- Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number 001-31305

FOSTER WHEELER AG

(Exact name of registrant as specified in its charter)


Switzerland (State or other jurisdiction of incorporation or organization)		98-0607469 (I.R.S. Employer Identification No.)

80 Rue de Lausanne
CH 1202 Geneva, Switzerland		1202
(Address of principal executive offices)		(Zip Code)

41 22 741 8000
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 120,442,142 registered shares (CHF 3.00 par value) were outstanding as of July 22, 2011.

FOSTER WHEELER AG
INDEX


Part I FINANCIAL INFORMATION			3
Item 1	—	Financial Statements (Unaudited):	3
		Consolidated Statement of Operations for the Quarters and Six Months Ended June 30, 2011 and 2010	3
		Consolidated Balance Sheet as of June 30, 2011 and December 31, 2010	4
		Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2011 and 2010	5
		Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2011 and 2010	6
		Notes to Consolidated Financial Statements	7
Item 2	—	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3	—	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4	—	Controls and Procedures	52
Part II OTHER INFORMATION			53
Item 1	—	Legal Proceedings	53
Item 1A	—	Risk Factors	53
Item 2	—	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3	—	Defaults Upon Senior Securities	53
Item 5	—	Other Information	54
Item 6	—	Exhibits	55
Signatures			56
EX-10.3
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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)


	Quarter Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010

Operating revenues	$	1,183,878		$	1,005,496		$	2,220,130		$	1,951,069
Cost of operating revenues		1,030,266			857,636			1,967,263			1,631,127

Contract profit		153,612			147,860			252,867			319,942

Selling, general and administrative expenses		80,402			69,515			154,243			139,820
Other income, net		(21,390	)		(11,419	)		(35,656	)		(19,751	)
Other deductions, net		6,721			8,049			12,838			19,737
Interest income		(4,428	)		(2,730	)		(7,703	)		(5,089	)
Interest expense		3,427			4,044			7,306			8,595
Net asbestos-related provision		2,000			2,344			2,400			1,597

Income before income taxes		86,880			78,057			119,439			175,033
Provision for income taxes		19,044			15,409			26,327			37,019

Net income		67,836			62,648			93,112			138,014


Less: Net income attributable to noncontrolling interests		4,527			3,790			6,832			7,096

Net income attributable to Foster Wheeler AG	$	63,309		$	58,858		$	86,280		$	130,918


Earnings per share (see Note 1):
Basic	$	0.52		$	0.46		$	0.70		$	1.03

Diluted	$	0.52		$	0.46		$	0.70		$	1.02

See notes to consolidated financial statements.

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


	June 30, 2011			December 31, 2010
ASSETS
Current Assets:
Cash and cash equivalents	$	1,037,233		$	1,057,163
Accounts and notes receivable, net:
Trade		530,435			577,400
Other		112,788			96,758
Contracts in process		168,017			165,389
Prepaid, deferred and refundable income taxes		60,312			59,977
Other current assets		45,846			37,813

Total current assets		1,954,631			1,994,500

Land, buildings and equipment, net		370,714			362,087
Restricted cash		41,035			27,502
Notes and accounts receivable — long-term		5,835			2,648
Investments in and advances to unconsolidated affiliates		215,684			217,071
Goodwill		92,860			88,917
Other intangible assets, net		63,593			66,070
Asbestos-related insurance recovery receivable		179,388			194,570
Other assets		106,564			84,078
Deferred tax assets		18,327			23,034

TOTAL ASSETS	$	3,048,631		$	3,060,477

LIABILITIES, TEMPORARY EQUITY AND EQUITY
Current Liabilities:
Current installments on long-term debt	$	13,435		$	11,996
Accounts payable		284,228			239,071
Accrued expenses		203,131			240,894
Billings in excess of costs and estimated earnings on uncompleted contracts		685,037			684,090
Income taxes payable		37,058			34,623

Total current liabilities		1,222,889			1,210,674

Long-term debt		152,241			152,574
Deferred tax liabilities		47,267			42,179
Pension, postretirement and other employee benefits		135,247			166,362
Asbestos-related liability		290,152			307,619
Other long-term liabilities		168,047			160,785
Commitments and contingencies

TOTAL LIABILITIES		2,015,843			2,040,193

Temporary Equity:
Non-vested share-based compensation awards subject to redemption		7,149			4,935

TOTAL TEMPORARY EQUITY		7,149			4,935

Equity:
Registered shares:
CHF 3.00 par value; authorized: 192,674,225 shares and 192,156,579 shares, respectively; conditionally authorized: 60,157,603 shares and 60,675,249 shares, respectively; issued: 129,466,268 shares and 128,948,622 shares, respectively; outstanding: 120,437,807 shares and 124,635,912 shares, respectively.		335,717			334,052
Paid-in capital		676,719			659,739
Retained earnings		623,868			537,588
Accumulated other comprehensive loss		(397,785	)		(464,504	)
Treasury shares (outstanding: 9,028,461 shares and 4,312,710 shares, respectively)		(259,268	)		(99,182	)

TOTAL FOSTER WHEELER AG SHAREHOLDERS’ EQUITY		979,251			967,693

Noncontrolling interests		46,388			47,656

TOTAL EQUITY		1,025,639			1,015,349

TOTAL LIABILITIES, TEMPORARY EQUITY AND EQUITY	$	3,048,631		$	3,060,477

See notes to consolidated financial statements.

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			Total
	Shares		Capital			Earnings		Loss			Shares			Equity			Interests			Equity
Six Months Ended June 30, 2010:
Balance at December 31, 2009	$	329,402	$	617,938		$	322,181	$	(438,004	)	$	—		$	831,517		$	38,970		$	870,487
Net income							130,918								130,918			7,096			138,014
Other comprehensive income, net of tax:
Foreign currency translation									(73,368	)					(73,368	)		(71	)		(73,439	)
Cash flow hedges									(2,195	)					(2,195	)					(2,195	)
Pension and other postretirement benefits									(3,158	)					(3,158	)		(2	)		(3,160	)

Comprehensive Income															52,197			7,023			59,220

Issuance of registered shares upon exercise of stock options		225		1,438											1,663						1,663
Issuance of registered shares upon vesting of restricted share units		3		(3	)										—						—
Distributions to noncontrolling interests																		(7,330	)		(7,330	)
Share-based compensation expense				4,805											4,805						4,805
Excess tax benefit related to share-based compensation				2											2						2

Balance at June 30, 2010	$	329,630	$	624,180		$	453,099	$	(516,725	)	$	—		$	890,184		$	38,663		$	928,847


Six Months Ended June 30, 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							86,280								86,280			6,832			93,112
Other comprehensive income, net of tax:
Foreign currency translation									27,773						27,773			449			28,222
Cash flow hedges									1,962						1,962						1,962
Pension and other postretirement benefits									36,984						36,984			(2	)		36,982

Comprehensive Income															152,999			7,279			160,278

Issuance of registered shares upon exercise of stock options		1,308		9,444											10,752						10,752
Issuance of registered shares upon vesting of restricted share units		357		(357	)
Distributions to noncontrolling interests																		(8,672	)		(8,672	)
Capital contribution from noncontrolling interests																		125			125
Share-based compensation expense				7,890											7,890						7,890
Excess tax benefit related to share-based compensation				3											3						3
Repurchase of registered shares												(160,086	)		(160,086	)					(160,086	)

Balance at June 30, 2011	$	335,717	$	676,719		$	623,868	$	(397,785	)	$	(259,268	)	$	979,251		$	46,388		$	1,025,639

See notes to consolidated financial statements.

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


	Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	93,112		$	138,014
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		25,177			24,987
Gain on curtailment of defined benefit pension plans		—			(20,086	)
Net asbestos-related provision		2,400			5,622
Share-based compensation expense		10,092			9,574
Excess tax benefit related to share-based compensation		(3	)		(2	)
Deferred income tax (benefit)/provision		(4,518	)		20,729
(Gain)/loss on sale of assets		(816	)		79
Dividends from partially-owned affiliates, net of equity in net earnings		16,152			194
Changes in assets and liabilities:
Decrease/(increase) in receivables		49,581			(2,436	)
Net change in contracts in process and billings in excess of costs and estimated earnings on uncompleted contracts		(25,310	)		32,035
Increase/(decrease) in accounts payable and accrued expenses		1,975			(96,770	)
Net change in other assets and liabilities		(28,878	)		(60,615	)

Net cash provided by operating activities		138,964			51,325


CASH FLOWS FROM INVESTING ACTIVITIES
Payments related to acquisition of businesses, net of cash acquired		—			(1,221	)
Change in restricted cash		(12,112	)		3,338
Capital expenditures		(17,277	)		(9,438	)
Proceeds from sale of assets		1,327			79
Return of investment from unconsolidated affiliates		3			3,232
Purchase of short-term investments		—			(238	)

Net cash used in investing activities		(28,059	)		(4,248	)


CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of shares		(160,086	)		—
Distributions to noncontrolling interests		(8,672	)		(7,330	)
Proceeds from capital contribution from noncontrolling interests		125			—
Proceeds from stock options exercised		11,772			2,628
Excess tax benefit related to share-based compensation		3			2
Proceeds from issuance of short-term debt		—			2,197
Repayment of debt and capital lease obligations		(7,225	)		(9,880	)

Net cash used in financing activities		(164,083	)		(12,383	)

Effect of exchange rate changes on cash and cash equivalents		33,248			(57,939	)

DECREASE IN CASH AND CASH EQUIVALENTS		(19,930	)		(23,245	)
Cash and cash equivalents at beginning of year		1,057,163			997,158


CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,037,233		$	973,913

See notes to consolidated financial statements.

FOSTER WHEELER AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands of dollars, except share data and per share amounts)
(unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation — The fiscal year of Foster Wheeler AG ends on December 31 of each calendar year. Foster Wheeler AG’s fiscal quarters end on the last days of March, June and September. The fiscal years of our non-U.S. operations are the same as the parent’s. 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 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.

Comprehensive income is comprised of net income, as well as adjustments for foreign currency translation, derivative instruments designated as cash flow hedges and pension and other postretirement benefits. Comprehensive income for Foster Wheeler AG, noncontrolling interests and total equity was as follows:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Comprehensive Income:
Foster Wheeler AG	$	104,714	$	24,155	$	152,999	$	52,197
Noncontrolling interests		4,821		3,167		7,279		7,023

Total	$	109,535	$	27,322	$	160,278	$	59,220

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.

