2,800, respectively.
42
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 Groups
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.
Our Global Power Group offers a number of other products and services related to steam
generators, including:
|
|
|
Designing, manufacturing and installing auxiliary and replacement equipment for
utility power and industrial facilities, including surface condensers, feedwater
heaters, coal pulverizers, steam generator coils and panels, biomass gasifiers, and
replacement parts for steam generators.
|
|
|
|
|
Installation of nitrogen-oxide, or NO
x
, reduction systems and components
for pulverized coal steam generators such as selective catalytic reduction systems, low
NO
x
combustion systems, low NO
x
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.
|
During fiscal year 2010 and the beginning of fiscal year 2011, we have seen an improvement in
the demand in some markets for the products and services of our Global Power Group, based on
increased new proposal activity. We believe this demand will continue to improve during fiscal
year 2011, driven primarily by growing electricity demand and industrial production as economies
around the world continue to recover. We are now seeing increased demand for our products in Asia,
Eastern Europe and the Middle East which has resulted in new proposal activity.
However, a number of constraining market forces continue to impact the markets that we serve.
Political and environmental sensitivity regarding coal-fired steam generators continues to cause
prospective projects utilizing coal as its primary fuel to be postponed or cancelled as clients
experienced difficulty in obtaining the required environmental permits or decided to wait for
additional clarity regarding governmental 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. The outlook for continued lower natural gas pricing over the
next three-to-five years, driven by increasing supply and new liquefied natural gas capacity, has
increased the attractiveness of natural gas, in relation to coal, for the generation of
electricity. In addition, the constraints on the global credit market 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.
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. The unfortunate recent events involving Japans nuclear power
plant facilities has many countries reevaluating their nuclear power policy with a recognition that
coal power may play a larger role to meet their long-term energy demand. Countries may decide not
to pursue nuclear power for new power plant facilities or decide to accelerate the retirement
schedule for existing nuclear power plant facilities, both of which could increase demand for new
coal-fired power plant facilities, which in turn could improve the demand for our Global Power
Groups coal-fired steam generators. In addition, we are seeing a growing need to repower older
coal plants with new more efficient and cleaner burning coal plants in order to meet environmental,
financial and reliability goals set by policy makers in many countries. The fuel flexibility of
our CFB steam generators enables them to burn a wide 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.
43
We have recently received an award to carry out the detailed engineering and supply of a
pilot-scale (approximately 30 megawatt thermal, equivalent to approximately 10 megawatt electrical,
or MWe) CFB steam generator, which incorporates our carbon-capturing Flexi-Burn
TM
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-Burn
TM
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.
Liquidity and Capital Resources
Fiscal First Three Months of 2011 Activities
Our cash and cash equivalents and restricted cash balances were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
$ Change
|
|
|
% Change
|
|
Cash and cash equivalents
|
|
$
|
1,102,823
|
|
|
$
|
1,057,163
|
|
|
$
|
45,660
|
|
|
|
4.3
|
%
|
Restricted cash
|
|
|
33,259
|
|
|
|
27,502
|
|
|
|
5,757
|
|
|
|
20.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,136,082
|
|
|
$
|
1,084,665
|
|
|
$
|
51,417
|
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents and restricted cash held by our non-U.S. entities as of
March 31, 2011 and December 31, 2010 were $885,400 and $849,500, respectively.
During the fiscal first three months of 2011, we experienced an increase in cash and cash
equivalents of $45,700, primarily as a result of cash provided by operating activities of $66,500
and a favorable impact related to exchange rate changes on our cash and cash equivalents of
$23,900, partially offset by cash used to repurchase our shares under our share repurchase program
of $29,200 and capital expenditures of $11,500.
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
Net cash provided by/(used in) operating activities
|
|
$
|
66,503
|
|
|
$
|
(4,217
|
)
|
|
$
|
70,720
|
|
|
|
N/M
|
|
Net cash provided by operating activities in the fiscal first three months of 2011
primarily resulted from cash provided by working capital of $51,700, net income of $29,300, which
excludes non-cash charges of $4,100, partially offset by cash used for net asbestos-related
payments of $12,500 (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) and
mandatory contributions to our non-U.S. pension plans of $3,900.