At any point, we have numerous contracts in progress, all of which are at various stages of completion. Accounting for revenues and profits on long-term contracts requires estimates of total estimated contract costs and estimates of progress toward completion to determine the extent of revenue and profit recognition. These estimates may be revised as additional information becomes available or as specific project circumstances change. We review all of our material contracts on a monthly basis and revise our estimates as appropriate for developments such as earning project incentive bonuses, incurring or expecting to incur contractual liquidated damages for performance or schedule issues, providing services and purchasing third-party materials and equipment at costs differing from those previously estimated and testing completed facilities, which, in turn, eliminates or confirms completion and warranty-related costs. Project incentives are recognized when it is probable they will be earned. Project incentives are frequently tied to cost, schedule and/or safety targets and, therefore, tend to be earned late in a project’s life cycle.

Changes in estimated final contract revenues and costs can either increase or decrease the final estimated contract profit. In the period in which a change in estimate is recognized, the cumulative impact of that change is recorded based on progress achieved through the period of change. 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:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Number of separate projects		17		15		20		25
Net increase in contract profit from the regular revaluation of final estimated contract profit revisions	$	15,800	$	8,600	$	13,500	$	33,700

The changes in final estimated contract profit revisions during the six months ended June 30, 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 first quarter and are included in the current six month 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:


	June 30, 2011		December 31, 2010
Assumed recovery of commercial claims	$	7,800	$	7,300
Claims yet to be incurred	$	1,000	$	—

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 inconsequential as of June 30, 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.

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 June 30, 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 entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.

As of June 30, 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.

	•		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 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. Based on the aggregate share repurchases under our program through June 30, 2011, we are authorized to repurchase up to an additional $340,600 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.

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. On July 22, 2011, the cancellation of shares was registered with the commercial register of the Canton of Zug in Switzerland. 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.

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.

The computations of basic and diluted earnings per share were as follows:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

Basic earnings per share:
Net income attributable to Foster Wheeler AG	$	63,309	$	58,858	$	86,280	$	130,918
Weighted-average number of shares outstanding for basic earnings per share		122,331,265		127,519,766		123,499,174		127,497,450

Basic earnings per share	$	0.52	$	0.46	$	0.70	$	1.03


Diluted earnings per share:
Net income attributable to Foster Wheeler AG	$	63,309	$	58,858	$	86,280	$	130,918
Weighted-average number of shares outstanding for basic earnings per share		122,331,265		127,519,766		123,499,174		127,497,450
Effect of dilutive securities:
Options to purchase shares		285,728		185,598		340,111		243,292
Non-vested portion of restricted share units		230,012		173,912		297,605		119,136

Weighted-average number of shares outstanding for diluted earnings per share		122,847,005		127,879,276		124,136,890		127,859,878

Diluted earnings per share	$	0.52	$	0.46	$	0.70	$	1.02

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:

Quarter Ended June 30,

Six Months Ended June 30,

2011

2010

2011

2010

Options not included in the computation of diluted earnings per share

1,347,442

1,551,052

1,340,549

1,551,052

Recent Accounting Developments — In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. (“ASU”) 2011-05, “Comprehensive Income.” ASU 2011-05 amends existing guidance in order to increase the prominence of items reported in other comprehensive income and eliminates the option to present components of other comprehensive income as part of the statement of changes in equity, the presentation format that we currently employ. Under ASU 2011-05, all non-owner changes in equity are required to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. For public companies, ASU 2011-05 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011. Although we have not yet determined the manner of presentation that we will select, the adoption of this standard, beginning with our consolidated financial statements included in our quarterly report on Form 10-Q for the quarter ending March 31, 2012, will not have a material impact on our results of operation or financial position.

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 company’s 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 shareholder’s right to approve activities of the project that most significantly impact the project’s economic performance which include the right to approve or reject the annual financial (capital and operating) budget and the annual operating plan, the right to approve or reject the appointment of the general manager and senior management, and approval rights with respect to capital expenditures beyond those included in the annual budget.

On February 27, 2010, an earthquake occurred off the coast of Chile that caused significant damage to our unconsolidated affiliate’s facility in Chile. As a result of the damage, the project’s 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 suspended normal operating activities. Our unconsolidated affiliate’s receivable related to the remaining balance under their property damage and business interruption insurance recovery assessment was approximately $59,800 as of June 30, 2011, which is included in current assets in the table below. The facility began operating at less than normal utilization during the second quarter of 2011 and continues to progress with the expectation of achieving normal operating activities in the third 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 suspended normal operating activities. In accordance with authoritative accounting guidance on business interruption insurance, the project recorded an estimated recovery for lost profits as substantially all contingencies related to the insurance claim had been resolved as of the third quarter of 2010.

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:


	June 30, 2011				December 31, 2010
	Italy		Chile		Italy		Chile
Balance Sheet Data:
Current assets	$	215,673	$	106,944	$	396,512	$	70,381
Other assets (primarily buildings and equipment)		417,525		112,972		395,264		117,779
Current liabilities		107,479		48,476		202,658		43,909
Other liabilities (primarily long-term debt)		275,105		51,593		275,466		50,132
Net assets		250,614		119,847		313,652		94,119


	Quarter Ended June 30,									Six Months Ended June 30,
	2011				2010					2011				2010
	Italy		Chile		Italy		Chile			Italy		Chile		Italy		Chile
Income Statement Data:
Total revenues	$	53,307	$	27,512	$	98,635	$	6,681		$	82,724	$	48,329	$	198,273	$	17,304
Gross profit		19,658		17,726		21,602		(1,198	)		31,725		17,855		40,579		3,289
Income before income taxes		16,667		19,699		17,169		223			25,923		34,465		31,072		4,394
Net earnings		10,306		13,914		10,037		185			15,953		25,728		17,949		3,647

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:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Equity in the net earnings of partially owned affiliates	$	15,586	$	4,293	$	28,079	$	10,582
Distributions from equity affiliates	$	33,733	$	14,198	$	43,410	$	14,198


	June 30, 2011		December 31, 2010
Total investment in equity affiliates	$	197,776	$	200,668

Our equity earnings from our project in Chile were $11,586 and $21,473 during the quarter and six months ended June 30, 2011, respectively. Our equity earnings from our project in Chile were $2,831 during the six months ended June 30, 2010, while our equity earnings during the quarter ended June 30, 2010 were insignificant. Equity earnings in both the quarter and six months ended June 30, 2011 included our equity interest in the after tax estimated recovery under our project in Chile’s business interruption insurance policy which covers through the period when the facility resumes normal operating activities. The increases in equity earnings during the quarter and six months ended June 30, 2011, compared to the same periods in 2010, were primarily driven by increased income as the project began operating in the second quarter of 2011. Additionally, the increased earnings in six months ended June 30, 2011 included the benefit of the project’s business interruption insurance recovery.

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. Following the termination of the power off-take agreement, we and our partner in CEF decided to continue to operate the CEF plant at least temporarily on a merchant basis while we considered a possible sale of the plant in 2011. As a result of the foregoing operating decisions, CET and CEF recorded impairment charges during the fourth quarter of 2010 to write down their fixed assets to fair value in their financial statements. Additionally, during the 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.

During the second quarter of 2011, as part of our review of the economic viability of the CEF project, we and our partner in CEF concluded we would operate the plant through the third quarter of 2011 and then shut down the plant in the fourth quarter of 2011. As a result, an additional impairment charge was recorded to bring the carrying value of our investment to fair value as of June 30, 2011.

Our equity earnings from our CET and CEF investments during the quarter and six months ended June 30, 2011 totaled approximately $200 for both periods, which included the impairment charge for CEF. Our equity earnings from our CET and CEF investments during the quarter and six months ended June 30, 2010 totaled $1,828 and $2,767, 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 project’s 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 June 30, 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 Chile’s debt, which matures in 2014. As of June 30, 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, 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:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Fees for operations and maintenance services (included in operating revenues)	$	2,660	$	2,459	$	5,320	$	4,920


	June 30, 2011		December 31, 2010
Receivable from our unconsolidated affiliate in Chile (included in trade receivables)	$	6,690	$	632

We also have guaranteed the performance obligations of our wholly-owned subsidiary under the project in Chile’s operations and maintenance agreement. The guarantee is limited to $20,000 over the life of the operations and maintenance agreement, which extends through 2016. No amounts have ever been paid under the guarantee.

Other Investments

We are the majority equity partner and general partner of a gas-fired cogeneration facility in Martinez, California, and we own 100% of the equity in a waste-to-energy facility in Camden, New Jersey. We have determined that these entities are VIEs and that we are the primary beneficiary of these VIEs since we have the power to direct the activities that most significantly impact the VIE’s performance. These activities include the operations and maintenance of the facilities. Accordingly, we consolidate these entities. The aggregate net assets of these entities are presented below.


	June 30, 2011		December 31, 2010
Balance Sheet Data (excluding intercompany balances):
Current assets	$	11,338	$	15,915
Other assets (primarily buildings and equipment)		105,825		102,457
Current liabilities		7,815		11,177
Other liabilities		4,991		1,791
Net assets		104,357		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
	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
U.S.	$	39,357	$	39,357	$	—	$	—
Asia		1,053		1,053		—		—
Europe		—		—		52,450		48,507

Total	$	40,410	$	40,410	$	52,450	$	48,507

During the six months ended June 30, 2010, we made a contractual payment of $1,221 related to a prior acquisition of a business in our Global E&C Group’s U.S. operations.

The following table sets forth amounts relating to our identifiable intangible assets:


	June 30, 2011							December 31, 2010
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount

Patents	$	42,023	$	(29,871	)	$	12,152	$	41,237	$	(28,476	)	$	12,761
Trademarks		64,890		(29,423	)		35,467		63,774		(27,764	)		36,010
Customer relationships, pipeline and backlog		22,404		(6,430	)		15,974		22,329		(5,030	)		17,299

Total	$	129,317	$	(65,724	)	$	63,593	$	127,340	$	(61,270	)	$	66,070

As of June 30, 2011, the net carrying amounts of our identifiable intangible assets were $47,560 for our Global Power Group and $16,033 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:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Amortization expense	$	1,649	$	1,559	$	3,297	$	3,337


	For the Year
	2011		2012		2013		2014		2015
Approximate full year amortization expense	$	6,600	$	5,900	$	5,600	$	5,300	$	5,300

5. Borrowings

The following table shows the components of our long-term debt:


	June 30, 2011						December 31, 2010
	Current		Long-term		Total		Current		Long-term		Total
Capital Lease Obligations	$	2,648	$	59,028	$	61,676	$	2,574	$	59,024	$	61,598
Special-Purpose Limited Recourse Project Debt:
FW Power S.r.l.		8,875		82,622		91,497		7,403		81,047		88,450
Energia Holdings, LLC at 11.443% interest, due April 15, 2015		1,912		9,308		11,220		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	$	13,435	$	152,241	$	165,676	$	11,996	$	152,574	$	164,570


Estimated fair value					$	183,444					$	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 Moody’s Investors Service, which we refer to as Moody’s, and/or Standard & Poor’s, or S&P. We received a corporate credit rating of BBB- as issued by S&P during the 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 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 AG’s fiscal year or, with respect to Foster Wheeler AG, Foster Wheeler Ltd. and one of our holding company subsidiaries, directly acquire ownership of the operating assets used to conduct any business. In the event that our corporate credit rating as issued by Moody’s is at least Baa3 and as issued by S&P is at least BBB-, all liens securing our obligations under the amended and restated U.S. senior secured credit agreement will be automatically released and terminated.