The increase in net cash provided by operating activities of $70,700 in the fiscal first three
months of 2011, compared to the same period of 2010, resulted primarily from a favorable change in
working capital that resulted in an increase in cash of $120,300 and decreased contributions to our
non-U.S. pension plans of $9,800, partially offset by decreased cash provided by net income of
$45,100 and increased net asbestos-related payments of $6,100.
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
generated cash from the conversion of working capital during the fiscal first three months of 2011,
as cash receipts from client billings exceeded cash used for services rendered and purchases of
materials and equipment. During the fiscal first three months of 2010, we used cash to fund
working capital. The increase in cash provided by working capital during the fiscal
first three months of 2011 was driven by the conversion of working capital to cash by our Global
Power Group, partially offset by cash used to fund working capital in our Global E&C Group.
44
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 Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
Net cash used in investing activities
|
|
$
|
(15,579
|
)
|
|
$
|
(4,788
|
)
|
|
$
|
(10,791
|
)
|
|
|
225.4
|
%
|
The net cash used in investing activities in the fiscal first three months of 2011 was
attributable primarily to capital expenditures of $11,500 and an increase in restricted cash of
$4,900.
The net cash used in investing activities in the fiscal first three months of 2010 was
attributable primarily to capital expenditures of $6,200 and a contractual payment of $1,200
related to a prior business acquisition.
The capital expenditures in the fiscal first three months of 2011 and 2010 related primarily
to project construction, leasehold improvements, information technology equipment and office
equipment. Our capital expenditures increased $5,300 in the fiscal first three months of 2011,
compared to the same period of 2010, as a result of increased expenditures in our Global Power
Group, while capital expenditures in our Global E&C Group were relatively flat.
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
$ Change
|
|
|
% Change
|
|
Net cash used in financing activities
|
|
$
|
(29,209
|
)
|
|
$
|
(3,933
|
)
|
|
$
|
(25,276
|
)
|
|
|
642.7
|
%
|
The net cash used in financing activities in the fiscal first three months of 2011 was
attributable primarily to the cash used to repurchase shares under our share repurchase program of
$29,200. Other financing activities included cash provided from exercises of stock options of
$9,100, partially offset by cash used for distributions to noncontrolling interests of $8,700.
The net cash used in financing activities in the fiscal first three months of 2010 was
attributable primarily to distributions to noncontrolling interests of $4,800 and the repayment of
short-term and long-term project debt and capital lease obligations of $3,300, partially offset by
proceeds from the issuance of short-term project debt of $2,200 and cash provided from exercises of
stock options of $2,000.
Outlook
Our liquidity forecasts cover, among other analyses, existing cash balances, cash flows
from operations, cash repatriations, 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, pension contributions and asbestos liability indemnity and defense
costs. We may also use cash for acquisitions, discretionary pension plan contributions or to
repurchase our shares under the share repurchase program, as described further below. 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.
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.
45
We are dependent on cash repatriations from our subsidiaries to cover essentially all
payments and expenses of our holding company and principal executive offices in Switzerland, to
cover cash needs related to our asbestos related liability and other overhead expenses in the U.S.
and, at our discretion, the acquisition of our shares under our share repurchase program, as
described further below. Consequently, we require cash repatriations to Switzerland and the U.S.
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 Switzerland and the U.S. 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 three months of 2011, we had net cash outflows of approximately
$12,500, resulting from asbestos liability indemnity and defense costs payments in excess of
insurance settlement proceeds. We expect net cash outflows to be approximately $5,700 for the full
fiscal year 2011. 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 an aggregate of
$225,000 in total additional availability under the facility. The amended and restated U.S. senior
secured credit agreement permits us to issue up to $450,000 in letters of credit under the
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 Moodys Investors Service, which we refer
to as Moodys, and/or Standard & Poors, or S&P. We received a corporate credit rating of BBB- as
issued by S&P during fiscal year 2010, which, under the amended and restated U.S. senior secured
credit agreement, reduces our pricing for letters of credit issued under the agreement. 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 1.000% and 2.000%
per annum of the outstanding amount, respectively, excluding fronting fees. This performance
pricing is not expected to materially impact our liquidity or capital resources in fiscal year
2011. 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 2.000%, 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 Moodys 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 $296,100 and $310,100 of letters of credit outstanding under our U.S.
senior secured credit agreement in effect as of March 31, 2011 and December 31, 2010, respectively.