In addition, our amended and restated U.S. senior secured credit agreement contains financial covenants requiring us not to exceed a total leverage ratio, which compares total indebtedness to EBITDA, and to maintain a minimum interest coverage ratio, which compares EBITDA to interest expense. All such terms are defined in our amended and restated U.S. senior secured credit agreement. We must be in compliance with the total leverage ratio at all times, while the interest coverage ratio is measured quarterly. We have been in compliance with all financial covenants and other provisions of our U.S. senior secured credit agreement prior and subsequent to our amendment and restatement of the agreement.

We had approximately $307,700 and $310,100 of letters of credit outstanding under our U.S. senior secured credit agreement in effect as of June 30, 2011 and December 31, 2010, respectively. The letter of credit fees under the U.S. senior secured credit agreement outstanding as of June 30, 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 June 30, 2011 and 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 consolidated statement of operations in the six months ended June 30, 2010 of approximately £13,300 (approximately $20,100 at the exchange rate in effect at the time of the pension plan closure).

As a result of a recent change in the U.K. governmental standard, our U.K. pension plan adopted the use of the U.K. consumer prices index as a basis for inflationary increases in the calculation of the funded status of our U.K. pension plan. The U.K. retail prices index was the former U.K. governmental standard that was used by our U.K. pension plan. We have accounted for this change as a plan amendment as of May 31, 2011 and recognized a prior service credit in comprehensive income during the quarter and six months ended June 30, 2011 of approximately £29,600 (approximately $48,100 at the exchange rate in effect during the period).

Based on the minimum statutory funding requirements for 2011, we are not required to make any mandatory contributions to our U.S. pension plans. The following table provides details on 2011 mandatory contribution activity for our non-U.S. pension plans:


Contributions in the six months ended June 30, 2011	$	8,500
Remaining contributions expected for the year 2011		10,500

Contributions expected for the year 2011	$	19,000

We did not make any discretionary contributions during the first six months of 2011; however, we may elect to make discretionary contributions to our U.S. and/or non-U.S. pension plans during 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 employee’s beneficiary upon the death of the employee. This plan has been closed to new entrants since 1988.

The components of net periodic benefit cost/(credit) for our defined benefit pension plans and other postretirement benefit plans were as follows:


	Defined Benefit Pension Plans												Other Postretirement Benefit Plans
	Quarter Ended						Six Months Ended						Quarter Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2011			2010			2011			2010			2011			2010			2011			2010
Net periodic benefit cost/(credit):
Service cost	$	333		$	328		$	702		$	2,205		$	20		$	21		$	47		$	55
Interest cost		15,314			15,019			30,925			30,394			735			619			1,647			1,826
Expected return on plan assets		(17,830	)		(15,389	)		(35,971	)		(30,569	)		—			—			—			—
Amortization of net actuarial loss/(gain)		3,501			3,336			6,955			9,264			(6	)		(23	)		71			29
Amortization of prior service (credit)/cost		9			9			18			(416	)		(891	)		(989	)		(1,782	)		(1,985	)
Amortization of transition (asset)/obligation		11			24			23			48			—			(8	)		—			(8	)
(Curtailment gain)/settlement charges ^*		—			422			—			(19,664	)		—			—			—			—

Net periodic benefit cost/(credit)	$	1,338		$	3,749		$	2,652		$	(8,738	)	$	(142	)	$	(380	)	$	(17	)	$	(83	)


Changes recognized in other comprehensive income:
Net actuarial loss	$	3,597		$	—		$	3,597		$	21,130		$	—		$	—		$	—		$	—
Prior service credit		(48,056	)		—			(48,056	)		(9,054	)		—			—			—			—
Amortization of net actuarial (loss)/gain		(3,501	)		(3,336	)		(6,955	)		(9,264	)		6			23			(71	)		(29	)
Amortization of prior service (cost)/credit		(9	)		(9	)		(18	)		416			891			989			1,782			1,985
Amortization of transition (obligation)/asset		(11	)		(24	)		(23	)		(48	)		—			8			—			8

Total recognized in other comprehensive income — before tax	$	(47,980	)	$	(3,369	)	$	(51,455	)	$	3,180		$	897		$	1,020		$	1,711		$	1,964


*		During the six months ended June 30, 2010, a curtailment gain resulted from the closure of the U.K. pension plan for future benefit accrual. During the fiscal quarter and six months ended June 30, 2010, a charge was incurred related to the settlement of pension obligations with former employees of the Canada pension plan.

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	June 30, 2011		December 31, 2010

Environmental indemnifications	No limit	$	8,200	$	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.


	Six Months Ended June 30,
	2011			2010
Warranty Liability:
Balance at beginning of year	$	100,300		$	110,800
Accruals		14,000			11,000
Settlements		(9,500	)		(8,400	)
Adjustments to provisions, including foreign currency translation		(3,600	)		(19,200	)

Balance at end of period	$	101,200		$	94,200

We are contingently liable under standby letters of credit, bank guarantees and surety bonds, totaling $1,070,000 and $1,010,600 as of June 30, 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.

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

June 30,

December 31,

Balance Sheet

June 30,

December 31,

Location

2011

2010

Location

2011

2010

Derivatives designated as hedging instruments:

Interest rate swap contracts

Other assets

—

Other long-term liabilities

6,060

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

3,541

2,112

Contracts in process or billings in excess of costs and estimated earnings on uncompleted contracts

3,131

2,978

Foreign currency forward contracts

Other accounts receivable

373

367

Accounts payable

Total derivatives

3,914

2,479

9,195

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 June 30, 2011, we had a total gross notional amount of $247,574 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 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:


	Location of Gain/(Loss)	Amount of Gain/(Loss) Recognized in Income on Derivatives
Derivatives Not Designated as	Recognized	Quarter Ended June 30,						Six Months Ended June 30,
Hedging Instruments	in Income on Derivative	2011			2010			2011		2010
Foreign currency forward contracts	Cost of operating revenues	$	(1,089	)	$	(556	)	$	725	$	(2,007	)
Foreign currency forward contracts	Other deductions, net		(54	)		(187	)		16		(375	)

Total		$	(1,143	)	$	(743	)	$	741	$	(2,382	)

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 six months ended June 30, 2011 and 2010, we included net cash inflows/(outflows) on the settlement of derivatives of $656 and $(5,804), 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 $76,900 as of June 30, 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:


	Quarter Ended June 30,						Six Months Ended June 30,
	2011			2010			2011		2010
Gain/(loss) recognized in Other comprehensive income	$	(743	)	$	(1,367	)	$	104	$	(4,303	)
Loss reclassified from Accumulated other comprehensive loss		639			1,376			1,255		2,498

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:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Share-based compensation	$	5,233	$	4,972	$	10,104	$	9,574
Related income tax benefit		102		70		183		169

As of June 30, 2011, we had $12,658 and $15,915 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 two years.

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 six months ended June 30, 2011, performance-based restricted share units totaling 92,971 were granted at an estimated grant date fair value of $25.08 per unit. There were no performance-based restricted share units granted during the quarter ended June 30, 2011.

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 six months ended June 30, 2011 and 2010 were as follows:


	June 30, 2011			June 30, 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		5,398			4,806
Intrinsic value of equity awards vested during the period for those equity awards with intrinsic value on the grant date		(3,184	)		(37	)

Balance at end of period	$	7,149		$	7,339

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 June 30, 2011, our remaining available conditional capital was 60,157,603 shares.

10. Income Taxes

The tax provision for each year-to-date period is calculated by multiplying pretax income by the estimated annual effective tax rate for such period. Our effective tax rate can fluctuate significantly from period to period and may differ significantly from the U.S. federal statutory rate as a result of income taxed in various non-U.S. jurisdictions with rates different from the U.S. statutory rate, as a result of our inability to recognize a tax benefit for losses generated by certain unprofitable operations and as a result of the varying mix of income earned in the jurisdictions in which we operate. 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 June 30, 2011 presentation.

Effective Tax Rate for 2011

Our effective tax rate for the first six 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 16-percentage point reduction in the effective tax rate for the full year 2011.

	•		A valuation allowance increase because we are unable to recognize a tax benefit for losses subject to valuation allowance in certain jurisdictions (primarily the United States), which is expected to contribute to an approximate four-percentage point increase in the effective tax rate for the full year 2011.

Effective Tax Rate for 2010

Our effective tax rate for the first six 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 18-percentage point reduction in the effective tax rate.

	•		A valuation allowance increase because we were unable to recognize a tax benefit for year-to-date losses subject to valuation allowance in certain jurisdictions (primarily the United States), which contributed to an approximate five-percentage point increase in the effective tax rate.

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 2006.

A number of tax years are under audit by the relevant tax authorities in various jurisdictions, including 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 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.

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 Group’s 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.

Operating Revenues

We conduct our business on a global basis. Operating revenues by industry and business segment were as follows:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Operating Revenues (Third-Party) by Industry:
Power generation	$	269,054	$	145,782	$	464,183	$	300,962
Oil refining		383,465		391,860		746,994		707,698
Pharmaceutical		15,290		11,894		26,474		24,491
Oil and gas		336,055		301,574		608,102		599,196
Chemical/petrochemical		130,409		118,663		284,386		250,770
Power plant operation and maintenance		34,235		26,857		62,564		51,179
Environmental		2,977		3,477		5,536		6,601
Other, net of eliminations		12,393		5,389		21,891		10,172

Total	$	1,183,878	$	1,005,496	$	2,220,130	$	1,951,069


Operating Revenues (Third-Party) by Business Segment:
Global E&C Group	$	892,080	$	842,461	$	1,715,823	$	1,622,145
Global Power Group		291,798		163,035		504,307		328,924

Total	$	1,183,878	$	1,005,496	$	2,220,130	$	1,951,069

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.

A reconciliation of EBITDA to net income attributable to Foster Wheeler AG is shown below:


	Quarter Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
EBITDA: ⁽¹⁾
Global E&C Group	$	54,842		$	85,460		$	96,510		$	185,393
Global Power Group		67,735			26,396			94,199			56,279
C&F Group ⁽²⁾		(24,291	)		(21,617	)		(45,619	)		(40,153	)

Total		98,286			90,239			145,090			201,519

Add: Net income attributable to noncontrolling interests		4,527			3,790			6,832			7,096
Less: Interest expense		3,427			4,044			7,306			8,595
Less: Depreciation and amortization		12,506			11,928			25,177			24,987

Income before income taxes		86,880			78,057			119,439			175,033
Less: Provision for income taxes		19,044			15,409			26,327			37,019

Net income		67,836			62,648			93,112			138,014
Less: Net income attributable to noncontrolling interests		4,527			3,790			6,832			7,096

Net income attributable to Foster Wheeler AG	$	63,309		$	58,858		$	86,280		$	130,918


(1)		EBITDA includes the following:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Net increase in contract profit from the regular revaluation of final estimated contract profit revisions: ^*
Global E&C Group ^**	$	1,500	$	8,100	$	3,900	$	25,200
Global Power Group ^**		14,300		500		9,600		8,500

Total ^**		15,800		8,600		13,500		33,700


Net asbestos-related provision in C&F Group ^***		2,000		2,300		2,400		1,600
Curtailment gain on the closure of the U.K. pension plan for future defined benefit accrual in our Global E&C Group		—		—		—		20,100


(2)		Includes general corporate income and expense, our captive insurance operation and the elimination of transactions and balances related to intercompany interest.


*		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 six months ended June 30, 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 first quarter and are included in the six months ended June 30, 2011 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 transactions—i.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.

United States

A summary of our U.S. claim activity is as follows:


	Quarter Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Number of Claims by period:
Open claims at beginning of period		123,580			125,430			124,420			125,100
New claims		1,100			1,000			2,380			2,210
Claims resolved		(690	)		(3,940	)		(2,810	)		(4,820	)

Open claims at end of period		123,990			122,490			123,990			122,490

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 second 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.


	June 30, 2011		December 31, 2010
Asbestos-related assets recorded within:
Accounts and notes receivable-other	$	55,838	$	54,449
Asbestos-related insurance recovery receivable		149,580		165,452

Total asbestos-related assets	$	205,418	$	219,901


Asbestos-related liabilities recorded within:
Accrued expenses	$	44,600	$	59,000
Asbestos-related liability		260,344		278,500

Total asbestos-related liabilities	$	304,944	$	337,500


Liability balance by claim category:
Open claims	$	65,118	$	78,460
Future unasserted claims		239,826		259,040

Total asbestos-related liabilities	$	304,944	$	337,500

Since 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 year-end for the next 15 years. Since that time, we have recorded our estimated asbestos liability at a level consistent with ARPC’s reasonable best estimate. Our estimated asbestos liability decreased during the first six months of 2011 as a result of indemnity and defense cost payments totaling approximately $36,500, partially offset by an increase of $4,000 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 second 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 second 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 second 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 second quarter of 2026.

Through June 30, 2011, total cumulative indemnity costs paid were approximately $752,800 and total cumulative defense costs paid were approximately $353,800. Historically, defense costs have represented approximately 32% of total defense and indemnity costs. The overall historic average combined indemnity and defense cost per resolved claim through June 30, 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 first six months of 2011 and 2010, our subsidiaries reached agreements with their insurers to settle their disputed asbestos-related insurance coverage. As a result of these settlements, we increased our asbestos-related insurance asset and recorded settlement gains. Please see the table below for a breakout of the gains by period.

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 second 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 June 30, 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 six months ended June 30, 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:


	Quarter Ended June 30,					Six Months Ended June 30,
	2011		2010			2011			2010
Provision for revaluation	$	2,000	$	5,344		$	4,000		$	8,589
Gain on the settlement of coverage litigation		—		(3,000	)		(1,600	)		(6,992	)

Net asbestos-related provision	$	2,000	$	2,344		$	2,400		$	1,597

Our net asbestos-related provision 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:


	Quarter Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Asbestos litigation, defense and case resolution payments	$	14,900		$	18,500		$	36,500		$	34,000
Insurance proceeds		(6,900	)		(18,300	)		(16,000	)		(27,400	)

Net asbestos-related payments	$	8,000		$	200		$	20,500		$	6,600

We expect the full year 2011 to have net cash outflows of $5,700 as a result of asbestos liability indemnity and defense payments in excess of insurance settlement proceeds. 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 December 31, 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 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, 978 claims have been brought against our U.K. subsidiaries of which 290 remained open as of June 30, 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 second quarter of 2026:


	June 30, 2011		December 31, 2010
Asbestos-related assets:
Accounts and notes receivable-other	$	1,989	$	1,927
Asbestos-related insurance recovery receivable		29,808		29,119

Total asbestos-related assets	$	31,797	$	31,046

Asbestos-related liabilities:
Accrued expenses	$	1,989	$	1,927
Asbestos-related liability		29,808		29,119

Total asbestos-related liabilities	$	31,797	$	31,046

Liability balance by claim category:
Open claims	$	5,569	$	5,782
Future unasserted claims		26,228		25,264

Total asbestos-related liabilities	$	31,797	$	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 $54,500.

Project Claims

In the ordinary course of business, we are parties to litigation involving clients and subcontractors arising out of project contracts. Such litigation includes claims and counterclaims by and against us for canceled contracts, for additional costs incurred in excess of current contract provisions, as well as for back charges for alleged breaches of warranty and other contract commitments. If we were found to be liable for any of the claims/counterclaims against us, we would incur a charge against earnings to the extent a reserve had not been established for the matter in our accounts or if the liability exceeds established reserves.

Due to the inherent commercial, legal and technical uncertainties underlying the estimation of all of the project claims described herein, the amounts ultimately realized or paid by us could differ materially from the balances, if any, included in our financial statements, which could result in additional material charges against earnings, and which could also materially adversely impact our financial condition and cash flows.

Power Plant Dispute — Ireland

In 2006, a dispute arose with a client because of material corrosion that occurred at two power plants we designed and built in Ireland, which began operation in December 2005 and June 2006. There was also corrosion that occurred to subcontractor-provided emissions control equipment and induction fans at the back-end of the power plants which is due principally to the low set point temperature design of the emissions control equipment that was set by our subcontractor. We have identified technical solutions to resolve the boiler tube corrosion and emissions control equipment corrosion and during the fourth quarter of 2008 entered into a settlement with the client under which we are implementing the technical solutions in exchange for a full release of all claims related to the corrosion (including a release from the client’s right under the original contract to reject the plants under our availability guaranty) and the client’s agreement to share the cost of the ameliorative work related to the boiler tube corrosion. Accordingly, the client withdrew its notice of arbitration in January 2009, which was originally filed in May 2008.

Between 2006 and the end of 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.

Power Plant Arbitration — North America

In January 2010, we commenced arbitration against our client in connection with a power plant project in Louisiana seeking, among other relief, a declaration as to our rights under our purchase order with respect to $17,800 in retention monies and an $82,000 letter of credit held by the client. The purchase order was for the supply of two boilers and ancillary equipment for the project. The project was substantially completed and released for commercial operation in February 2010. Our client is the project’s engineering, procurement and construction contractor. Under the terms of the purchase order, significant reductions to the retention and letter of credit monies are to occur upon the project’s achievement of substantial completion, which has been delayed due to failures on our client’s part to properly manage and execute the project. The client has taken the position that we are responsible for the project’s delays and, subsequent to service of our arbitration demand, has served its own arbitration demand, seeking to assess us with all associated late substantial completion liquidated damages under our purchase order, together with liquidated damages for alleged late material and equipment deliveries, and back charges for corrective work and other damages arising out of allegedly defective materials and equipment delivered by us. The client contends it is owed in 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.

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 FWEC’s former manufacturing facility and the affected residences, but it also stated that the proposed listing may not be finalized if FWEC complies with its agreement to conduct the RI/FS. FWEC submitted comments opposing the proposed listing. FWEC has accrued its best estimate of the cost of the foregoing and it reviews this estimate on a quarterly basis.

Other costs to which FWEC could be exposed could include, among other things, FWEC’s counsel and consulting fees, further agency oversight and/or response costs, costs and/or exposure related to potential litigation, and other costs related to possible further investigation and/or remediation. At present, it is not possible to determine whether FWEC will be determined to be liable for some or all of the items described in this paragraph or to reliably estimate the potential liability associated with the items. If one or more third-parties are determined to be a source of the TCE, FWEC will evaluate its options regarding the potential recovery of the costs FWEC has incurred, which options could include seeking to recover those costs from those determined to be a source.

Other Environmental Matters

Our operations, especially our manufacturing and power plants, are subject to comprehensive laws adopted for the protection of the environment and to regulate land use. The laws of primary relevance to our operations regulate the discharge of emissions into the water and air, but can also include hazardous materials handling and disposal, waste disposal and other types of environmental regulation. These laws and regulations in many cases require a lengthy and complex process of obtaining licenses, permits and approvals from the applicable regulatory agencies. Noncompliance with these laws can result in the imposition of material civil or criminal fines or penalties. We believe that we are in substantial compliance with existing environmental laws. However, no assurance can be provided that we will not become the subject of enforcement proceedings that could cause us to incur material expenditures. Further, no assurance can be provided that we will not need to incur material expenditures beyond our existing reserves to make capital improvements or operational changes necessary to allow us to comply with future environmental laws.

With regard to the foregoing, the waste-to-energy facility operated by our Camden County Energy Recovery Associates, LP (“CCERA”) project subsidiary is subject to certain revisions to New Jersey’s mercury air emission regulations. The revisions make CCERA’s mercury control requirements more stringent, especially when

the last phase of the revisions becomes effective in 2012. CCERA’s management believes that the data generated during recent stack testing tends to indicate that the facility will be able to comply with even the most stringent of the regulatory revisions without installing additional control equipment. Estimates of the cost of installing the additional control equipment are approximately $30,000 based on our last assessment.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (amounts in thousands of dollars, except share data and per share amounts)

The following is management’s discussion and analysis of certain significant factors that have affected our financial condition and results of operations for the periods indicated below. This discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in this quarterly report on Form 10-Q and our annual report on Form 10-K for the year ended December 31, 2010, which we refer to as our 2010 Form 10-K.

Safe Harbor Statement

This management’s discussion and analysis of financial condition and results of operations, other sections of this quarterly report on Form 10-Q and other reports and oral statements made by our representatives from time to time may contain forward-looking statements that are based on our assumptions, expectations and projections about Foster Wheeler AG and the various industries within which we operate. These include statements regarding our expectations about revenues (including as expressed by our backlog), our liquidity, the outcome of litigation and legal proceedings and recoveries from customers for claims and the costs of current and future asbestos claims and the amount and timing of related insurance recoveries. Such forward-looking statements by their nature involve a degree of risk and uncertainty. We caution that a variety of factors, including but not limited to the factors described in Part I, Item 1A, “Risk Factors,” in our 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;

	•		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.