There were no funded borrowings under our U.S. senior secured credit agreement outstanding as of
March 31, 2011 and December 31, 2010. We do not intend to borrow under our U.S. senior secured
credit facility during fiscal year 2011. 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.
46
On February 27, 2010, an earthquake occurred off the coast of Chile that caused significant
damage to our unconsolidated affiliates facility in Chile. As a result of the damage, the
projects facility suspended normal operating activities on that date. Subsequent to that date,
our unconsolidated affiliate filed a claim with its insurance carrier. A preliminary assessment of
the extent of the damage was completed and an estimate of the required cost of repairs was
developed. Based on the assessment and cost estimate, as well as correspondence received from the
insurance carrier, we expect the property damage insurance recovery to be sufficient to cover the
costs of repairing the facility. The insurance carrier also provided a preliminary assessment of
the business interruption insurance recovery due to our unconsolidated affiliate, and has advanced
insurance proceeds against this assessment. Based on this assessment, we expect the business
interruption insurance recovery to substantially compensate our unconsolidated affiliate for the
loss of profits while the facility has suspended normal operating activities. Our unconsolidated
affiliates receivable related to the remaining balance under their property damage and business
interruption insurance recovery assessment was approximately $53,500 as of March 31, 2011. The
facility is currently operating in testing mode and is expected to resume normal operating
activities in the fiscal second quarter of 2011.
We are not required to make any mandatory contributions to our U.S. pension plans in fiscal
year 2011 based on the minimum statutory funding requirements. We made mandatory contributions
totaling approximately $3,900 to our non-U.S. pension plans during the fiscal three months ended
March 31, 2011. Based on the minimum statutory funding requirements for fiscal year 2011, we
expect to make mandatory contributions totaling approximately $24,200 to our non-U.S. pension plans
in fiscal year 2011, including the contributions made during the fiscal first three months of 2011.
Additionally, we may elect to make discretionary contributions to our U.S. and/or non-U.S. pension
plans during fiscal year 2011.
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. On November 4, 2010, our Board of Directors proposed
an increase to our share repurchase program of $335,000 and the designation of the repurchased
shares for cancellation, which was approved by our shareholders at an Extraordinary General Meeting
on February 24, 2011.
Based on the aggregate share repurchases under our program through March 31, 2011, we are
authorized to repurchase up to an additional $471,392 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. Through March 31, 2011, we have
repurchased 23,271,133 shares for an aggregate cost of approximately $613,608. In April 2011, we
repurchased an additional 312,200 shares for an aggregate cost of approximately $10,800. We have
executed the repurchases in accordance with 10b5-1 repurchase plans as well as other privately
negotiated transactions pursuant to our share repurchase program. 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. For further information, please refer to Part II, Item 2 of this quarterly report on Form
10-Q.
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 current U.S. senior secured credit agreement 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.