In addition, this management’s discussion and analysis of financial condition and results of operations contains several statements regarding current and future general global economic conditions. These statements are based on our compilation of economic data and analyses from a variety of external sources. While we believe these statements to be reasonably accurate, global economic conditions are difficult to analyze and predict and are subject to significant uncertainty and as a result, these statements may prove to be wrong. The challenges and drivers for each of our business segments are discussed in more detail in the section entitled “—Results of Operations-Business Segments,” within this Item 2.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any additional disclosures we make in proxy statements, quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K filed with the SEC.

Overview

We operate through two business groups — the Global Engineering & Construction Group, which we refer to as our Global E&C Group, and our Global Power Group. In addition to these two business groups, we also report corporate center expenses, our captive insurance operation and expenses related to certain legacy liabilities, such as asbestos 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 Quarter and Six Months Ended June 30, 2011

Our summary financial results for the quarter and six months ended June 30, 2011 and 2010 are as follows:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Consolidated Statement of Operations Data:
Operating revenues ⁽¹⁾	$	1,183,878	$	1,005,496	$	2,220,130	$	1,951,069
Contract profit ⁽¹⁾		153,612		147,860		252,867		319,942
Selling, general and administrative expenses ⁽¹⁾		80,402		69,515		154,243		139,820
Net income attributable to Foster Wheeler AG		63,309		58,858		86,280		130,918
Earnings per share :
Basic		0.52		0.46		0.70		1.03
Diluted		0.52		0.46		0.70		1.02
Net cash provided by operating activities ⁽²⁾						138,964		51,325


(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 $1,037,233 and $1,057,163 as of June 30, 2011 and December 31, 2010, respectively.

Net income attributable to Foster Wheeler AG increased in the second quarter of 2011, compared to the same period of 2010, primarily driven by the pretax increase in contract profit of $5,800 and increased equity earnings in our Global Power Group’s project in Chile, partially offset by increased sales pursuit costs.

Net income attributable to Foster Wheeler AG decreased in the first six months of 2011, compared to the same period of 2010, primarily driven by the pretax decrease in contract profit of $67,100, which included the unfavorable impact of the inclusion of a curtailment gain recognized in the first six months of 2010 related to our Global E&C Group’s U.K. pension plan that was closed for future defined benefit accrual and increased sales pursuit costs, partially offset by increased equity earnings in our Global Power Group’s 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.

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 2010 and the first half of 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 reevaluating 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 2010 and the first half of 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 the second half of 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:


	Quarter Ended
	June 30, 2011		March 31, 2011		June 30, 2010
New orders, measured in future revenues:
Global E&C Group ^*	$	664,900	$	719,800	$	770,800
Global Power Group		576,000		143,700		164,800

Total ^*	$	1,240,900	$	863,500	$	935,600


*		Balances include the following Global E&C Group flow-through revenues, as defined in the section entitled


“—Results of Operations-Operating Revenues” within this Item 2 :		$	284,100			$	338,400			$	283,200


	As of
	June 30, 2011		March 31, 2011		December 31, 2010
Backlog of unfilled orders, measured in future revenues	$	3,921,400	$	3,849,300	$	3,979,500
Backlog, measured in Foster Wheeler scope ^*	$	2,926,600	$	2,624,100	$	2,643,200
E&C man-hours in backlog (in thousands)		12,400		12,500		12,700


*		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


	June 30, 2011		June 30, 2010		$ Change		% Change
Quarter Ended:
Global E&C Group	$	892,080	$	842,461	$	49,619		5.9	%
Global Power Group		291,798		163,035		128,763		79.0	%

Total	$	1,183,878	$	1,005,496	$	178,382		17.7	%


Six Months Ended:
Global E&C Group	$	1,715,823	$	1,622,145	$	93,678		5.8	%
Global Power Group		504,307		328,924		175,383		53.3	%

Total	$	2,220,130	$	1,951,069	$	269,061		13.8	%

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.

Our operating revenues by geographic region, based upon where our projects are being executed, for the quarter and six months ended June 30, 2011 and 2010, were as follows:


	Quarter Ended June 30,										Six Months Ended June 30,
	2011		2010		$ Change			% Change			2011		2010		$ Change			% Change
Africa	$	27,963	$	36,526	$	(8,563	)		(23.4	)%	$	82,883	$	71,294	$	11,589			16.3	%
Asia		229,364		208,584		20,780			10.0	%		417,679		421,215		(3,536	)		(0.8	)%
Australasia and other ^*		308,369		271,273		37,096			13.7	%		548,390		524,137		24,253			4.6	%
Europe		248,116		223,439		24,677			11.0	%		435,744		423,349		12,395			2.9	%
Middle East		55,811		51,515		4,296			8.3	%		125,644		125,438		206			0.2	%
North America		245,276		150,919		94,357			62.5	%		478,894		277,968		200,926			72.3	%
South America		68,979		63,240		5,739			9.1	%		130,896		107,668		23,228			21.6	%

Total	$	1,183,878	$	1,005,496	$	178,382			17.7	%	$	2,220,130	$	1,951,069	$	269,061			13.8	%


*		Australasia and other primarily represents Australia, New Zealand and the Pacific Islands.

Our operating revenues increased in the quarter and six months ended June 30, 2011, compared to the same periods in 2010, primarily as a result of increased flow-through revenues of $138,300 and $237,300, respectively, as described below. Excluding the impact of the change in flow-through revenues and currency fluctuations, our operating revenues decreased 2% and 3% in the quarter and six months ended June 30, 2011, respectively, compared to the same periods in 2010. The decrease in operating revenues, excluding flow-through revenues and currency fluctuations, during the quarter and six months ended June 30, 2011 was the result of decreased operating revenues in our Global E&C Group, significantly offset by increased operating revenues in our Global Power Group.

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


	June 30, 2011		June 30, 2010		$ Change			% Change
Quarter Ended	$	153,612	$	147,860	$	5,752			3.9	%
Six Months Ended	$	252,867	$	319,942	$	(67,075	)		(21.0	)%

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 increased during the quarter ended June 30, 2011, compared to the same period in 2010. The increase was the net result of increased contract profit by our Global Power Group, partially offset by decreased contract profit by our Global E&C Group.

Contract profit declined during the six months ended June 30, 2011, compared to the same period in 2010. The decline was the result of decreased contract profit by our Global E&C Group and the unfavorable impact of the inclusion of a curtailment gain of approximately $20,100 recognized in the first six months of 2010 related to our Global E&C Group’s U.K. pension plan that was closed for future defined benefit accrual, partially offset by increased contract profit in our Global Power Group. 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.

Selling, General and Administrative (SG&A) Expenses


	June 30, 2011		June 30, 2010		$ Change		% Change
Quarter Ended	$	80,402	$	69,515	$	10,887		15.7	%
Six Months Ended	$	154,243	$	139,820	$	14,423		10.3	%

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 second quarter of 2011, compared to the same period in 2010, primarily as a result of increased sales pursuit costs of $6,600 and general overhead costs of $3,900, while research and development costs were relatively unchanged.

SG&A expenses increased in the first six months of 2011, compared to the same period in 2010, primarily as a result of increased sales pursuit costs of $8,300 and general overhead costs of $5,700, while research and development costs were relatively unchanged.

Other Income, net


	June 30, 2011		June 30, 2010		$ Change		% Change
Quarter Ended	$	21,390	$	11,419	$	9,971		87.3	%
Six Months Ended	$	35,656	$	19,751	$	15,905		80.5	%

Other income, net during the quarter and six months ended June 30, 2011, consisted primarily of equity earnings of $15,000 and $27,400, respectively, generated from our investments, primarily from our ownership interests in build, own and operate projects in Italy and Chile and a $4,000 gain in the quarter and six months ended June 30, 2011 related to the revaluation of a contingent consideration liability.

Other income, net increased in the quarter and six months ended June 30, 2011, compared to the same periods in 2010, primarily driven by significantly increased equity earnings in our Global Power Group’s project in Chile of $11,600 and $18,700, respectively, and the $4,000 gain in the quarter and six months ended June 30, 2011 related to the revaluation of a contingent consideration liability, partially offset by decreased value-added tax refunds and other non-income tax credits of $2,000 and $2,500, respectively, and decreased equity earnings of $1,600 and $2,600, respectively, related to two of our Global E&C Group’s projects in Italy that terminated their power off-take agreements with a local energy authority during the 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 Group’s project in Chile and “—Business Segments-Global E&C Group” for our Global E&C Group’s projects in Italy, as well as Note 3 to the consolidated financial statements in this quarterly report on Form 10-Q.

Other Deductions, net


	June 30, 2011		June 30, 2010		$ Change			% Change
Quarter Ended	$	6,721	$	8,049	$	(1,328	)		(16.5	)%
Six Months Ended	$	12,838	$	19,737	$	(6,899	)		(35.0	)%

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 second quarter of 2011 consisted primarily of legal fees of $5,900, a provision for an environmental dispute of $700, net penalties on unrecognized tax benefits of $400, bank fees of $400 and consulting fees of $300, partially offset by a net foreign exchange transaction gain of $1,900. The decrease in other deductions, net in the second quarter of 2011, compared to the same period in 2010, was primarily the net result of a favorable impact of $2,100 related to the change in net foreign exchange transactions and decreased bank fees of $600, partially offset by increased net penalties on unrecognized tax benefits of $400, which includes the impact of previously accrued tax penalties that were ultimately not assessed of $1,300 in the second quarter of 2010, and an increased provision for an environmental dispute of $300.

Other deductions, net in the first six months of 2011 consisted primarily of legal fees of $9,300, bank fees of $1,200, net penalties on unrecognized tax benefits of $1,100 and consulting fees of $900, partially offset by a net foreign exchange transaction gain of $2,600. The decrease in other deductions, net in the first six months of 2011, compared to the same period in 2010, was primarily the net result of a favorable impact of $7,200 related to the change in net foreign exchange transactions and decreased consulting fees of $1,300, partially offset by increased net penalties on unrecognized tax benefits of $1,200, which includes the impact of previously accrued tax penalties that were ultimately not assessed of $1,400 in the first six months of 2010.

Net foreign exchange transaction gains and losses were 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


	June 30, 2011		June 30, 2010		$ Change		% Change
Quarter Ended	$	4,428	$	2,730	$	1,698		62.2	%
Six Months Ended	$	7,703	$	5,089	$	2,614		51.4	%

Interest income increased in the quarter and six months ended June 30, 2011, compared to the same periods 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 and favorable foreign currency fluctuations.

Interest Expense


	June 30, 2011		June 30, 2010		$ Change			% Change
Quarter Ended	$	3,427	$	4,044	$	(617	)		(15.3	)%
Six Months Ended	$	7,306	$	8,595	$	(1,289	)		(15.0	)%

Interest expense decreased in the quarter and six months ended June 30, 2011, compared to the same periods in 2010, which was primarily driven by the favorable impact from decreased average borrowings in both periods.

During the quarter and six months ended June 30, 2011, we recorded net accrued interest expense on unrecognized tax benefits of $200 and $900, respectively. During the quarter and six months ended June 30, 2010, we recorded net accrued interest expense on unrecognized tax benefits of $300 and $1,300, respectively, which amounts in both periods were net of previously accrued interest expense that was ultimately not assessed of $1,100.

Net Asbestos-Related Provision


	June 30, 2011		June 30, 2010		$ Change			% Change
Quarter Ended	$	2,000	$	2,344	$	(344	)		(14.7	)%
Six Months Ended	$	2,400	$	1,597	$	803			50.3	%

The decrease in the net asbestos-related provision in the second quarter of 2011, compared to the same period in 2010, primarily resulted from a decrease in our provision related to the revaluation of our asbestos liability of $3,300, significantly offset by a decreased gain on the settlement of coverage litigation with asbestos insurance carriers of $3,000.

The change in the net asbestos-related provision in the first six 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 $5,400, significantly offset by a decrease in our provision related to the revaluation of our asbestos liability of $4,600.

Provision for Income Taxes


	June 30, 2011			June 30, 2010			$ Change			% Change
Quarter Ended	$	19,044		$	15,409		$	3,635			23.6	%
Effective Tax Rate		21.9	%		19.7	%

Six Months Ended	$	26,327		$	37,019		$	(10,692	)		(28.9	)%
Effective Tax Rate		22.0	%		21.1	%

reflect the net presentation of deferred tax assets and liabilities by jurisdiction consistent with our June 30, 2011 presentation.

Effective Tax Rate for 2011

Our effective tax rate for the first six 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 16-percentage point reduction in the effective tax rate for the full year 2011.

	•		A valuation allowance increase because we are unable to recognize a tax benefit for losses subject to valuation allowance in certain jurisdictions (primarily the United States), which is expected to contribute to an approximate four-percentage point increase in the effective tax rate for the full year 2011.

Effective Tax Rate for 2010

Our effective tax rate for the first six months of 2010 was lower than the U.S. statutory rate of 35% due principally to the net impact of the following:

	•		Income earned in tax jurisdictions with tax rates lower than the U.S. statutory rate, which contributed to an approximate 18-percentage point reduction in the effective tax rate.

	•		A valuation allowance increase because we were unable to recognize a tax benefit for year-to-date losses subject to valuation allowance in certain jurisdictions (primarily the United States), which contributed to an approximate five-percentage point increase in the effective tax rate.

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 2024 and beyond, based on current tax laws.

Net Income Attributable to Noncontrolling Interests


	June 30, 2011		June 30, 2010		$ Change			% Change
Quarter Ended	$	4,527	$	3,790	$	737			19.4	%
Six Months Ended	$	6,832	$	7,096	$	(264	)		(3.7	)%

Net income attributable to noncontrolling interests represents third-party ownership interests in the net income of our Global Power Group’s Martinez, California gas-fired cogeneration subsidiary and our manufacturing subsidiaries in Poland and the People’s Republic of China as well as our Global E&C Group’s subsidiaries in Malaysia and South Africa. The change in net income attributable to noncontrolling interests is based upon changes in the net income of these subsidiaries and/or changes in the noncontrolling interests’ ownership interest in the subsidiaries.

The increase in net income attributable to noncontrolling interests in the second quarter of 2011, compared to the same period in 2010, primarily resulted from our operations in Malaysia and Poland, partially offset by our operations in Martinez, California.

The change in net income attributable to noncontrolling interests in the first six months of 2011, compared to the same period in 2010, was insignificant, which was the net result of decreases in our operations in South Africa and the People’s Republic of China, substantially offset by increases in our operations in Malaysia and Poland.

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.


	June 30, 2011		June 30, 2010		$ Change			% Change
Quarter Ended	$	98,286	$	90,239	$	8,047			8.9	%
Six Months Ended	$	145,090	$	201,519	$	(56,429	)		(28.0	)%

EBITDA increased in the second quarter of 2011, compared to the same period in 2010, primarily driven by increased contract profit and increased equity earnings in our Global Power Group’s project in Chile, partially offset by increased sales pursuit costs.

EBITDA decreased in the six months ended June 30, 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 first six months of 2010 related to our Global E&C Group’s U.K. pension plan that was closed for future defined benefit accrual and increased sales pursuit costs, partially offset by increased equity earnings in our Global Power Group’s 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.


	Quarter Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010

EBITDA: ⁽¹⁾
Global E&C Group	$	54,842		$	85,460		$	96,510		$	185,393
Global Power Group		67,735			26,396			94,199			56,279
C&F Group ⁽²⁾		(24,291	)		(21,617	)		(45,619	)		(40,153	)

Total		98,286			90,239			145,090			201,519

Less: Interest expense		3,427			4,044			7,306			8,595
Less: Depreciation and amortization		12,506			11,928			25,177			24,987
Less: Provision for income taxes		19,044			15,409			26,327			37,019

Net income attributable to Foster Wheeler AG	$	63,309		$	58,858		$	86,280		$	130,918


(1)		EBITDA includes the following:


	Quarter Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Net increase in contract profit from the regular revaluation of final estimated contract profit revisions: ^*
Global E&C Group ^**	$	1,500	$	8,100	$	3,900	$	25,200
Global Power Group ^**		14,300		500		9,600		8,500

Total ^**		15,800		8,600		13,500		33,700

Net asbestos-related provision in C&F Group ^***		2,000		2,300		2,400		1,600
Curtailment gain on the closure of the U.K. pension plan for future defined benefit accrual in our Global E&C Group		—		—		—		20,100


(2)		Includes general corporate income and expense, our captive insurance operation and the elimination of transactions and balances related to intercompany interest.


*		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 six months ended June 30, 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 first quarter and are included in the six months ended June 30, 2011 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.

Business Segments

Global E&C Group


	Quarter Ended June 30,										Six Months Ended June 30,
	2011		2010		$ Change			% Change			2011		2010		$ Change			% Change
Operating revenues	$	892,080	$	842,461	$	49,619			5.9	%	$	1,715,823	$	1,622,145	$	93,678			5.8	%

EBITDA	$	54,842		85,460	$	(30,618	)		(35.8	)%	$	96,510	$	185,393	$	(88,883	)		(47.9	)%

Results

Our Global E&C Group’s operating revenues by geographic region for the quarter and six months ended June 30, 2011 and 2010, based upon where our projects are being executed, were as follows:


	Quarter Ended June 30,										Six Months Ended June 30,
	2011		2010		$ Change			% Change			2011		2010		$ Change			% Change
Africa	$	27,081	$	36,526	$	(9,445	)		(25.9	)%	$	82,001	$	71,261	$	10,740			15.1	%
Asia		163,900		172,137		(8,237	)		(4.8	)%		282,598		359,408		(76,810	)		(21.4	)%
Australasia and and other ^*		308,363		271,273		37,090			13.7	%		548,384		524,135		24,249			4.6	%
Europe		121,183		164,955		(43,772	)		(26.5	)%		234,559		306,762		(72,203	)		(23.5	)%
Middle East		43,972		50,654		(6,682	)		(13.2	)%		104,903		121,194		(16,291	)		(13.4	)%
North America		166,409		94,315		72,094			76.4	%		347,746		153,861		193,885			126.0	%
South America		61,172		52,601		8,571			16.3	%		115,632		85,524		30,108			35.2	%

Total	$	892,080	$	842,461	$	49,619			5.9	%	$	1,715,823	$	1,622,145	$	93,678			5.8	%


*		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 second quarter of 2011, compared to the same period in 2010. The increase in the period was primarily driven by increased flow-through revenues of $138,600. Excluding flow-through revenues and foreign currency fluctuations, our Global E&C Group’s operating revenues decreased 26% in the second quarter of 2011, compared to the same period in 2010.

Our Global E&C Group experienced an increase in operating revenues of 6% in the first six months of 2011, compared to the same period in 2010. The increase in the period was primarily driven by increased flow-through revenues of $237,800. Excluding flow-through revenues and foreign currency fluctuations, our Global E&C Group’s operating revenues decreased 21% in the first six 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 Group’s market outlook.

The decrease in our Global E&C Group’s EBITDA in the second quarter of 2011, compared to the same period in 2010, resulted primarily from the net impact of the following:

	•		Decreased contract profit of $27,000, which primarily resulted from decreased volume of operating revenues, excluding flow-through revenues, and, to a lesser extent, decreased contract profit margins.

	•		Increased sales pursuit costs of $4,700 driven by increased new proposal activity.

	•		Decreased equity earnings of $1,600 related to two of our Global E&C Group’s projects in Italy that terminated their power off-take agreements with a local energy authority during the fourth quarter of 2010. Please see below for further details.

	•		A favorable impact of $2,800 related to the change in net foreign exchange transactions, which was primarily driven by 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.

The decrease in our Global E&C Group’s EBITDA in the first six months of 2011, compared to the same period in 2010, resulted primarily from the net impact of the following:

	•		Decreased contract profit of $71,800, excluding the impact of a curtailment gain recognized in the first six months of 2010 related to our U.K. defined benefit pension plan noted below, which primarily resulted from decreased contract profit margins and decreased volume of operating revenues, excluding flow-through revenues.

	•		The unfavorable impact of the inclusion of a $20,100 curtailment gain recognized in the first six 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.

	•		Increased sales pursuit costs of $6,900 driven by increased new proposal activity.

	•		Decreased equity earnings of $2,600 related to two of our Global E&C Group’s projects in Italy that terminated their power off-take agreements with a local energy authority during the fourth quarter of 2010. Please see below for further details.

•

A favorable impact of $9,000 related to the change in net foreign exchange transactions, which was primarily driven by 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. Following the termination of the power off-take agreement, we and our partner in CEF decided to continue to operate the CEF plant at least temporarily on a merchant basis while we considered a possible sale of the plant in 2011. As a result of the foregoing operating decisions, CET and CEF recorded impairment charges during the fourth quarter of 2010 to write down their fixed assets to fair value in their financial statements. Additionally, during the fourth quarter of 2010, our investments in CET and CEF were reduced by equity losses based on CET and CEF’s 2010 financial results, 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 CET and CEF investments during the quarter and six months ended June 30, 2011 totaled $200 for both periods, which included the impairment charge for CEF. Our equity earnings from our CET and CEF investments during the quarter and six months ended June 30, 2010 totaled $1,800 and $2,800, 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 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 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.