47
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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Three Months Ended March 31, 2011
|
|
|
Fiscal Three Months Ended March 31, 2010
|
|
|
|
Global
|
|
|
Global
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
|
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Total
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Total
|
|
By Project Location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
84,000
|
|
|
$
|
82,600
|
|
|
$
|
166,600
|
|
|
$
|
60,900
|
|
|
$
|
71,700
|
|
|
$
|
132,600
|
|
South America
|
|
|
69,100
|
|
|
|
3,900
|
|
|
|
73,000
|
|
|
|
26,100
|
|
|
|
3,000
|
|
|
|
29,100
|
|
Europe
|
|
|
150,500
|
|
|
|
31,100
|
|
|
|
181,600
|
|
|
|
87,400
|
|
|
|
336,800
|
|
|
|
424,200
|
|
Asia
|
|
|
84,200
|
|
|
|
12,400
|
|
|
|
96,600
|
|
|
|
90,400
|
|
|
|
50,600
|
|
|
|
141,000
|
|
Middle East
|
|
|
26,200
|
|
|
|
8,000
|
|
|
|
34,200
|
|
|
|
55,300
|
|
|
|
|
|
|
|
55,300
|
|
Africa
|
|
|
47,500
|
|
|
|
5,700
|
|
|
|
53,200
|
|
|
|
156,200
|
|
|
|
100
|
|
|
|
156,300
|
|
Australasia and other*
|
|
|
258,300
|
|
|
|
|
|
|
|
258,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
719,800
|
|
|
$
|
143,700
|
|
|
$
|
863,500
|
|
|
$
|
476,300
|
|
|
$
|
462,200
|
|
|
$
|
938,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power generation
|
|
$
|
3,300
|
|
|
$
|
121,800
|
|
|
$
|
125,100
|
|
|
$
|
7,300
|
|
|
$
|
437,800
|
|
|
$
|
445,100
|
|
Oil refining
|
|
|
323,900
|
|
|
|
|
|
|
|
323,900
|
|
|
|
208,700
|
|
|
|
|
|
|
|
208,700
|
|
Pharmaceutical
|
|
|
7,900
|
|
|
|
|
|
|
|
7,900
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
Oil and gas
|
|
|
276,500
|
|
|
|
|
|
|
|
276,500
|
|
|
|
86,000
|
|
|
|
|
|
|
|
86,000
|
|
Chemical/petrochemical
|
|
|
87,600
|
|
|
|
|
|
|
|
87,600
|
|
|
|
153,000
|
|
|
|
|
|
|
|
153,000
|
|
Power plant operation
and maintenance
|
|
|
5,200
|
|
|
|
21,900
|
|
|
|
27,100
|
|
|
|
|
|
|
|
24,400
|
|
|
|
24,400
|
|
Environmental
|
|
|
1,600
|
|
|
|
|
|
|
|
1,600
|
|
|
|
6,300
|
|
|
|
|
|
|
|
6,300
|
|
Other, net of eliminations
|
|
|
13,800
|
|
|
|
|
|
|
|
13,800
|
|
|
|
5,000
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
719,800
|
|
|
$
|
143,700
|
|
|
$
|
863,500
|
|
|
$
|
476,300
|
|
|
$
|
462,200
|
|
|
$
|
938,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Australasia and other primarily represents Australia, New Zealand and the Pacific Islands.
|
48
Backlog, Measured in Terms of Future Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011
|
|
|
As of December 31, 2010
|
|
|
|
Global
|
|
|
Global
|
|
|
|
|
|
|
Global
|
|
|
Global
|
|
|
|
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Total
|
|
|
E&C Group
|
|
|
Power Group
|
|
|
Total
|
|
By Contract Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lump-sum turnkey
|
|
$
|
|
|
|
$
|
397,000
|
|
|
$
|
397,000
|
|
|
$
|
|
|
|
$
|
424,400
|
|
|
$
|
424,400
|
|
Other fixed-price
|
|
|
807,800
|
|
|
|
540,500
|
|
|
|
1,348,300
|
|
|
|
779,800
|
|
|
|
555,800
|
|
|
|
1,335,600
|
|
Reimbursable
|
|
|
2,045,300
|
|
|
|
58,700
|
|
|
|
2,104,000
|
|