As the global economy has started to recover, we have noted signs of market improvement. During 2010 and the first half of 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 2011 and into 2012.

In addition, we believe world demand for energy, chemicals and pharmaceuticals 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 major project management consultancy contract for a refinery upgrade project in South America, a front-end engineering and design, or FEED, contract for a new refinery in Venezuela, an engineering, procurement and construction management, or EPCm, contract for a chemicals project in Europe, a contract for services for a mining and metals client in South America, an EPCm contract for a chemicals facility in Asia, a feasibility study contract for a gas-to-liquids facility in Canada, an EPCm contract for a chemicals project for a long-standing client in Africa, an EPCm contract for a refinery in Africa, an engineering and material supply contract for delayed coker heaters in Asia and Russia, a delayed coker process design package and license in Asia and a FEED contract for a refinery upgrade in North America. 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


	Quarter Ended June 30,									Six Months Ended June 30,
	2011		2010		$ Change		% Change			2011		2010		$ Change		% Change
Operating revenues	$	291,798	$	163,035	$	128,763		79.0	%	$	504,307	$	328,924	$	175,383		53.3	%

EBITDA	$	67,735	$	26,396	$	41,339		156.6	%	$	94,199	$	56,279	$	37,920		67.4	%

Results

Our Global Power Group’s operating revenues by geographic region for the quarter and six months ended June 30, 2011 and 2010, based upon where our projects are being executed, were as follows:


	Quarter Ended June 30,										Six Months Ended June 30,
	2011		2010		$ Change			% Change			2011		2010		$ Change			% Change
Africa	$	882	$	—	$	882			N/M		$	882	$	33	$	849			2572.7	%
Asia		65,464		36,447		29,017			79.6	%		135,081		61,807		73,274			118.6	%
Australasia and other ^*		6		—		6			N/M			6		2		4			200.0	%
Europe		126,933		58,484		68,449			117.0	%		201,185		116,587		84,598			72.6	%
Middle East		11,839		861		10,978			1275.0	%		20,741		4,244		16,497			388.7	%
North America		78,867		56,604		22,263			39.3	%		131,148		124,107		7,041			5.7	%
South America		7,807		10,639		(2,832	)		(26.6	)%		15,264		22,144		(6,880	)		(31.1	)%

Total	$	291,798	$	163,035	$	128,763			79.0	%	$	504,307	$	328,924	$	175,383			53.3	%


*		Australasia and other primarily represents Australia, New Zealand and the Pacific Islands.

N/M—Not meaningful

Our Global Power Group experienced significant increases in operating revenues in the quarter and six months ended June 30, 2011, compared to the same periods in 2010. The increases in both periods were primarily attributable to an increased volume of business, with an additional favorable impact from foreign currency fluctuations. Excluding foreign currency fluctuations, our Global Power Group’s operating revenues increased 65% and 46% in the quarter and six months ended June 30, 2011, respectively, compared to the same periods in 2010. Please refer to the “—Overview of Segment” section below for a discussion of our Global Power Group’s market outlook.

The increase in our Global Power Group’s EBITDA in the second quarter of 2011, compared to the same period in 2010, resulted primarily from the net impact of the following:

	•		Increased contract profit of $33,800, primarily driven by the increased volume of operating revenues, while contract profit margins were relatively unchanged.

	•		An increase in equity earnings in our Global Power Group’s project in Chile of $11,600. As a result of the February 2010 earthquake, our Global Power Group’s project in Chile was not operating from the date of the earthquake and the project did not begin to record its estimated recovery under its business interruption insurance policy for lost profits until the third quarter of 2010. Please see below for further discussion.

The increase in our Global Power Group’s EBITDA in the first six months of 2011, compared to the same period in 2010, resulted primarily from the net impact of the following:

	•		Increased contract profit of $24,600, primarily driven by the increased volume of operating revenues, partially offset by decreased contract profit margins, including the impact of an out-of-period correction recorded in the first quarter of 2011 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”.

	•		An increase in equity earnings in our Global Power Group’s project in Chile of $18,700. As a result of the February 2010 earthquake, our Global Power Group’s project in Chile was not operating from the date of the earthquake and the project did not begin to record its estimated recovery under its business interruption insurance policy for lost profits until the third quarter of 2010. The increase in equity earnings also include an additional benefit from higher marginal rates for electrical power generation included in the project’s business interruption insurance recovery when comparing the period in 2011 to the corresponding period in 2010 that was prior to the earthquake. 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 Group’s project in Chile. As a result of the damage, the project’s facility suspended normal operating activities on that date. The project included an estimated recovery under its business interruption insurance policy in its financial statements, which covers through the period while the facility suspended normal operating activities. In accordance with authoritative accounting guidance on business interruption insurance, the project recorded an estimated recovery for lost profits as substantially all contingencies related to the insurance claim had been resolved as of the third quarter of 2010. The facility began operating at less than normal utilization during the second quarter of 2011 and continues to progress with the expectation of achieving normal operating activities in the third quarter of 2011. Our equity earnings from our project in Chile were $11,600 and $21,500 during the quarter and six months ended June 30, 2011, respectively. Our equity earnings from our project in Chile were $2,800 during the six months ended June 30, 2010, while our equity earnings during the quarter ended June 30, 2010 were insignificant.

Overview of Segment

Our Global Power Group designs, manufactures and erects steam generators and auxiliary equipment for electric power generating stations, district heating and power plants and industrial facilities worldwide. Our competitive differentiation in serving these markets is the ability of our products to cleanly and efficiently burn a wide range of fuels, singularly or in combination. In particular, our CFB steam generators are able to burn coals of varying quality, as well as petroleum coke, lignite, municipal waste, waste wood, biomass, and numerous other materials. Among these fuel sources, coal is the most widely used, and thus the market drivers and constraints associated with coal strongly affect the steam generator market and our Global Power Group’s business. Additionally, our Global Power Group owns and/or operates several cogeneration, independent power production and waste-to-energy facilities, as well as power generation facilities for the process and petrochemical industries.

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 2010 and the beginning of 2011, we have seen increased new proposal activity and an improvement in the demand in some markets for the products and services of our Global Power Group. We believe this demand will continue in Asia, the Middle East and Eastern Europe, driven primarily by growing electricity demand and industrial production as economies around the world continue to recover.

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 Japan’s 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 Group’s 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.

We are currently executing an engineering and supply project for 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

Cash Flows Activities

Our cash and cash equivalents and restricted cash balances were:


	As of
	June 30, 2011		December 31, 2010		$ Change			% Change
Cash and cash equivalents	$	1,037,233	$	1,057,163	$	(19,930	)		(1.9	)%
Restricted cash		41,035		27,502		13,533			49.2	%

Total	$	1,078,268	$	1,084,665	$	(6,397	)		(0.6	)%

Total cash and cash equivalents and restricted cash held by our non-U.S. entities as of June 30, 2011 and December 31, 2010 were $950,400 and $849,500, respectively.

During the first six months of 2011, we experienced a decrease in cash and cash equivalents of $19,900, primarily as a result of cash used to repurchase our shares and to pay related commissions under our share repurchase program of $160,100, capital expenditures of $17,300 and a change in restricted cash, excluding currency, of $12,100, significantly offset by cash provided by operating activities of $139,000 and a favorable impact related to exchange rate changes on our cash and cash equivalents of $33,200.

Cash Flows from Operating Activities


	Six Months Ended June 30,
	2011		2010		$ Change		% Change
Net cash provided by operating activities	$	138,964	$	51,325	$	87,639		170.8	%

Net cash provided by operating activities in the first six months of 2011 primarily resulted from cash provided by net income of $141,600, which excludes non-cash charges of $48,500, and working capital of $24,200, partially offset by cash used for net asbestos-related payments of $20,500 (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 $8,500.

The increase in net cash provided by operating activities of $87,600 in the first six 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 $112,900 and decreased contributions to our non-U.S. pension plans of $20,700, partially offset by decreased cash provided by net income of $37,500 and increased net asbestos-related payments of $13,900.

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 first six months of 2011, as cash receipts from client billings exceeded cash used for services rendered and purchases of materials and equipment. During the first six months of 2010, we used cash to fund working capital. The increase in cash provided by working capital during the first six months of 2011 was primarily driven by the conversion of working capital to cash by our Global E&C Group and, to a lesser extent, our Global Power Group.

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


	Six Months Ended June 30,
	2011			2010			$ Change			% Change
Net cash used in investing activities	$	(28,059	)	$	(4,248	)	$	(23,811	)		560.5	%

The net cash used in investing activities in the first six months of 2011 was attributable primarily to capital expenditures of $17,300 and an increase in restricted cash of $12,100.

The net cash used in investing activities in the first six months of 2010 was attributable primarily to capital expenditures of $9,400 and a contractual payment of $1,200 related to a prior acquisition of a business, partially offset by cash provided by a decrease in restricted cash of $3,300 and return of investment from unconsolidated affiliates of $3,200.

The capital expenditures in the first six months of 2011 and 2010 related primarily to project construction, leasehold improvements, information technology equipment and office equipment. Our capital expenditures increased $7,900 in the first six 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


	Six Months Ended June 30,
	2011			2010			$ Change			% Change
Net cash used in financing activities	$	(164,083	)	$	(12,383	)	$	(151,700	)		1225.1	%

The net cash used in financing activities in the first six months of 2011 was attributable primarily to the cash used to repurchase shares and to pay related commissions under our share repurchase program of $160,100. Other financing activities included cash provided from exercises of stock options of $11,800, partially offset by cash used for distributions to noncontrolling interests of $8,700.

The net cash used in financing activities in the first six months of 2010 was attributable primarily to the repayment of short-term and long-term project debt and capital lease obligations of $9,900 and distributions to noncontrolling interests of $7,300, partially offset by cash provided from exercises of stock options of $2,600 and proceeds from the issuance of new short-term debt of $2,200.

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 net asbestos-related payments. 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.

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.

Our net asbestos-related payments are the result of asbestos liability indemnity and defense costs payments in excess of insurance settlement proceeds. During the first six months of 2011, we had net asbestos-related cash outflows of approximately $20,500. We expect the 2011 full year net cash outflows to be approximately $5,700. 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 Moody’s Investors Service, which we refer to as Moody’s, and/or Standard & Poor’s, which we refer to as S&P. We received a corporate credit rating of BBB- as issued by S&P during 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 over the next 12 months. 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 Moody’s is at least Baa3 and as issued by S&P is at least BBB-, all liens securing our obligations under the amended and restated U.S. senior secured credit agreement will be automatically released and terminated.

We had approximately $307,700 and $310,100 of letters of credit outstanding under our U.S. senior secured credit agreement as of June 30, 2011 and December 31, 2010, respectively. There were no funded borrowings under our U.S. senior secured credit agreement outstanding as of June 30, 2011 and December 31, 2010. We do not intend to borrow under our U.S. senior secured credit facility over the next 12 months. Please refer to Note 5 to the consolidated financial statements in this quarterly report on Form 10-Q for further information regarding our debt obligations.

On February 27, 2010, an earthquake occurred off the coast of Chile that caused significant damage to our unconsolidated affiliate’s facility in Chile. As a result of the damage, the project’s 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 suspended normal operating activities. Our unconsolidated affiliate’s receivable related to the remaining balance under their property damage and business interruption insurance recovery assessment was approximately $59,800 as of June 30, 2011. The facility began operating at less than normal utilization during the second quarter of 2011 and continues to progress with the expectation of achieving normal operating activities in the third quarter of 2011.

We are not required to make any mandatory contributions to our U.S. pension plans in 2011 based on the minimum statutory funding requirements. We made mandatory contributions totaling approximately $8,500 to our non-U.S. pension plans during the first six months of 2011. Based on the minimum statutory funding requirements for 2011, we expect to make mandatory contributions totaling approximately $19,000 to our non-U.S. pension plans for the full year. Additionally, we may elect to make discretionary contributions to our U.S. and/or non-U.S. pension plans during 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 June 30, 2011, we are authorized to repurchase up to an additional $340,600 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 June 30, 2011, we have repurchased 27,126,980 shares for an aggregate cost of approximately $744,400. 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.

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


	June 30, 2011						June 30, 2010
	Global		Global				Global		Global
	E&C		Power				E&C		Power
	Group		Group		Total		Group		Group		Total
By Project Location:
Quarter Ended
North America	$	81,100	$	51,900	$	133,000	$	229,600	$	34,100	$	263,700
South America		156,500		9,200		165,700		26,700		5,000		31,700
Europe		112,400		46,700		159,100		139,900		79,400		219,300
Asia		219,500		468,000		687,500		159,500		46,000		205,500
Middle East		29,400		100		29,500		106,200		300		106,500
Africa		5,700		100		5,800		74,400		—		74,400
Australasia and other ^*		60,300		—		60,300		34,500		—		34,500


Total	$	664,900	$	576,000	$	1,240,900	$	770,800	$	164,800	$	935,600


Six Months Ended
North America	$	165,100	$	134,500	$	299,600	$	290,500	$	105,800	$	396,300
South America		225,600		13,100		238,700		52,800		8,000		60,800
Europe		262,900		77,800		340,700		227,300		416,200		643,500
Asia		303,700		480,400		784,100		249,900		96,600		346,500
Middle East		55,600		8,100		63,700		161,500		300		161,800
Africa		53,200		5,800		59,000		230,600		100		230,700
Australasia and other ^*		318,600		—		318,600		34,500		—		34,500


Total	$	1,384,700	$	719,700	$	2,104,400	$	1,247,100	$	627,000	$	1,874,100


By Industry:
Quarter Ended
Power generation	$	4,900	$	545,600	$	550,500	$	16,700	$	138,000	$	154,700
Oil refining		483,600		—		483,600		499,600		—		499,600
Pharmaceutical		17,700		—		17,700		21,900		—		21,900
Oil and gas		73,900		—		73,900		90,300		—		90,300
Chemical/petrochemical		74,900		—		74,900		128,000		—		128,000
Power plant operation and maintenance		3,800		30,400		34,200		—		26,800		26,800
Environmental		1,600		—		1,600		3,200		—		3,200
Other, net of eliminations		4,500		—		4,500		11,100		—		11,100


Total	$	664,900	$	576,000	$	1,240,900	$	770,800	$	164,800	$	935,600


Six Months Ended
Power generation	$	8,200	$	667,400	$	675,600	$	24,000	$	575,800	$	599,800
Oil refining		807,500		—		807,500		708,300		—		708,300
Pharmaceutical		25,600		—		25,600		31,900		—		31,900
Oil and gas		350,400		—		350,400		176,300		—		176,300
Chemical/petrochemical		162,500		—		162,500		281,000		—		281,000
Power plant operation and maintenance		9,000		52,300		61,300		—		51,200		51,200
Environmental		3,200		—		3,200		9,500		—		9,500
Other, net of eliminations		18,300		—		18,300		16,100		—		16,100


Total	$	1,384,700	$	719,700	$	2,104,400	$	1,247,100	$	627,000	$	1,874,100


*		Australasia and other primarily represents Australia, New Zealand and the Pacific Islands.

Backlog, Measured in Terms of Future Revenues


	As of June 30, 2011						As of December 31, 2010
	Global		Global				Global		Global
	E&C		Power				E&C		Power
	Group		Group		Total		Group		Group		Total

By Contract Type:
Lump-sum turnkey	$	—	$	322,200	$	322,200	$	—	$	424,400	$	424,400
Other fixed-price		712,500		920,200		1,632,700		779,800		555,800		1,335,600
Reimbursable		1,920,300		46,200		1,966,500		2,157,900		61,600		2,219,500


Total	$	2,632,800	$	1,288,600	$	3,921,400	$	2,937,700	$	1,041,800	$	3,979,500


By Project Location:
North America	$	429,300	$	181,000	$	610,300	$	620,900	$	189,500	$	810,400
South America		513,100		27,800		540,900		389,200		30,400		419,600
Europe		435,900		433,700		869,600		382,500		517,800		900,300
Asia		475,200		616,500		1,091,700		481,200		269,300		750,500
Middle East		225,400		24,500		249,900		266,900		34,800		301,700
Africa		128,700		5,100		133,800		174,400		—		174,400
Australasia and other ^*		425,200		—		425,200		622,600		—		622,600


Total	$	2,632,800	$	1,288,600	$	3,921,400	$	2,937,700	$	1,041,800	$	3,979,500


By Industry:
Power generation	$	10,500	$	1,177,600	$	1,188,100	$	15,100	$	929,300	$	944,400
Oil refining		1,779,300		—		1,779,300		1,726,200		—		1,726,200
Pharmaceutical		40,400		—		40,400		39,800		—		39,800
Oil and gas		571,000		—		571,000		793,800		—		793,800
Chemical/petrochemical		205,600		—		205,600		331,800		200		332,000
Power plant operations and maintenance		—		111,000		111,000		—		112,300		112,300
Environmental		6,100		—		6,100		8,500		—		8,500
Other, net of eliminations		19,900		—		19,900		22,500		—		22,500


Total	$	2,632,800	$	1,288,600	$	3,921,400	$	2,937,700	$	1,041,800	$	3,979,500


Backlog, measured in terms of Foster Wheeler Scope	$	1,647,900	$	1,278,700	$	2,926,600	$	1,611,300	$	1,031,900	$	2,643,200


E & C Man-hours in Backlog (in thousands)		12,400				12,400		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 $149,100 and $119,800, respectively, as of June 30, 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 first six months of 2011.

Accounting Developments

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. (“ASU”) 2011-05, “Comprehensive Income.” ASU 2011-05 amends existing guidance in order to increase the prominence of items reported in other comprehensive income and eliminates the option to present components of other comprehensive income as part of the statement of changes in equity, the presentation format that we currently employ. Under ASU 2011-05, all non-owner changes in equity are required to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. For public companies, ASU 2011-05 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011. Although we have not yet determined the manner of presentation that we will select, the adoption of this standard, beginning with our consolidated financial statements included in our quarterly report on Form 10-Q for the quarter ending March 31, 2012, will not have a material impact on our results of operation or financial position.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the first six months of 2011, there were no material changes in the market risks as described in our annual report on Form 10-K for the 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 SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, our 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 June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 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).

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. On July 20, 2011, the cancellation of shares was registered with the commercial register of the Canton of Zug in Switzerland. 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 June 30, 2011, we are authorized to repurchase up to an additional $340,600 of our outstanding shares. The following table provides information with respect to purchases under our share repurchase program during the second 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

April 1, 2011 through April 30, 2011		312,200	$	34.57		312,200
May 1, 2011 through May 31, 2011		2,755,284		34.16		2,755,284
June 1, 2011 through June 30, 2011		788,363		32.83		788,363


Total		3,855,847	$	33.92		3,855,847	⁽²⁾	$	340,600


(1)		During the second quarter of 2011, we repurchased an aggregate of 3,855,847 shares in open market transactions pursuant to our share repurchase program. We are authorized to repurchase up to an additional $340,600 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 June 30, 2011, an aggregate of 27,126,980 shares were purchased for a total of $744,400 since the inception of the repurchase program announced on September 12, 2008.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit No.		Exhibits

3.1		Articles of Association of Foster Wheeler AG. (Filed as Exhibit 3.1 to Foster Wheeler AG’s Form 8-K, dated February 6, 2009 and filed on February 9, 2009, and incorporated herein by reference.)
3.2		Organizational Regulations of Foster Wheeler AG. (Filed as Exhibit 3.2 to Foster Wheeler AG’s Form 8-K, dated February 6, 2009 and filed on February 9, 2009, and incorporated herein by reference.)
4.0		Foster Wheeler AG hereby agrees to furnish copies of instruments defining the rights of holders of long-term debt of Foster Wheeler AG and its consolidated subsidiaries to the Commission upon request.
10.1*		Employment agreement between Foster Wheeler Inc. and J. Kent Masters, dated July 21, 2011. (Filed as Exhibit 10.1 to Foster Wheeler AG’s Form 8-K, dated July 19, 2011 and filed on July 25, 2011, and incorporated herein by reference.)
10.2*		Fourth Amendment to the Employment Agreement between Foster Wheeler Inc. and Umberto della Sala, dated July 20, 2011. (Filed as Exhibit 10.2 to Foster Wheeler AG’s Form 8-K, dated July 19, 2011 and filed on July 25, 2011, and incorporated herein by reference.)
10.3*		Third Amendment to the Employment Agreement, dated as of April 12, 2011, between Foster Wheeler North America Corp. and Gary Nedelka.
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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	FOSTER WHEELER AG (Registrant)
Date: August 4, 2011	/s/ Umberto della Sala
	Umberto della Sala
	Interim Chief Executive Officer, President and Chief Operating Officer


Date: August 4, 2011	/s/ Franco Baseotto
	Franco Baseotto
	Executive Vice President, Chief Financial Officer and Treasurer