|
|
2,157,900
|
|
|
|
61,600
|
|
|
|
2,219,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,853,100
|
|
|
$
|
996,200
|
|
|
$
|
3,849,300
|
|
|
$
|
2,937,700
|
|
|
$
|
1,041,800
|
|
|
$
|
3,979,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Project Location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
517,600
|
|
|
$
|
211,500
|
|
|
$
|
729,100
|
|
|
$
|
620,900
|
|
|
$
|
189,500
|
|
|
$
|
810,400
|
|
South America
|
|
|
409,100
|
|
|
|
25,600
|
|
|
|
434,700
|
|
|
|
389,200
|
|
|
|
30,400
|
|
|
|
419,600
|
|
Europe
|
|
|
443,100
|
|
|
|
505,500
|
|
|
|
948,600
|
|
|
|
382,500
|
|
|
|
517,800
|
|
|
|
900,300
|
|
Asia
|
|
|
440,200
|
|
|
|
212,000
|
|
|
|
652,200
|
|
|
|
481,200
|
|
|
|
269,300
|
|
|
|
750,500
|
|
Middle East
|
|
|
241,100
|
|
|
|
35,800
|
|
|
|
276,900
|
|
|
|
266,900
|
|
|
|
34,800
|
|
|
|
301,700
|
|
Africa
|
|
|
150,500
|
|
|
|
5,800
|
|
|
|
156,300
|
|
|
|
174,400
|
|
|
|
|
|
|
|
174,400
|
|
Australasia and other*
|
|
|
651,500
|
|
|
|
|
|
|
|
651,500
|
|
|
|
622,600
|
|
|
|
|
|
|
|
622,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,853,100
|
|
|
$
|
996,200
|
|
|
$
|
3,849,300
|
|
|
$
|
2,937,700
|
|
|
$
|
1,041,800
|
|
|
$
|
3,979,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Industry:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power generation
|
|
$
|
13,000
|
|
|
$
|
885,000
|
|
|
$
|
898,000
|
|
|
$
|
15,100
|
|
|
$
|
929,300
|
|
|
$
|
944,400
|
|
Oil refining
|
|
|
1,689,500
|
|
|
|
|
|
|
|
1,689,500
|
|
|
|
1,726,200
|
|
|
|
|
|
|
|
1,726,200
|
|
Pharmaceutical
|
|
|
37,900
|
|
|
|
|
|
|
|
37,900
|
|
|
|
39,800
|
|
|
|
|
|
|
|
39,800
|
|
Oil and gas
|
|
|
810,800
|
|
|
|
|
|
|
|
810,800
|
|
|
|
793,800
|
|
|
|
|
|
|
|
793,800
|
|
Chemical/petrochemical
|
|
|
267,500
|
|
|
|
200
|
|
|
|
267,700
|
|
|
|
331,800
|
|
|
|
200
|
|
|
|
332,000
|
|
Power plant operation
and maintenance
|
|
|
|
|
|
|
111,000
|
|
|
|
111,000
|
|
|
|
|
|
|
|
112,300
|
|
|
|
112,300
|
|
Environmental
|
|
|
7,100
|
|
|
|
|
|
|
|
7,100
|
|
|
|
8,500
|
|
|
|
|
|
|
|
8,500
|
|
Other, net of eliminations
|
|
|
27,300
|
|
|
|
|
|
|
|
27,300
|
|
|
|
22,500
|
|
|
|
|
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,853,100
|
|
|
$
|
996,200
|
|
|
$
|
3,849,300
|
|
|
$
|
2,937,700
|
|
|
$
|
1,041,800
|
|
|
$
|
3,979,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog, measured in terms
of Foster Wheeler Scope
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,637,800
|
|
|
$
|
986,300
|
|
|
$
|
2,624,100
|
|
|
$
|
1,611,300
|
|
|
$
|
1,031,900
|
|
|
$
|
2,643,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E & C Man-hours in Backlog
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,500
|
|
|
|
|
|
|
|
12,500
|
|
|
|
12,700
|
|
|
|
|
|
|
|
12,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Australasia and other primarily represents Australia, New Zealand and the Pacific Islands.
|
The foreign currency translation impact on backlog and Foster Wheeler scope backlog resulted
in increases of $89,200 and $74,100, respectively, as of March 31, 2011 compared to December 31,
2010.
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 2010 Form 10-K. We did not have a significant
change to the application of our critical accounting policies and estimates during the fiscal first
three months of 2011.
49
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the fiscal first three months of 2011, 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,
2010.
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 SECs 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 interim 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 interim 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 have been no changes in our internal control over financial reporting in the
quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
50
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, 2010, which we filed with the SEC
on February 28, 2011. 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. On November 4, 2010, our Board of Directors proposed
an increase to our share repurchase program of $335,000 and the designation of the repurchased
shares for cancellation, which was approved by our shareholders at an Extraordinary General Meeting
on February 24, 2011.
Under Swiss law, the cancellation of shares previously repurchased under our share repurchase
program must be approved by our shareholders. Repurchased shares remain as treasury shares on our
balance sheet until cancellation. We obtained specific shareholder approval for the cancellation
of all treasury shares as of December 31, 2010 and amended our Articles of Association to reduce
our share capital accordingly at our 2011 annual general meeting of shareholders on May 3, 2011.
All shares acquired after December 31, 2010 will remain as treasury shares until shareholder
approval for the cancellation is granted at a future general meeting of shareholders. Based on the
aggregate share repurchases under our program through March 31, 2011, we are authorized to
repurchase up to an additional $471,392 of our outstanding shares. The following table provides
information with respect to purchases under our share repurchase program during the fiscal first
quarter of 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Total Number of Shares
|
|
|
Approximate Dollar Value
|
|
|
|
Total Number
|
|
|
Price
|
|
|
Purchased as Part of
|
|
|
of Shares that May Yet Be
|
|
|
|
of Shares
|
|
|
Paid per
|
|
|
Publicly Announced
|
|
|
Purchased Under the
|
|
Fiscal Month
|
|
Purchased
(1)
|
|
|
Share
|
|
|
Plans or Programs
|
|
|
Plans or Programs
|
|
January 1, 2011 through January 31, 2011
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
February 1, 2011 through February 28, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2011 through March 31, 2011
|
|
|
859,904
|
|
|
|
33.96
|
|
|
|
859,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
859,904
|
|
|
$
|
33.96
|
|
|
|
859,904
|
(2)
|
|
$
|
471,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
During the fiscal first quarter of 2011, we repurchased an aggregate of 859,904
shares in open market transactions pursuant to our share repurchase program. We are authorized to
repurchase up to an additional $471,392 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 program.
|
|
(2)
|
|
As of March 31, 2011, an aggregate of 23,271,133 shares were purchased for a total of
$613,608 since the inception of the repurchase program announced on September 12, 2008.
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 5. OTHER INFORMATION
None.
51
|
|
|
Exhibit
|
|
|
No.
|
|
Exhibits
|
3.1
|
|
Articles of Association of Foster Wheeler AG. (Filed as Exhibit 3.1 to Foster Wheeler AGs
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
AGs 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*
|
|
Third Amendment to the Employment Agreement, dated as of February 22, 2011, between Foster
Wheeler Inc. and Beth Sexton.
|
|
|
|
10.2*
|
|
Employment Contract, dated as of September 13, 2006, between Foster Wheeler Energy Limited
and Jonathan C. Nield.
|
|
|
|
10.3*
|
|
Form of Employee Restricted Stock Unit Award Agreement (with Performance Goals). (Filed as
Exhibit 10.1 to Foster Wheeler AGs Form 8-K, dated February 24, 2011 and filed on March 2,
2011, and incorporated herein by reference.)
|
|
|
|
23.1
|
|
Consent of Analysis, Research & Planning Corporation.
|
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Umberto della Sala.
|
|
|
|
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 Umberto della Sala.
|
|
|
|
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.
|
52
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: May 4, 2011
|
/s/
Umberto della Sala
|
|
|
Umberto della Sala
|
|
|
Interim Chief Executive Officer,
President and Chief Operating Officer
|
|
|
|
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Date: May 4, 2011
|
/s/ Franco Baseotto
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|
|
Franco Baseotto
|
|
|
Executive Vice President, Chief Financial Officer
and Treasurer
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|
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53
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